Social contract theory imagines an agreement among members of society on a set of institutions that furthers the public interest, somehow defined. In many cases, the real-world incentives of both citizens and their rulers push them toward institutions that resemble those that might be agreed to in a hypothetical social contract. Looking at institutions through the lens of social contract theory helps illuminate how institutions can evolve that are in everyone’s interest, not because there is an actual social contract but because both the powerful and the powerless have an incentive to support institutions that benefit everyone.
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This idea is the basis for Adam Smith’s The Theory of Moral Sentiments (Salt Lake City, UT: Gutenberg Press, 2011 [orig 1759]).
Daron Acemoglu and James A. Robinson, The Narrow Corridor: State, Societies, and the Fate of Liberty (New York: Penguin Press, 2019), p. 320.
John Rawls, A Theory of Justice (Cambridge, MA: Belknap, 1971), and James M. Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (Chicago: University of Chicago Press, 1975).
This idea is developed in Randall G. Holcombe, The Economic Foundations of Government (New York: New York University Press, 1994).
Thomas Hobbes, Leviathan (New York: E.P. Dutton, 1950 [orig. 1651]), from Ch. XIII. Hobbes, Leviathan, ch. XVII.Jean Jacques Rousseau, The Social Contract, Or Principles of Political Right, translated by G.D.H. Cole (London: J.M. Dent and Sons, 1923 [orig. 1762]) Book IV, Ch. 1, no. 2. While this is a translation, note that Rousseau refers to people in the singular, in keeping with the idea that there is a general will that applies to the whole society, beyond the individual interests of its members.
John Locke, Two Treatises of Government (Cambridge: Cambridge University Press, 1960 [orig. 1690]), ch. 5, sec 27.
Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge: Harvard University Press, 1967), describes Locke’s influence.
John Rawls, A Theory of Justice (Cambridge, MA: Belknap, 1971).James M. Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (Chicago: University of Chicago Press, 1975).
See, for example, Randall G. Holcombe, “A Public Choice Analysis of James M. Buchanan’s Constitutional Project,” in Richard E. Wagner, ed., James M. Buchanan: A Theorist of Political Economy and Social Philosophy (London: Palgrave Macmillan, 2018), pp. 539–576.
This is not quite true in Buchanan’s case, because people could take their personal characteristics into account, even though the return to anarchy eliminates any socially ascribed characteristics. This, intelligent people could favor rules that benefit the intelligent, and physically strong people could favor rules that give advantages to the strong.
Ernest Gellner, Anthropology and Politics: Revolutions in the Sacred Grove (Oxford, UK: Blackwell, 1995) p. 30.
Leland B. Yeager, Ethics as a Social Science: The Moral Philosophy of Social Cooperation (Cheltenham, UK: Edward Elgar, 2001), and “Rights, Contract, and Utility in Policy Espousal,” Cato Journal 5, no. 1 (Summer 1985), pp. 259–294.
Emmanuel Kant, “What Is Enlightenment?” in Marvin Perry, ed., Sources of Western Tradition, 3 rrd Ed., Vol. 2 (Boston: Houghton Mifflin, 1995), pp. 56–57.
Thomas Paine, Age of Reason: The Definitive Edition (Grand Rapids, MI: Michigan Legal Publishing, 2014).
Mancur Olson, Jr., “Dictatorship, Democracy, and Development,” American Political Science Review 87, no. 3 (September 1993), pp. 567–576. See also Olson’s Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000). Similar ideas are found in Margaret Levi, Of Rule and Revenue (Berkeley: University of California Press, 1988) and Dan Usher, The Welfare Economics of Markets, Voting, and Predation (Ann Arbor: University of Michigan Press, 1992).
Along these lines, note the argument of Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), that in the anarcho-capitalism advocated by Murray Rothbard, For a New Liberty: The Libertarian Manifesto (New York: Macmillan, 1973) and David D. Friedman, The Machinery of Freedom: Guide to Radical Capitalism (Chicago: Open Court Publishing Company, 1973), larger protective firms would have a cost advantage so the larger firms would put the smaller firms out of business until only one firm remained. This monopoly protection firm, Nozick argues, would have the right to force people to pay for its services to avoid a free-rider problem. Nozick offers a libertarian argument that the exchange of protection for tribute is legitimate and ethical.
Geoffrey Brennan and James M. Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution (Cambridge: Cambridge University Press, 1980), and Brennan and Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge: Cambridge University Press, 1985).
Margaret Levi, Of Rule and Revenue.Steven Pinker, The Better Angels of Our Nature: Why Violence Has Declined (New York: Viking, 2011), and Enlightenment Now: The Case for Reason, Science, Humanism, and Progress (New York: Viking, 2018).
James M. Buchanan and Roger D. Congleton, Politics by Principle, Not Interest: Towards Nondiscriminatory Democracy (Cambridge: Cambridge University Press, 1998).
A recent edition of the report is James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World 2018 Annual Report (Vancouver, BC: Fraser Institute, 2018).
The Heritage Foundation also publishes an economic freedom index similar to the Fraser Institute’s index, and the rankings of countries in the two indexes are very similar. See Terry Miller, Anthony B. Kim, and James M. Roberts, 2019 Index of Economic Freedom, 25th Anniversary Edition (Washington, DC: Heritage Foundation, 2019).
Literature reviews describing this extensive literature can be found in Niclas Berggren, “The Benefits of Economic Freedom: A Survey,” Independent Review 8, no. 2 (Fall 2003), pp. 193–211, Jakob de Haan, Susanna Lundstrom, and Jan-Egbert Sturm, “Market-Oriented Institutions and Policies and Economic Growth: A Critical Survey,” Journal of Economic Surveys 20, no. 2 (April 2006), pp. 157–191, and Joshua Hall and Robert Lawson, “Economic Freedom of the World: An Accounting of the Literature,” Contemporary Economic Policy 32, no. 1 (2014), pp. 1–19.
