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

IV.

Status Quo Entitlements and Distributional Envy

A second major hurdle to be surmounted in generating consensus on basic constitutional reform is indirectly related to the distributional aspects discussed in Section III and, in one respect, exists precisely because the requisite limits of distributional uncertainty cannot be attained. Realistically, we must recognize that persons will not, and cannot, make constitutional choices behind a veil of complete ignorance, owing either to their inabilities to adopt the moral stance urged on them by John Rawls or to the impossibility of designing institutional circumstances sufficient to make such a stance rational on strict self-interest grounds. To some residual extent, distributional implications of any proposed change in rules can be predicted, including the prediction of differential impacts on identifiable individuals and groups. This fact alone would seem to stymie consensual constitutional reform from the start. Must the question posed in this chapter’s title be answered negatively?

This barrier to potential agreement is not nearly as serious as it may at first seem. The necessary presence of some predictable distributional impact of any proposal for change will thwart general agreement on any simple version of the proposal. But at this point it is useful to recall the earlier detour into Paretian-Wicksellian welfare analytics. If the status quo set of rules is, indeed, nonoptimal, or inefficient, there must exist potential agreement on some change in structure. The working out of such an agreement, even for conceptual evaluative purposes, may, however, require a complex network that includes various compromises, side payments, compensations, bribes, exchanges, trade-offs—a network aimed precisely at offsetting the predictable adverse distributional properties of the proposed changes. If particular persons, as individuals or as members of groups in the economy, foresee distributional harm as a result of the implementation of a simple change in the rules, the designers-proposers must work out additional elements of a “package deal” that will change the results.

The problem here is not one of difficulty in locating the necessary elements of a complex constitutional “exchange” that will promise net benefits, ex ante, to all participants. There may be many such packages that would command general assent, especially when there are major overall gains to be made by a change in institutional-constitutional structure. The discovery of such mutually beneficial proposals, best considered as complex exchange propositions, is the proper task of the specialist in political economy.5 The problem worthy of our attention here concerns the willingness of those who may be direct beneficiaries of structural change to pay the compensations that may be required to secure general agreement.

The problem can be stated differently. All parties in the political community may be unwilling to accept the status quo distribution of entitlements generated under the operation of existing rules. This distribution of entitlements may not be acceptable to many persons as the appropriate starting point from which genuine constitutional reform is to be made. That is to say, there may be no way to get from “here” to “there” until prior agreement is reached on the “here” and the embodied distribution of rights that exist.

Consider land reform in a developing country as an example (and purely as an example, since we make no claim to competence in the analysis of comparative efficiencies of alternative institutional arrangements in such situations). Let us stipulate that there is general agreement among all persons in the community that land reform will increase the overall efficiency of the national economy, efficiency being objectively measured in dollars of gross national output or product. From this fact, it would seem to follow that some reform proposal, in a complex package deal, could be worked out on which everyone could be brought to agree. Such a proposal would have to include compensation to existing owners of extensive landholdings that would be sufficient to secure their acquiescence to a change in ownership patterns. To finance such compensation payments, however, prospective landholders and/or taxpayers generally would have to sacrifice some purchasing power, some share of their net promised benefits. This result might seem less desirable to these groups than the result achieved by a simple “taking” of the landed estates. Despite the acknowledged net gains from the land reform, persons who themselves would be in the net beneficiary groups might remain unwilling to finance the necessary payments to existing landowners, on the grounds that status quo holdings are “unjust.” This attitude, and behavior stemming from it, might prevent any consensus from being reached on constitutional change, even with the widespread knowledge that such a change would generate major overall efficiency gains.

The prevalence of such an attitude toward patterns of holdings, or rights, in the status quo will, of course, depend in part on the individually estimated prospects for successful alternative avenues through which change can be implemented. Respect for the status quo distribution of entitlements and, hence, willingness to pay the compensation required to attain consensus on change depend critically on whether the allegedly “unjust” entitlements and claims can be changed without the voluntary agreement of existing holders of such entitlements being obtained. The temptation to confiscate privately held capital values overtly through the exercise of power by dominating political coalitions is always present.

Perhaps even more important, the expected value of gains from politically orchestrated “taking” may remain positive, and differentially higher than the expected gains from genuine constitutional change, for many persons who are not at the time, but may expect to be, members of political coalitions capable of carrying out confiscatory action. Indeed, the problem discussed here may be most extreme in those situations in which “political property rights” are most uncertain.

In our land reform example, many persons may consider existing holdings to be “unjust” and hence appropriately subject to overt confiscation (to nondemocratic constitutional change in the terms of our reference in this chapter), but at the same time these persons may be uncertain as to their own potential voice in governmental-political decisions. Despite this uncertainty, however, they may be unwilling to support any scheme that will allow some politically orchestrated “buyout” of existing holdings. The situation of the nominal owners of the estates in the status quo may be similar even if on the other side of the issue. If these nominal owners acknowledge their impotence in the face of identifiable opposition coalitions, they might voluntarily agree to structural rearrangements that include much lower net compensation than straightforward market-value estimates might produce. On the other hand, if these holders maintain confidence in their power to influence political outcomes, they may demand compensation in excess of what other members of the political community will finance, especially given the estimated threat potential that members of the second group think they possess. The impasse that may arise in such settings is analogous to the problem that arises in market transactions when ownership rights to potentially tradable goods are not well defined and legally protected.6

The land reform example should not be taken for more than that, an example. Many other examples, such as slavery in the American South in the 1850s, might have been selected. The central point is that ambiguity and uncertainty about the distribution of political rights under a set of constitutional rules may inhibit or even totally prevent changes in these rules, despite a general acknowledgment that such changes would improve welfare. Nondemocratic change in the form of violent revolution or civil war might become the alternative to consensual reform in such settings.

The barrier to genuine constitutional reform analyzed in this section varies in significance with the perceived “legitimacy” and “effectiveness” of the existing political constitution, the status quo set of rules. To the extent that this constitution commands little respect, in part because it is seen to fail in its function of limiting the scope of both governmental and private intrusions into what are widely held to be protected spheres of activity, the direct-confiscation alternative to Pareto-superior or consensual change may seem to offer higher present value to most citizens. The somewhat ironic result is that it may be much easier for a country to achieve genuine constitutional revolution if its citizenry has long adhered to a “constitutional attitude,” fostered by a historical record during which limits on the power of governments have proved effective at least to a degree. If there has been a widely acknowledged separation between “law” and “legislation,” to use Hayek’s terminology,7 or between “constitutional” and “postconstitutional”-“in-period” choices, or between “changes in rules” and “play within defined rules,” the willingness of persons to seek somewhat different and more inclusive processes of decision making to change rules, as opposed to processes for political action within existing arrangements, is increased. Conversely, it may be difficult to achieve basic constitutional change in a political setting where governments are seen to have been effectively unlimited in power and authority. Why should an unlimited majority coalition, either existing or potential, ever seek constitutional change through consensus when the same results can be achieved at lower cost?

In these respects, it would presumably be easier for the United States, or any political structure characterized by an effective division of power, to effect changes in its political structure than it would be for the United Kingdom or any parliamentary democracy in which political authority is concentrated in a single legislative assembly.

[5. ]See James M. Buchanan, “Positive Economics, Welfare Economics, and Political Economy,” Journal of Law and Economics 2 (October 1959): 124-38; reprinted in James M. Buchanan, Fiscal Theory and Political Economy (Chapel Hill: University of North Carolina Press, 1960), pp. 105-24.

[6. ]For a discussion of this point, see James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975), ch. 2.

[7. ]F. A. Hayek, Law, Legislation and Liberty, 3 vols. (University of Chicago Press, 1973, 1976, 1979).