Pareto Optimality and the Rule of Law

  • Noel B. Reynolds
Part of the Studies in Economic Ethics and Philosophy book series (SEEP)


In 1959, James M. Buchanan criticized the collectivist misuse of Pareto optimality by the “new welfare economists” and made a first attempt to extend that individualist concept into the political realm.1 Over the following three decades he further developed his political application of Pareto’s insight to buttress an essentially economic analysis of political exchange that would justify the processes of constitutional democracy in the same way Pareto efficiency justifies free markets. In this paper I will explain why Buchanan’s particular formulations will not work and propose a more comprehensive solution that accomplishes Buchanan’s announced purpose. I will argue that a conventionalist understanding of the rule of law provides a precise and appropriate application of the Pareto criterion in the legal and political realm.


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  1. 1.
    J.M. Buchanan: “Positive Economics, Welfare Economics, and Political Economy”, Journal of Law and Economics, 2 (1959), pp. 124–127.CrossRefGoogle Scholar
  2. 2.
    F. A. Hayek: The Constitution of Liberty, Chicago 1960, pp. 205–206.Google Scholar
  3. 3.
    L. L. Fuller: The Morality of Law, New Haven, rev. ed. 1969, pp. 33–94.Google Scholar
  4. 4.
    See his major work — M. Oakeshotr, On Human Conduct, Oxford 1975 — for a full account of this theory and his later and more accessible restatement in M. Oakeshott: “The Rule of Law”, in: On History and Other Essays, Oxford 1983, ch. 2.Google Scholar
  5. 6.
    For the complete text in English, see V. Pareto: Manual of Political Economy, transl. by A. S. Schwier,., ed. by A. S. Schwier and A. N. Page, New York, 1971, Appendix, section 89. However, I have used here the translation of this passage published in R. CIRILLO: The Economics of Vilfredo Pareto, London 1979, p. 43.Google Scholar
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    J. M. Buchanan: Liberty, Market and State: Political Economy in the 1980s, New York 1985, pp. 264, 270.Google Scholar
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    See R. E. Wagner. E. Wagner: “The Calculus of Consent: A Wicksellian Perspective”, Public Choice, 56 (1988), pp. 153–166.Google Scholar
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    See J. M. Buchanan and G. Tullock: The Calculus of Consent: Logical Foundations of Constitutional Democracy, Ann Arbor 1962.Google Scholar
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    Knut Wicksell: Finanztheoretische Untersuchungen nebst Darstellung und Kritik des Steuerwesens Schwedens, Jena 1896. See the long excerpt from the second essay, translated by J. M. Buchanan and published as “A New Principle of Just Taxation”, in: R. A. Musgraveand A. T. Peacock (Eds.): Classics in the Theory of Public Finance, London and New York, 1958. Also see commentary in Hennipman: “Wicksell and Pareto”, p. 44 and WAGNER: “The Calculus of Consent: A Wicksellian Perspective”, pp. 161–162.Google Scholar
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    See N. B. Reynolds: “The Ethical Foundations of Constitutional Order: A Conventionalist Perspective”, Constitutional Political Economy, 4 (1993), pp. 79–95.CrossRefGoogle Scholar
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    See J. M. Buchanan: “The Relevance of Pareto Optimality”, The Journal of Conflict Resolution, 6 (1962), pp. 341–354. Republished in J. M. Buchanan: Freedom in Constitutional Contract: Perspectives of a Political Economist, College Station 1977, pp. 215–234.Google Scholar
  14. 23.
    See “Relevance of Pareto Optimality”, p. 341. Buchanan’s interpretation of the way the Pareto criterion has been used by welfare economists is reinforced by Renato Cirillo’s review of this history, though Cirillo appears more sympathetic to the people Buchanan criticizes. See Cirillo: Economics of Vilfredo Pareto, pp. 42–60.Google Scholar
  15. 31.
    See N. B. Reynolds: “Law as Convention”, Ratio Juris, 2 (March 1989), pp. 105–120. In “The Ethical Foundations of Constitutional Order” the implications of conventionalism for constitutional theory are also explored.Google Scholar
  16. 32.
    See “Relevance of Pareto Optimality”, pp. 345–347, and Liberty, Market, and State, p. 245.Google Scholar

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© Springer-Verlag Berlin Heidelberg 2002

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  • Noel B. Reynolds

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