Presumptions Versus Good Ideas
By Anthony de Jasay
Losing respect for presumptions undermines society’s immune system against good ideas.
Since 2008, sovereign indebtedness and the rolling over of charges onto the backs of generations to come has gathered momentum. The cruel “austerity” designed to reduce budget deficit from 8-9 to 3-4 per cent of national product still represents a fiscal stimulus, albeit a less feverish one than before. Nevertheless, it is now almost universally condemned as excessively severe, stifling as it does economic growth that is now practically at a standstill in Western Europe. Blaming the past for what is wrong in the present, the apparent inability to grow is now blamed on the Goldilocks years of deregulation, trade liberalisation and less progressive income taxation of the so-called Washington Consensus of the two decades prior to the 2008 crash. For the moment and maybe for some time to come, the collective wisdom trumpeted in parrot talk1 is that salvation must lie in bringing back the strong hand of the state to impose discipline in the market that has proved incapable to look after itself. The result on the entire Western world, but most conspicuously in Europe, is an avalanche of legislation, a frenzy of regulation and a mudslide of directives supposed to bring security to all, to tame risk, to curb “non-productive” services such as finance and foster “productive” industry, and to “create” new jobs by protecting the old ones. Last but by no means least, to make social justice prevail over the “ultra” or “neo”-liberal aberrations of recent decades.
The obsessive passion to govern, to tug at every steering wheel, gas pedal and brake within sight that seems to motivate the political classes and is trusted to ward off defeat at the next election, feeds on a steady flow of Good Ideas or, as the saying goes, on ideas that “looked good at the time”. In the near or medium term, we are certain to have massive studies evaluating the effect of the post-2008 rush of intensive government and its breathless pursuit of Good Ideas. It is a safe bet that some of these studies, though hardly more than a half, will ascribe the coma of the European economy, its inability to put 2008 behind itself and start growing again, to the insistence of governments to regulate and direct it.
While we wait for these definitive studies to emerge there is ample time to reflect on the reasons for our readiness to gobble up what the political classes kept laying before us. Why are we so gullible as to believe that the ideas that look good today will still look good tomorrow? Has society lost its supposed conservatism, its immune system, that would resist good ideas, or at least good ideas of a certain type?
Any social order worthy of the name rests on two elementary components. One, widely recognised, is a system of rules of reciprocal behaviour, such that conforming to them is beneficial or at worst neutral to all parties. The rules are universally beneficial because any potential gain from not conforming to them is threatened by sanctions administered by those benefiting from conformity. The model is that nobody steals the neighbour’s chicken and everybody is down on the eventual chicken-thief. The interaction, technically a convention, is spontaneous and has been first made clear by David Hume, who used it above all to explain the stability of property and the keeping of contracts. It is also central to game theory in the explanation of certain types of equilibria.
Next to the spontaneous rules of justice the other foundation stone of a well-ordered society is the presumption. The presumption of a state of affairs S is that S is the case. It is held to be the case until and unless adequate reason is shown to the contrary.
The only presumption familiar to general opinion is that of innocence; everyone knows and approves of “innocent until proved guilty”. The public is less aware, and academic opinion is not unanimous about another and possibly more decisive presumption, that of freedom. Its essentials and its basis in logic and the theory of knowledge deserve a brief restatement.
The rules of justice place a part of the universe of feasible human acts so to speak off limits. The remaining sub-universe is the area of freedom. The acts falling into this area enjoy the presumption of freedom. No rule speaks against them. However, any such act is open to contestation by a plaintiff who may have a very wide variety of reasons—reasons of interest, taste, prejudice or even of poor understanding—to wish the act to lose its freedom, and be prohibited. The defendant may refute any number of possible reasons without ever being able to say that no more are left. He cannot refute an indefinite number. Technically speaking, the plaintiff’s complaint is unfalsifiable. Since the defendant can never conclusively refute it, he cannot be required to do so; the burden of proof cannot lay on him, but can only be borne by the plaintiff, the adversary of freedom. His cause gains if he can verify the claim that any specific reason is sufficiently strong to warrant the suppression of the freedom in question. The burden of proof lies on him. Unless he succeeds to discharge it, the presumption of freedom remains in force.
One freedom of obviously vital importance is inherent in ownership. Possession gives rise to property, for it can be defended, failing other evidence, in the presumption of good title that prevails unless it is shown to be false or otherwise invalid by a contestant. Ownership, in turn, involves such presumptions as free enjoyment of the fruits of property, free choice of its use and its disposition by sale, gift or bequest. Freedom concerning property are often and (mistakenly), called “rights”, a misnomer that easily leads to the tacit supposition that property is in the gift of some higher power, the state or society.
The importance of understanding ownership as a freedom (or perhaps more precisely, freedoms) and the presumption of good title is obvious. Despite this, and sometimes precisely because of this, these relations and the logic of the presumptions that are defending them, are persistently misinterpreted or simply ignored.
Confusion and unintended consequences are the typical result.
Relatively episodic, claiming hardly more than a page or two in future economic history books, the current wave of measures in both the European Union and even in Switzerland against runaway bonuses and other sorts of compensation paid to top bankers and also some prominent non-bank corporate executives provide a lesson in how the presumption of freedom is ignored. Cutting down these hard-to-comprehend sums that look astronomical and undeserved to ordinary mortals, will lead to upheavals, under-the-table subterfuges and the emigration of some important corporate decision centres from London and other European capitals to New York, Hong Kong and Singapore. Other, more complicated effects, costly to the very countries that are initiating these controls may be expected but appeasing the furious popular indignation about bosses paying themselves absurd sums for no apparent reason must have been worth this price.
What nobody chose to ask is how these legislative or regulatory measures fit into any general order resting on justice and the presumption of freedom. Corporate executives, however grand, are the employees of the corporation, hence of the owners of the corporation, however small. It is a strange world where a third party, finding that the employee is paid too much by his employer, takes it upon himself to over rule the contract to which employer and employee, albeit after a fashion, had agreed. It could be argued that the many small owners of the corporation cannot effectively influence the contract between their corporation and its executives. The pay of the latter may thus be fixed by delegation to some sub-committee of the Board and for a variety of reasons may become heavily biased in favour of the executives and at the expense of the owners. If this is thought to be the case, the public authority may take powers to impose rules that the negotiation of executive employment contracts must follow, considering that protection of the owners of a public company in the hiring of executives is no less legitimate than their protection by requiring accounts to be audited. A very high quorum of shareholders may be made a condition of pay and bonuses. Other devices of making the owners’ will more effective may be employed. All this, however, is different from the violation of the presumption of freedom that the compulsory imposition of contract terms implies.
The root of the problem, however, seems to be that public opinion holds an implicit conviction that even if the presumption of freedom were really a consequence of justice and logic, the will of the political authority would always count as strong enough to prevail over it, simply because it was the will of the political authority which is the will of the people, anything that “looks a good idea at the time” is assured of being adopted; the collective choice rule means nothing less than that collective choices rule.
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For more articles by Anthony de Jasay, see the Archive.