Hobbes, Rawls and the Constitutional Political Economy Project

1. Hobbes, Rawls and the Constitutional Political Economy Project Peter J. Boettke Econ 828/Fall 2004 15 November

2. Thomas Hobbes (1588-1679) and the Social Contract • Leviathan (1751) • State of nature • Social contract with sovereign • Authoritarian nature of good government

3. Brief Biography and Impact of Rawls • Born February 1921, Died November 2002, age of 81 • Educated at Princeton (PhD 1950), joined Harvard in 1962. • Considered by many the most influential political philosopher of the 20th century • Most important book, A Theory of Justice (1971)

4. The Construction of Rawls’s System • The Original Position, veil of ignorance and the social contract • Two principles of justice • Justice trumps concerns with efficiency – reflective equilibrium

5. The Original Position and the Veil of Ignorance Construct • Rawls as a rational choice theorist • Rational choice within a world in which interests are either uncertain or non-existent • The meta-ethics of the social contract • Intended not to determine what just action is, but to create a framework within which actions can be evaluated as just or not

6. Two Principles of Justice • Maximum Equal Liberty • Basic structure must provide each individual with basic liberties, e.g., freedom of conscience, freedom of expression, due process, etc. • Difference Principle • Inequalities in wealth and social position must be arranged such that the least advantaged in society are best off (max/min)

7. Justice Trumps Efficiency • Social goods are Liberty, opportunity, income, wealth, self-respect are to be distributed equally, unless an unequal distribution could be shown to benefit the least advantaged in society – the allocation of these goods is determined by the basic structure of society • Rank order such that only liberty can trump liberty • Natural goods are Health, intelligence, imagination (creativity) --- not directly under the control of the basic structure of society

8. Is Rawls’s System Socialism? • Intellectual trick --- justice trumps efficiency, but since efficiency is not threatened the choice is not difficult • Bad economics • Incentive effects • Informational inefficiencies • Once the threat is recognized, then what? • Process versus End-State distributive justice • Is there a libertarian reading of Rawls?

9. Buchanan’s contributions to political economy in The Limits of Liberty and the Reason of Rules • Pre- and Post-Constitutional Levels of Analysis • Rules • Strategies • Simple analytics of Liberty • Incentive compatibilities, informational capabilities, and exchange opportunities • Debunking the myth of the benevolent despot • Role of homo-economicus in political economy modeling

10. The Role of Social Contract Theory in Buchanan’s work • Veil of Ignorance as thought experiment to get normative start state for unanimity standard • Society based on agreement, not natural rights • The Status of the Status Quo in the examination of any given social analysis • Compensation Principle

11. The Argument in The Limits of Liberty • Big Picture --- anarchy is philosophically desirable, but practically undesirable for at least two reasons (1) exploitation of the weak by the strong and (2) this will generate less aggregate output than otherwise and thus our lives will be “nasty, brutish and short”. On the other hand, leviathan also generates an equilibrium that is “nasty, brutish and short.” • The project, then, is to find the right trade-off between anarchy and leviathan that enables us to maximize our liberty and prosperity

12. Anarchy and Leviathan Depiction Econ Performance Rules in Operation 0% 100%

13. The Analytical Puzzle in the Limits • Can we empower the Protective State (police, courts, national defense) and the Productive State (public goods) without succumbing to the influence of the Redistributive State (interest group politics and rent-seeking)?

14. But if Behavioral We are Built for Leviathan, Then Can we Construct Institutions that Give Us Liberty? • The Power to Tax as the intermediate step between The Limits of Liberty and The Reason of Rules • Assuming a Revenue maximizing Leviathan and then looking at fiscal policy restrictions which will constrain the state to behave as if it wasn’t a revenue maximizing Leviathan, but a wealth maximizing enlightened leader (institutions, not leaders are the cause) • Mancur Olson’s model of encompassing and narrow interests is vital to this exercise • Roving versus stationary bandits

15. The Reason of Rules • Methodological defense of the approach developed in The Limits of Liberty and The Power to Tax, see. p. 74. • Worst Case Theorizing in Political Economy • Different points of departure for different analysis • Value freedom in analysis of alternative systems • Robustness concerns in the construction of alternatives • Time Inconsistency Issues • The power of rules to bind, and the role that binding plays in achieving more than would be possible under discretion

16. Conclusion • The ‘Games’ of Social Organization that are played are determined by the rules that are in place and their enforcement • Rules are social capital which can be eroded through either our neglect, or our disrespect • Rules outperform Discretion • We can constrain the natural proclivities of man and of government, but we can only do so through a constitutional design the establishes rules of the game which bind those proclivities and change the expectations of what to expect from that institution • Politics By Principle, Not Interest follows on the heels of these works and takes the tact of constraining the choice set rather than constraining the choice rule