Saturday, April 17, 2010

Charlottesville Musings

My wife Kate and I are leaving for Charlottesville this morning for the weekend to celebrate our dating anniversary and replenish our wine cellar. I had a couple Charlottesville related thoughts I wanted to share.

Jefferson and the Social Contract
One of the ideas I struggle with a lot is the social contract. In a lot of obvious ways, it's a very poorly thought out idea. Put simply, a social contract is a contract that in all likelihood many of the parties never consent to. Hence, it's not really a "contract" at all. It's not a new critique, but it's a nagging one, and it's a critique that inevitably leads to the conclusion that state authority itself is illegitimate. Nevertheless, all of us tacitly accept the social contract in practice, even if it's very common to reject it in theory. Even some of the most vocal critics of the idea do this. Libertarians most readily furnish the criticism I outlined, and yet it's rare to find a libertarian that doesn't think that a minimalist role for government is appropriate: enforcing contracts, providing national defense, etc. I'm not personally clear on why the social contract "works" in these situations, but not in other situations. Why is it legitimate to cite Rousseau's fallacies and the problems with the social contract when we're talking about health reform but not when we're talking about the recognition of contracts? The only position consistent with this (valid) critique of the social contract is anarchism. The rest of us are simply getting by on various versions of inconsistency.

I was recently reading Jefferson's 1813 letter to John Wayles Eppes (here's the Charlottesville connection), originally for the purposes of revisiting Jefferson's thoughts on banking. However, what I was struck by was his opening thoughts on the legitimacy of public debt. This is where he makes his famous suggestion for 19 year limits on constitutions and debt contracts. He acknowledges and attempts to circumvent the problems with the idea of the social contract in an interesting way:

"...But what limits, it will be asked, does this prescribe to their powers? What is to hinder them from creating a perpetual debt? The laws of nature, I answer. The earth belongs to the living, not to the dead. The will and the power of man expire with his life, by nature's law. Some societies give it an artificial continuance, for the encouragement of industry; some refuse it, as our aboriginal neighbors, whom we call barbarians. The generations of men may be considered as bodies or corporations. Each generation has the usufruct of the earth during the period of its continuance. When it ceases to exist, the usufruct passes on to the succeeding generation, free and unincumbered, and so on, successively, from one generation to another forever. We may consider each generation as a distinct nation, with a right, by the will of its majority, to bind themselves, but none to bind the succeeding generation, more than the inhabitants of another country."

One thing that leaps out at you is that Jefferson finds nothing wrong with the fundamental logic of the social contract, which isn't necessarily surprising. Groups of men are considered "as bodies or corporations" and "a distinct nation". What Jefferson has a problem with isn't the homogenization of the citizens into the state, but the perpetuation of that institution over time. In other words, the most disconcerting tyranny is the tyranny of the past over the future, and not of the present majority against the present minority. This is especially notable because he is writing it in 1813, very late in his life. In the heyday of the American Revolution and (for Jefferson) the French Revolution, the radicals were not particularly nervous about democracy. Many anti-federalists and Republicans were quite comfortable with the idea of a popular unicameral legislature (ie, the House of Representatives without the Senate). It was only after the excesses of the French Revolution and the waxing power of the Federalists that suspicion of democracy thoroughly took hold. And yet as late as 1813, long after these developments and long before the inauguration of Jacksonian democracy, Jefferson is not concerned at all with the traditional objection to the social contract - he is concerned with the question of time.

The problem of time has come into my own thinking about the social contract, but in a very different way. Jefferson sees the "usufruct of the earth" as passing from one generation to the next unhindered. He is specifically thinking in contractual and property-rights terms here when he addresses the ability of man to derive profit from the earth. The ability to exclusively enjoy the proceeds of an object is the defining characteristic of "property". This is where I split with Jefferson. It was common in the early 19th century to view land as a passive factor of production to be exploited. We know now, of course, that (1.) land is hardly the only or even the most important factor of production (most economic models don't even include land as a factor of production anymore), and (2.) to the extent that it is one, it certainly isn't inherited unhindered. The fact is, we impose on future generations - very often for the better, but sometimes for the worse.

I've come around to thinking about the social contract as a solution to a severely incomplete inter-generational contract. Imagine a situation where all past, present, and future generations could come together and write contracts. Inter-generational transfers could be worked out. Future generations could pay past generations to make certain investments. Past generations would be forced to compensate future generations for damages made. This is the "optimal" market solution. The problem, of course, is that in the long run we are all dead. We can't make these sorts of contracts. We can't even make contracts with our future selves, much less with future generations. Such is the tyranny of unidirectional time. Among other things, this leads to sub-optimally high private discount rates and high interest rates in general (Keynes's fundamental insight). But it also means that we are imposing on future generations (and we have been imposed upon by past generations) because we make decisions for them that they can't be a party to. Jefferson sees this problem and concludes that the solution is to ensure that our decisions aren't binding on the future. I think this is good; sunsetting is always healthy in government. But I don't think it gets at the more fundamental problem that Jefferson only begins to broach. In my mind, the government's interest in de-temporalized society, it's ability to think in terms of the long-run, the fact that it seems to naturally eschew high private discount rates, instead operating on the basis of low social discount rates, suggests that the government and the social contract has an important role to play in getting closer to an optimal nexus of inter-generational contracts; something that private contracting has no hope of achieving.

Slavery and History
Of course Jefferson doesn't only leave a legacy of enlightened self-government and liberty. He is also a part of the legacy of slavery. Virginia's slave society has been in the news a lot lately with Governor McDonnell's ham-fisted declaration of Confederate History Month, and it's something that I've written about here. I want to mention it briefly again here, because the legacy of slavery also has a lot to do with inter-generational contracts, and the imposition of past generations on future generations. An MIT economist writes of a similar process in Peru, where she found that colonial labor practices have an enormous impact on current poverty rates in different regions of the country. This is an example of what has been called "path dependence", and it's a process that is as relevant to American chattel slavery as it is to Peruvian miners.

The District of Columbia celebrated Emancipation Day yesterday (April 16th), the day in 1862 when Lincoln emancipated the city's 3,100 slaves in anticipation of the 1863 Emancipation Proclamation. Despite the festive atmosphere, slavery still shapes race relations, poverty, unemployment, and incarceration in America today. We act like this is old news, that it happened 150 years ago. But what we forget is that what happened 150 years ago powerfully shaped what happened 149 years ago. And what happened 149 years ago was an enormous determinant of what happened 148 years ago, and so on down to the present day. In one of the best books I've read on the subject, Durable Inequality, Charles Tilly describes the process by which inequalities are not necessarily dissipated, but can also be reinforced over time. Christopher Hitchens makes a similar argument when it comes to reparations for slavery (I've never been convinced by this position until listening to this short piece by Hitchens). Thinking about these issues is always hard. My earlier post (linked above) in which I criticize McDonnell's announcement is nevertheless peppered with hedging, caveats, and apologetics for the Confederacy. So I understand how tough it is to negotiate these questions. That's really the heart of the problem: it's very hard to determine what a just relation between past, present and future generations is when past generations are dead, when future generations haven't been born, and when the present generation is rife with externalities, imperfect property rights regimes, and incomplete contracting. It's very hard to think about, but we still need to think about how our contracting behavior is embedded in the expanse of time.

The Virginia School of Political Economy
Of course, there are obstacles to this too. In many ways government has a much longer time horizon than private interests, but at other times it has a much shorter horizon, stretching only to the next election cycle. This is a nice segue into another Charlottesville legacy: The Virginia School of Political Economy. The founder of this school of thought is generally recognized to be Nobel laureate James Buchanan, currently of George Mason University. Buchanan was once the chairman of the University of Virginia's department of economics. He moved from there to Virginia Tech, and then on to George Mason University. All of these schools now have strong public choice theory programs.

As I understand it, there are two main research areas in this school of thought: the analysis of constitutions, and the analysis of rent-seeking behavior. I've only read the constitutional literature casually, but enough to be impressed by it and influenced by it. Buchanan's work on constitutions really provides an analytic structure to what I think is a very fundamental understanding of constitutions shared by many Americans. As I often say on here, "I really should read more of this," because it's good stuff. I've been less impressed with the work of these economists on rent-seeking, not because I dispute their insights so much as I dispute their emphasis. Government introduces the prospect for rent-seeking and rent-seeking is bad. Government officials are as self-interested as any private actor. I'm not impressed with these sorts of points because they strike me as being so obvious. Nobody has really laid out the "constitutional phase" in the detail that Buchanan has. But how many people have made the rent-seeking observations that Tullock has? Lot's - we've known about it for centuries. It strikes me as emphasizing the most obvious points and neglecting the most interesting points.

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