[Editor’s note: Read Wenzel’s Part 1 here.] As the pilot of the eponymous reconnaissance flight to Arras, Saint-Exupéry witnesses first-hand France’s utter defeat at the hands of Germany.  The French army, unmotorized and outnumbered, faced the Nazi Blitzkrieg of modern warfare coordinated among concentrated armored divisions, infantry, and a superior air force (96-99).  For Saint-Exupéry, the French defeat was inevitable (148-149).  The inevitability is reflected in his plane, as the controls freeze at 30,000 feet – a problem that had been identified before the war, but was never resolved for want of individual responsibility (94).  “We were living in the blind belly of an administration.  An administration is a machine.  The more perfect the machine, the more human initiative is eliminated from it… But a machine is not built for creation.  It is built for administration.  It goes unvaryingly through motions pre-ordained once and for always.  And an administration, like a machine, does not create.  It carries on.  It applies a given penalty to a given breach of rules, a given method to a given aim.  An administration is not conceived for the purpose of solving fresh problems” (92-93). The French army burned villages as it retreated – with no effect on the advancing Nazi army (96).  This led to the infamous Exode, as millions of French civilians (including my grandmother, her sisters, and her parents) fled the advancing Nazis, in one of the three largest population movements in Western Europe in the 20th century (117-139).  From his vantage point, Saint-Exupéry could write:  “I can see from my plane the long swarming highways, that interminable syrup flowing endless on the horizon.”  As the refugees move South, the local villages are pushed to capacity:  “Southward the most generous hearts are beginning little by little to harden at the sight of this mad invasion which little by little, like a sluggish river of mud, is beginning to suffocate them.”  (117).  Naturally, the clogged roads contributed to the already limited mobility of the French army. In the great tension between futility and duty, Saint-Exupéry reflects on the war (surely, some of these reflections simmered during his American exile – but he also finds himself daydreaming at the stick).  “I was later to hear foreigners reproach France with the few bridges that were not blown up, the handful of village we did not burn, the men who failed to die.  But here on the scene, it is the contrary, it is exactly the contrary, that strikes me so powerfully.  It is our desperate struggle against self-evident fact.  We know that nothing can do any good, yet we blow up bridges nevertheless, in order to play the game.  We burn down real villages, in order to play the game.  It is in order to play the game that men die.”  (99-100) Saint-Exupéry – a French officer and a Frenchman – reflects on the meaning of the utter French defeat at the hands of the Blitzkrieg war machine.  “Defeat not only splits men off from other men, it creates a split within the individual himself.  If those apathetic fugitives do not mourn the fate of a collapsing France it is simply because they are the defeated.  It is in the hearts of those men that France has been defeated.  To weep for France is already the promise of victory” (146).  He laments the defeat:  “Tomorrow we of France enter into the night of defeat.  May my country still exist when day dawns again.  What ought we do to save my country?  I do not know.  Contradictory things.  Our spiritual heritage must be preserved, else our people will be deprived of their genius.  Our people must be preserved else our heritage will become lost.  For want of a way to reconcile heritage and people in their formulas, logicians will be tempted to sacrifice either the body or the soul.  But I want nothing to do with logicians.  I want my country to exist both in the flesh and in the spirit when day dawns.  Therefore I must bear with all the weight of my love in that direction.”  (221-222).  Interestingly, for all his love of France, Saint-Exupéry does not fall into the logical fallacy of the Hegelian nation-state; he remains a methodological individualist:  “Man is not the same as men.  We say nothing essential about the cathedral when we speak of its stones” (242).  This conflicted, notably, with Charles de Gaulle’s vision of France as an entity, and its historically inevitable grandeur. Flight to Arras was, surprisingly, controversial.  Stacy Schiff, in her biography of Saint-Exupéry, explains how the book was denounced by both sides, in turns as defeatist, patriotic without party affiliation, insufficiently anti-semite, or fascist (because of Saint-Exupéry’s methodological individualism, somehow).  After a brief post-armistice stay in France, Saint-Exupéry exiled himself to New York for 28 unhappy but productive months – in part to get out of the Vichy heat, but in part to drum up American support for the war effort against the Nazis (this was still a good year before Pearl Harbor).  Saint-Exupéry had expressed concerns about US isolationism in Arras:  “For after all, why do we go on fighting?  For democracy?  If we die for democracy, then we must be one of the democracies.  Let the rest fight with us, if that is the case.  But the most powerful of them, the only democracy that could save us, chooses to bide its time.  Very good.  That is right.  But by so doing, that democracy signifies that we are fighting for ourselves alone” (154). Saint-Exupéry arrived in the US ready to encourage American support for Western democracies against the Nazis.  But he soon found himself in a nest of vipers, as he refused to take sides, between Vichy and Free France – but also, among the different factions of the French resistance, most notably that led by General Charles de Gaulle in London.  Saint-Exupéry specifically mistrusted de Gaulle, in whom he saw the seeds of post-war authoritarianism.  Ever the humanist, he sought to unify, rather than divide – the enemy was, after all, Nazi barbarism.  “Since I am one with the people of France, I shall never reject my people, whatever they may do.  I shall never preach against them in the hearing of others.  Whenever it is possible to take their defence, I shall defend them.  If they cover me with shame I shall lock up that shame in my heart and be silent.  Whatever at such time I shall think of them, I shall never bear witness against them.  Does a husband go from house to house crying out to his neighbors that his wife is a strumpet?  Is it thus that he can preserve his honour?  No, for his wife is one with the home.  No, for he cannot establish his dignity against her.  Let him go home to her, and there unburden himself of his anger.”  He continues:  “I shall not contribute to these divisions between Frenchmen by casting the responsibility for the disaster upon those of my people who think differently from me.  Where there is no judge, nothing is to be gained by hurling accusations.  All Frenchmen were defeated together.”   This sentiment was reflected in his famous appeal for unity, his “Open Letter to Frenchmen Everywhere,” published in The New York Times on 29 November 1942.  As a sidebar comment, the Times would still publish such things, and was not yet a postmodern, woke, neo-Marxist mouthpiece. Saint-Exupéry was reviled by all sides during his exile, just as all sides attempted to recruit him for their cause.  Stacy Schiff concludes that Saint-Exupéry “spoke too eloquently to be ignored but too softly to suit anyone’s agenda” (367).  He would spend 28 unhappy months in New York City, entertaining his hosts with parlor tricks and water balloons thrown from the balcony of his apartment – but also writing Arras, The Little Prince, and his last work, Citadel.  When the US joined the European war effort in 1942, with Operation Torch and the invasion of North Africa, Saint-Exupéry rejoined the Free French forces as an observation pilot.  He had to use his trademark guile and charm to receive flying clearance – he was, after all, 42, and his multiple flying injuries posed a risk.  In late July 1944, he was grounded for one of his frequent bouts of insubordination.  But he broke the rules on July 31, 1944, and flew solo for a reconnaissance mission over Southern France.  He never returned. Flight to Arras offers a vivid first-hand account of the Battle of France, and the administrative roots of France’s defeat in six short weeks.  It also offers reflections on honor, craft, and futility.  Saint-Exupéry was a feel-good writer, a man of principle for divided times (World War Two, of course, but perhaps a writer who could be rediscovered in these times of division).  Stacy Schiff concludes that his “work adds up to only an armful, some of it dated, much of it flawed.  But it is all of it rich in spirit:  it makes us want to overreach ourselves.  It makes us dream” (447).   Questions Classical liberalism prizes individualism, and is skeptical of the collectivist, Hegelian, nation-state. And, yet, there is something about culture, something about public orthodoxy, something about shared values – and, in the face of invasion and occupation by a tyrannical force, something about preserving the country and its liberties.  Where is the balance between the individual and a culture (or perhaps even a nation)?   World War Two arguably started in 1938 (with the annexation of the Sudetenland) – or perhaps with the 1937 invasion of China by the Japanese Empire. The US did not enter World War Two until December 1941, after Pearl Harbor, and did not engage in formal European combat until Operation Torch in November 1942.  Saint-Exupéry, in 1940 and throughout his New York exile, lamented the lack of US support for “the Occident” against the Nazi.  What are the limits of isolationism?  When do sad geopolitics become a human right, and cause for intervention by countries that would not otherwise have a dog in the fight?  What lessons can be learned from World War Two for today’s world, especially the Russian invasion of Ukraine?   For the history geeks only. Saint-Exupéry wrote of the inevitability of the French defeat.  This sentiment is not shared by two key German generals, in their autobiographies (Lost Victories:  The War Memoirs of Hitler’s Most Brilliant General, by Erich von Mannstein, and Panzer Leader, by Heinz Guderian); both generals feared the roughly equal numbers of troops, divisions, and tanks on either side, in the May 1940 invasion of France.  In the end, technology and tactics won the day for the Nazis.  Was Saint-Exupéry too pessimistic?  Or were the German generals?   Nikolai G. Wenzel is the L.V. Hackley Chair for the Study of Capitalism and Free Enterprise, and Distinguished Professor of Economics, Broadwell College of Business and Economics, Fayetteville State University (Fayetteville, NC). (0 COMMENTS)

Contractarianism is the theory that models or evaluates social interaction on the basis of a social contract. Whether one tends to agree or disagree with this approach, it is important to understand it. In my review of Geoffrey Brennan and James Buchanan’s The Reason of Rules, just out on Econlib, I note: The classical liberal contractarianism elaborated in The Reason of Rules presents a big challenge to both the anarchist, who thinks that the state cannot be beneficial to everybody, and the statist, who believes that it must be run by some enlightened elite, numerical majorities, or populist movements. The commenters who engaged with my EconLog posts on Buchanan’s theories may want to read the book or at least my review. Two more short excerpts of the latter, which of course doesn’t do justice to this complex but fascinating topic: A fundamental component of the contractarian theory defended in The Reason of Rules is that the basic rules of human interaction must be agreed upon unanimously, by all individuals. The social contract is the set of these basic rules. Individuals would have little hope of agreeing on actual outcomes (think about agreeing on the actual distribution of income or other advantages), but they all have an interest in agreeing on the rules of the social game, the general rules that will guide social interactions among individuals each pursuing his own self-interest. Brennan and Buchanan emphasize how the contractarian approach radically differs from non-contractarian views. In a contractarian perspective, politics is the search for what every individual wants. In the non-contractarian view, “the good” is something external to individuals and politics becomes a search for it, analogous to the search for truth in science. In the best case, “[t]hose who disagree with the definition of the ‘good’ are misinformed and in error.” In the worst case, the supposed “good” is imposed by a benevolent despot, democratic or not. (0 COMMENTS)

Last week, I posted on Jeff Hummel’s article “U.S. Slavery and Economic Thought” in David R. Henderson, ed., The Concise Encyclopedia of Economics. Many commenters posted their thoughts on the article. One of the things I love is when people go back to the longer article behind the blog post rather than settling for the teasers that I quote. One commenter, Warren Platts, did so and quoted this segment from the article: One confirmation of slavery’s output inefficiency is the post-Civil War’s significant decline in southern output and income per capita. The real value of total commodity output (agriculture, manufacturing, and mining) in the eleven defeated Confederate states did not return to its 1860 level until nearly two decades later and, since population had also risen, real output per person in 1880 was almost 20 percent below prewar levels. Platts then wrote: This doesn’t make sense to me. Maybe someone can explain it. It seems to me that an economy with a relatively high productivity is an efficient economy. And productivity is commonly measured in real output per person. Thus, how can an economy whose real output per person be 20% lower than it was 20 years previous be considered a more efficient economy? Jeff Hummel sent me an answer that he thought was too long to be a comment. My problem with it, though, was that it was too good to be just a comment. It deserved a place as a standalone post. Here is Jeff’s answer: To be clear, I am not claiming that the post-Civil War South was necessarily “a more efficient economy” in all respects. Despite the increase in efficiency (welfare) brought about by slavery’s abolition (with its accompanying fall in output), other postwar factors not directly related to emancipation were also affecting the real income and/or efficiency of the southern economy overall. The demand for U.S. cotton had softened because Great Britain and other importers had shifted their purchases during the war to India, Brazil, and Egypt. The South did not recover its market share until the 1880s while at the same time world cotton consumption was growing at half its prewar rate. The wartime Republican administrations had hiked tariffs to protectionist levels, ending the prewar policy of relatively free trade, and the burden of these tariffs inevitably fell disproportionately on the South’s exporting economy. The tariff was also the national government’s main source of revenue. Yet residents of the former Confederate states rarely if ever received two of the largest government’s postwar expenditures partly financed by the tariff: interest on plus payment of the wartime debt and veterans benefits. The new Reconstruction governments in the South, despite all the benefits they provided to the former slaves, also made extravagant new expenditures on railroad subsidies, public education, and other social services, requiring some of the heaviest state and local taxation in proportion to wealth up until that time in U.S. history. Emancipation did undermine the South’s financial sector, given that, prior to the war, slaves had been a major form of collateral. Nonetheless, a new well-developed financial system might have emerged if not for war-induced changes in the nation’s monetary and banking legislation. The new National Banking System openly discriminated against the South, prohibited nationally chartered banks from making real-estate loans, and deprived state-chartered banks in the South, as elsewhere, from issuing banknotes. Preexisting restrictions on branch banking, plus the fact that national banks had to match their note issue to an ever shrinking supply of Treasury securities, inhibited shifting credit to areas where interest rates were highest. State-chartered banks could still issue deposits, but the nineteenth-century was a period when checking accounts were confined to individuals of recognized wealth or unquestioned probity. The poor or undistinguished were thus confined to cash. But the denominations of national bank notes could not be smaller than one dollar (despite wartime inflation, equivalent to $18 in 2022); the circulation of Greenbacks, available in lower denominations, was being contracted; and a mint ratio that favored large denomination gold coins combined with the melting down of silver coins during the wartime inflation had caused the prewar supply of silver coins to dwindle by two-thirds. All this occurred during a period of deflation, in which the purchasing power of each dollar was continually rising. The net effect of all these factors was to starve the postwar South of credit and small-denomination cash, at the very moment the South’s monetary needs had expanded. The slave plantation had been a mini-planned economy, within which resources were allocated at the planter’s discretion. Upon emancipation, most slaves for the first time had to purchase many of their necessities. Meanwhile interest rates in the rural South soared to five times their prewar levels. Is it any surprise that southern agriculture was reduced to essentially barter transactions? Sharecropping, after all, involves cotton or other products exchanged for the use of land. And the almost exclusive source of rural credit was small country stores, that advanced food, clothing, and agricultural supplies with crops pledged as security. Incidentally, in reading Jeff’s response, I was reminded that he had covered a number of these issues in his Masters in Monetary Theory class at San Jose State University that I took on Zoom from January to May, 2021.   (0 COMMENTS)

As co-blogger Scott Sumner noted a little while ago, monetary economist Ben McCallum has died. He was 87. Ben wrote the article on Monetarism for the second edition of The Concise Encyclopedia of Economy. I chose him because of his wide knowledge and clarity of expression. I was not disappointed on either. Here’s his opening paragraph: Monetarism is a macroeconomic school of thought that emphasizes (1) long-run monetary neutrality, (2) short-run monetary nonneutrality, (3) the distinction between real and nominal interest rates, and (4) the role of monetary aggregates in policy analysis. It is particularly associated with the writings of Milton Friedman, Anna Schwartz, Karl Brunner, and Allan Meltzer, with early contributors outside the United States including David Laidler, Michael Parkin, and Alan Walters. Some journalists—especially in the United Kingdom—have used the term to refer to doctrinal support of free-market positions more generally, but that usage is inappropriate; many free-market advocates would not dream of describing themselves as monetarists. And one of his concluding paragraphs: What is left today of monetarism? While some disagreement remains, certain things are clear. Interestingly, most of the changes to Keynesian thinking that early monetarists proposed are accepted today as part of standard macro/monetary analysis. After all, the main proposed changes were to distinguish carefully between real and nominal variables, to distinguish between real and nominal interest rates, and to deny the existence of a long-run trade-off between inflation and unemployment. Also, most research economists today accept, at least tacitly, the proposition that monetary policy is more potent and useful than fiscal policy for stabilizing the economy. There is some academic support, and a bit in central bank circles, for the real-business-cycle suggestion that monetary policy has no important effect on real variables, but this idea probably has marginal significance. It is hard to believe that the major recession of 1981–1983 in the United States was not caused largely by the Fed’s deliberate tightening of 1981—a tightening that shows up in ex-post real interest rates and in M1B growth rates as adjusted by the Fed at the time (Table 1, column 6) to take account of major institutional changes. But don’t miss his discussion of the so-called “monetarist experiment” under Fed Chair Paul Volcker. As Scott pointed out, he was very kind and generous. I first him, I believe, at the fall 1975 Carnegie-Rochester conference at Carnegie Mellon University in Pittsburgh, during my first year as an assistant professor of economics at the University of Rochester’s Graduate School of Management. What stands out in my mind is that he raised his tall frame to make a critical comment a paper that has just been presented and then ended with, “I liked the paper.” People responded by smiling and/or laughing appreciatively at his clear ability to distinguish a criticism from an attack. (0 COMMENTS)

I was saddened to learn of the death of Bennett McCallum, who was my favorite macroeconomist of the past 40 years. He profoundly influenced my views on a wide variety of issues, including the Quantity Theory of Money, cointegration, unit root models, real business cycle theories, wage and price stickiness, the fiscal theory of the price level, the indeterminacy problem, “moneyless” macro models and rational expectations. In each case, my views are quite close to those of McCallum.Oddly, one of my few disagreements with McCallum was on the issue of NGDP targeting, which we both favored. But he favored growth rate targeting while I favor level targeting.I only met McCallum on one occasion, but found him to have a very kind and generous personality. If you are interested in a much more extensive discussion of how McCallum influenced my views, I recommend this appreciation that I wrote back in 2009. (0 COMMENTS)

In the late 1960s, the ideal of a society with free markets was definitively out of favor with the public. The Great War ended the “century of liberalism” (1815-1914), and the Great Depression pressed governments of all political stripes to intervene in the economy and to disengage from free trade. The Second World War then brought destruction and death all around the world, but also, thanks to the colossal effort made by the Soviets for victory, a certain understanding that in ideological clashes, socialism could prove itself superior to other forms of social arrangements. Classical liberalism had lost hearts and minds among most voters of the few lasting democratic societies with limited and representative governments, private property, and market-based economies. However, it was at that time that, unnoticed by many, a new liberalism was taking form thanks to the efforts of a few original thinkers. From time to time, some of those thinkers, many economists among them, would meet at the Mont Pelerin Society’s events and exchange ideas. Their efforts resulted in a more robust understanding of spontaneous order. That understanding was provided by new insights from economics, such as more subtle ideas about the subjective nature of economic value, the limits of our knowledge about the economy, and the dynamic character of economic activity, to name but a few. Friedrich Hayek’s 1945 The Use of Knowledge in Society is emblematic of those contributions: The real economic problem is not to allocate known resources to known demands but how to coordinate the disperse knowledge possessed by the individuals and impossible to be apprehended by statistics or any other database that could be “scientifically” dealt with. All those concepts had been lost from mainstream economics, along with lessons about man and society from Adam Smith’s The Theory of Moral Sentiments. Classical economics seemed to be founded exclusively on his Wealth of Nations. By the end of the nineteenth century, economics and, by extension, the liberal order had become associated with utilitarianism, pejoratively called “Manchesterism.” It took about a century for perfectionist ethics to come to be understood as a better justification for non-perfectionist politics1 and as a more rounded moral justification for freedom and responsibility, one proposed by Neo-Aristotelian philosophers inside and outside academia. Last, but not least, the development of new disciplines along the border of traditional ones, disciplines such as Law & Economics and Public Choice, provided new ways to see social interactions that questioned the motives and the ability of political agents to “do good.” These developments gave new reasons to support social arrangements that guarantee the exercise of individual freedom and responsibility as the best form of social organization to promote human flourishing. “The success of neoliberals in using advances in social sciences as evidence in favor of social arrangements based on freedom and responsibility have not passed unnoticed by the critics and outright enemies of the open society.” The success of neoliberals in using advances in social sciences as evidence in favor of social arrangements based on freedom and responsibility have not passed unnoticed by the critics and outright enemies of the open society. A counter-reaction soon ensued. In legal theory, Karel Vasak’s 1977 Third Generation Theory of Human Rights clearly aimed to challenge the premise that only individuals have rights.2 This theory challenged any defenses against the encroachment on individual rights by the collective. Also in legal theory, Critical Legal Studies, as proposed in the 1970s by Roberto Mangabeira Unger and others at Harvard, argued that the idea that the legal system exists to distribute justice is a myth. Rather, the legal system is an instrument of class exploitation and, therefore, it is perfectly acceptable to use the legal system as an instrument of political struggle by the left. After all, they claim it has always been done by the right. In the field of economics and in opposition to the core assumptions of the neoclassical synthesis, which assumes in its models that markets optimize economic activity by the action of economic agents that act rationally and possess perfect information, a new discipline of Behavioral Economics was created. My intention is to discuss the contribution of Behavioral Economics to our understanding of the liberal order in the remainder of this essay. To understand the significance of this new discipline, let us explore liberty and its limits in the “Market Approach to Human Behavior” on the one hand, and “Behavioral Economics” on the other. The latter suggests that, although humans are not irrational, they often need help to make accurate judgments and better decisions and, in some cases, policies and institutions must be used to provide that help. The former school of thought holds that government should keep out of the way…. Therefore, much is at stake in the debate between these two positions. Behavioral economics intends to challenge the economic foundations for individual liberty with the argument that, at times, limits to liberty must be established to improve welfare. Were some of the issues brought to the modern economic debate by proponents of Behavioral Economics already present in classical economics as proposed by Adam Smith? The answer is in the affirmative, although some of those concerns were later lost by neoclassical economics. However, as the writings of Karl Brunner (1916-1989) show, an effort to consider more realistic assumptions about human motivations and the limitations to the knowledge of economic agents has been going on in mainstream economics even before some of the recent research on economic behavior. Furthermore, if we compare the free market approach with Behavioral Economics, two camps can be identified. On one hand, some consider Behavioral Economics a useful addition to the paradigm of economic rationality by helping to make it more realistic. A case in point is Gary Becker, who wrote in 2007: “… classical libertarianism relies not on the assumption that individuals always make the right decisions, but rather that in the vast majority of situations they do better for themselves than government officials could do for them. One does not have to be a classical libertarian—I differ on some issues from their position—to recognize that the case for classical libertarianism is not weakened by the literature motivating libertarian paternalism. Indeed, when similar considerations are applied to government officials and intellectuals as well as to the rest of us, the case for classical libertarianism may even be strengthened!”3 For others, the questions raised by behavioral economists intend to falsify the presumptions that economic agents act rationally. Those who see Behavioral Economics as an addition to the paradigm of rational choice point to the line of research that simply expands the economic approach to fields of human action other than purely economic activity and to the research meant to explain how some behavior that, prima facie, seems irrational may actually be explained as the result of rational choices. However, there are some conclusions reached by behavioral economists that are based on unsubstantiated claims and are intended to discredit the paradigm of rational choice, since such paradigm is perceived, as already mentioned, to be a strong justification for free markets and free enterprise. For instance, take three important behavioral biases mentioned by behavioral economists: overconfidence, loss aversion, and (the lack of) self-control. The question is not whether human beings ever show these biases, but whether the presence of these biases is sufficient to reject the assumption of rational behavior underpinning the idea of individual responsibility. For example, some behavior, such as the lack of self-control or “short-termism,” may be justified in some circumstances in which the time preference of the specific agents may be skewed, such as the one of soldiers in case of war, terminally ill patients, people living in risky environments in general, etcetera. However, not just economic arguments based on behavioral biases are leveled against capitalism. In addition, the moral criticism of markets is also based on the claims of behavioral biases. In a 2013 piece, for instance, Michael Sandel criticizes Dennis Robertson’s 1954 essay on What Does the Economist economize? by saying that “it ignores the possibility that our capacity for love and benevolence is not depleted with use but enlarged with practice.”4 His comment completely misses the point made by Robertson and, before him, by Adam Smith, that thanks to market exchanges we do not need to befriend “the butcher, the brewer, and the baker” in order to count on their good services and, therefore, we can save our limited time to the ones we care, such as family and friends. In The Theory of Moral Sentiments, Adam Smith says that much: “Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.” Such (mistaken) claim about human behavior used by Sandel to criticize the reasons people engage in markets if given the chance, demonstrates the rhetorical power of such arguments and why leftists see such value in them. Both the rational and the behavioral lines of thought about behavioral biases converge on the debate about the public policy design better known as “nudging.” This is the idea that the format in which choices are presented results in predictable changes in people’s behavior without the need to impose mandates. I say that the idea that corporate or government bureaucrats may have the best interest of the public in mind when they decide about “default” options in framing choices that will be made available to the public seems ludicrous. I also considerate it unrealistic the assumption that people would believe that. Consider the discussion in Richard Thaler’s and Cass Sunstein’s 2021 Nudge: The Final Edition about saving for retirement. For them, “some people are definitively saving too little.” First, this is the opinion of the authors in abstract, without putting themselves in the shoes of the people making those decisions, although they recognize that the problem is concentrated in the cases in which the employers do not offer a pension plan. However, there is no discussion on why certain employers have decided not to offer pension plans. Their solution? To force every employer who does not offer a pension plan to establish a default position by which their employees will be automatically enrolled in a pension fund managed by the government on top of Social Security contributions. If you asked me, I would say that their discussion has nothing to do with an “inherent” bias to not saving enough for retirement. Most likely, the employees short on savings have better things to do with their money in the circumstances in which they found themselves at that moment. For instance, those employees may be investing in their children, expecting to receive support from them later, or any other informal retirement system. Moreover, Thaler’s and Sunstein’s “Nudge” could crowd out these actions (e.g. investing in the education of their children). In the end, it seems that their proposed “solution” has everything to do with increasing the amount of funds under government control. Next, consider Thaler and Sunstein’s discussion in the same book about the rules for organ donation and how to increase the availability of organs for transplants without disrespecting individual preferences. Their conclusion is that “defaults (positions) have a huge impact on the elicitation of preferences,” which in plain English means that they can count on a tendency of most people accepting whatever is proposed to them by persons in position of authority and with that, consent to things that they would not otherwise take the initiative to do. Such an assumption may be true, but it assumes that people perceive those authorities as trustworthy and as having their best interest in mind. Think about that. If an airline or a telephone company or any other corporation which have carved for themselves a quasi-monopoly offered you a “deal,” would you assume that they have your best interest in mind? Such a premise seems dubious to me. Therefore, “default” positions are not helping people to find “what they really want”, they are just more subtle ways in which people are coerced into doing things they do not want to do. Finally, consider their discussion on “Saving the Planet.” They decry the fact that nudges to induce people to save energy or even some regulatory mandates such as the ones downgrading the efficiency of domestic appliances or reducing the flow of water in showers are not sufficient to move consumers to really do what they want in terms of conservation. They attribute this to those behavioral biases to an extent that required them to abandon any pretense of “libertarian paternalism” and simply impose a more stringent regulation. However, that ignores a number of things. First, perhaps people are not convinced that there is this strong relation between greenhouse gases and the temperature. Second, even if there is a relation, we are not in a “climate crisis” and there is no reason to sacrifice our current wellbeing for things that will take centuries to unveil if they happen at all. Finally, they totally miss the point that if people are forced to use washing machines that do not wash and take showers that do not pour enough water to the satisfaction of the users, they will find ways around those things if that is in their power. The bottom line is that the contributions of behavioral economics to a more robust understanding of economic activity requires a lot of theoretical contortions for them to be used as weapons against the liberal order, and a good way to check the potential damage of such misuses is to call them for what they are, ideological mystifications. Consider Daniel Kahneman in his 2012 Thinking, Fast and Slow : “Freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them.” That renowned author first created a strawman by claiming that the economic approach to human behavior presumes “perfect rationality,” then, he disqualifies the advantages of social arrangements based on freedom and responsibility based on the fact that real human beings are more complex than what is assumed in economic models used purely as heuristic devices. For more on these topics, see Behavioral Economics, by Sendhil Mullainathan and Richard H. Thaler. Concise Encyclopedia of Economics. Richard Thaler on Libertarian Paternalism. EconTalk. “The Unacknowledged Success of Neoliberalism,” by Scott Sumner. Library of Economics and Liberty, July 5, 2010 The entire edifice of neoliberalism may be understood as an intellectual effort to identify new ideas that could convince “enough individuals” (as necessary to support policies) in favor of liberty and responsibility as the foundations of an open and prosperous society. In this sense, a significant part of the research agenda of what is today labeled as Behavioral Economics may be deemed a reaction to neoliberalism, and it should be addressed as such. Footnotes [1] See Douglas B. Rasmussen and Douglas J. Den Uyl’s Norms of Liberty: A Perfectionist Basis for Non-Perfectionist Policies, Pennsylvania State University Press, 2005. [2] Steven L. B. Jensen, “Putting to rest the Three Generations Theory of human rights.” OpenGlobalRights.org, Nov. 15, 2017. Accessed December 29, 2022. [3] Gary Becker, Libertarian Paternalism: A Critique. Becker-Posner blog, Jan. 1, 2014. [4] Michael J. Sandel, “Market Reasoning as Moral Reasoning: Why Economists Should Re-Engage with Political Philosophy,” The Journal of Economic Perspectives. Vol. 27, No. 4 (Fall 2013). *Leonidas Zelmanovitz, a Senior Fellow with the Liberty Fund, holds a law degree from the Universidade Federal do Rio Grande do Sul in Brazil and an economics doctorate from the Universidad Rey Juan Carlos in Spain. For more articles by Leonidas Zelmanovitz, see the Archive. (0 COMMENTS)

Book Review of In Search of Monsters to Destroy: The Folly of American Empire and the Paths to Peace, by Christopher J. Coyne.1 According to Ludwig von Mises, “economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics” ([1949] 2007, p. 67). In his most recent book, In Search of Monsters to Destroy. Christopher Coyne argues that “the failure of government applies to imperialism just as much as it applies to domestic programs and schemes of economic and social control—more so, in fact” (Coyne 2022, p. 119). In a concise, yet comprehensive manner, Coyne explains the origins of and reassesses the U.S. government’s efforts to preserve, protect, and defend a liberal international order. In searching to destroy illiberalism abroad, Coyne argues that U.S. foreign policymakers have failed to discover not only the cause of illiberalism abroad, but also what has blocked potential paths to international peace: “the belief that liberal values can flourish where illiberal methods are adopted as the means to promote those principles” (Coyne 2022, p. 8). Coyne’s argument can be framed in terms of the following question: why is it impossible to establish an international liberal order by illiberal means? Such a question may seem misdirected, given the absence of large-scale international conflict since World War II. However, the presence of U.S. hegemonic power internationally has not caused such an outcome. Correlation does not imply causation. The answer to the question can be drawn from the following statement: “The very idea of an international liberal order—created and maintained by the American military since 1945—is a misnomer” (Coyne 2022, p. 31). The reason why this is the case is based on an important distinction between a technical problem and a coordination problem.2 Whereas the solution to a technical problem is the achievement of a single, pre-defined goal, a coordination problem requires the alignment of multiple, undefined, and often conflicting goals of all individuals in society in a peaceful and productive manner. “A credible commitment to liberalism, by its very nature, must recognize that foreign interventions are limited in terms of their ability to establish liberal institutional arrangements in a manner that will align with the incentives and knowledge of the individuals in the society that the interveners intend to benefit.” A credible commitment to liberalism, by its very nature, must recognize that foreign interventions are limited in terms of their ability to establish liberal institutional arrangements in a manner that will align with the incentives and knowledge of the individuals in the society that the interveners intend to benefit. Without acknowledging these constraints, the negative consequences perpetuated by US foreign intervention, as evidenced in Latin America (and elsewhere), is the perceived association of capitalism with illiberalism, creating appeal for the adoption of socialism as a means to deliver democratic outcomes, which in turn necessitates further intervention to mitigate this undesirable outcome. In the best-case scenario, military force can be used as means to achieve a single, pre-defined objective, such as the removal of the autocrat. However, it is one thing to use force to eliminate an illiberal government; it is quite another task to replace an illiberal government with liberal governance. The elimination of illiberalism is a technical problem not to be conflated with the establishment of liberalism, the fulfillment of which is a coordination problem.3 The failure to draw this subtle distinction has wreaked much folly in U.S. foreign policy and to the detriment of discovering possible paths to peace (hence the subtitle to the book). As Coyne explains, the failure to disentangle and conflate this distinction reinforces the illiberal belief “that the interventionist possesses (1) better technological knowledge compared to foreigners, (2) better preferences to those held by foreigners, and (3) better moral insight than foreigners in general” (Coyne 2022, p. 32). In the worst-case scenario, government intervention will only fuel the very illiberal tendencies that undermine the construction of liberalism abroad. The underlying basis for this tendency, particularly since the end of World War II, is the fact that the state, however small and constrained it may initially be, must require resources in the name of maintaining a liberal international order. The procurement and allocation of these resources grant elected officials the privilege to use discretion in the procurement and allocation of resources, “creating profit opportunities for a range of private actors seeking to secure wealth through political means, as compared to the normal economic means of voluntary exchange in markets” (Coyne 2022, p. 55). This has resulted in what is well known today as the “military-industrial-congressional complex” (Coyne 2022, p. 59). Once resources are procured, they must be distributed to the bureaucratic agencies that must implement foreign policy measures, which in turn must rely on force to react to uncertain changes and undesirable consequences in the process of implementing a “liberal” foreign policy. This reliance on force and other illiberal means to implement foreign policy is created by a knowledge problem internal to the state, not only in terms of monitoring the activities of the state, but also in terms of what individuals in government will be incentivized to identify and learn as relevant knowledge in the name of promoting liberalism abroad. As government centralizes to achieve particular foreign policy outcomes, its expansion and entanglement across various levels of government as well as the private sector leaves elected official officials and citizenry alike rationally ignorant, with “simply no way to understand or monitor all the activities of the complex security state,” leaving room for government oversight and therefore control by bureaucrats to implement policy in a manner that selects for individuals who will to act on an imperialist mentality (Coyne 2022, p. 45). “Since there is a tendency for people to leave an organization in which they do not belong (voluntarily or through eventual termination), the illiberal mentality stubbornly persists and grows in government. Those who stay have or soon adopt an interventionist mindset, and they become either leaders or cogs in the imperialist machine” (Coyne 2022, p. 36). The knowledge problem associated with internal operation of the national security state, and the selection effect it reinforces, will only incentivize the growth and extension of illiberal outcomes as a result of the cronyist and illiberal foundations of a “liberal empire.” This is particularly illustrated by Coyne not only by the failed efforts of nation-building, the war on drugs, and the war on terror against the Taliban in Afghanistan, but also the international use of drone technology as a mechanism of terror against innocent civilians, all of which run contrary to the goals of a liberal empire. The implication of Coyne’s argument is not to turn toward a policy of isolationism. Rather, it is the (re)discovery of alternative sets of means to securing a sustained international peace. These would include international free trade and open international migration. More importantly, however, such policies are also understood as part of a radical reframing of the way in which defense is conceptualized, from a state-driven, monocentric view, to a citizen-driven, polycentric view. Ideas about what peace means matters for understanding not only our relationship with the state, but also with our fellow human beings abroad. In The Agricola, the Roman historian Tacitus has quoted Calgacus, an enemy of the Roman Empire, as saying the following: “To ravage, to slaughter, to usurp under false titles, they call empire; and where they make a desert, they call it peace” (emphasis added).4 It is one thing to deliver “peace” by eliminating one’s enemy through violence. This is simply a technical problem of applying force to a single objective. However, it is quite another matter to deliver a liberal peace, which is a catallactic problem of turning an enemy into a friend. Until we reframe our understanding of the sources of peace as being driven from the bottom-up by cultivating an art of association, rather than the top-down cultivation of the art of empire, we cannot retreat from the idea of using force as the primary means of securing a liberal peace. To conclude with another quote by Mises, “[i]t is impossible to understand the history of economic thought if one does not pay attention to the fact that economics as such is a challenge to the conceit of those in power” ([1949] 2007, p. 67). This statement applies no less when foreign policy attempts to (re)construct a social order in the name of delivering “liberalism” by illiberal means. In Search of Monsters to Destroy is a must-read not only for its cogency and timeliness, but also its current relevance. Rather than providing prescriptive policy recommendations per se (Coyne 2022, p. 122), it transcends ideological lines by providing a new conceptual framework of understanding international relations, from which both interventionists and non-interventionists across various disciplines have something to learn. For more on these topics, see “Liberalism versus the State,” by Alberto Mingardi. Library of Economics and Liberty, May 4, 2020. “How the Collapse of Communism Has Undermined Faith in American Capitalism,” by Richard B. McKenzie. Library of Economics and Liberty, Sep. 7, 2020. Imperialism: A Study, by John A. Hobson. See, for example, “The Measure of Imperialism”, Part I, Chapter 1.?chapter_num=3. With the recent withdrawal of U.S. armed forces from Afghanistan in August 2021, and the full-scale invasion of Ukraine by Russian armed forces in February 2022, this book, if nothing else, will provoke the reader to reframe whatever position they happen to hold on U.S. foreign policy, revaluate past foreign interventions, and ask whether future interventions will succeed on its own terms. Perhaps most importantly, the book does not leave us with despair. Rather, it provides us with hope by embracing, in the words of F.A. Hayek (1949, pp. 432-433), “the courage to be Utopian” and therefore an influence on public opinion that can make possible what currently seems remote, namely the provision of a lasting and stable international peace. References Coyne, Christopher J. (2022). In Search of Monsters to Destroy: The Folly of American Empire and the Paths to Peace. Oakland: The Independent Institute. Mises, Ludwig von. ([1949] 2007). Human Action: A Treatise on Economics. Indianapolis: Liberty Fund. Hayek, F.A. (1935). “The Nature and History of the Problem.” In F.A. Hayek (ed.), Collectivist Economic Planning (pp. 1-40). London: G. Routledge & Sons. Hayek, F.A. (1949). “The Intellectuals and Socialism.” The University of Chicago Law Review 16(3): 417–433. O’Driscoll, Jr., Gerald P. (1977). Economics as a Coordination Problem: The Contributions of Friedrich A. Hayek. Kansas City: Sheed Andrews and McMeel. Rasmussen, Douglas B., and Douglas J. Den Uyl. (2005). Norms of Liberty: A Perfectionist Basis for Non-Perfectionist Politics. University Park: The Pennsylvania University Press. Footnotes [1] Christopher J. Coyne, In Search of Monsters to Destroy: The Folly of American Empire and the Paths to Peace. Independent Institute, 2022. [2] The distinction drawn here is usually understood in terms of a technical problem and an economic problem (see Hayek 1935). However, as O’Driscoll (1977) has written taking his inspiration from Hayek, economics is a coordination problem, hence the distinction I’m drawing here. [3] My point here is not to argue that a commitment to liberalism is amoral nor that it lacks moral foundations. Rather, liberalism understood here as a set of “metanormative” principles is concerned with the establishment of the preconditions for peaceful social interaction, where human flourishing is made possible (see Rasmussen and Den Uyl 2005). [4] Bryan Caplan, Tacitus, Peace, and Desolation. EconLog, June 21, 2011. * Rosolino Candela is a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and Program Director of Academic and Student Programs at the Mercatus Center at George Mason University. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

A Liberty Classic Book Review of The Reason of Rules: Constitutional Political Economy, by Geoffrey Brennan and James M. Buchanan.1 Originally published in 1985, Geoffrey Brennan and James Buchanan’s The Reason of Rules extends Buchanan’s previous work, notably The Limits of Liberty2 and, with Gordon Tullock, The Calculus of Consent.3 “Constitutional political economy,” the subtitle of The Reason of Rules, is the analysis of “the workings of alternative political institutions so that choices among such institutions (or structures of rules) can be more fully informed.” James Buchanan was awarded the 1986 Nobel Prize in economics for his work in constitutional political economy. Geoffrey Brennan, a close collaborator of Buchanan, was an economist and philosopher who taught at Virginia Tech, George Mason University, and the National Australian University among other places. Why Constitutional Rules? One reason for personal rules lies in the temporal dimensionality of choice. An individual may want to constrain their current choices in order to reach what they consider to be preferred situations in the future. Commitments to moral principles or other self-imposed rules act as constraints. Ulysses asked to be tied to his mast to avoid the temptation of the sirens’ songs. Rules are even more necessary at the social level, where “social dilemmas” may lead individuals to a situation that many, if not all, individuals judge inferior to their starting point. The “prisoner’s dilemma” of game theory is a paradigmatic case of such perverse outcomes, of which the Hobbesian “war of all against all” is the ultimate example. Adam Smith’s laws and institutions, including constitutional constraints, are the social-political equivalent of personal rules. The individuals interacting in society typically desire different things and none of them can know what collective decisions might be in the future. The individual will therefore want rules to constrain future collective choices. These include constitutional rules to bind future governments. Constitutional democracy is democracy limited by constitutional rules. Rules are closely related to ethics. A rule defines a process that is relevant for the ethical evaluation of the resulting outcomes. In ordinary markets, for example, we can presume that two contractual parties both benefit from a voluntary exchange; otherwise, at least one would have declined the trade. The rule of voluntary trade—no coercion and no fraud—defines a process that confers normative value to the outcome. If government is not constrained by rules, bad outcomes will occur even under democracy, the regime in which we are interested. The social discount rate generated by democratic politics will be higher than the rate of time preference used by individuals to discount the future in their private choices. In other words, an unconstrained government discounts the future too much and is biased toward the short run. For example, the money the government does not raise and spend now will likely be raised and spent by a posterior government, so current taxpayers have an interest in at least getting something in return for their inevitable future taxes; they will thus favor more expenditures now. An unconstrained democratic government will maximize its revenues and expenditures in the short run, including by borrowing or printing money. Majoritarian democracy may end up doing what no private individual wants, even those in the majority. A numerical majority can also exploit the minority. We can expect such consequences if the individual is modeled not as an angel, but as homo economicus. Brennan and Buchanan explain that there are good reasons to use the homo economicus model to explain behavior in politics as well as in market behavior. A symmetric methodology seems warranted as less ad hoc and more prudent. Individuals generally seek to maximize their own private interest—wealth and income, for example. But the maximand may be anything else, even the good or happiness of others (or some others), provided we understand that it is each individual who, in his own mind (there is no other way to do it), subjectively evaluates whoever’s good that he pursues. Other reasons explain why the pursuit of self-interest in politics is a realistic assumption. If altruistically inclined individuals do not reach a critical mass, they will be incited to start behaving selfishly themselves in order to avoid exploitation by egoists. Moreover, people attracted to political activity will be those who think they can most benefit from it—not necessarily the most altruistic. More generally, “[t]here is no necessary presumption that simply because markets are imperfect, political processes will work better.” This observation is a signature of the Public Choice school of economics, to which both Buchanan and Brennan have been major contributors. Justice and the Social Contract Justice is not an empty concept, but we cannot meaningfully speak about justice without reference to rules. Justice cannot be whimsical. Rules are logically prior to the concept of justice. A just outcome is what emerges when the rules have been followed. Where do these rules come from? A fundamental component of the contractarian theory defended in The Reason of Rules is that the basic rules of human interaction must be agreed upon unanimously, by all individuals. The social contract is the set of these basic rules. Individuals would have little hope of agreeing on actual outcomes (think about agreeing on the actual distribution of income or other advantages), but they all have an interest in agreeing on the rules of the social game, the general rules that will guide social interactions among individuals each pursuing their own self-interest. They want to avoid social dilemmas detrimental to everyone. And they want rules on which everyone will agree because if some did not, they could not be counted on to follow the rules; and a rule is useless without a general expectation that it will be followed. There is also a normative justification of unanimity. The “critical normative presupposition” of Brennan and Buchanan’s vision is that individuals are the source of all value. There is no philosopher-king entitled to define “the good” or “the public good” outside of the preferences of several individuals. A footnote in The Reason of Rules leaves the door open to the possibility that “the good” may exist “at some deeper philosophical level,” perhaps in liberty itself. The basic point remains (so it is argued) that since all individuals are moral equals, their unanimous consent is required for the social contract. “At the social-contract level, politics is exchange and thus closer to economics than generally believed.” At the social-contract level, politics is exchange and thus closer to economics than generally believed. Individuals are involved in a multilateral trade to create a set of rules that will benefit them all. The rules consented to define property rights and other individual rights, as well as creating an agency—the state—to enforce them. They are the constitutional rules. In ordinary day-to-day politics—so-called post-constitutional or “in-period” politics—rules don’t need to meet unanimous consent, provided they are adopted under the meta-rules of the social contract (or under other rules derived from the latter). The constitutional perspective clearly distinguishes the rules of the game from the outcomes of specific plays of the game. Previous works of Buchanan and Tullock mentioned that, depending on what the parties in the social contract want, some income insurance (like a minimum guaranteed income) available to everyone may be adopted at the constitutional state. The only rule is unanimity. Note that a uniform income insurance for all is not the same as redistribution of income in favor of specific individuals or groups to be paid by others. In a parlor game or competitive sport, “the mere fact of participation obligates each participant, as if by an explicit promise, to abide by the rules.” For Brennan and Buchanan, it is the same in a society: every participant is deemed to have given his tacit consent to the rules of the social contract “even if there is no effective option to not playing and participation is involuntary in that sense”—a rather strong contention to which I will come back. To make sense of the problem of voluntary agreement to an implicit social contract, Brennan and Buchanan also invoke the Rawlsian “veil of ignorance.”4 The idea is that when he gives his consent to the social contract, an individual doesn’t know—or it is as if he did not know—what his social position is, which eliminates the temptation of bending the rules in his own favor. This is why all can agree on general rules. And all have a strong incentive to agree on some package of rules because a forced (or partial) agreement would not establish a moral obligation to respect the social contract. A notable difference between the Brennan-Buchanan-Tullock social contract and the Rawls sort is that, in the former, individuals are less abstract and less ignorant of who they are than in the latter. They are merely uncertain of what will be their future position in society. The veil of ignorance becomes a “partial veil of uncertainty,” but it still “mitigates substantially” any purely distributional temptation in the choice of rules. It mitigates an individual’s desire to bend the rules toward a redistribution in his favor. But mitigating is not abolishing, and some self-interested bargaining can theoretically take place at social-contract level. A Radically Different Theory Brennan and Buchanan emphasize how the contractarian approach radically differs from non-contractarian views. In a contractarian perspective, politics is the search for what every individual wants. In the non-contractarian view, “the good” is something external to individuals and politics becomes a search for it, analogous to the search for truth in science. In the best case, “[t]hose who disagree with the definition of the ‘good’ are misinformed and in error.” In the worst case, the supposed “good” is imposed by a benevolent despot, democratic or not. Democracy is deemed effective at discovering the “public good,” while the contractarian defense of democracy lies in its “ability to facilitate the expression of individual values.” Politics as such has no other objective than to allow individuals to pursue each their own good as they conceive it—an idea reminiscent of Friedrich Hayek’s theory of a spontaneous order.5 The theory of justice implied by contractarian theory is very different from the standard conception of “social justice.” “Just conduct,” write Brennan and Buchanan, simply “consists of behavior that does not violate rules to which one has given prior consent.” Ultimately, “[j]ust conduct is conduct in accord with promises given.” Brennan and Buchanan also argue that the contractarian-constitutionalist position is “almost certainly” deontological instead of consequentialist. This may look surprising, for aren’t the beneficial consequences of rules what counts for individuals? The authors make room for this objection by admitting that “[p]atterns of outcomes generated under particular processes or rules may be such as to make the processes themselves unacceptable.” Yet, they argue, these patterns of outcomes cannot be reduced to comparing the costs of certain individuals with the benefits of others, for “there is no means of evaluating any end state, because there is no external standard or scale through which end states can be ‘valued.'” In other words, as economists know, interpersonal comparisons of utility are impossible. Each individual will, at least ex ante, only accept a social contract that satisfies their own interest, that is, in which their own benefits exceed their own costs in their own evaluation. Constitutional Revolution Can we get there from here? Can a defective constitution be reformed so as to meet unanimous consent? The last chapter of The Reason of Rules explores the “major barriers” to modifying the “basic rules of political order.” The authors call “constitutional revolution” the modification of a constitution through the democratic process with a view to make it unanimously acceptable. Compensation may have to be paid to those who expect to be disadvantaged by the new rules. This is much more likely to happen in the concrete case of constitutional reform than in a more abstract original social contract. Brennan and Buchanan recognize that constitutional reform may require “various compromises, side payments, compensations, bribes, exchanges, trade-offs.” The more difficult obstacle to overcome, they believe, is that—contrary to agreeing to an original social contract—reform requires more than mere self-interest. A serious free-rider problem shows up: while everybody is to benefit from the reform (by construction), there will be no individual incentive to bring it about because every individual‘s balance of costs and benefits is unfavorable. Purely self-interested individuals will not assume the cost, in time and other resources, that is necessary to “seek out, design, argue for, and support” constitutional change. The necessary collective action will not happen. Constitutional reform thus requires “to resort to some version of ‘general interest’ or ‘public interest'”—expressions generally proscribed by Buchanan. To help limit government while recognizing its beneficial activities, the last lines of the book argue for a sort of “civic religion,” a disquieting idea. Some Questions About Contractarianism The impressive contractarian theory of The Reason of Rules is not totally waterproof. A central problem, which is even more obvious in other social contract theories, remains: How can we say that all individuals in a society voluntarily give their consent to the social contract? As we have seen, Brennan and Buchanan end up claiming that every individual who plays by the established rules can be presumed to consent to them even if he has no other alternative, even if it is “the only game in town.” Another way to ask the question: How can we really say that a “general agreement” meets the benchmark of a “conceptually possible” unanimous agreement? How does this conservative-looking constitutionalism differ from Friedrich Hayek’s presumption in favor of established traditional rules resulting mainly from social evolution? The question is especially relevant as Hayek did apparently introduce in his theory an external normative criterion revolving around individual liberty, as well as invoking Rawls and Immanuel Kant, which suggests some kinship with Brennan-Buchanan-Tullock.6 It is tempting to ask whether Hayek’s shortcut isn’t more realistic than an elaborate contractarian construction. Buchanan’s thinking was quite obviously influenced by the American constitutional experience. It is worth nothing, however, that nothing like a unanimous social contract presided over the founding of the United States: the non-consenting loyalists had to flee the new country. Perhaps Brennan and Buchanan would have replied that this event illustrates, not hurdles in agreeing on an original and abstract social contract, but rather the problem they emphasized, as we saw above, of legally (that is, constitutionally) modifying an existing social contract. Would this reply answer the objection? Another question is the extent to which a contractarian conception of the state can perversely serve to justify and fuel political authoritarianism. Don’t complain about oppression because you have consented to the social contract; your submission is of your own making! The social-contract ideology could disarm mistrust toward the state, a danger that Anthony de Jasay saw in any self-imposed limit on sovereign power.7 For more on these topics, see “Lessons and Challenges in The Limits of Liberty,” by Pierre Lemieux. Library of Economics and Liberty, Nov. 5, 2018. “The State Is Us (Perhaps), But Beware of It!,” by Pierre Lemieux. Library of Economics and Liberty, Jan. 3, 2022. Two concepts of libertarianism–Buchanan v Jasay, by Hartmut Kliemt. EconLog, July 19, 2021. To conclude this short review, the classical liberal contractarianism elaborated in The Reason of Rules presents a big challenge to both the anarchist, who thinks that the state cannot be beneficial to everybody, and the statist, who believes that it must be run by some enlightened elite, numerical majorities, or populist movements. Somewhere in between, Brennan and Buchanan argue, the reason for constitutional rules is that they are necessary for individuals to live in peace, harmony, and prosperity. Footnotes [1] Geoffrey Brennan and James M. Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge University Press, 1985; Liberty Fund, 2000). Also available at the Liberty Fund Book Catalog: https://about.libertyfund.org/books/the-reason-of-rules/. [2] James M. Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (University of Chicago Press, 1975; Liberty Fund, 2000). See also my review: “Lessons and Challenges in The Limits of Liberty,” Library of Economics and Liberty, November 5, 2018. [3] James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (University of Michigan, 1962; Liberty Fund, 1999). See also my review: “The State Is Us (Perhaps), But Beware of It!” Library of Economics and Liberty, January 3, 2022. [4] See John Rawls, A Theory of Justice (Harvard University Press, 1971). [5] See F. A. Hayek, Law, Legislation, and Liberty (1973-1978), edited by Jeremy Shearmur (University of Chicago Press, 2022). [6] See my review of volume 2 of Friedrich Hayek’s Law, Legislation, and Liberty, “Social Justice as a Tribal Remainder.” Library of Economics and Liberty, Oct. 1, 2022. [7] See Anthony de Jasay, The State (Basil Blackwell, 1985; Liberty Fund, 1998); and my review of this book, “An Unavoidable Theory of the State,” Library of Economics and Liberty, June 4, 2018. *Pierre Lemieux is an economist affiliated with the Department of Management Sciences of the Université du Québec en Outaouais. He blogs on EconLog. He lives in Maine. E-mail: PL@pierrelemieux.com. For more articles by Pierre Lemieux, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

A book review of The Culture Transplant: How Migrants Make the Economies They Move to a Lot Like the Ones They Left, by Garett Jones.1 In January of 2018, President Donald Trump disparaged taking in immigrants from “[expletive] countries.” Equally dramatically, albeit more politely, in the conclusion to his recent book, The Culture Transplant,1 Garett Jones writes: We can predict that year after year of massive immigration from the world’s poorest countries into the I-7, the world’s most innovative nations would eventually tend to have effects like these: The quality of government would fall; corruption would rise. Social conflict would increase—and so would the risk of civil war. Trust—and probably trustworthiness—toward strangers would decline. Support would rise for higher minimum wages and laws making it harder to fire workers. (p. 157) Innovation would decline overall, and since new innovations eventually spread across the entire planet, the entire planet would eventually lose out. Suppose that a big immigration wave from the world’s poorest countries to the richest countries does take place. What are the chances that this would “wound the goose that lays the golden eggs of global innovation and worldwide prosperity,” as Jones puts it? “The methods used in the studies that Jones relies on to make his case are often clever and generally approved within the economics profession, but I cannot give them any weight at all.” Before reading The Culture Transplant, I would have said that there is about a 20 percent chance that the results would be so adverse. After reading the book, I would still rate the chances as about 20 percent. The methods used in the studies that Jones relies on to make his case are often clever and generally approved within the economics profession, but I cannot give them any weight at all. As one example, Jones offers Argentina as the poster child for the harms of immigration: In 1913, thanks in large part to a vibrant export-oriented cattle industry, Argentina was a rich nation by the standards of the day. Average income per person in Argentina was 15 percent higher than in France and just 10 percent lower than in Germany. By 2016 by the same measure, France was 100 percent richer than Argentina, and Germany 140 percent richer. Argentina is a failed prodigy: great early promise, little accomplishment. (p.8) Jones proceeds to cite historical accounts that attribute the failure of Argentina to radical movements that emerged within a large population of Italian and Spanish immigrants. But later in the book, Jones places great reliance on an indicator that measures the quality of a country as a source of immigrants based on its deep history, back to 1500 and further. This index for Italy is 82 out of 100, and for Spain it is 96. Those values make Italy and Spain two of the best countries you can find as sources of immigration. And by the method that the indexes are constructed, they would have been among the best in the late 19th century, when the immigration wave to Argentina took place. The index primarily depends on an assessment of how close a country was to the technological frontier in 1500. Jones reports that studies using similar indices in cross-country regressions are useful at explaining differences in economic well-being. But I give very little credence to these sorts of cross-country regressions, for a number of reasons. One objection I have is to the way that proxy variables are created and used. The term “culture” is rich and layered, with many possible meanings. Jones describes the all-important technology indicator as an index assembled by economists Diego Comin, William Easterly, and Erick Gong assessing each country’s use in 1500 of technology in agriculture, transportation, military, industry, and communications. For example, the communications measure is: … a mix of whether they use paper, whether they have books, and whether they have some systematic method for printing (p. 45-46) In short, immigrants who come from countries that used these technologies in 1500 will have a high score on “culture.” It is asking a lot of a proxy variable to perform this work. Another objection I have is that regressions make linear approximations to what may be nonlinear relationships. In an interview with population geneticist Razib Khan, Jones says, “So I guess I follow the macroeconomist’s approach of when in doubt, assume things are linear, and remember that the quest for nonlinear relationships will mostly lead you down rabbit holes and puzzles, rather than clear answers.”2 On page 51, there is a chart plotting a countries’ incomes in 2005 against their technology history scores. Visually, one can see a hockey stick. All but a few of the countries with indexes below 80 have low incomes. Almost all of the variation in incomes occurs among countries with indexes over 80, with a handful of very poor countries, a handful of very rich countries, and many middle-income countries. To “assume things are linear” is malpractice. Big Questions, Big Answers I think of the field of economic growth and development as one with big questions and big proposed answers. Some of the big questions are: • How did the United States and other countries become WEIRD (Western, Educated, Industrialized, Rich, and Democratic)? • Why did the Industrial Revolution take off when and where it did (Britain, primarily)? • Why between, 1500 and 2000, did Europe far outstrip China in economic development (“the great divergence”)? • Why did the Old World “discover” and then dominate the New World, rather than the other way around? • After World War II, why did some countries in Asia “catch up” rapidly with the industrialized West, while other countries in Latin America and Africa lagged? Jones has been pursuing his own big question, which is why Singapore is one of the wealthiest nations on earth. He writes: This is the final book in my Singapore Trilogy. The trilogy began with Hive Mind, where the first country mentioned is Singapore, a nation that unsurprisingly combines high test scores, high average incomes, and high-quality governance. The second book, 10% Less Democracy, has an entire chapter on the lessons the world’s rich democracies can learn from Singapore, a nation with 50 percent less democracy than the U.S. And of course, Singapore—largely a nation of immigrants whose ancestors left southern China—illustrates cultural transplant theory. (p.161) Economists have long debated the answers to the big questions. The candidates for big answers are: • Population genetics. Populations differ in terms of IQ, and IQ is correlated with income. • Geography and resources. Jared Diamond looked at the question of why the Old World conquered the New and gave the answer of Guns, Germs, and Steel. He argued that the Old World was blessed with resource advantages, such as horses, oxen, and other useful domesticated animals that were not present in the Americas before Columbus arrived. • Institutions. Many economists—most prominently Douglass North—argue that growth can be explained by institutions, particularly those that protect private property. These economists will cite North Korea and South Korea as examples of how different institutions lead to different outcomes in otherwise similar lands. • Cultural values. Other economists, most prominently Deirdre McCloskey, argue that prosperity requires a culture that approves of commerce and respects the merchant and the entrepreneur. Jones argues against the geography-and-resources explanation. I think that most modern economists would agree with him. The profession has moved in the direction of emphasizing intangible factors. In the first book in his “Singapore Trilogy,” Jones emphasized population genetics, notably national average IQ.3 IQ is not mentioned at all in The Culture Transplant. Does Jones have amnesia? Perhaps not. In the passage quoted above, the euphemistic reference to Singaporeans having “high test scores” suggests that he may be thinking that his conclusions are offensive enough already, without touching the third rail of IQ differences among populations. The “technology history” variable that Jones emphasizes may be a subtle proxy for average IQ. But Jones instead tells us to treat it as a proxy for cultural values. Although he no longer wants to talk about IQ, Jones continues to believe that institutions matter. In fact, his wariness of immigration from poor countries is based on a fear that they will eventually undermine the institutions that support markets and innovation. If I were trying to make such a case, I would attempt to demonstrate that: (a) there are population groups in which cultural support for markets and innovation is weak, and these groups are inclined to support policies that restrict markets and innovation; and (b) that when immigrants arrive in a new country, these particular attitudes persist among immigrants and their descendants. Instead of homing in on this, Jones picks some questions that others have asked in surveys about values, such as whether strangers can be trusted, and shows that the answers given by immigrants and by people of the countries of origin are often correlated, even among second- and later-generation immigrants. But I would wager that immigrants assimilate at different rates to different values. On some issues, traditions from the old country prevail. On other issues, immigrants absorb the new culture. For more on these topics, see “Ideas Trigger Change,” by Lars Peder Nordbakken and Leonidas Zelmanovitz. Library of Economics and Liberty, Sep. 5, 2022. Ran Abramitzky and Leah Boustan on Immigration Then and Now. EconTalk. “Immigration and the Open Society,” by Alberto Mingardi. Library of Economics and Liberty, Sep. 6, 2021. For the purpose at hand, when a man immigrates to the United States from a Communist country, the key question is whether he wants us to remain capitalist or become Communist. If, as I suspect, the typical immigrant wants us to remain capitalist, then we need not worry what other values from his home country he might continue to hold. The Culture Transplant speaks to an important question concerning the risks of large-scale immigration. Jones has made a heroic effort to distill complex technical papers by economists into something that can be understood by an intelligent layman. Sadly, the research methods that those economists employ deserve, in my view, to be characterized by President Trump’s expletive. Footnotes [1] Garett Jones, The Culture Transplant: How Migrants Make the Economies They Move to a Lot Like the Ones They Left. Stanford Business Books, 2022. [2] “Garett Jones: The Culture Transplant – How Migrants Make the Economies They Move To a Lot Like the Ones They Left,” by Razib Khan. Substack, Unsupervised Learning, Nov. 17, 2022. Gated podcast episode. [3] Garett Jones, Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own. Stanford Economics and Finance, 2015. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Classical liberals and libertarians tend to hold a dimmer view of occupational licensing laws than the general public. Do we really need official state certifications standing as barriers to so many potentially productive careers? George Will once described a particularly heartbreaking example the effects of such licensing had on a woman named Sandy Meadows: Meadows was a Baton Rouge widow who had little education and no resources but was skillful at creating flower arrangements, which a grocery store hired her to do. Then Louisiana’s Horticulture Commission pounced. It threatened to close the store as punishment for hiring an unlicensed flower arranger. Meadows failed to get a license, which required a written test and the making of four flower arrangements in four hours, arrangements judged by licensed florists functioning as gatekeepers to their own profession, restricting the entry of competitors. Meadows, denied reentry into the profession from which the government had expelled her, died in poverty, but Louisianans were protected by their government from the menace of unlicensed flower arrangers. But maybe I’m making things too easy on myself with this example? I mean, maybe it should be okay for people to arrange and sell flowers to willing buyers without anyone being branded a criminal in the process, but how far can we take that lesson? Surely, you ask, I wouldn’t go so far as to suggest people be allowed to practice law without proper certification? I’m glad you asked, because yes I would! And a recent article in Slate magazine (very far from a bastion of free market ideology, to say the least), makes several excellent points about why. The authors start off by noting how legal assistance is, to use a technical phrase, absurdly expensive. They point out a key reason for this is “restrictive rules governing the provision of legal services.” As they put it: Sweeping rules in almost every state give lawyers a powerful monopoly by mandating that only lawyers can do legal work or own law firms. These rules ostensibly protect consumers by ensuring a lawyer exercises independent judgment, untainted by commercial considerations. But like other restraints on trade, they also predictably constrain the supply of legal help, limit outside investment in law firms, shut out non-lawyer expertise, and drive up the cost of services. Innovative, lower-cost delivery models, whether via nurse-practitioner-like “paraprofessionals” or software, are literally forbidden. But perhaps that’s a necessary cost? After all, nobody would be crazy enough to cut back on these rules and let anyone less than full fledged lawyers practice law, would they? Well, it turns out, two states have done just that. The authors of this article seem genuinely puzzled that the states which have loosened these regulations “are an unlikely red-and-purple-state duo: Utah and Arizona.” They can’t quite understand why progressive, blue states would side with wealthy law firms, to the detriment of poor people, while right-leaning states are making services more available to the poor instead of protecting wealthy interests. And the reforms really do seem to be working as hoped: When first announced, these bold reforms drew criticism from both knee-jerk protectionists and good-faith skeptics worried about consumer harm. But the returns, so far, are quite promising…Perhaps most important of all, the reforms do not appear to pose a risk of consumer harm. Data reported by Utah and Arizona indicate that newly authorized entities do not draw a higher number of consumer complaints as compared to regular lawyers. Their article focuses on regulations restricting the practice of law, but the lesson behind it has much wider implications. Towards the end, they make the following observation: Moreover, it is important when evaluating outcomes to recognize that the choice for many Americans is not between a “real” lawyer and some kind of lawyer lite. It is between some measure of professional assistance and no help at all. Indeed. But this lesson goes well beyond lawyers. It applies to minimum wage laws. For many Americans, the choice isn’t between a low paying job and a high paying job. It’s between a low paying job and no job at all. It applies to price controls. For many Americans the choice isn’t between paying a high price for some good or paying a low price. It’s between paying a high cost for that good, or not being able to acquire it at any price. It applies to regulations requiring dwellings to be a minimum size. For many Americans, the choice isn’t between a tiny dwelling or a spacious one. It’s between a tiny dwelling and having nowhere to live. Anytime you take an option away, for some people, it will have been the best option they had available to them. Take that choice away, and they don’t substitute it with whatever you thought was better for them. It just leaves them with nothing. Would-be social reformers would do well to ponder Thomas Sowell’s words in his magnificent book Knowledge and Decisions: Freedom is not simply the right of intellectuals to circulate their merchandise. It is, above all, the right of ordinary people to find elbow room for themselves and a refuge from the rampaging presumptions of their “betters.” Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University.    (0 COMMENTS)