Rules for Non-Radicals – Econlib

The Reason of Rules does not present a simple argument. Because of this, there is much in it that I cannot cover. I will therefore dispense with some public choice orthodoxies—the defenses of Homo economicus, the importance of behavioral symmetry, and the like. Instead, I will highlight what I see as the three pillars of the book: why rules matter, how Brennan and Buchanan evaluate the “goodness” of rules, and what the prospects are for changing constitutional rules.

Reasons for Rules

Life is better together. By taking advantage of specialization and the division of labor, the wealth generated by modern economies defies comprehension. But this level of prosperity is not the default state for humanity. The reason we can achieve such high standards of living is because of the market rules we follow.

The study of rules is the core pre-occupation of Brennan and Buchanan—rules are in the book’s title, after all. But Brennan and Buchanan understand what many social scientists seem to miss. Rules are not just important—they are the most important things when it comes to understanding civilization. To quote the authors:

• At their most fundamental level, rules find their reason in the never-ending desire of people to live together in peace and harmony, without the continuing Hobbesian war of each against all. How can social order be established and preserved? All social science and philosophy must address this question, either directly or indirectly.—The Reason of Rules, p. xv

Rules matter because they allow productive interaction to occur between individuals with divergent motivations. Different rules can also lead to dramatically different outcomes—even if the individuals operating within those rules are the same. Because different rules lead to starkly different equilibria, their importance should be obvious. Yet Brennan and Buchanan are not asking social scientists to study how individuals make choices within rules. Rather, they are considering how we can decide upon the meta-rules that govern political orders. That is, their concern is about how we can choose and evaluate rules themselves—including rules about how we make rules! Thus, their topic of inquiry is not about ordinary politics. Rather, Brennan and Buchanan are thinking about rules at the constitutional level, and they encourage their readers to adopt a constitutionalist perspective.

Enter the Contractarian

Constitutionalism can take many forms. The conservative endorses constitutional rules because they have the weight of tradition behind them. Others may view constitutional rules as important for the protection of rights we know to be good and true. Natural rights classical liberals will see the appeal.

The Reason of Rules eschews these approaches for a contractarian perspective. More accurately, it is Buchanan who rejects these other viewpoints—the lengths that he takes his contractarianism to are ones that his co-author does not wholly endorse. The contractarianism of The Reason of Rules is rooted in one assumption that Buchanan cannot deviate from: individuals are the ultimate sources of value when it comes to rules. There is no external standard that we can use to evaluate whether the rules we have are “good.” There are no political truths out here, waiting to be discovered.

This assertion is why politics as exchange is so important for constitutional political economy. Economics majors are taught every year that we know a trade between two individuals is mutually beneficial because both parties agree to it. Constitutional political economy takes this logic and applies it to the selection of rules that govern group behavior. Rules can be said to be beneficial if they are voluntarily agreed to by all those who live under them.

Thus, unanimous agreement is indispensable in the contractarian framework. If we take Buchanan’s individualist and exchange points seriously, we have no other option. Unless constitutional rules could have been agreed upon unanimously, the contractarianism of The Reason of Rules leaves us unable to evaluate their goodness or badness. This unanimity requirement—even if applied conceptually—may seem hopelessly naïve, but it is here where the distinction between choices among rules rather than choices about alternatives within rules comes to the fore. When deciding on different sets of rules, there is inherent uncertainty in knowing the effects these rules will have on one’s distributional position. Because of this uncertainty, the scope for agreement on rules is substantially increased. Whether this is enough to salvage the reliance on unanimity is an open question.

Rules in Real Life

Brennan and Buchanan start their practical analysis rules at the individual level. Individuals may want their behavior to be bound by rules due to temporal difficulties that arise with choice. Decisions made in one period will undoubtedly influence the choices we make in subsequent periods, and when one introduces the idea of preferences about preferences, the importance of rules becomes obvious. Consider the following example. I am a notorious night owl. I would like to be the kind of person who wakes up early to write, so I implement a rule: no laptop after 10:00 PM. If the rule operates correctly, my behavior is constrained: night owl Scott cannot spoil the plans of early-riser Scott. Here, the rule solves a temporal inconsistency.

The case for rules is even stronger in collective choice. As Brennan and Buchanan argue, rules become more important when individuals know that they are not the only ones acting. When the unpredictability of others is added to the mix, the value of constraining rules rises considerably. Constraints on what others can do serve to guard against adverse outcomes. Stymying the tyranny of the majority comes to mind.

The lack of rules can explain some of the “failures” we see in modern democracies. Chapters 6 and 8 examine some of these. Take, for instance, the high levels of inflation the United States experienced in the 1970s. Economics lent credence to the idea that unanticipated inflation could cause a temporary bump in employment. However, this increase was just that—temporary. Economists recognized that inflationary stimulus was not a route to higher rates of employment.

When the economic costs of inflation are accounted for, reductions in inflation may be desirable. But from the perspective of politicians, this may be a non-starter. Reductions in inflation would be accompanied by temporary increases in unemployment. But while these temporary increases may eventually dissipate, this is cold comfort to the political decision-maker—especially when their competitors may promise inflationary policies that lead to temporary boosts in employment! The temporal difficulty raises its head again: given the short-termism of politics, no politician or decision-maker seeking to keep their office or win re-appointment would support the policies needed to reduce inflation.

Brennan and Buchanan propose that the only way out of this mess is a rule-based one. If discretionary power can be taken off the table, then political decision-makers may feel more comfortable taking the long-term perspective regarding inflation. If they cannot be undercut in the future by competitors using re-inflation as a tactic, the dilemma appears to be solved. Rules are a way this can be done.

Bullets to Bite

The Reason of Rules is not just an important book because it advances our academic understanding of rules. Brennan and Buchanan take their arguments and try to show how they can cash out in real improvements for those outside the ivory tower.

This is most clear in the final chapter of the book, “Is Constitutional Revolution Possible in Democracy”? As they write, “We do not live in the best of all possible constitutional worlds, and here we examine the possibility of escaping into a different one” (p. 150). It is easy to guess what sorts of improvements Brennan and Buchanan can imagine—their discussions in chapters 6 and 8 come to mind. But what is extraordinary is their commitment to the contractarian framework. Brennan and Buchanan do not claim that they know what the right constitutional rules are. Rather, they see their role as only identifying proposals that can secure general agreement. Once again, agreement by citizens in a democratic society is the only evaluative standard they will accept. But this insistence may take their analysis to some uncomfortable places.

As rules change, individuals will be able to predict how their situations will be affected. John Rawls’ veil of ignorance, or even the weaker veil of uncertainty, does not fully obtain when the rule-making rubber hits the road. If individuals see themselves as harmed by changes in the rules, they will not consent to these changes. The set of rule changes that do not result in some party or parties suffering distributional losses is likely a null one, so the prospects for rule changes may seem dim. But all is not lost for the contractarian—”politics as exchange” can come to the rescue. If mutually beneficial rule changes exist, there must be some constellation of side payments or compromises that can compensate those who will be harmed. Essentially, finding ways to pay off the “losers” from rule changes can buy their agreement, allowing constitutional improvements to be made.

This involves biting some very hard bullets. Being willing to negotiate with those who are harmed by constitutional changes implies treating their current claims as if they were legitimate, and in the real world, this is unlikely to be the case. Brennan and Buchanan give the hypothetical example of land reform. One can imagine a situation where changes to land holdings would have financial benefits, but to bring these changes about, current landowners who will give up their holdings must be compensated. If those landowners had acquired their property in unjust ways—forcible confiscation, for example—the contractarian method would advocate for paying off those who had acquired things through ill means! For many of us, this is untenable. Contractarian agreement is unlikely to be reached, and other “solutions”—such as the forcible taking of the land—may be advocated for.

Reasons for Fear

This means it may be tempting to discard the contractarian enterprise. But doing so invites pitfalls. If the unanimity standard is abandoned, something else must replace it. Alternatives are easy to find: external standards of rightness or wrongness are plentiful. However, accepting something akin to a political “truth” as the way to judge constitutional rules may have deleterious consequences for democracy. If we know the “right” answers, what is the point of deliberation? The appeal of running roughshod over our fellows to implement what we “know” to be the right set of rules may be too tempting to resist.

Second, the contractarian approach to rules can help minimize the risk of Hobbesian war. True, Hobbes deploys the state of nature as an analytical foil rather than a historical reality, but if the changing of rules by discussion is off the table, then the only options available for constitutional revolution may be actual revolution or civil war. Brennan and Buchanan hint at this—if consensus cannot be reached, then violence may be the only way that things can be changed. When the devastation of such conflicts is considered, one can be forgiven for attempting to find ways to avoid them at all costs. To the extent that the contractarian lens gives us a bias for discussion rather than drastic action, there may be much to recommend—even for those who are not willing to fully abandon external value standards.

Reasons for Hope

The Reason of Rules is the definitive statement on constitutional political economy. But more importantly, the book offers communities—not just social scientists—tools to help us live even better together. Yes, the political economist has disciplinary training that can help them predict the functioning of rules, but this does not make them authorities on what the right rules are. That judgment must lie with all citizens. Once again, agreement is the standard by which we judge constitutional rules.

Brennan and Buchanan do not offer a counsel of despair. The continued existence of government failures indicates there are still benefits to be had from examining the functioning of alternate rules. This means that The Reason of Rules still has relevance today. The challenge of democratic constitutional revolution is still waiting to be picked up by today’s political economists. But how we go about this “revolution” is crucial. The most important insight in The Reason of Rules may be the continued insistence that knowledge of “optimal” policies is denied to even the best of economists. The rule changes we make are only good so far as they are endorsed by our fellow citizens. Democratic decision-making is therefore not just important for normative reasons. It may be a methodological necessity. Economists who do not truck with this contractarian “democracy”—at least at the level of constitutional rules—will do so at their own peril.

Footnotes

[1] Geoffrey Brennan and James M. Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge University Press, 1985; Liberty Fund, 2000), Library of Economics and Liberty. Also available at the Liberty Fund Book Catalog: https://www.libertyfund.org/books/the-reason-of-rules/.

[2] Division of Labor and Specialization. Econlib Guide.

[3] Cudd, Ann and Seena Eftekhari, “Contractarianism,” The Stanford Encyclopedia of Philosophy (Winter 2021 Edition), Edward N. Zalta (ed.)

[4] See footnote 2 on page 43, where Brennan registers his reservations.

[5] Rawls, J. 1971 [1999]. A Theory of Justice, pg. 11. Cambridge; Harvard University Press.

[6] Buchanan, J. M. and Tullock, G. 1962 [1999]. The Calculus of Consent, pgs. 78-79. Indianapolis: Liberty Fund.