Journal of Economic PerspectivesVolume 19, Number 3Summer 2005Pages 89 108

The Constitutional Dilemma of

Economic Liberty
Barry R. Weingast

ost constitutions fail, including those in most new democracies. So why

do some succeed?
Constitutional failures in democracies occur in every part of the
globe. Ferguson (2001, Appendix E) shows that over 50 percent of the 24 interwar
European democracies failed prior to World War II, including the three Baltics,
Germany, Italy, Poland and Spain. Constitutions in postcolonial Africa fared worse,
with failures including Congo, Ghana, Kenya, Nigeria, Uganda and Zambia. Countries in Latin America regularly set aside their constitutions, sometimes by elected
presidents, such as Hugo Chavez in Venezuela and Alberto Fujimori in Peru, but
also through military takeovers, in among others Argentina, Brazil and Chile in the
1960s and 1970s.
Constitutional failure occurs when political officials fail to honor one or more
constitutional provisions, such as abusing citizen rights, ruling by decree rather
than the constitutional lawmaking process, or calling off an election. Because no
external enforcement mechanism exists for most constitutions, constitutional success requires that constitutions be self-enforcing in the sense that political officials
have incentives to honor constitutional provisions.
In the United States and other developed western countries today, citizens can
take for granted a series of rights and freedoms associated with economic liberty,
such as free speech, the right of association, property rights, contract enforcement
and an unbiased judicial system. Moreover, these rights are universalistic in the
sense that citizens have them by virtue of citizenship rather than by virtue of a
specific relationship with those in power.

y Barry R. Weingast is Senior Fellow, Hoover Institution, and Ward C. Krebs Family
Professor, Department of Political Science, Stanford University, both in Stanford, California.

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Unfortunately, maintaining these rights is problematic in the developing

world, where expropriation and exploitation of citizens and their assets remain
endemic problems. Governments in these countries fail to honor citizen rights,
whether rights to assets and their returns or to full political participation. The
degree to which an individuals rights are respected in these countries depends on
that individuals relationship with those in power. This limited protection of
individual rights typically affects the ability and incentives of individuals to obtain
a license to open a business, to participate in international trade, to create a
bankand sometimes to escape imprisonment for their beliefs.
Moreover, each of the countries of the developed west also went through a
transition period in which these issues were deeply problematic (North, 1981). In
these countries, economic development is not simply the creation of markets, but
a simultaneous political transformation from a sovereign who runs the state for
himself to a state where the government officials not only have explicit duties to
serve citizens, but also have incentives to do so (Acemoglu and Robinson, 2005). As
Skinner (1978, p. x) wrote: The decisive shift [in creating the modern state] was
made from the idea of the ruler maintaining his statewhere this simply meant
upholding his own positionto the idea that there is a separate legal and constitutional order, that of the State, which the ruler has a duty to maintain. Without
this political transformation, the foundations of markets property rights and third
party enforcement of contracts will not exist.
This paper studies the problem of self-enforcing constitutions, addressing the
question, how do some constitutions provide incentives for political officials to
abide by the constraints announced in the constitution? The literature on constitutions divides into three groups. First, by far the largest (especially in the legal
literature) is the normative literature. In economics, this approach is associated
with Friedrich Hayek (1960) and especially James Buchanan (1975; see also Brennan and Buchanan, 1980). Second, a growing literature exists on the economic
and political effects of constitutions (Mueller, 2003, chapters 1, 10, 26, offers a
summary; see also Elster, 2000; La Porta, Lopez-de-Silanes, Pop-Elesches and
Shleifer, 2004; Persson and Tabellini, 2004; Riker, 1982). The third and smallest
component of the literature, to which this paper contributes, studies self-enforcing
constitutions.
Hardin (1989) was the first to propose that the constraints on government can
be analyzed as a form of a coordination game (see also Hardin, 2005; Filippov,
Ordeshook and Shvetsova, 2004). If citizens can coordinate their reactions against
the government in the face of potential transgressions, they can provide governmental officials with incentives to honor universalistic citizen rights. However,
coordination among citizens may be difficult, because citizens typically disagree
along several dimensions: what rights should exist; and the appropriate scope,
scale, structure and process of the government. Further, the government may use
a divide-and-conquer strategy to benefit some citizens at the expense of others: if
citizens cannot always coordinate their behavior, then the government can exploit

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the citizenry by transgressing what some citizens consider their rights while
retaining the support of others. More recently, a number of authors have studied
the problem of what makes democracy self-enforcing (Fearon, 2000; Przeworski,
1991, 2004; Weingast, 1997, 2005; Calvert, 1995; Gibbons and Rutten, 2004).
To understand the mechanisms underlying successful constitutions, this paper
begins by exploring a simple society facing the dilemma of policing the government: a sovereign, who controls the government, and two citizens. It then moves to
a discussion of how constitutions are often formed out of crises, with some more
detailed discussion of two main examples: Englands Glorious Revolution of 1688
and the U.S. Constitution.
The approach developed throughout this paper assumes a sovereign who
maximizes his take. This assumption often seems alien or exaggerated to many in
developed western economies, because it does not match our own experience of
how government works. Yet the assumption seems peculiar only because we live in
societies that have solved the very problem this paper seeks to understand. Most
developing countries have yet to solve this problem, which is why the most common
way to model dictators is to assume that they maximize their take (as reviewed in
Barzel, 2000; Olson, 2000). Mitigating this type of ruler behavior represents one of
the fundamental problems that constitutions have to solve.

A Model of Self-Enforcing Liberty

I use a type of coordination game to model the problem of citizen control and
the sovereign. Consider a society made up of a sovereign S, who controls the
government, and two citizens, A and B. As participants in the economy, A and B
produce a social surplus. All players share in the surplus, but both the quantity and
distribution of the surplus depend on political choices. The sovereign values
remaining in power, and to do so he needs political support. If at least one of the
two citizens supports the sovereign, he retains power, but if both citizens oppose
him, he is deposed and loses power.
The Game and its One-Shot Equilibria
The moves in the game occur in this sequence. The sovereign S moves first and
may choose to honor both citizens rights or attempt to transgress the rights of
either or both of the citizens. If S chooses to honor A and Bs rights, he remains in
power, and the game ends. If S attempts a transgression against one or both
citizens, then A and B move simultaneously and must decide whether to challenge
the sovereign or acquiesce in the face of his attempted transgression. If A and B
both challenge, they depose the sovereign, the sovereigns attempted transgression
fails, and the game ends. If one or both of the citizens acquiesce, then the challenge
fails, the transgression succeeds, and the game ends.
If the citizens react together by challenging a transgression, they can police the

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sovereign: the sovereign will avoid actions that trigger citizens to react in concert to
depose him. If citizens can coordinate on their trigger strategies, they can police
the sovereign and hence make their rights self-enforcing in the sense that the
sovereign has an incentive to honor these rights.
Several impediments inhibit citizen coordination. First, citizens are likely to
disagree among themselves. No natural consensus exists about the nature of rights,
either among political philosophers (for example, Waldron, 1999, chapter 1) or
among citizens. Moreover, different specifications of rights, duties and public
choice rules yield different distributions of benefits. For example, citizens in Chile
prior to the 1973 military coup were divided as to whether they wanted land reform
(involving a form of expropriation of current landholders) or whether they wanted
to protect existing property rights. Americans in the early United States differed as
to whether they believed the national government should promote the interests of
slaveholders and protect southern property rights in slaves. The lack of consensus
over rights combines with the natural diversity of preferences to imply a natural
impediment to bargaining over how to coordinate.
Second, unforeseen contingencies arise in which people disagree about how
the rules should apply. The contingencies imply impediments to coordination.
Because citizens typically use self-interest as their guide as to what to do in such
circumstances, they will disagree about how to extend their coordination scheme to
the new situation.
Third, the sovereign has an incentive to impede coordination against him by
using a divide and conquer strategy. Indeed, the literature on authoritarian rulers
emphasizes that authoritarians spend a great deal of effort and resources preventing citizens from organizing and coordinating against them (for example, Kuran,
1998; Tullock, 1987). When a sovereign S transgresses against one of the citizens,
he has strong incentives to share some of what is gained with the other citizen. In
effect, the sovereign forms a coalition with one citizen and then preys on the rest
of society, represented here by the other citizen. Or put differently, the sovereign
bribes some citizens into ignoring his transgressions against others. Leaders in
nonliberal states, such as Vladimir Putin in Russia or Hugo Chavez in Venezuela,
typically work against both citizen coordination and citizen rights.
In the face of citizen disagreements about rights, the sovereign may relatively
cheaply build a coalition by bribing those who do not feel very strongly when the
treatment of the rest of the citizens violates the rights stated in the constitution.
Figure 1 lays out the structure of the game and its payoffs. The sovereigns
values power, receiving a payoff of p if he retains power. Each citizen A and B
produces a surplus, s. The sovereign gains from transgressions, and a successful
transgression by the sovereign against one of the citizens nets him t s, reflecting
the fact that transgressions create deadweight social costs, d t s. If the
sovereigns transgression against one citizen succeeds, he shares some of his gain
with the other citizen; that is, the net gain from the transgression, t, is divided into
a portion for the sovereign, r, and a portion for the other citizen group, g. In this

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Figure 1
Sovereign and Citizens Game
Acquiesce

Challenge

Transgress against both A and B

Acquiesce p 2t, u, u

p 2t, u, u c

Challenge p 2t, u c, u

0, s c, s c

Transgress against A/honor B

Acquiesce p t, u, s g

Transgress against B/honor A

Acquiesce p t, s g , u

Acquiesce

Acquiesce

Honor both A and B

Challenge

p t, u, s g c
Challenge p t, u c, s g 0, s c, s c
Challenge

p t, s g, u c
Challenge p t, s g c, u 0, s c, s c

p, s, s

case, the citizen suffering the transgression receives u s t d. If S successfully

transgresses against both citizens, he receives t from each; and each citizen receives
u. Finally, challenging the sovereign costs each citizen, c, regardless of whether the
challenge succeeds. Social surplus is maximized when the sovereign honors both
citizens rights.
As Figure 1 shows, the sovereign S makes the first move. Then citizens A and B
move simultaneouslyand their interaction takes the form of a prisoners dilemma. In Figure 1, citizen A is the row player in each prisoners dilemma while
citizen B is the column player. The three payoffs in each box represent, in order,
the payoffs to the sovereign, to A and to B. To see the prisoners dilemma aspect of
the game, consider A and Bs incentives in the face of an attempted transgression
against B. Assuming that challenging is not too costly (c t d), B prefers that
both citizens challenge. No matter what action B takes, however, A has a dominant
strategy to acquiesce. Suppose in the face of a transgression against B, B challenges.
If A challenges, then the challenge succeeds, the transgression fails, S is deposed,
and A receives s c. If instead A acquiesces, A can avoid the costs of challenging
and receive a payoff from the sovereign S, and thus receives s g s c. Similarly,
if B acquiesces, the A receives s g if he acquiesces and s g c if he challenges.
In either case, A is better off acquiescing. Knowing this, B will also acquiesce, and
the sovereigns transgression succeeds.
The game allows the sovereign to transgress against some of the citizens rights
and survive. In the one-shot game there are three equilibria: 1) S challenges
against A; and both A and B acquiesce; 2) S challenges against B; and both A and
B acquiesce; 3) S challenges against both A and B; and both A and B acquiesce.
These equilibria arise out of the prisoners dilemma structure of payoffs for A and
B. Notice that citizen cooperation, which maximizes social surplus, is not an
equilibrium.

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Equilibria in the Repeated Game

The situation is more complicated when the game is repeated, as one would
expect of payoffs based in part on a prisoners dilemma. Imagine that A and B
recognize that the sovereign is transgressing against one or both of them repeatedly, and they find that it is worth incurring costs in the one-time game to avoid a
string of such future transgressions. In this situation, virtually any outcome can
become an equilibrium.
However, two equilibria of the repeated game are especially noteworthy. The
first outcome, which I call the asymmetric equilibrium, continues the equilibrium of
the one-shot game over time. In this equilibrium, the sovereign continually transgresses against one of the citizens while retaining the support of the other. This
equilibrium corresponds to a sovereign who creates a durable support coalition
whose members have a privileged position while the coalition preys on the rest of
society. A society in this equilibrium cannot sustain universalistic rights; or put
differently, a citizens rights depend on that citizens relationship to the sovereign.
The second noteworthy equilibrium I call the self-enforcing liberty equilibrium. In
this equilibrium, repetition allows citizens to support the outcome in which the
sovereign honors their rights and that maximizes social surplus. In particular, the
following strategies for each player in the game are an equilibrium.1 For the
sovereign S: If either A or B has ever acquiesced to a transgression, transgress
against both A and B. Otherwise, honor both citizens rights. For citizen A: If B has
challenged every previous transgression by S, then challenge if S transgresses and
acquiesce otherwise. If B has acquiesced to a previous transgression by S, acquiesce
in every period. For citizen B: If A has challenged every previous transgression by
S, then challenge if S transgresses and acquiesce otherwise. If A has acquiesced to
a previous transgression by S, acquiesce in every period.
In this equilibrium, citizens A and B coordinate to depose the sovereign S if he
transgresses either or both of their rights. This threat forces the sovereign to honor
rights. The self-enforcing liberty equilibrium is based on a consensus about trigger
strategies of when to challenge a transgression: citizens coordinate by agreeing to
react in concert. Although each citizen has an incentive in the short-run to
acquiesce in the face of transgressions against the other, the citizens can create an
incentive to come to one anothers aid when each threatens in the future not to
come to the others aid. This equilibrium implies that citizens have solved their
differences over the content of rights and over the mechanisms of public choice, a
topic to which I return below.
The self-enforcing liberty equilibrium is reminiscent of the notion of an idea
propounded by John Locke (1689) in his Second Treatise on Government that in the
face of transgressions, citizens have a duty to act to defend their liberty. However,
This equilibrium requires that, for each citizen, the discounted present value of cooperation, s/(1
), exceeds the one-time gains from of acquiescing in the face of the sovereigns transgression, s g,
where is the discount factor that citizens A and B apply to future costs and benefits.
1

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the coordination game emphasizes that this duty need not be based on community spirit, but on long-term self-interest, properly understood. In the self-enforcing
liberty equilibrium, Lockean duty reflects individuals who come to the aid of others
because a failure on the part of the first citizen this period implies that the other
citizen will forever acquiesce in the face of transgressions against the first, and
hence the sovereign will respond by transgressing the rights of both citizens.
Of course, the key to the self-enforcing liberty equilibrium is that the citizens
agree sufficiently on a definition of rights and a structure of government that they
will act in concert to support those rights. This typically requires constructing a
focal solution to the citizen coordination problem.
Nonetheless, the impediments to coordination suggest that the asymmetric
equilibria, in which the society cannot sustain universalistic citizen rights and hence
is characterized by an absence of economic liberty, is the most natural one.
Comparing the Two Equilibria
To see the difference in the two equilibria, consider two very different reactions to similar proposals to pack a nations Supreme Court so that it would offer
less of an independent constraint to political officials. Presidents propose to pack
a Supreme Court when they seek to avoid constitutional constraints protected by
the court. In 1937, U.S. President Franklin Roosevelt, upset at the U.S. Supreme
Courts ruling that many of his New Deal programs violated the Constitution,
proposed a court-reform plan that would have expanded the number of Supreme
Court justices from 9 to 15allowing Roosevelt to nominate six new justices. The
New Deal and the Democrats who sponsored it were phenomenally popular at the
time. Roosevelt had won a landslide presidential election in 1936, and the Democratic party controlled two-thirds of both houses of Congress and nearly threequarters of all state legislatures. Despite this popularity, at no time during the
campaign debating the proposal did a majority of the country support it (Epstein
et. al., 1994, Table 8-26). Early in 1937, Justice Roberts, who had often voted to
strike down New Deal laws, suddenly started voting in the other direction; later that
year, another justice who had been a strong opponent of the constitutionality of the
New Deal laws retired. But Roosevelt did not withdraw his proposal until many New
Deal supporters, including the Senate Judiciary Committee (which was dominated
by Democrats) and the Chief Justice of the Supreme Court Charles Hughes (who
had mainly voted to support New Deal laws), publicly stated their opposition to
Roosevelts court-packing plan. In the end, Roosevelt was forced to back down. This
example illustrates the properties of the equilibrium supporting citizen rights:
enough of the potential beneficiaries of the proposal joined the opposition to
challenge the proposal despite the fact that it would benefit their side.
In contrast, when President Carlos Menem of Argentina proposed in 1990 to
expand Argentinas Supreme Court from five to nine membersand to appoint
four new members sympathetic to his policiesthere was no public backlash and
the proposal succeeded. Menem used a compliant Court to create favorable rulings

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allowing him to alter property rights in bank deposits and to pursue a shady
privatization of the airlines.2
As another example, British constitutional scholars argue that the government
adheres to constitutional conventions because of the adverse political reactions
they would face upon a violation (Jennings, 1959, pp. 132135). Although the
British crown nominally has the power to veto legislation, there is now a constitutional convention prohibiting use of this power, and an attempt to use it would
more likely result in the demise of the monarchy rather than sustaining the royal
veto of the relevant legislation.
Citizen reaction determines the difference between the two cases. As the
model suggestions, citizen acquiescence in many Latin American countries allows
political officials to manipulate the constitution in a way that cannot happen in the
United States.

Constructing Solutions to the Citizens Coordination Dilemma

Given the impediments preventing coordination, how can citizens construct
the necessary consensus facilitating their acting together against a sovereign? Few
examples exist in history of sovereigns who, absent internal or external threat,
created constitutional democracy to constrain their own behavior. Instead, these
constraints are nearly always imposed on sovereigns during or after a period of
crisis. As Elster (2000, p. 159) suggests:
The occasions for constitution-making include social and economic crisis, as
in the making of the American constitution of 1787 or the French constitution of 1791; revolution, as in the making of the French and German 1848
constitutions; regime collapse, as in the making of the most recent constitutions in Southern Europe and in Eastern Europe; fear of regime collapse, as
in the making of the French constitution of 1958, which was imposed by de
Gaulle under the shadow of a military rebellion; defeat in war, as in Germany
after the First or Second World War, or in Italy and Japan after the Second;
reconstruction after the war, as in France in 1946; creation of a new state, as
in Poland and Czechoslovakia after the First World War; and liberation from
colonial rule, as in the American states after 1776 and in many third world
countries after 1945.
Importance of Crises and Pacts
Crises create the potential for a new coordination mechanism for two reasons.
First, countries in the asymmetric equilibrium are often stable for decades. The
2
Political officials in Argentina have regularly interfered with the Supreme Court. For example,
following unfavorable rulings, the government impeached four justices in 1946; and in 1973, the
government dismissed the entire Supreme Court.

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forces underlying the asymmetric equilibrium work against the creation of a

coordination mechanism. A serious crisis, however, provides a shock to this system,
often implying that the old equilibrium cannot be sustained. A sustained budgetary
crisis, for example, sometimes means that the regime can no longer sustain the set
of political benefits maintaining itself in power. Second, by their nature, crises
make people worse offwhich can provide the opportunity for groups with opposing views to negotiate for mutual gain. For example, after the death of Francisco
Franco in 1975, Spains negotiations over a new constitution occurred under the
threat of a reemergence of the disorder that had preceded the Franco regime. For
most individuals, the range of constitutional characteristics that are superior to a
crisis greatly exceeds the range preferred to the previous status quo.
Of course, many things can happen in the wake of a crisis. Another asymmetric
equilibrium may emerge. Sometimes, however, members of the society are able to
resolve the crisis by constructing a focal solution to the citizen coordination
problem. Resolution of crisis often involves agreements among contendingand
often previously warring groups of citizens that end hostilities and create new
agreements about governance. A large literature in political science studies these
kinds of pacts (Diamond, 1999; Weingast, 1997, 2005).
To construct focal coordination mechanisms during a crisis, contending elites
typically negotiate pactsagreements that help resolve crises and that alter the
rules of the game. Pacts are quite common in constitutional history. Indeed, U.S.
history is surprisingly full of pacts, including the Articles of Confederation (1781
1788) and the U.S. Constitution (17871788). Other parts include the English
Glorious Revolution in 1688 (discussed in more detail in the next section); in
France, the revolution of 1789 and also the Fifth Republic created to strengthen the
power of the executive in 1958; the institutions negotiated with Germany, Italy and
Japan by the occupying powers after World War II; and in Spain, the various pacts
surrounding democratization after the death of Francisco Franco from 19751978.
Successful pacts also ended civil wars in Colombia in 1955 and El Salvador in the
late 1980s and early 1990s.
As with most repeated game models, the approach above has only the simplest
dynamics. Over time, most societies experience a range of changes, including the
issues and challenges these face, the level of economic development, population
growth, or changing international environments. When these changes affect payoffs, they imply that arrangements that were self-enforcing under some conditions
are not under newer ones. Most constitutions therefore go through various adjustments, whether official constitutional amendments or, as is more typical in the
United States case, though legislative or judicial changes that reflect new bargains
to adjust the constitution to new circumstances.
For example, U.S. history in the nineteenth century offers four great constitutional compromises that helped hold together the U.S. constitutional framework at moments of potential failure: the Missouri Compromise of 1820, which
resolved the crisis over the admission of Missouri by allowing it to enter the Union

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as a slave state and Maine to enter as a free state; the Compromise of 1833, which
resolved the nullification crisis initiated when South Carolina threatened to nullify or ignore federal law and even to secede, nominally over the issue of high
tariffs, but also to create a precedent to use nullification to help protect slavery
against federal incursions; the Compromise of 1850, which resolved the crisis over
the territories of the Mexican cession; and the Compromise of 1877, which resolved
the crisis over the disputed election of 1876, where the Republicans agreed to
remove all federal troops from and to provide economic benefits to the South and
the Democrats agreed that Rutherford B. Hayes had won the presidential election
over Samuel Tilden by winning the Electoral College by a single votealthough
Tilden had clearly won the popular vote and several state vote totals were highly
disputed. A failed pact, the Compromise of 1861, which would have extended a line
from Missouri to the Pacific Ocean, explicitly prohibiting slavery north of the line
but explicitly allowing it south of the line, preceded the failure of the U.S.
Constitution in the Civil War.
As new constitutional elements, pacts must be self-enforcing to succeed; that is,
they must provide the parties to the pact with incentives to abide by the pacts
provisions. Successful pacts meet four conditions (Weingast 1997, 2005). First, the
pact must create (or be embedded in a context that has already created) structure
and processa set of citizen rights and a set of rules governing public decisionmaking that in combination define the limits on and powers of the state. Second,
the negotiating parties must each believe that they are better off under the pact. In
particular, the parties must believe that the structural and procedural limits on
average lead to policies that make them better off. Third, each party agrees to
change its behavior in exchange for the others simultaneously doing so. Fourth, the
parties to the pact must be willing to defend the pact against transgressions by
political leaders. Maintaining the pact requires that each party defend not just the
parts of the pact that benefit themselves, but also the parts that benefit others.
Parties to the pact are willing to defend it when they see the pact as making
themselves better off and when they know that failure to defend it means that the
pact will collapse, making them worse off.
Other Constitutional Elements Fostering Coordination
As the incentive conditions just noted demonstrate, coordination is not simply
a matter of luck. In addition to these conditions, other elements help facilitate
coordination. The central importance of coordination implies the importance of
constitutional provisions that facilitate monitoring and the dissemination of information. Constitutional bright lines help foster citizen coordination because these
reduce the problem of ambiguity and conflicting interpretations that plague more
subtle provisions. Thus, the U.S. Constitution prohibited all restraints of freedom
of speech and prohibited the national government from imposing direct taxes
except in proportion to population; a British constitutional convention holds that
a government falls on losing a no-confidence vote.

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Legislatures are places where representatives of different groups meet to

negotiate and potentially coordinate against a regime. Root (1994), for example,
argues that the British Parliament helped foster coordination against the monarchy
in the eighteenth century in ways not available to the French, whose Estates General
went unused for the 150 years prior to their revolution in 1789.
Opposition political parties also help foster monitoring and coordination
because they have the highest incentive to publicize the regimes transgressions.
Similarly, a free press contributes to coordination by facilitating the exchange of
information. All this may seem obvious at one level, but not all pacts and constitutional agreements contain mature versions of these elements.

Two Illustrations of Constructing Constitutions

In this section, I discuss two constitutions, both constructed during crises and
both relying on explicit pacts: the Glorious Revolution in England and the American Constitution.
The English Glorious Revolution of 1688
England experienced great turmoil in the seventeenth century, including a
civil war fought between the royalists headed by Charles I and the parliamentarians led (among others) by Oliver Cromwell from 16421649; the beheading of
Charles in 1649; a government largely under the dictatorial control of Cromwell
and the Puritans from 1649 1660; a restoration of the monarchy under Charles II
in 1660; and finally a coup, known as the Glorious Revolution of 1688.3
The model illuminates several features of this century, including how the
conflict and various transgressions by the king were sustained; and also how this
behavior was ended through the construction of a focal solution that gave citizens
the means to coordinate against the crown.
The asymmetric equilibrium characterized much of the century, with the one
group of citizens, called the Tories by the end of the century, supporting the crown,
and the other group, called the Whigs by the end of the century, opposing the
crown. Roughly speaking, Whigs were more likely drawn from commerce, and
many were great merchants with extensive overseas interests. They favored a strong
international presence, including a strong navy to promote and defend their
international interests. Tories were more likely drawn from agriculture and include
many of the traditional barons. They generally opposed an international presence
and war. Tories were also the main supporters of the Church of England and of the

3
The English case occurred prior to the rise of democracy and universal citizen rights. Only 10 percent
of English men were enfranchised. Nonetheless, this smaller set of citizens exhibits the same type of
coordination problems as the much larger set of all adults.

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Stuart monarchy in part because they acted throughout most of the century to
protect the Churchs interests.
Charles II transgressed the rights of the Whigs in many ways, including
imposing taxes on them without the consent of Parliament. The most important
transgression, however, occurred in the 1680s when Charles mounted an explicit
and successful campaign to disenfranchise them from Parliament. Of the 104 Whig
constituencies packed by the crown, only one returned a Whig to the next
Parliament (Jones, 1972, pp. 4750). Disenfranchisement portended worse
transgressions.
The Tories and Whigs had very different beliefs about their rights, which
impeded coordination between the two groups to defend citizen rights. The Tories
believed in the divine right of kings, which implied that, although kings might
harm citizens and make bad policy choices, citizens had a duty to obey. Whigs, in
contrast, believed that sovereigns had a duty to honor citizen rights and that
citizens have a duty to act to defend these rights when the sovereign fails to honor
them. These different ideas reflected the incentives of the asymmetric equilibrium:
Tories benefited from the regime and would not bear costs to protect the interests
of the Whigs. Tory behavior, in turn, allowed the crown to transgress the Whigs
rights while retaining the support of the Tories. Although the Whigs would
have liked to challenge Charles II, they knew that challenging would fail without
the Tories support; the Whigs therefore acquiesced in the face of the kings
transgressions.
This situation was stable for more than a generation after the restoration of
King Charles II in 1660, becoming problematic only in the mid-1680s. In 1685, in
the wake of Charless successful campaign to disenfranchise the Whigs, James II
succeeded him. Historians have debated Jamess rationality for over three centuries. Yet the kings actions are unambiguous: he turned on his own constituency,
particularly the moderate or country Tories who sometimes joined the Whigs in
opposing the Stuarts on matters of taxation and finance. James II began a campaign
to disenfranchise them from Parliament. Jamess goal was to consolidate power and
create a more absolutist monarchy in the style of the continent. He sought to raise
a standing army in time of peace without Parliamentary consent, appointing many
Catholic officers. In part, James was gambling that his erstwhile constituents and
the Whigs opponents for most of the centurywould be unable to work together
to remove him. He lost the gamble.
At the same time, Jamess open Catholicism threatened his relations with those
Tories who worried about its implications for the Church of England (Speck, 1989,
pp. 242243). The triggering event of the Glorious Revolution was the birth of
Jamess son from a second marriage, a Catholic heir who displaced Jamess Protestant daughter Mary from the next in line to succession (Horowitz, 1977, pp. 4 5).
In 1688, the Tories joined the Whigs in the Glorious Revolution, with several
political effects. The revolution was in part a coup, forcing James to flee England

The Constitutional Dilemma of Economic Liberty

101

and bringing in William and Mary from the Dutch Republic as the new crown. More
important for our purposes, the two parties also constructed through negotiations
in Parliament a pact creating a new focal solution to many of their societys
fundamental citizen coordination problems that had plagued them over the century. Tories renounced the divine right of kings and joined the Whigs to agree that
kings had a duty to honor citizen rights and that if they failed to do so, citizens had
a duty to act against the king. The model suggests how these agreements provided
citizens with the incentives to act on this duty, in turn providing the crown with the
incentive to honor their rights. In the wake of the kings behavior in the 1680s, each
side understood that maintaining its own rights required that they help defend
those of the other.
One of the central pieces of the solution was the legislation known as the Bill
of Rights (Schwoerer, 1981). This legislation, again negotiated between Tories and
Whigs to create the new focal consensus about rights, articulated what the previous
king had done that had caused the coup and then listed a set of actions that any
future king who failed to honor risked causing a coup. The Bill of Rights spelled out
a series of bright line conditions that would trigger citizens to act against potential
violations by the king. As Jones (1972, p. 318) summarizes: The thirteen points in
the Declaration were not just statements of the true nature of the law of the
constitution, they were also intended to provide a guideline for the future conduct
of government, so that any departure from legality would be instantly signaled, and
remedial action could be taken. This legislation forbade the crown from attacking
the basis of elections. In addition, laws of parliament became sacrosanct, so that any
king who failed to honor them risked being deposed.
The clear rules concerning parliamentary legislation created for the first time
an explicit separation of powers system, and with it, a huge change in the incentives
of government (North and Weingast, 1989).4 Indeed, the incentives created by the
separation of powers afforded the governmentnow the king in parliament
rather than the king alonethe ability to make credible commitments.
Moving from a noncoordinated, asymmetric equilibrium to the coordination
equilibrium represents a nonmarginal change. Looking back from the vantage
point of more than 300 years, the best evidence we have derives from financial
markets, in particular the market for sovereign debt. Prior to the Glorious Revolution, sovereign debt was a personal obligation of the king and thus subject to
unilateral revision by the king. The king regularly reneged on his agreements, and
consequently (and per the theory of sovereign debt laid out in Eaton, Gersovitz and
Stiglitz, 1986, and elsewhere) the crown was constrained in how much it could
borrow. In rough numbers, the Stuart kings debt had never risen above 5 percent
of GDP.

More generally, Elster (2000) and Persson and Tabellini (2000) study the positive incentive effects of
the separation of powers system.

102

Journal of Economic Perspectives

After the Glorious Revolution, the government changed how it raised debt.
New debt issue now required an act of Parliament. Under the new constitutional
arrangements, the terms of the debt could therefore be altered only through a new
law of Parliament. No longer could the king unilaterally announce new terms for
debt without risking another coup for ignoring the laws of Parliament. Moreover,
because Parliament represented the bondholders, the new constitutional arrangements effectively granted a veto to the representatives of the bondholders over the
crowns attempts to alter the terms of debt. The separation of powers therefore
afforded the government the ability to make credible commitments for debt.
Consistent with this thesis, in the nine years following the revolution government
debt rose by an order of magnitude, from approximately 5 percent of estimated
GDP to 40 percent (Dickson, 1967; North and Weingast, 1989).5
The Glorious Revolution illustrates several features of the model about constitutional stability. First, it shows how disagreements about rights and the
kings incentive to create a constituency supported the asymmetric equilibrium.
Throughout the century, the king retained the support of the Tories while transgressing the rights of the Whigs.
Second, in the Glorious Revolution the citizens collectively created a new focal
solution to the fundamental citizen coordination problem about citizens rights
and royal duties. The Bill of Rights created both a new set of bright lines about how
the government should behave and an associated set of trigger strategies on which
the citizens agreed to coordinate. In combination, these allowed citizens to police
the crown. Agreeing on these limits in advanceand assuring that they became
part of the constitution via the Bill of Rightsprovided an explicit mechanism for
coordinating members of society.
Third, this case illustrates how trigger strategies help sustain complex constitutional provisions, such as the separation of powers system. The opposing groups
demonstrated that, when they acted in concert, they could police their rights. The
constitutional changes following the Glorious Revolution initiated a new and
common knowledge system of creating sovereign commands: legislation had to be
passed by both Houses of Parliament and then accepted by the King. No other
command had this status.
Self-Enforcing Federalism in the U.S. Constitution
Most Americans living under the Articles of Confederation (17811788), the
first constitution of the United States written during the Revolution, agreed that the
national government failed to provide critical and highly valued public goods, such
as national defense, a common market and a stable monetary system. For example,
under the Articles, Congress could not raise taxes directly, but had to ask the states

Stasavage (2002) demonstrates a partisan aspect to this story, showing that Whig control of the
government was an important component of the new form of finance.

Barry R. Weingast

103

to provide funds. Common pool problems plagued this system (Kaplanoff, 1991;
Middlekauff, 1982).
Americans were nevertheless deeply suspicious of granting the national government new powers that might enable it to provide these public goods. Part of this
suspicion arose because Americans jealously guarded the power of their states,
whom they trusted more than the national government. The fundamental dilemma
for the Federaliststhose seeking greater powers for the national government
became how to devise a new political system where the national government could
provide the desired public goods while not disturbing the power of the states.
The Federalists made several attempts in the early and mid-1780s to increase
the power of the national government. Their opponents, the Anti-Federalists,
defeated these attempts with the argument that nothing would prevent the national
governments abuse of the new powers. Too many citizens agreed with the AntiFederalists for the Federalists to succeed. Moreover, the model above suggests that
the Anti-Federalists were right to worry about whether the Federalists proposals
would be self-enforcing: Without constructing a new focal solution about the
powers of the national government, its powers could be abused.
The Federalists answer at the Constitutional Convention was to create a pact
that embedded new powers for the national government within a complex system
of constraints. Our model helps illuminate how these constraints worked. In what
follows, I focus on one issue, how federalism became a self-enforcing feature of the
new Constitution.6 Consider the constraints surrounding federalism.
First, the Constitution created a series of clear rules with respect to federal power.
Since the late 1930s, the U.S. Supreme Court has interpreted the Constitution so
that national legislation can supplant state legislation. This interpretation contrasts
with the original conception of the national government as limited to a set of a small
number of enumerated powers, the concept in force for the Constitutions first
150 years. Moreover the enumerated powers were limited precisely to the types of
public goods that the national government failed to produce under the Articles of
Confederation: national defense, the common market, trade policy and a common
monetary system.7 Virtually all other powers were reserved for the states, including
decisions about property rights, slavery, contract law and religious freedom.
Part of the value of Madison, Hamilton and Jays Federalist Papers, widely
circulated and debated during the process of constitutional ratification, was to
articulate a set of understandings of the rules of the new federal system. In terms

Weingast (2005) provides a more extended treatment of this case that covers a larger variety of
constitutional dimensions beyond federalism.
7
As Alexander Hamilton observed in Federalist 23, The principal purposes to be answered by union are
thesethe common defense of the members; the preservation of the public peace, as well against
internal convulsions as external attacks; the regulation of commerce with other nations and between the
States; the superintendence of our intercourse, political and commercial, with foreign countries.

104

Journal of Economic Perspectives

of the model, these debates helped make the focal coordination solutions in the
Constitution common knowledge.
Second, another bright line concerned taxation: the national government was
granted power to impose direct taxes only in proportion to population. This
constraint implied that the national government could not impose extractive taxes
on minorities or particular groups, say, the production of cotton or tobacco; to tax
citizens in some states more heavily than citizens in others; or to tax slaves and
slaveholders.
Third, Americans fought the Revolution as citizens of their states, all of which
had constitutions. Americans had an overwhelming consensus supporting the
powers of their state governments and, hence, a limited national government.
Disagreements among Americans arose on a wide variety of issues, including
religion, public education, suffrage and slavery. Because so many Americans feared
being forced by the national government to live under national laws against their
interests, most Americans preferred decentralization of power to states as a means
of preserving libertythe freedom to solve these problems for themselves rather
than live under a single solution imposed by the national government.
Fourth, the Federalists explicitly spelled out the trigger strategies that would
support federalism and the limits on the national government. Hamilton observed
in Federalist 31 that the legitimacy and power will remain with the states, so federal
encroachments against the more powerful states were unlikely to succeed:
[S]trength is always on the side of the people, and as there are weighty reasons to
induce a belief that the State governments will commonly possess most influence
over them, the natural conclusion is that such contests will be most apt to end to
the disadvantage of the Union; and that there is greater probability of encroachments by the members upon the federal head than by the federal head on the
members. Similarly, Madison observed in Federalist 32 that peoples attachments to
their states would be a barrier against encroachment by the national government:
I am persuaded that the sense of the people, the extreme hazard of provoking the
resentments of the State governments, and a conviction of the utility and necessity
of local administrations for local purposes, would be a complete barrier against the
oppressive use of such a [national taxation] power.
Finally, after enumerating in Federalist 45 numerous institutional constraints
that the Constitution granted states to influence the national governmentfor
example, states were explicitly represented in the Senate and presidents came to
office through the electoral collegeMadison argued in Federalist 46 that the state
militias would be far more powerful than the national government, allowing the
states collectively to defend their interest against encroachments by the national
government. Indeed, Madison also articulated the idea of a trigger strategy: But
ambitious encroachments of the federal government, on the authority of the State
government, would not excite the opportunity of a single state, or a few States only.

The Constitutional Dilemma of Economic Liberty

105

They would be signals of general alarm. Every government would espouse the
common cause. A correspondence would be opened. Plans of resistance would be
concerted. One spirit would animate and conduct the whole.
The model of self-enforcing constitutions helps illuminate how American
federalism defined by the new Constitution became self-enforcing. The debate over
the Constitution, including the Federalist Papers, helped create a common knowledge understanding of the Constitutions bright lines. These bright lines, in turn,
helped define a series of trigger strategies with which citizens and their representatives in the state governments could defend constitutional encroachments.
The U.S. Constitution fits the four conditions for successful pacts. First, it
created a range of new structure and process. The Constitutions federal structure
was to be enforced through a series of common knowledge bright lines, allowing
citizens to observe easily when they were crossed and to react to defend these bright
lines. Second, most Americans believed they were better off under the Constitution
than without. Third, all moved simultaneously from the Articles of Confederation
to the Constitution. Finally, citizens had incentives to defend the Constitution, even
against encroachments of their political opponents because they knew that failing
to do so risked having the Constitution fail. Because the vast majority of Americans
believed that they were better off under the Constitution, they had incentives to play
these trigger strategies.

Conclusion
Most developing countries of the world today find themselves in the asymmetric equilibrium, in which the ruler or government respects the rights of its
support coalition and transgresses against the rights of others. These countries
therefore have great difficulties protecting the individual rights of individual
citizens or providing the minimum basis for marketssuch as property rights
and the enforcement of contracts. A principal role of the constitution is to
create a focal solution to the coordination problem so that citizens gain the
ability to act in concert and police their government. Yet constitutions cannot
be put in place at just any time. A crisis is often needed to help dislodge the old
equilibriumand even then, a workable new constitutional arrangement may
not emerge.
In the early nineteenth century, many Latin American countries adopted the
text of the U.S. Constitution. However, Latin America failed to produce a single
successful constitution. The U.S. Constitution was suitable for solving the fundamental citizen coordination problem as it existed in the United States in the 1780s,
but not as it existed in Latin America at that time. In the United States, Americans
had an overwhelming consensus favoring the predominant role of their state
governments. States had constitutions that protected citizen rights and provided for

106

Journal of Economic Perspectives

the basis of property rights and local markets. The focal solution that emerged from
the combination of the Constitution, the Federalist Papers, and the ratification
debate created the consensus about the federal government as one of enumerated
papers and the state governments as the source of economic control. Latin America
at independence had neither states with pre-existing constitutions nor a consensus
about issues like the form of government, the structure of federalism, the nature
of citizen rights, or even who ought to be a citizen. For Latin America, the text of
the U.S. Constitution did not offer a workable basis for coordinating citizen actions
in a way that would control the rulers. Yet liberty can only be sustained when
citizens have the ability to act in a coordinated manner against governmental
transgressions.
The model in this paper abstracts from two important issues of long-term
dynamics. First, shocks to the equilibria are an important component of both the
theory and applications. Put simply, crises disrupt existing equilibria and provide
the opportunity for citizens and their leaders to create focal solutions to the
fundamental citizen coordination problem.
Second, the application to the United States suggests that sustaining constitutions over the long haul requires more than just creating the initial constitutional
equilibrium; it requires periodic constitutional adjustmentsabout one a
generationas the players adapt the constitutions to new (and often unanticipated) circumstances. Americans in the United States first century made five major
constitutional adjustments, the postCivil War Constitutional Amendments plus the
four compromises. The British case would exhibit the same type of adjustments if
carried forward beyond the short episode studied here.
Both crises and ongoing constitutional adjustments seem central to
the creation of self-enforcing constitutions that are stable for multiple
generations.

y The author gratefully acknowledges helpful conversations with Rui de Figueiredo, Douglass
North, Konrad Siewierski and John Wallis. Special thanks are due to Daniel Spielman and
to the staff of the Northstar Club, without whose assistance this paper could not have been
written.

Barry R. Weingast

107

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