Journal of Public Finance and Public Choice • vol 38 • no 1 • 2–19 • © AESP 2023

Print ISSN 2515-6918 • Online ISSN 2515-6926

https://doi.org/10.1332/251569121X16730281636465
Accepted for publication 06 January 2023 • First published online 01 February 2023

RESEARCH ARTICLE
On classical liberalism and democratic optimism:
James M. Buchanan and Elinor Ostrom
Marianne Johnson, johnsonm@uwosh.edu
University of Wisconsin Oshkosh, USA

We recently marked the 60th anniversary of the book that established the field of public
choice – The Calculus of Consent by James M. Buchanan and Gordon Tullock. It was also the
30th anniversary of Elinor Ostrom et al’s ‘Covenants with and without a sword’, in which
she demonstrated the capacity of individuals for self-governance without submission to an
external authority. This article considers these two foundational works as a starting point
from which to explore the intellectual tradition of ‘democratic optimism’ in public choice.
The Buchanan/Ostrom legacy is an unshakable faith in the capacity of individuals for self-
governance, a significant departure from more orthodox thinking that presumed the necessity
of a social planner to oversee, coordinate and enforce collective actions. Their work also
illustrates the importance of questioning the assumptions of economic models and modes
of thought. Examination of antecedent assumptions is useful not only for understanding the
depth and complexity of economic and political choices, but also for thinking about the
history of the economics discipline, the viability of research programmes and the ‘danger of
self-evident truths’.

Key words James M. Buchanan • Elinor Ostrom • public choice •

classical liberalism • democracy
JEL codes: H10 • B31

To cite this article: Johnson, M. (2023) On classical liberalism and democratic optimism:
James M. Buchanan and Elinor Ostrom, Journal of Public Finance and Public Choice, 38(1):
2–19, DOI: 10.1332/251569121X16730281636465

Introduction
Last year marked the 60th anniversary of The Calculus of Consent by James M.
Buchanan and Gordon Tullock (2004 [1962]) (hereafter, Calculus). The book ‘set
off an intellectual revolution in the analysis of politics’ (Boettke and Marciano,
2015: 57), laid the foundation of ‘an immense research program’ (Mueller, 2014:
89) and ‘founded the subdiscipline of public choice’ (Tollison, 1999: 11). Last year
was also the 30th anniversary of Elinor Ostrom et al’s (1992) ‘Covenants with and
without a sword’ (hereafter, ‘Covenants’). In that article, Ostrom and her co-authors
(1992) demonstrated the capacity of individuals for self-governance in situations

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 On classical liberalism and democratic optimism

of common-pool resources without submission to an external authority. The two

works are radically different in method: Calculus built a careful deductive and often
philosophical argument ‘about the political organization of a society of free’ individuals
(Buchanan and Tullock, 2004: xxi); ‘Covenants’ constructs ‘a common constituent
… n-person CPR [Common Pool Resources] appropriation game’ (Ostrom et al,
1992: 405, italics in original). Yet, both operate from the shared assumption that
individuals can constructively coordinate to determine and abide by rules, and both
reject the presumption that ‘order is only possible by creating sovereigns, who must
then govern by being above subjects, by monitoring them, and by imposing sanctions’
(Ostrom et al, 1992: 414).
As texts, Calculus and ‘Covenants’ are classic exemplars of the first and second
generations of public choice analysis. Calculus was an exploratory venture that
emerged out of a confluence of post-war concerns over democratic decision making,
social choice, preference aggregation and the role of the state in the economy
(Grandjean, 2021; Buchanan, 2003). As a study in ‘what we think the state ought
to be’, Calculus was fundamentally normative (Buchanan and Tullock, 2004 [1962]:
3). Over the next decade, the research programme laid out in Calculus gained clearer
articulation with the establishment of the Public Choice Society and its eponymous
journal (Medema, 2011; Cherrier and Fleury, 2017).1 Indeed, Buchanan was the
first president of the society and Tullock was the second; Elinor Ostrom’s husband
and intellectual partner, Vincent Ostrom, was the society’s fourth president. A
student during its founding, Ostrom became the society’s first woman president in
1982.2 Her ‘Covenants’ reflected the next generation of public choice analysis, with
its use of technical, mathematical and empirical methods. Compared to Calculus,
the analysis in ‘Covenants’ is fundamentally positive and descriptive; yet, it retained
the same interdisciplinarity and philosophical orientation that characterized much
of the early public choice literature.
Since the 1960s, an enormous amount of work has been done within the scope
of the public choice research programme; indeed, almost two hundred issues of
Public Choice have been published and two Nobel prizes have been awarded.3 Critics,
however, charge that the public choice research programme is primarily a negative
endeavour: public choice scholarship undermines faith in government and offers little
beyond an ‘illegitimate anti-governmental ideology’ (as paraphrased by Buchanan
[2000: 8]). Others have characterized public choice as ‘immoral’, ‘cynical’ and ‘a
small step on the road to fascism’ (Kelman, 1987: 93–4). More recent polemics vilify
public choice as racist (see, for example, Brown, 2019) and a threat to democracy
(MacLean, 2017).4
In this article, I argue that the normative theorizing that underlies public choice
analysis holds important contemporary relevance because of two features of its
intellectual history that derive from Buchanan and Ostrom. First, rather than a
primarily negative research programme, the Buchanan/Ostrom legacy is a remarkable
faith in the capacity of individuals for self-governance, or what might be called
‘democratic optimism’. Their optimism represented a significant departure from
orthodox thinking, which presumed the necessity of a social planner to oversee,
coordinate and enforce collective actions. Second, reflecting on the intellectual
tradition of public choice reminds us of the importance of assumptions – both the
assumptions we make about how people behave and the assumptions we make about
what we think we know or do not know. Examination of antecedent assumptions

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 Marianne Johnson

is useful not only for understanding the depth and complexity of economic and
political choices, but also for thinking about the historiography of public choice,
the viability of research programmes and, as Ostrom (2000) warned, the ‘danger
of self-evident truths’. It was their questioning of the underlying assumptions of
mainstream models that led Buchanan and Ostrom to envision compelling alternatives.
Buchanan and Ostrom challenged the dominant paradigm by looking at ‘common
facts through different windows’; the benefit of such an approach is that ‘you see
different relationships because you look with different tools’ (Buchanan and Samuels,
1975: 19, 25; see also Ostrom, 2010).

The classical liberal philosophy

The classical liberal political-intellectual tradition recognizes individual freedom as the
paramount value (Bell, 2014: 699). Classical liberals emphasize consensus in decision
making, minimal constitutional constraints, democratic institutions and market
processes. The predominant policy prescriptions are for laissez-faire economics and
limited government.5 As such, classical liberalism shares important space with other
intellectual traditions autochthonic to US thinking; these include a deep suspicion of
government, a distrust in the motives of experts and intellectuals, and a commitment
to direct democracy (Hofstadter, 1964; Kingdon, 1999). As someone who was ‘anti-
state, antigovernment, antiestablishment’ and who placed a ‘high residual value on
individual liberty’ (Buchanan, 2007: 5, 72), it is not surprising that Buchanan would
anchor his normative world view in this tradition.6
However, despite its obvious harkening to the political economists and philosophers
of the 18th and 19th centuries, the phrase ‘classical liberalism’ did not coalesce until
the interwar years; earlier iterations included phrases such as the ‘traditional-liberal
political philosophy’ and ‘the liberal faith’ (Simons, 1936: 1). Common usage of
‘classical liberal’ would not come until the 1950s.7 Frank Knight, Henry Simons and
Friedrich Hayek were some of the first to condition ‘liberal’ with ‘classical’ in response
to the many sorts of social liberalism that had emerged in the previous half-century –
from the liberalism associated with the social welfare state to the liberal policies of
the American Progressives and the New Deal.
Throughout much of the 20th century, classical liberals were in the minority, a
small few dedicated to ‘saving the books’ and ‘saving the ideas’ of the classical political
economists (Buchanan, 2000: 111; see also Boettke and Kroencke, 2020). Instead,
post-war public finance was dominated by technocrats who sought the increased
centralization of tax policy goals and design. Individuals like Gerhard Colm, Alvin
Hansen, Richard Musgrave and Gunnar Myrdal argued in favour of devolving
economic decision making to experts who could best determine the optimal provision
of public goods or the optimal tax rate to maximize social welfare.8 The early classical
liberals attempted to counter this sort of discretionary authority by emphasizing
‘definite rules’ (Simons, 1936: 1; Knight, 1946). At Chicago, Buchanan imbibed
the spirit of their challenge to the mid-century Keynesian experts; in Calculus, he
reimagined the problem as one of setting rules at the constitutional, rather than the
policy, level.9
Although it would take a decade, Calculus was Buchanan’s rebuttal to the
mainstream approach to public economics. Buchanan and Tullock (2004: 11–12
organized Calculus around what they called the ‘individual postulate’: that individuals,

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 On classical liberalism and democratic optimism

rather than society, should be the primary decision unit (see also Buchanan and
Tullock, 2004: ch 4). Subsequent studies of club goods, median voters, government
failure and voting with your feet demonstrated that people could make good decisions
for themselves if allowed through democratic processes. Two important conclusions
emerged. First, governments should be modelled not as monolithic, omniscient,
social calculating machines, but instead as a collection of individuals with various
and possibly competing interests. Second, rather than empowering bureaucracies,
economists and political scientists should devise rules that constrain government
experts and protect individual-level democratic decision making. Classical liberalism
provided Buchanan with a necessary grounding framework for understanding human
behaviour in both the political and economic spheres: ‘We need to work within a
philosophy … to look at the universe … from a specific vision or window of social
order’ (Buchanan and Samuels, 1975: 21). Buchanan’s philosophy was one in which
individuals were assumed to be natural equals in the sense that they have equal rights
and operate in a shared system of natural liberty.
Calculus had emerged out of a consciously constructed community of scholars who
shared the classical liberal vision and were connected through the Thomas Jefferson
Center for Studies in Political Economy at the University of Virginia (Medema,
2011; Grandjean, 2021). ‘Covenants’ has a similar history, being a product of the
interdisciplinary research programme umbrellaed by the Ostroms’ Workshop in
Political Theory and Policy Analysis at Indiana University.10 Co-authored with two
Indiana colleagues and long-time collaborators, Roy Gardner and James Walker,11
‘Covenants’ was an outcome of the workshop’s turn to game theory and experiments
in the 1980s.12
Despite her shift in method, Ostrom continued to operate with philosophical
guardrails, adopting an intellectual perspective that informed her basic assumptions
about human social behaviour. Unlike the public choice associated with the
Rochester School, which was both highly technical and avowedly positive,
or that of the Virginia School, which had a complicated relationship with
the distinctions between positive and normative, and between philosophy and
ideology, the Ostroms’ Bloomington School adopted a ‘more self-consciously
philosophical foundation’ (McGinnis and Ostrom, 2012: 19).13 Vincent Ostrom
had worked on problems related to the meaning of democracy and its functioning
from 1950 onward. Elinor was introduced to his research programme while a
graduate student in the early 1960s. The conclusion that democratic systems
must be self-governing – arising out of community and interpersonal relations,
rather than ‘state’ mandates – had long been a theme of Vincent Ostrom’s work
(Ostrom, 1997). Elinor Ostrom’s contribution was to provide structured-analytic
and empirical evidence in support of their shared normative political theorizing.
Her dissertation combined aspects of Vincent’s political theory with the economic
analysis of Calculus to consider the allocation of water rights (Johnson, 2022). Over
time, their shared approach evolved into an ‘unambiguous normative engagement
on behalf of self-governance and a robust faith in human freedom and human
ingenuity’ (Aligica and Boettke, 2011: 30).
Adam Smith and Alexis de Tocqueville – both commonly identified as classical
liberals – provided important insights for the Bloomington School. Vincent Ostrom
had long identified Tocqueville’s tension between an individual’s natural inclination to
wish ‘government’ would provide for basic needs and the work required by citizens to

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establish and maintain an effective self-governing democratic society (Ostrom, 1997).

What interested him was how to design and effectuate the necessary sociocultural
context that would support self-governance. Elinor Ostrom proceeded along a
tangential line. In her view, Smith suggested ‘the possibility of beneficial outcomes
emerging from the independent contributions of many individuals pursuing their
own interests within a set of agreed upon rules’ (Ostrom, 2016: 91); Tocqueville
recognized voluntary associations as a central form of agency in US democracy
(McGinnis and Ostrom, 2012).
Smith and Tocqueville stood in opposition to Thomas Hobbes, whose Leviathan
has long served as an analogy for state power in public choice (see, for example,
Buchanan, 1975; Brennan and Buchanan, 1980).14 In Ostrom’s view, the failure of
much of contemporary theory and policy was to simply ‘recommend Smith’s concept
of market order for all private goods and Hobbes’s conception of the sovereign
State for all collective goods’ (Ostrom, 2016: 92).15 For her, the assumption that
competition for resources inevitably devolves into chaos and warfare that can only
be contained by a Leviathan was not so far removed from assumptions of ‘a policy
prescription stemming from the work of the political economists [Paul Samuelson
and H. Scott Gordon] … that a centralized authority is necessary to achieve greater
welfare potentials for collective goods’ (Ostrom, 2016: 92).16
In an early article that built on work with Vincent Ostrom (see, for example, Ostrom
and Ostrom, 1965), Ostrom (1968) applied the constitutional decision-making
model developed in Calculus to the puzzle of small-scale, multiple and overlapping
municipal services. While Buchanan and Tullock’s prediction was that communities
should constitute a new public enterprise whenever the collective benefits exceeded
the costs for a shared public endeavour, the empirical reality was that they rarely
did. Ostrom’s solution was to adapt the model to incorporate uncertainty, individual
error and learning. ‘Covenants’ extended this approach, underpinning it with game-
theoretic analysis and experimental observations (Ostrom et al, 1992).
The classical liberal roots of Buchanan and Ostrom led them to emphasize governance
as a system of overlapping institutions and systems, distinct from government, too often
modelled as a monolithic enterprise. Rather than accept the mid-century faith that
government and expert authorities could make optimal decisions on behalf of society,
Buchanan and Ostrom chose to relocate decision making to the individual level. This
represented a significant shift in both viewpoint and the underlying assumptions that
frame our understanding of collective action.

A brief discussion of voluntary exchange theories

While interwar and mid-century public economics was dominated by omniscient
social planners and expert managers, these were not the only means considered by
which to secure collective choices. The rise of democratic governance in the latter
half of the 19th century spurred some economists to respond to the changing political
landscape by developing models of voting designed to elucidate how societies could
organize to reach decisions about publicly provided goods and services. This fitted
neatly with economists’ interest in extending neoclassical reasoning to a range of
contemporary problems. Rather than relying on ‘organistic’ representations of the
state, these models were built on the assumption that exchange between individuals
and the government should approximate the voluntary exchanges of the marketplace –

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 On classical liberalism and democratic optimism

that rational individual reasoning could be applied equally well to public as to private
goods. Early variations can be found in the work of Emil Sax (1887), Antonio de
Viti de Marco (1888), Knut Wicksell (1896) and Erik Lindahl (1919).
De Viti de Marco (1936), for example, argued that state activities in a democratic
society should be modelled using a contractual framework. Much like individuals
demand private goods, they also demand collective goods. These, he explained,
were needs that arise out of the inherent nature of communal living – such goods
and services as sanitation, transportation, civic education and public health. Goods
demanded by only a subset of the population should be supplied by the market
or through small-group organization. For collective goods demanded generally,
however, decision criteria should be analogous to those for private goods, for
example, prioritizing production at least cost. Taxes were the price of collective goods,
voluntarily paid, with an equilibrium resulting through a series of adjustments to tax
prices and the quantities of the public good provided. De Viti de Marco emphasized
that in a modern democratic state, it was vital that expenditures and taxes have coequal
importance in the decision process; in exchange for tax payments, individuals require
the opportunity to evaluate what they receive in benefits.
Much like de Viti de Marco, Wicksell (1967: 87) envisioned that ‘progress toward
parliamentary and democratic forms of public life’ required modelling collective
choices as voluntary exchanges.17 To guarantee the voluntariness of the process,
Wicksell sought to require unanimous agreement. In his proposal, any plan to provide
a public good or service must be paired with a corresponding tax scheme. Individuals
would vote on successive tax/expenditure plans until one received unanimous consent:
‘It will always be theoretically possible, and approximately so in practice, to find a
distribution of costs such that all parties regard the expenditure as beneficial and may
therefore approve it unanimously’, Wicksell (1967: 89–90) argued. Individuals or
groups would have little incentive to misrepresent their preferences because, by doing
so, they would risk that the service may not be provided. Unanimity guaranteed
‘justice would thereby have been done at least to the extent that each man received
his money’s worth’ (Wicksell, 1967: 75).
Neither the theories produced by the Scandinavians nor those by the Italians
generated much interest in the English-language literature throughout the first half
of the 20th century, where ‘governments exist wholly apart from their citizens’
(Buchanan, 1968: xiii). The textbooks that mentioned voluntary exchange did
so only in passing; most journal articles were dismissive.18 Some of this has been
attributed to the language barrier (Eusepi and Wagner, 2012). More commonly
cited, however, was the fundamental incompatibility between voluntary exchange
theories and the English-language approach to public finance that largely neglected
expenditures and instead focused on describing and rationalizing local, state and federal
governmental actions. Simply put, voluntary exchange was irrelevant to what public
finance experts observed in actual practice (Buchanan, 1968: xiii; see also Backhaus
and Wagner, 2005; Buchanan, 2007; Medema, forthcoming).19 Samuelson (1969:
504) concluded that ‘it pays no one to behave according to the voluntary exchange
theory’, and Musgrave (1941: 322, 320) similarly dismissed such theories as ‘fictitious’
and ‘altogether unrealistic’, for ‘it is obvious that a social system cannot function
without some degree of compulsion’.
Rather than relegating voluntary exchange to margins of the field – as a curious
but unhelpful approach – Buchanan attempted to reposition voluntary exchange

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 Marianne Johnson

as an attractive alternative to models that required some level of coercion (see, for
example, Buchanan, 1949; 1951; 1968). For him, the standard models that presumed
the necessity of supra-individual constraints had their roots in utilitarian conceptions
of human behaviour; these were fundamentally pessimistic (Buchanan and Tullock,
2004 [1962]: 27). Direct individual participation in the revenue–expenditure process
was a hallmark of democracy; as such, it needed to be included in the modelling
process. Buchanan’s position ran counter to majority-rule democracy with most
decisions made at parliamentary or congressional levels, and which accepted that some
individuals would be made worse off by collective decisions. By pairing the ethical
premises of voluntary exchange and quid pro quo with a corresponding emphasis on
consent and democratic process, Buchanan was able to envision a more optimistic
world in which individuals could coordinate within small groups to resolve collective-
choice problems. The potential for voluntary and spontaneous pro-social behaviours
allowed significant scope for the resolution of externality and public goods problems
(Marciano, 2013; 2015). Interestingly, Buchanan’s optimistic social vision ran counter
to his own personal pessimism, which came to dominate his work, particularly in
the 1970s (Mueller, 2014; Marciano, 2021a)20:

I am by nature a pessimist … [but] I must hold onto the faith that individuals
can live with one another, with at least the minimal respect for rights of
others (minimal delineation of property rights) that make society possible.
My efforts are aimed at trying to analyze just how social order, to be viable
at all, depends critically on a mutual willingness to accept individual rights,
defined constitutionally, and enforced by the State. And how this might
possibly be done without the state assuming powers of Levithan. (Buchanan
and Samuels, 1975: 25)

As Buchanan realized, personal pessimism did not negate the importance of consent
and constitutional choice; indeed, the alternative was much worse. One way to
counter contemporary social disintegration was the elevation of shared social ethics
(Marciano, 2013).
A generation later, the ground had shifted significantly: a more expansive public
economics focused on externalities and public goods replaced the traditional emphasis
of public finance on benefit versus ability to pay and the (im)practicality of voluntary
exchange. Much of the change was driven by the mid-century rise of general
equilibrium analysis and mathematical modelling, combined with a more expansive
view of the public sector engendered by the rise of the welfare state and a new range
of public goods problems (Boettke and Kroencke, 2020; Johnson, 2020; Medema,
forthcoming). As someone well engaged with then contemporary public economics
but with little background in traditional public finance, Ostrom found important
insights in Tocqueville, Calculus and her professors at University of California Los
Angeles (UCLA). These allowed her to reach similar conclusions as Buchanan about
the capacity of human beings to coordinate social behaviour21:

The faculty of our working group included Jack Hirshleifer, Dwaine

Marvick, Vincent Ostrom, and Charles Tiebout. A vigorous discussion
evolved regarding how best to conceptualize local governance. Buchanan and
Tullock’s book on The Calculus of Consent (1962) was seriously discussed as

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 On classical liberalism and democratic optimism

colleagues were trying to understand how citizens could solve the multiple
problems at different scales that occur in urban areas. No one in this group
presumed that citizens were incapable of solving problems even though
other faculty at UCLA stressed the priority of government officials having
centralized authority to solve most urban problems. (Ostrom, 2011: 370)

Indeed, for both Buchanan and Ostrom, crucial insights emerged from their
questioning of the implicit assumptions made about individual behaviour in standard
economic models, the motivations assigned to individuals in such models and the
nature of self-interest (Ostrom, 2011; Marciano, 2015).

Democratic optimism
Democratic optimism deeply influenced both Buchanan’s and Ostrom’s approaches to
the problem of providing public goods. The reasons for Buchanan’s dissatisfaction with
standard mid-century economic treatments of public goods were manifold and have
been well considered in the secondary literature.22 His early work on marginal-cost
pricing had exposed several glaring deficiencies in then-contemporary public finance:
modelling government decision making, explaining decisions about expenditures
and evaluating government actions (Buchanan, 1951; 1952a; 1952b). Buchanan
viewed the polar case of a pure public good as a fiction – a sometimes useful but
always unrealistic theoretical construction. Furthermore, Samuelson’s solution for
public goods lacked important democratic features, including a method of soliciting
input from individual voters: ‘Such a principle is not only politically unimaginable
in modern democracy; it is also conceptually impossible’ (Buchanan, 1962: 27).23
Instead, Buchanan argued that most public goods should be categorized as impure or
congestible goods. Frequently, such goods are localized or take a form where exclusion
is theoretically possible; these could be provided by small-group organization, or
clubs, where ‘in absence of the large-number problem, efficient outcomes will tend
to emerge from voluntary exchange processes’ (Buchanan, 1968: 187). Free riding
was neither as rational nor as endemic as was commonly claimed. Under the right
rules, individuals would have no incentive to vote against a plan that would yield them
positive net benefits. Doing so would risk the plan being rejected or replaced with
an alternative with fewer benefits. In fact, a rational agent should only vote against a
proposal if the net benefits are truly negative (Buchanan, 1968: 92). Correspondingly,
if an externality or a collective good poses a problem for a community, someone in
the group should be able to propose an acceptable solution. If no such agreement
can be found, this suggests the problem does not really exist at the level of individual
preferences: ‘Public goods can only be defined in terms of individual evaluations’,
not by omniscient social planners (Buchanan and Tullock, 2004 [1962]: 35).
Ostrom’s typology of public goods also rejected the archetype Samuelsonian
distinction of the purely private and the purely public. Empirical observation had
demonstrated that the two categories were insufficient to capture the range of real-
world situations; indeed, ‘when one engages in substantial fieldwork, one confronts
an immense diversity of situations in which humans interact’ (Ostrom, 2010: 181).
Buchanan’s club goods went some way to rectifying the issue but still failed to cover
the range of collective arrangements observed.24 In her work with Vincent Ostrom,
she proposed alternative criteria that could be used to categorize collective goods

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 Marianne Johnson

along two spectrums: high versus low difficulty of exclusion; and high versus low
subtractability of use. This created four broad categories, with varying degrees of each
feature: private goods, public goods, toll (club) goods and common-pool resources
(Ostrom, 2010). Much like Buchanan, Ostrom explained that claiming that markets
fail was not the same as demonstrating that the state could provide the solution;
empirically, there was no shortage of evidence that ‘government monopolies also fail
in providing and producing local public goods’ (Ostrom, 2016: 92).25 In many cases,
the failure arose because individual preferences were not sufficiently accounted for in
the decision process. Changes in welfare could only be judged by the individuals in the
group, not by external actors or governmental officials, as in the Samuelsonian case.
The implicit assumption of the necessity of a Hobbesian state not only permeated
thinking about the public goods problem, as noted in the previous section, but also
impeded envisioning alternative solutions. ‘Hobbes’s state of nature has frequently been
represented as a social dilemma game’; indeed, it informs the basis of ‘the powerful
edifice of noncooperative game theory’, giving the impression that externally imposed
rules are inevitably necessary (Ostrom et al, 1992: 404).26 Ostrom pointed out that
choice, cooperation, negotiation and consensus were empirically observable in many
social situations – individuals could work out a solution to sharing resources or to
public goods provision that required neither a market for private goods nor a state to
make the allocative decisions. The ‘empirical evidence suggests … that individuals
facing social dilemmas in many cases developed credible ex ante commitments without
relying on external authorities’ (Ostrom et al, 1992: 405). Laboratory experiments that
allowed inter-person communication were shown to generate better outcomes than
noncooperative games because individuals have the ‘capacity to organize themselves,
establish credible commitments, monitor each other’s behavior, and impose sanctions
on those who break their commitments’ (Ostrom et al, 1992: 405).
Policymakers should not pessimistically presume that individuals ‘are caught in an
inexorable tragedy from which there is no escape. Individuals may be able to arrive
at joint strategies to manage these resources more efficiently’ (Ostrom et al, 1992:
414).27 Presuming that individuals are trapped in situations without the capacity to
change the structure was a ‘retrogressive’ step in the analysis of human behaviours,
inconsistent with democratic institutions (Ostrom, 2010: 648).28
When students first come to college and ask their teachers what democracy is, many
respond that ‘democracy is voting for officials’. There is little reference to citizens
being engaged in constitutional decision making at multiple scales. The concept of
a constitution has also been distorted over time. Some students initially think that a
constitution is just a piece of paper written by dead old white men about national
governance. The idea that citizens could craft their own rules and struggle with how
to get things organized at a local community, as well as at higher levels, has been lost
in many of our social science textbooks and classes (Ostrom, 2011: 370–1).
Norms and heuristics provide useful means by which individuals make sense of
their environment; when combined with trust, they often mean that individuals
can find their way to negotiated collective outcomes that yield reciprocal
advantages. Another important pillar of Ostrom’s democratic optimism was her
assumption that individuals can learn – rational agent models that incorporate
learning permeate her work from 1968 onward. Her faith in the ability of people
to learn to cooperate was directly derived from her observations of small group
coordination in the field.

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 On classical liberalism and democratic optimism

The debates over modelling collective decisions went well beyond theoretical
mechanics or questions of a theory’s correctness. How economists perceived the market
failure engendered by public goods and the potential of individual coordination to provide
a solution was closely tied to more fundamental assumptions about individual behaviour
and beliefs as to how government should be modelled: ‘Economists need[ed] to be pulled
up short on just what it is they are assuming when they talk about government’, argued
Buchanan (Buchanan and Samuels, 1975: 21), emphasizing the necessity for democratic
over social-planner models. As such, Calculus can be understood as a ‘logical economic
rationalization for the emergence of democratic political institutions’ (Buchanan and
Tullock, 2004 [1962]: 43). Indeed, few would characterize Calculus as positive science
or a realistic description of the political process. Fewer still would recommend we adopt
absolute unanimity as a criterion for decision making, despite its conceptual appeal.
The value of Calculus lies in its contribution to an optimism on behalf of democratic
organization. Similarly, the value of Ostrom’s ‘Covenants’ was the hope that individuals
could voluntarily coordinate to the ‘best of all the conditions … covenants with an
internal sword, freely chosen’ (Ostrom et al, 1992: 414, emphasis in original).29

Conclusions
This article offers a retrospective in honour of two important texts in public choice:
the Calculus of Consent (Buchanan and Tullock, 2004 [1962]) and ‘Covenants with
and without a sword’ (Ostrom et al, 1992). Although 30 years separate the two, both
illustrate the fruitfulness of serious consideration of the antecedent assumptions that
economic models make about individual motivations and the ability of individuals
to coordinate. Further, both evince a remarkable optimism for democratic processes.
The logical and philosophical argument in favour of democratic decision making in
Calculus was conditioned on the presumption that individuals are rational optimizing
agents; this was combined with a normative preference that favoured voluntariness and
consensus over coercion or compulsion. Ostrom took the argument for democratic
optimism a step forward, demonstrating that both in theoretical games and in
the real world, individuals have a great capacity to solve social dilemmas without
recourse to an authority – they do so through learning, trust, communication and
experimentation (Ostrom, 2010).
As evident in the discussion here, the research programmes of Buchanan and Ostrom
often went to the heart of core themes in public economics and public choice relating
to the nature and extent of market failure, the ability of government to rectify market
failures, and the nature and role of individuals in an economy and society. How
individual–government interactions are modelled says a lot about how economists think
and what sorts of policies we are willing to accept. Ostrom (2010: 665) concluded that
‘extensive empirical research leads me to argue that … a core goal of public policy should
be to facilitate the development of the institutions that bring out the best in humans’.
The appeal of their work was not in specific policies, as Buchanan recognized; rather,
the attraction was in the ‘vision of an ideal, over and beyond science and self-interest
… [a] vision of a social order of human interaction’ (Buchanan, 2000: 112, 115).

Notes
1 The first conference was in 1963, hosted by the Committee on Non-Market Decision

Making. Attendees included James Coleman, Otto Davis, Anthony Downs, John

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 Marianne Johnson

Harsanyi, Henry Manne, Mancur Olson, John Rawls, William Riker and Thomas
Schelling (Boettke and Marciano, 2015). Vincent Ostrom (quoted in McGinnis and
Ostrom, 2012: 19) referred to the ‘“no name” conference at Charlottesville,Virginia,
organized by James Buchanan … the diversity of research that spring from this humble
beginning was presaged by the difficulties that participants had in choosing a name for
this new brand of research’.
2 Buchanan served in 1964 and Tullock in 1965.Vincent Ostrom was president from 1967

to 1969 and Elinor Ostrom from 1982 to 1984. For a history of Ostrom’s engagement
with the public choice research programme, see Johnson (2022). On Buchanan’s
mentorship, see Ostrom (2011: 370):
Buchanan has affected my life in many ways. First and foremost, his scholarship has
affected my thinking and research throughout my career…. [Buchanan’s] graciousness
has also been appreciated on many occasions. Especially, early in my career when
women faculty members were not always treated graciously, Jim Buchanan was an
incredible colleague who did not deal with me in any way that differed from how
he dealt with Vincent Ostrom. I deeply appreciated his collegiality at the time and
continue to do so today.
3 For a detailed history of the origins of public choice, see Cherrier and Fleury (2017),

Grandjean (2021) and Medema (2011). Buchanan received the Nobel Prize in Economic
Sciences in 1986 for his ‘contributions to the theory of political decision-making
and public economics’ (see: www.nobelprize.org/prizes/economic-sciences/1986/
buchanan/facts/). Ostrom won in 2009; she ‘challenged the convention wisdom by
demonstrating how local property can be successfully managed by local commons
without any regulation by central authorities or privatization’ (see: www.nobelprize.
org/prizes/economic-sciences/2009/ostrom/facts/).
4 In response, see Brennan and Buchanan (1988) and Buchanan (2003). For a critique

of the recent accusations, see Fleury and Marciano (2018b).

5 Histories of classical liberalism include Bell (2014), Burgin (2012) and Innset (2020).

The extent of overlap between classical liberalism and neoliberalism remains open to
discussion.
6 Buchanan (2000: 112) defined classical liberal policies as ‘support for limited government,

constitutional democracy, free trade, private property, rule of law, open franchise, and
federalism’.
7 Simons (1948: 1) defined classical liberalism as ‘the intellectual tradition … of Adam

Smith, Herrmann, Thünen, Mill, Menger, Brentano, Sidgwick, Marshall, Fetter, and
Knight and of Locke, Hume, Bentham, Humboldt, Tocqueville, Burckhardt, Acton,
Dicey, Barker and Hayek’. Buchanan (quoted in Boettke, 2014: 113–14) lists ‘David
Hume and Adam Smith, the British Classical Economists David Ricardo and John
Stuart Mill, the Austrian school economists Ludwig von Mises, Joseph Schumpeter,
F.A. Hayek and Israel Kirzner and Chicago school tradition of Frank Knight and
Henry Simons’.
8 On mid-century public economics, see Boettke and Kroencke (2020), Johnson (2020),

Marciano (2020) and Ostrom (2016). As early as 1949, Buchanan complained of

standard treatments of government. ‘A major difficulty’ with theories that viewed the
state as ‘a single decision-making unit acting for society as a whole’ was deciding what
to maximize – a ‘common denominator to which the alternative goals of a collective
entity may be reduced for comparative purposes, analogous to the equally vague, but
less elusive, “satisfaction” or “utility”’ (Buchanan, 1949: 496).

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 On classical liberalism and democratic optimism

9 On the influence of the Chicago tradition and Simons on Buchanan, see Buchanan
(2020) and Johnson (2014; 2018).
10 The collaborative and entrepreneurial ethos of the workshop has been well examined

(see, for example, Cole and McGinnis, 2015; Dekker and Kuchař, 2021), as has Ostrom’s
cooperative research production strategy (Johnson, 2022).The workshop supported two
lines of research underpinned by the belief that ‘research is not very productive unless
informed by theory and that theory is not very useful unless it can stand the test of
experience’ (E. Ostrom and V. Ostrom to L.N. Rieselback, 1 November 1972, Box 109,
folder ‘Interdepartmental Communication’, Elinor Ostrom Papers, circa 1889–2012,
Lilly Library, Indiana University, available at: https://iucat.iu.edu/lilly/14513217).
11 Gardner had received his PhD in economics from Cornell University in 1975
and joined Indiana University shortly thereafter as an interdisciplinary scholar in
economics and West European Studies. His primary research was in real-world
applications of game theory.Walker earned his PhD in economics from Texas A&M
University. His first position was at the University of Arizona, where he collaborated
with Vernon Smith and Charles Plott on early applications of game theory. In 1984,
he joined the faculty at Indiana University and held positions in economics and
with the workshop.
12 Ostrom’s shift to game theory began in 1980, when she accompanied Vincent to
Bielefeld University in Germany on a sabbatical. There, she began to work with
Reinhard Selten, who would later be awarded a Nobel prize for his contributions
to game theory. She returned to Bielefeld in 1982, 1984 and 1988. By 1990, Ostrom
(1990: xiv) declared ‘the way game theorists think about strategic possibilities in social
settings strongly influences the way I analyze central questions’.The approach is evident
in her Public Choice articles from this period. For example, Gardner and Ostrom (1991)
introduced the idea of ‘rules reforms’ as a strategy to reach Pareto-improving outcomes.
Although highly theoretical, the article was anchored in real-world cases where fishing
rights had been revised.
13 McGinnis and Ostrom are paraphrasing Aligica and Boettke (2011) here (see also
Mitchell, 1988).
14 Buchanan’s caricatural representation of Hobbes has become convenient shorthand to

convey an arbitrary and powerful state without democratic input.As one reviewer noted,
this is more straw man than serious reading of Hobbes. Indeed, Hobbes’s experience in
17th-century England has little in common with a modern federal state that effectively
protects both person and property.
15 As Boettke (2010: 286) states:

The main intellectual debate in political economy since the 18th century has been
whether social order is a function of the taming of the passions by a central authority
(Hobbes) or through the ‘invisible hand’ of the market (Smith). Enter Elinor Ostrom
in the late 20th century, not so much as to resolve this debate as to transcend it.
16 Ostrom’s reading of Samuelson on the nature and role of government is different than

what is often presented (see, for example, Backhouse, 2017).

17 Wicksell (1967: 72). classified his approach as ‘nothing more than the benefit principle’

extended and expanded; he was ‘apply[ing] the modern concept of marginal utility and
subjective value to public services and to individuals’ contributions for these services’
This approach was superior to those that relied on an ‘outdated political philosophy of
absolutism’ or even a ‘philosophy of enlightened and benevolent despotism’ (Wicksell,
1967: 84).

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 Marianne Johnson

18 Johnson (2014) provides a detailed discussion of the English-language reaction to

continental theories of voluntary exchange.
19 I am indebted to a reviewer for this insight. Buchanan’s (1960) review of Musgrave’s

(1959) Theory of Public Finance provides a nice summary of his reading of the ability-
to-pay versus benefit approaches. The distinction is much older, however. As early as
1899, it was explained:
There are two roads by which the study of finance may be approached – thorough the
province of Political Economy or through that of Law.The first is the English method;
the latter is the method of the typical German publicist. If the former be adopted,
finance will be classed as a branch of applied Economics. If the latter alternative be
chosen, finance will be viewed as a department of Administration. (Daniels, 1899: 6)
The English approach was rooted in ‘ability to pay’, which suggested setting taxes
based on faculty or concepts of fairness. While there are a variety of origins and
justifications for the ability-to-pay approach, in all cases, taxes are divorced from
expenditures and considerations of who benefits from government-provided goods
and services (Musgrave, 1959: 90ff).
20 Fleury and Marciano (2018a) argue that in the 1950s, Buchanan was largely optimistic

about the potential for collective action. This changed dramatically in the 1970s
with what Buchanan perceived to be the rise of anti-social behaviours evidenced by
ongoing student protests. Mueller (2014) makes a similar point regarding the origins of
Buchanan’s (1975) Limits of Liberty. I would argue that Buchanan returned to a more
optimistic – but highly cautionary – vision of social organization in the 1980s that
tracked with the rise of neoliberalism (Buchanan, 2000).
21 As Ostrom (2011: 371) states:

Buchanan’s work has also been an important stimulus for our extensive studies of
how many diverse peoples around the world have been able to organize their own rules
for limiting entry and use of small- to medium-sized common-pool resources. While
constituting self-organized resource governance systems does not occur uniformly – and
is not always robust – it occurs with far greater frequency than textbooks recognized
until recently, and the vast variety of rules that resource users have devised is amazing.
22 On this, see Boettke and Marciano (2020), Buchanan (1968), Desmarais-Tremblay
(2017), Johnson (2014) or Marciano (2021b).
23 Revealing is Buchanan’s previously unpublished ‘A note on the pure theory of public

expenditure’ and the accompanying introduction in Boettke and Marciano (2020: 3–22).
24 As Ostrom (2010: 644) states:

Buchanan had already added a third type of good, which he called ‘club goods.’ In
relation to these kinds of goods, it was feasible for groups of individuals to create private
associations (clubs) to provide themselves with non-rivalrous but small-scale goods
and services that they could enjoy while excluding nonmembers from participation
and consumption benefits.
Moreover, as Ostrom (2011: 370) also states:
[A] fundamental lesson that we all learned from Buchanan and Tullock is captured
on page 114 of Calculus of Consent where they state: both decentralization and size
factors suggest that when possible, collective action should be organized in small rather
than large political units…. I wish I could get that quote put on a poster to be hung
on a wall of every university.
25 Buchanan argued that the presumption that market failure required a government
response was flawed because government must be subject to the same evaluative criteria

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 On classical liberalism and democratic optimism

as the market – those of efficiency and voluntariness. It is not necessarily the case that
‘externalities are either reduced or eliminated by the shift of activity from market
to political organization’ (Buchanan, 1962: 17). Indeed, the theoretical desirability
of a government solution was often at an impasse with the practical ability of the
government to actually achieve a more efficient outcome (Buchanan, 1962: 19).
26 Ostrom’s ‘Covenants’ explicitly sought a self-organized alternative to Hobbes’s Leviathan,

a ‘coercive power, to compel men equally to the performance of their covenants, by

the terror of some punishment’ (Hobbes, quoted in Ostrom et al, 1992: 404).
27 As Boettke (2010: 287) states:

I would argue the first enduring lesson from Lin’s work is that individuals in their
local situation are more effective at knowing what the right rules and actions are to avoid
conflict and promote cooperation than government officials removed from the daily life
of the community.Trust in people to craft the right rules rather than experts from afar.
28 As Ostrom (2010: 648) states:

When analysts perceive the human beings they model as being trapped inside perverse
situations, they then assume that other human beings external to those involved –
scholars and public officials – are able to analyze the situation, ascertain why
counterproductive outcome are reached, and posit what changes in the rules-in-use will
enable participants to improve outcomes.Then, external officials are expected to impose
an optimal set of rules on those individuals involved. It is assumed that the momentum
for change must come from outside the situation rather than from the self-reflection
and creativity of those within a situation to restructure their own patterns of interaction.
29 In an interview, Ostrom explained:

we have a distinct obligation to participate in this educational process as well as to

engage in the research enterprise so that we build a cumulative knowledge base that
may be used to sustain democratic life. Self-governing, democratic systems are always
fragile enterprises. Future citizens need to understand that they participate in the
constitution and reconstitution of rule-governed politics. (Ostrom, quoted in Boettke
et al, 2013: 408; see also Boettke, 2010)
As such, the end goal of her research programme was ‘the cultivation of citizens
capable of democratic self-governance’ (Boettke et al, 2013: 408).

Acknowledgements
I would like to thank Roger Backhouse, Roger Congelton, William Shughart, two
anonymous reviewers and the editor of this journal for helpful comments and suggestions.
An early draft of this article was presented as a plenary at the Public Choice Society
meetings in March 2022.

Conflict of interest
The author declares that there is no conflict of interest.

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