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

IV.

A Methodological Defense of the Differential Interest Model of Behavior

A central presupposition in our methodological framework, then, is that individuals have interests that conflict. We can show how this presupposition is relevant to our constitutional analysis by introducing a simple analogy.

Suppose that A is thinking of engaging another person, B, to do something that A wishes to be done and that requires a substantial advance payment; for example, B may contract to build a house for A. Any defection on B’s part from his contractual obligation will impose costs on A, costs that may be significant. Hence, A will seek to limit the scope of such possible defection and will do so even if A thinks the likelihood of B’s defection is low. In the example, A will first inquire about the reputation of alternative builders before engaging B and, presumably, would not contract with B at all if the prospects for defection seemed high.

Despite this threshold acceptability of B, once agreement is reached, A may hire a lawyer to draw up a formal contract. And for purposes of the contract itself, A will make the working hypothesis that B is a rogue who is out to defraud him if the opportunity permits. He makes this hypothesis because this is the contingency the formal contract is designed to cover. In other words, the nature of the contract-drawing exercise leads A to make assumptions about B’s motivations that A may well believe to be a poor reflection of the empirical realities.

Nothing here is said about whether drawing up the formal contract is or is not justified. This decision will depend on the relative costs of the exercise. What the argument does suggest is that if the formal contract is to be executed, the ascription of differentially self-interested (Homo economicus) motivations to the relevant party or parties is a logical part of the operation. The reason for the contract as such is its possible function in modifying B’s private interests in such fashion as to make these interests congruent with A’s. The focus in such a precautionary exercise is necessarily on B’s differential and separable interests.

Note that we do not need to claim that private interest, as it is normally defined, is the only or even the predominant motivation for human action in order to justify such a focus. Once we acknowledge that private and differentially identifiable interest is relevant at all to human behavior, a comparison of alternative institutions must attend primarily to the question of how those institutions operate when individuals act in pursuit of their separately defined interests. If there were no conflict among interacting agents, that is, if interests were not differentially identifiable, then, of course, there would be no concern about how alternative sets of rules might modify and transform such conflicts. But to deny that there are conflicting interests among persons is to engage in an absurd flight of fancy. Individuals’ objectives differ. Conflict exists, and the investigation of alternative institutions is ultimately motivated by some criteria of conflict resolution. In all such meaningful investigation, we simply must assume that agents’ interests conflict in order to focus on the central purpose of the whole analysis. In so doing, we are merely adjusting our analytic microscope to focus it on the subject of our concern.

When we examine the properties of the idealized market order, for example, we can agree with Adam Smith that the consumer does not depend for his supper’s meat on the benevolence of the butcher, without in the least ruling out the existence of such benevolence. The butcher may or may not be benevolent toward his customers. The crucial point is that such benevolence need not be present, and hence whether or not it is present is essentially irrelevant. Speaking more generally, if we want to examine the extent to which a particular set of rules, such as that of the market order, succeeds in transforming the self-oriented interests of human agents into actions that further the interests of others, it is but natural for us to assume that such agents are entirely self-oriented, even if, empirically, they may not be. If we want to discover how institutional rules can turn conflict into cooperation, we cannot simply assume that persons who operate within those rules are naturally cooperative. Such a procedure would amount to removing the whole problem by assumption.

In any evaluation of alternative institutions, therefore, Homo economicus is a uniquely appropriate caricature of human behavior, not because it is empirically valid but because it is analytically germane. Where the question of empirical validity arises is in evaluating the importance of the whole contractual or constitutional exercise. An institutional setting that operates so as to transform private self-interest into behavior that is profitable to individuals other than the actors, and that does so more effectively than other institutions, is relatively more valuable to the extent that private self-interest does motivate human behavior. If individuals tend naturally to be other-regarding in all but a few minor aspects of their behavior, then a preference for institutions that channel self-interest toward furtherance of the general interest is less pronounced, and other possible criteria for institutional evaluation become relatively more important. At base, therefore, empirical issues determine the significance of the whole constitutional exercise. But the analytic method for constitutional analysis is a separate issue, and in our dealing with the question of analytic method, empirical considerations do not enter, save in the threshold manner already indicated.