Ethics and Economic Progress.

• Author: Sandler, Ralph

In this book, Nobel Prize winning economist James M. Buchanan argues that a society's moral constraints on human behavior can exert important economic effects.

There are two parts to the book. The first part contains three chapters based on lectures presented at the University of Oklahoma in October 1991. The second part contains two chapters based on separate presentations not previously published and a third chapter, "Externality in tax response," reprinted with some changes from the Southern Economic Journal [July 1966].

The material in the book reflects many of the economic views and political values found in Buchanan's other work. His central theme, developed in the first two chapters, is that we would all be better off in an environment where we all work harder and save more. Buchanan's argument derives from Adam Smith's discussion concerning the division of labor and extent of the market found in the Wealth of Nations. Given the assumption of increasing returns to the size of the whole economy, as people are induced by the so-called "puritan ethic" to supply more hours of work, markets become larger which means that specialization can be extended further leading to increases in productivity. In other words, there is an externality in the work-leisure choice. An individual's choice to work more or less will have important spillover effects on everyone else.

In chapter two, Buchanan explains how the act of saving promotes capital formation which also has a positive external effect similar to an increase in the supply of labor. An increase in capital expands the size of the economy through the division and specialization of resources. A larger economy is able to provide a higher standard of living to all persons in the economic nexus, whether workers, savers, or consumers. Although the author does express concern about what he sees as a declining work ethic, it is the erosion of the savings ethic in America which is viewed as a more acute problem. Financial innovations and the emergence of the welfare state has undermined incentives to save, a phenomena with predictable long run economic consequences.

Chapter three is perhaps the most polemical in the book reflecting the authors conservative political values. Buchanan suggests that, within limits, preferences can be changed and that we should be willing to invest something in support of those who promote the "puritan virtues." However, not all...