The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Preface
• The Reason of Rules
• 1.: The Constitutional Imperative
• I.: Introduction
• II.: Reasons For Rules
• III.: Rules of Games
• IV.: Rules of the Road
• V.: Rules of the Market Order
• VI.: Rules of Political Order
• VII.: The Importance of Rules
• 2.: The Contractarian Vision
• I.: Introduction
• II.: Noncontractarian Constitutionalism
• III.: Individuals As Sources of Value
• IV.: Contract and Exchange
• V.: Politics In the Exchange Perspective
• VI.: Unanimity As the Contractual Ideal
• VII.: Agreement On Rules and the Veils of Ignorance and Uncertainty
• VIII.: Conclusions
• 3.: The Myth of Benevolence *
• I.: Introduction
• II.: Private Good and Public Good
• III.: Science, Truth, and Politics
• IV.: The Authoritarian Imperative
• V.: Majoritarian Democracy In the Noncontractarian Paradigm
• VI.: The Aim of Politics
• 4.: Modeling the Individual For Constitutional Analysis
• I.: Introduction
• II.: Homo Economicus In Politics: the Argument For Symmetry
• III.: Science and the Empiricist Defense
• IV.: A Methodological Defense of the Differential Interest Model of Behavior
• V.: Social Evaluation and Quasi-risk Aversion
• VI.: Gresham’s Law In Politics
• VII.: Summary
• 5.: Time, Temptation, and the Constrained Future *
• Preface
• Part 1.: Individual Private Choice
• I.: Introduction
• II.: The Ultimate Z ’s
• III.: Preferences For Preferences
• IV.: Past, Present, and Future
• Part 2.: Individual Public Choice
• I.: Introduction
• II.: Society With a History
• III.: Temporal Interdependence
• IV.: An Illustration
• V.: Moral Rules And/or Constitutional Commitment
• 6.: Politics Without Rules, I: Time and Nonconstrained Collective Action
• I.: Introduction
• II.: The Social Discount Rate
• III.: The High-tax Trap
• IV.: The Inflation Trap
• V.: The Public-debt Trap
• VI.: Other Examples
• VII.: Conclusions
• 7.: Rules and Justice
• I.: Introduction
• II.: Just Conduct and the Notion of Desert
• III.: Justice and Promise Keeping
• IV.: Justice Among Rules
• V.: Just Rules, Agreed-on Rules, and Just Conduct
• VI.: Conclusions
• 8.: Politics Without Rules, II: Distributive Justice and Distributive Politics
• I.: Introduction
• II.: Distributive Justice: the Conventional View
• III.: The Constitutional Perspective and Institutional Incidence
• IV.: The Incidence of Unrestricted Majoritarianism
• V.: Tax Rules and Distribution Under Majority Rule
• VI.: Direct Constitutionalism and Distributive Justice
• VII.: Summary
• 9.: Is Constitutional Revolution Possible In Democracy?
• I.: Introduction
• II.: Pareto-superior Change and Wicksellian Unanimity
• III.: Distributional Limits and Prospective Rules
• IV.: Status Quo Entitlements and Distributional Envy
• V.: Constitutional Change and Free Riders
• VI.: The Role of Norms
• VII.: Toward a Civic Religion

II.

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.

[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).