Thursday, 5 July 2007

The First Law and Economics school

Current Law and Economics scholarship is ideologically underpinned by neo-classical economics, especially that of the Chicago school. Richard Posner is probably the foremost proponent of this school and the area owes a great deal to his academic output during the 70's.

Posner, very basically, sees the common law as a means to attain wealth maximization which in his view is Kaldor-Hicks efficency [Duxbury:401]. I think this is a very concise and neat summation of all his, and most Law and Economics research. Most of the solutions Posner advocates can be summed up and derived from this type of efficiency. All legal rules should adhere to this simple question - does it lead to an efficient outcome? Statutes with their middlesome democratic character are seen as negative to the development of efficent economic law.

Unfortunately, because nearly all of modern Law and Economic scholarship is rooted in Chicago school ideas, it similarly has all the weaknesses of it and it's inherent ideological bias for the current proprieties classes. Real solutions are assumed away for theoretical progress and there is no need for morality. For example, the inherent mis-trust of governments from Chicago schoolers leads to normative Antitrust jurisprudence which, bizzarly, believes that government interference is harmful. Bizzare because that is the very point of Antitrust law - a democratic check on tyrannical corporations that abuse their monopoly powers. Bork's The Antitrust Paradox is key in this regard. The academic output during the time of Bork's book led to workshops to indoctrinate federal Judges in the religion of Law and Economics. Neil Duxbury in his widely respected book tells it best:

"In the mid-1970s, at the University of Miami, Henry Manne establsihed a Law and Economics Centre offering a two-week intensive training programme in economic analysis for federal judges" the "programme was to provide judges with basic economic training [but] has been widely criticized for embodying a distinctively Chicago-inspired, pro-corproate, anti-antitrust agenda". [Duxbury:360-61]

Most of the funding even came from corporate donors [ibid] and thus emerges "an image... of corporations funding the Law and Economics Centre to persuade federal judges that legal regulation of corporate activity is foolhardily and unnecessary" By 1983 over a third of the Federal judiciary has attended the all expenses paid course and there is strong evidence that judges consequently applied Chicago style analysis towards antitrust cases [Duxbary:361 n305]

Even worse, the Regan administration was responsible for the appointment of 47% of judges sitting on the federal district courts and courts of appeals [1]. The Supreme Court nominations during the Regan administration were all heavily Chicago inspired - Posner, Bork and Frank Easterbrook. It is clear what is happening here, the White house was stuffing the Courts with a pro-corporate judiciary that deified anti-intervention. Antitrust jurisprudence seems to evolve without much Statutory meddling, so Regan was free to dictate his Friedman inspired economic policy through stealth - without a democratic check.

In sum, the normative antitrust theories of the Chicago school were becoming positive law by a combination of indoctrination, corporate funding and the Regan-Bush I administration.

The First Law and Economics School

Far from indulging in blatant extreme right wing policies, the first Law and Economic school was pleasantly empirical. Rather than believing in legal fictions that all parties to a contract have equal bargaining power, they looked to the empirical evidence. Their Economic theory seemed to borrow heavily from Marxist idea of "formal equality leads to substantive inequality".

Lochner era cases decided that the state legislation that attempted to equalize bargaining power was illegal. It held religiously to the fiction that there is a right of free contract. This was heavily criticised by academics at the time. People like Robert Hale, Karl Llewellyn, John Dawson and John Dalzell showed that the purported economic freedom by which the Supreme Court swore was not freedom, it was "merely freedom to engage in economic coercion" [Duxbury:324]

These Law and Economics scholars were not religiously taking premises of laissez fair economic theory, they were actually seeing what it leads to in the real world. Such an analysis is indicative of Marxian jurisprudence. Even supporters of social-Darwinism and laissez fair theory knew that the Courts have no business legislating a corporate agenda; as Oliver Wendell Holmes famously said in his dissent in Lochner the case was "decided upon an economic theory which a large part of the country does not entertain." and the Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics."

The early history of the corporation, this but one example of it, shows how it was judicial activism not the legislature that was responsible for the power they presently have. Cases like Dodge v. Ford leading to the pathalogical persuit of profit at all costs. Santa Clara County leading to the fiction of 'corproate persons' and endowing them constitional rights, that were intended only for real persons


Duxbury, Patterns in American Jurisprudence
1) Sheldon Goldman, 'Regan's Judicial Legacy' Judicature 72 (1989)

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