3Buchanan’s central place in the formation of public choice needs little elaboration. Yet the pivotal place of The Calculus of Consent is perhaps less obvious. Its publication marked the beginning of the public choice research program (Johnson, 2014), and even served as an advertisement for the University of Virginia and the Thomas Jefferson Center (Wagner, 2004). Medema (2000) also locates it at public choice’s inception point, “Buchanan and Tullock were very much responsible for the institutionalization of the field, and their efforts on this score were largely derivative of the reception accorded to The Calculus.” Thus Knight’s presence on the campus in 1958, and his lectures, serve not only as potential influence on a primary figure (Buchanan), but take place at a seminal moment as well. The Committee for the Analysis of Nonmarket Decision-Making was formed in 1963. In October 1963, the first meeting of what would become The Public Choice Society (then the Conference on Nonmarket Decision-Making) was held at The University of Virginia. By 1966 and ‘67 the conference meetings became more national, being held in New York City and Chicago, respectively.

1. The Open Future

5Knight characterized the medieval period as one of largely fixed values, where one’s decision-option was not how to improve inherited norms, but simply how and whether to conform to them (see Knight and Merriam, 1945). The staid acceptance of the past, in Knight’s narrative, changes, beginning with the Renaissance, when ecclesiastic power gave way to power resident in the new states. Knight viewed the newer power as “not as opposed to change, as dogmatic, as the ecclesiastical order” (Knight, 1960, 59). This shift gained scope and impetus by the time of the Enlightenment. And it was paralleled by scientific advancement:

The new picture of the solar system might almost be called negligible in comparison with the radical change in the conception of Truth itself. The previous idea that all humanly relevant knowledge had been given once and for all, by revelation, gave place to the antithetical view of it as progressive, subject to constant revision, through free investigation, discussion, and publication. (Ibid., 62; emphasis in original)

6Knight provides an extended discussion of history, recurring in various forms throughout the lectures. Indeed, the frequency of recurrence is intended to bring us to a consideration of the uniqueness of the modern individual’s situation. In the Enlightenment, individuals realized that their future outcomes could be influenced by their present actions. That is, rather than the ancient creed that the world remained “as it was in the beginning, is now, and ever shall be, world without end,” moderns believed that our actions determine the world we will live in. The optimistic version of that belief saw freedom as the sole prerequisite for progress. Knight was not so confident, having lived through the aftermath of the Civil War, spending his college years studying rather than fighting the war to end all wars, and then watching the world torn apart again twenty years later. For him, the future might involve progress, but it is not predetermined. “Intelligent control of the future course of history is the problem, and action is constantly being taken to that end, if indeed it is not the nature of all social action undertaken” (Ibid., 150; emphasis in original). The future remains open-ended, and may yield improvement, or not. Placing this basic insight at the center of his thought moves Knight’s economics in some surprising directions.

• 6 The divergence between “old” and “new” Chicago is underlined here; the Stigler-Becker “De Gustibus (...)

We cannot accept want-satisfaction as a final criterion of value because we do not in fact regard our wants as final; instead of resting in the view that there is no disputing about tastes, we dispute about them more than anything else; our most difficult problem in valuation is the evaluation of our wants themselves and our most troublesome want is the desire for wants of the “right” kind. (Knight, [1923] 1935, 580)6

8These seemingly obvious points are in fact antithetical to much traditional economic thinking. The notion of equilibrium, as focused on knowns, becomes of minor importance. And for social questions, static analysis of almost any kind becomes vulnerable to being based on assumptions that Knight viewed as invalid. Knight is concerned with the search for what we desire to maximize in the first place—actually maximizing anything is very much a secondary concern. Thus, he turns Lionel Robbins’s strictures on their head. Knight was critical of his friend’s formulation; he does not feel that our preferences are well-ordered because in the context of the search for new and better wants that order is always in flux. Buchanan will accept this formulation and conclusion, and build on it in a distinctive way.

In one sense, the theory of choice presents a paradox. If the utility function of the choosing agent is fully defined in advance choice becomes purely mechanical. No “decision”, as such, is required; there is no weighing of alternatives. On the other hand, if the utility function is not wholly defined, choice becomes real, and decisions become unpredictable mental events. (Buchanan, 1964, 216-217; emphasis added)

10The specificity of goals is rejected by Buchanan on the societal as well as the individual level. Discussing welfare economics in The Calculus of Consent, Buchanan outlines that approach:

• 8 For an examination of Buchanan’s view of public goods and the social welfare function, see Desmarai (...)

One approach recognizes that definitive meaning can be attached to “social welfare” or the “public interest” only if a social-welfare function is fully described. … However, in order to describe this function, some individual must make quite explicit his own value judgments. There is no escape from the responsibility of individual ethical decision. In this construction the “public interest” is what the individual says it is. We have rejected this approach. (Buchanan and Tullock, 1962, 284-285)8

11Both prongs of Buchanan’s analysis—the individual and the social—insist that the roadmap into the future is not to be assumed. Assumptions for Buchanan are frequently a negative force in economics. Assumptions not only lead astray; they cloud the center of the discipline itself.

A market is not competitive by assumption or by construction. A market becomes competitive, and competitive rules come to be established as institutions emerge to place limits on individual behavior patterns. It is this becoming process, brought about by the continuous pressure of human behavior in exchange, that is the central part of our disincline, if we have one…. (Buchanan, 1964, 218)

12Buchanan (and Knight’s) attention to assumptions generates a number of insights critical to public choice theorists. Public choice generally criticizes the assumption of governmental correction or oversight of the market as being superior to the market itself. Buchanan admits the potential usefulness of economics as prediction, but argues that when those predictions are falsified, the implied need for “correction” is misplaced. The model of homo economicus is largely justified, yet to use it as part of an argument to illustrate market failure, is to rely on it too much. In Cost and Choice, he follows Knight’s suggestion that if Smith’s deer and beaver ratio were to be falsified—that is, if the actual exchange value failed to match the “time cost” of procurement—then the obvious conclusion is that some non-economic consideration came into play: the enjoyableness of hunting deer, for instance. Buchanan’s lesson from this is that when examining outcomes, the “logical” view must supersede the predictive one. We have to trust, not the absolute assumption of economic man, but instead trust the market process itself. The goal, here and in his political analysis generally, can only come out of free choices; we can’t work backwards from goals to criticize subjective preferences. We must keep the proper direction of analysis in place: from process to an open future, not backwards from a given future to process. Much in public choice, from translation of voter preference to coalition-formation to rent-seeking, relies on this sense of an undetermined future, and what the dynamics of traveling towards it look like.

I am trying to develop this argument for a purpose, which is one of demonstrating that modern economic theory forces upon us patterns of thought that make elementary recognition of the whole “becoming” part of our behavior very difficult to analyze and easy to neglect. (Ibid., 247)

14Buchanan explicitly credits Knight’s argument about wants. “Wants … not only are unstable, … it is their essential nature to change and grow; ….The chief thing which the common-sense individual actually wants is not satisfaction of the wants which he has, but more, and better wants” (Knight, [1922] 1935, 458). Buchanan does acknowledge the limitations on this impulse to change, which are “historical, geographic, cultural, physical, genetic, sexual” (Buchanan, [1978] 1999, 250). Yet within those limits possibilities exist. This emphasis has implications for economics: “Nonetheless, the prospects of becoming are sufficient to channel action, to divert resources away from the automatic routine that utility maximization, as normally presented, seems to embody” (Ibid., 251).

If man can envisage himself as a product of his own making, as embodying prospects for changing himself into one of the imagined possibilities that he might be, it becomes relatively easy for him to envisage changing the basic rules of social order in the direction of imagined good societies. (Ibid., 258)

2. The Game and its Rules

the competitive economic life has value implications on the production side, the most notable of which is its appeal as a competitive game.

Knight (The Ethics of Competition)

17The degree to which Knight utilizes the game metaphor is probably already clear to the reader of this paper. Nonetheless, before moving to Buchanan’s usage, a brief recapitulation might be in order. Knight reiterates in a number of different essays that the point of economic activity is not so much the material gains on offer. Once past the survival stage, the process becomes attractive much in the way that playing a game is. This links to the overall theme of the open future; part of the allure of the game is the uncertainty, the working out of the game.

And the social interest, which is the concern of the social scientist, is precisely the interest in keeping up the game, preventing it from deteriorating, and beyond that in making it a still better game. From the social point of view, the question of who is to win does not and cannot arise…. (Knight, 1935, 302, emphasis added)

18Knight believed that we were beginning to care too much who won, and not enough about preserving “play of game”. He also thought that power tended to accumulate over time in the hands of the few, and that this alone could fatally unbalance the game, and predetermine outcomes. However, Knight doesn’t surrender his hold on the idea of progress, which is “the real social problem” (Ibid., 303). This idea displays significant continuity in Knight’s thought; the above quote is strikingly parallel to wording and concerns in his 1960 lectures.

21There are two issues that Buchanan sees in Knight, around which he tries to navigate. One is the fact of political decision-making as “distorted” by self-interest. Knight’s particular spin on this is to see it as a striving for power, and this striving, once the scales begin to tip, delivers a more and more lopsided distribution of that power. Buchanan views it as simple self-interest at work, and Tullock and others will expand and refine that into the concept of rent-seeking (Tullock, 1967).

22The second problem is that of agreement itself. Knight provides lengthy lists of what problems impede agreement. Agreement achieved by any standard that Knight approves of appears virtually impossible. Buchanan, however, takes the idea of rules, and sees them potentially not as laws—subject to all the problems Knight enumerates—but as meta-laws: constitutional rules. Realizing that he cannot “solve” Knight’s problems, Buchanan finds a way to circumvent them. And yet this innovation was in Knight all along, simply conceived slightly differently. There is a dramatic divide between rules and the playing of the game in Knight that is more of a divide than that between legislation and economic practice. Buchanan recognized how wide that divide was, and what implications could follow. Legislation can in fact be highly particularized and targeted quite specifically. Laws are more like making up the rules of the game while we play. Constitutional considerations are the pre-agreed rulebook; they operate on a more abstract plane than does day-to-day lawmaking. This abstraction has several advantages, but primarily it clouds the self-interest impulse, making it more difficult to see where that interest actually leads. And obscuring self-interest allows greater influence available to public interest, however one wishes to define that. Buchanan makes a fairly startling claim:

At the constitutional level, identifiable self-interest is not present in terms of external characteristics. The self-interest of the individual participant at this level leads him to take a position as a “representative” or “randomly distributed” participant in the succession of collective choice anticipated. Therefore, he may tend to act, from self-interest, as if he were choosing the best set of rules for the social group. Here the purely selfish individual and the purely altruistic individual may be indistinguishable in their behavior. (Buchanan and Tullock, 1962, 96)

23This emphatic assessment is in high contrast to Knight, yet it is a contrast more for its complete reversal of tone (optimism) than it is conceptually distinct. Buchanan feels headway can be made through situational differences, which in themselves shift perspective and relative valuations. Buchanan argues that considering (constitutional) rules that are much more general and abstract does produce a meaningful perspectival shift. Knight’s distinction between making rules and playing the game is the key to gaining this situational/perspectival change.

Moreover, constitutional details are of secondary importance. The legal framework of any existing formally democratic, responsible, government, is fairly adequate, if intelligently used—without any revolution or major change not provided for in the constitution itself. (Ibid., 152)

25This is all before Buchanan planted his constitutional flag, as it were. We can only imagine the discussion that might or might not have taken place between them as Buchanan’s program developed.

26Knight’s formulations differ from Buchanan’s in an additional fundamental emphasis. Buchanan more fully abstracts the exchange moment itself; he makes that isolated moment a type of model. It represents a highly applicable example of non-coercion. Knight shares the sentiment linking markets and freedom. Yet when discussing actual economic, and especially political, practice, Knight frequently chooses to discuss power imbalances, and the human urge for that power as motivational. Thus, he immediately jumps to more real-world problems, such as agreement and delegation. Buchanan, however, focuses on the moment of exchange as a kernel of non-coercion, and extrapolates from it. Surely groups, under certain circumstances, work out what could be called an exchange? Why, then, can’t this be an abstracted version of government, a model? It is interesting to remember that this element of abstraction, of model building, is exactly what many reviewers of Calculus (and of other economics-based studies of politics) objected to at the time. Mathews, in reviewing Riker’s The Theory of Political Coalitions, cautioned “The realism and utility of models are a function, in part, of their inventors’ prior understanding of how the real world operates. Do we know enough about politics to construct useful models now? Or do we need more and better empirical studies first?” In reviewing Calculus, Vines argued that its authors evinced little "political awareness”, and that it "derives general propositions about politics according to economic theory but largely outside the political context” (quotations from Medema, 2000). Even positive reviews (here Sydney Ulmer’s) thought that Calculus’s authors “assumed too hastily that the explicit and implicit assumptions of economic behavior can be carried over to political behavior. The extent to which this can be done with each and every such assumption is a matter to be determined by testable, empirical consequences” (Ulmer, 1963). These criticisms hint at the nature of Buchanan’s and Tullock’s innovation, at once both a simplification, and advance, away from Knight.

27A final application of the notion of rules vs. play-of-the-game lies in considerations of fairness for future generations. In short, this means for Buchanan that we should strive for an equal start to the race. This issue in its many dimensions deeply concerned both Knight and Buchanan. Buchanan is unusual in his adamant objection to inheritance. Knight feels this issue strongly as well: “Particularly offensive to individualistic ideals is the unequal start in life that results from inheritance” (Knight, 1960, 160). There is for Knight an “ideal of no inherited inequality”:

Recalling that individualism really means familism, this tendency does not cease to operate with the lives of any generation of acting individuals. Inequalities achieved—or resulting from good or bad “luck,” which is a major factor and very hard to deal with or discuss—are passed on to the next generation. Inheritance of property is a major factor and hardly separable from the private family as an institution, but is by no means the only such factor, and at bottom doubtfully the most important. (Ibid., 119)

28Knight goes on to discuss a concern for the future generally, and how this should constrain government. He considers generations unborn: “we legislate and act for our children, and their children, for the unborn, not merely to adjust conflicts of interest existent at the given time” (Ibid., 40). Students of Buchanan should immediately see how closely this connects with, not only Buchanan’s objection to inheritance, but his objection to debt passed on to future generations as well. Buchanan’s work with Wagner ([1978] 2000) contains an extended treatment on this theme. Again, a focus on the future is key when considering specific economic and moral guidelines.

29Many of Knight’s and Buchanan’s more closely held beliefs resonate around this idea. The notions of unanimity (at least as an ideal), and agreement generally, are violated when the current generation makes decisions adversely affecting future generations. For Knight this sort of action is wrong on its face. But Buchanan sees an opportunity with this issue to drive home the constitutional perspective. Day-to-day legislative activity is not apt to be sufficiently forward-looking. Knight portrays political activity as hobbled by power-seeking, just as economic activity is, but to an even greater extent. Buchanan bypasses this dead-end pessimism through the constitutional option. Buchanan avoids the discussion of power directly, but introduces the negative force of incrementalism. “Political realism suggests the implausibility of achieving reforms at the level of incremental decision-making” (Buchanan, 1975, 153). Constitutional reform circumvents this incremental impasse. As un-Knightian as constitutional emphasis appears to us now, it is firmly anchored in the dual emphases on achieving agreement (ideally unanimity) and on consideration of rules vs. play, two ideas on which Knight and Buchanan deeply concurred.

3. Knight and Public Choice

In a competitive market the participants are free in the true sense, free from arbitrary interference by the power of others. But freedom alone does not solve the social problems. There are other values that must be considered. (Ibid., 112)

33Moreover, Knight perceives the reach of government; we cannot simply roll it back and be free. Government is a problem that needs addressing on its own terms. “At most government is a matter of the dictation of a majority over minorities in whatever political unit we are considering” (Ibid., 115). This inevitably coercive dimension of government figures in The Calculus of Consent as well, notably in the tradeoff diagram between decision costs (the costs of creating winning coalitions) and what they call “external costs”, which are Knight’s costs endured by any losing coalition. These external costs—coercion costs—are inevitable in anything short of unanimity (at which point decision costs would be prohibitive). Though such costs might be reduced by reducing government’s scale, they cannot be eliminated; they therefore represent for Knight an issue that must be faced. We have now transitioned to a more direct grappling with government as possessing its own problem set; we have transitioned to public choice. Knight’s analysis also now sets the characterization of market and government as sharing certain problems, or as containing certain cross-contaminations (“entanglement”, in Richard Wagner’s phrase). Escape requires the introduction of another dimension of analysis. This would be constitutions, or meta-rules. And although Knight didn’t specify such a shift, his unblinking analysis of markets (as well as government) is more in line with the attitudes of public choice (where the ills of government activity are considered unavoidable, and are parsed), and completely distinct from the later Chicago viewpoint represented by Friedman (where it is sufficient to deal with government through its minimization, and the weaknesses of market activity are largely ignored).

34This difference from Friedman, and somewhat closer relation to some dimensions of public choice, seems to link Knight and public choice to an extent. Yet the lack of much actual reference to Knight by public choice scholars indicates some unresolved tension. Another place to look to find the direct rift between Knight and modern public choice is their respective use of, or engagement with, rational actor theory. Amadae defines rational actor theory as the principle behind neoliberalism, and opposes it to classical liberalism.

Liberalism secured a basis for voluntary market exchanges within the context of a night watchman state by arguing that upholding justice is the best means to generate general prosperity, which emerges from individuals’ security of their persons and property, and the freedom to exchange without interference in accordance with their own interests. Neoliberalism remains unable to identify a purchase for justice and common norms of conduct outside of the individual’s maximization of expected utility. (Amadae, 2015, 220)

35Amadae then closes the loop, identifying public choice with this latter view of rational actor theory/neoliberalism: “Both public choice and law and economics have drifted far from classical liberalism, which endorses types of action not reducible to momentary cost-benefit analysis of outcomes” (Ibid., 222). While public choice theorists might debate the harsh divide between these two viewpoints, they would most likely be comfortable with the utility-maximizing tenet she ascribes to the rational actor school. In that theoretical structure, to facilitate analysis, preferences are fixed. This clearly clashes with the open-ended, “becoming” view of preferences outlined above in the work of both Buchanan and Knight.

We wish to thank David Levy, Alain Marciano and two anonymous referees for helpful comments and suggestions. We also want to thank participants at the AEA Meetings in San Diego (2020), where this paper was presented, for a number of probing questions and thoughts.