In his foreword, Robert D. Tollison identifies the main objective of Geoffrey Brennan and James M. Buchanan’s The Reason of Rules: “. . . a book-length attempt to focus the energies of economists and other social analysts on the nature and function of the rules under which ordinary political life and market life function.”
In persuasive style, Brennan and Buchanan argue that too often economists become mired in explaining the obvious or constructing elaborate mathematical models to shed light on trivial phenomena. Their solution: economics as a discipline would be better focused on deriving normative procedures for establishing rules so that ordinary economic life can proceed unaffected as much as possible by social issues.
In The Reason of Rules, Brennan and Buchanan sketch out a methodological and analytical framework for the establishment of rules. They point out that the consideration of rules has its roots in classical economics and has been hinted at in the work of some contemporary economists. But the enterprise of applying the analytical rigor of modern economics to the establishment of effective rules is the little-traveled road that bears the most promise.
In fact, the basic idea of the importance of rules is a thread that runs through virtually the whole of Buchanan’s distinguished career, and it is one of his signal contributions to the contemporary discipline of economics. The Reason of Rules is an elaboration of the potential for rules and the normative process by which they can best be devised.
Rules of the Market Order
Our purpose in Sections II and III was to isolate several elements of rules through the familiar examples of ordinary games, on the one hand, and rules of the road, on the other. As noted, however, our central concern is with rules of economic-political order. In this section we shall introduce rules of the market, or economic, order and in Section VI we shall examine rules of political order.
In both of our earlier examples, the need for rules became apparent immediately upon reference to the interaction; one cannot conceptualize either ordinary games or traffic without thinking about rules. With respect to the far more important economic interaction among persons, however, the rules governing individual behavior within such interaction are often ignored. Economists, themselves, have been notoriously negligent in this respect. Complex analytic exercises on the workings of markets are often carried out without so much as passing reference to the rules within which individual behavior in those markets takes place. Adam Smith was not party to such neglect; he emphasized the importance of the “laws and institutions” of economic order.
The departure from this Smithian and classical emphasis is perhaps best illustrated in the “market failure” analytics of theoretical welfare economics, as developed in the middle decades of this century. “Markets” were alleged to fail when compared with the stylized, formal models derived from the economists’ mathematical exercises. Analysis proceeded as if institutional constraints were totally irrelevant to the way in which individuals interacted within market structures.
James M. Buchanan
In 1986 James M. Buchanan (1919-2012) was awarded the Alfred Nobel Memorial Prize in Economic Sciences. Universally respected as one of the founders of the “public choice” school of economics, he is the author of numerous books and hundreds of articles in the areas of public finance, public choice, constitutional economics and economic philosophy. He is best known for such works as The Calculus of Consent, The Limits of Liberty, The Power to Tax, and The Reason of Rules. Buchanan has devoted himself to the study of the contractual and constitutional basis for the theory of economic and political decision making.
See also at Econlib: the Concise Encyclopedia of Economics entry on Buchanan