The Reason of Rules: Constitutional Political Economy

Geoffrey Brennan.
Brennan, Geoffrey and James M. Buchanan
(1919- )
CEE
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Editor/Trans.
First Pub. Date
1985
Publisher/Edition
Indianapolis, IN: Liberty Fund, Inc.
Pub. Date
2000
Comments
Foreword by Robert D. Tollison.

1. Geoffrey Brennan and James M. Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge: Cambridge University Press, 1985), volume 10 in the series.

2. James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), volume 3 in the series.

Preface

* [Geoffrey Brennan and James M. Buchanan, The Power to Tax: Analytical Foundations of Fiscal Constitution (New York: Cambridge University Press, 1980), volume 9 in the series.]

Chapter 1

3. See, in particular, James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975).

4. Thomas Hobbes, Leviathan (1651) (New York: Everyman Edition, 1943).

5. Gordon Tullock, The Social Dilemma (Blacksburg, Va.: University Publications, 1974).

6. For a general discussion of the principle that agreement on which rule to adopt is less difficult to achieve than agreement on strictly defined distributional allocations, see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962).

Chapter 2

7. For other attempts to describe the contractarian position, see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962); James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975); James M. Buchanan, Freedom in Constitutional Contract (College Station: Texas A&M University Press, 1977); and Geoffrey Brennan and James Buchanan, The Power to Tax (Cambridge University Press, 1980).

8. This derivation is elaborated in some detail in Buchanan, Limits of Liberty.

9. Jules Coleman, "The Foundations of Constitutional Economics," in Constitutional Economics: Containing the Economic Powers of Government, ed. Richard McKenzie (Lexington, Mass.: Lexington Books, 1984), pp. 141-55.

10. For an elaboration of the position outlined here, see James M. Buchanan, "Rights, Efficiency, and Exchange," in Ansprüche, Eigentum und Verfügungsrechte, Arbeitstagung des Vereins für Socialpolitick, Basel, 1983 (Berlin: Duncker & Humblot, 1984), pp. 9-24.

11. The discussion in this and the following sections is closely related to the analysis presented much earlier in Buchanan and Tullock, Calculus of Consent.

12. John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971).

13. For an elaboration of this point, see James M. Buchanan and Roger Faith, "Subjective Elements in Rawlsian Agreement on Distributional Rules," Economic Inquiry 18 (January 1980): 23-38.

Chapter 3

** Precursory argument for some of the discussion in this chapter is contained in James M. Buchanan, "Politics and Science," Ethics 77 (July 1967): 303-10; reprinted in James M. Buchanan, Freedom in Constitutional Contract (College Station: Texas A&M University Press, 1977), pp. 64-80. More recent related discussion is contained in James M. Buchanan, "Sources of Opposition to Constitutional Reform," in Constitutional Economics: Containing the Economic Powers of Government, ed. Richard McKenzie (Lexington, Mass.: Lexington Books, 1984), pp. 21-34.

14. P. H. Wicksteed, The Common Sense of Political Economy (London: Macmillan, 1910).

15. This is a jointly authored book, but any two authors must disagree on particular points in a long and sustained chain of argument. In our case, we should acknowledge that the argument in Section II, and related discussion in this chapter, is one such point. The thrust of the argument is Buchanan's. Brennan, as well as some readers of the manuscript in earlier drafts, has expressed misgivings about relating the contractarian position so closely to the denial that objective values exist. It is suggested that there may be an argument to the effect that objective values exist and that these include the value of individual liberty. In the political context, this position might hold that contractarianism requires only that individuals count equally in the ultimate origination of what is to be expressed through politics. So stated, the position need have no implications for the existence or nonexistence of objective value standards.

16. Of course, none of this has any bearing on the question of whether a science of politics is possible or legitimate. A science of markets has developed that does not claim that market participants pursue anything akin to scientific truth. The science of biology does not necessarily invoke the assumption that organisms are "doing science."

Chapter 4

17. See Geoffrey Brennan and James M. Buchanan, The Power to Tax (Cambridge University Press, 1980).

18. See Geoffrey Brennan and James M. Buchanan, Monopoly in Money and Inflation (London: Institute of Economic Affairs, 1981).

19. See John Foster's summary review of our Monopoly in Money and Inflation in Economic Journal 91 (December 1981): 1105.

20. See Paul A. Samuelson, "The World Economy at Century's End," Bulletin of the American Academy of Arts and Sciences 34 (May 1981): 44.

21. Two of our papers, "The Normative Purpose of Economic Science," International Review of Law and Economics 1 (December 1981): 155-66, and "Predictive Power and the Choice among Regimes," Economic Journal 83 (March 1983): 89-105, represent earlier efforts to justify the use of the Homo economicus construction in constitutional analysis.

22. For an ingenious attempt to bring what appear to be our preference shifts into the relative-price explanatory framework, see George Stigler and Gary Becker, "De Gustibus Non Est Disputandum," American Economic Review 67 (March 1977): 76-90.

23. See, for example, George Stigler, The Economist as Preacher (delivered as the Tanner Lectures, Harvard University, 1980).

24. We have made several efforts to do so. See, particularly, James M. Buchanan and Richard E. Wagner, Democracy in Deficit (New York: Academic Press, 1977); and Brennan and Buchanan, Power to Tax.

25. See Arnold Harberger, "Three Basic Postulates for Applied Welfare Economics," Journal of Economic Literature 9 (September 1971): 785-97.

26. David Hume, "Of the Independency of Parliament," in Essays, Moral, Political and Literary, Vol. 1 (London: Oxford University Press, 1963).

27. Thomas Hobbes, De Cive (1642) (New York: Appleton-Century-Crofts, 1949), p. 12.

28. See, for example, J. Roland Pennock, Democratic Political Theory (Princeton University Press, 1979), pp. 521-24.

29. Gary Becker, "Altruism, Egoism, and Genetic Fitness," Journal of Economic Literature 14 (September 1976): 817-26.

30. The Hobbesian argument seems to be the same as that implicit in the admonition of D. H. Robertson when he advised all economists to issue warning barks when they saw proposals depending on "love" for their effectiveness. See D. H. Robertson, Economic Commentaries (London: Staples Press, 1956).

31. For a collection of the relevant papers, see James M. Buchanan, Robert D. Tollison, and Gordon Tullock (eds.), Toward a Theory of the Rent-Seeking Society (College Station: Texas A&M University Press, 1981).

Chapter 5

*** Preliminary treatments of the material contained in this chapter can be found in two papers by James M. Buchanan: "History, Now, and the Constrained Future" (presented at the Interlaken Seminar on Analysis and Ideology, Interlaken, Switzerland, May 1982), and "Individual Choice Behavior in Private, Agency, and Collective Decision Roles" (presented at the Club Turati Conference on Individual and Collective Rationality, Turin, Italy, January 1983).

32. See Gary Becker, The Economic Approach to Human Behavior (University of Chicago Press, 1976).

33. This self-construction aspect of choice has been discussed in some detail by James M. Buchanan, "Natural and Artifactual Man," in What Should Economists Do? ed. James M. Buchanan (Indianapolis, Ind.: Liberty Fund, 1979), pp. 93-112.

34. For purposes of our analysis, it is not important to distinguish between shifts in constraints and shifts in preferences. Stigler and Becker argue that it is helpful to treat all such shifts as changes in constraints, under the postulate that preferences remain uniform both over time and among persons. In either case, the individual who chooses does so in the knowledge that his choice behavior at one time can affect his potential choice actions at other times. See George Stigler and Gary Becker, "De Gustibus Non Est Disputandum," American Economic Review 67 (March 1977): 76-90.

35. Jon Elster, Ulysses and the Sirens (Cambridge University Press, 1979).

36. See Thomas Schelling, The Strategy of Conflict (Cambridge, Mass.: Harvard University Press, 1960).

37. See Kenneth J. Arrow, Social Choice and Individual Values (New York: Wiley, 1951).

38. Ron Heiner has developed a theory of constraints based on the predicted vulnerability of actors to false interpretations of signals. The analysis is extended to behavioral rigidities in nonhuman species. See Heiner's "Uncertainty, Rules, and Behavior: A Theory of Behavior and Evolution as the Resistance to Unreliable Complexity" (Brigham Young University, 1981, mimeographed).

39. The relationship works both ways, of course. Although, as suggested, an individual may be more willing to impose limits on the range of collective outcomes as a means of securing protection against the impositions of others, the same individual may, and for much the same reasons, be more willing to use the agency of the state as a means of imposing his will on others. The reformers who secured adoption of the constitutional prohibition on the use of alcohol in the United States did not consider themselves to be restricting their own behavior.

Chapter 6

40. A. C. Pigou, The Economics of Welfare, 4th ed. (London: Macmillan, 1932).

41. The basis for imposing tax limits that emerges from the argument here is quite different from the one we offered on the basis of a contrasting political model in our earlier book, The Power to Tax (Cambridge University Press, 1979). There, we stated that taxes tend to be "too high" because of the revenue-maximizing proclivities of government, which was modeled as one player in a two-player game with taxpayers. In that analysis, there was no dilemma aspect such as is examined here, and the set of questions concerning the time horizon for adjustment did not arise.

42. In terms of simple geometry, this result becomes immediately apparent. Although we shall not depict it here, the short-run "Laffer," or rate-revenue, curve above the initial tax rate will always lie outside the long-run, or full-adjustment, curve.

43. In collaboration with a colleague, one of us has developed the "high-tax trap" analysis in some detail. See James M. Buchanan and Dwight R. Lee, "Tax Rates and Tax Revenues in Political Equilibrium," Economic Inquiry 20 (July 1982): 344-54; "Politics, Time, and the Laffer Curve," Journal of Political Economy 90 (August 1982): 816-19; and "The Simple Analytics of the Laffer Curve" (paper presented at the 38th Congress of the International Institute of Public Finance, Copenhagen, August 1982).

44. A. W. Phillips, "The Relation Between Unemployment and the Rate of Change in Money Wage Rates in the United Kingdom, 1861-1957," Economica 25 (November 1958): 283-99.

45. See Finn E. Kydland and Edward C. Prescott, "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy 85 (June 1977): 473-91.

46. For analysis of the debt dilemma along lines that are in many respects similar to those presented here, see James M. Buchanan, "Debt, Demos, and the Welfare State" (paper presented at a conference on the welfare state, Civitas, Gesellschaft zur Forderung von Wissenschaft und Kunst, Munich, West Germany, October 1983).

47. See James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975), ch. 8; and Freedom in Constitutional Contract (College Station: Texas A&M University Press, 1977), ch. 12.

Chapter 7

48. Thomas Hobbes, Leviathan (1651) (New York: Everyman Edition, 1943), part 2, ch. 30, p. 185.

49. Ibid., p. 74.

50. As is the object in Hobbes, Leviathan.

51. As in the writing of John Rawls and others in the "justice as fairness" tradition. See John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971).

52. We discuss distributive justice in constitutional perspective in Chapter 8.

53. Hobbes, Leviathan, part 2, ch. 30, p. 185.

Chapter 8

54. Presumption is all that is possible in economies where the public sector absorbs one-third to one-half of total product and where unmeasured effects of collective activity via regulation ripple throughout the economy and influence the income distribution in untold ways.

55. For a notable exception, see Dan Usher, The Economic Prerequisite to Democracy (Oxford: Basil Blackwell, 1981).

56. For a very general examination of some of the redistributional implications of majority rule, see James M. Buchanan, "The Political Economy of Franchise in the Welfare State," in Capitalism and Freedom: Problems and Prospects, ed. Richard T. Selden (Charlottesville: University Press of Virginia, 1975), pp. 52-77.

57. These "persons" can be conceived as standing for completely homogeneous groups of equal size.

58. This assumption is by no means unexceptionable, as we have argued elsewhere. See Geoffrey Brennan and James Buchanan, "The Logic of the Levers" (Center for Study of Public Choice, Fairfax, Va., 1983, mimeographed). It does, however, follow conventional public-choice practice and is highly convenient here.

59. In Chapter 4, we attempted to justify this assumption as an analytically appropriate tool.

60. This assumption is a "fudge." A market order requires institutions to protect property rights and enforce contracts, and such institutions require access to resources in order to function. Taxes will then not be zero in the absence of transfers. However, it is useful to assume that there are no taxes in the zero-transfer case.

61. For extended treatments of this phenomenon, see James M. Buchanan, Robert D. Tollison, and Gordon Tullock (eds.), Toward a Theory of the Rent-Seeking Society (College Station: Texas A&M University Press, 1980).

62. See Geoffrey Brennan and James Buchanan, The Power to Tax (Cambridge University Press, 1980), ch. 3, for a detailed exposition of this point.

63. Under inadequate indexing provisions, inflation makes it possible for taxing authorities to appropriate part of the real value of the assets themselves (by driving the net-of-tax real rate of return below zero). Here, we assume that monetary authorities are constitutionally restricted from engineering inflation for redistributive purposes, or at least are independent of in-period political pressures. See Brennan and Buchanan, Power to Tax, chs. 5 and 6.

64. See, for example, ibid., chs. 3 and 4.

Chapter 9

65. For earlier, related analyses that were more diagnostic, see James M. Buchanan, The Limits of Liberty (University of Chicago Press, 1975); also see Gordon Tullock, The Social Dilemma (Blacksburg, Va.: University Publications, 1974).

66. 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.

67. For a careful and comprehensive treatment of the significance of time lags in a constitutional calculus, see Antonio Pinto Barbosa, "The Constitutional Approach to the Fiscal Process: An Inquiry into Some Logical Foundations" (Ph.D. diss., Virginia Polytechnic Institute and State University, 1975).

68. John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971).

69. 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.

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

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

72. 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).

73. 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).

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

75. In our opinion, great damage has been and is being done by modern economists who argue, indirectly, that basic institutional change will somehow spontaneously evolve in the direction of structural efficiency.

End of Notes

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