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1.: The Constitutional Imperative - Geoffrey Brennan, The Collected Works of James M. Buchanan, Vol. 10 (The Reason of Rules: Constitutional Political Economy) 
The Collected Works of James M. Buchanan, Vol. 10 (The Reason of Rules: Constitutional Political Economy) Foreword by Robert D. Tollison (Indianapolis: Liberty Fund, 1999).
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The Constitutional Imperative
There is something profoundly unsatisfactory about economists’ introducing their subject matter by reference to the Robinson Crusoe who faces an “economic problem” because he must decide how to allocate his scarce resources (including time) among competing uses. With this introduction, it becomes far too easy to slip from the Crusoe setting into one in which “society” as such also faces the “economic problem” and to jump, almost inadvertently, from analyses of individual utility maximization to direct concern with maximization of value for society.
What is left out in such a pedagogical sequence is the interaction among separate individuals who make up a society. Individuals face choices in a social setting in which the existence and behavior of other persons, along with the institutions that constrain their behavior, are much more important than the physical constraints of nature. Economics is, or should be, about individual behavior in society.
Such behavior is not necessarily “social” in the sense that individuals recognize the existence of reciprocal influence among the actions of directly interacting parties. Individual behavior in large modern societies may be totally impersonal, as exemplified in the idealized models of competitive markets. In the limiting case, all participants respond to exogenously determined parameters: No person exercises any direct influence on another. The outcomes of the complex interdependence of all actors are not available as objects of choice for any actor.
In the limiting case, or in more general settings where at least some part of behavior is explicitly “social,” the rules that coordinate the actions of individuals are important and are crucial to any understanding of the interdependence process. The same individuals, with the same motivations and capacities, will interact to generate quite different aggregate outcomes under differing sets of rules, with quite different implications for the well-being of every participant. The allocation of an individual’s time and energy will be different in a setting where rewards are related to performance and in a setting where rewards are determined by other criteria. At least since the eighteenth century, and notably since Adam Smith, the influence of rules (Smith’s term was “laws and institutions”) on social outcomes has been understood, and this relationship has provided the basis for a central theme in economics and political economy, particularly as derived from their classical foundations.
If rules influence outcomes and if some outcomes are “better” than others, it follows that to the extent that rules can be chosen, the study and analysis of comparative rules and institutions become proper objects of our attention. Without an understanding of how the individuals who make up a social order interact, and how different sets of rules affect these interactions, it is impossible for participants to make informed changes in existing rules or even to behave prudently with respect to the preservation of those rules that have proved essential to the tolerably efficient functioning of the society as such.
What advice can we offer ourselves in our own societies, standing as we do with the benefits of cooperation and the prospects of conflict on either hand? What aspects of our social life should we discard? Where are there “rules of social order”—institutional arrangements governing our interactions—that lead us to affect one another adversely? Where are there forces for harmony that can be mobilized? What rules—and what institutions—should we be struggling to preserve?
These questions represent the area of inquiry we term “constitutional political economy” (in the spirit of the classical political economists, for whom such questions were also central). They are important questions even if they are so widely ignored in modern discourse. And they are not asked in a total intellectual analytic vacuum. They have, indeed, occupied some of the greatest minds in the Western tradition. Unfortunately, much of the accumulated wisdom seems to have fallen between the cracks. Such questions are often considered to be merely ideological, so that the answers are simply matters of opinion on which one view is about as good as any other. There is, to be sure, a considerable range of permissible disagreement. But there is also a procedure for asking the questions and a method of analysis that sets the terms within which debate can range.
The questions themselves, the proper procedures for asking them, the relevant analytic method—these make up the agenda for this book. Our aim in this opening chapter is to set the stage—to hammer in a few pegs on which we can subsequently throw various hats. Specifically, we shall offer a characterization of various sorts of interactions, initially in abstract terms. We shall indicate, again abstractly, the ways in which rules and institutions are relevant to the nature of the interactions that prevail. We shall then relate the various interaction types to different social contexts with which they are often associated. Finally, we shall briefly discuss rules in general and relate some of the insights gained thereby to the social-political-economic setting, which is, of course, our central concern.
Reasons for Rules
The title of this book is The Reason of Rules, and we shall discuss many reasons in detail as we proceed. But first, the most fundamental of all reasons must be discussed, even though it has been elaborated in some detail in other works.1 We require rules in society because, without them, life would indeed be “solitary, poore, nasty, brutish, and short,” as Thomas Hobbes told us more than three centuries ago.2 Only the romantic anarchist thinks there is a “natural harmony” among persons that will eliminate all conflict in the absence of rules. We require rules for living together for the simple reason that without them we would surely fight. We would fight because the object of desire for one individual would be claimed by another. Rules define the private spaces within which each of us can carry on our own activities.
Perhaps the best way, and one of the most familiar ways, of illustrating this potential for conflict among persons and the potential means of resolving it is the classic prisoners’ dilemma. Consider Matrix 1.1, in which the numbers in each cell represent positively valued payoffs to each of two persons, A and B, with the left-hand number in each cell indicating the payoff to A and the right-hand number that to B. Note that there is both row and column dominance. That is to say, if there is only one play of the game, A, who chooses between rows, will select row 2, independent of his prediction as to how B will behave. Similarly, B, who chooses between columns, will select column 2. As a result of this independent behavior, the “solution” lies in cell IV. As the payoffs indicate, however, both persons would do better if they chose row 1 and column 1, with the solution in cell I. Unless there is some rule or convention that dictates such action, however, privately rational and utility-maximizing behavior will guarantee the result in cell IV. There is, in this setting, a clear and simple message. For the community of persons involved in this interaction, there is a need for a rule, a socially binding norm that will prevent the individuals from behaving so as to end up with the outcome depicted in cell IV, an outcome that neither desires.
Several points worth noting emerge from this simple illustration. First, as indicated earlier, neither A nor B can individually determine the outcome of the social interaction. The outcome emerges from the behavior of both parties, whether this behavior is described as individual expected utility maximizing without rules or as adherence to some rule or convention.
Second, the potentiality for agreement on some rule or convention exists so long as the structure of the interaction remains as depicted in the matrix. That is to say, the “game” need not be symmetric in its payoffs, as shown. All that is required is that the ordinal rankings of the cells be the same as depicted for each of the parties involved. So long as A ranks the cells III, I, IV, II, and B ranks them II, I, IV, III, the results will hold. Hence, we could, if desired, multiply the numbers for, say, A by a factor of 100, while holding the numbers for B as indicated, without modifying the basic structure of the interaction.
Third, even this simple illustration suggests the problem of enforceability of a rule despite the potential for general agreement on its desirability. Suppose that A and B agree to choose row 1 and column 1, respectively, so generating an expected outcome in cell I. If A expects B to abide by the agreement, however, A can himself secure a higher payoff by choosing row 2 rather than row 1, as agreed. Similarly, B can choose column 2 and improve his position if he expects A to choose row 1. Any rule, therefore, that will ensure a higher overall payoff, if respected by all persons, is vulnerable to violation motivated by privately rational behavior on the part of some or all parties to an interaction. It is not as if a potential violator must be deviant or irrational in his behavior. Indeed, this supposition might almost be reversed. In the absence of effective enforcement procedures, adherence to rules rather than departure from them requires that individuals forswear expected utility maximization, at least as this behavioral proposition is usually formulated in modern economic theory.
The prisoners’ dilemma interaction is highly simplified, but it does, we suggest, contain in its structure most of the elements required for an understanding of the central problems of social order, those of reconciling the behavior of separately motivated persons so as to generate patterns of outcomes that are tolerable to all participants. Our colleague, Gordon Tullock, aptly titled his book on the subject The Social Dilemma,3 thereby suggesting the ubiquity of the problem. When generalized, the dilemma will, of course, take on highly complex structural characteristics. As we extend the analysis to include many persons, who may act separately, in groups, or as a collective unit through the agencies of government, and many choice options, including several levels of choice-making, there is almost no limit to the number of interesting interaction settings that might be examined.
Our purpose in this book is not, however, to model even a small subset of such interactions. From here on in, we shall take as our point of departure an understanding of the generalized dilemma that suggests the overall desirability of rules or sets of rules that define the appropriate constraints on individual, group, and collective behavior. In the remaining parts of this chapter, we shall isolate attributes of rules in several familiar interactions as a means of introducing the discussion of rules in the sociopolitical context.
Rules of Games
When the word “rules” is mentioned, perhaps the most familiar association is with “games.” And it will be useful to discuss rules in ordinary games—parlor games such as bridge, or sports such as tennis or basketball. All games have rules that define the parameters within which play takes place—the actions allowed by the players, the equipment used, the means of settling disputes, the way in which the winner is determined, and so on.
In discussing ordinary games, we have little or no difficulty in distinguishing between the rules of the game as such and plays of the game within these rules. Play takes place within the rules, but play itself does not constitute part of the rules. Rules provide the framework for the playing of the game, and many different patterns of play may take place within given rules. By contrast, a particular play of the game is determinate or closed. Indeed, it is confusing that in common usage we use the word “game” to refer both to the structure of the rules (for example, “basketball is a game”) and to the play within the rules (for example, “the Lakers beat the Celtics in last night’s game”).
In a sociopolitical context, the same distinctions apply between rules of social interaction and the patterns of behavior that take place within those rules. The distinction here is often more difficult to make than in ordinary games, and the discussion of the latter is helpful in precisely this respect. The validity of the distinction between rules and behavior within rules is general, however, over all interaction settings.
The ordinary game setting also facilitates discussion of a related but separate distinction between the choice of a strategy of play within a set of defined rules and the choice of the rules themselves. The choice of a group of potential poker players between stud and draw poker is quite different from the choice of a single player, under stud poker rules, between folding or staying in for an extra card.
The corresponding distinction in the sociopolitical context must be emphasized. It is necessary to separate the process through which the rules are determined from the process through which particular actions within those rules are chosen. Again, however, the distinction is somewhat more difficult to draw in the social setting because of the complex interdependencies between the rules that define the constraints on private behavior and the rules that define the constraints on the political agents who may engage in activities involving changes in the first set of rules. That is to say, legislative majorities may be acting within the rules (the political constitution) that constrain their own behavior in changing the rules that constrain the behavior of persons in their private capacities. One must be careful to make the distinction between a choice among rules and a choice among strategies within rules applicable to the situation confronted by a well-defined decision-making unit. For example, if a property rule allows us to burn brush on our own land, we act within the rules when we decide to burn a pile of brush on a particular day. A legislative enactment outlawing brush burning amounts to a change in the rules that we, as private landowners, follow. But the legislature, in passing this regulation, acts within its own rules, consisting, say, of simple majority voting. A primary advantage of beginning our discussion with familiar ordinary games is that the two levels of choice are intuitively clear.
The treatment of rules in ordinary games may be misleading in certain respects. Ordinary games are designed to make play within the rules interesting. That is, play as such is one objective shared by all potential participants. The basic dilemma that we introduced earlier, in which rules are desired because they lead to avoidance of unwanted outcomes, tends to be obscured in the treatment of ordinary games.
As we shift attention to the settings for sociopolitical interactions, there need be nothing analogous to the enjoyment of play as such, and the payoffs to individual players need not be designed as counters for the purpose of making the activity interesting. There need be no shared objective in sociopolitical rules. Individuals are recognized to possess their own privately determined objectives, their own life plans, and these need not be common to all persons. In this setting, rules have the function of facilitating interactions among persons who may desire quite different things. To discuss this feature, it is best to shift to an alternative framework.
Rules of the Road
Rules of the road, another familiar usage of the terms here, are not designed and/or did not evolve on the basis of any specification of the objectives of persons who are road users. Road users have widely varying purposes—business, pleasure, or some combination—which dictate many varieties of route, speed, and type of vehicle. Rules of the road serve the function of allowing persons to pursue their separate and independent courses, which may conflict in the absence of such rules. These rules do not imply that the objectives of users be reduced to a single counter, analogous to “winning” in ordinary games.
Road rules draw another feature to our attention. The efficacy of a set of rules does not depend on any matching of skill levels among those who use the facility. A set of rules may be preferred because it tolerates the coexistence of good and bad drivers on the road, a feature that does not apply to ordinary games. Road rules have a social function, which is to facilitate the achievement of the purposes of all persons who use the facility, regardless of what these purposes might be. And the rules are adjudged in accordance with their ability to satisfy this criterion.
In much the same way, the rules that constrain sociopolitical interactions—the economic and political relationships among persons—must be evaluated ultimately in terms of their capacity to promote the separate purposes of all persons in the polity. Do these rules permit individuals to pursue their private ends, in a context where securing these ends involves interdependence, in such a way that each person secures maximal attainment of his goals consistent with the equal liberty of others to do the same?
Concentration on the road rules example allows us to isolate another feature that is often overlooked. Rules provide to each actor predictability about the behavior of others. This predictability takes the form of information or informational boundaries about the actions of those involved in the interaction.
For example, suppose that in a small, developing country, automobiles are new and few in number. There has been both French and British influence in the country, so that early road users include both right-hand and left-hand drivers. As the number of automobiles increases, the absence of an established rule creates problems. Independent adjustment by each driver when two vehicles meet, with neither driver knowing how the other will react, produces a pattern of outcomes that is analogous to life in the Hobbesian jungle. All parties will be better off if they adopt a rule, any rule.
Matrix 1.2 illustrates this case. The game here is basically a coordination game, in that the rule adopted serves an informational purpose. Each of the two parties is given the ability to predict what the other will do. And it does not matter, by supposition, whether the rule adopted involves right-hand or left-hand driving, so long as the rule generates symmetric behavior. In such a case, there may be a role for government in announcing a rule. History, however, may do as well or better—for social conventions often serve to establish the relevant rules of conduct.
The interaction depicted in Matrix 1.2 differs from the more general dilemma game in Matrix 1.1 in the relative importance of the predictability content of the rule and the subsequent problem of enforceability. Matrix 1.2 depicts a game that is basically one of coordination; the major gains are secured on the adoption of a rule, any rule, and there is relatively little advantage to any player to be gained from defection. As shown in the matrix, however, there is some gain from defection and, hence, some enforcement problem. If A knows, for example, that B will always follow an agreed-on rule, then A will occasionally find it advantageous to depart individually from the adopted rule. But the temptation to violate the rule, once adopted, is not omnipresent as in the more general prisoners’ dilemma setting.
A pure coordination game (not depicted in matrix form here) would be one in which the advantage of individual defection from adopted or conventional rules would be wholly absent, one for which there would be no enforceability problem at all. Some such interactions surely exist. Language might be thought about in these terms. All persons in a social community have an incentive to use words that others understand. There is a natural force generating a common vocabulary and grammatical rules. The same description might be applied to the language of manners and etiquette whereby the apparent object of behavior is to convey meaning of some sort to others.
Other important characteristics of either the basic prisoners’ dilemma interaction or the information-coordination interaction are obscured, however, in the Matrices 1.1 and 1.2. Both illustrations are directed toward the ultimate choice between a rule and no rule. A second choice may involve a choice between rules, once the more inclusive game has been played, that is, once the need for a rule has been accepted by all parties. Consider, then, the case in which there is a difference between possible rules, even if we retain the assumption that there is symmetry in payoffs between the players. The “game” described here is a really a “subgame” of that illustrated in Matrix 1.2.
Consider Matrix 1.3, which takes place “within” cell I of Matrix 1.2. The options of the two parties in this case are not those of adopting a rule and adjusting behavior without a rule. The choices are those confronted in the set of alternative rules. As depicted in Matrix 1.3, the rule “Drive right” dominates the rule “Drive left.” It is important here to have a rule (shown in Matrix 1.2), but the question of which rule is also important. And because of the symmetry in payoffs between the players, both will, when given the constitutional choice, select the same rule.
Two points are worth making about the interaction depicted here. First, social conventions that emerge historically and take on the status of “unwritten rules” do not necessarily produce the best conceivable pattern of outcomes. Some modern social analysts (notably Hayek and his followers) display an apparent faith in the forces of social and cultural “evolution” to generate efficient rules. There seems to be no reason to predict that these forces will always ensure the selection of the best rules. In our example, the “Drive left” rule might well emerge and prevail—particularly if exogenous changes alter the relative payoffs to different rules over time. There may then be little or no evolutionary pressure toward the emergence of superior rules. This prospect alerts us to the need, periodically, to review alternative sets of rules and to regard rules themselves as objects of choice, to be changed and redesigned according to the patterns of social states they generate. The prospect also alerts us to a possible role for “government” in the collectivity, that of facilitating a shift from old to new rules. “Government” in this context can be variously construed—as a consensually appointed assembly, the entire set of relevant players, or, at the other extreme, some random dictator-king. Since, in this example, the gains are symmetric, there are no particular advantages to being the rule chooser, but it may be important to have some person, group, or process that is empowered to choose among rules.
Second, the move from “Drive left” to “Drive right” may not be desirable, despite the dominance of the latter in the matrix. If rules are viewed as providing information to enable the players to predict each other’s actions, it follows that any change in the rules destroys information. If the rule (“Drive right” or Drive left”) is determined afresh each morning by the toss of a coin, there is no rule at all. In order to function, rules require stability. If rules are continually subject to change, the information they provide becomes negligible. Each player can no longer take it as given that others will abide by the rule in existence, even if he knows it himself, because he cannot know that others will know that he knows it. And when others may be playing by “outdated” rules, each has less incentive to play by new ones.
This argument suggests that there is a natural predilection toward conservatism in the constitutional perspective. The mere demonstration that state A would be “better” than the status quo, once state A were achieved, is not sufficient to demonstrate that a move from the status quo is justified. A “local” maximum may turn out to be a global maximum once the local maximum has been achieved.
Recognition of this fact reveals a crucial distinction between constitutional design and constitutional reform. In constitutional design, where there are no effective preexisting rules, all that is relevant is the choice between the rule that generates one set of outcomes and the rule that generates an alternative set. The rule that gives rise to the preferred set of outcomes is to be preferred. But when there is the question of changing an existing rule, as is the case in constitutional reform, the rule that generates the most preferred set of outcomes carte blanche is not necessarily dominant.
The argument here lends some force to the social evolutionist’s antipathy to constructivist zeal. To the extent that stable and tolerable rules exist, a community may well be better off not to attempt change. Recognizing this claim does not, however, commit us to the view that the explicit reform of existing rules will never be desirable. The argument merely alerts us to the need for rules concerning the procedures by which existing rules might be changed, and in particular for ensuring that rule changes do not take place too often and without proper recognition of the transitional costs.
The basic coordination games depicted in Matrices 1.2 and 1.3 are simplistic in another important dimension. Quite apart from the ubiquitous conflict between individual and “social” interest, which creates the enforceability problem, is the disagreement among individuals over the choice of rules themselves. This conflict potential has been deliberately suppressed in the coordination games discussed to this point. There is no difference between the two players in the ordinal ranking of the cells in the matrices.
Consider, however, a different example, still within the more general rules of the road category. For reasons already noted, it is clearly advantageous to have some rule; the setting is identical to that described in the “Drive right”-“Drive left” example. But suppose that there are two possible rules for behavior at intersections, only one of which can be chosen. One rule is “Give way to the right”; the other is “Give way to the left.” Matrix 1.4 illustrates this interaction. Note that the ordinal ranking of the two relevant cells differs between A and B, with A much preferring the first rule, “Give way to the right,” and B much preferring the second rule, “Give way to the left.” Such divergent rankings may occur if, for example, A predicts that he will, on most mornings, approach an intersection from the right of B’s approach.
The two players prefer different rules despite the fact that both prefer either rule to no rule. Because of the disagreement over which rule to adopt, however, there may be delay and dispute between the participants, each of whom will seek to maximize the distributional advantage promised by a choice among alternative rules.
The differential advantage placed on differing rules by different persons should not be overemphasized. To the extent that rules are long standing and that persons anticipate that they may occupy different positions in sequential plays of the game, the players may tend to reach agreement on the rule to be adopted much more quickly than the simple analysis implies. In our example, if the players predict that each will sometimes approach intersections from the right and sometimes from the left, the interaction can be modeled as in Matrix 1.2 rather than in Matrix 1.4.4
Rules of the Market Order
Our purpose in Sections II and III was to isolate several elements of rules through the familiar examples of ordinary games, on the one hand, and rules of the road, on the other. As noted, however, our central concern is with rules of economic-political order. In this section we shall introduce rules of the market, or economic, order and in Section VI we shall examine rules of political order.
In both of our earlier examples, the need for rules became apparent immediately upon reference to the interaction; one cannot conceptualize either ordinary games or traffic without thinking about rules. With respect to the far more important economic interaction among persons, however, the rules governing individual behavior within such interaction are often ignored. Economists, themselves, have been notoriously negligent in this respect. Complex analytic exercises on the workings of markets are often carried out without so much as passing reference to the rules within which individual behavior in those markets takes place. Adam Smith was not party to such neglect; he emphasized the importance of the “laws and institutions” of economic order.
The departure from this Smithian and classical emphasis is perhaps best illustrated in the “market failure” analytics of theoretical welfare economics, as developed in the middle decades of this century. “Markets” were alleged to fail when compared with the stylized, formal models derived from the economists’ mathematical exercises. Analysis proceeded as if institutional constraints were totally irrelevant to the way in which individuals interacted within market structures.
The relevance of rules is perhaps best exemplified by reference to the familiar example of common-property resource utilization, sometimes referred to as the “tragedy of the common.” If straightforward utility maximization is postulated to describe the behavior of users, the common will be predictably overgrazed. The market is alleged to “fail” in generating efficient usage of the scarce resource. As is by now familiar, however, the problem here is not with the workings of the market process, but with the rules within which the users operate. A change in the rules so that the scarce resource is separately and privately owned, along with means for enforcing and protecting individuals in rights of ownership, will remove the inefficiency. The example suggests that economists’ proclivity to look at outcomes rather than at the rules that generate such outcomes has been a source of profound confusion. Reform of results or outcomes comes about through reform of the rules rather than through manipulation of the outcomes directly.
The normative thrust of the theoretical welfare economists was that of providing an argument for governmental or collective intervention in markets. A comparable pervasive oversight of the importance of rules characterizes the attitude of a group of economists who support market institutions in a normative sense. These economists have tended to neglect the importance of rules under the sometimes naïve presumption that the “market will out,” regardless of institutional constraints. The presumption is that market solutions are sufficiently robust to swamp any institutional constraints that may exist. There seems to have been some confusion here between the robustness of economically motivated behavior within given constraints and the possible robustness of economically motivated behavior in modifying the constraints themselves. It seems quite possible that market outcomes may be robust within given institutions, while at the same time these institutions may be relatively insensitive to change without explicit and direct attention being brought to bear on their design and possible reform.
To return to a common-property example, there may be well-functioning markets in fish in which demand and supply forces operate to generate fully satisfactory allocative-distributive outcomes (given the resource and institutional parameters), while at the same time the absence of property rights in the fishing grounds fails to define a set of rules that are in any sense normatively ideal.
A second aspect of market rules deserves attention. In our earlier analysis of road rules, we found that the essential function of rules was to prevent individuals from inhibiting one another’s actions: Rules had the essentially negative function of preventing disastrous harm. This is basically the task Hobbes assigned to the rules of social order that keep anarchy at bay. Within the Smithian vision of the market order, however, there is a significant positive aspect of human interaction. In Smith’s view of the world, the division of labor mobilizes mutual gains from cooperation among traders, gains that each trader secures but that are beyond the capacity of any one person to comprehend fully. At each succeeding phase in the division of labor, each actor responds to his environment by exercising his creative imagination directly in his own interests and thereby indirectly in the interests of his fellows. The succession of such creative acts establishes an order that both reflects the enormous advantages of human cooperation and provides scope for additional creative acts to occur. At any point, one can contemplate the prevailing market order and recognize the nature and magnitude of the gains from human cooperation under the division of labor. But one cannot predict ex ante what the nature and magnitude of those gains will be. To do so would require the analyst to possess all the creative imagination currently spread over the entire set of economic agents.
Two things follow from this view. First, there is something necessarily nonteleological about the choice of market rules. How can the rules be chosen in the light of the particular outcomes to which those rules give rise if the precise nature of those outcomes is discovered only as they emerge? Second, when market institutions are inadequately defined, or some alternative rules apply that do not have the market’s benign features, the true dimensions of normative “failure” cannot entirely be known. We can conjecture that the engine for harnessing human cooperation has not been fully operative—but what might have otherwise been necessarily remains a matter of speculation.
Rules of Political Order
Many social analysts might agree that market processes operate within reasonably clearly defined rules and that such rules are important objects of inquiry. They may be less willing to apply the same insight to political processes. But political “choices” also emerge from an interaction of individual agents within a set of institutional rules, with each actor being constrained by the actions of others. Political actors operate under a set of more or less clearly defined rules, and they make choices among the options available to them so as to maximize their returns (which may, here as in other settings, include ethical as well as economic objectives). The crucial issue is whether the set of rules that orders the relationships among the separate actors is that set which best leads individuals to further the interests of others, or at least refrain from imposing harm on others.
There are several ways of viewing political processes in the same terms as we view markets. The first, and most important at this point, is the view of political process as a system of interacting individuals from which outcomes emerge as equilibria. This view is consistent with any of a number of motives we might ascribe to those individuals and with any of a number of criteria by which we might evaluate the operative rules. The motives and criteria in question can be chosen from the economist’s tool kit. We shall explore such political applications of economic method in subsequent chapters. What is crucial here, however, is neither actor motive nor evaluative criteria but, rather, a preparedness to examine the political process in the same general terms as we examine markets. Individuals with their own objectives interact, under a set of rules (political institutions), to further those objectives, and the interaction finally serves to establish a particular outcome as an equilibrium. If the individuals’ capacities and objectives are given, the only way the pattern of outcomes can be changed is by alteration of the rules. And changes in the rules, obversely, will alter the outcomes that emerge from any society of individuals.
Much of what we shall discuss in subsequent chapters concerns the implications of particular aspects of the political rule structure. At this point, we should alert the reader to the necessary subtlety of the rules-outcomes distinction in the political context. At one level, the rules of the political game are obvious enough: majority rule; periodic elections; various restrictions on the government’s power to take; the requirement of systematic accounting for expenditure of public funds; the geographic structure of electoral arrangements, including possible partitioning of the political jurisdiction itself as under a federal structure; and so on. Yet many of these features themselves emerge from political process. Understandings, for example, of the appropriate domain of public activity, which have an important constitutional aura, are determined largely by ongoing political decisions. In this sense, the rules-outcomes distinction tends to become blurred in the political setting. Moreover, since both rules and decisions within rules themselves emerge from rather similar political processes, the significance of the distinction may seem somewhat overdrawn. It is precisely where the distinction is not obvious, however, that basic rules of the game may be at risk—and it is for this reason that we shall attempt to maintain the rules-outcomes distinction in the political setting.
The Importance of Rules
The first argument for the study of rules depends on the recognition of the role rules play in isolating an equilibrium outcome or pattern of outcomes for a community of social agents with given capacities and objectives. We have been at pains to point out that interaction among the same persons within any society may generate any number of social outcomes, depending on the rules that exist. But only those social outcomes are feasible that can be generated as equilibria under some institutional arrangement. For this reason, it is misleading to examine the set of all conceivable social outcomes and select as ideal what best fits some independent and external normative criteria. Institutional arrangements constrain the set of feasible outcomes no less significantly than the basic physical constraints (“endowments”) that delimit the range of desired end products.
Lest we be charged with setting up a straw man here, consider the standard discussion of distributive justice, or “equity,” in public-policy circles (a matter we shall take up in greater detail in Chapter 8). The standard procedure is to examine all distributions of total output that are consistent with the initial endowment of productive capacities and with the necessary loss in output involved in the redistributive process (although sometimes even the latter is ignored). On this basis, the set of conceptually feasible “distributions” is isolated, and some social welfare function or other piece of ethical apparatus is wheeled in to select the “best” from among them. But the natural constitutionalist question is, How are we to ensure that this “best” outcome emerges from political process? Surely it makes more sense to specify alternative sets of political rules and examine the distributions that emerge. If none happens to correspond to the “best” as earlier derived, then we must simply conclude that that “best” is not feasible.
The constitutionalist insists on the study of rules because he seeks to include all the relevant constraints within the analysis. To leave institutional constraints out of account is no less analytically reprehensible than to assume away limits on the productive capacities of economic agents or to ignore basic scarcity constraints.
The second argument for the study of rules is normative in nature, and it has several dimensions. We shall examine one of these in some detail in the next chapter, where we shall see that the choice among rules, because those rules will be operative over a long sequence of plays in which the fortunes of each player are somewhat uncertain, involves some special characteristics that are absent from the context of choice within rules where the positions of each player are well defined. Specifically, the natural predilection for conflict in the interests of players is substantially moderated in the choice over rules, extending the potential for agreement concerning rules among the players.
There is, however, another dimension to the normative argument for attention to rules rather than outcomes. This involves the claim that one cannot properly evaluate outcomes normatively unless one has information as to how the outcomes came about. Such a claim can be advanced on the ground that process is intrinsically of normative relevance or on the ground that information about process in turn provides information about the outcome without which evaluation is difficult or impossible.
Consider a simple example. Suppose that a particular economic outcome is advanced in which A has five apples and six oranges, whereas B has ten apples and nine oranges. The evaluation of that outcome depends in part on our acquiring information as to how it came about. Suppose that we discover it did so by virtue of A’s simply taking six oranges that had previously been in B’s possession. Presuming B’s prior possession to have been evidence of legitimate title, the resultant outcome may be deemed normatively unattractive because it resulted from A’s theft—because, in the process of bringing that outcome about, A violated normatively relevant rules of conduct.
In the same way, the outcome of some contest—a running race, for example—may not have any normative significance: Any outcome may be acceptable, provided the rules are fair and are adhered to. Alternatively, although outcomes are normatively relevant, so too may be the processes that generate them. An innocent man convicted erroneously of a crime might take some comfort in knowing that the trial was entirely fair, even though the jury erred as to fact. Similarly, a manifestly guilty man might find merit in the ritual of a totally proper trial, even though the outcome is a foregone conclusion. In both cases, the process as well as the outcome is relevant for normative purposes.
Rules may be normatively relevant in a different sense—not because processes according to certain rules are of independent value, but rather because adherence to certain rules provides information about the normative status of outcomes. This is particularly the case when the attribute of an outcome that is at stake is its efficiency. Specifically, if the allocation of apples and oranges between persons A and B results from free exchange between the two parties from some initial endowment point, and given that apples and oranges exhibit the properties of conventional “private” goods, we can presume that the resulting allocation is efficient, or at least that the trade satisfies the Pareto test. In the absence of information about how the final outcome had been reached, there would be no reason at all to presume efficiency. And, indeed, unless the analyst had the power to read the minds of the relevant individuals and discern thereby the utility function of each, it simply would not be possible to know. The fact that the outcome emerges from a process characterized by certain rules provides information about the normative status of the outcome that would not otherwise be available. Here, the normative significance is attached to the outcome, not the process, but the process nevertheless provides a test of the nature of the outcome.
[1. ]See, in particular, James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975).
[2. ]Thomas Hobbes, Leviathan (1651) (New York: Everyman Edition, 1943).
[3. ]Gordon Tullock, The Social Dilemma (Blacksburg, Va.: University Publications, 1974).
[4. ]For a general discussion of the principle that agreement on which rule to adopt is less difficult to achieve than agreement on strictly defined distributional allocations, see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962).