But all that fancy thinking aimed at ending the Great Depression by "making the economy work" was not where Musgrave made his contribution. Instead he went back to the beginning of economics, to Adam Smith, to reexamine the underpinnings of public finance.
Smith had noted that that were certain services that, while highly useful to the individual, could not be undertaken profitably on an individual basis. In certain areas, government would have to take a hand, providing defense, justice, education and various public works such as highways and bridges.
Yet for 150 years after Smith, this focus on governments’ productive contribution was more or less completely ignored by English economists. They focused instead on analyzing the various effects that taxes would have on the "Invisible Hand" of competition. Their subject was "the market." Government entered the picture as a means of redressing "market failure."
....
Meanwhile, of course, as anyone who has followed the politics of the last thiry years knows full well, the pendulum swung back. The preoccupation with market failures that lay at the heart of the two great movements in operational economics in the 1930s
– imperfect competition and Keynesian macroeconomics -- gradually gave way to an equally avid interest in the problems of the public sector.
Civil servants became bureaucrats. The ways in which interest groups mnipulate democratic processes to serve their own ends took center stage.
Which leads directly (and finally!) to Musgrave’s second remarkable contribution to 20th century economics. In 1998, Hans-Werner Sinn, the leading economist at the University of Munich, invited Musgrave and his arch-rival in the study of political economy, James Buchanan, father of the relentlessly skeptical study of "public choice," to a carefully organized five-day debate.
The scholars took turns stating their positions. They responded to one another. They took questions from the floor. Then they restated their views more narrowly. The results were published in 1999 as Public Finance and Public Choice: Two Contrasting Visions of the State. Their debate was a textbook example of what psychologist Daniel Kahneman recently called "adversarial collaboration." So useful are both lenses for different purposes that it is not easy to form an opinion about who "won."
It is, however, very likely that the lectures are the most important delivered at the University of Munich since the great Max Weber gave his farewell addresses on politics and science there in 1918. Long after the results of the next election have become old news
– the next 40 years’ elections – the exchange between Musgrave and Buchanan will still be fresh.
By then, of course, the frontier of formalization in economics will have moved on. Concepts that are difficult to state concisely today will have found expression, just as Musgrave’s insights on public good provision in 1938 were given a crystal-clear formulation by Samuelson in 1954.
What are the chances that some young scholar eventually will succeed in writing down the intuition that Musgrave kept alive through a combination of literary and formal analysis all these years?
That a purely individualistic framework is insufficient for understanding the possibilities of politics? That some place in the model must be reserved for community’s claims? That interpersonal comparisons of welfare in some degree eventually must be undertaken again? That the economists’ task must be to envisage a good society and a moral state?
What are the chances? On the basis of history, pretty good, I would say.
David Warsh
The Economic Principals Project is sponsored by Sabre Foundation
