DEMAND & SUPPLY OF PUBLIC GOODS (Collected Works of James M Buchanan)

James M. Buchanan's The Demand and Supply of Public Goods develops a theory of public goods in response to the more traditional public-goods theory developed during the 1950s by Paul Samuelson in his famous articles in the Review of Economics and Statistics and by Richard A. Musgrave in The Theory of Public Finance. The traditional approach argues that the provision of public goods is justified as a response to market failures. Buchanan argues that just because markets may sometimes fail, it does not automatically follow that government will therefore do a better job. The process of politics is not perfect–group decisions cannot meet individual preferences as closely as can individual decisions. Furthermore, government action is costly (e.g. excess burden associated with taxation, disincentive effects). This is not to say that there should be no government intervention, but government is not the panacea that the political left makes it out to be, and we should be cognizant of its imperfections when deciding how much economic activity to organize through government rather than markets. Whereas the traditional approach focuses on market failure, Buchanan focuses on political failure, arguing that government action should be evaluated by the same criteria by which markets are deemed to have failed. In short, market failure may be a necessary condition for government action, but not a sufficient one.

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