The social and economic “costs” of initiating and applying public policy in accordance with a particularly political or social philosophy is the focus of the “Law and Economics” school of jurisprudence. The use of economic theory to scrutinize the law and the institutions of the legal system is not new, although it has evolved in several different directions.
Jeremy Bentham applied economic theory to analyze the behavior of criminals and to assess the cost and benefits of various methods of criminal punishment. Holmes, Brandeis, Learned Hand and Robert Hale wrote on the subject in the 1930’s and 1940’s. In the 1950’s, anti-trust law, corporate law, public utility regulation, and federal taxation were the subject of economic analysis. In the 1960’s, Economists Ronald Coase, Gary Becker, and Guido Calabresi in their writings broke scholarly ground in what Judge Richard Posner describes as the “new law and economics.” The “new institutional Law and Economics” school of jurisprudence is very different than its progenitor Law and Economics movement, although it clearly evolved from it. Its focus is on the application of economics to analyze the efficiency of the institutions of government and the legal system, including property rights, contracts, torts, criminal law, family law, civil and criminal proceedings, damages, and other legal remedies, admiralty, restitution, legislation and common law (judge made) rule-making and law-making with its emphasis on decisions in accordance with precedent.
The traditional law and economics movement has little, if any, aspiration to change economic theory or economists’ empirical methodology based on the sample of scholarly writings, which I have reviewed, including those mentioned above. My research reveals that many of these writers and other practitioners have little formal training in economics or statistics. For that reason, in much of their writing and analysis, there is a great reliance on informal theory and on case studies.
Surprisingly with that background, or perhaps better-expressed because of their lack of background in economics and statistics, recent Law and Economics scholars, who have written about the subject, nevertheless do not appear to bear any hostility toward, or even express skepticism about, the mathematical modeling or econometric methodology used by economists to analyze the law. In fact, as Judge Posner points out, “the latest generation of law and economics scholars is deep into game theory.”
The political cast or agenda attributed to the law and economics school of jurisprudence is dependant upon who is writing about it. If the commentator is an author who, as characterized by Posner, subscribes to a “left wing” political or judicial philosophy, i.e., legal realist, Critical Studies adherent, a “radical feminist philosophy,” then, as Posner further points out, any form of “bourgeois” or liberal economic analysis in the tradition of Ronald Coase, Frederick Hayek, and Milton Friedman will be labeled pejoratively as “political.”
This writer believes that is because the emphasis of both the traditional law and economics movement and the new institutional economists, who are analyzing legal institutions, is on “price theory.” An emphasis on “price theory” re: purely economic costs is far too narrow for the taste of most legal realists, Critical Studies legal philosophers, and certainly the “radical feminists,” who prefer the broader concept of “transaction costs,” which encompasses “price theory,” but also includes, depending on which legal writer is describing it, “human-capital theory” and “organizational theory” as elements to be evaluated when the “costs” of any policy or the efficiency of any institution is assessed.
Are we then to leave the field of law and economics to the institutional economists whose efforts to reconcile the various jurisprudential philosophies that preceded or paralleled them are, at best, a work in progress? Probably not – for they are primarily economists – not legal philosophers. No, we will next turn to the “new legal pragmatists” for appropriate guidance. Tune in this same space, same station, next column.