The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part One: the Needless State (chapters 2, 3, 4 Are Not Available Online For Copyright Reasons)
• 1: Who Gave Us Order? On Exclusion, Enforcement, and Its Wherewithal *
• 5: Empirical Evidence *
• Part Two: Redistribution (chapter 7 Is Not Available Online For Copyright Reasons)
• 6: A Stocktaking of Perversities *
• 8: Disjunction, Conjunction *
• Part Three: Justice (chapters 10, 11 Are Not Available Online For Copyright Reasons)
• 9: Justice As Something Else *
• 12: Slicing the Cake Nobody Baked *
• Part Four: Socialism
• 13: Ownership, Agency, Socialism *
• 14: Market Socialism: “this Square Circle” *
• Part Five: Freedom
• 15: Right, Wrong, and Economics *
• 16: The Paretian Liberal, His Liberties and His Contracts *
• 17: The Bitter Medicine of Freedom *
• Works Cited

Part Five

Freedom

15

Right, Wrong, and Economics*

The preacher, invoking the love of God or the authority of religion, expounds moral precepts that help tell right from wrong. It is these signposts of morality that he exhorts us to follow whenever “self-interest” would point the other way. (Our preacher is all of one piece; he is not bothered by the ambiguities of the word “self-interest,” and nor, as we shall see presently, is the economist when he steps up to the pulpit.) In tune with his fashionably open-minded flock, the preacher may dispense with God and authority altogether, and draw principles for identifying right and wrong from other sources: from “nature” with Aristotle, a priori with Kant, or in the manner of G. E. Moore, as matters knowable to our intuition. Whichever route he takes, his congregation can have no doubt about the object of the sermon. It is to make their conduct in life other, and worthier, than it would otherwise be.

To hear George Stigler tell it in his eponymous lectures on economics and ethics, The Economist As Preacher1 has a very different object. He gets his ethical system “wherever [he] can find [it],”2 namely in people’s actual conduct. In fact, “he needs no ethical system to criticize error,”3 which is what people commit when they pursue their ends inefficiently. If he adopts one that clashes with established behavioral norms, he will readily abandon it—a practice that “strongly argues for the acceptance of the community’s values with whatever inconsistencies they contain.”4 Why the fact that something is usually done (i.e., that a minority ethical belief is usually abandoned) counts as a strong argument that some other thing ought usually to be done (i.e., that the majority belief should readily be accepted), is left unexplained, as if it went without saying.

The important thing the economist seeks above all to preach is that, whether an ethical system is internally consistent or not, people should pursue the ends incorporated in it consistently, applying their means to their ends efficiently, and not make silly mistakes. Individuals probably do not make many really silly ones in this sense, i.e., their choices are instrumentally rational. Stigler concedes that this guess of his is hard to test “because there is no accepted body of ethical beliefs”5 against which to test it—a statement in surprising contradiction with his confident belief in the universality of the wealth-maximizing ethic. Collectivities, unlike individuals, do seem to make mistakes, choosing as they do policies that are inconsistent with their own stated purpose. In reality, the stated purpose is usually an alibi hiding the real one, and the policy is not as silly as it looks, for it serves some ulterior motive quite well.6 Here, the Stigler who has fathomed the dark depths of the regulation of industry and commerce is advising Stigler on ethics. Both Stiglers seem to me seriously to underrate the force of sheer, obtuse, slogan-ridden stupidity in shaping the course of public affairs.

Admittedly, the economist’s sermon is about efficiency and equity, too, but Stigler is largely satisfied that if efficiency is taken care of, equity will take care of itself, at least in the sense that “the distributional effects of the change in wealth . . . will be swamped by the change in aggregate wealth” and a significant increase in wealth will, as a general rule, also be a Pareto-improvement.7 There is, reasonably enough, no comfort here for the pervasive belief, held by a small part of the economics profession and the vast majority of the rest of humanity, that “the rich get richer and the poor get poorer.” We need have no qualms, on grounds of equity, about the wealth-maximizing ethic, unless we were to equate equity with equality—and there is no good reason for doing this, though there is always the bad one that many people do do it.

Granted that neither individuals nor groups need an inordinate amount of help from the pulpit to pursue their ends efficiently and equitably, there is still something very, very important the preacher can do for them. Stigler passes the opportunity by, though its potential is obvious once it is pointed out, as James Buchanan8 has recently, and to my knowledge for the first time ever, done so. It is to preach an ethic which, if adopted by some people, generates positive externalities for all. In particular, the ethic of work and saving, as opposed to leisure and consumption, produces unrequited, windfall benefits for those who do not practice it. Hence, if they are rational maximizers, they should pay the preacher to preach it.

How does the economist’s ethics come to be identified with efficiency, or the consistency of means with ends?—to such strong effect that the economist as preacher need only preach against the making of silly mistakes, of the sort that people as individuals are not very prone to make anyway? A necessary, though not sufficient, move is the separation of morality from ethics. If morality is understood as a set of deontological rules constraining our legitimate choices, hence constraining the ends we may choose to pursue, it must be held in limbo, outside ethical theory, for only so can ethics be confined to the pure means-ends argument of instrumental rationality, where practical reason is, in proper Humean fashion, the servant of “passions,” of given ends about which non est disputandum. For the economist as preacher, as I propose to argue, there is only a black hole where others find non-consequentialist morals. This is a straightforward philosophical maneuver; it has significant consequences I intend to explore presently. Less straightforward, to my mind, is the almost surreptitious way in which the economist’s ethic puts only prudential motives in the empty box of “given ends.”

In the time it takes to get from The Theory of Moral Sentiments to the Wealth of Nations, the perfectly general and indefinitely diverse class of “given ends” gets amalgamated into a single synthetic one, “utility” or its visible alter ego, wealth. The economist used to take it9 that all competing ends are commensurate. All their possible combinations are accordingly comparable, too, and each can be assigned a single number which causes it to be ranked either above, or below, or possibly at the same place as, other numbered combinations, giving rise to a single preference ordering. The hierarchical ordering of ends that have many properties (i.e., many “dimensions”), in terms of a single number (i.e., according to a single “dimension”), makes everything easy. It removes the disability that handicaps the scrupulous theorist who is conscious of the multiplicity of possible ends. For no law of nature decrees that rational men will usually accept tradeoffs of any of their ends against any other, i.e., that for everybody who economically fits means to ends, everything has a price. What has and what has not, and for whom, is an empirical question that cannot be prejudged. Failing positive assurance on this point, it is impossible to rank alternatives that neither dominate nor are dominated by one another, i.e., alternatives that offer more along one of their dimensions but less along another. (Where this non-domination condition wreaks havoc with traditional economic reasoning is, of course, in evaluating collective choices by trying to aggregate, in a single and complete ranking standing for the Common Good, the preference-rankings of the individuals composing the collectivity, and balancing the gainers’ gains against the losers’ losses. Welfare statements about Pareto-noncomparable states of affairs come to be seen as arbitrary, about Pareto-comparable ones as trivial—a thoroughly salutary result if it leads to the making of fewer welfare statements.)

The more economics grew into a general theory of choice—rather than just of choices where both means and ends lend themselves to “the measuring rod of money”—the less tenable it seemed to confine it to studying the pursuit of well-being, albeit of the fairly broad kind that includes regard for both the self and others, a measure of “proximity-altruism.” Man after all can, and sometimes manifestly does, act under motives that are not conducive to anyone’s well-being; and it is surely not irrational to pursue ends that are not prudential. Yet the more general and imprecise the content of the single, synthetic maximand that serves as the standard by which conduct passes for rational, the more tautological becomes the theory.10 Subject only to consistency conditions (whose violation is often hard to detect), every deliberate choice is a rational choice and for that matter every non-deliberate one, too, for it deliberately avoids the cost of deliberation.11

Between the devil of a plurality of ends which may not be commensurate and permit only partial preference orderings, and the deep sea of a tautological “utility” that is meant to provide a synthetic common measure of the totality of motives that enter into choices, enabling the complete ordering of all alternatives along a common numerical scale, and is maximized by the definition of rational choice, it is perhaps understandable that in everyday discourse the economist keeps relapsing into the traditional usage where, if the “content” or the causa causans of utility is defined, it shows up as material wherewithal, wealth, sometimes equipped with such bells and whistles as the precautions the wise man takes to preserve (and enhance) his capacity to enjoy it, to help deal with his own myopia and weakness of will, to gain and hold the esteem of his fellows, to keep the social edifice where he dwells in good repair, and so on. Thus embellished, the ethic of “wealth-maximization” is but a short step removed from prudential reason. It is, if I may be repetitive, far removed from morality if morality is a constraint on prudential reason, imposed by duties to do non-consequential, intrinsic right and to avoid intrinsic wrong. It is, of course, not removed at all from morality if the latter is derived, in a lamentably circular fashion, from the requirements of prudential conduct itself.

Stigler seems to delight in showing engagingly, wittily, with inexhaustible erudition and no-nonsense bluntness, that the most conventional of utilitarian positions is really all we have by way of universal ethics. The empirically discoverable utilitarian ethic is good enough as a normative code. No doubt deservedly, he makes a pitiful figure of fun of the Preacher as Economist (“[i]t cannot be denied that the economist’s economic theory is better than everyone else’s economic theory”;12 “flagrant inconsistency, usually stemming from that great source of inconsistency in intelligent men, a warm heart”13 ). He is all a civilized, rather agnostic yet conservative congregation could ask for: except around the rim of the black hole, he is thoroughly reassuring. His reassurance comes in two parts.

In the first place, he is persuaded that if people held, or at least professed, ethical principles that conflicted with their “self-interest” (as he chooses to call, for example, the appropriation of small sums of money manifestly destined for other people), self-interest would win “much of the time, most of the time.”14 Happily, however, people do not hold ethical beliefs that would often cause such conflicts.

For, in the second place, utility-maximization, manifesting itself as wealth-maximization, is the personal ethic most people adhere to. It is hardly surprising, then, that ethics and “self-interest” seldom clash.

Though he does not say so, by omission he suggests that pride, arrogance, charity, shame, envy, snobbism, a sense of justice, spite, emulation, posturing, class hatred, and the many other plausible motives for human conduct that do not square with and may positively obstruct wealth-maximization, are negligible. Whether excluding them from the maximand is a fair simplification is, of course, an empirical question. Stigler is confident that “systematic and comprehensive testing”15 would prove it correct. This reader begs to express mild doubt both about the capacity of such testing to decide the question, and about the answer it would furnish if it were able to decide it.

The fit between people’s putative ethical code and wealth or income maximization is, as we would expect from their definition, so close that not only is conflict between them predictably rare, but it becomes questionable whether the two have any independent existence. Honesty is the classic, and somewhat embarrassing, case in point. If we knew that people are honest because they simply think it right that they should, or because they owe it to their fondly embraced self-image, we could rejoice at the sight of their disinterested virtue being unexpectedly rewarded by material success in the marketplace. But we do not know why they are honest. What we do know, instead, is that honesty is the best policy and it pays in the long run. Hence utility-maximizers would have to be honest anyway, for prudential reasons. Is it, then, that their moral principles correspond, by pure happenstance, to what material success requires, or is it that they have none? Stigler, I suspect, would consider the question somewhat puerile, hardly worthy and hardly capable of a response. His passing reference to it16 leaves the problem exactly where he found it.

And now to the rim of the black hole. A man takes a short cut through the park every night on his way home, and one night in five on the average, he is robbed of his trousers. This, for Stigler, is indistinguishable17 from a voluntary transaction in which the same man pays a toll of one-fifth of a pair of trousers for access to the short cut, and which (assuming the toll-taker owns the short cut, an assumption Stigler does not make) is “honorable dealing” (ibid.). Do we then gather that since trousers-robbing, where the victim has knowingly exposed himself to a statistically established risk of being debagged, is indistinguishable from a voluntary transaction, it is a voluntary transaction? If two phenomena are indistinguishable, they are the same phenomenon; logical positivists with the record of a George Stigler cannot mean anything less.

Going further than this is speculation rather than exegesis, but it is tempting to add that if a toll of one-fifth of a pair of trousers is demanded at the short cut, and our man takes the short cut fully prepared to pay it, the transaction is “honorable dealing,” and never mind whether the toll-taker has title to the short cut, leases it from the owner, or is just squatting on it without the owner’s consent. By the argument that buying passage through the short cut at the cost of one-fifth of a pair of trousers is a utility-enhancing voluntary transaction, it is presumably beside the point whether the robber was entitled to rob, or the toll-taker to take tolls.

A minor and a major objection arise, and the major one seems to me decisive.

Take the minor one first. Predictably losing one’s trousers, and keeping them but paying a toll in lieu, are unlikely to be indistinguishable. If the trouser-robber, instead of lurking in the bushes, could choose to sit at a gate and collect a regular toll instead, he may well not charge a toll of one-fifth of a pair of trousers. If he thought the elasticity of demand for the short cut was greater than unity, he would expect to do better to charge less. If, in addition, the continuing existence of the trouser-robbing business looked more precarious than the toll-taking business, there could well be good reasons to “milk” the former while the going was good, and build the latter by a tariff even lower than that indicated by the short-run elasticity of demand. By extension of the same argument, the toll-keeper who had title or a secure lease could be expected to charge less than the squatter. The idea that an economist of Stigler’s acuity and subtlety did not see this is too preposterous to entertain. If he chose to ignore the law-and-economics type effects that would make trouser-robbing distinguishable from toll-taking, it must have been in order not to blunt the point he thought he was making and was trying to drive home: that if both enhance utility to the same extent, the distinction between robbery and “honorable dealing” is metaphysical obfuscation.

However, Stigler has incompletely specified the institutional framework of his fable. This is the major objection to his thesis. If a vital missing piece is put in its proper place, it is immediately clear that the distinction between his two transactions, far from being metaphysical, is plain to the most austere logical positivist, and to you and me too; and this, to my mind, decides the case. Who, in this fable, is entitled to what? If the short cut is owned by nobody, or if title to it is limited by a general right-of-way, our man has the liberty to pass through it unhindered, just as he has the liberty to perform any other action that is within his feasible set (the economist’s “budget constraint”) and is not preempted by another’s duly acquired prior right. Hindering him is a violation of his liberty and if the hindrance is more than trivial, it is a tort. Forcibly taking off his trousers is robbery, charging him a toll is extortion. By a universal convention that varies but little across cultures and over the ages, neither is recognized as “honorable dealing,” and they are perfectly distinguishable, too, from one another. If, on the other hand, the short cut is owned by someone and is not subject to an easement, and our man passes through it, he is not exercising a liberty; he is violating the owner’s right by trespassing.

Suppose, next, that the owner allows passage against payment of a toll, and our man, to save the toll, takes a different, perhaps less convenient short cut. At this short cut, robbers lurk and he runs a known (and small) risk of losing his trousers. For argument’s sake, take it that the expected utility of passing by the robber-infested short cut, however, is still greater than of the safe passage through the toll gate. By voluntarily letting himself be involuntarily undressed, our man has made a utility-maximizing transaction which has all “the ethical attractiveness of voluntary exchange.”18

The plain man, sitting in the congregation the economist is preaching to, who felt so comfortable and reassured by the beginnings of the sermon, is by now thoroughly bewildered. For him, the transaction involves coercion and looks, ethically and otherwise, quite unattractive.

Stigler, in full flight under the ample power of his logic, will have none of this. He insists that punishing illicit parking by a fine of $6— and charging $6—for parking space are either both coercive, or neither is: making an action subject to a sanction coerces no more and no less than a relative price change that makes the action more expensive.19 Coercion is admittedly a difficult concept, and some attempted definitions of it, including Hayek’s (with which Stigler takes issue in the essay cited), are not very successful. However, for Stigler, no definition of it, nor of freedom, can be successful, because the very concept presupposes some moral code, and he thinks any such code is moot:

It is baffling why he refuses to take any notice of the very moral code whose alleged lack is turned into an empirical justifier of narrow, minimalist ethics; a code which, except for some exotic nooks and crannies of the known world, its essentials universally accepted, not particularly incoherent, a living refutation of moral relativism, and in which noncoercion is indubitably a corollary. The code is not a comprehensive moral law directing all possible human action. It deals only with actions affecting the person and property of others, and not all of those at that. It has fuzzy edges that blur the status of acts versus omissions, the distinction between negative externalities and harms properly speaking, questions of intent, negligence, and accident, and the respective places of restitution and retribution. On these and other, even finer points, acceptance is not uniform cross-culturally and even within the same culture.

For all that, however, the code is remarkable in two respects. First, while it is largely silent on what ought to be done, it is probably as full and clear a system of stipulations of what must not be done as it is possible for mankind to agree on and by and large to respect. Second, while it is no doubt possible to impute to every one of its rules a consequentialist (particularly a rule-utilitarian) explanation and to make a good case that it was adopted for a (functional) reason, men for many centuries have recognized and applied the rules without seeking such explanations. They do not often ask themselves whether compliance with a particular rule has good consequences in a given case or in general.21 The person who needs convincing that killing or maiming another is wrong because the victim deserves to live, and needs the use of his limbs, or because if killing and maiming were not deemed categorically wrong, anyone might turn around and kill or maim him, is a rare bird most of us would regard with some mistrust if not distaste. The person who thinks stealing is wrong because secure property is an instrument of efficient resource allocation, and is also needed for social stability, is less rare but no more admirable. For the ordinary member of Stigler’s congregation (and perhaps unbeknown to him) killing, maiming, stealing, damaging property, and defaulting on agreed reciprocal commitments, are wrong without having to be wrong torts in the original meaning22 of the word, before a large part of torts was swallowed up by the criminal statute and another large part in the law of property and contract.

The moral code of torts functions through an immensely old, immensely widespread and influential convention, by which most people most of the time coordinate their conduct upon tort rules serving as norms. The convention needs to be supported by various second-order or satellite conventions to sanction transgressions of the various norms. (It used to be a convention that when someone cried “stop thief” all had to run and catch the thief.) Progressively, states took over the enforcement function, and most of the satellite conventions (ostracism, mutual help, vigilante action, local and voluntary adjudication) fell into desuetude. The primary convention, however, manifestly remains implanted in people’s moral consciousness, and to assert the contrary, as I read Stigler to do in the passage above, is hard to comprehend. The common understanding of tort rules that people have, enables them to tell, except for the borderline cases that seem inseparable from any rule, not only what is wrong and must not be done, but by elimination also what morally is licit—without having to be above reproach, let alone positively commendable. One implication of this common understanding of what is licit is that everybody has a fairly clear idea which part of his own and other people’s sets of feasible choices are admissible subsets: this is how everyone has some moral grasp of the liberties of each, that is their feasible actions that are not torts, and can either be freely chosen, or are obligations to be carried out as the consequence of the rights granted to others in voluntary contracts.

Once again, it need not be claimed that the tort convention is a complete, all-embracing moral guide to all that ought and ought not to be done in all circumstances. Stigler may well be right that no such universal code is (or could be) agreed. But he is not looking for that kind of code, and it is not of that kind of code that he denies the existence: he is merely looking, oddly enough in vain, for one that has “noncoercion as its irresistible corollary.”

In making his case by pointing to the sameness of a $6 parking fee and a $6 parking fine, both diminishing wealth and neither impinging more, or less, on liberty than the other, Stigler has, probably unwittingly, defined coercion right out of his example. This is so because most of his congregation, while firmly holding on to the convention against torts, would consider that neither the fine nor the fee are coercive, since the city ordinances under which presumably both were imposed were “legal,” and from the moral point of view not tortious.

Let us open up the example, to admit tort. Let there be only two alternatives if you want to park. One is to ask me to let you use my reserved parking space. The other is that you park in the road along my garden wall. In the former case, I let you park for a fee of $6. In the latter case, I let you know that as soon as your back is turned, I will tow your car away, or slash a tire or two, unless you pay me a fine of $6. I do not own the road outside my garden wall and nor does anyone else. You are free to park there. I have destroyed this option of yours by (credibly) attaching to it the threat of tortious acts (towing your car away, slashing the tire), coercing you to take the second-best option of paying for what ought to have been a liberty. In the case of the former alternative, however, you never had a corresponding first-best option, a liberty to park in the space reserved for my car. Paying me $6 (or, in dire need, $60) for its use was your first-best option. Though each transaction was avoidable (one was a close substitute of the other), was entered into voluntarily, and both had the same effect on your wealth, they did not have the same effect on your liberty; and my interference with your liberty to park in the road passes for coercion by virtue of its being “an irresistible corollary” of the moral norms incorporated in the convention against torts.

It is, I trust, not a sure sign of hopeless obtuseness to be at a loss why Stigler denies all this. Must he insist that the alleged effects on our liberty are effects on our wealth, neither more nor less, since both describe the same diminution by $6 of our remaining options, if they describe anything,23 and are indistinguishable from one another? He votes, with dogged conviction, for the much disputed merger of the concept of “liberty” with the concept of the “power to do.” This is not the place to go into the whys and wherefores of their sadly counter-productive merger. In fact, no place is the place; least said about it, soonest it might be mended. Clearly, however, there is something missing in Stigler’s ethics, or in what he seems to be taking for the ethics of the economist. It is due to the missing piece that he is determined to get by without distinguishing between a pair of ideas for which ordinary language has never hesitated to employ two different words, “right” and “wrong.” It is the missing piece that leads this superb economist to let his logic confound us and to argue that another pair of concepts for which ordinary language always uses two different words, “wealth” and “liberty,” are really the same.

16

The Paretian Liberal, His Liberties and His Contracts*

WITH HARTMUT KLIEMT

1.

Introduction

The debate about the putative impossibility of a Paretian liberal has been going on since 1970. Looking back, the impression is one of a mixture of clear formal argument and often confused interpretations. Confusion arose, in particular, from a failure to distinguish conceptionally between the relevantly different phenomena of “liberties” and “rights.” As we hope to show subsequently, the alleged paradoxes of liberalism lose their paradoxical character if one realizes that liberties differ from rights in the following way: We are at liberty to do something if we are under no constraint or obligation1 to act otherwise, we have a right only insofar as others have certain obligations towards us to act in ways demanded by us.

If person A has the liberty to decide whether to wear a green or a red dress and if person B has the same liberty to choose which dress suits her, B, neither of the two has a right to demand that a certain dress be worn by the other. Correspondingly, failing specific evidence to the contrary, neither of the two has any obligation to wear either kind of dress, nor is either of the two under an obligation to choose one color rather than another, even if their choices are not agreeable to each other. Each is at liberty to choose how to act. Individuals may, however, be willing to trade their respective liberties of choosing the color of their own dresses and thus to create rights and obligations.

Assume that a mutually agreeable trade confers on one person the right to choose the other person’s color of dress, green or red. As a result of contracting, the latter is under an obligation to wear a dress of the color specified by the former, i.e., the right’s holder. Assume also that the holder of the right has retained her liberty to choose the color of her own dress. Then, after the first individual has traded away her liberty, the second individual as holder of the right will be entitled to choose a state of affairs or to make a social choice. She may choose the color both of her own dress and that of the other. Therefore she has full control over which state of a set of social states—each defined by a combination of the colors of the two ladies’ dresses—will be chosen.

It is impossible, though, that two individuals should have full control over the same pair of states of affairs. If person A has the right to choose one from a pair of social states, then person B cannot have a right to choose with respect to the same pair. Both cannot simultaneously have a right to decide which combination of dress colors of two individuals will form the state of the world. Nor could one have the right to choose either of two social states which both specify the colors of both dresses so long as the other still retains the liberty of choosing her dress.

Subsequently we shall illustrate our claim that the alleged paradox of liberalism loses its bite if one makes the distinction between how liberties and rights function. In a first step we shall present that distinction in a somewhat more formal manner (2). If the alleged liberal paradox should rest on such an obvious confusion as we claim, it must be explained how it could emerge and be taken seriously at all. After proposing our account of that matter (3) we try to present a more traditional and, as we feel, more adequate liberal view of the role of liberties, rights, and Paretian values (4). Some concluding remarks follow (5).

2.

The Non-Paradoxical Paradox of Liberalism

2.1.

FEASIBLE, PRE-EMPTED, AND ADMISSIBLE CHOICES

We take all social states rendered possible by nature as the given feasible set. A subset of the feasible set (e.g., reading lewd books, or buying them tax-free) cannot be chosen because of collective prohibitions (“do not read lewd books”) or collective commands (“pay a pornography tax”). This then is the pre-empted subset. Its complement is the admissible subset, which includes everything that is feasible and not prohibited. (For our purposes, we may ignore the possibility of choosing alternatives in violation of prohibitions and commands.)

Prohibitions and commands are by their general nature collective choices (made for a collectivity either by a dictator or by a sub-collectivity or even the whole collectivity), leaving the choice between residual alternatives, if there are any left, to individuals. Evidently, there may be no residual. Short of this, the collectivity may choose not to choose, and to restrict its own domain of choice by a substantive meta-rule (constitutional provision), which specifies what is put into the public domain of collective or political decision-making and what shall be decided non-politically by individuals in their several capacities. (A procedural constitutional rule, as distinct from a substantive one, instead of delineating private and public domain lays down how a collective choice from a domain of alternatives is to be reached—e.g., by aggregating votes.)

The preceding way of dividing the feasible set into public and private treats collective choices as basic. Therefore, on the most fundamental level of decision-making, individual rights and liberties cannot impose any constraints on the collective choice of the proper realm of collective as opposed to private decision-making. We need a kind of Archimedean point preceding any collective decision if on that level constraints on collective choice are assumed to exist. Without some initial exogenous division between pre-empted and admissible, there may be no liberties to start with.

One such potential determinant, exogenous to the present, is history, which has bequeathed social convention to the present. Convention rules out certain alternatives for being torts, in the broad and ancient sense of the word, that is offenses against person and property subject to retribution and restitution. The concept is not very sharp-edged but it captures quite well our common intuitions about respecting other individuals as persons who are entitled to make certain choices.—In any event, we must start from somewhere. We will therefore begin our discussion under the assumption that the admissible sub-set, i.e., the initial area of liberties, is exogenously determined.

2.2.

LIBERTIES, RIGHTS, AND OBLIGATIONS

Whether or not we accept that there can be any individual liberties and rights preceding any form of collective choice, the admissible subset of an individual’s feasible choices consists of liberties, rights, and obligations towards other individuals. The individual exercises a liberty when performing an admissible act A that does not violate another’s right. He exercises a right R when his doing so obliges another to perform an act bringing about a “state” r corresponding to R. Finally, he fulfills an obligation when performing an act bringing about r to which another is exercising a right R (for the determination of rights, cf. infra.).

A driver is free (has the liberty) to drive his motor car on the road in a manner that causes no tort or a high risk thereof to other users of the road. Every other driver has the same liberty, notwithstanding that the simultaneous use of their liberties by everyone would bring traffic on the road to a standstill. This is to say that the exercise of liberties may be incompatible. The exercise of one of a pair of incompatible liberties is not a violation of the other. It is an adverse externality. A liberty is only violated by a tort, an inadmissible act.

More specifically, consider again the example of two women each of whom is at liberty to choose the color of her dress. Each of the two, who for convenience are christened 1 and 2, may decide to wear a green, g_i, or a red, r_i, i = 1, 2, dress respectively. We take it that for both of the women each of the two decisions is admissible and neither of the women has a right limiting or controlling the choice of the other. Given these premises the ensuing interaction may be represented by the following game form:

All of the results represented in this game form are admissible. They emerge as individuals exercise their liberties. Exercising a liberty is equivalent to the choice of a row, in the case of player 1, or a column, in the case of player 2. Individuals’ liberties are to be identified with their strategy sets (rows or columns) in the game form rather than with the social states (cells) brought about by the joint exercise of their liberties.2

If only liberties to choose the color of one’s dress—but no rights with respect to another wearing one color or the other—exist, each individual is free to choose among the alternatives over which she has a liberty. The other individual has no legitimate complaint as far as this is concerned. Neither has either of the individuals, using her respective liberties—normatively speaking—any claim over the choices of the other. Each can choose her own actions within the realm of her liberties. Neither can choose a social state. Whatever comes out of their separate choices will be the social outcome.

On the other hand, imagine that lady 2 has given up her liberty to choose the color of her dress. She has accepted the obligation to comply with lady 1’s wishes as far as the color of her (2’s) dress is concerned. Lady 1 has acquired the right to choose a social state (from a set of social states). She is entitled to choose among whole states of affairs since she is at liberty to choose her own dress and has the right to impose the color of 2’s dress. Contrary to this case, individuals, in exercising merely their liberties, can never bring about a collective result single-handedly.3 Their liberties allow for the simultaneous exclusion of sets of results from the collective choice set but never for the choice or exclusion of a single alternative from a set of alternatives. Thus, minimal liberalism in Sen’s sense—that is, the capacity to choose one state of at least one pair of social states—is not implied by “game form liberalism” based on the assignment of liberties rather than rights. Therefore, contrary to Sen’s claims, his arguments do not apply to what might be called liberal individualism.

Essentially the same point has been made by James M. Buchanan twenty years ago (printed for the first time in this issue). Since it was strongly criticized in Buchanan’s original presentation it may be helpful to look at it in some more formal detail in the light of our basic conceptual distinction between liberties and rights.

2.3.

SOCIAL CHOICES BY EXCLUSION

In the above game form, so long as no rights exist, there is neither an individual choice nor a social choice of a cell. There is simply no choice of a cell. On the other hand, each person, in exercising her liberties, insures that the social state finally emergent must fall within the subset defined by her choice. Exercising their liberties individuals end up in a cell. But the cell is not chosen by any individual.

The liberties of individual 1 may be represented by the set of sets D₁ = {{(r₁,r₂), (r₁,g₂)}, {(g₁,r₂), (g₁,g₂)}} while the liberties of individual 2 may be represented by the set of sets D₂ = {{(r₁,r₂), (g₁,r₂)}, {(r₁,g₂), (g₁,g₂)}}. As can be checked immediately ∀ x ∈ D₁, ∀ y ∈ D₂ : x ∩ y ≠ ϕ. Thus individuals 1 and 2 can simultaneously exercise their liberties in any way they like without precluding the emergence of a well-defined collective result in a situation characterized by the above game form.

However, if we postulate rights rather than liberties there is no guarantee that within the realm of the normatively admissible a well-defined collective result exists. This may be illustrated by Alan Gibbard’s well-known example of Zubeida and Rehana (1974, also quoted in Sen 1976/1982a, 312–13) who are going to choose the color of their dresses. Each of the ladies can very well have the liberty to choose green or red. However, if Zubeida had the right both to choose between red and green, and to wear the same color as Rehana, Rehana would have an obligation to choose red when Zubeida chose red (and green when the latter chose green). Rehana could not have the liberty to choose her own color. This would be pre-empted by Zubeida’s right. One’s right would negate that of the other and, for that matter, the liberty of the other. Both women’s “rights” could not simultaneously stand. No two contradictory rights can both stand.

Referring to the preceding game form this situation can again be illustrated in a very simple way. Recall that the liberties in that situation were

D₁ = {{(r₁,r₂)}, {(r₁,g₂)}, {(g₁,r₂)}, {(g₁,g₂)}} and

D₂ = {{(r₁,r₂), (g₁,r₂), (r₁,g₂), (g₁,g₂)}} with

∀ x ∈ D₁, ∀ y ∈ D₂ : x ∩ y = x,

that is lady 2 has neither a liberty nor a right to choose.

Now, the latter construction may seem unfair to Gibbard. He does not assume the existence of a decision right over all pairs of alternatives for one individual. It may seem therefore that such a dictatorial competence over all alternatives is over-extending Gibbard’s use of the notion of a right. However, even under the most charitable interpretation of the approach a variant of the preceding argument would still apply.

Consider the following game tree in which player 2 is granted the “right” to decide between pairs of states of affairs contingent on the choice of the other. With this “contingent right” player 2 cannot require player 1 to choose in a specific way. As a second mover she can merely decide which of the social states will emerge after the first mover 1 has chosen her dress.

The corresponding decision “rights” then are

D₁ = {{(r₁,r₂), (r₁,g₂)}, {(g₁,r₂), (g₁,g₂)}}

D₂ = {((r₁,r₂), (r₁, g₂)), ((g₁,r₂), (g₁,g₂))}.

That is, the first can choose among sets while the second, contingent on the set chosen by the first, can choose among states of affairs. The decision rights do not let both choose among states of affairs. That is, they are not

D₁ = {((r₁,r₂), (g₁,r₂)), ((r₁,g₂), (g₁,g₂))}

D₂ = {((r₁,r₂), (r₁,g₂)), ((g₁,r₂), (g₁,g₂))}.

Thus, if “contingent rights” are construed appropriately not both individuals can hold “rights” such that an empty choice set emerges. The basic claim of those who think that there is a paradox of liberalism vanishes, since this claim amounts to nothing but the thesis that certain sets of axioms imply that an empty choice set emerges for some profile(s) of individual preferences.4 —It is obvious that the same argument holds good for the symmetric case in which 2 is the first mover.

Moreover, if the game form of the corresponding—“simultaneous move”—imperfect information game is presented in its extensive variant basically the same argument still applies. Informationally, both moves take place simultaneously. Since none of the players can have any knowledge of what the other chose, none can intentionally choose a social state. Each can make her own choice of an action but then must “wait” for the result that is going to emerge.

Of course, in a non-informational sense there may be a time sequence between the players’ moves. The second mover in time, though being ignorant of the choices of the first mover in time, may know that as a matter of fact by making her choice of a class she actually chooses between two states. But even if we would assume that this kind of a choice fully captures what we mean by a “choice of social states” it is clear that the argument that at most one player can be in a position to decide single-handedly between some pair of states of affairs still applies. For, the first mover is in the same position as before. Given the assumption about the time sequence in the “imperfect information tree” she must make her choice before the other player chooses and thus she can choose only between classes of states of affairs. For her this is not merely a matter of knowledge. From the point of view of the first mover the state of affairs will emerge only after the second mover has made her choices.5

In the case of the two girls choosing their dresses, Rehana can be normatively entitled to choose between two states of dressing only if she is entitled to require that Zubeida dresses the way Rehana chooses and Zubeida is obliged to comply. Thus, obviously, Zubeida cannot be at liberty to choose how she will dress if Rehana has a right to choose between a pair of completely specified social states. Thus, to reiterate, for entirely trivial reasons any of the individuals can choose a social state from a pair of social states only if she is—normatively speaking—in the position of a dictator entitled to determine all dimensions of the emerging state of the world.6 This is no paradox but rather follows immediately from the underlying construction of “rights to choose.”

To generalize, after recognizing the elementary distinction between rights, i.e., the choice of cells on the one hand, and liberties, i.e., the choice of columns or rows on the other, it is obvious that an individual i could virtually choose between two states of affairs—cells—only if all other individuals j ≠ i, from a set of individuals N, were under an obligation to choose according to her “orders.” Individual i must be normatively entitled to tell them how they must choose. They cannot have any liberty left to choose against i’s wishes. If they choose otherwise they violate an obligation towards i. Individual i is in the position of a puppet master who can lead all other individuals by the strings of their normative obligations to follow suit if she asks them to do their parts in picking a specific cell.

Obviously, the adherent of liberal individualism would have to reject such a construction. He does not feel that letting individuals take turns in playing the role of the puppet master expresses liberal values. The adherent of liberal individualism is primarily interested in what we in this paper call liberties. Rights, or what we choose to call such in this paper, are in his view a contingent consequence of liberties: a person A creates a right for person B by assuming an obligation to perform a particular act if B requires him to do so. B cannot have the right to this performance if A preserves his liberty to perform or not to perform the act. The free choice between preserving and surrendering liberties is a defining feature of the liberal creed, and of a liberal theory of rights.

We do not claim a monopoly of correct usage when we call one particular relation between persons and acts “liberty,” the other “right.” What we claim is that they are fundamentally different relations; calling them by the same name is to ignore the difference. If there is an excuse for doing so, it can only be the view that all such relations, i.e., both our liberties and our rights, are privileges conferred on individuals by collective social choice. However, even on this view they would be relevantly different, as a glance at the game form representation clearly reveals. What is puzzling, and needs explanation, is how so many eminent social choice theorists could fail to make the obvious distinction between the phenomena to which we refer as rights and liberties respectively and consequently could think that their collective choice concept of a right could capture intuitive individualist liberal notions of freedom of decision.

3.

Rights as “Softeners” of Social Choice

Sen does not accept the Nozickean view that “rights” are simply constraints imposing restrictions on the realm of collective choice. As a genuine social choice theorist, Sen models individual choices as acts of participation in an overall social choice. He therefore tries to build “rights” into the collective choice mechanism itself: in translating individual orderings into a common social ordering, society must rank any alternatives over which individual i has a “right” as i ranks them, and any alternatives over which j has a “right,” as j ranks them.

Let us reconstruct what that could mean by transforming the previously discussed example of a game form into a very simple voting game. The game form was defined by the set of players k, k ∈ K = {1, 2} and the set of strategy profiles Z = {(z₁, z₂) | z_k ∈ {g_k, r_k}, k ∈ K} which at the same time determined the set of possible states of the world characterized by the possible combinations of green or red dress colors of the two individuals. Now, let

Z* := {((Z₁₁, Z₁₂), (Z₂₁, Z₂₂)) | Z_k1 ∈ {G₁, R₁}, Z_k2 ∈ {G₂, R₂}, k ∈ K },

where capital letters stand for individuals’ voting rather than for their dressing strategies. Thus “Z_kj” must now be read as individual k votes in favor of bringing about a state of the world in which individual j acts according to “z_j.” Note, though, that according to this construction j is no longer entitled to choose z_j. All choices are made collectively or socially since the state of the world is determined in a voting process. To put it slightly otherwise: when dressing, individuals are merely acting in the way corresponding to z_j but the choice of their act has been made for them on the level of voting. (Think of the collective body as a “puppet master” who is deciding by majority vote on the script for a “dressing performance.”)

Whenever there is no unanimity the obvious question is whose wishes should prevail. For instance, individual 1 might vote (G₁, R₂) and individual 2 votes (G₁, G₂), etc. An obvious way out is giving dictatorial competence to one individual. Accordingly the next matrix shows what it would mean that 2 has dictatorial competence. In this matrix, whatever 2 chooses “for the collectivity” (by casting his vote according to one of the four pairs of “capital letter alternatives” in the top row of the matrix) is executed as the social choice and individuals merely act as “puppets on a string” when bringing about the socially determined result (one of the lower case alternatives forming the “inner” sub-matrix). By wearing a dress of the correct color they execute collective commands issued by the dictator.

To avoid dictatorship, individuals must change the voting mechanism. Individual 1 should not merely participate as a “dummy.” His vote should have real weight. If the mechanism is “softened” so that every individual can determine one issue by making his vote effective for that issue we get the following matrix of the voting game:

If we reduce the latter matrix to the starred rows and columns by leaving out the duplicated results we get the game form Γ:

This game form looks strikingly similar to the one presented before. The fact that the collective choice mechanism is “softened” by granting individuals a decisive vote in determining the collective command to be executed by them should not deceive us into believing, though, that the voting rights protect the individuals’ liberty of dressing as they please. They do not. The formal “similarity” between the voting game form and the liberal game form conceals that the change from lower case to capital letters in denoting strategy choices makes all the difference in the world.7

As long as individuals chose “small letter actions” directly they were entitled to choose the color of their own dresses separately. They had liberties rather than participatory rights in a voting process. Whereas now they have a vote in a collective choice. They can choose to vote in a certain way and by this bring it about that the collectivity issues the command that they dress in their preferred way. Still, when dressing, they merely execute a collective command but do not choose how to dress. The action of dressing now amounts to the execution of a command rather than to exercising a liberty.8

“Rights,” in the sense Sen uses that term, are elements of a collective command structure. They serve the function of keeping collective choice reasonably close to what could be accepted under the value premises of Paretian welfare economics.9 Thus, even though he presents it as an attack on the Pareto principle, basically the same Paretian-Wicksellian aim of “softening” collective choice that was driving Buchanan and Tullock in their Calculus of Consent (1962) seems to be behind Sen’s enterprise.10

Since the game form of the voting game and the reduced liberal game form of the preceding example look almost identical, one might be tempted to conclude that Sen’s construction amounts to the same thing as the liberal game form. This similarity explains why so many people could think that the social choice theorists’ representation of liberties as participatory rights in a social choice mechanism could capture what liberal individualism is all about. However, it is clearly inadequate to reconstruct the intuitive notion of what we call liberties in this paper as special “voting rights.”11 Explicating the concept of a liberal “right” in terms of individual entitlements to make social choices for a collectivity does not capture adequate notions of “rights” or, for that matter, “liberties.”

4.

A Liberal View of the Liberal Constitution

We could be content to let it rest at that. Yet the adherent of the social choice approach may still insist that even if individuals are entitled to make their “private” choices within the scope of their admissible actions a collective result or social state will eventually emerge. Since “the rules of the game” are collectively determined—at least they can be collectively changed under some rule of rule change—society cannot avoid responsibility for collective results—at least the responsibility of not changing the rules. In this sense the collectivity acting as a whole or through its agents, may be regarded as being responsible for the initial delineation of liberties, of what kinds of contracts are going to be enforced, of what kinds of behavior will be treated as torts, and so on.

4.1.

FREEDOM OF CONTRACT

Sen thinks that there are certain decisions that are intrinsically private. These decisions should be left to the individuals in their private capacities. And, as far as this is concerned, he claims to be in good company since “. . . most social philosophies accept certain personal or group rights” (what the present paper insists on calling liberties). “The fact that unqualified use of the Pareto principle potentially threatens all such rights gives the conflict an extraordinarily wide scope.” (Sen 1976/1982a, 316) Indeed, as one could have guessed, the problem—if there is one—must go beyond lewd books, pink walls, sleeping on one’s belly, and other “personal things” (297). “If we believe [in unrestricted domain and almost any form of the Pareto principle] the society cannot permit even minimal liberalism. Society cannot let more than one individual be free to read what they like, sleep the way they prefer, dress as they care to, etc. irrespective of the preferences of others . . .” (Sen 1970a, 157; our italics). However, if there is unrestricted domain and P, Pareto optimality, and L, minimal liberalism, are the universal rules comprising the social choice mechanism, do they not apply to all pairs of alternatives in the critical preference configuration, regardless of their particular content? Why is the competence of L restricted to “personal” matters? And where do personal matters stop12 and “impersonal” ones begin? Are matters of livelihood, work, property “personal,” to be “protected” by L? If not, why not? The intended effect in Sen’s theory of distinguishing between what is under an individual’s control (that another may covet), and what he covets but can only get by giving up what he controls, is that subjecting the former to L (the dictates of freedom?) and both to P is capable of producing the impossibility result. The conflict is rooted in who controls what. At least in its formal logic it is not content-dependent. It would be arbitrary to make it so.

A substantive flaw of Sen’s thesis (though he is in good and numerous company), seems to lie in his attempt to discriminate between rights (and of course liberties) according to their content. There are “personal matters,” “a sphere of privacy,” “an area of autonomy” in which an individual is to be sovereign, “free to decide,” and the related preferences of others are “meddlesome,” intrusive. There are, presumably, other matters of which this is not true. But if the individual’s sphere of privacy, or area of autonomy, covers the set of his liberties and rights that must not be violated, has he any others that are not part of the set, and falling outside the protected area, may be violated?

If there are no liberties and rights that may be violated, so that no one can be made to do something against his will, which seems to be an inherent supposition of the “soft” social theory that uses Pareto-superiority as a criterion of “better,” then none is outside the “sphere of privacy” or “area of autonomy.” For what characterizes the latter is not that its content is particularly “private” (whatever that means, for aren’t all individual liberties and rights “private”?) but that it is the set of a person’s liberties and rights, over which he alone disposes. Expressions like “private sphere,” that have no very precise meaning if understood as a particular (“private”) class of objects of our options, are found to mean, more rigorously, the sum of an individual’s admissible actions. Their “area” or “sphere” is better defined, negatively, by what the rights of others, and tort law, leave over. And, from a liberal point of view the freedom of contracting away what is in one’s private sphere seems naturally included in the set of an individual’s admissible actions.

From this point of view it seems doubtful to envisage the Pareto principle as operating outside the “private sphere” of liberties and rights. The Pareto principle operates through the medium of liberties and rights, since individuals can only choose what they are, by virtue of their liberties and rights, free to choose.

This has some relevance for the real nature of the alleged conflict between P and L. Sen depicts it as one between the Pareto principle and “rights.” On a close look, it is a conflict between preserving some (any) liberty as dictated by L, and converting it into an obligation by selling others rights over it, as dictated by P, because the trade is mutually agreeable. But if L acts as an interdiction to trade certain liberties, can it be interpreted as “freedom to decide”?13 We think not. Still, even though it is arbitrary to refer to interdictions of trade as “protections of the freedom to decide” it may still be justified for some reason to interdict such trades. There can be indirect external effects of the trade of liberties that lead to Pareto-inferior results. That may hold true even with respect to such classical political liberties as “freedom of speech.” Even somebody who has no interest at all to make use of such liberties himself may have good reason to hope that others would make good use of them and thus may want to enforce an interdiction to trade away such liberties. On the level of constitutional choice individuals might therefore want to render inalienable certain of each other’s liberties and thus to restrict freedom of contract.

Of course, using traditional terminology one would speak of “inalienable rights” in this context. What is at issue here is not a mere quibble over words, though. It is rather the fundamental normative question whether the collectivity as a whole may or ought to interfere with the trade of liberties at all and if so in what way?

Forbidding certain contractual exchanges of liberties by making them inalienable is one thing; imposing trades on unwilling parties is another. The Pareto rule in the liberal paradox is dimly perceived by some as collective choice forcibly sacrificing liberties to get Pareto-improvements—the obverse of Rousseau’s “forcing people to be free.” P is thus confusedly interpreted as a social imperative to trade off a liberty “at a profit,” i.e., as an interdiction to preserve it. It is supposed to imply that “the guarantee of individual liberty [must be] revoked” (Sen 1976/1982a, 313).

This view seems quite strange indeed. For, if it were the case that a particular distribution of liberties and rights is an obstacle to Pareto-optimality, the obstacle would either be overcome by trade, i.e., voluntary conversions of some liberties into obligations (hence new rights for others) and voluntary interpersonal transfers of some existing rights, or not.14 If not, there must be obstacles stopping these mutually agreeable transactions. For all we know, there may be mutually acceptable means of removing such obstacles—we cannot prejudge that. But the means cannot possibly include the violation of “legal” liberties and rights, given that the parties would not want to be so violated—or so we may presume.

The freedom of contract is the engine of improving social states under “soft” social choice. A liberty can be contractually converted into an obligation, in exchange for value received (or to be received as of right). An employment contract, involving the conversion of certain liberties (to work or to play, to work for Jones or for Smith, etc.) into obligations to work as directed in exchange for rights to payments or other benefits, is a mundane example. More generally, one can regard every use of the freedom of contract as a renunciation or “consumption” of a liberty: for contracting parties, the acceptance of reciprocal obligations involves the abandonment of the pre-contract option they had to adopt a different course of action, a different commitment, a different allocation of their resources.

Of course, some liberties cannot advantageously be converted into obligations-cum-rights, because they have no exchange value. Many of Sen’s illustrations of “minimal liberalism” have this character: whether I read naughty books or not, sleep on my back or my belly, have pink walls or white, is not only (as he stresses) my strictly personal business, but (pace both Sen and his critics) it is difficult to see anyone else making it his business to the extent of compensating me for allowing it to become his business. Our reciprocal preferences simply do not make room for potential gains from trade. These liberties of mine may never be worth as much to anyone else as they are to me. They are destined to remain my liberties.

The preceding line of argument does not restrict “collective choice” or the state to a completely passive role as far as contracting is concerned. Where the structure of trade is not self-enforcing the question of contract enforcement typically arises. In particular one may ask whether and when the state should act as an enforcer of freely chosen contracts. This may be an issue of constitutional choice.

4.2.

ENFORCEMENT OF CONTRACTS

It is a commonplace that an unexecuted contract is a “game” of prisoners’ dilemma. If potential gains from trade fail to be realized (the contract is not concluded, or concluded but not executed), we may say that the game was solved in a Pareto-inferior manner. Consider the matrix below

Like every other potential contract, the interaction we are considering can be reduced, in a first approximation, to one of two ideal types. One is the non-cooperative game, where credible commitments are ruled out. In this setting dominated strategies should never be chosen and thus both players should use their non-dominated strategies. In a more psychological vein we could elaborate on this in the following way: Whether i chooses p or q, the dominant strategy of j is to choose r. Even if he offered to contribute s, a rational i would have to assume that j rationally will default and in fact do r. Given his correct perception of j’s best strategy, i has no hope of qs being “available,” hence no hope that he could bring that result about by his own contribution and thus no reason to contribute q to the joint result. He must opt for p if only for the “maximin” reason of escaping qr. The rational solution of this game is therefore pr, as in the simple one-shot prisoners’ dilemma.

The other ideal type is cooperative: i offers q conditional on j producing s. The equilibrium solution is qs (which will satisfy P), if the contract providing for i performing q, and j performing s, is binding, or rather believed to be so. Other things being equal, the latter will be the case if it is “enforceable.”

However, the binary alternative “commitments are/are not enforceable” is too crude even for a first approximation. A broad continuum of varying degrees of subjectively perceived credibility—in turn a function of enforceability—would serve better. But no continuum could be stretched to accommodate some of the cases that Sen puts in the foreground. How could Prude’s promise to read even the lewdest passages of the lewd book in the privacy of his study, or Jack’s promise to sleep on his back behind the closed door of his bedroom, be credible to any degree to someone who had to pay for this promise with a promise of his own?

Clearly, such undertakings cannot form either side of an arm’s-length transaction. They might be credible as between persons linked by ties of affection and trust; but then they would not normally take the form of trades, commitments fulfilled for a consideration. Promises to feel, to think, or to believe something, promises to perform unwitnessed acts leaving no trace, are worth no consideration, since it is impossible to monitor, prove, or disprove their performance; and where there is no consideration, there is no contract. Sen knows this perfectly well, and puts it beautifully when having the gentle policeman call on Prude to inquire about his reading the good book (Sen 1982b; 1986, 227–a), though it is the very raison d’être of such contracts, rather than their dubious or socially objectionable enforcement, that he should have questioned. Why, then, did he pose the conflict between keeping a liberty and selling it in a Pareto-improving contract, in terms of objects that simply cannot be contracted for?—so that the question of the Pareto-improving solution cannot even arise? L will then prevail every time, as there is no contest with P. “How do you sell your freedom of thought?” is not, in this context, a mere rhetorical question.

It is obvious here that it may be unnecessary to protect such liberties against being traded away. For those who want these liberties to prevail the best constitutional policy may simply be following a maxim of “hands off.” However, liberties and rights that enter into reciprocal preferences, and are sensible objects of arm’s-length exchanges, may pose a genuine problem. The question that we ought to pursue a little further is whether contracting should be facilitated or not by public enforcement.

The standard means of making the cooperative solution of the prisoners’ dilemma available to the parties is to refer to the historically accurate fact that in our type of civilization most contracts that suffer from no formal vices are enforced by the political authority. The effect of believing this is to stabilize the qs solution against the temptations of the default strategy that is dominant yet Pareto-inferior. Thus are people, so to speak, forced to be better off.

Can one, however, still describe the resulting qs solution as satisfying P? For it might be objected that qs is Pareto-optimal only if it is freely chosen, but not if it is weighed down by coercion (however latent); the two are not commensurate, nor is a freely chosen pr commensurate with the coerced qs. To defeat this objection, it would have to be argued that the coercion needed to transform qs into an available option is already allowed for in both individuals’ preference orderings. It is not qs they prefer to pr, but “qs cum coercion to deter default.”

Sen is anxious to establish (1986, 225–27) that the parties may not even wish to negotiate a contract (for qs) because their non-utility reasons in favor of preserving their relevant liberty outweigh the extra utility they would gain by converting it into an obligation. If utility is used in a narrow sense, that leaves room for non-utility reasons to induce choices; this is plainly something one is free to assume. The impossibility in that case is resolved by an assumption that makes L counter-preferentially stronger than P; the parties will conform to it, and the choice dictated by L will be the social choice. If, however, preference is to be taken broadly to encompass everything that influences choice, and “preferred” is to mean the choice waiting to be made if given the chance, counter-preferential choice is beyond the pale of theory; qs then yields a surplus of the entity, whether we call it utility or something else, that is supposed to motivate choice, and we are not free to assume that the parties have no wish to seek it.

This surplus yielded by contract performance can be indifferently identified as one of three things: it is the reward for bearing default risk, it is a resource available for arrangements to deter defaults, or it is a resource for buying insurance against it. Nothing permits us to assert and no good argument favors the supposition that insurance can only be bought from the political authority (which would justify its taxing power as an alternative way of collecting premiums), or that it will be bought at all. The economist would expect to find a tendency for the contracting party to be indifferent, with respect to his marginal contract, between carrying the risk and insuring it. He would also expect the mix between risks assumed and premia to be such as to help bring about this equilibrium.

Coping with default risk does not necessarily, or only, mean providing the wherewithal for an enforcement mechanism, whether a do-it-yourself or a bought-in variety. It may also mean modulating the very need for enforcement by adapting the terms of contracts to the desired level of risk. Half-executory contracts are, cet. par., riskier than either “spot” or fully executory, “forward” ones. Simultaneous performances, each fully contingent on the other, have a self-enforcing property. Refusing to enter into half-executory contracts with certain parties under certain circumstances is tantamount to paying for reduced default risk by forgoing uncertain gains. Avoiding to deal with unknown parties in cases where performance is hard to define and easy to contest is another obvious way of acting directly on the level of risk, rather than dealing with a given level of it. A multitude of adjustment, protective, and risk-avoidance devices, positive incentives for reputation-building in the reliable discharge of obligations, and the many informal extra-judicial sanctions of default, constitute a net that upholds contracts. It may be stronger or weaker, and more or less finely meshed. It is costly to knot and to maintain. Part of the cost is intangible if not altogether conjectural, since it consists of forgone advantages, missed dealings, and contracts entered into that would pass for sub-optimal in a world without default risk.

There is an obvious kinship between the costs that, if incurred, help enforce contracts, provide substitutes for enforcement, and mitigate the consequences of its inadequacies, and two other famous classes of costs: those incurred to secure property rights, i.e., “exclusion costs,” and those that are entailed in their transfer from less to more highly valued uses, i.e., “transactions costs.” All three classes are admittedly hard to define, elusive, all too often the result of imputation verging on tautology. They are, so to speak, obstacles that are invisible to the spectator, who only sees the horse that balks but not the fence that made it balk.

Unfortunately, however, the older, and supposedly better understood, pre-Coase and pre-Demsetz cost categories, such as production costs and transport costs, are similarly tainted by imputation and metaphysics. Yet, tainted or not, both science and life need concepts and categories of cost, and nothing more “objective” is likely to serve any better than the ones we have. The relatively new-fangled and somewhat shadowy triad of exclusion, transactions, and enforcement costs15 goes some way towards explaining why asset markets discriminate, some goods become public and others private, many negative externalities are tolerated, and why some ostensibly Pareto-superior moves do not take place.

A commonsense resolution of the alleged paradox of the Paretian liberal is implicit in these considerations and is ready to be read off. If a choice mechanism combines two contingently contradictory rules—as, in Sen’s construction, L interdicting the negotiation of rights and liberties, and P mandating them—a meta-rule can “socially” justify the individual choices that are necessarily made in violation of one rule or the other. It is hard to think of a more neutral, less discretionary meta-rule than the submission of possible rival outcomes, rival social states obeying rival rules, to the test of costs. Costs are grassroots arguments against an outcome. As near as one can tell, they determine whether the game of the Paretian liberal is solved by contract, or by the failure to contract. Both make perfect sense, given the “argument against.” This is, it seems, as it should be; for why should we expect a uniform issue?

5.

Concluding Remark

A right in Sen’s framework amounts to being in a position to choose at least between two cells of the matrix of a game form. Sen’s frequent claim, that his minimal liberalism as entitlement to choose between at least one pair of states of affairs is implied by such concepts as for instance Gibbard’s “issue liberalism,” is correct. But, as we have shown, it is incorrect that the entitlement to choose between classes of social states, i.e., having a liberty, has the same implication. Having a liberty does definitely not imply the right to choose between at least two social states (i.e., liberal individualism as reconstructed here does not imply minimal liberalism in Sen’s sense).

If this is true, the paradox of liberalism is no paradox at all. The impossibility results, though formally correct, do not capture the essence of liberal individualism since such a view of the world is based on a fundamental distinction between liberties and rights. Still, Sen’s arguments as well as the general discussion of the alleged paradox of liberalism raise important and interesting issues of inalienability of liberties, rights, and enforcement of contracts in a free society. Even though the first three sections of our paper were critical of Sen and even though in section 4 we outlined a vision of the mutually compatible roles of liberties, rights, and Paretian policies that quite contradicts Sen’s views, it is a great accomplishment of Sen’s to put these issues again where they belong: at center stage of modern welfare economics.

17

The Bitter Medicine of Freedom*

From the romantic age of political philosophy, many stirring images have come down to us. Some depict a people wrenching its freedom from the clutches of oppressors, native or foreign. Others show the lone individual fighting for his spiritual autonomy and material independence against totalitarian encroachment. Whatever the truth of these images in the past, their relevance for the present is fading. The issue of freedom in our civilization is changing its character. It is not so much despots, dictators, or totalitarian creeds that menace it. In essence, we do.

It is far from evident that democratic control of government is usually conducive to the preservation of liberal practices and values, let alone to their enhancement. Anti-liberal ideologies gain and retain credence inasmuch as they suit our inclinations, legitimize our interests, and warrant our policies. We love the rhetoric of freedom-talk and indulge in it beyond the call of sobriety and good taste, but it is open to serious doubt that we actually like the substantive content of freedom. On the whole we do not act as if we did. I shall presently be arguing that it is an austere substance, not unlike bitter medicine that we do not naturally relish—though it can become an acquired taste for the exceptional individual—but take only when the need presses. My object is to show that contrary to the sweetness-and-light views of freedom, it is this more austere view that best explains why we keep praising it while in our politics we are busily engaged in shrinking its domain.

Taking Freedom Easy and In Vain

Countless notions of greater or lesser woolliness attach to freedom, and a full review of its alternative definitions would be tedious. The very limited sample I choose to look at, however, seems to me representative of the main live political currents of the age. The context of each is non-Robinsonian, in that it deals with a person’s freedom as constituted by the options and constraints of his social life. The subject, in other words, is not the individual facing his Creator, nor the solitary player in the game against Nature, but the person acting with or against other persons. The freedom in question is a property of one’s conduct in relation to the conduct of others, rather than an affirmation of free will, “inner” freedom, or some other proposition about the causation of human actions or the state of men’s minds.

The rudiments of the liberal definition identify a free person as one who faces no man-made obstacles to choosing according to his preferences, provided only that his doing so does not cause a tort to another person. This idea of freedom takes preference and choice conceptually for granted, does not worry about how preference can be recognized unless it is revealed by choice, nor does it seek to make statements about the nature of the self. It is practical political freedom. This, however, means something far more general than conventional “political liberty,” i.e., the freedom of each to affect collective decisions to some albeit minimal extent through a regulated political process, and normally understood to consist of the freedoms of speech, assembly, press, and election. Instead, it is political in the broader sense that it results from the political process, depending as it does on collectively imposed institutional restrictions of greater or lesser stringency on the opportunity set open to choice. As Frank Knight put it, it is coercion and not freedom that needs defining.1

By extension of this view, the corollary of freedom is said to be the reduction of coercion “as much as is possible”2 ; in the same vein, it is independence from the “arbitrary will” of another.3 Giving the matter an ethical dimension, freedom is represented as a state of affairs that permits one to choose any feasible option provided that his doing so does not harm another person.4 Loosely related to the principles of non-coercion, independence, and no-harm is the Kantian principle of “equal liberty.” It appears to refer to a state of affairs where one person’s options are not subjected to a man-made restriction to which those of any other person are not also subjected. This formulation, however, is incomplete. Needless to say, neither Kant nor those, notably Herbert Spencer, who followed him in employing this form of words, meant that the “extent” or “quantity” of freedom in a state of affairs was irrelevant and only its “distribution” needed to be of a certain kind—i.e., “equal.” If such a distribution were the sole criterion, it would not matter how much or how little there was to be had, as long as everybody had as much or as little as everybody else. That freedom demanded to be both “maximized” and “distributed equally” was made explicit by Rawls in his adaptation of Kant’s principle.5

In these versions, freedom appears as a unitary concept. It may or may not be capable of variation by degrees. Hayek suggests more than once that it is indivisible; it is either present or absent; we either have it or we do not; we either choose freely or we are coerced. The “size” of the feasible, uncoerced opportunity set does not affect the issue, nor does coercion vary in extent or intensity.6

Liberals of the orthodox tradition, for whom it is a property of the relation between individual preference and choice—a relation devoid of obstacles erected by politics except where such obstacles serve to shelter the freedom of others—do not as a rule recognize a plurality of freedoms. The plural usage, on the other hand, is fairly typical of heterodox, “redistributor” liberals who deal in numerous freedoms to accede to desirable states or activities, designated as “positive,” as well as in “freedom from” hunger, want, insecurity, and other undesirable conditions. Dewey’s freedom as “power to do” also belongs to this category, where diverse “freedoms” represent power to do diverse things. It is not hard to appreciate that these heterodox freedom concepts are in essence rhetorical proxies standing for diverse goods, some tangible and others intangible, that are perfectly recognizable under their everyday names and need not be described indirectly in the guise of “freedoms.” Freedom from hunger is an oblique statement about food being a good, and about a condition in which one is not deprived of it; it can be turned into a general norm under which none must be deprived of it. Similarly, freedom of worship conveys, positively, that it is good for each to be able to profess his own faith, and normatively that none must be deprived of access to this good. Employing freedom-speak in discussing various goods can at best underline the importance we attach to them; at worst, it confuses issues of autonomy and coercion with issues of wealth and welfare. The term freedom in the classical sense seeks to express—whether successfully or not—the unhindered transformation of preference into action, the ability of each to do as he sees fit. “Freedom to” and “freedom from,” on the other hand, seem to refer to the extent to which options to act are available to satisfy individual or even “social” preferences.

In a spectacular logical leap which speaks well of his insight if not of his talents of lucid explanation, Marx “unmasks” the liberal foundation of freedom: “The practical application of the right of man to freedom is the right of man to private property.”7

Antagonistic to liberal inspiration, he turns to wholly different categories to construct a concept of freedom. The Marxist concept has nothing—or nothing explicit—to do with the passage, unobstructed or not, from individual preference to chosen action, a passage of which private property is the privileged vehicle. The corollary of Marxist freedom is not the absence of coercion of the individual by his fellow men through the political authority, but escape from the realm of material necessity, from the tyranny of things.8 Its subject is not the individual, but mankind.9 Self-realization—“rehumanization”—of the latter from the “reified” social relations of “commodity production” is the state of freedom.

To the extent that this thickly metaphoric language is intelligible, it seems to mean that humanity is free when, no longer subjected to the unconscious and impersonal force of things, which is Marx’s code name for the automatism of a market economy, it collectively masters its own fate by deliberate, rational planning. The passage from the realm of necessity to that of freedom is both the cause of, and is caused by, the passage from the realm of scarcity to that of plenty.

Vacuity and Moral Truism

One common feature shines luminously through these various concepts, definitions, and normative principles of freedom. Each as it stands is a moral truism, impossible to dispute or reject because each is defined, if at all, in terms of indisputable superiority. Each, moreover, is defined in terms of conditions whose fulfillment cannot be empirically ascertained—when is coercion at its “possible minimum”?—when is man not subject to the “tyranny of things”? The proposition that a state of affairs is free is rendered “irrefutable,” “unfalsifiable.” Each, finally, expresses a condition which, if it prevails, one can enjoy without incurring any costs in exchange. Consequently, the question of trade-offs does not arise and it would be lunatic to say, with regard to any one of the rival concepts, that on balance one would rather not have it. Renunciation of freedom, so defined, would not bring any compensating benefit either to the self or to others, nor reduce any attendant sacrifice or disadvantage. Unlike values we buy by giving up some comparable value, it is always better to get and keep such freedom than to give it up.

No great analytical effort is needed to see that freedom concepts have this apple-pie-and-motherhood feature when they are vacuous, their stated conditions being impossible either to violate or to fulfill. They make no identifiable demand on anyone and lack any content one could disagree with. That coercion should be reduced “as much as possible” is, pace Hayek, a vacuous precept unless integrated into a stringent and clear doctrine of “necessary coercion.”10 Only then would the precept get any definite meaning, for only then would it be referring to some recognizable standard or measure of how far it is “possible” to reduce coercion, and only then could it identify the actual level of coercion as higher than necessary. Otherwise, any level could be as compatible with freedom as any other, and the most shamelessly intrusive dictators of this world would all be recognized as libertarians doing the best they could to avoid unnecessary coercion.

Immunity from the “arbitrary will” of another is similarly empty, for the will of another is judged arbitrary or not, according to the reasons the judge imputes to it. If another’s decision rests on identifiable reasons, it may be unwelcome to me because it restricts my ability to act as I would, but I can only have a good claim to immunity from it in the name of my freedom if I have a valid argument to rule out those reasons. Bad reasons leave the decision unjustified, and absence of reasons makes it arbitrary—surely a relatively rare case. Manifestly, however, the crux of the problem is that the claim to immunity from the will of another stands or falls with somebody’s judgement of the reasons for the latter; and lest his judgement itself be arbitrary, it must be guided by an independent system of laws, customs, moral principles, and whatever else goes into the determination of a person’s liberties in his dealings with others. Immunity from the “arbitrary” will of another seems to mean no more than that one’s liberties must be respected; its use to define freedom is simply a recourse to a tautologous identity between it and the non-violation of liberties—whatever they are—whereas a meaningful definition should be capable to serve as a determinant, or more loosely as an argument about what those liberties ought to be. However, the rule that in a state of freedom nobody should be subject to the arbitrary will of another, does not commit anybody to anything beyond respecting well-defined rules of tort. It may in fact be that the immunity concept of freedom and the normative rule it provides is even more trivial than that, for it could be held that in these matters liberties are well-defined only if they are codified, and the rule then boils down to the banality that in a state of freedom nobody should break the law.

The harm principle turns out, on inspection, to lack specific content for much the same reason as the immunity principle. Under it, the political authority in a state of freedom does not prevent—or “artificially” raise the cost of—acts that are harmless to others; it does not allow anyone to interfere with the harmless acts of others; and prevents and sanctions harmful acts. However, there is no very evident binary division of acts into a harmful and a harmless class.11 Some of our acts may possibly be beneficial or at worse indifferent to everybody else, though it would no doubt be hard to make sure that this was the case. As regards these acts, there is a clear enough reason why we should be left free to commit them. But this does not take liberty very far. For there is a vast number of other acts that are harmful to somebody to some degree, having as they do some unwelcome effect on somebody’s interests, ranging in a continuous spectrum from the merely annoying to the gravely prejudicial.

This must be so for a variety of reasons, the simplest one being that in any realm of scarcity—scarce goods, crowded Lebensraum, limited markets, competitive examinations, rival careers, exclusive friendship, possessive love—one person’s chosen course of action preempts and prejudges the choices of others, sometimes helpfully but mostly adversely. The place and the prize one gets is not available to runners-up, no matter how badly they want or “need” it. Where does “harm” to them begin? Common sense tells us that, depending on circumstances, there are acts you must be free to engage in even though they harm my interests, hurt my feelings, or expose me to risk. How to tell these acts from those which are to be prevented? Define them, and you have defined the rights that may be exercised—“positive” freedom—and must not be violated—“negative” freedom—the two kinds appearing as two perspectives of one and the same system of “rights.” The harm principle is vacuous prior to a system of liberties and rights, while posterior to it all it does say is that the holders of liberties and rights are not to be deprived of them either by the state or by anybody else. Concisely, the harm principle affirms no more than that liberties are liberties and rights are rights.

The Kantian equal liberty, whether or not equipped with a maximizing clause, is baffling in its lack of guidance about what exactly is, or ought to be made, equal—and subject to equality, maximal. It appears, at first blush, to have to do with the distribution among individuals of something finite, quantifiable, and variable, analogous to a stretch devoid of obstacles, a level surface, a private space, a protected sphere. If this were a possible interpretation and freedom were a quantifiable dimension—or dimensions—of states of affairs, it would make perfect sense to say that one person disposed of more of it than another—a test of equality—or could have more if another had less—a test that problems of distribution are technically soluble—and that if there were more of it altogether, at least some—and subject to solving problems of distribution, all—could have more, which may also mean that by giving some more of it, it can be maximized—a test that maximization is a practical objective. The difficulty is that the analogy between unobstructed length, surface, or space, and freedom, is just that, an analogy and no more. There seems to be no apparent way in which freedom could be quantified. I suggest that the statement that two persons are “equally free” has the same cognitive status as that they are “equally happy” or “equally handsome”; these are statements of somebody’s judgment from the evidence, but the same evidence could have induced somebody else to pass a different judgment, and it is impossible conclusively to settle, from the evidence alone, which of two contradictory judgments is more nearly right. There is no agreed arbitrator, nor is a last-resort test built into the practice of these subjective comparisons for settling contrary judgments and perceptions. On the view that interpersonal comparisons of such states of mind conditions as utility, happiness, or satisfaction are a category-mistake to begin with, and that the freedom of one person, being as it is bound up with subjective perceptions, is similarly incomparable to the freedom of another, the whole practice of seeking their levels or the extent of differences between them may be logically suspect anyway. In its normative version, “equal freedom” is no more stringent than Dworkin’s “equal concern and respect,” the central plank in his democratic ethics, rightly dismissed by Raz with the deadpan finding that it “seems to mean that everyone has a right to concern and respect.”12 Like “equal respect,” the norm of “equal freedom” is unexceptionable, due in no small measure to its non-committal vagueness: practically any feasible state of affairs can be claimed, without fear of rebuttal, to be satisfying such norms.13

If it is reasonable to read the Marxist concept of freedom as emancipation from the regime of “reified relations” and mastery over one’s material destiny, and then to translate this into less exalted English as the abolition of commodity and labor markets, the concept is extravagant but not vacuous. “Abolition of the market” and “resource allocation by the political authority” have sufficiently precise factual content that can be empirically recognized as being or not being the case. Unlike “arbitrary will,” “minimum necessary coercion,” or “equal liberty,” they are ascertainable features of a given social state of affairs: they either obtain or they do not. A Ministry of Planning and Rationing cannot very well be “deconstructed” and shown to be “really” a market in thin disguise. Where Marxist freedom nevertheless convicts itself of vacuousness and moral truism is in tirelessly transforming and qualifying descriptive statements, till they cease to describe anything that is ascertainable. “Servitude” is not to the conditions of the market, but to its “blind caprice,” its “irrationality”; absence of central resource allocation is a “chaotic, self-destructive” system; “the product is master of the producer”; “man, too, may be a commodity” and as such becomes “a plaything of chance.”14 Production under socialist planning is not in obedience to the instructions of the political authority—a testable statement—but “according to need”—an irrefutable vacuity. Any situation, whatever its characteristic empirical data, can be qualified as harmonious or a tooth-and-claw jungle war; any resource allocation can safely be called socially optimal or condemned as “bureaucratic,” hence failing to produce “according to needs.” There is the compulsion to agree to the moral truism that rational, conscious social deliberation is more conducive to the freedom of mankind than irrational, unconscious thrashing about in the dark; but as we can never tell which is which, the agreement is easy; freedom’s name is taken in vain and does not commit anyone to anything.

The Freedom That Hurts

The rough underside of freedom is responsibility for oneself. The fewer the institutional obstacles an individual faces in choosing acts to fit his preferences, the more his life is what he makes it, and the less excuse he has for what he has made of it. The looser the man-made constraints upon him, the less he can count on others being constrained to spare his interests and help him in need. The corollary of an individual’s discretion to contribute to or coldly ignore the purposes of the community is that he has no good claims upon it to advance his purposes. It may be that immunity from the “arbitrary will” of others is coextensive with freedom, but so is dependence on one’s own talents, efforts, and luck. As Toynbee put it, the “road from slavery to freedom is also the road from security to insecurity of maintenance.”

The agreeable corollary of my right is the duty of others to respect it; less agreeably, their right entails my duty. Freedom, if it has ascertainable content, turns out to have attendant costs, and, if freedom has degrees, the greater it is, probably the higher is its opportunity cost. Trade-offs between freedom and other goods are manifest facts of social life, though it may be embarrassing to admit to our better selves how often we take advantage of them. By no means is it evident that men want all the freedom that tyrannical or “bureaucratic” political systems deny them.

The less nebulous and the more matter-of-fact is the content of freedom, the more obtrusive become its costs. Nowhere is this so clear as in the matter of the most contested safeguard of freely chosen individual action, that is private property. Freedom of contract, privacy, and private property rights are mutually entailed. Complete respect for either member of the triad would exclude taxation. Even when it has no deliberate redistributive function, taxation simultaneously violates privacy, property rights, and the freedom of contract as the taxpayer loses the faculty to dispose of part of his resources by voluntary contract, and must permit the political authority to dispose of it by command. A reconciliation between the freedom of contract—and by implication, private property and taxation—is offered by social contract theory, whose assumptions lead to taxation, as well as political obedience in general, being recognized as if it were voluntarily undertaken.

There is a tendency, cutting across the political spectrum from left to right, to see private property as divisible into several distinct and independent rights.15 While this position is certainly tenable, its consequence is to encourage the view that restrictions on transfers of ownership, rent, dividend and price controls, the regulation of corporate control, etc., are consistent with the integrity of private property. If the latter is to be regarded as a “bundle” consisting of a number of separable rights, any one of these measures leaves all other rights within the bundle inviolate; yet any one of them is a violation of the freedom of contract. No ambiguity about their mutual entailment arises when property is conceived as an integral, indivisible right.

Adherence to any maximizing principle of freedom16prima facie implies non-violation of the freedom of contract, for it would be extravagant to maintain that its restriction, whatever its purportedly beneficial effects on, say, efficiency or income distribution, somehow leaves intact, let alone contributes to maximize, freedom in general. Moreover, if freedom is really about the unobstructed faculty of every sane adult person to be the judge of his own interest, acting as he sees fit and “doing what he desires,”17 freedom of contract must be its irreducible hard core. To argue in the same breath for maximized (and “equal”) freedom in general and restricted freedom of contract, seems to me to presuppose that we judge unilateral and potentially “Pareto-inferior” acts not requiring the consent of a contracting party by a liberal standard, bilateral and presumably “Pareto-superior” ones, depending on willing reciprocity of two or more parties, by a more severe one. Yet this is surely applying the standards the wrong way round. If a double standard were admissible, and necessary to sort out actions that should from those that should not be interfered with, the easier one should be applied to contracts since, unlike unilateral acts, they have passed a prior test of mutual consent by the parties most directly concerned. The chosen action of one person that is not contingent on the agreed cooperation of another and may leave the latter worse off, can hardly have a better claim to the social laissez passer of freedom from legalized obstruction, than the proposed action that must, for its realization, first obtain the agreement and fit in with the matching proposed action of a potential contracting party.

Insistence on freedom of contract and on its corollaries, property and privacy, is a hard position that attracts only a minority constituency of doctrinaires on the one hand, old-fogey-nostalgics of a better past that never really was, on the other. Such a constituency is naturally suspect. Its stand offends the moral reflexes of a broad public; for it is yet another moral truism that fair prices, fair rents, fair wages and conditions of employment, fair trade, fair competition are incontrovertibly better and worthier of approval than prices, rents, wages, etc., that have merely been agreed in a bargain without being necessarily fair. Anyone who contests this may be putting an ulterior motive above justice, and the onus of proving the contrary is on him.

A somewhat more clever argument that does not directly beg the question of fairness holds that even if a bargain between willing parties at some point on their contract curve is “in itself” better than failing to agree and staying off the curve, some points are nevertheless better than others for one party, worse for the other. In two-person or two-group face-to-face dealings, the actual point they agree on is partly a matter of their relative bargaining power, which must in turn depend on the distribution of wealth, will, skill, and so forth. Untrammelled freedom of contract subject only to no force and fraud thus gives “a moral blessing to the inequalities of wealth,”18 and, for that matter, of abilities and other advantages. Commitment to it is a commitment both to a maximizing principle of freedom and to non-interference with a given distribution of natural and acquired assets.

An attempt to escape from this commitment, with which many feel ill at ease and vulnerable, is to promote the idea that there could be an initial distribution of advantages that would act as a “level playing field.” Once this special distribution is achieved—by redistribution of acquired and transferable assets, such as wealth, and by compensatory measures of “positive discrimination” in education to offset natural and non-transferable advantages, such as talent and intelligence—freedom of contract becomes not only compatible with justice but is the very means to it. It produces “pure procedural justice,” in the same way as a game played by the rules on a level playing field by definition produces a just result. This particular distribution-cum-compensatory-discrimination amounts to a state of equal opportunity for all. Under equality of opportunity, freedom of contract gives rise to outcomes that need not be overridden in the interest of justice. Equality of opportunity, freedom of contract, and just outcomes constitute a triadic relation such that any two entail the third. In terms of causation, the first two jointly constitute the procedure whose outcome is distributive justice.

This attempt at squaring freedom with justice must clear two hurdles, the first substantive, the second analytical. The substantive hurdle concerns the practical possibility of levelling the playing-field, instead of perversely making it more uneven in the attempt. I do not intend to discuss this problem (except to note that it is a genuine one), and could not resolve it if I did. The second hurdle consists in the argument for procedural justice proving to depend on self-contradictory reasoning. A distribution of resources and advantages is both an end-state and a starting position leading to a new distribution. The object of a particular initial distribution D, offering equal opportunities, is to have the freedom of contract to produce just outcomes. However, whatever outcome D’ it did produce will differ from the initial equal-opportunity distribution D; some people will have gotten ahead of the position—in terms of wealth, skills, reputation, place in the social network—assigned to them in the equal-opportunity distribution, others will have lagged behind it. (Countless handicap races have been run on the world’s race courses but despite the best efforts of expert handicappers, there is to my knowledge no record of a single race ever producing a dead heat of all the runners.) We need not decide whether this is an empirical law or a logical necessity. Such will be the just outcome of the first round; however, this just end-state represents a new distribution D’ of assets and advantages that, unlike the initial D, no longer offers equal opportunities for the second round. Equality of opportunity must be restored by redistribution, positive discrimination, and so forth. The just end-state D’ generated by equal opportunities and freedom of contract in the first round offers the participants unequal opportunities for the second round, and must be overridden to secure the justice of the end-state to be generated in it, and so on to the third and all subsequent rounds to the end of time.

The contradiction in the reasoning of many liberals who want to embrace a plurality of values, seek the reconciliation of freedom and justice, and find in equality of opportunity combined with freedom of contract the joint necessary and sufficient conditions of a procedural type of social justice, resides in this: 1) a particular end-state distribution D, and only D, is consistent with equality of opportunity, 2) equality of opportunity combined with freedom of contract engenders non-D, and only non-D, 3) D is not compatible with procedural distributive justice, 4) therefore equality of opportunity, freedom of contract, and procedural distributive justice are not mutually compatible.

The reader will remark that if equality of opportunity is not itself a final value, but has only instrumental value in bringing about a certain valuable end-state, yet that kind of end-state must continually be overridden because it is inconsistent with the maintenance of equality of opportunity, the instrumental value of the latter is fleeting and self-destructive. If it is to be commended, it must be on its own merits as a final value, and not for its instrumental capacity to bring about procedural justice in distribution. If no equivalent procedure suggests itself, the attempt at procedural distributive justice must be considered a failure, the justice or otherwise of a distribution must be ascertained in some other manner, such as by listening to the moral consensus of public opinion, and the just distribution either given up as too costly and awkward to achieve, or enforced by direct measures that ipso facto violate the freedom of contract and the corollary rights of property and privacy.

Twist it as we may, the dilemma will not go away. The hard sort of freedom that is more than moral truism and non-committal, costless piety, forbids the exercise of social choice over questions of “who gets what.” Yet that is the crucial domain over which voters, groups, classes, and their coalitions generally aspire, and often succeed, to turn the power of the political authority to their advantage. More freedom is less scope for collective choice and vice versa; there is a trade-off which democratic society has used these past hundred years or so to whittle down freedom sometimes overtly, sometimes surreptitiously, and the most often fairly unconsciously. The process of whittling down has been promoted and justified by a more plausible and seductive ideology than anything classical liberals could muster.

No Hard Choices

The ideology of the expanding domain of social choice used to have, and probably has not lost, the ambition of showing how this is compatible with the avoidance of hard choices, notably the preservation of freedom. Two key theses serve as its twin pillars.

The first, put briefly, concerns the reliance on reason. It seems to affirm that, whether embodied in the knowledge of a technocratic elite or in the consensual wisdom born of democratic debate, reason is the only guide we should follow, and, in a more exacting and activist version, we should never fail to follow. Reason is in most circumstances able to detect faults in the functioning of economic and social arrangements, and can prescribe the likely remedy. This thesis is common to doctrines as disparate as Benthamite utilitarianism, Saint Simonian, Marxist or just ad hoc socialism, Fabian compromise, “constructivist” system-building, and Popperite trial-and-error social engineering. They are consequentialist doctrines, willing the means if they will the end: they fear no taboos and stop at no barriers of a non-reasoned and metaphysical nature.

All hold, albeit implicitly, that government whose vocation it is to elicit and execute social choices, is a uniquely potent tool which it is wasteful and inefficient not to employ to capacity for bringing about feasible improvements. Government, and it alone, can correct the deformities of markets. It can deal with unwanted externalities and regulate the conduct of private enterprise when the divergence of private and social costs and returns misguides it by false signals. Forgoing society’s political power to improve results in these respects, and indeed in any others, is irrational and obscurantist.

Without actually being a series of truisms, the easy plausibility of this thesis makes it near-invincible in public debate. Counter-arguments, if directed against “excessive interference” and “bureaucratic busybodyness,” are irrefutable but ineffective, since meliorist measures dictated by reason are never meant to be excessive or bureaucratic. A general plea to leave well alone is, to all intents and purposes, a defeatist or uncaring stance against trying to do better. Each policy, each measure is defended piecemeal by reason, on its separate merits. The perhaps unintended sum of winning piecemeal arguments for doing this and that, is a win for government intervention as a general practice. The twin of the thesis about reason is about justice. The former aims at allocative efficiency, the latter at the right distribution of the product. The dual structure of the domain of social choice suggested by this division of aims implies that logically and temporally production comes first, distribution follows second. Things are produced, as Mill believed, according to “the laws of economics,” and once they are there, become available for distribution according to some other law or precept. Such has been the position of Christian Socialists since high medieval times, and such is that of redistributor liberals from Mill and T. H. Green to Rawls. Distributions caused by the hazard of heredity, heritage, and history may be freely altered, subject only to limits set by expediency, by social choice which is sovereign over the matter. They ought to be altered, to conform to some moral standard, because they are morally arbitrary.

The charge of moral arbitrariness, if it is upheld, means no more than it says, namely that rewards are not, or not wholly, determined by the moral features of a social state of affairs: the morally arbitrary distribution fails to fulfill the positive prediction that people’s incomes, etc., depend on their deserts, as well as the normative postulate that they ought to depend on them. However, a cognitive diagnosis of arbitrariness might be applied to a distribution not only from the moral, but also from the economic, legal, social, or historical points of view. A morally arbitrary distribution fails to conform to a moral theory; arbitrariness, however, may also obtain with respect to economic, legal, or historical theories of distribution as well. If the actual distribution is partly determined by genetic endowments and their development, character, education, wealth, and chance, which seems to me a sensible hypothesis, it has, from the point of view of any theory which does not properly account for these factors, an ineradicable property of un-caused randomness, or to use the value-loaded synonym, “arbitrariness.” Thus, we can say that, in terms of the marginal productivity theory of factor rewards, the distribution of factor incomes in the Soviet Union is arbitrary. That, however, does not in itself condemn it. Arbitrariness is an obstacle to explaining or predicting, and it is also the absence of reasons for upholding or commending a particular distribution, but it is not a reason for changing it.19 Some further, positive argument is needed to make the case that an arbitrary distribution ought to be purged of its random features and transformed into one that fully obeys some ordering principle drawn from a moral (or some other) theory.

It would be too easy if the ideology which, for its completeness, needed a theory of distributive justice, could validate the latter by the mere claim, however well founded, that the actual distribution was arbitrary. The theory needs the support of axioms that must be independent, difficult to reject, and adequate. However, what axioms will bear the weight of a theory that must justify the subjection of who-gets-what questions to the political authority? Neither moral desert20 nor the various versions of egalitarianism are difficult enough to reject.

Moral desert lacks independence, in that what is judged as morally deserved, obviously depends on an (at least implicit) moral theory guiding such judgments. Only prior agreement on such a theory, and notably on its implications for distributive justice, can secure agreed judgments of moral desert. They are indeterminate without the support of the theory, hence cannot serve as its antecedents.

Unlike moral desert, egalitarianism is at least not circular, and can be, though it rarely is, non-vacuous, i.e., its necessary conditions can be so defined that whether they are fulfilled or not becomes an empirical question. However, little else is left to be said for it. As an instrumental value, it used to be bolstered by consequentialist arguments, e.g., maximization of utility from a given total income, better satisfaction of “real needs,” or reduced pain of envy, that no longer enjoy much intellectual credit. As an ultimate, non-instrumental value that need not be argued for, it retains the emotional appeal it always had and probably always will have; paradoxically, however, the clearer it becomes that the appeal is essentially emotional, the more its effect fades.

On the whole, like certain seductive mining prospects that have been sadly spoiled by the drilling of core samples, distributive justice loses some of its glitter in analysis. “A distribution ought to be just” is a plausible requirement. “A just distribution ought to correspond to moral deserts,” or “a just distribution ought to be equal” are a good deal easier to contradict. Moreover, attempts to put such norms into practice have not helped either, ranging as they did from the disappointing when they were ineffective, to the disastrous when they were effective. Sir Stafford Cripps, Olaf Palme, and Willy Brandt have done much to make redistributive compromises unappealing. Pol Pot and Nicolae Ceauscescu have done as much for the uncompromising variety.

A more ingenious strategy proceeds by revising the order of the arguments. The usual sequence is to propose that, 1) the existing distribution is arbitrary, 2) only non-arbitrary distributions can be just, 3) a just distribution conforms to an appropriate ordering principle, 4) social choice legitimately mandates the government to realize this conformity. Instead of this roundabout route to the sovereignty of social choice over distribution, it is more efficient directly to propose that the assets, endowments, and other advantages that make the existing distribution what it is, are not rightfully owned by the persons to whom they are in various ways attached, but are the property of their community,21 and it is up to the community to decide the disposal of the fruits of its property. Genetic qualities, wealth, acquired knowledge, and organization all belong to society as a whole and are eo ipso subject to social choice, without any need for a legitimation drawn from controversial requirements of justice, and a debatable mandate for actually imposing them.

Distributions “chosen by society” may or may not be just. They are ipso facto just only in case the moral axioms that are used to define the justice or otherwise of a distribution, are taken to be the same as those that help, by fixing the choice rule, to identify an alternative as the “socially chosen” one. This means, broadly speaking, that if in a given political society the “chosen” alternative is some resultant of the wishes of its members, if every member’s wish “counts for one and no more than one,” and the majority wish prevails, then the “just” distribution is identified by the same rule in the same way. “Just” then means “chosen by society,” found to be such by a democratic process of search and consultation, or, more loosely, conforming to the moral consensus. It is just that a person should be allowed to keep what he has if, and only if, more people than not think that he should. This is perhaps a brutal and unsympathetic statement of what the sovereignty of social choice implies, but it is by no means a caricature of it.

The real difference between the two ideological strategies for extending the domain of social choice consists in this: if assets, in the broad sense which includes wealth, skill, and character, belong to individuals in a “capitalist free-for-all,” there is a prima facie implication that it is their right to dispose of the resulting income, both “earned” and “unearned.” Society, however, speaking by the medium of the “social choice rule” might declare such an income distribution unjust, refuse to countenance it, and proceed to its redistribution. In doing so, it would contradict itself, for it could not in the same breath both respect and violate a given set of property rights with the attendant freedom of contract. Its solution, adopted, as Hayek called them in the Road to Serfdom, by “socialists of all parties” except the genuine ones, is to chop up property rights into a variety of separate rights, recognize and attach some to certain classes of asset or asset-holder, and detach others, depending on the origin, type, or size of the asset or advantage in question, finally declaring its unshaken respect for the resulting mishmash. Ownership of property and the right to use, sell, bequeath, rent, or consume it thus become disjointed, fitting together as ad hoc “social choices” decree. In conjunction with this solution, society or its government can affirm allegiance to any innocuous notion of freedom, and for good measure even give it “lexicographic priority,” that requires the non-violation of rights in general without committing itself to specific and potentially inconvenient rights, and to the freedom of contract in particular.

Genuine socialists, probably no longer a very numerous or happy class, face no such contradiction between private rights and the ambition for social choice to override them, and need not have recourse to the ambiguities of redistributor liberals. With property vested in society, it is “social choice” that by rights distributes incomes, positions, and ranks in the first place; it does not need to redistribute what it has distributed, hence it does not come into conflict with any right it may have recognized to begin with; the problem of the freedom of contract does not even arise.

One way or the other, as long as freedom is allowed to be “soft,” nebulous, innocuous, costless, and as long as the claim that it is being respected and its conditions are fulfilled, remains “unfalsifiable” because the conditions are vacuous and commit to little, there are no hard choices. Allocative efficiency and social justice can be pursued in conjunction with the “greatest possible” and most “equal” freedom. We can have it all. By contrast, the painful trade-offs imposed by laying down “hard,” specific, falsifiable conditions of freedom can be made to stand out clearly. Privacy, private property, and freedom of contract strike at the heart of “social choice,” removing as they do from its domain many of the most valuable opportunities any decisive subset of society would use for imposing on the superset the choices and solutions it prefers, considers right or just, or expects to profit from.

Non-violation of privacy, private property, and freedom of contract involves massive self-denial. It demands a large measure of renunciation of the use of political processes for advancing certain interests in conflict with others. Instead of getting their way, majorities may have to bargain and buy it by contractual means. It also involves negation of plausible and well-developed ideologies that would justify the use of political power to promote one’s selfish or unselfish ends in the name of allocative efficiency or social justice.22 Small wonder, then, that these principles of freedom are systematically violated or talked out of existence. The contrary would be surprising in a civilization with a good deal of political sophistication, skills of adversarial argument, and no inconvenient taboos; a civilization like our own.

Undeserved Luck

The problem is not how to explain why enlightened men do not noticeably like the more-than-rhetorical freedom that imposes upon them self-denial, renunciation, responsibility, and duty. It is to account for the far stranger fact that, perhaps for the first time in a hundred-odd years, this freedom most of us do not really like is nevertheless holding its own. It seems actually to have gained in some important countries of the political West, and has ceased to retreat in most others. From an abysmal starting level, it is clearly in the ascendant in the societies of the political “East,” that had set out really to build socialism and have found that they have inadvertently joined the Third World in the process. Why should the relentless expansion of the domain of collective choice, which has all the logic of political power behind it, now be checked and reversed in so many different places?

Each of these societies has its particular case history; each is no doubt rich in particular lessons. This is not the occasion to survey their more bizarre episodes and their high and low moments. As always, however, each case history has much in common with every other. The chief common feature, to my mind, is that the cumulative imposition by “social choice” of reasoned solutions to an infinity of problems in production and distribution, efficiency and justice, has gradually built up perverse effects, whose total weight finally sufficed to convert the afflicted society to the bitter medicine of freedom.

It is important to admit and indeed to underline that the attempted solutions were reasoned. The caprice of the tyrant played little part in modern attempts at social problem-solving. In each instance, some sort of rational case could be constructed for them. Nothing is easier than to state with hindsight that the case for solution A was “obviously” false and owed its adoption to the stupidity or wickedness of politicians. Nothing is more dangerous than to follow up this train of thought with the all too frequent suggestion that because A was so obviously wrong, B ought to have been chosen. This is the sort of argument that would always justify one more try23 and would give rise to an endless chain of measures, instead of to the decisive abandonment of tinkering. Often we reason as if alternative measures and policies came with labels describing the likely effects of each, and perhaps also the “objective” probability that a particular effect will manifest itself. If this were so, the social choice of policies would be a choice between sets of specified consequences, or their probability distributions. Better policies would therefore on the whole tend to be chosen in preference to worse ones. Logically the power of the political authority to put chosen policies into practice would be beneficial at least in the long run, over large numbers of measures; collective choice equipped with such coercive power would have a good chance of yielding better results than the sum of individual choices that has lacked such power; and the enlargement of the collective domain at the expense of “hard” freedom would augment the scope for better results. Power, chance, and scope would jointly work for progress, and speed us towards the meliorist ideal.

In reality, the labels the policies carry specify only the narrow band of their effects that have reasonably good visibility. Only hindsight shows that there always is, in addition, a broader and fuzzier band of consequences whose ex ante predictability must have been very low, very conjectural, or simply non-existent. Whether this is so because our knowledge about these matters is inadequate though capable of improvement, or because they are inherently unknowable, is perhaps immaterial at any period in time for the consequentialist evaluation of a policy. There may, in addition, be effects that are reasonably predictable but so slow to mature that they get heavily discounted at the inception of a measure—discounting, of course, is a legitimate and indeed a mandatory operation in the rational calculus—and only begin seriously to hurt when the measure that has caused them is as good as forgotten together with the men who had chosen it.

I propose to call unwelcome consequences “perverse” in a broad sense, not only when they are the direct opposite of the main aim of a policy (e.g., a redistributive measure intended to decrease inequality which in fact increases it; a policy of import substitution which makes exports shrink more than imports; government sponsorship of research that actually retards technological progress; and so forth) but also when, acting over a more diffuse area, indirectly or in unexpected directions, they impose costs and reduce benefits so as to leave society worse off than if a given policy had not been adopted. I am aware that condemning a measure on this ground may be question-begging for two reasons. First, the imputation to it of particular unwelcome effects may be too conjectural when the supposed causation is indirect. It may be that lavish spending on arms over the last decade has for roundabout reasons weakened the war-making ability and fighting prowess of both the great powers, but how can the diagnosis of cause and effect be made conclusive? Second, a judgment that society is on balance worse off when certain things, say inflation or child delinquency, have gone wrong but others, say care for the old or water pollution, have gone right, is forever fated to depend on how homogenous weights are to be assigned to heterogenous variables; give greater weight to the ones which have gone right, and you find society better off.

Nevertheless, there are well within our memory unmitigated disasters, utter failures, and glaring disproportions between outlay and return, where a distinct policy is so clearly the prime suspect in producing perverse effects that it is bad faith or intellectual preciosity to argue the incompleteness of the proof. The collectivization of land and the attendant pursuit of “economies of scale” in agriculture and, for that matter, in manufacturing too, is now almost unanimously recognized as an act of self-mutilation that has done irreparable damage to the Soviet Union. Strengthening the powers, disciplinary cohesion, and legal immunities of trade unions, and taking them into the corporatist conspiracy of the Macmillan, Wilson, and Heath years is now, albeit less unanimously, seen as a major cause of the “English disease.” The policy of forcibly diverting investment from the rest of Italy to its Mezzogiorno has not only cost the country dear in direct and indirect ways—that transferring benefits from one part of society to another is not costless is after all quite consistent with the fond supposition that the exercise nevertheless has a “positive sum”—but may not even have been of real net benefit to the Mezzogiorno.

There are less localized examples of once respected policies that are now highly suspect of perverse effects. Progressive taxation is one: even its natural advocates have learnt to say that it must not be “too” progressive. Free, universal, nonselective formal education, no “streaming,” no elitism, diplomas for all, open access for all to universities crowned by the principle of one man-one Ph.D., is another. We are discovering that it hinders the education of those who could profit from it and wastes the time of the rest, breeds student unrest and disappointment, and buys these personal and social blessings at a near-crippling cost to the community’s finances. Public policies of welfare and public guarantees (including compulsory insurance) against risks and wants of various kinds in both “mixed” and avowedly “socialist” economies, are coming to be suspected of generating unwelcome behavioral changes: sluggishness to respond to incentives and opportunities, poor resistance to adverse conditions, a weakening of the “work ethic,” free riding, irresponsibility for oneself and one’s offspring, a falling personal propensity to save, over-consumption and waste of freely provided public goods; these costs, and the long-run damage they do to society’s capacity to function, and to the character and virtue of its members, are beginning to weigh heavily against the putative gain in welfare and social justice of which they are dimly perceived to be a by-product.

Not that disillusion, suspicion, and an “agonizing reappraisal” of their costs and benefits is actually leading to the wholesale rolling back of these policies. But their easy expansion has by and large been checked, and in some areas collective choice seems to be restraining itself to give way to the operation of “hard,” non-vacuous freedom principles. Its remaining champions, by way of last-ditch defense, design fall-back positions holding out the same old promise that we can, after all, have it both ways. Though they have mostly given up talk about the Yugoslav Road, the Third Way, Indicative Planning, and Social Justice in a Free Society, and though such magic passwords to coercion as “prisoners’ dilemma,” “externality,” and “community preference ordering” may with luck soon go the way of “the diminishing marginal utility of money” and “pump-priming for full employment,” the intellectual advocacy of using the power of collective decisions to make a better world will never cease. There are still so many good ideas left! Assuredly, we have not heard the last of the prize inanity, market socialism.

When and where societies, and the decision-making coalitions of interests within them, renounce to use their force for allocating resources and rewards, and take the bitter medicine of freedom instead, they do so because their meliorist solutions that would violate freedom are proving too costly in perverse effects. Contrast this with the diametrically opposite position of actually liking freedom, even if it proved costly in material sacrifice. As Roepke24 has movingly put it:

It is undeserved luck indeed. Where would we be now if socialism were affordable and whittling freedom down were not as expensive as we are finding it to be?

[* ]This paper was delivered at a Liberty Fund Colloquium on the work of George Stigler in Chicago in May 1995 and subsequently published in Journal des Economists et des Etudes Humaines, 6, no. 4 (December 1995): 669–79; reprinted here with permission.

[1. ]Stigler 1982.

[2. ]Ibid., p. 19.

[3. ]Ibid., p. 8.

[4. ]Stigler 1982, p. 20. True to his own advice, Stigler is not shy of the odd inconsistency in his own ethics. In an essay castigating our tendency to look for our well-being to a meddlesome state, he claims that “our society is not dedicated to the principle that the good society consists of large herds of well-cared-for people.” (Stigler 1961, 9). His own analysis, as far as I can see, shows what is obvious to the naked eye anyway, to wit that it is precisely this principle our society is dedicated to, and the opposite principle he praises, namely “the greatest possible individual responsibility and the freedom to meet it” (ibid.), clashes with the community’s values and behavior. He is nevertheless not ready to change his ethical beliefs accordingly. For this, we owe him a full measure of gratitude.

[5. ]Stigler 1982, 36.

[6. ]Stigler 1982, 10.

[7. ]Stigler 1978/1984, 141.

[8. ]Buchanan 1994.

[9. ]At any rate, he used to take it before being persuaded, notably by Little’s Critique (Little 1950, 1973, 30) that a handful of axioms of choice suffice to explain behavior in the face of assured alternatives, and the proposition that “people can and do value all possible collections of goods in terms of some common measure” is not saying anything more, if it is saying anything at all. The same lesson was taught with regard to all alternatives, including uncertain or “risky” ones, by Neumann and Morgenstern, Savage, Harsanyi, and others.

[10. ]Stigler 1982, 36.

[11. ]If radical proponents of “bounded rationality” and “transactions cost economics” take this for a malicious caricature of their position, they will have correctly divined my intent.

[12. ]Stigler 1982, 130.

[13. ]Ibid., 132.

[14. ]Ibid., 25–26.

[15. ]Ibid., 25.

[16. ]Stigler 1982, 25.

[17. ]Stigler 1982, 24.

[18. ]Stigler 1982, 22.

[19. ]Stigler 1978/1984, 139.

[20. ]Op. cit., 141.

[21. ]Scanlon 1982, 108–9.

[22. ]The original meaning is very broad. It includes being in error, being (morally or legally) in the wrong, or wrongfully inflicting harm. It is derived from the Latin torquere, i.e., to wring, to twist; arm-twisting is direct enough.

[23. ]Stigler 1978/1984.

[* ]By Anthony de Jasay and Hartmut Kliemt. Reprinted with permission from Analyse und Kritik, 18 (1996): 126–47.

The authors owe a particular debt to James M. Buchanan for his detailed comments and constructive criticism. One of the authors has also benefited from discussing some of the issues raised here with Amartya Sen. Friedrich Breyer, who does not agree with the thrust of the paper, nevertheless sent us some useful suggestions for “corrections of errors.” The usual disclaimers apply with added force.

[1. ]We use “obligation” as the negative corollary of another’s right. It is owed to the right-holder. A “duty” is not necessarily owed to anyone; however, if I owe a duty to someone, I do not do so as a matter of his right. He may, of course, have a non-enforceable moral claim to it. It seems best to preserve a distinction between the consequences of legal claims (and call them obligations) and the commands of morals (and call them duties). It makes good sense to say it is your duty to fulfil your obligation. “You have an obligation to do your duty,” if it means anything, means something altogether different.

[2. ]We feel that Sugden 1985; 1993; 1994, and Gaertner, Pattanaik, and Suzumura 1992 are basically right when suggesting that game forms are the appropriate tool for analyzing the alleged liberal paradox. However, contrary to their views we think that the distinction between rows/columns and cells should be reflected in a terminological distinction between liberties and rights. Consequently, unlike the precedingly mentioned authors, we identify individuals’ strategy sets with liberties rather than with rights. This difference may seem merely terminological but in view of the fundamentally different roles of liberties and rights it is of some systematic importance, too, to make this distinction.

[3. ]As shall become clear below there can be at most one individual that could single-handedly choose among social states. If all other choices are made already, one individual can choose between social states by exercising his liberties.

[4. ]With respect to the issue of Pareto optimality, Thompson and Faith 1981 prove that changing the information conditions such that a hierarchy of decision rights leading to what they call “truly perfect information” emerges, implies Pareto efficiency in any game.

[5. ]Replying to Bernholz 1974, who protests the confusion between choosing entire social states and their individual “features,” Sen states: “Given the rest of the world, . . . Jack’s choice between sleeping on his back and . . . on his belly is a choice over two ‘social states.’” (Sen 1976; 1982a, 304; his italics). However, even if we grant that speaking of a choice of social states in a state of ignorance about what one is choosing is meaningful the argument that at most one individual can do what Sen assumes still applies. One should not confuse hypothetical considerations that treat the choices of others as given—in that sense all can simultaneously treat the choices of all others as hypothetically fixed—with the choices of all others actually being made and fixed. Sen’s concept of a right to choose assumes the latter rather than the former!

[6. ]We shall henceforth neglect the special case of a last mover who as a matter of fact is making the “last choice” in a sequence of choices. Obviously our basic argument that at most one individual can be in the position to choose between states of affairs would apply in that case as well.

[7. ]Ignoring the distinction between lower case and capital letters in examples like the foregoing ones may provide an answer to Gibbard’s query in 1982, 597f.: “These liberal paradoxes carry, with them, an air of sophistry: they must in some way be creating problems that do not really exist. . . . To talk about paradoxes, then, is to explore the role of one kind of mathematics in thought about social norms and organization. What is it about the mathematical apparatus of social choice theory that apparently so misapplies to questions of liberty?”

[8. ]Even if individual liberties were to be viewed as ultimately chosen in a collective act of constitutional choice they would be different from participatory voting rights and, for that matter, obligations to behave according to collective commands.

[9. ]Bringing the Pareto principle into play on top of such “rights” as Sen does amounts to pursuing the same aim in two different ways. And, from this point of view, it is not surprising that inconsistency emerges.

[10. ]As far as the latter enterprise is concerned game theoretic analyses like Breyer and Gardner 1980 that focus on Pareto-dominated equilibria in the presence of “rights” may be most fruitful.

[11. ]In any event, if we use the construction of special voting rights in the way proposed here, the choice set will not be empty and thus the paradox is avoided.

[12. ]We find no place in Sen where he would seek to define the area of privacy or “personal matter,” but his examples suggest that he sees it as fairly narrow. Yet this may be doing him an injustice: for his objective, of course, is to show that even a puny area cannot be spared by the invasive Pareto principle. But then a larger area can a fortiori not be spared.

[13. ]Jesuitically, we may say that an interdiction to trade preserves freedom, in that once you have traded an object away, you are no longer free to decide what should happen to it. It is possible (though we think unlikely) that Sen means his “minimal libertarianism” to be freedom-protecting in this sense: we are only free to choose until we do choose, and lose a liberty irrevocably if we choose irrevocably. While Sen’s own position on this has at least a certain casuistic merit, its more widespread popular interpretation, where liberties are supposed to be suppressed by force in the name of Pareto-optimality, seems incomprehensible. Thus, one of his critics thunders: “It is, then, undeniable [sic] that if we propose a criterion for a good state of affairs like Pareto-optimality, then farewell legal rights” (Barry 1986, 94).

[14. ]Herbert L. Hart, discussing legal powers that some scholars call “norms of competence,” quotes A. Ross’s observation in the latter’s On Law and Justice: “The norm of competence itself does not say that the competent person is obligated to exercise his competence” (Hart 1961, 238).

[15. ]In his “The Problem of Externality” Dahlman 1979, 217, treats enforcement costs as part of transactions costs, and attributes the same view to Coase 1960. He goes on to argue that enforcement costs, like every other transaction cost, are in reality information costs: “enforcement costs are incurred because there is lack of knowledge as to whether one (or both) of the parties involved in the agreement will violate his part of the bargain.” (218) This is circular reasoning. A party may keep his bargain if there is enforcement, and violate it if there is not. Apart from the ethical and historical ceteris paribus, the probability of violation is best captured as a decreasing function of the enforcement costs being incurred. To say that they would not have to be incurred if we knew that neither party was going to violate a bargain, is true enough but no less circular and no more helpful.

[* ]Reprinted with permission from The Balance of Freedom: Political Economy, Law, and Learning, edited by Roger Michener (St. Paul, Minn.: Professors World Peace Academy, 1995), 31–60.

[1. ]F. H. Knight 1943, 75.

[2. ]F. A. Hayek 1960, 11, 21.

[3. ]Hayek, op. cit., 11.

[4. ]Cf. the 1791 Declaration of the Rights of Man; also J. S. Mill 1848, Ch. 2.

[5. ]“The most extensive basic liberty compatible with a similar liberty for others,” Rawls 1972, 60. Liberty, then, is to be increased as long as its further increase does not require some to have less of it than others; equality of freedom is a constraint on its maximization. This is implicit in the formula but is not spelled out by Rawls.

[6. ]Hayek, op. cit., 13.

[7. ]Marx 1843, 1975, 229.

[8. ]Marx 1844, 1975, passim.

[9. ]More precisely, the species, the Gattungswesen.

[10. ]Whether there is any satisfactory doctrine of necessary coercion is a vast, open question, which I have tried to address at length elsewhere. Hayek, at all events, has not provided one; the coercion he considers justified because necessary to raise the means for providing useful public goods and services, including a social “safety net,” is completely open-ended. It excludes as unnecessary the coercion involved in raising the means for useless public goods and services, or those that, though useful, could better be provided by private enterprise. This leaves a quasi-infinity of occasions for necessary coercion, or at least for coercion that can never be proven unnecessary by the loose Hayek criteria.

[11. ]Cf., however, the approach adopted by Feinberg 1984.

[12. ]Raz 1986, 220.

[13. ]One of Rawls’s two versions of equal liberty, that consisting of an integrated, coherent “system . . . defining rights and duties” (op. cit., 202) seems to me clearly open to this charge. In the other version, the system is said to consist of a number of distinct “basic liberties” (op. cit., 302) of “equal citizenship.” They are the conventional political freedoms ensuring democratic representation and equality before the law, and they are not vacuous. They seem to me, however, too confined in their effects and therefore inadequate to pass for a “principle of liberty.” For one, they offer too few safeguards to minorities against the will of the majority. For another, they provide no defense of property, nor of privacy. Such “basic liberties” leave the respective domains of individual and collective choice wholly indeterminate.

[14. ]F. Engels 1891, 1968, 680–81.

[15. ]Cf. Alchian and Demsetz 1973, 18.

[16. ]“. . . an equal right to the most extensive total system of equal basic liberties”; Rawls, op. cit., 302.

[17. ]J. S. Mill 1848, Ch. 5.

[18. ]Atiyah 1979, 337.

[19. ]For a different argument about moral arbitrariness, cf. Nozick 1974, 213–26.

[20. ]There can, in any case, be no differential moral desert if all differential performance is due to some differential advantage (talent, education, character, etc.), and all such advantages are themselves undeserved. Cf. Sandels 1982, 88. Moral desert then collapses into equality, and becomes redundant.

[21. ]G. A. Cohen in Paul, Miller, Paul, and Ahrens 1986.

[22. ]Since “talk is cheap” and language will adapt to anything, one can override principles of freedom to advance one’s interest in the name of freedom. When in 1776, in one of the failed attempts of the century to make French society more efficient and mobile, Turgot tried to put through a program of fairly extensive deregulation, the “duly constituted” corporations defended and saved regulation as a system of “real freedom,” necessary for the public good.

[23. ]In a large flock of geese, the most precious ones started to languish and die one by one. The wise rabbi was asked to find a remedy. As each of his suggestions was put into practice, more geese died. When the wretched gooseherd finally reported the demise of his last bird, the rabbi, much annoyed, exclaimed: “What a shame, I had so many good ideas left!”

[24. ]Roepke 1959, 232.