Abstract: Moral philosophy as it emerged from the Scottish Enlightenment spawned the social sciences in general and the field of political economy in particular. The latter field itself went on to splinter into two. James Buchanan, however, walked us back from our tendency to over-specialize and recovered the field of political economy as it was done in its classical heyday.
Key Words: justice, incentive compatibility, corruption, utilitarianism, distribution, self-interest
JEL Codes: A12, B12, H, P1
1. Production Parts Ways With Distribution
For Scottish Enlightenment scholars, the mid-1700’s was a heady time. Europe had never seen a better opportunity to make progress. Hume and Smith, following Galileo and Francis Bacon, then Newton, were on a quest to “introduce the experimental method of reasoning into moral subjects” (to borrow the subtitle of Hume’s Treatise). Among philosophers, the Scottish observation-based approach was called empiricism.
By the mid-1800’s, John Stuart Mill had taken empiricism to the limit, arguing that everything we know comes to us by experience and experiment. We draw inferences from observed empirical regularities. Even propositions like “2+2=4” are learned by generalizing from observed results. In his day, Mill was visible and influential as an expositor of the new moral sciences. Accordingly, he was taken seriously when, in a series of works culminating in 1848 with Principles of Political Economy, Mill separated the study of how goods are produced from the study of how goods are distributed. That is what you do for sake of analytical rigor and tough-minded science: if two things can be separated, you separate them.
Here is a further thought. Mill thought humanity might some day, perhaps soon, reach an economic steady state (Vallier 2010, 109). To be sure, the telegraph was invented in 1837, and by 1848, many thinkers suspected that electricity’s potential, especially in the realm of distance communication, was far from exhausted. Thus, even as Mill was writing on the stationary state, there was plenty of reason to doubt that better distribution was or soon would become the primary driver of human progress. Yet, for whatever reason, Mill foresaw a day when there would be relatively little news on the production side; human progress and human welfare would have more to do with better distribution than with rising productivity.
Today, we hardly remember John Stuart Mill pressing that distinction, or that we took Mill’s authority for granted and went along with him. Today, we cannot see how spurious that distinction was, for we can hardly imagine not seeing production and distribution as separate topics. But sometimes, what looks like two things is actually one, along the lines of the morning star and the evening star. If we presume to treat them as separate simply because they appear to be separable, we end up being misled.
Ironically, in the aftermath of Mill’s distinction, philosophy retreated from what empiricism had been, and was cut off from the scientific study of what makes some societies more productive than others. The latter became the province of some other department. Since Philosophy and Political Economy came apart, we have portrayed what society produces as a pie. Philosophy has been like the proverbial drunk looking for his keys under the street lamp not because that is where the drunk dropped his keys but because the light is better there. We treat the question of justice as a question of how to treat the pie because pie is what we can study with the instruments we have left. Questions about what produces the pie had to be left to the social sciences. What philosophy was equipped to study was a priori intuitions regarding what to count as a fair way of dividing the pie.
Philosophy is now something like this (Schmidtz 2017). We look at a snapshot of a busy intersection. We see how arbitrary it is that some people have red lights and others have green. We focus exclusively on the snapshot because the cause and effect and the empirical generalizations about the process that we study in sociology, economics, and psychology—these things are all autonomous social sciences now. Where the pie comes from is a social science. How people navigate in their communities, and which ways of managing traffic work better than others, are questions of social science. What works is the province of social science.
What is fair is the province of Philosophy. If we set aside social science and just look at the snapshot of social life at its busy intersections where traffic is congested and conflicts of interest become apparent, then we can have a vision beyond the reach of testing and refutation: Namely, in an ideally just world, everyone would have a green light—at the same time.
That may be highly impractical. If that is justice, it appears that we must compromise justice for humanitarian reasons: that is, so that human beings can afford to live together at all. If that is justice, or the basic ideal of justice, then every compromise that we accept so that people can tolerate living together is a lamentable practical concession to the corruptness of human nature. When do we go back to square one and ask whether our intuitions about the snapshot are anything other than ridiculous in a world of cause and effect? We cannot go back. If we did, we would be doing social science, and therefore not working on justice anymore.
Yet, there was a time when we knew that justice has roughly nothing to do with how we treat the pie, and everything to do with how we treat bakers. If we set aside everything we have learned about the terms of engagement under which bakers are better off living together, there is no testable answer to question of how to divide pie. There are only untestable intuitions. We know justice is not merely a matter of opinion, but that is what we made it resemble when we started treating Philosophy as outside the realm of empirical test. Under those constraints, the best we can do is to theorize about what led the “unreasonable” to develop intuitions unlike ours.
Hume and Smith saw economic justice as pertaining to an ongoing process, not an outcome. To Hume, we assess patterns of mutual expectation. To be sure, not all conventions command respect. On Hume’s theory, the conventions that command respect are useful or agreeable to self or others. To Smith, the question is even more pointedly empirical. We assess conventions in terms of how they affect wealth of nations. How do wealthier societies manage commercial traffic? What are documented consequences of alternative trade policies? Their questions mattered, and their questions had testable answers.
Was Mill really that pivotal? I suspect that no historical record that can settle exactly why things happened as they did. Hume taught us, after all, that correlation is one thing, while causation is another. At best, historical work is a plausible conjecture about implications of correlations. So let me mention three alternative correlations, along with my conjectures about what they contribute to an account of philosophy becoming what it is today: more or less isolated and marginalized as social science departments emerged in the 1800’s. Readers can decide for themselves whether to see these explanations as competing or as complementary, and what should be added to flesh out a more illuminating account.
2. Utilitarianism Parts Ways With Self-Interest
Not long after Mill separated questions of production and distribution, Henry Sidgwick separated egoism from utilitarianism and developed them into what he called alternative Methods of Ethics that could not be reconciled (except by God). Once the methods of determining what to do were packaged as mutually exclusive, it got harder to connect utilitarian moral analysis to real world policy and political questions (and harder also to see that the connection is important). Questions of incentive compatibility are about how to arrange opportunities and incentives implicit in institutional structures so as to be able to predict which institutions actually work, which actually serve the common good. The reality of what works was left for planners and practitioners—literal and metaphorical traffic managers—anything but philosophers.
3. Utilitarianism Focuses On Actions Rather than Outcomes
Also following Mill, but later and perhaps more gradually, utilitarianism became a philosophy that’s officially about maximizing but in reality is all about distributing. This development did not originate with, but does seem to have culminated in, Peter Singer’s “Famine, Affluence, and Morality” (1974), one of the most notorious bits of philosophy ever written. Singer would not characterize his view this way today, yet he inspired followers to suppose that utilitarianism’s one and only moral duty is to check your pocket to see whether you have any money. If you do, then being moral is putting your money somewhere else: wherever someone needs it more than you do. So long as someone somewhere has a better use for the money than you do, being moral is entirely a matter of giving until you have nothing left to give or until you have nothing that anyone needs more than you do. Productivity is something we encourage, but only as a means to an end, not because productivity per se commands respect. Indeed, productivity became vaguely disreputable, as befits a subject no longer within the purview of those who study ideals rather than worldly matters.
Before Mill, utilitarians worked on nature and sources of wealth of nations. They studied property rights and other tools of commercial traffic management. Since Mill, and certainly by the time of Peter Singer’s essay, we were beginning to ask questions like, what if you had the opportunity to prevent a runaway trolley from killing five innocent people, but only at a cost of killing one person? The question notoriously is a question about intuitions: ideas that we cling to but cannot test. We cannot test them, that is, until we start heading back up the road to making contact with institutional reality. That is, we ask the sort of question that the utilitarian philosophers asked before Mill: how do communities work? How do hospitals work? Why do hospitals never have a policy allowing (or requiring) doctors to kill one innocent person whenever they could save five patients by doing so?
Before Mill, we treated such questions as testable and answerable (Schmidtz 2017). We observed that the way to minimize the number of killings in our world is not to issue licenses to kill but to make killing illegal. Again, the question of whether it is right to kill one to save five is unresolvable as a question about a snapshot. As a question about what makes real world social and political animals willing and able to trust each other, and thus to have a framework for living good lives together, the question is eminently resolvable. If we investigate, we observe no great tension between respecting and promoting. Communities promote value by requiring citizens to respect value. Institutions promote the value by promoting respect for the value. We can’t see any reason to believe that by looking at the snapshot. We have to look at the process.
Here is a final thought about the cost of moving toward treating utilitarian ethics as a question about what we ought to do, and moving away from treating utilitarian ethics as a social science question about what works. Hume understood that whether doing the right thing maximizes value in a particular case matters less than we imagine. The kind of truth that manages traffic is truth about whose turn it is, not truth about who has the superior destination. That makes justice an artificial virtue, that is, a non-maximizing virtue, yet the kind of virtue on which communities are built. That also makes justice an egalitarian rather than an aristocratic virtue—a bourgeois virtue as Deirdre McCloskey (2006) might say. The function of justice is to enable everyone to share an understanding of whose turn it is, and for everyone to be able to know when to expect their turn. To Hume, justice has no further point, but that is enough to make justice the foundation of a peaceful, thriving community. Indeed, Hume thought, property rights are society’s most consequential traffic management device. They embody the right to say no, and walk away from offers that are inferior. Which is to say, they embody a profound equality of status and a profound driver of human progress that you cannot see if you see only the snapshot and not the process.
No one imagines that a system of property allocates property rights efficiently at any given moment. It is true of almost everything you own that someone else needs it more than you do. Yet, what matters at the foundational level—what everything else that makes a community good is built on—is traffic management. Humean justice is not everything, it is what everything else is predicated on.
4. ‘Is’ Parts Ways With ‘Ought’
In 1903, another towering philosopher, G.E. Moore, published Principia Ethica and transformed the Is-Ought problem into one of moral philosophy’s core puzzles. The problem continues to stump us to present day (Schmidtz 2017).
Here is the problem. Deductive logic cannot get us from premises about what is the case to conclusions about what ought to be done. David Hume, as early as the mid-1700’s, understood the problem. Some say Hume invented it. He certainly drew our attention to it. But Hume had a genius for identifying skeptical problems of all kinds, and Hume did not treat the Is-Ought problem as unique.
Hume was using Is-Ought problem to model a key feature of scientific reasoning. Scientific reasoning is a process of collecting data, then formulating hypotheses about what would cause the data to look like that. We do not exactly deduce what explains data. Neither do we directly observe causation. Instead, we jump to a conclusion about what explains the data. Then we test our theory by seeing how well it predicts what we observe under controlled experimental conditions. Interesting conclusions generally are not proven in the way that philosophers are taught to think of proof. Hume understood that the Is-Ought problem tells us something about the scientific method. Namely, science does not generate new knowledge by deduction. Hume thus went some way toward establishing moral subjects as on a par with natural science. Most knowledge, including scientific knowledge and including moral knowledge, is of truths other than necessary truths. But we missed his point.
It is part of human nature to experiment, guess, take risks, make mistakes, and learn fast. Proof and evidence are related, yet distinct. Proof is rare; evidence is everywhere. We look at facts and see reasons. We derive reasons from facts a hundred times a day, but not by deducing.
That does not mean facts are not relevant! We have known this since we were toddlers. The first time we experimented with touching the glowing red spiral, we were able to jump to a conclusion, based on experience. Premise: that hand is burning. Conclusion: ought to move that hand! Our inference is not valid, but neither is it a mistake.
The lesson, then is not that there is no truth about how we ought to live, but that (as a matter of empirical observation) deductive logic is not what moves us from factual premises to conclusions about how we ought to live. Of course, we make mistakes. The conclusions we jump to—that scientists jump to—are often mistaken. What is crucial is not to avoid mistakes so much as to avoid being slow to admit mistakes.
To Thomas Hobbes (1651), human action orbits around a goal of personal survival. Accordingly, we call Hobbes an egoist in our introductory courses. However, there is more to the story. To Hobbes, we are born at center of our universe, so we have an egocentric bias. Our egocentrism fosters… what? In fact, the consequence of egocentrism is not enlightened self-interest, but what Hobbes called vainglory—roughly what we call vanity today. Other people see the world from a different perspective. They do not see that we are at the center of the universe, which is infuriating. Thus, everything the people around us do is an implicit insult and an unending provocation, which makes us far more violence-prone than simple self-interest would ever lead us to be. We spend our lives retaliating against those whose universe does not revolve around us, and convincing ourselves that someone else fired first shot.
Realistic political economy’s core insight is optimistic by comparison. We observe not that people who acquire the power of government are viciously self-interested but simply that people who run courts and legislatures are much the same as people who run businesses or households. Some want money. Some want power. But those who devote their lives to acquiring power probably want power. If they do not seem to be good people, it is too easy to complain that we need to elect better people. At all levels of institutional design, however, the central task is to find a framework that motivates imperfect people to act in ways that serve the common good (Pennington 2011).
Realistic political economy comes to grips with the fact that the rules of the game are built and rebuilt from the inside, by the players themselves, competing, negotiating, compromising. But Hobbesian vanity can make people terrifyingly over-confident in the rightness of their vision. The “men of system” infamously observed by Adam Smith are public-spirited in a way, but when they see that other people do not share their vision, they are too vain to see that their so-called vision is actually tunnel vision, and the reason why other people are not marching toward the same destination is that there is no reason why they should be. In the marketplace, if you are wrong, your trading partners say your offer is not good enough. They walk away, and you go back to the drawing board. By contrast, when you gave your life competing for the power to impose your vision, you will not be impressed by contrary opinions of back-seat drivers who, unlike you, did not give their lives for the power you now (fleetingly) hold. The discipline of the market, in which people pay for their own mistakes, just isn’t there when it comes to political decision making.
When a subset of players acquires the power to rule, and reframe the rules going forward, what stops them from pursuing their own agenda at other people’s expense? It is a hard question. What Buchanan saw, and what he credits the framers of the American Constitution for seeing, is that the constitutional part of constitutional democracy is the part that limits what democratically elected rulers have a right to do. When we decide democratically, we need to be able to count on making those decisions within a constitutional framework. We are not a democracy unless some things are off the table. The winning party does not by virtue of its win get to call a vote on whether the minority party should permanently lose the right to vote. In a liberal democracy, citizens can count on their status as citizens not being up for grabs every time someone is in a position to bring a motion to a vote.
Because of the Constitution, legislators have to obey the law of the land like everyone else. Or at least, that is the theory. Of course, as the Framers could see, eternal vigilance is the price of liberty. We institute a Supreme Court, a divided legislature, and try to secure a freedom of the press in order to create a rule of law that constrains even the highest offices. That is all we can do. No one thinks there are any guarantees.
That’s the problem of political economy and moral science that James Buchanan salvaged from the Scottish Enlightenment, Hobbesian Contractarianism, and the American founding. Buchanan never saw himself or anyone else as having solved that problem, but he admired some failures more than others. He seemed to embrace a straightforwardly liberal ideal of good government. A community is a game. Citizens are players. Citizens institute government, and accept it as legitimate, when government does what citizens appointed it to do, namely, help make the community a better game for everyone involved. Citizens bring hopes and dreams of their own to the game. Citizens are the players. Liberalism more than anything else is the insight that no one is anyone else’s property. No one decides what other people are for, not even governors. Good governors are good referees, and good referees let the players play.
What makes some players want to be referees? Once they become referees, why wouldn’t they cooperate with other referees to turn refereeing from the unobtrusive thing it should be into a rent-seeking extravaganza for referees? Today, philosophers are still imagining how to divide the pie. To Buchanan, political philosophy’s more profound task was to imagine how to avoid dividing the pie; which is, in part, the task of imagining how to make other people’s visions of justice nonthreatening.
My work on this essay was supported by a grant from the John Templeton Foundation. The opinions expressed here are those of the author and do not necessarily reflect the views of the John Templeton Foundation. Thanks especially to the Georgetown Institute for the Study of Markets and Ethics at Georgetown University’s McDonough School of Business and for hosting me as a Visiting Scholar in the fall of 2016, to George Mason University’s Mercatus Center for hosting me as a Distinguished Fellow in the spring of 2017, and to King’s College London for hosting me as Visiting Professor in the summers of 2016 and 2017. For helpful input, I thank Adrian Blau, Shaun Hargreaves-Heap, John Meadowcroft, Mark Pennington, Matias Petersen, and Margaret Schabas. The first four sections of this essay revise material from Schmidtz (2016, 2017).
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