The Online Library of Liberty

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• 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.

Pareto-Superior Change and Wicksellian Unanimity

We shall begin by making a summary detour through some fundamental principles of theoretical welfare economics, specifically through the Paretian criterion for the justification of a change or move. Pareto supplied a classification scheme, in which all possible social “situations,” “positions,” or “states” belong to one of two mutually exclusive sets. The first set includes all nonoptimal, or inefficient, positions; the second includes all optimal, or efficient, positions. The latter set consists of all nondominated positions, with dominance being defined for all persons in the relevant community.2 No change can be made from a Pareto-optimal position to any other position without at least one person in the community being harmed. A nonoptimal position is one from which some change can be made in such a fashion that at least one person is benefited and no one is harmed. This purely definitional classification scheme then allows us to say, formally, that there must exist at least one position within the Pareto-optimal set that can be attained by change from any position in the nonoptimal set, a change that will harm no one. Such a change is defined as Pareto superior.

At this purely formal level, we need not be concerned about the precise meaning of a “social state,” “position,” or “situation.” In the orthodoxy of modern welfare economics, a “social state” has been defined almost exclusively in terms of an imputation (allocation or distribution) of endowments and/or goods among persons. Needless to say, such an outcome, or end-state, usage of the Pareto criterion is inappropriate for our purposes in this book and elsewhere, but this concluding chapter is clearly not the place for an extended critique of end-state methodology. In this discussion, the Pareto criterion is applicable to rules, or institutional arrangements within which persons act to generate patterns of outcomes.

Saying, then, that a generalized social dilemma exists amounts to classifying the existing rules of the socioeconomic-political game as nonoptimal, or inefficient. And if we insist on noncoercive and voluntary agreement, we restrict “efficient” or “optimal” to the Pareto meaning. This tells us, in turn, that if our diagnosis of the presence of a dilemma is correct, there must be Pareto-superior changes that are possible. If the rules are nonoptimal, there must be reforms that will benefit everyone.

If we translate the formal Pareto scheme into Wicksellian terms, we can say that if a genuine dilemma exists, it must be conceptually possible to make some change on which all persons in the community could agree. Unanimous agreement on some proposed change in the rules must be at least conceptually possible. Critics might immediately suggest that unanimous agreement smacks of utopian absurdity, at least in terms of practicable implementation. In our view, however, criticism of this sort amounts to putting things the wrong way around. The relevance and applicability of the Wicksellian-Paretian criterion as a benchmark on which analysis and discussion of constructive constitutional reform must be based are in no way challenged by such criticism. If we are consistent in our determination to limit analysis to prospects for internal change, for “democratic” reform of political arrangements, there is no alternative criterion for the evaluation of proposals.

[2. ]For what is perhaps the most concise statement of the Pareto classification scheme, see Ragnar Frisch, “On Welfare Theory and Pareto Regions,” International Economic Papers, 9 (London: Macmillan, 1959), pp. 39-92.