The following is a guest submission by Mark Lutter, a graduate student of economics at George Mason University and Alumni for Liberty board member:

James Buchanan

I have been reading Limits of Liberty by James Buchanan and came across a passage I found interesting.  In defending the state he imagines a two period emergence.  First, “claims are conceptually agreed upon by all parties in the constitutional stage of the social contract.  Then, “the state is called upon to monitor these claims, to serve as an enforcing institution, to ensure these contractual commitments are honored.”  It seems to me as though the lessons from another of his pieces, “Order Defined in the Process of its Emergence,” can aptly demonstrate the problem with his, and others, defense of the state.

I want to argue that “rights” only emerge from the process of their enforcement.  The “rights” are, themselves, defined as the outcome of the enforcement which generates them.  The “rights,” the set of property bundles, does not, and cannot, exist independently of the enforcement mechanism.  Absent enforcement, there can be no “rights.”

What, then, does Buchanan mean (and others who make similar statements) when the rights generated by enforcement is analogized to the rights which might emerge from the bargaining of veiled individuals.  If pushed on the question, one would say that such veiled individuals would know the environmental constraints their utility functions, as well as bundle of rights which would best satisfy the utility functions in their environment; such a bargain, could, by fiat, achieve or even improve on the institutional framework within which we live.  By implication, the veiled parties (in reality the scholar who is advocating his preferred institutional framework) is presumed to have perfect knowledge of utility functions, environmental constraints, and how any given set of rights will shape human action.   In this presumed setting, the human element is entirely eliminated.  In the model of rights emergence, the relative efficiency of institutional arrangements stems solely from the willingness of people to enforce them.

This emphasis is misleading.  Individuals do not chose “rights” by maximizing expected utility with perfect knowledge of alternate frameworks.  They chose in context, and the sequence of decisions taken may be conceptualized, ex post, in terms of “as if” functions that are maximized.  But these “as if” functions are, themselves, generated by the enforcement process, not separately.  If viewed in this perspective, there is no means by which even the most idealized set of veiled individuals could duplicate the emergence of rights.  The potential participants do not know until they encounter enforcement what their own choices will be.  From this is follows that it is logically impossible for veiled individuals to design an ideal institutional arrangement, unless of course, we are to assume omniscience of not simply this reality, but that of any possible institutional arrangement.

The point I seek to make in this note is at the same time simple and subtle.  It reduces to the distinction between end-state and process criteria, between omniscience of all worlds and humility, teleological and scientific principles.  Although they may not agree with my argument, political philosophers should recognize and understand the distinction more readily than economists.  In economics, even among many of those who remain strong advocates of the market, distinct institutional outcomes are treated as given.  Institutions are exogenous, independent of the people who live and interact within their framework.  Until and unless institutions are endogenized, economists are likely to remain confused about the causes of the wealth of nations.