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.

Private Good and Public Good

What do people seek when they act in total independence? What do they seek when they participate in social interactions?

The first of these questions can be answered readily. People in isolated settings, Robinson Crusoe before the arrival of Friday, for example, seek what they want to seek: The question posed is relatively uninteresting. Economists might respond by saying that people seek “utility” and then proceed to model behavior in utility-maximizing terms. In this form, however, utility is operationally empty, since it becomes merely “what people maximize.” Any number of comparable terms would be equally suitable: satisfaction, pleasure, happiness, or x. The point is that for purely private choices made in isolation and outside any social relationship, individuals are presumed to establish their own private and internal value standards.

The second question is far more difficult. The economist who models individual behavior in idealized competitive settings only partially succeeds in escaping the social effects on individual values. In the abstracted model of the perfectly competitive economy, each participant remains totally unaware that he is involved in social interaction. Each buyer and each seller responds to prices that he confronts; his economic dealings remain wholly impersonal.

Economists recognize, of course, that the idealized construction is just that, and they acknowledge that even in the most competitive markets, descriptively identified, there may remain elements of a genuinely social relationship. Individuals, as buyers or as sellers, confront other persons on the reciprocal side of the market, persons whom they recognize as members of the human species. In such cases, the economic relationship is social.

At precisely this point, economic theory branches in two separate methodological directions. To the extent that a positive, predictive theory is sought, individuals who participate in economic exchanges continue to be modeled as if they do not recognize reciprocal trading parties as such. In order for operationally meaningful statements about choice behavior to be made, what individuals seek to maximize must be specified in advance. Homo economicus enters the scenario; individuals are postulated to seek only their own identified private interest, summarized in objectively measurable net wealth.

Quite another direction can be taken, however, if the economic theorist aims only at offering a logical explanation of the whole exchange network. In this approach, the person who recognizes the social nature of the exchange relationship may be allowed to incorporate the interests of the party on the other side of the potential exchange, and such incorporation may be allowed to modify choice behavior. In other terms, an objectively measurable maximand need not be specified. Nonetheless, even in this construction, the value to be maximized by the individual remains internal to his own psyche. This value may, as suggested, include some reckoning of the interests of the other party in exchange. But it is an interest subjectively experienced by the party other than the one on whom it is presumed to have an effect.

The point here is a subtle one, and it is a source of much confusion. Some detail may be warranted. Persons A and B engage in economic exchange; A recognizes the social nature of the relationship. Because he does so, he may not seek to maximize only his own net wealth. He may place some value on the well-being of person B, as he, A, evaluates this well-being. But such evaluation remains internal to A; it cannot be B’s evaluation of B’s well-being. The latter evaluation could not possibly influence the choice behavior of A.

This discussion of simple economic exchange is, again, useful largely because it aids in the analysis of the much more complex interaction of “politics.” Initially, we may think of “politics” in an all-inclusive definition to refer to all interpersonal dealings other than the basic two-party, buyer-seller exchange that lies strictly in the domain of economics. As we indicated in Chapter 2, politics is modeled as “complex exchange” in the contractarian vision. But the motivation for individual behavior in such exchanges is necessarily more problematic than in simple economic exchange. In the latter, Wicksteed’s methodological presumption of “nontuism”1 allows the participants to be modeled as net wealth maximizers in the exchange process itself, while enabling the analyst to postulate any degree of altruistic behavior outside this process. The analyst of exchange concentrates on the in-exchange motivation and neglects beyond-exchange behavior, considering it to be outside the limits of his interest.

In “politics,” however, no such presumption can readily be made. Consider a complex interaction in which all members of a politically organized community are potentially affected by the outcome of a decision that must be made between two courses of action. In other words, the setting is one in which “public good” or “public bad” is characteristic of the choice alternatives, “publicness” carrying the standard technical meaning here. If we now model the behavior of the individual as straightforward wealth maximization, we are postulating that the imputed interests of persons other than the individual examined are excluded. Clearly, this is a more extreme and hence less acceptable model of behavior than the comparable market exchange model. For this reason, social scientists, especially noneconomists but also many economists, have remained reluctant to work with net wealth maximization postulates for individual behavior in politics.

This reluctance is fully understandable, but a basic error is made when the postulate is dropped and analysis takes the alternative direction of allowing utility or preference functions to remain open. What do individuals seek in politics if they do not seek to maximize their own expected net wealth?

The idealists among us want to respond by postulating that participants seek “public good,” that persons try, as best they can, to take the interests of all members of the community into account when they make in-politics decisions. The extent to which individuals are motivated in this way remains, of course, an empirical question. The point to be emphasized, however, is that any degree of “other-regardingness” can be incorporated, without difficulty, into the basic contractarian paradigm. The contractarian, or complex exchange, model of politics depends not at all on the postulated motivation of the individual actors.

The contractarian model does depend, however, on the presumption that the “public good” or “private good,” or whatever mixture of these might be relevant, is internally conceived and hence is subjective to the person who acts. A person may, for example, behave strictly in accordance with the idealist’s norm; he may try to take into account the interests of all others in the community. But such interests enter as arguments in the choice calculus internally to the participant; the interests of others are imputed to them as estimated by the participant. These interests cannot reflect expressions of others in any direct manner.

The methodological-epistemological difference between the contractarian and the noncontractarian emerges at precisely this point. When the noncontractarian postulates that the individual participant in politics seeks “public good,” what is sought is presumed to have an external existence, outside the values and the evaluation activity of the person who is expressing himself through his choice behavior. It is the objective quality of what is sought that differentiates the noncontractarian from the contractarian position; it is not a postulated difference in motivation.

If “public good” does exist in such an independently objectifiable sense, it follows directly that the person who seeks this goal is deriving his values from some source external to himself. Where such values come from is never clear, and, of course, there may be many alleged sources. We need not examine these here; we stress only that the postulated existence of such objectively definable “public good” is not consistent with what we have called the contractarian vision.2

[1. ]P. H. Wicksteed, The Common Sense of Political Economy (London: Macmillan, 1910).

[2. ]This is a jointly authored book, but any two authors must disagree on particular points in a long and sustained chain of argument. In our case, we should acknowledge that the argument in Section II, and related discussion in this chapter, is one such point. The thrust of the argument is Buchanan’s. Brennan, as well as some readers of the manuscript in earlier drafts, has expressed misgivings about relating the contractarian position so closely to the denial that objective values exist. It is suggested that there may be an argument to the effect that objective values exist and that these include the value of individual liberty. In the political context, this position might hold that contractarianism requires only that individuals count equally in the ultimate origination of what is to be expressed through politics. So stated, the position need have no implications for the existence or nonexistence of objective value standards.