The 2006 Nobel Prize-winner spent 60 years arguing that once the economic philosophy of Adam Smith is applied to politics, there emerges a political case for that limited government which Smith had argued for on solely economic grounds. The current global agony over government debt perfectly make's Buchanan's point.
Buchanan did not deny there might be a purely economic case for government deficits. Do they stimulate total demand? Perhaps. Can they dispense with temporary tax swings by bridging temporary gaps between government spending and revenue? Certainly.
But whatever economic arguments favour them, Buchanan believed his "economic theory of politics" showed that government deficits are a bane and should be made unconstitutional.
His starting point was his conception of the legislature. He did not see it as a debating chamber but a political marketplace where different political constituencies strike bargains to fund their preferred programs: "I'll support your program if you support mine."
Such bargains never strictly mimic the exchanges of genuine markets, as the taxation that funds any program will always be borne in part by sections of the electorate not benefiting from the program. Someone else, in other words, is always paying for part of your lunch - so there will be too much spending. But at least every program will have some sort of "tax price".
The political marketplace goes from doubtful to disastrous once programs can be funded by deficits. For deficit funding means there is a zero "tax price" at the margin for any piece of government spending. The beneficiaries of programs can charge all its cost to future generations, who are completely unrepresented in the political marketplace.
If government spending is free, elementary economics says political constituencies will "buy" as much of it as they can.
And that is until bond buyers baulk at ever being repaid. Thus Greece.
The upshot is that Buchanan favoured a constitutional amendment to enforce balanced budgets, and thought it politically attainable. Inflation targeting has proved popular, and it has been a constraint on government as much as a balanced budget rule has been and would be.
In the US, local and state governments already commonly disallow deficits. In March 1995 the US Senate failed by a single vote to approve such an amendment. And Buchanan believed that until the mid-1960s the balanced budget rule was "an integral part of the broader unwritten constitution of the United States". It was the advent of Keynesian demand management that made possible a coalition between Democrats and Republicans to revoke that unwritten clause. Democrats saw stimulus in tax cuts, and to Buchanan's mind "tax reduction was from the outset more important to conservatives than budget balancing".
The new coalition expressed itself in the 1964 Kennedy tax cuts, and even more pungently in the "jobs and growth" tax cuts of George W. Bush.
Buchanan was alive to the power of this coalition in favour of deficits, and proposed that any balanced budget amendment kick in only seven years after it was passed and that the rule apply to budget plans, rather than outcomes, as outcomes will inevitably be disturbed by unforeseen events.
He also favoured exempting genuinely income-producing capital assets. And he stressed that it was not a cap on government spending as such: the American public could spend as it chose; it would merely have to pay for it.
Buchanan's favour of the balanced budget illustrates great faith in constitutional remedies for dysfunctional politics.
Regrettably, what one amendment can enact, a later amendment can repeal. And would there not be every incentive to repeal a balanced budget amendment?
Significantly, Buchanan never saw the "unwritten" balanced budget rule of the pre-Keynesian period as arising from the rational consensus which he saw as the foundation of most constitution-making. Rather it was (in his words) the "fiscal religion"; to break it would have been "sin", a transgression beyond the pale. It wasn't a matter of constitutionality but of morality.
Perhaps today's endemic deficits require a moral cure rather than a constitutional one.
William Coleman is a reader in the research school of economics at the Australian National University.
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