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I. INTRODUCTION
Much has been written on James M. Buchanan and the origins of public choice (Backhausand Wagner 2005; Meadowcroft 2011; Medema 2000 and 2011;Wagner 2004). These histories identifyThe Calculus of Consent (1962) and the early 1960s as thebeginning of the public choice research program. But although public choice scholarsand historians have long recognized ties to Chicago, few have examinedChicago’s role in serving as the primordial soup forBuchanan’s later work in public choice. As a result, we know very littleabout the subdiscipline of public finance at Chicago and its institutional andintellectual traditions in the immediate post-war period. Gordon Brady (2007) states that public finance was“not a major research interest at Chicago” in the 1940s, andthe University of Chicago student newspaper described the department as“statisticians and the theorists at the top[,] labor economists andpublic financiers at the bottom” (in Burgin 2007, p. 3). However, what was happening there was animportant piece of the bigger story of post-war public finance. The story of Chicagopublic finance also helps clarify some of the sources of Buchanan’s ideasand emphasizes his originality.
This paper examines Buchanan’s earliest writings within the context ofpublic finance at the University of Chicago in the late 1940s. Training at Chicagomeant something different from training elsewhere, as “those who gothrough graduate training at the University of Chicago … take on the auraof the place” (Buchanan 2007, p.204). Much of the difference has been attributed to the centrality of price theory,though others credit the workshop system or the philosophical orientation of thefaculty (Emmett 2009; Hammond and Hammond2006). Frank Knight’sinfluence on Buchanan has been extensively explored and the relationship betweenprice theory, catallactics, and public choice is generally well understood (Buchanan1987; Wagner 1988, 2008).Instead, I focus on Buchanan’s graduate training in public finance, thegeneral acceptance by ‘Old Chicago School’ economists of theimportance of institutions and institutional design, and a departmental emphasis onproduct differentiation of ideas from those produced by peers at other institutions.While Buchanan maintained a high degree of intellectual affinity with Chicagoeconomics generally, his education provided him with the confidence to breakdecisively with orthodox public finance on several substantive issues early in hiscareer. From the first, Buchanan attempted to reframe the discourse on publicfinance as a quid pro quo relationship, which included a model of government moresophisticated than...