Front Page Titles (by Subject) V.: Politics in the Exchange Perspective - The Collected Works of James M. Buchanan, Vol. 10 (The Reason of Rules: Constitutional Political Economy)
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V.: Politics in the Exchange Perspective - 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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Politics in the Exchange Perspective
We have discussed the simple trading example in some detail because the implications of the contractarian vision of politics can perhaps best be understood through the exchange analogy. In its most general terms, the contractarian paradigm for politics is the exchange paradigm, and analysis proceeds most readily in the familiar illustrations of trading in commodities. So long as the source of value is exclusively located in individuals and there is no differentiation among persons, the whole enterprise of politics can be viewed only as a complex many-person system of exchanges or contracts. Individuals must be conceived to join together to explore and ultimately to agree on the establishment of collective entities or arrangements that prove mutually beneficial.
“Trade” among persons in this setting will not, of course, take precisely the same form as the simple exchange of oranges and apples, both of which are privately partitionable and privately consumable goods. In politics, at the most general level, the result of “trade” among persons will be a set of agreed-on rules rather than a well-defined imputation of goods among separate individuals. At the simplest and most elementary level, that described by the initial leap from Hobbesian anarchy, individuals may reach an agreement to respect the property and person of individuals other than themselves. In such a trade, each participant secures the benefits of order, thereby reducing the need to expend his own resources in defense. In exchange, each participant gives up his own freedom of action in potential exploitation of the property and person of others, as defined in the contractual agreement.
This elementary conceptual example suggests that contractual agreement on rules must precede any ordinary trading of partitionable goods. Unless there exists some mutually acceptable understanding of who has what rights to do what with what, when, and to whom, the more familiar marketlike exchanges cannot be initiated. To return to the earlier illustration, if persons A and B do not mutually acknowledge some property rights in oranges and apples as the initial endowments, they have no basis on which to begin exchange. Political order must, therefore, be antecedent to economic order, even if the exchange paradigm seems more natural when discussed in an economic than a political context.
The elementary conceptual-conjectural example also allows us to introduce several other principles that help clarify the continuing confusion in political-legal discourse. The rules of political order, including the definition of the rights of persons, can be legitimately derived only from the agreement among individuals as members of the polity. There is no basis for the commonly encountered notion that individual rights are somehow defined by governments. Individuals establish governments for the purpose of guaranteeing and protecting the rights agreed on in contract. Independent action by “government,” or by persons who act as agents of government, to modify or to change individually held rights must violate the spirit of the contract. Of course, in the establishment of the political entity, powers of coercion are granted to governments, powers that are designed to prevent criminal trespass and exploitation of rights by internal and external aggressors. In the assignment of these powers, problems of control may arise, problems that are not amenable to easy solution. Once established as sovereign, government may not willingly remain within the limits of its initially delegated authority. To the extent that it exceeds these limits, however, government becomes illegitimate in its actions, even in the gloomiest of the Hobbesian visions of contract. Government may, in this setting, take on itself the role of redefining individual rights, but it does so in explicit violation of its contractually legitimate origins.
The non-Hobbesian vision of contract does not acknowledge that the sovereign must remain ultimately uncontrollable. The rules of political order may also lay down limits within which political units may take action, and, indeed, most explicit discussions of constitutional change involve questions of defining the limits of political rather than personal authority. The importance of making the basic distinction between rules and actions within rules emerges more forcefully in politics than in ordinary personal dealings. In private behavior, individuals are implicitly recognized to remain within their legally defined limits or rights. “The law,” as an institutional structure, prohibits a person from invading the domain of others, or if a person does so invade, the law invokes punishment. Almost all of our ordinary behavior takes place within a well-defined structure of legal rules. In politics, however, the notion that collectivities, governments, also behave and should behave within the constraints of well-defined rules seems less “natural.” The notion that constitutions define the limits of political authority is an abstraction that seems difficult for many to comprehend.