Calculus of Consent in a Thought Experiment

While out shopping today I was thinking of the common criticism of economics that the profession focuses too much on “efficiency,” and this led me straight to Buchanan. (I never think in a straight line, so how one follows from the next may be confusing — hopefully it all comes together.) The implication is that, given economics’ status as a value free science, we have to weigh moral with efficiency considerations. A simple example can be the case of wealth redistribution for the sake of helping the poor, mentally ill, et cetera. One might argue, as many do, that efficiency is not the only relevant factor and that we ought to consider moral justifications for redistributionism.

Assuming we’re all interested in a pluralistic (liberal) society, the problem with the above argument is that social efficiency, in the economic sense, already incorporates moral factors into its calculus. Stripping economics to its most basic unit, the acting individual, we know that humans, more-or-less, rank means and ends by subjective preference. These preferences include moral beliefs; a “very moral” person is more likely to give to charity than a “less moral” person, because the former ranks this kind of satisfaction higher than the latter. The argument that certain moral beliefs ought to supplant efficiency considerations implies, then, an imposition of beliefs on others.

But, where there are asymmetries in individuals’ preferences there are opportunities for gains from trade. This is the basic assumption in James Buchanan’s and Gordon Tullock’s The Calculus of Consent. If we transfer wealth redistribution concerns to the dominion of collection action, we can bargain over a range of public issues. For example, suppose there is a decision to be made on road maintenance and your neighbor has a higher preference in favor of this decision than you (he supports it, you are against it). Further, assume that he is against charitable wealth redistribution and you are for it. There is some probability, in this case, that there is an opportunity for a gain from trade if you agree with your neighbor to trade votes: if he votes for higher charity, you will vote for road maintenance. The theory, then, is that there is a dynamic efficiency argument for wealth redistribution, if we think of government as an alternative institutional framework of exchange (complementing markets).

I don’t have a particular point. I just thought it was an interesting way of illustrating the concept. For those who aren’t familiar with Buchanan’s work, it’s also interesting to think of government in this way. Of course, how efficient collective action is depends on the quality of the institutions. There are very good arguments that our current institutions have significant flaws that severely restrict its usefulness as a venue for exchange — at least, they justify further restricting the range of justifications for collective action. But, the idea that political trade can lead to outcomes that we all agree make us better off is one place to start if you want to argue that anarchy is not the only alternative to our current institutions. We could also improve the institutions of the state.

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