November, 2007

Did Buchanan and Wagner Misrepresent Keynes?

  • J. Robert Subrick

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James Buchanan and Richard Wagner’s Democracy in Deficit examined the implications of John Maynard Keynes’s economic theories as espoused in The General Theory of Employment, Interest, and Money for fiscal policy. They argued that “the Keynesian theory of economic policy produces inherent biases when applied within the institutions of political democracy”. These biases led to the growth of government that followed the Second World War. They were a direct consequence of the Keynesian revolution and its implication that “what is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation”. In particular, Buchanan and Wagner argued that Keynes and the Keynesians undermined the old-time fiscal religion of balanced budgets and ushered in the era of permanent budget deficits. Bradley Bateman challenges Buchanan and Wagner’s interpretation of Keynes’s views of deficit financing. Bateman argues that “from top to bottom, Buchanan and Wagner get it wrong as regards John Maynard Keynes”. That is, the position they attribute to Keynes is not the one that Keynes held. Keynes did not, says Bateman, advocate deficit financing but rather supported the old-time fiscal religion. Bateman said that instead of writing Keynes into their history of fiscal policy, Buchanan and Wagner appear to have succumbed to that part of their human psyche that makes it natural to look for an evil man or a stupid one upon whom to blame a world that they do not like.

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