Contractarianisms and Markets Peter Vanderschraaf Department of Political Economy and Moral Science University of Arizona Vanderschraaf, Contractarianisms and Markets, 1
A contractarian analysis of markets? What sort of social contract theory? General claim: Hume, and Sugden after him, have in mind a coordination regime contractarian analysis of the market. Hume, A Treatise of Human Nature Sugden, The Community of Advantage This stands in contrast with: ( ) a social contract chosen by ideally rational and i knowledgeable agents (Gauthier) and ( ) a social contract that establishes an ii agent who sets the specific terms on behalf of all the contracting parties (Hobbes, Kavka) Hobbes, Elements of Law De Cive Leviathan , , Kavka, Hobbesian Moral and Political Theory Vanderschraaf, Contractarianisms and Markets, 2
Related previous work Hume, Treatise , especially 3.2.7, ‘On the Origin of Government’ Sugden, The Economics of Rights, Co-operation and Welfare (1986, 2004) Hardin, Liberalism, Constitutionalism and Democracy (1999) Hampton, ‘The Contractarian Explanation of the State’, ‘Democracy and the Rule of Law’ (1994), Political Philosophy (1997) Vanderschraaf, Strategic Justice (2019) Hume, Hampton, Hardin and Vanderschraaf all propose coordination regime analyses of the state social contract . A coordination regime analysis of markets is only implicit in Hume. Vanderschraaf, Contractarianisms and Markets, 3
Foil one: A Nash bargaining problem? Dividing the wine: Suppose a German, a Frenchman, and a Spaniard to come into a room, where there are plac'd upon the table three bottles of wine, Rhenish, Burgundy and Port; and suppose they shou'd fall a quarrelling about the division of them; . . . Treatise 3.2.3:10 n. 5 Vanderschraaf, Contractarianisms and Markets, 4
Different approaches solving the wine problem: Gauthier: The parties follow an axiomatic solution (in his own theory, a maximin relative benefit solution that is equivalent to the Kalai-Smorodinsky solution for the 2-party case) because all recognize this is the outcome of a bargaining process among ideally rational and knowledgeable parties. Kavka: The parties follow some outcome they all agree upon as their choice resulting from a system of hypothetical agreements. Hume (and Sugden): The parties follow some outcome that they recognize as focal . Vanderschraaf, Contractarianisms and Markets, 6
Hume's solution a person, who was chosen for umpire, wou'd naturally, to shew his impartiality give every one the product of his own country: And this from a principle, which in some measure, is the source of those laws of nature, that ascribe property to occupation, prescription and accession. Treatise 3.2.3:10 n. 5. Each part of Hume's solution is in a sense “near” the given claimant, in that one would naturally link together the geographical origin of the wine with the geographical origin of the person, given that these are the only stated properties that the wine and the person obviously have in common. Hume presents this example in the context of his Treatise discussion of accession ( Treatise 3.2.3), where a certain form of “nearness” explains the salience of his recommended solution. Vanderschraaf, Contractarianisms and Markets, 7
Foil two: Prisoner's Dilemma Figure 2. Prisoner's Dilemma Player 2 Player 1 perform cheat Vanderschraaf, Contractarianisms and Markets, 8
Gauthier's solution: Constrained maximization (that is, apply a reformed account of rational choice) Figure 3. Gautherian Parties in Prisoner's Dilemma Player 2 Player 1 perform cheat Vanderschraaf, Contractarianisms and Markets, 9
The Hobbesian solution?: Third-party enforcement Figure 4. Prisoner's Dilemma Augmented with Third-party Punishment Player 2 Player 1 perf orm cheat Vanderschraaf, Contractarianisms and Markets, 10
Gauthier's and the Hobbesian contractarian theories applied to markets In Gauthier's social contract, the (ideally competitive) market is officially a moral free zone because the ideally rational and knowledgeable parties “solve” the problems of morality prior to entering the market. In a Hobbesian social contract (interpreted as above), the market is effectively a moral free zone because the activity of a third-party enforcer renders attempts at immorality in market pointless. Vanderschraaf, Contractarianisms and Markets, 11
Hume's solution: History-dependent strategies I learn to do a service to another, without bearing him any real kindness; because I forsee, that he will return my service, in expectation of another of the same kind, and in order to maintain the same correspondence of good offices with me or with others. And accordingly, after I have serv'd him, and he is in possession of the advantage arising from my action, he is induc'd to perform his part, as foreseeing the consequences of his refusal ( Treatise 3.2.5:9). Humean strategy: if my partner is innocent , if my partner is guilty . where one is guilty if one has offensively cheated in the past. Sugden's standing strategy implementation of a Humean strategy: : (1) Follow if my partner is innocent (in good standing) or if I am guilty (not in good standing) and follow otherwise, where (2) One is innocent if one has not violated over (1) the previous periods ( ERCW 116). Vanderschraaf, Contractarianisms and Markets, 12
Hume's solution: A proto-folk theorem argument? (Sugden 1986, Skyrms 1998) Part of the indefinitely repeated game becomes a Stag Hunt! And a proto- community enforcement argument? Figure 5. Repeated Prisoner's Dilemma, repetitions Player Player Humean strategy ch eat always Vanderschraaf, Contractarianisms and Markets, 13
Hume's analysis of promises, given in the context of his analysis of commerce: Your corn is ripe today; mine will be so tomorrow. 'Tis profitable for us both, that I shou'd labour with you to-day, and that you shou'd aid me to-morrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains on your account; and should I labour with you upon my own account, in expectation of a return, I know I shou'd be disappointed, and that I shou'd in vain depend upon your gratitude. Here then I leave you to labour alone: You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security. Treatise 3.2.5:9 I learn to do a service to another, without bearing him any real kindness; because I forsee, that he will return my service, in expectation of another of the same kind, and in order to maintain the same correspondence of good offices with me or with others. And accordingly, after I have serv'd him, and he is in possession of the advantage arising from my action, he is induc'd to perform his part, as foreseeing the consequences of his refusal. Treatise 3.2.5:9 One can read Hume as giving a community enforcement argument. This would illustrate Hume's coordination-regime approach for the case of market commerce (because the traders evidently enforce performance themselves). Vanderschraaf, Contractarianisms and Markets, 14
Other coordination regimes in Hume Draining the meadow Two neighbors may agree to drain a meadow, which they possess in common; because 'tis easy for them to know each other's mind; and must perceive, that he immediate consequence of his failing his part, is the abandoning of the whole project. But 'tis very difficult, and indeed impossible, that a thousand persons should agree in any such action; it being difficult for them to concert so complicated a design, and still more difficult for them to execute it, while each seeks a pretext to free himself of the trouble and expense, and wou'd lay the whole burden on others. Treatise 3.2.7:8 Vanderschraaf, Contractarianisms and Markets, 15
Other coordination regimes in Hume Political society easily remedies both these inconveniences. Magistrates find an immediate interest in the interest of any considerable part of their subjects. They need consult no body but themselves to form any scheme for the promoting of that interest. And as the failure of any one piece in the execution is connected, though not immediately, with the failure of the whole, they prevent that failure, because they find no interest in it, either immediate or remote. Thus bridges are built; harbours opened; ramparts raised; canals formed; fleets equiped; and armies disciplined every where, by the care of government, which, though composed of men subject to all human infirmities, becomes, by one of the finest and most subtle inventions imaginable, a composition, which is, in some measure, exempted from all these infirmities. Treatise 3.2.7:8 Vanderschraaf, Contractarianisms and Markets, 16
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