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

VII.

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.

2.

The Contractarian Vision