An economist—and perhaps most people—would treat the punishment a criminal justly suffers as the result of his wrongdoing as a bad thing for the criminal. But Plato argues (for example, in the Gorgias) that punishment is good for the criminal because it corrects his unjust ways and makes him a better person. And, assuming for the sake of argument that Plato is right about the effect of punishment, he has a point. But of course, so does the economist. Now, if both are right, it seems to follow that we have two different ways of calculating our good, the one invoked by the economist and the one invoked by Plato. Are there really two distinct ways of calculating our good, or is this a mirage? If there really are two, what distinguishes them and how is each justified?

The two ways might be reconciled if the criminal is merely short sighted and doesn’t realize that he can after all maximize his gains by undergoing punishment. Undergoing punishment would then be like taking medicine to become healthy. Taking medicine is locally a negative event, true enough, but it results in higher global rewards. In another metaphor, punishment is a local minimum that must be traversed to reach a global maximum—a trough one must pass through to reach a higher hill.

But this won’t do. The economist’s view of punishment as negative is not so easily set aside. The economist can easily explain the good of taking medicine: the individual compares the negative degree of the treatment (together with the probability of its effectiveness) with the negative degree of the ailment (together with its probable future course without treatment) and chooses the less negative of the two expected futures. Assuming the medicine would work and is not worse than the ailment, then, taking the medicine is good. But this only works because the ailment is evaluated negatively. And the trouble is that it is hardly clear that the criminal regards his own “ailment”—dishonesty, injustice—as a negative. Or anyway, as sufficiently negative to counterbalance the profits of crime.

Injustice might be a global negative if it results in lost economic opportunities, if it is bad business. In that case, punishment would turn out to be good in economic terms if it shocks the criminal out of his unjust habits or proclivities and converts him to justice. Then punishment would be the trough the criminal passes through to reach the higher hill of justice and its greater profitability. In many cases, this might be correct. But surely not in all. It is naïve to think that justice is always the most profitable course of action, even in the long run. (And by the way, there is not always a long run.) There will always be opportunities to commit injustice with very little risk of detection or punishment, so that the most profitable course of action is to mimic a just person while taking advantage of these opportunities as they arise. An interesting result of game theory is that such opportunities will tend to proliferate as the number of just persons in a society increases. For, the greater the number of just agents, the less is the need for an apparatus of vigilance, wariness, contracts, lawyers, detectives, prosecution, and enforcement. So, since these things are not free, they will atrophy, thus enlarging the opportunities for injustice. Therefore, the more that just behavior prevails in a society, the more injustice is encouraged by utilitarian considerations; i.e., by economic rationality.

The paradigmatic illustration of the economic problem of justice is, of course, the prisoner’s dilemma. In a prisoner’s dilemma, it is good to cooperate if you are with another cooperator—but it is even better to defect. Notice that the paradox of “rational” decision making yielding suboptimal outcomes in the prisoner’s dilemma cannot be resolved by the agents taking a longer or more comprehensive view of their interests. These are specified in the decision table, and as long as the situation is a true prisoner’s dilemma, economic rationality dictates the suboptimal outcome. The only way to reach the mutually optimal outcome is for the agents both to ignore the values specified in the decision table and in effect to value cooperation for its own sake. This fact is sometimes expressed by statements like, “it is rational to be irrational in a prisoner’s dilemma.” This is just to say that the agents could achieve a higher value outcome by not caring about value (and caring about cooperation instead). But such statements are not strictly true. On the one hand, if the agents really care less about the values in the table than about cooperation, then they are not being irrational when they cooperate; they are satisfying their preferences. And such an agent should still remain satisfied even if he is defected on. On the other hand, if the agents’ “irrational” behavior is really rational only because of the higher value outcomes they achieve, then that implies that the values in the table are the most important thing after all. And in that case, cooperating really is irrational. For, if the second agent cooperates, the first agent does better by defecting. And if the second agent defects, the first still does better by defecting. So regardless of what the second agent does, the first gets a higher value outcome by defecting. There is simply no way around this conclusion as long as the decision table values are the ruling consideration.

Both the conventional economic agent who defects in the prisoner’s dilemma and the devoted cooperator could therefore be said to be rationally pursuing their preferences but merely to have different preferences. And we could say that the decision table in the prisoner’s dilemma does not accurately depict the devoted cooperator’s values. Perhaps the devoted cooperator is constitutionally unable to place much value on a good acquired through defection. For such a person, a prisoner’s dilemma decision table could not be constructed. He would be immune to the prisoner’s dilemma! Of course, he might also become the victim of defections. But in accordance with his scale of values, he would still be satisfied with his own course of action. Thus, the conventional economic agent and the devoted cooperator could be made equivalent as regards rationality. Each rationally pursues his values. It’s just that their values are not the same.

I want to resist this line of thought. I think there is a more comprehensive sense of “rational,” in which we can say that the devoted cooperator is more rational than the conventional economic agent in the prisoner’s dilemma, and in which we can agree with Plato that punishment is good for the criminal, at the same time as there is a more limited, economic sense of the term, in which defection is rational in the prisoner’s dilemma and punishment is bad for the criminal.

If the devoted cooperator is “really” rational, more so than the conventional economic agent, how is this so? It can only be because the devoted cooperator pursues his real interests and the economic agent does not. How can we say what these are? In Aristotelian fashion, we must appeal to the total, integrated good functioning of the organism, the human being. This should mean success in getting external rewards, as well as an absence of internal conflict, disruption, and discord. One should be comfortable and pain free in one’s own skin as well as efficacious in external functioning and successful in promoting one’s own existence in one’s environment. One should be well-adjusted both internally and externally.

Are our true interests in this sense better achieved by the devoted cooperator than by the economic agent? Not necessarily, if we restrict our attention to external rewards. True, the devoted cooperator will always outcompete the economic agent in a world where there are other devoted cooperators around and where these can be reliably identified. As long as cooperators can identify each other and exclude conventional economic agents (who will defect whenever possible), cooperators will achieve the higher gains. The trouble is that the conventional economic agents will learn to mimic cooperators and thereby exploit them. And, as argued above, the more cooperators predominate in society, the easier exploitation by the conventional economic agent becomes. Therefore, as far as economic rewards go, it will always be possible for at least some conventional economic agents to hold their own with devoted cooperators. Thus, although economist Robert Frank, in his brilliant Passions within Reason (W. W. Norton, 1988), argued that a disposition to devoted cooperation could evolve in a society by devoted cooperators’ ability to outcompete conventional economic agents, he did not argue that devoted cooperators could succeed to such an extent as to drive conventional economic agents entirely from the field. The predicted outcome is a draw: there will always be some equilibrium consisting of a certain percentage of devoted cooperators and a certain percentage of conventional economic agents.

On the other hand, when it comes to internal success—the personal, psychological, social, “organismic” or holistic well-being of the agent—the devoted cooperator would seem to have a clear advantage. It may be that the conventional economic agent can outcompete the devoted cooperator in the sphere of economic rewards through mimicry, but the internal cost of this strategy is likely to be high if it entails living as a “Talented Mr. Ripley” who constantly deceives others and is conscious of the pain he brings them, whose life is a frenetic balancing act between lies and the truth, who must be constantly vigilant against the intelligence and perceptiveness of others, who lives in constant fear of getting caught, who is socially isolated and never able to really reveal his true self to anyone, and so forth. These are genuine aspects of well-being, but they do not show up—not directly—in the accounting of material rewards.

Yet the accounting of material rewards is important on its own. It is the basis of economic science and as such has a considerable measure of predictive success. Nearly all business activity—of banks, shops, factories, you name it—is measured in its terms, which seems right. People engage in economic activity to make money, and firms compete in an economic environment in which their growth and indeed their survival is determined by material outcomes. Again, analyses like Frank’s focus exclusively on material rewards, and they are very valuable. It is important to be able to see the sense in which defection is the rational action in the prisoner’s dilemma and the sense in which punishment is bad for the punished. But these cannot be seen from the standpoint of full rationality, which takes account of internal as well as external rewards. From the standpoint of full rationality, defection in the prisoner’s dilemma is pathological and corrective punishment is beneficial.

The standpoint of exclusively material rewards is important because very often, rightly or wrongly, it is how we actually reason and function. This is why it is predictively so successful. And in many contexts this standpoint is not unreasonable. Consider that ultimately our shaping is by the evolutionary process of natural selection, and natural selection is driven entirely by material outcomes.

Some economists may say that their focus is not on material rewards exclusively, but on “utilities,” which include all forms of preference satisfaction, internal (psychological, etc.) as well as external (material). They may say this, but it isn’t true. Nearly all economic analyses are conducted in terms of money, for example. The fact is that it is material goods that are almost always the exclusive focus of economic analysis. This is just why some of the analyses of Gary Becker, for example, which invoke the utility we place on the welfare of spouses and children, are so extraordinary—because they are so rare. In addition, the internal rewards I am talking about are not a matter of utility or preference satisfaction, but of objective well-being or good functioning, regardless of whether it is recognized or valued by the agent.

It seems, then, that there are grounds for two conceptions of rationality, an economic conception that focuses exclusively on material outcomes, and a full conception that focuses on holistic well-being, including internal as well as external flourishing. Economic rationality may be the more natural of the two. It is certainly more common. It is thought to be hard-headed and no-nonsense. It is the conception according to which defection is rational in the prisoner’s dilemma and punishment is bad for the criminal. Full rationality is the comprehensive conception. It encompasses the material rewards of economic rationality and also the rewards of proper internal functioning. These latter are less easily specifiable or measurable, but they are real and important nevertheless. It is full rationality that enables us to see why it is rational to be a devoted cooperator and why corrective punishment is good for the criminal. Full rationality takes as its standard our complete good, not just material well-being.

Now, a reason this matters for social theory: Libertarianism can be described as the political philosophy that assumes that economic rationality is all there is to rationality. But the above analysis indicates that it isn’t. Economic rationality falls short of full rationality. So the challenge for a post-libertarian political philosophy can be put this way: How to integrate the insights of economic rationality and the importance of individual liberty into a broader conception of the human good.