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4 - The Efficacy of Arbitrary Rules
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- By James M. Buchanan, George Mason University, USA, Yong J. Yoon, George Mason University, USA
- Edited by Ram Mudambi, Case Western Reserve University, Ohio, Pietro Navarra, Instituto di Chimica e Tecnologia dei Prodotti Naturali (Sezione de Messina), Italy, Giuseppe Sobbrio, Instituto di Chimica e Tecnologia dei Prodotti Naturali (Sezione de Messina), Italy
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- Book:
- Rules and Reason
- Published online:
- 05 June 2012
- Print publication:
- 29 January 2001, pp 56-68
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Summary
Introduction
The analytical core of constitutional political economy is located in the categorical distinction between two sets: (1) alternative constraints or rules and (2) alternative positions or outcomes attainable within separately defined constraints. Almost all discussion has proceeded on the presumption that there exists some “natural,” or empirically derived, basis for this distinction. The familiar explanatory reference is to ordinary games (poker, tennis, basketball), where there is surely universal recognition of the distinction between “the rules,” which indeed define the game itself and which must be explicitly chosen through some process, and the outcomes or solutions that emerge from the interdependent choices among strategies made by the players whose behavior is constrained by the rules that are chosen.
The extension to politics is not so simple as it may appear to be, even to those who share the American sense of constitutional order, with its categorical difference between constitutional law and ordinary legislation. Here the distinction between the choice among constraints and choices made within constraints becomes evident, but the analogy from ordinary games breaks down because outcomes within rules are explicitly chosen; political outcomes do not emerge from the interdependent choices made by separate participants as is the case in ordinary games. Nonetheless, the distinction remains central to the analytical exercise. And, in an even broader perspective, political philosophers who seek to ground political legitimacy in consent or agreement must necessarily place the formation of the basic social contract at a level or stage of choice that is categorically separate from the give and take of ordinary politics.
A Smithean Perspective on Increasing Returns
- James M. Buchanan, Yong J. Yoon
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- Journal:
- Journal of the History of Economic Thought / Volume 22 / Issue 1 / March 2000
- Published online by Cambridge University Press:
- 11 June 2009, pp. 43-48
- Print publication:
- March 2000
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Despite its recent re-emergence to analytical importance, the phenomenon of increasing returns remains outside the central core of neoclassical economics. The history of this idea (or set of ideas) might have been quite different if Adam Smith's explanation of the origins of trade had not been replaced by that of David Ricardo. To Adam Smith, mutually beneficial exchange emerges because of specialization, which, in its turn, implies the presence of increasing returns to the size of the exchange nexus. Even in a world of equals, trade offers mutuality of gain. There is no need for participants in the economic nexus to differ one from another. In the Ricardian logic, by contrast, trade presumably emerges because productive resources differ in their capacities to create economic value, at least among separate “goods.” Specialization is a “natural” feature of resource endowments—a feature that is exploited by trade. Comparative advantage ensures the mutuality of gain. But, in this explanation, there is no direct linkage between the size of the exchange network and the degree of specialization that is viable. There is no need to introduce increasing returns. Comparative advantage may be present even if there are constant returns to scale, both for the economy and for its separate productive sectors.