The Future of Law and Economics–A Reply
I come from an age in which one rarely answered book reviewers. One took what they said for better or for worse and awaited another reader’s comments. Articles were different of course, as my early exchange with Blum and Kalven showed. But books, no; and so I read Posner on The Costs of Accidents, and Arrow on Tragic Choices and smiled, silently. That puts me slightly at a loss on how to answer these seven really excellent posts on The Future of Law and Economics. I will try, nonetheless, with a comment on each and a broader statement at the end of what, now looking back on it, I think this book has added. Let me start, however, by saying how truly grateful I am and how kind I think the reviewers have been. Their criticisms are exceedingly gentle, and their praises sufficient to make an old teacher blush. That said, let’s look at each post/review.
Dan Cole says that I ignored the 19th century German Historical School and the early 20th century Institutionalists and their contributions. Because of this, I don’t, as I should, urge a new generation of Institutionalists—both economists and social scientists—to play a central role in the forming and reforming of economic theory. To some extent he is correct—though I do emphasize that Coase, when he wrote The Nature of the Firm, was very much an Institutionalist and I note my own debt to a great American Institutionalist, Walton Hamilton.
My failure to say more about the German Historical School and the American Institutionalists was, I fear, more arrogance than ignorance. Some sixty-five years ago, I wrote my college senior essay on these very schools (and on the early Econometricians) as classic attempts to bring facts to bear on economic theory. (I haven’t reread the paper, which I didn’t think was very good at the time, but which the Yale Economics Department treated extremely kindly. I am told, however, that it still exists somewhere in the bowels of that Department). It was perhaps my early disappointment with the lack of success of their empirical aims that led me to emphasize law’s role in my book, rather than giving such scholars an equally important part.
But there is something else as well. My book was addressed primarily to lawyers, to main line economists, and to those who play both of these games. Its aim was to focus their work. If because of that I may have seemed to be saying that others—institutionalist economists and Law and Society scholars—have less to add, I apologize. That certainly is not my view. And it especially is not my view as to the role of other disciplines, about which I’ll say more in a moment as that is a central part of Frank Pasquale’s criticism.
Frank emphasizes the need for inter-disciplinary engagement. He questions whether economists will ever be able to model with sufficient complexity to introduce all the factors needed for adequate policy analyses. And he concludes that the future lies in bringing many disciplines—humanistic as well as social scientific—to bear on policy problems rather than on relying on a more sophisticated and nuanced economic theory. In this he and Dan are at one. My own view is sympathetic to theirs, but slightly different.
I certainly believe that there are many policy questions that economic theory cannot adequately address. And I think I say in the book that this is because economics often cannot deal with all the factors that must be taken into account and still be true to what makes economics the powerful discipline that it is. It is, incidentally, because I feel so strongly that this is so that I am such a supporter of the Yale Law School’s Ph.D. in Law program. That is a program which allows Ph.D. work to be done in a multiplicity of other disciplines together with law; not just, say, in law and economics. It recognizes, in other words, that there are many policy problems as to which the law cannot rely on economics or any one other discipline, no matter how expanded and made more sophisticated that discipline would be.
That said, however, I also believe that economics can do much more than it is currently doing to bring intelligent insights into policy problems. And the book, by giving examples and in a hortatory way, seeks to encourage just that. When one sees how much even simplistic Economic Analysis of Law has influenced policy, it seems to me clear that economics has a crucial role to play, and should be induced to play it well. But this in no way excludes the roles that Frank and Dan properly urge for other disciplines that are perhaps more humanistic and less inclined to make models.
Frank makes another point as well. Citing my friend Ugo Mattei, he talks about the difficulty of moving from market-based structures to collective ones. And I think he implies that there is something of a market bias in my writing. This is an interesting contrast to my equally dear friend, Carol Rose, who gently chastises me for not making more explicit the moral bases of the market. Markets can be moral and teach us a lot about morality, and non-markets can be smarmy and devious, she writes. What they say, Frank about the difficult of moving from markets to what may be a more desirable collective allocation and Carol about the not infrequent morality, and aesthetics even, of markets, are both true.
But I plead innocent to being one-sided as to these. I believe the book expresses the problems that attend both commodification and commandification, as well as the possible advantages of each. Which works best and where is a crucial empirical question. It is also a question that—even apart from the fact that frequently no clear empirical answer is available—will often be answered on the basis of which of these one likes best, which is preferred as an end, as well as on its efficacy as a means. And that, of course, brings me to Lee Fennell and Richard McAdams’s piece.
There are several things that, if I do say so myself, I really like about this book. But there is nothing that I delight in more than in the suggestions the book makes about ends and means. And this is precisely what Lee and Richard focus on. They discuss this, as do I, with regard to beneficence. But they emphasize the significance of ends and means with respect to redistribution and to “good” egalitarians versus “income” egalitarians—what I discuss in my essays on merit goods. And, almost in passing, at the end they say that “good” egalitarianism may be more politically viable than income redistribution because it accords with the preferences that people hold.
This comment is right in line with two of the key points the book makes. The first is that one cannot be true to economics’ supposed value neutrality without taking into account the values and preferences of any number of people beyond those who are directly involved in any given set of transactions. (I’ll have more to say about this when I discuss Ken Abraham’s and Arden Rowell’s posts). The second is that not just goods and bads, but whole systems and approaches to structures are desired both as means to other ends and as ends in themselves. Virtually no good serves only as a means to something else one wants, or as an end in itself. Yes, money comes closest to being only a “means.” Yet for some even it is an end that is wanted for its own sake. And caviar, though very costly as a means of feeding, also does feed. So too are markets wanted for the allegedly efficient result they achieve, but also, as is seen to some extent in Carol’s piece, and certainly in Von Hayek’s writings, for their own beauty/morality. While, conversely, command is to Trotsky as much a value in itself as it is as a way of achieving other goals.
How much something is more of an end or a means varies widely for different people, different goods, different systems, and different times. Much work needs to be done here. Careful analysis and modelling, even, will help us understand more about why some goods are “superior” and some are “inferior,” about why and where command and markets are used, and, as Lee and Richard point out, when “good” or “income” redistribution prevails. It is an area where, I believe, traditional welfare economics can make significant advances.
The sometime preference for command, for markets, and for approaches that are in between, both as ends and as means, lies at the heart of Ian Ayres’ contribution. He takes the book’s discussions of how the Liability Rule does not in the real world simply function to mimic markets, where markets are not feasible, and he looks at Property Rules and at Inalienability in the same way. Putting this insight in the context of his own important writings, he comes up with quasi-inalienable constructs and with quasi-property rules, i.e. modified contractual arrangements. He ends up positing a “dizzying array of second-order liability rules that confront potential takers with pay or be paid choices.” I could not have described my broader view of the cathedral more precisely.
But how and when does a polity choose among this dizzying array? That question too is one of ends and means. Which one among them brings about most efficaciously—I choose not to say efficiently—those exchanges that are desired? And which, in itself, reflects or approaches most nearly the underlying structure which that polity wants—either because of its general efficacy or its desirability in itself?
And that brings me to Ken and to Arden, and to values. As Ken, who always understands me better than I do myself, says, one crucial theme in the book is how to introduce third-party values into societal choices. Without doing this, correct social choices cannot be made. But these treasures, as he calls them, are difficult if not impossible to quantify. It is, he suggests (and implies that I do too), what non-modellers should do. It is the domain of Political Economy and, I might add, of Law and —where the “and” includes various Humanistic and Social Scientific disciplines. Which, of course, brings us back to Dan and Frank.
Yes, but as Arden points out in her delightful essay, I also think that economic theory can tell us something about values. As she says, in my discussions of values I build a trivial model and from it come up with suggestions about valuing the ordinary that both tempt and worry him. She expands what my model suggests from handicraft, home cooking, and ordinary sex to social goods and technologies in the hipster DIY culture of which I know absolutely nothing. And she worries that this, appealing though it may be, may drive out the extraordinary, which should be valued in itself.
The key to the high valuations of the ordinary that the book seems to give lies in my premise, which treats creativity, more over less, and a more equal distribution of that “more” as fundamental values. The result would be different if one valued equality less. But, crucially, there is nothing at all wrong with introducing into my little value model a certain amount of extraordinary creativity as a fundamental value. The model becomes a bit more complex but it still works.
Economists could tell us what subsidiary values would give the greatest joint maximization of these, now four, fundamental values. And lawyers as well as other social scientists (as Arden says, again harking back to the other reviewers) could then tell us what laws would further the development of these subsidiary values in any given society. The result might be a society in which (like Sweden as to wealth?) there was great joy and pleasure by almost all as to ordinary creativity (both as ends and as means), but also appreciation and recognition (at some cost in equality) of the extraordinary. Is that what France and Italy have achieved as to food and perhaps art? Is it what we aim at in athletics (says a Yankee fan, who loves “home” sports)?
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I obviously have gotten great pleasure from reading these posts and have enjoyed the possibility of an informal, chatty reply. Let me end by listing a few things that I believe the book suggests.
- That Law and Economics should learn from each other and not be subservient one to the other.
- That this conversation is not limited to Law and Economic Theory, but is essential to all relationships between Theory and Facts.
- That Economic Theory may sometimes be able to accommodate and encompass the demands that Law (and other sources of Institutional knowledge make on it). At other times it need not do so and will still remain relevant. But in yet other situations it may not be able to include what is needed to speak relevantly to an issue and still retain the characteristics that define it. In those situations it will have to give way to other Law And approaches involving a wide number of fields from the social sciences and humanities.
- That markets and command are often used in highly modified ways and only by recognizing and employing these hemi, semi, demi types of each can we understand and better the legal world.
- That a wide number of policy decisions, to be made well, require that in one way or another we take into account the values of people who are not immediately involved in any given set of transactions, and that failure to recognize these “third-party” desires violates economics’ supposed value neutrality.
- That goods, bads, approaches, and even whole economic systems, like libertarian and collective ones, are both means to varied goods, and ends in themselves, and that the relationship of ends and means in each of these demands future analysis.
- And, finally, that values and value shaping, far from being forbidden to economic analysis, are inevitable parts of it and can, if done openly and with care, be immensely useful to law, and not only to law.