Organizations and Markets

Act versus Rule Self-Interest

22 August 2007 at 12:21 am Peter G. Klein 2 comments

| Peter Klein |

Ethicists commonly distinguish between “act” and “rule” utilitarianism. Act utilitarians believe that individual actions should be evaluated according to some standard of overall well-being, while rule utilitarians maintain that such standards need apply only to general rules, not specific acts. (Here is an argument that Ludwig von Mises was the latter type of utilitarian.)

By analogy, one can think of act and rule self-interest. Consider the standard repeated prisoner’s dilemma game in which a player can increase his payoff in the current period by defecting, but in doing so would trigger a matching response by his opponent, thus reducing his overall payoff relative to that in the Nash equilibrium in which each player cooperates every period. A merchant may refrain from cheating his customers today not out of moral obligation, but because the long-term gains from establishing a reputation for trustworthy behavior outweigh the short-term losses from honest dealing.

Cheryl Schonhardt-Bailey employs this kind of argument to explain the repeal of the British Corn Laws in 1846. The case is usually treated as an example of the triumph of ideology over self-interest as Robert Peel’s Conservative Party, dominated by wealthy landowners who benefitted from the Corn Laws’ import restrictions, brought about repeal. Why would Conservative MPs vote against their economic interest?

Schonhardt-Bailey applies content analysis to Parliamentary debates over Peel’s Act and concludes that the Conservatives supported the Prime Minister not because of an ideological commitment to laissez-faire, but because they believed repealing the Corn Laws was the best way to maintain their privileged economic position. The Corn Laws, by driving up food prices, were wildly unpopular among the middle and lower classes. If the laws were not repealed, the Conservatives feared, the rank-and-file might demand more radical economic reforms, threatening the Conservatives’ long-term economic interest. (HT: EH.Net.)

This story makes more sense to me than Stigler’s curt dismissal of ideology (“if Cobden had spoken only Yiddish, and with a stammer, and Peel had been a narrow, stupid man, England would have moved toward free trade in grain as its agricultural classes declined and its manufacturing and commercial classes grew”). Still, explanations for economic change based on self-interest — either by “act” or “rule” — and explanations based on ideology are not mutually exclusive. I think ideology plays an important role in fostering social and economic change, a role generally underappreciated by economic historians.

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