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

VI.

The Role of Norms

Economists have great difficulty in moving beyond the rather simplistic, if powerful, models of human behavior grounded in self-interest motivation. We claim no exception to this generalization about our disciplinary peers. Nonetheless, anyone who diagnoses the plight of modern democracy in terms of the existence of a social dilemma described by a set of nonoptimal rules must give up in despair, become a revolutionary, or go beyond the models of utility maximization, nontautologically defined. To hold out hope for reform in the basic rules describing the sociopolitical game, we must introduce elements that violate the self-interest postulate.

If persons do not behave in accordance with their own economic self-interest, objectively defined and measured, on what basis do they act? The hard-nosed positive economist mounts an effective critique of peers in the other social sciences and in social philosophy when they are challenged to produce an alternative model with predictive content. The economist is well equipped to recognize mush for what it is, and when noneconomists hypothesize that persons want to “do good,” he quickly detects the absence of predictive content. To make such hypotheses operational, even at the level of analytic discourse, additional definition is necessary. What, precisely, do persons do when they “do good”? If individuals differ widely in their conceptions of “good,” attempts by each to “do good” amount to little more than random deviations from behavior modeled on self-interest postulates.

If the alternative hypotheses are to carry predictive weight, they must be amended to state something like the following: “People want to do good or to take right actions, and they share a single conception of what is good or right.” The commonality of the norm, at least over a large number of persons, is a necessary feature of any operationally useful theory of choice or action that moves beyond the strict individualistic models.8

Applied to the problem at hand, which is that of deriving some conceptual explanation of why individuals might be expected to seek out, design, argue for, and support changes in the general rules of the sociopolitical order when, by presumption, such behavior would be contrary to identifiable self-interest, it is necessary to resort to some version of “general interest” or “public interest” as the embodiment of a shared moral norm. That is to say, persons must be alleged to place positive private value on “public good” for the whole community of persons, over and beyond the value placed on their own individualized or partitioned shares.9 Furthermore, this “public good” that is privately valued must be that state of affairs defined by the interaction of freely choosing individuals, rather than some transcendental notion derived from God or Karl Marx.

If, however, individuals do, indeed, place a positive value on the shared conception of “public good,” the economist-critic can then ask the straightforward question, How could a community made up of such persons ever find itself in the social dilemma that has been diagnosed? Why would a community of such persons ever need a change in the rules of the game, or why is there a need for any rules at all? The appropriate response is equally straightforward. To hypothesize that persons place positive value on a shared “public good,” defined as indicated, does not in itself imply anything at all about this evaluation relative to that placed on the furtherance of individuals’ private economic interests. The economists’ explanatory model reasserts itself at this point and suggests the presence of a necessary trade-off between “public good” and “private good” in the choice calculus of any person who maximizes utility. From this elementary point it follows that the observed degree of “public regardingness” in behavior will depend on the relative costs as these emerge in the institutional setting.

It is precisely here in the argument, or so it seems to us, that a categorical distinction must be made between choices confronted within or under an existing set of rules and choices confronted among alternative sets of rules themselves. In the first of these two settings, that of postconstitutional or in-period choice, the relative costs of choosing courses of action that further the shared “public good” may simply be too high, relative to the increment in “public good” promised to result from such action, to shift behavior significantly away from economic self-interest. In the second choice setting, by contrast, the costs of furthering “public good” may be significantly lower, so much so that the same person who behaves in accordance with narrowly defined self-interest within the given set of rules may well behave in accordance with precepts of shared norms when making genuinely constitutional choices.

The categorical difference here stems from the meaning of general rules, the generality referring to their application to all members of the body politic. The principle is an elementary one in theoretical welfare economics and in the theory of public finance, and it has been widely recognized, especially since it was emphasized by Baumol in Welfare Economics and the Theory of the State.10 Nonetheless, the principle is often overlooked in otherwise sophisticated discussion. A good example is the discussion of public and private charity. Many who have opposed governmental transfer programs refer to the opportunity persons have, in their private capacities, to make charitable transfers to the needy. These critics then go on to infer that arguments in support of governmental transfer programs must arise from a desire to impose coercive taxation on those who would not voluntarily make charitable transfers. Some such motivation is probably present in many of the arguments, but these critics overlook the distinction made here to the effect that persons may, in a collective setting in which their actions are generalized, voluntarily agree to transfer schemes that involve costs to them that would never be borne in a private institutional situation. An individual might voluntarily agree to a tax-transfer scheme that imposes a net individual cost of one hundred dollars, if he knows that all other, similarly situated persons will also bear net costs of one hundred dollars each. The same individual, however, may contribute only fifty dollars, or less, to privately organized schemes having the same purpose in the absence of the political program.

The nature of rules changes ensures that all persons in the political community will be involved similarly, at least in one meaning of the term. (All players are required to play by the same rules, whether these rules are those that now exist or those that might exist after a change.) In considerations of proposals for a change in the rules, therefore, there is much less conflict between what can be called “private” and what can be called “public” advantage. An individual cannot, in nearly so direct a sense, set off his own private gain against public gain as he might do in purely private market choice or in political choice made within ordinary majoritarian institutions for decision making. In either of the latter two decision settings, the behavior of a person in generating “public bad” or in failing to produce “public good” might be motivated strictly by the opportunity to secure private gain. Such an opportunity might not really exist, at least directly, in the genuinely constitutional-choice setting.

The free-rider dilemma that emerges in constitutional choice is of a sort quite different from what enters the choice settings just noted. In constitutional choice, free ridership refers largely to the potential absence of individualized interest in general rules rather than to the presence of any directly contrasting nongeneral or private interest, where nongenerality itself ensures the differentiality. As we have noted, some such identifiable private interest may remain in any constitutional choice; it may not be possible to design proposals for constitutional change that will place persons behind sufficiently thick veils of uncertainty. Nonetheless, a shared moral norm in such a setting has much less “work to do” than it might in a nonconstitutional setting.

[8. ]We are indebted to David Levy for calling our attention to this point. See his paper “Towards a Neo-Aristotelian Theory of Politics: A Positive Account of Fairness” (Center for Study of Public Choice, Virginia Polytechnic Institute, December 1981, mimeographed).

[9. ]Howard Margolis has attempted to formalize such a model. His difficulties in so doing illustrate the magnitude of the task. See his Selfishness, Altruism and Rationality (Cambridge University Press, 1982).

[10. ]William J. Baumol, Welfare Economics and the Theory of the State (Cambridge, Mass.: Harvard University Press, 1952).