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H e a t h , Will C a r r i n g t o n

THE METHODOLOGICAL FOUNDATIONS O F LAW AND E C O N O M IC S

T h e L o u isia n a S ta te U niversity a n d A g ric u ltu ra l a n d M e c h a n ic a l C ol. Ph.D . 1983

University
Microfilms
International 300 N. Z eeb Road, Ann Arbor, Ml 48106
 THE M E T H O D O L O G I C A L
F O U N D A T I O N S OF
L AW AND E C O N O M I C S

A Dissertation

S u b m i t t e d to the G r a d u a t e F a c u l t y of the
L o u i s i a n a State U n i v e r s i t y and
A g r i c u l t u r a l and M e c h a n i c a l C o l l e g e
in p a r t i a l f u l f i l l m e n t of the
r e q u i r e m e n t s for the de g re e of
D oc t o r of P h i l o s o p h y

in

Department of E c o n o m i c s

by
Will C a r r i n g t o n Hea th
B.S., A u b u r n U n i v e r s i t y , 1975
M.S., A u b u r n U ni v er s i t y , 1979
A ugu st 1983
 TABLE OF CONTENTS

Chap ter
I. INTRODUCTION ............................... 1

II. THE EVOLUTION OF LAW AND ECONOMICS . . . 12

Introduction ............................ 12
How to Think About Social Costs . . . 15
Calabresi and Becker: The Beginning
of a Universal Law and Economics. . 19
Richard Posner and Wealth
M a x i m i z a t i o n ........................... 31

III. THE AUSTRIANS AND THE INSTITUTIONALISTS. 43

In tro d uc ti o n ..............................43
Taking Subjectivism Seriously . . . . 44
The Institutionalists ................ 52

IV. THE LEGAL T H E O R I S T S ......................... 61

In tro d uc ti o n ..............................61
Kantianism and Utilitarianism . . . . 62
Other Ethical and Moral
Considerations ..................... 81
Some Concluding Remarks on the
Completeness of the 'New" Law
and E c o n o m i c s .......................87

V. A DIGRESSION ON THE NATURE AND

SIGNIFICANCE OF EC O N O M I C S .................. 96

I n t r o d uc ti o n .............................. 99
Classical and Post-Classical
Formulations ....................... 99
Lionel R o b b i n s ........................ 108
After Robbins: A Suggested
R e f o r mu la t io n ........................ 119

VI. TOWARD A PRUDENTIAL LAW AND ECONOMICS. .130

Concluding R e m a r k s ......................142

SELECTED BIBLIOGRAPHY . 148

 ABSTRACT

Today there is a burgeoning "new" law and economics

literature which extends the application of economic prin

ciples virtually across the board.

The essence of the "new" law and economics is value

(or wealth) maximization, which means exploiting economic

resources in such a way that value human satisfaction

as measured by willingness and ability to pay is maximized .

Value maximization has become essential in both explanative

and reformative analyses of the law.

This new science of law is not without its critics.

They include economists, especially those of the Austrian

and American Institutionalist schools, as well as various

legal theorists and practitioners not professionally

trained in economics.

In the wake of their criticisms, this essay attempts

to get at the heart of the question of what economic

theory can, in general, contribute to the making and

administering of the law. The principle thesis is that

while economics can be enormously useful in matters of

instrumental rationality matters of procedure, of the

means to achieve given ends, it does not suffice in matters

of substantive rationality, viz, in a discussion of ends.

Thus economics cannot adequately support a complete theory

of law, for one ultimately must look beyond economics

iii
for the ends the law is designed to achieve.

In order to establish positively what economics can

contribute to legal theory, it is necessary first to discuss

the nature and scope of economic science in general. This

dissertation develops the position that "economic efficiency"

is of dubious scientific value (since it rests ultimately on

invalid utility comparisons) and that the significance of economic

science derives essentially from its analysis of choice behavior.

Upon this conception of economic science an alternative,

"prudential" law and economics is proposed. This type of

analysis is shown to be relevant to virtually all categories

of the law, but concerns only instrumental considerations. It

calls for a broad application of economic principles, yet is

subservient to political and moral wisdom. Instead of claiming

to avoid substantive rationality, it urges a return to serious

moral discourse.
 I. INTRODUCTION

The a p p l i c a t i o n of e c o n o m i c principles to law is h a r d l y

new. W h i le the "traditional" law and economics literature

is v ol um i no u s, it a d d r e s s e s a ra th er l im it ed set of laws

governing such th ings as public utilities r e gu la t i o n , anti

trust and taxation. Today there is a b u r g e o n i n g "new" law

and economics literature w h ic h e xt e n d s the a p p l i c a t i o n of

economic principles virtually ac r os s the board. Common law

fields such as tort, contract and pr operty, as well as

theories of law e n f o r c e m e n t , p u n is hm e nt , j u d i ci al administra

tion and legislation are bei ng made a part of the "protective

belt" of the law and economics "research effort," to use

the terminology of philosopher Imre Lakatos. Richard Posner,

professor law at the University of C h i c a g o and probably

the most important le ad er of the "new" law and economics

research e ff o rt today, b oasts that " w h e re a s the 'old' law

and economics confined its a t t e n t i o n to laws governing

explicitly economic relationships . . . the 'new' law and

economics recognizes no such limitation on the d om a i n of

e co n o m i c analysis of law."'*

The "new" law and economics was born in the e ar l y 1960's

with the publication of Gu id o Calabresi's s e mi na l article

2
on torts , and R on al d Coase's equally perceptive e ssay
 3
on s oc ia l costs. In the l at ter 1960's and 1970's G a ry

Becker demonstrated the relevance of economic principles

to a s u r p r i s i n g range of "nonmarket" behav io r, including

crime, marriage and r ac i al discrimination, opening up la rge

a r e as of legal th eo ry to e c o n o m i c analysis. The earl y

i ns i g h t s of C al a br e si , Coase and B ec k e r have been f or ma l iz e d,

tested, r e f in e d and exten de d, yielding a g en e ra l economic

analysis of law that is s up p o s e d to have " br oa d explanative

and reformative power.

The essence of the " n ew" law and economics toda y is

val ue (or w ea lt h) maximization, w h i c h means, in P o s n e r ' s

words, "exploiting economic resources in s uch a way that

'v a l u e '- - h u m a n satisfaction as m e a s u r e d by w i l l i n g n e s s and

ability to p a y -- is maximized. Value maximization is

essential in both "explanative" and "reformative" analyses

of the law. Po s ne r and o th er s ar gu e that value m a x i m i z a t i o n

is a l r e a d y d ee p ly ingrained in A m e r i c a n jurisprudence, and

that the law and legal institutions o ught to be r e f o r m e d

so as to p ro m o t e v alue m a x i m i z a t i o n in thos e instances where

currently they do not.

Th is new s c ie nc e of law is not without its c ri ti cs .

Th ey i nc l u d e e c on o mi st s , especially th ose of the Austrian

and American Institutionalist schools, as well as v a r io u s

legal theorists and practitioners not professionally t r ai n ed

in e co no mi cs .

The A u s t r i a n sc ho ol has mo st thoroughly and consistently

developed the implications of subjectism for law and e co n om ic s .

In their interpretation, all forms of " cost" and "b en e fi t"

are ultimately a matter of subjective p e rc e pt i on . Thus

h um an satisfaction c an n ot be o b j e c t i v e l y measured since subject

ive m e n t a l processes c an n o t be d i r e c t l y o bs er ve d. If the

economy were in full, general e qu i li b r i u m , market p rices

w o ul d accurately represent subjective p e r c ep t io n s, but full

equilibrium nev er in fact obtains. T he r ef o r e , the court

or legislature cannot, in the A u s t r i a n s ' view, distinguish

a tr uly e f f i c i e n t l e ga l arrangement from an inefficient one,

not even for pu re ly descriptive pu rposes. And to as su me

that they can do so for reformative p ur p o s e s co uld possibly

have f a r - r ea c hi n g, unintended and undesirable consequences.

The criticisms of value maximization as a n o r m a t i v e

p e rc ep t have been developed a l o ng s om e w h a t different lines

by the A m e r i c a n Institutionalists. They point out that

value m a x i m i z a t i o n per se is a t a u t o l o g y wi th reg ar d to

the objective function by wh ic h miaximization is reckoned:

What is e ff ic ie nt , or value-maximizing, by one calculation

is i n e f f i c i e n t when the objective function is c ha nged, or

w he n the opportunities available to the individual are l e ga ll y

or o t h e r w i s e altere d. Thus, v a lu e m a x i m i z a t i o n based on

willingness and a b i l i t y to pay is an inadequate normative

principle in their view, for it r e q u i r e s some antecedent

p r e mi s e as to the ri g ht s that determine willingness and

ability to pay. Valu e maximization, they argue, is a f u n c t i o n

of rights, not the o t he r way around. The c r uc i al d ecision,

w h i ch ultimately the law mu st make, is that of the r ights

themselves.

While a nu m be r of legal theorists have attacked the

"new" law and economics on m uc h the same kind of i n s t r u m e n

ta l is t grounds, an i m p o r t a n t distinction b et w ee n the

Institutionalists and the legal theorists in g en era l is

that m a ny of the l atter are explicitly concerned w it h moral

and e t hi ca l issues. While the Institutionalists reject

va lu e maximization as m e t h o d o l o g i c a l l y myopic, the legal

theorists o bje ct on the gr o un d that it fails to serve c on s is t e n l y ,

and m ay even contravene c er t a i n cherished ethical pr in ci p le s.

T h o se who embrace egalitarianism, for insta nc e, ob je ct that

value maximization might perpetuate inequality in the distri

b ut i on of wealth; Kantians maintain that interdiction of

certain huma n rights is implied, and so on.

What is n ee d ed in the wa ke of these criticisms is a

serious reevaluation of the n at u r e and significance of the

economic analysis of law. This essay, is an a t t e m p t to get

at the hea rt of the q u e s t i o n of what e co n o m i c t he o ry can,

in general, contribute to the m a k i n g and administering of

the law. The principal t he si s is that w h i le economics can

be e n o r m o u s l y useful in m a t t e r s of instrumental rationality

matters of p roc ed ur e, of the m ea n s to a c h i e v e given ends,

it does not s uf f ic e in m a t t e r s of substantive ra ti o na l it y,

viz, in a d i s c u s s i o n of ends. Thus economic p ri nc ip le s,

including value m a x i m i z a t i o n , will not adequately s u pp or t

a complete th eo ry of law, for one ultimately must look

 5

b eyond economics for the ends the law is d e s i g n e d to achieve.

Economic analysis would be p ro p e r l y relegated to a h a n d m a i d e n

role in any reasonable system of jurisprudence.

In the A m e r i c a n system of j u r i s p r u d e n c e (for the most

part an eminently reasonable one) the discussion of ends

is very o f t en a discussion of what constitutes harm and injury.

American jurisprudence is p at t e r n e d to some e xt e nt after

the form delineated by A d am S mi t h in his T h e o r y of Mor al

Sentiments:

The w i s d o m of e very s t at e or C o m m o n w e a l t h ,
e nde av o rs , as well as it can, to e mp l oy
the force of the s oc i e t y to r e s t r a i n those
who are s u b j e c t to its au t ho r it y , from
h ur t i n g or d i s t u r b i n g the h a p p i n e s s of one
a not he r. The rules wh ic h it e s t a b l i s h e s for
this purpose, c o n s t i t u t e the civil and
c r i m i n a j law of each p a r t i c u l a r state or
county.

To restrain one from " h u r ti n g or d i s t u r b i n g the h a p p i n e s s "

of o t h e r s to avo id h a rm and in j ur y is e s s e n t i a l l y a

negative formulation of P ar e t o optimality and r e la t ed we a lt h

maximization criteria of m o d e r n welfare e c on o mi c s. The

relevance of e c o n o m i c analysis to this a sp e c t of the law

appears ob vious. Therefore it is this a sp e c t w hi c h the prese nt

dissertation will c on s id er , for the most part. A semantical

note m i g h t a void confusion: The terms " harm and inju ry"

are used here, and throughout the d i ss e r a t i o n , in the most

general sense, to r e fe r to that w hi c h adversely a ff e c t s the

attainment of value . Any c ha ng e or a c t i o n w h i ch a ll ow s

for a net i n c r ea se in "va lu e" is u n d e r s t o o d to invo lv e

less " h a r m and injur y" . T h er e f o r e , the discussion

 6

has not a b a n d o n e d valu e maximization for a m or e restricted

negative concept. As s ta t ed above, avoiding harm and in j ur y

can be u n d e r s t o o d as the r e c i p r o c a l formulation of value

maximization. T he re is, howev er , one r ea s on for emphasizing

the cost side of the coin, namely the fact that m u ch of

the law and economics literature is cost o ri e nt e d: reducing

net so c ia l cost is the s ta t ed objective of m an y a n al ys es ,

as will be seen below. One m i g h t argue, of course, that

treating an issu e in the c on t e x t of a v o i d i n g harm and i nj ur y

br in gs a libertarian bias to the a na ly s is . Such an o b j e c t i o n

is not u nf ou nd e d, and it can be f ai rl y said that most of

the "new" law and economics is c o n d u c t e d in the s pi r it of

Chicago s ch oo l laissez-faire.

It must be r e c o g n i z e d that w he n the p ur p o s e of the

law is to m i n i m i z e h ar m and injury, then a sine qua non for

enacting rules to that purpose w o ul d be some sort of c o n s e n s u s

to d e t e r m i n e what constitutes h a rm and injury. Only a ft er

that consensus is e s t a b l i s h e d can the discussion mov e on

to m a t t e r s of p r oc e du r e, of formulating particular laws

and regulations. And, to re pe at the central thesis of this

dissertation, only at this point can the instrumental rationality

of e c o n o m i c s b ec om e i m po rt an t.

Posner and ot he rs who f ul ly subscribe to the "new"

law and economics would r ej e ct this thesis, for they argue,

in general, that the kind of r a t i o n a l i t y that w oul d take

one b ey on d the r e al m of e c o n o m i c science is unnecessary for

a complete sy s te m of law. Posner, for example, has concluded

 7

that:

(T)he w e a l t h - m a x i m i z a t i o n p r i n c i p l e implies,
first, an i n i t i a l d i s t r i b u t i o n of i n d i v i d u a l
r i gh t s (to life, liberty, and l abor) to
their n at u r a l own er s; second, free m a r k e t s
to en a bl e thos e r i g h t s to be r e a s s i g n e d from
time to time to o t h er uses; third, legal rules
that s i m u l a t e o p e r a t i o n s of the m a r k e t when the
c o sts of m a r k e t t r a n s a c t i o n are p r o h i b i t i v e ;
fourth, a s y s t e m of legal r e m e d i e s for d e t e r r i n g
and r e d r e s s i n g i n v a s i o n s of rights, and fifth,
a s ys t e m of p e r s o n a l m o r a l i t y . . . W er e the
t r a d i t i o n a l c o m m o n law fi e ld s to be r e o r g a n i z e d
a l ong more f u n c t i o n a l lines, the first of th ese
a r eas w ou l d be the d o ma i n of p r o p e r t y law, the
se c on d of c o n t r a c t law, the t hi rd of tort law,
and the f ou rt h of p r o c e d u r a l and r e m e d i a l
( i n c l u d i n g c r i m i n a l ) law.

In P o s n e r ' s view, economic analysis is a s s i g n e d much

more than a handmaiden role: the mo st fundamental moral

and e th i c a l principles are supposed to be g r o u n d e d in e co n om i cs .

Whether Coase, Calabresi and Becker f u ll y a g r ee with Po sn er

is d eb a ta ble ; to be sure, they ha ve not e m p l o y e d precisely

the same methodology as Posne r. C h a p t e r II will e xa m in e

their approaches and argue, in part, that those b ef o re Po s ne r

perceived a mo re instrumentalist role for e c o n o m i c s , though

they we re sometimes less than c l ea r a bo u t this.

Chapter II will discuss two additional po i nt s regarding

the theoretical completeness of the economic analysis of

law, particularly value maximization as m e a s u r e d by w i l l i n g n e s s

and ability to pay. While thes e p oi n t s are secondary to

the central theme that economics cannot establish what ought

to coun t as harm and injury, they are frequently mentioned

by various critics, and they b ec o m e important for interpreting

Posner's later writings. First, it is a r gu e d that a truly

complete th e or y of law w o u l d not be l im i t e d in its application

to c o n s i d e r a t i o n s involving market prices. In o t her words,

there are m an y forms of cost w hi c h influence behav io r,

t hou gh they n ev er find monetary e xp r es s i o n . A complete

t he o ry must deal w it h thes e cos ts also, not just for reform

a t ive but for explanative purposes also. Economic d ec i si on s ,

aft er all, incorporate mo re than m o n e t a r y v a lu at i o n s .

Second, willingness and ability to pay is dependent

upon the d i s t r i b u t i o n of w e a l t h and income. Change the

distribution and the pattern of effective d em an d is c ha n g e d

also. Thus wealth maximization is d e p e n d e n t upon the under

lying distribution of w e a l t h and income. In this sense,

then, the economic analysis is less than c o m p le t e. This

fact has been an important s ou rc e of c r i t i c i s m of the "new"

law and ec o no m ic s.

Chapters III and IV r e v i e w the c r i t i q u e s put forth

by the A u st ri a ns , the American Institutionalists and v ar iou s

legal t he or i st s . While t he se g ro u ps consider different

aspects of the "new" law and e co n om i cs , taken together

their critiques support the view that economics c an no t

give rise to a c o m p l e t e theory of law. Each of their critiques

is shown to be e n c o m p a s s e d within the general t he s i s that

economics c an n ot deal adequately with the substantive questions

regarding what constitutes h ar m and in ju ry what value

maximization consists in.

To this point the dissertation is l a r g e l y a negative

critique of the "new" law and ec o no m ic s . In or de r to

establish positively what economics can contribute to legal

theory, it is n e c e s s a r y first to d is c u s s the n a t u r e and

s cope of economic science in general. This is the p u rp o se

of C h a p t e r V. It is a r g u e d that the significance of e c o n o m i c s

has been m i s u n d e r s t o o d by most, even by those economists

who restrict its significance to the a n a l y s i s of c ho i ce

and the implications of economic e f fi ci e n c y . C ha p te r V

develops the position that "economic efficiency" is of

dubious scientific v a lue ( since it r ests ultimately on

invalid utility comparisons) and that the s i g n i f i c a n c e

of e c o n o m i c science derives essentially from its a n a l y s i s

of c ho i ce b ehavior.

U po n this conception of e c o n o m i c science an a lt er n a t i v e ,

th ou gh r e s tr i ct ed , kind of law and economics is p r o p o s e d

in C h a p t e r VI. Th is type of a n a l y s i s is sh own to be r e l e v a n t

to v i r t u a l l y all categories of the law, but concerns only

instrumental considerations. It calls for a broad application

of e c o n o m i c principles, yet is s u b s e r v i e n t to p o l i t i c a l

and mo ra l wisdom. I ns t e a d of c l a i m i n g to av oi d substantive

r a t i on a li t y, it urges a re tu rn to s er i o u s mor al d is co ur se .

This analysis is called, for want of a m ore meticulous

word, the "prudential" law and e co no mi c s.

It is a c k n o w l e d g e d that what f o ll o ws can a c c om pl i sh ,

at most, a small deflection t owa rd the c ou rs e that law

and economics must t ravel if it is to be g e n u i n e l y u seful

and, for that matter, if it is ever to be ful ly a cc e p t e d

by the legal p r o f e s si o n. Unfortunately, many of the non-

economist critics are artless in their approach to e c o n o m i c

methodology, especially the highly formalized analysis

of choice, w h il e m an y economists fail to r e c o g n i z e its

inherent limitations. The re s ul t is a t e n d e n c y t ow ard

polarization: that economic analysis of law is ei th er

all bad or all good. The position developed in this paper

see ks to a v oi d these a n t i p o d a l viewpoints, and it is hoped

that d es p i t e its n e g a t i v e a sp ec ts , it will help cle ar the

way for a pr op er marriage of law and e co n om ic s.

 Not es to C ha p t e r I

'''Richard Posner, E c o n o m i c A n a l y s i s of Law (Boston:

Little, Brow n and Co., 1977), p. 16.
2
G u i d o Calabresi, "Some T h o u g h t s on Risk Distribution
and the Law of Tor ts ", Yale L J 499 (1961).

"^Ronald H. Coase, "The P r o b l e m of So ci al Cost", JLE 1

( 1960) .
4
Posner, o p . c i t . note 1, at 17.

^ I b i d . , p. 10.

A d a m Smith, The T h e o r y of Mora l Sentiments (London:

Cadell and Davies, 1812), p. 381.

^ R i c h a r d Posner, " U t i l i t a r i a n i s m , Economics and Legal

T he or y" , J L S t u d . VIII (Jan., 1979): 127.
 II. The Evolution of Law and Economics

A. Introduction

A comprehensive review of the "new" law and economics

literature in all its m a ny f ie ld s would be i m p r ac t ic a l,

unwieldy and of li t tl e valu e to the p r es en t study. Therefore

the following r e v i e w wi ll be l i m i t e d to those s e mi n al articles

which marked significant turning p oi n t s in the theoretical

and methodological evolution of law and e c on o mi c s. The

most important leaders in this evolution are G ui do C al ab re s i,

Ronald Coase, Gary Becker, and most essentially, R i ch ar d

Posne r. A discussion of their wo rk will re ve al that the

evolution of this fie ld followed a path m ar k e d by three

relate d, yet distinct methodological approaches.

T he first of thes e approaches was conceived by R on ald

C o ase in his seminal a rti c le , "The Problem of Soc ia l Cost."'*'

He rejects the P i g o v i a n analysis of s oc ia l cost, which proceeded

in terms of a d i v e r g e n c e between the "private" and 'feocial"

cost s of economic activity, and adopts an a p p r o a c h w hi ch

stresses the reciprocal na t ur e of s oc i al costs. In the

l at t e r analysis some degree of ha rm and in ju ry accompanies

virtually all activities, and the problem for p ol ic y p u r po s es

is to identify the a c t i v i t y w hi c h results in the least

net s oc i al cost. Th is i d e n t i f i c a t i o n is s u p p o s e d to be

12
made by "the m ar ke t ", in ter ms of the m ar k et p rices of

g o ods and s er vi c es .

This approach is e s s e n t i a l l y instrumentalist, since

it implicitly r ec o gn i z e s , yet does not claim to settle,

the crucial substantive question of w h i c h p ri ce s are to

c ou n t in the c a l c u l a t i o n of s oc ia l cost.

A s ec o nd approach which characterizes much of the

2
pre-Posnerian law and e co n om i cs , especially Gary B ec k e r ' s

work on cr im e in the l at t e r 1960's and ear ly 1970's, b egins

by m e r e l y assuming a consensus on what constitutes harm

and injury. The analysis then p r o ce e ds to d er i ve v a rio us

conclusions regarding "optimal" so ci al p ol ic y on the basis

of economic principles, particularly the a xi o m s of individual

choice b e ha vi or . As the Coasian approach described above,

the "Becker" approach is co st orie nt ed, and Be c ke r recognizes

the need for a c o n s e n s u s on f u n d am e nt a l, substantive issues

in o rd e r to d e c i d e what counts for p ol i c y d ec is io n s. Becker's

explicit assumption of a c o n s e n s u s for the sake of a rg u m e n t

establishes the instrumentalist nature of his ana ly si s.

The difference b et w e e n thei r a pp r oa c h e s , and the real signifi

ca nc e of Becker's work, is that he e x t e n d e d the individual-

choice m od e l of behavior into ar ea s that were previously

considered unamenable to e c o n o m i c a na l ys i s. Previous a nalysis,

including that of C o a s e in the e ar ly 1960s, did not explicitly

involve the axioms of individual ch o ic e b eh a v i o r certainly

not in the r i go ro us , mathematical styl e of Becker.

The third and m os t ambitious approach is that of

 14

3
Richard Posner. He does not a cc e pt m ar k e t p ric es as his

starting point in the m a n n e r of Coase, and neither does

he m e r e l y assume, with Becker, the necessary consensus

on s u b s t a n t i a l matters. Posner is u n w i l l i n g to s et tl e

for such an instrumentalist law and e c on o m i c s . Therefore

he proposes to b eg in by a n s w e r i n g some very fundamental

substantive questions (r eg a rd i ng , for i ns ta nc e, hu ma n r ights

and the distribution of w e al t h) and to do so e n t i r e l y wi t hi n

the context of e c o n o m i c s . Thus he c la i ms to be able to

talk a bo ut what s h o u l d constitute harm and in j ur y (or

w ha t has value, to state the m a t t e r in s t r o n g e r - s o u n d i n g

t erms) without e ve r having to go b eyond the realm of e co n o m i c

sc ie nc e. Posner's methodology represents an a t t e m p t to

o f fer a more substantive economic th eor y of law than had

been developed previously, in his own words, "a f irmer

bas is for a n o r m a t i v e t he o ry of law. . .

Posner's methodology has been attacked by n u m e r o u s

c ri ti cs , the mo re important of w ho m were mentioned

in C h a p t e r I. These critiques are discussed at some l en gt h

in later c ha pt er s. The purpose of the present chapter,

though, is to d e s c r i b e and interpret the evolution of law

and e co n om ic s . The discussion be gins with C o a se and C al a br es i ,

then mo ve s to B e c k e r and finally Posner. Posner is given

the mo st extensive t r e a t m en t , of course, s in c e his a pp r o a c h

is the most ambitious and the least instrumentalist. It

is, th er ef or e, the approach this dissertation is most concerned

to c r i t i q u e .
 15

B. H ow to T h i n k A b o ut So c ia l Cost

One of the e a r l i e s t , and p e rh ap s the single most important

theoretical development in the e v o l u t i o n of law and economics

was the b re a k from P i g o v i a n analysis of s oc ia l cost and

subsequent adoption of the a p p r o a c h first articulated in

1960 by R on a ld Coase in his well-known ar ti cl e , "The Problem

of So c ia l Cost".' P r i or to C o a s e ' s pathbreaking a rt i c l e

the a n a l y s i s of s o c i a l cost proceeded generally a lo n g the

lines developed by P i g o u in The E c o n o m i c s of W e l f a r e .

In the P i g o v i a n a n a l y si s, " p r i va t e" costs, w h i ch are internal

to the f ir m 's decision making, we re distinguished from

"externalities", or c os ts which are e x t e r n a l to the firm.

If, for inst an ce , externalities are n eg at iv e, the true social

cost of p r o d u c t i o n exceeds the cost recognized by the firm;

t her ef or e, wh en the profit-maximizing firm e q u a t e s marginal

r e ve n ue and m a r g i n a l c o s t s its own, p r iv a te cost s

o u tp u t is c a r r i e d b e yo n d the socially optimal level. Ho wever,

f o rc i ng the firm to internalize the e x t e r n a l co st s will

r es u lt in a full accounting of s oc ia l costs, and efficiency

will be a c h i e v e d with adjustments in the profit-maximizing

level of o u t p u t .

The standard example is that of a f a c t o r y w h i ch emits

pollutants that are harmful to thos e occupying neighboring

pro pe rt y. It is r e a s o n e d that if the o wn er of the f a c to r y

were f or ce d to c o n s i d e r the e xt e r n a l costs of his activity

the socially optimal reduction in ou t pu t would result.

Thus the P i g o v i a n analysis suggests the factory own er be

 16

held li ab le for h ar m done to the n e i g h b o r i n g p e rs o ns and

the ir prop er ty , or, as a possible a l te r n a t i v e , that he

be r e q u i r e d to meet clean air s ta nd ar d s.

This "externality" approach assumes the f a ct o ry i n f l ic t s

h a r m on its n ei g hb o r s , but not vice versa. It is this

perspective on the relationship b et w e e n the two p ar ti es

w h i c h C oase questioned:

The t r a d i t i o n a l a p p r o a c h has t ended to

o b s c u r e the n a t u r e of the ch oi c e that
has to be made. The q u e s t i o n is
c o m m o n l y t h o u g h t of as one in w hi c h A
i n f l i c t s h a r m on B and what has to be
d e c i d e d is h ow sh ou ld we r e s t r a i n A?
But this is wrong. We are d ea l i n g with
a p r o b l e m of a r e c i p r o c a l nature. To
a v o i d the h a rm to B w o u l d i n fl ic t harm
on A. The real q u e s t i o n that has to be
d e c i d e d is: s ho u ld A be a l l o w e d to harm
B, or s h o u l d B be a l l o w e d to harm A?
T he p r o b l e m is toav oi d the more s e ri ou s
harm.

Considering again the example of the polluting factory,

the C o a s i a n and Pigovian approaches c ould lead to d i f f e r e n t

legal a ct io n s. For in st an c e, if it were estimated that

cleanup c os ts to the factory exceeded the costs inflicted

upon adjacent property owners, liability woul d not be a s s i g n e d

to the factory owners. Another example, in this case involving

the perennial debate ov er s tr ic t liability and n eg li g en c e,

suggests the ex te n t to w h i ch on e's approach to so ci al cost

determines one's thinking on legal policy. Consider the

problem of railroad crossing a c c i d e nt s. It is s o m e t i m e s

a rg u e d that on ly a rule of s trict liability c om p el s a firm

to internalize fu lly all of its so ci al costs. But with

railroad crossing accidents, a standard of st rict liability

 17

m i g ht re s ul t in an i n e f f i c i e n t s o lu ti on . It may seem that

strict liability w o u ld i mp r o v e s a fe t y in the long run by

forcing the r ai l r o a d to take precautions that w o u l d r ed uce

accidents to the "socially optimal" level. This reasoning

ignores, however, the fact that s tr i ct l ia bi li t y, t ho ug h

it w o u l d increase the railroad's incentive to u n d e r t a k e

safety p r ec a u t i o n s , reduces the potential v ic t i m ' s willingness

to do the same. Under the negligence st andard, the v i c ti ms

of unavoidable ac c i d e n t s accidents which could be a v o i d e d

by the o f f e n d e r only at very high c o s t s m u st bear the

full cost of the a c c i d e n t s . It might, then, be a d v i s a b l e

to c o n s i d e r the relative cost s of p r e ve n ti on , not m e r e l y

who i n ju r es whom. The Coasian approach opens the p ro b l e m

to this kind of an al ys i s, allowing for a f uller examination

on the basis of r e l a t i v e costs. The a n a l y s i s s ho u l d co nsider,

for example, the likelihood that technological advancements

can occ ur in p a r t i c u l a r a r e as at a j u s t i f i a b l e cost. How

expensive w ou l d it be, for e xample, to d e ve lo p and em p lo y

car b u zz er s to w ar n drivers of a p p r o a c h i n g tra in s? And

how does this cost compare w i th the development of b etter

warning s i gn a ls stationed at crossings?

The Coasian approach is essentially instrumentalist.

While the a n a l y s i s in "The Problem of So ci al Co st " p ro c e e d s

in terms of the m ar k e t v al u e of v ar i ou s alternatives, C oase

himself is c ar e fu l to point out that he is m e r e l y describing

a methodology, not addressing mo re fundamental substantive

questions regarding which valuations and other k in ds of

"cost" o u g h t to count:

In this a rt ic le , the a n a l y s i s has been

c o nfi ne d, as is usua l in this part of
ec o no m ic s, to c o m p a r i s o n s of the value
of p r o d u c t i o n , as m e a s u r e d by the market.
But it is, of course, d e s i r a b l e that the
ch o ic e b e t w e e n d i f f e r e n t so ci a l a r r a n g e
m e nts for the s o l u t i o n of e c o n o m i c p r o b l e m s
sh o ul d be c a r r i e d out in b ro a de r terms
than this and that the total e ff ec t of
t hese a r r a n g e m e n t s in all sp he re of life
s h ou l d be t ak e n into a cc ou nt . As Fra nk
H. K ni g ht has so o ft e n e m p ha s iz ed , p r o b l e m s
of w e l f a r e e c o n o m i c s must u l t i m a t e l y d is s o l v e
into a s t u d y of a e s t h e t i c s and morals.

The Coasian analysis is not only m or e extensive than

the P i gov ia n, but s ee m s to ha ve g r ea t er explanatory power

regarding the ac t ua l structure of the law. T he re are c e rt a in

instances in w h i c h strict liability is the usual sta nd ard ,

including such c a se s as dynamite blasting a cc i de n ts , a t ta c ks

by v ic i o u s anima ls , and o th e r c as es in w h i c h the potential

v ic t i m s are not efficient accident av oi de rs . Like wi se ,

there are cases which are almost a l wa y s h a nd l ed unde r negli

gence, and these are, as one m i gh t expect, cases in w hi ch

the v i c t i m is the least-cost a vo id er . W hi le the P i g o v i a n

approach is g e n e r a l l y consistent only with st ri ct li ab il ity ,

the C o a s i a n approach can lead to e it h er stand ar d, depending

upon the n at u r e of the case. Th us the C o a s i a n approach

is much mo re consistent w it h the ac t ua l structure of the

law, and this is no d o ubt a major re as on for the pervasiveness

of it in the "new" law and e co no m ic s .

 19

C. C a l a b r e s i and Beck er : The Beginnings of a U n i v e r s a l

Law and E c o n o m i c s

Epistemologist Karl Popper described the pr o pe r g ro wt h

of s ci e n c e as a p r o c e s s in w hi ch explanatory theories be co me

increasingly u n i v e rs a l. By universal he mean t applicable

to a wi de range of phenomena: the more universal a th eor y

is, the mo re apparently different kind s of a c t i v i t y it can

bri ng within its domain without resorting to aji hoc rational

i zation. L aw and economics has e vo l v e d in m u ch the way P op p er

s u gg es ts , and one purpose of this section is to d e s c r i b e

the m e t h o d o l o g i c a l changes which, beginning in the ea rl y

1960's, led to a more universal (and a mo re ambitious) law

and economics than most economists and legal theorists had

previously e nv i si o n e d .

In 1960 Gu id o Calabresi published his n o w - c l a s s i c article,

g
"Some T h o u g h t s on R is k D i s t r i b u t i o n and the Law of T o r t s . "

T he r e are, as one w o u ld expect, some scattered allusions

to e c o n o m i c principles in previous discussions of torts,

but the C a l a b r e s i article is one of the best earl y e xa m p l e s

of a s t ud y that systematically applies sophisticated e co n o m i c

t he o ry to an a re a of the law w h i ch was previously understood

mainly in n o n e c o n o m i c (sometimes moralistic) c on c e p t s and

terms.

Calabresi examines w he the r, and in what ways, considera

tions of risk distribution sh ou ld gu ide the formulation and

administration of tort law. The central p ol ic y issue is

whether the principal criterion of liability is to be

based on " f au lt " or on the distribution of risk and loss.

Calabresi feels that one u se f ul approach to c o n s i d e r a t i o n s

of risk and loss distribution is 'to d ra w upon the principles

of e c on o mi cs , th o ug h he is a l m o s t apologetic in s aying

so. His words also carry considerable iron y in light of

more re ce nt criticisms of law and ec on om i cs :

To d ec i d e wh en and how we w i s h to
d i s t r i b u t e l o ss e s we must, t h e r e
fore, e x a m i n e the t h e o r e t i c a l j usti-
c i a t i o n s . . . often, u n f o r t u n a t e l y ,
in that mo st di s ma l of the or ie s,
e c o n o m ic s . H o p e f ul ly , it w il l do so
in terms w h i c h are i n t e l l i g i b l e to
law t ea ch er s, if not to law yers, and
w i t h o u t that s u i c i d a l de s ir e of the
e c o n o m i s t to m ak e his t he o ry so
p e r v a s i v e and d e t a i l e d that it^ is
rendered utterly useless . . .

As m e n t i o n e d above, one important characteristic of

Calabresi's 1960 piece that was of real significance for

the e v o l u t i o n of law and economics is the sophistication

of its economic rationality--price theory, in p a rt ic ula r.

The cornerstone of his analysis is what he c alls the "resource-

allocation theory", according to w h i c h liability ought

to be a s s i g n e d in s uc h a way as to c au se the least p os s i b l e

distortion of the true c o n f i g u r a t i o n of r e l a t i v e prices.

The true c o n f i g u r a t i o n of relative pr i ce s here r ef er s to

that configuration which correctly represents the r e l at iv e

s oc i al costs of the activites in q ue s ti on . Calabresi's

example of liability in a u t o m o b i l e accidents demonstrates

how the th eo ry wo ul d be ap pl ie d. He considers two ways

of d e a l i n g w it h the s oc ia l cost of a u t o m o b i l e ac cid en ts :

 21

One way is to hold the offending driver, the one who c au s ed

the ac ci d en t, strictly l ia b l e for all damage s. An alternative

way is to c h a r g e the s tate w i t h all a c c i d e n t - r e l a t e d costs,

in e ff e ct eliminating d ri v e r liability altogether. Calabresi

finds the la tt er unacceptable according to the resource-

allocation theory:

The fact is that if the cost of all

auto a c c i d e n t s were s u d d e n l y to be
paid out of a g e n e r a l g o v e r n m e n t
fund the e x p e n s e of o w n i n g a car
w ou ld be a lot lower than it is now
since p e op l e w o u ld no l on ge r need to
w or ry a bo ut b u yi n g i ns u ra nc e; the
r es ul t w o u l d be that some p eo pl e
w ou ld buy m o r e cars . . . [But] an
e c o n o m i s t w o u l d say, r e s o u r c e s are
m i s a l l o c a t e d in the goods we p r o d u c e d
w h i c h the p u r c h a s e r w ou l d not w an t if
he r ea l l y had to pay the full e xt en t
of their cost to s o c i e t y this cost,
w h e t h e r in ter ms of the p h ys i ca l
, c o m p o n e n t s of the item or of the
e xp e n s e of the a c c i d e n t s a s s ^ g i a t e d
with its p r o d u c t i o n and use.

It mi gh t seem that Calabresi's treatment of s oc ia l

cost is e s s e n t i a l l y P i g o v ia n , especially w it h the e m p h a s i s

on cost being reflected in pr i ce s which in turn lead to the

c or r e c t or o p t i m a l quantity t ra de d on the mar ke t. A c tu al ly ,

Calabresi's approach is quit e Co as ia n. Note that in the

auto accident example Calabresi ne ve r really says the o f f e n d i n g

dr i ve r alone s ho u ld bear the c os ts of a cc id e n t s . He says

that d ri v e r s of a u t o m o b i l e s in general, ra th er than the

g o v e r n m en t , s ho u ld bear thos e costs. C o n s i d e r also

Calabresi's discussion of job-related accident liabili ty .

The over-riding consideration is not w h o se fault an a c c i d e n t

 22

is, but w ho se prevention co sts are less:

[ I] n su r a n c e may cost one part y less

than it co sts a no th er. If that is
so, the p ro pe r pa rty to bear the risk
is the p ar t y w ho se i n s u r a n c e costs
are lower. For only then are the
true costs of i nj u r i e s and not some
false c osts of m or e e x p e n s i v | ^ i n
surance, r e f l e c t e d in price.

A statement of the resource-allocation th e or y is only

the s t a r t i n g point in C a l a b r e s i ' s study. The m a jo r part

of his paper discusses how the t h e o r y w o u l d operate within

the c on t e x t of v ar i o u s market s t ru ct u r e s , from very competitive

i
to m o n o p o l i s t i c , and for this he draws upon r at he r sophisticated

price theory. A m er e enumeration of the structures and

relationships discussed r ev ea ls m uch a b ou t the sophistica

tion of his an al y si s . He c on s id e rs , a mo ng o th er things,

cost-plus p r i c i n g mode ls , lump-sum v er s us per unit t axation,

elasticity of s u b s t i t u t i o n in the use of inputs, f o rw ar d

and backward shifting of risk w ith re ga r d to m a r k e t structu re ,

the e ff ec t of cost increases on pr ic es in v ar i o u s kin ds

of m ar k e t structure (employing more sophisticated oligopolistic

and "imperfectly competitive" p r i c i n g m o d el s ). The following

passage, t h ou g h relatively short, conveys the tone and

some feel for the c o m p l e x i t y of his a na l ys i s:

[I]n some s i t u a t i o n s w h er e c o m
p e t it i ve i n d u s t r i e s p r o d u c e goods
wh ic h are r e a s o n a b l y c lo se s u b s t i t u t e s
for the p r o d u c t s of r e l a t i v e l y m o n o
p o l i s t i c i n du s tr ie s , a f a v o r a b l e
r e s o u r c e - a l l o c a t i o n e ff ec t f o ll ow s
from e n t e r p r i s e l i ab il i ty . Undoubtedly,
there are al so s i t u a t i o n s w h e r e e n t e r
prise l i a b i l i t y w ould ca us e no r e s o u r c e
a l l o c a t i o n ef fe ct at all. Such a
 23

s i t u a t i o n m ig h t be one in whi ch
i n d u s t r i e s p r o d u c i n g ro ugh s u b s t i t u t e s
w er e each o l i g o p o l i s t i c and failed
to c ha ng e pri ce and o ut pu t as a r es ul t
of i n c r e a s e d c osts (or w h er e the add ed
c ost s were fixed as to o ut put), and in
w h i c h all firm s in the i n d u s t r i e s
i n v o l v e d w e re m ak i n g s u f f i c i e n t extr a
p r of i ts to s u r v i v e the loss in p ro fi ts
entaij.gd by such an u n s h i f t a b l e cost
item.

It is i m p o r t a n t to note that w h il e Calabresi embraces

an e c o n o m i c appr oa ch , he implies, as does Coase, that it

is e s s e n t i a l l y i n s t r u m e n t a l , not s u bs t a n t i v e . Unfortunately

Calabresi is not q uite so cl ear about the need for "aesthetics

and m o r a l s " as a b asis for ac tu al po l ic y d e ci si o ns :

[We] are i n t e r e s t e d in se ei ng how

st r o n g the bases are for each of our
v a ri o us th i ng s we call ri sk d i s t r i b u
tion. If it turns out that these
bases are strong, it may be a s s u m e d
that the p o l i c i e s in fa vor of other
c r i t e r i a for a l l o c a t i n g losses, like
fault, are w e a k e n e d by c o mp ar i s o n .
' It need not fo l lo w that these other
, even if w e ake ned , sh ou ld
not d o m i n a t e in al l ^g r in some ar eas
wh er e lo s se s occur.
Again, Calabresi seems to be implying that economics

has its l i mi t a t i o n s , but he is s o m e w h a t vague as to what

they are. The point is not that economists must become

philosophers; it is that the theorist who w ou l d challenge

traditional t ho ug ht w it h a new a n a l y s i s has the responsibility

to d e t e r m i n e as ne ar ly as possible the limitations of his

a na ly s is . In short, he s hould say precisely what he is

about. Law economists have u s u a l l y f ai l ed to do so.

Calabresi's analysis proceeds a l mo s t entirely wi t hi n

the c on t e x t of the fi rm r ather than the household or the

individual.- In later studies, especially theories abo ut

criminal a ct iv it y, the individual-choice approach pr oved

to be q uite f ru it fu l, especially in the w or k of Ga ry Becker.

In "C rim e and Punishment: An E c o n o m i c A p p r o a c h , " ^ published

in 1968, B ec k e r applied the individual-choice model in

a path-breaking analysis of c r i m i n a l ac ti v it y. The essence

of B e c k e r ' s pronouncement reads:

T h e o r i e s a b o u t the d e t e r m i n a n t s of
the n um b e r of o f f e n s e s d if f e r greatly,
from e m p h a s i s on s ku ll ty pes and
b i o l o g i c a l i n h e r i t a n c e to f am il y
u p b r i n g i n g and d i s e n c h a n t m e n t with
society . .
The a p p r o a c h take n here f o ll o ws
the e c o n o m i s t s ' u sual a n a l y s i s of
c h oi c e and a s s u m e s that a p er s on
c o m m i t s an o f f e n s e if the e x p e c t e d
u t i l i t y to him e xc e e d s the u t i l i t y he
could get by using his time and ot her
r e s o u r c e s at ot her a c t i v i t i e s . . .
T his a p p r o a c h i m p l i e s that ther e
is a f u n c t i o n r e l a t i n g the n u m b e r of
o f f e n s e s by any p er so n to his p r o b a
b il it y of c o n v i c t i o n , to his p u n i s h
ment if c o nv i ct e d, and to oth er
va ri ab l es , such as the in c om e a v a i l
able to him in legal and o ther i l l e g a l
a c t i v i t i e s , the f r e q u e n c y of n u i s a n c e
ar rests, and hi|,-willingness to co m mi t
an i ll e g a l act.

B ec ke r represents this function as

0. = 0 .(P ., F ., U.)
J J J J J
w h ere 0 . is the number of o f f e n s e s one w o u ld c o mm i t d ur in g

a particular period, P . the probability of c o n v i c t i o n per

offense, Fj the punishment per o ffense, and U . a portman

teau variable representing oth er influences.^

Clearly Becker's approach is an a t t e m p t to understand

c ri me in t erms of a m o r e g en e ra l theory of h um an action,

and in this s ense he is universalizing the economic analysis

of law. B ec ke r himself is quite explicit abo ut this:

Some p e rs o ns be co m e "c ri m in al s ", t h e r e

fore, not b e c a u s e their basic m o t i v a t i o n
d i f f e r s fr om that of oth er persons, but
b e c a u s e thei r b en e f i t s and cost s differ.
I c an no t p au s e here to d i s c u s s the many
g e n e r a l i m p l i c a t i o n s of this a p p r o a c h
e x c e p t to r e m a r k that c r i m i n a l b e h av i or
be c o m e s part of a mu ch mo re g e ne r al
t heo ry and does not r e qu i re ad hoc
c o n c e p t s of d i f f e r e n t i a l a s so c i a t i o n ,
anomie, and the like . . .

Elsewhere he has wr it te n:

It is my b e li e f that e co n o m i c a n a l y s i s
is e s s e n t i a l in u n d e r s t a n d i n g much of
the b e h a v i o r t r a d i t i o n a l l y s t u d i e d by
s o c i o l o g i s t s , a n t h r o p o l o g i s t s , and
o th er s o c i a l s ci e nt i s t s . This is a
true e x a m p l e of e co n o m i c i mp e ri a li sm !

The sophistication of B e c k e r ' s analysis is g e n e r a l l y

acknowledged and need not be d e m o n s t r a t e d here. In this

connection it m i g h t be p oi n t e d out that B ec ke r felt it

necessary to add an e x t e n s i v e mathematical appendix to

"C ri me and Punishment". The appropriateness of m a t h e m a t i c s

ist o uc h ed upon a ga in in C h a p t e r V. Suffice it here to

say that Becker's use of m a t h e m a t i c s is not scientistic

window d r es si ng ; ther e is a g e nu in e need for m a t h e m a t i c s

b e ca u se of the sophistication and complexity of his model.

It will be a r g u e d that Be c ke r i n te nd s his a n a l y s i s

to be i n s t r u m e n t a l , and not concerned with substantive

questions abo ut the h a r m and i nj u ry associated with different

activities. Some critics have interpreted his work o t h e r w is e .

H. H. L i e b h a fs k y, for i nstance, humorously st a te d that

" B ec k er has presented an a l t e r n a t i v e to the view of Fe od er
19
Dostoevski". It will be left to the r e ad e r to d ec id e

whether the variable IK, which represents the c r i m i n a l s

"willingness to c om m i t an illegal act" is a m e a s u r e of

original sin; Becker himself does not use such t e r m in ol o gy .

But, as C a l a b r e s i before him, B ec k e r does sp ea k deferentially

of the role of m o ra l consideration in p o li c y d ec isi o ns :

R e a s o n a b l e m en will ofte n d if f e r on the

am o un t of d a m a g e s or b e n e f i t s c au s ed by
different activities. To some any wage
rates set by c o m p e t i t i v e lab or m a r k e t s
are p e r m i s s i b l e , w h i l e to others, rates
b e l o w a c e r t a i n m i n i m u m are v i o l a t i o n s
of basi c rights. To some, gamb li ng ,
p r o s t i t u t i o n , and even a b o r t i o n should
be f re e l y a v a i l a b l e , to a ny o n e w i l l i n g
to pay the m a r k e t price, w h i l e to others,
g a m b l i n g is si nf u l and a b o r t i o n is
m urd er . T h e s e d i f f e r e n c e s are basic to
the d e v e l o p m e n t and i m p l e m e n t a t i o n of
p ub li c p o li c y but have been e x c l u d e d
from my i nq ui ry. I a s s u m e c o n s e n s u s on
d a m a g e s and b e n e f i t s and s i m p l y try to
w o r k out r u l e s for an o p t i m a l i m p l e m e n
t at i on of this c o ns e n s u s .
T he m a i n c o n t r i b u t i o n of this essay,
as I see it, is to d e m o n s t r a t e that
op t i m a l p o l i c i e s to c om b a t i l le ga l
b e h a v i o r are | g rt of an o p t i m a l a l l o c a t i o n
of r e s o u rc e s.

One m ig ht argue that Becker is s i m p l y doing an e c o n o

mist's job in the s pi r i t of c e t e r i s paribus: S e t ti n g aside

considerations of m o r a l i t y , what does economics a lo n e s u gg es t

in term s of "efficiency" and "optimality conditions"?

But such a response misses the point, for it a c c e p t s an

artificial distinction between efficiency and mora lit y.

It will be h e l p f u l to c o n s i d e r further what Be ck e r means

when he says that he has "assumed consensus on d am a ge s

 27

and benefits." His a n a l y s i s a ss u m e s consensus on the criterion

that "the loss function [i.e., the real cost of crime]

is identical w it h the total s oc ial loss in real income

21
fr om o f fe ns es , convictions and punishments . . ." Thus

he has not merely assumed a co ns en s us ; he has a s s u m e d a

particular moral judgment on "the a mo u nt of d a ma g es or

benefits ca u se d by d i f f e r e n t activities". Th us it is a

bit m i s l e a d i n g for h im to state that differences of o pi n i o n

about the value of c e r t a i n activites "have been excluded

22
fr om my in q ui r y" . T he implication seems to be that one

can separate "efficiency" and ethics. To do so is, however,

impossible, for the derivation of o p t i m a l i t y co nd it i on s,

i.e., e f fi c i e n c y , necessarily p ro c e e d s on the basis of

pr ior judgments ab ou t the value of c er t a i n a c ti v it ie s .

One wishes that Becker we re m or e clear a bout the limitations

of economic analysis in policy-making, and particularly

about what is embodied in his a s s u m p t i o n of c o n s e n s u s on

moral o pi nion.

Still, one must i nf er that Be ck er i nt en d s his a p p r o a c h

to be e s s e n t i a l l y instrumental. He does, a f te r all, state

explicitly that the purpose of his a n a l y s i s of crime is

"to w or k out the rule s for an o p t im al implementation of

23
this consensus" --and, it is r e a s o n a b l e to assume, any

other " gi ve n" consensus.

The a n a l y s e s of Coase, Calabresi and Be c ke r are partial,

rather than c om ple te , mo st importantly b ec a us e they ac cep t

or a s s u m e aesthetic and m or al judgments w h i ch lie o ut s id e

 28

of the r ea lm of e c o n o m i c s and are preliminary to the efficiency

conclusions eventually derived. T h ey begin, in other words,

with " g iv e n" judgments abo ut what constitutes harm and

injury. Th er e are two othe r senses, less important than

the first, in wh ic h their analyses may be said to be partial,

not c o m p le t e: ( 1 ) they p r o ce e d l ar g e l y in terms of m ar k e t

pr ic es and money i nc o me i ns t ea d of the m ore universal c on c ep t

of utilit y, or "want satisfaction", and ( 2 ) they implicitly

accept some g iv en distribution of i nc o me and wealth. These

two po i nt s are not completely unrelated to the first, of

course. T he y require f u r th e r comment here.

The ultimate end-product of e c o n o m i c activity--the

ultimate purpose of purposive a c t i o n is c o n s i d e r e d in

modern economic t he o r y not to be physical ou tpu t or even

profit, but the completely g en e ra l concept of "utility".

In M a r s h a l l ' s Principles of E c o n o m i c s and othe r great neo

classical works, the t he o r y of d e m a n d was based on u ti l i t y

a n a l y si s . The idea of u t i l i t y ma de possible a g e ner al

t he o ry that c ou ld explain the "economizing" as pe ct of

b eh a v i o r w it h r es p ec t to all the ma ny different kinds of

" ec o n o m i c goods", both tangible and intangible. Economic

theory thus be ca me m u ch m or e ge ne ra l, and much more power

ful w he n it r e c o g n i z e d that, as M i l t o n Friedman put it,

all g oods "have some c o mm o n characteristic that mak es

comparisons a mo n g them poss ib le. Th is c om m o n characteristic

2 <4
is usually called utility." Though Be c ke r r es or ts to

a monetary standard of m e a s u r e in his s oc ia l loss function,

he is e x p l i c i t abo ut the loss of generality this e nt ails:

What is n e e d e d is a c r i t e r i o n that goes

b ey o nd c a t c h y p h r as e s . . . The s ocial
w e l f a r e f u n c t i o n of m o d e r n w e l f a r e
e c o n o m i c s is such a c r i t e r i o n . . .
It is m o r e c o n v e n i e n t and t r a n s
parent, h ow ev e r, to d ev e l o p the d i s c u s
sion at this poi nt in terms of a less
g e ne r al f o r m u l a t i o n , n am e l y to a ss um e
that the loss f u n c t i o n is i d e n t i c a l w it h 25
the total s o c i a l loss in real i nc om e . . .

The Coasian analysis of s oc ia l cost is c o n d u c t e d al mo st

entirely in terms of the d ol l ar value of v ar i ou s pr oducts.

Consider his comments on an e x a m p l e in w h ic h the m a c h i n e r y

used by a c o n f e c t i o n e r created a n oise nuisance for a do cto r

occupying part of the same b uilding:

The d oc t or w o u l d have been w i l l i n g to

w ai ve his r ig ht and a l l o w the m a c h i n e r y
to c o n t i n u e if the c o n f e c t i o n e r wo uld
have paid hi m a sum of m o n e y w h i c h was
g r e a t e r than the loss of inc om e w h i ch he
w o uld su ff er from h av i ng to move to a
more c o s t l y or less c o n v e n i e n t l o c a t i o n
or from h a v i n g to c u r t ^ l his a c t i v i t i e s
at this l o c a t i o n . . .

Calabresi also r el i e s upon m a r k e t pr ic es to reach

particular conclusions ab out risk d i s t r i b u t i o n . Re ca ll

the e x a m p l e discussed a b ov e in wh ic h the m ar k e t price of

job-related accident insurance was l ar g e l y determinant

in a s s i g n i n g liability for a c c i d en t s. Even Becker's social

loss function is d e f i n e d in terms of the m o n e t a r y l osses

due to crime. There is no d ir ect mention of " u t i li t y"

in C o a s e ' s a rt ic le , and th o ug h Calabresi does d ev ot e a

couple of page s to the utility of money, he implies that

27
the utility of ot he r go ods is i rr e le v a n t . In his early
 30

analysis of tort law, it w ou ld seem that economic goods are

one thing, "utility" q u it e another.

The analyses of Coase, Calabresi and B ec ker are p a rt ial

analyses al so in that their conclusions are particular to

the underlying distribution of wealth and income. Even if

one w er e to a cc e p t market p ri ce s as the a p p r o p r i a t e data

for economic an al ys i s, one s ho u ld not i gn or e the e ff ec t of

wealth distribution on the structure of r e l a t i v e prices.

C ha n g e the distribution of w e a l t h and you ch a ng e the s t r u c t u r e

of prices, hen ce the d e r i v a t i v e optimality conditions .

In this s e ns e the c o n c l u s i o n s are particular to the underlying

distribution of wea lt h, and the a n a l y s i s partial, not c omplete.

Coase, it will be r e me m b e r e d , suggested that the right

of the confectioner to use his machinery is not absol ut e;

nor is the doctor's r ig ht to quiet. Rather, the right would

be a l l o c a t e d on the b asis of w i l l i n g n e s s and a bi l i t y to pay.

In this vi ew the d em a n d for the right in q u e s t i o n is u l t i m a t e l y

derived from the demand for the final product. Thus the

distribution of i nc o m e and w e a l t h is p o t e n t i a l l y very

i m po r ta nt . It is likely, for in stance, that if s oc i e t y exper

i en ce d a redistribution of i nc om e from old er to y ou n ge r adults,

the result w o ul d be a r e l a t i v e d e cl in e in the d em an d for

medical s e r v i ce s . C on s eq ue nt ly ,, there cou ld be a r e a l l o c a t i o n

of r ig ht s .

As stated above, the point that economic a na l y s i s d e pe n ds

upon pri or judgments on the value of c e r t a i n goods or

is e s p e c i a l l y i mp or ta nt . This is true not

merely as it regards the theoretical completeness of law

and e c o n o mi c s, but because it gets to the very h eart of

problems in p o li c y m ak in g. The derivation of e c o n o m i c a l l y

e f f i c i en t , or value-maximizing, solutions to so c ia l problems

can o nl y proceed on the basis of m oral judgments ma de prior

to the derivation itse lf . C on s id e r, as an e xa mple, the

constant d e ba t e over w h at to do about the "po rn o s hops"

in the French Quarter of New O rle an s. One cou ld r ea d il y

apply the B ec k e r analysis to this pr oblem. After assuming

a consensus a bo u t the v al u e of such establishments one

can specifiy a "social loss function" and then p r oc ee d

to de r iv e the "optimal" quantity of pornography. But,

of course, t h ere is no su ch c o n s e n s u s and this is the problem.

Thus economics alone would s ee m to be of l it t l e use in

those critical areas where ther e is d i s a g r e e m e n t on the

m o ral and ethical issues.

The remainder of this chapter is d e v o t e d to R i c h a r d

Posner. It w il l be a r g u e d that whi le his e ar l i e r statements

on the n at u r e of the economic analysis of law did s ug ge st

a more g en e r a l vi ew of law and economics than was s hared

by o th e rs b ef or e him, he n o n e t h e l e s s described a " p a r t ia l"

t he o ry of law.

D. Richard Posner and W e a l t h M a x i m i z a t i o n

The best of the e a r ly Posner is foun d in his t extbook,

28
Economic Analysis of L a w , first published in 1972. Even

here one gets the impression that P os n e r conceives of a more

universal theory of law than o th e r s have offered b efore

him. He d e s c r i b e s the p ur p o s e of his book:

S u b s e q u e n t c h a p t e r s will show how the

i n s i g h t s of Coase, C a l a b r e s i and Be ck e r
h ave been g e n e r a l i z e d . . . y i e l d i n g an
e c o n o m i c t h e o r y of law w it h broad
e x p l a n a t i v e and r e f o r m a t i v e power and
w it h g r o w i n g e m p i r i c a l s up port. T hese
c h a p t e r s wi ll s h o w that e c o n o m i c s has
both a n o r m a t i v e and a p o s i t i v e role
in the s t u dy law and legal
institutions.

His comments on the significance of C o a s e s ug ges t

what was l a te r to be w i d e l y kno wn as the principle of

wealth maximization :

C o a s e s u g g e s t e d that the E n g l i s h law

of n u i s a n c e had an i m p l i c i t e c o n o m i c
logic. L a t e r w r i t e r s have g e n e r a l i z e d
this i n s i g h t and a g r e e d that m a ny of
the d o c t r i n e s and i n s t i t u t i o n s of the
legal s y s t e m are best u n d e r s t o o d and
e x p l a i n e d as e f f o r t s to p ro mote
e f f i c i e n t a l l o c a t i o n of re sou rc es .

In later writings Posner objectifies the g e ne r al principle

of w e a l t h maximization and sp e ak s of it, in the a bs t ra c t,

as a u n i v e r s a l f irst principle for both positive and normative

analysis of law.

In E c o n o m i c Analysis of L a w , P os ne r defines "efficiency"

and " v al ue " (later t er m ed "w ea l th ") as fo llows:

Efficiency means exploiting economic

r e s o u r c e s in such a way that " v a l u e "
h u ma n s a t i s f a c t i o n as m e a s u r e d by
a g g r e g a t e c o n s u m e r w i l l i n g n e s s and
a b i l i t y to p a y ^for goods and s e r v i c e s
is m a x i m i z e d .

One m ig ht a r g ue that P o s n e r 1s view is no more g e ne ra l

than that of Becker, s in ce both p ro p o s e to m e a s u r e value

 33

(or " so ci al welfare" in B e c k e r ' s a n a l y s i s of crime) in m o n e t a r y

terms. P os ne r has n e v er abandoned his "willingness and

ability to pay"- m e a s u r e m e n t of value, and he has been a tt ac ked ,

especially by the Austrians, for not t ak in g subjectivism

s e r i o u sl y . Mo re on this will come in C h a p t e r III.

Austrian objections aside, his use of w i l l i n g n e s s

and ability to pay w o u ld s ee m to re n de r his a n a l y s i s p ar ti al

s ince ability to pay is largely determined by the d i s t r i b u t i o n

of income. In e a r l i e r writings Posner conceded the point:

W i l l i n g n e s s to pay, the basis of the

e f f i c i e n c y and va lue c on ce p ts , is a
f u n c t i o n of m a ny things, i n c l u d i n g
the d i s t r i b u t i o n of in c om e and wealth.
W e r e i n co m e and w e a l t h d i s t r i b u t e d
d i f f e r e n t l y , the p a t t e r n of d em an d
m ig h t al so be d i f f e r e n t and e f f i c i e n c y
w ou ld r e q u i r e a d i f f e r e n t t ^ p l o y m e n t
of our e c o n o m i c r e so u r c e s .

Th us it w o u l d seem that economic rationality alone

c an n o t a rr i v e at a u n iq u e allocation of r es ou rc es , or

assignment of rights, u nl e ss and until the distribution

of in c om e and w e a l t h is d e t e r m i n e d . T he r e is no such

concession in the lat er w r i t in g s, ho we ve r. P os n er now

a rg u e s precisely that economic rationality " o r d ai n s a s ys t em

of exclusive r ig h t s " and "requires the i n iti al v es t in g

33
of r ig ht s in th ose who are l i ke l y to value them the mo s t. "

The proposition that economic rationality o rd a i n s a sy s te m

of exclusive ri gh ts is not n ew w it h Posner, of course.

Economists have long argued that incentives to p r od uc e

and economize are created by the p a r c e l i n g o ut a mo ng the

members of s o c i e t y of m u t u a l l y exclusive r ig ht s to the

use of particular r e s o u r ce s . What is s i g n i f i c a n t in Posner'

later writing is that he cl ai ms to have a r r i v e d at a w ea l t h

(or e f f i c i e n c y ) maximizing i n it ia l distribution of th ose

rights:

It is true that if m a r k e t t r a n s
a c t i o n s w e r e c os tl es s, it w ou l d be a
m a t t e r of i n d i f f e r e n c e to the e c o n o
m ist w h e re an e x c l u s i v e right was
i n i t i a l l y vested. The p r oc e ss of
v o l u n t a r y e x c h a n g e w o uld c o s t l e s s l y
r e a l l o c a t e the right to w h o e v e r valued
it the m os t . . . If t r a n s a c t i o n cost s are
po sit iv e, the w e a l t h - m a x i m i z a t i o n
p r i n c i p l e r e q u i r e s the i ni t ia l v es t i n g of
r i g h t s in thos e who are lik e ly to v alue
them the most. This is the e c o n o m i c
r e a s o n for g iv i n g a w o r k e r the right
to sell his labor and a w o m an the
rig ht to d e t e r m i n e her se xu al p a r t
ners . . . No doubt the i n h e r e n t d i f
f i c u l t i e s of b or r o w i n g a ga i n s t hum an
c a p i t a l w o u l d defeat some e f f o r t s by
the n a t u r a l o wn er to buy back the right
of his lab or or body even from s o me o ne
who did not r ea l l y value it mo re h ig h ly
than he d i d but that is s i m p l y a
f u r t h e r r e a s o n for i n i t i a l l y v e x i n g
the r ight in the n at u r a l owner.

Posner thus introduces the idea of the n a t u r a l owner:

the one who v alu es a t hi ng the most as m e a s u r e d by w i l l i n g

ness and ability to pay. He d i s t i n g u i s h e s between the

natural o wn e r and the one who m e r e l y possesses a thing

with the h y p o t h e t i c a l e xa m p l e of a pe rs o n who possesses

a beautifully lustrous and p ea rl y smile, but will not a l l ow

it to be p h o t o g r a p h e d . S u pp o se that C o l g a t e is

willing and a bl e to pay more for the rig ht to photograph

his s m il e than the o wn er is w i l l i n g and able to pay to

p re v en t the use of t h os e p ic t u r e s on billboards or in

magazines. P os n e r feels that in such a case it would

 35

35
not i nv o l v e "any contradiction or a b s u r d i t y " to rule

that the smi le s ho u ld be o wned by Co lga te .

Thus P os n e r has attempted to get a ro u n d the distributional

problems by c o n t e n d i n g that w e a l t h m a x i m i z a t i o n it self

suggests the all-important initial distribution. "The

crucial po in t" he de cl a re s, "is that the specific distribution

of w e a l t h is a m er e by-product of a d i s t r i b u t i o n of rights

that is i ts el f derived from the w e a l t h maximization p rinciple.

36
A just distribution of w ea l t h need not be p o s i t e d . "

It has been suggested that Posner's rationality still

involves a serious p r o b l e m of c i r c u l a r i t y . That will be

dea lt wi th later; for now, the point is m e r e l y that Posner

recognizes wh at is r e q u i r e d of a tru ly general e c o no mi c

analysis of law wi th respect to the distribution of income

criterion and has attempted to me et that r e q u ir e me nt .

In his discussion of rights, P os n e r see ms to be s u g g e s t

ing that efficiency or w e a l t h maximization is itself an

ethical c on cept. In the ea rl y w r itin gs , ho wever, P os ne r

s ee m e d no d i f f e r e n t from B e ck e r and ot h er s who s ug ge st

that economic principles and normative (i.e., value) principles

are conceptually d i sti nc t:

Some e c o n o m i c s y ie l ds no a ns w er to the
q u e s t i o n s w h e t h e r the e x i s t i n g d i s t r i b u
tion of i n co m e and w e a l t h is good or bad,
just or u n ju s t . . . n e i t h e r does it
yield an a n s w e r to the u l t i m a t e q u e s t i o n
w h e t h e r an e f f i c i e n t a l l o c a t i o n of
r e s o u r c e s w ou l d be good, just or o t h e r
wise s o c i a l l y or e t h i c a l l y des ir ab le .
Nor can the e c o n o m i s t tell us whether,
a s s u m i n g the e x i s t i n g d i s t r i b u t i o n of
in co me and w e a l t h is just, c on s u m e r
 36

s a t i s f a c t i o n sh o ul d be the d o mi n an t
value of s oc iety. The e c o n o m i s t ' s
c o m p e t e n c e in a d i s c u s s i o n of the legal
s y s t e m is thus s t r i c t l y limited. He
can p re d ic t the e ff ec t of legal r ules and
a r r a n g e m e n t s on val ue and e f f ic ie n cy ,
in this s tri ct t e c h n i c a l sense, and
on the e x i s t i n g d i s t r i b u t i o n of i nc om e
and w e a ^ h . He c an n ot p r e s c r i b e social
change.

"Utilitarianism, Economics and Legal Theory" c ha n ge d

all this. Posner's introductory r em a r k s clearly i n d i ca t e

the differences between his earlier and later views on e c o n o m i c s

and m o r al p hi lo so ph y:

W h il e n o w a d a y s r e l a t i v e l y few of the
pe o pl e in our s o c i e t y . . . c on s i d e r w ea l t h
m a x i m i z a t i o n or some other v e rs io n of
e f f i c i e n c y the p a r a m o u n t so ci al value,
few judge it a t ri v ia l one . . . C o n s e q u e n t l y ,
the e c o n o m i s t has an i m p o r t a n t c o n t r i b u t i o n
to m ak e to e th i c a l d eb at e even if he is
un ab le to give any p h i l o s o p h i c a l l y c oh e r e n t
a c c o u n t of e c o n o m i c ra ti o na li ty .
But I am u n w i l l i n g to let the
ma t te r rest there, for it seems to me
that e c o n o m i c a n a l y s i s has some c l ai m to
being r e g a r d e d as a c o h e r e n t and a t t r a c ^ g
tive basis for e t h i c a l j ud g m e n t s . . .

What has happ en ed , it seems, is that the relationship b et w ee n

economics and et h ic s has been stood on its head: w h e r e a s

the e ar l y Po s ne r saw time-honored m or al p r i n c i p l e s as v i n d i c a t i n g

the idea of e f f i c i en c y, the later P os n e r sees the "conventional

pie ti es ", as they were to be called, as being grounded in

e f f i c i e nc y . Consider this earlier discussion in his textbook:

Surely, it wi ll be aruged, the true

p ur p os e of law, e s p e c i a l l y of law
e m b o d i e d in the c om mo n law of E ng l an d
and the U ni t ed States, is to c or re ct
i n j u s t i c e s and t h er eb y v i n d i c a t e
the m o ra l sense.
In fact, there a p p e a r s to be no
f u n d a m e n t a l i n c o n s i s t e n c y b e tw ee n
 m o r a l i t y and e f f ic ie n cy . Moral prin
ci p le s . . . serve in g en e r a l to p r om ot e
e f f ic i en c y.
So m et i me s, to be sure, a d h e r e n c e
to m o ra l p r i n c i p l e s r e du c es the w e al t h
of s o c i e t y "h onor a mo ng t hi e v e s "
i l l u s t r a t e s the point . . . But on balan ce
it w ou ld s ee m that the m or al p r i n c i p l e s
i n c r e a s e the w e a l t h of s o c i e t y more
than they r ed u c e it . . .

Contrast the a bo ve remarks w it h his later statements

in " U t i l i t a r i a n i s m " :

Now it m i g h t seem that an e th i c a l

t h e o r y p r e m i s e d on one p r e f e r e n c e
the de s ir e for w e a l t h must be i n f e ri or
to an e t h i c a l t he o ry w h ic h takes a cc o u n t
of the w h o l e set of p r ef e r e n c e s . But
this is not n e c e s s a r i l y so. First, as
we shall see, the p u rs u it of w e a l t h is
m ore c o n s i s t e n t wi th our i n t u i t i o n s
c o n c e r n i n g e t h i c a l b e h a v i o r than the
p ur s ui t of h a p p i n e s s . Second, the
w e a l t h p r i n c i p l e can more e a si l y be made
to yiel d the fo rm al e l e m e n t s of an
e t h i c a l t h e o r y i n c l u d i n g n o t i o n s of
r i gh t s and of c o r r e c t i v e j u s t i c e - ^ h a n
u t i l i t a r i a n i s m can be ma de to do.

Before, in the ea rl y w r it in gs , economic considerations

were not only distinct from, but by i m p l i c a t i o n subordinate

to, mo ra l considerations. T hi s seems not to be his view

in later pronouncements. The following is also from

"Utilitarianism":

O t h er e th i c a l values can also be g r o u nd ed

m o r e f ir m ly on w e a l t h m a x i m i z a t i o n than
on u t i l i t a r i a n i s m . E c o n o m i c l ib e r t y is
an o b v i o u s ex ample, given the a l m o s t u n i
v er s al o p i n i o n of e c o n o m i s t s ( i n c l u d i n g
M a r x i s t e c o n o m i s t s ) that free ma rkets,
w h a t e v e r o b j e c t i o n s can be m a d e to them
on g r o u n d s of equity, m a x i m i z e a s o c i e t y ' s
wealth. Th is is, to be sure, an e m p i r i c a l
jud gm en t, but it r ests on much firmer g round
than the c l a i m that free m a r k e t s m i n i m i z e
happiness.
 38

Less o b v i o u sl y , most of the c o n v e n

tional p i e t i e s - - k e e p i n g prom is es , t e ll i ng
the truth, and the l i k e can also be
d er i ve d f ro m the w e a l t h - m a x i m i z a t i o n p ri nc ip le.
A d h e r e n c e to the se v i r t u e s f a c i l i t a t e s
t r a n s a c t i o n s (and so p r o m o t e s trade and
h e n c e w e a l t h ) by r e d u c i n g the costs of
policing markets through self-protection,
d e t a i l e d c o n t r a ct s , l i t ig a ti on , etc.
Even a l t r u i s m ( b e n e v o l e n c e ) can be ^
i n t e r p r e t e d as an e c o n o m i z i n g p ri nc ip le .

A few w ords of summary are in order. In the early

w r i t in g s, P os n er s e em e d to be s ay i n g that e c o n o m i c s

is a h a n d m a i d e n science and instrumental in its r a t i o n a l i t y .

He suggested that economic principles are separate from and

subordinate to mo ral and e th i c a l p r i nc i pl es , and he saw the

conclusions of e c o n o m i c analysis as d ep en de nt , to a large

degree, upon the initial distribution of i nc om e and wealth.

Surely it would be a c c u r a t e to say that he v iewed law and

economics as a p ar t i a l r at h er than a complete s ci e n c e of

law. It has been s u gg es t ed , h ow ever, that his view has c ha nged.

He n ow sees the e c o n o m i c analysis of law as theoretically

co mp l et e, and substantive in the s ense that fundamental mor al

and e th i c a l principles are derived from the e c o n o m i c rationality

itself.

In P o s n e r ' s vision, economics offers a theoretically

complete analysis of the law. A final quotation from

"Utilitarianism" buttresses this interpretation:

To r e c a p i t u l a t e , the w e a l t h - m a x i m i z a
tion p r i n c i p l e implies, first, an i n i
tial d i s t r i b u t i o n of i n d i v i d u a l ri ght s
(to life, liberty, and labor) to their
n at u r a l own er s; second, free m a r k e t s to
en a bl e t ho se r ig ht s to be r e a s s i g n e d
from time to time to o th e r uses; third,
 39

legal rules that s i m u l a t e the o p e r a t i o n s

of the m a rk e t when the cost s of m ar k e t
t r a n s a c t i o n s are p r o h i b i t i v e ; fourth,
a sy s te m of legal r e m e d i e s for d e t e r r i n g
and r e d r e s s i n g i n v a s i o n s of rights; and
fifth, a s y s t e m of p e r s o n a l m o r a l i t y
(the " P r o t e s t a n t v i r t u es " ) that s e r v e s to
re du ce the c os ts of m a r k e t t r a n s a c t i o n s .
W ere the t r a d i t i o n a l c om m o n law fi elds
to be r e o r g a n i z e d a l o n g mo re f u n c t i o n a l
lines, the first of these a r e a s w o u ld be
the do m ai n of p r o p e r t y law, the se co nd
of c o n t r a c t law, the third of tort law,
and the f o u r t h of procedujrgl and r e m e d i a l
( i n c l u d i n g c r i m i n a l ) law.

E. Concluding Remarks

This chapter has described and interpreted the c ru c ia l

phases in the evolution of law and e c o n o m i c s . It was shown

that the e co n o m i c analysis of law has become, since 1960,

increasingly g en e r a l and sophisticated. Still, the a n a l y s e s

developed by Coase, C al a br e s i , Becker and the e a r ly Po s ne r

we re essentially instrumental and theoretically i nc om p le t e.

T hey did not c la im to a d d r e s s substantive questions about

what constitutes ha rm and injury. In his later w ritings,

h owever, P os n e r has m a de a valiant e ff o r t to e xp a n d the economic

analysis of law into a fully complete t he o r y of j u ri s p r u d e n c e ,

one w h i ch is able to a n s w e r the substantive q ue st io n s.

A c ou pl e of problems were suggested. First, the A u s t r i a n s

ar gu e that P os n er fai ls to r e c o g n i z e the difficulties i m po s ed

by a s u b j e c t i v e view of cost and be nefit. Second, there

is the c ha r ge that P o s n e r ' s attempt to d e r i v e the init ia l

or "natural" allocation of ri g ht s involves a s er i o u s problem

of c ir c ul a r i t y . The la tt er point, and related t ho ug ht s on

the insufficiency of w e a l t h - m a x i m i z a t i o n as a normative " first

principle" have been discussed at le n gt h by the A m e r i c a n Insti

tutionalists. Be f or e final judgment can be pa ss ed on P o s n e r ' s

a p pro ac h, thes e and o th e r problems mu st be e xp lo re d. To

this p ur p o s e Chapters III and IV will review the critiques

put for th by the A u s t r i an s , the A m e r i c a n Institutionalists

and v a ri o us legal t he or is ts .
 41

Notes to C h a p t e r II

"'Ronald Coase, "The P r o b l e m of So ci al Cost", JLE III

(Oct., 1960).
2
Ga ry Becker, "C r im e and P u n i s h m e n t : An E c o n o m i c
A p pr o ac h ", The E c o n o m i c A p p r o a c h to H u m an B e h a v i o r (Chicago:
U n i v e r s i t y of C h i c a g o Press, 1976), pp. 39-88.
3
See p a r t i c u l a r l y R i c h a r d Posner, " U t i l i t a r i a n i s m ,
E c o n o m i c s and Legal Th eo r y" , TL S t u d . VIII (Jan., 1979).

^ I b i d . , p . 103.'

^Coase, op . c i t . , note 1.

^Ibid . , p . 2 .

7 I b i d ., p.
g
G u i d o C a l a b r es i, "Some T h o u g h t s on Risk Distribution
and the Law of Torts", Y al e LJ, 70 (1961).

^ I b i d . , p . 500.
^ I b i d . , p . 503.
1 1I
TJb-iJ
d ., p . 506.

1 2 I b i d ., p. 513.
13t , . .
I b i d ., p . 500.

^ G a r y Becker, " C ri m e and P u n i s h m e n t : An E c o n o m i c

A p pr oa ch ", The E c o n o m i c A p p r o a c h to Hu man Beha vi or , ed.
Gary S. B e c k e r ( Ch ic a go : U n i v e r s i t y of C h i c a g o Press,
1976), pp. 39-88.

1 5 Ibid . , p. 46.
1 6T , . ,
Ibid., p . 47.

^ 7 1 b i d ., p . 46.
18
G ar y Becker, E c o n o m i c Theory (new York: Al fr e d A.
Knopf, 1971), p. 2.

'^H. H. L i eb h a f s k y , "P ri ce T h e o r y as J u r i s p r u d e n c e " ,

The Chicago Sc h oo l of P o l i t i c a l E c o n o m y , ed. W a r r e n J. S a mu el s
(East L a n s i n g : ' A s s o c i a t i o n for E v o l u t i o n a r y E c o n o m i c s and
D i v i s i o n of Rese ar ch . M i c h i g a n S tate U n i v e r s i t y , 1976), p.
20
Becker, o p . c i t . note 14, at 79.

^ I b i d . , p . 51.
22
See p r e vi o us quote, s u pra note 20.

2 3 I b i d . , p. 79.
24
M i l t o n Frie dma n, Price Theory ( Chicago: A ld i n e
P u b l i s h i n g Co., 1976), p. 35.
25
Becker, op. c i t . note 14, at 51.
26
Coase, o p . c i t . note 1, at 9.
27
Ca la br e si , o p . c i t . note 8 , at 527-29.
28
R i c h a r d Posner, E c o n o m i c A n a l y s i s of Law ( Bo s t o n and
To ro nt o: Little, B r o w n and Co., 1977).
29
I b i d ., p. 17.
30t k . ,
Ibid .

3 1 I b i d ., p. 10.
32
^ I bi d .
33
R i c h a r d Posner, " U t i l i t a r i a n i s m , E c o n o m i c s and Lega l
Th eory", TL S t u d , VIII (Jan., 1979): 125.
34u . .
Ibid .

3 5 I b i d ., p. 126.

3 6 Ibid., p. 135.
00
CM

P o s n e r , op . cit. note at 10.

38d
P o s n e r , op . cit. note 33, at 110.
39
P o s n e r , op . c i t . note 28, at 185.

P o s n e r , op . cit. note 33 , at 122.

4 ^Ibid . , p. 123.

4 2 Ibid., p. 127.
 III. The Austrians and the Institutionalists

A. Introduction

T his c ha p te r r ev i e w s two important critiques of the

"new" law and e co n om ic s . In one, m ad e m os t forcefully by

those of the A u s t r i a n School, it is con-tended that an u n b r i d g e

able c ha s m ex is ts between a t ruly objective th eo ry of w e al t h

maximization and the subjectivistic microeconomics in w h ic h

it w o u ld be gro un de d, and that ta k in g subjectivism seriously

i m p li e s the impossibility of "engineering" wealth maximization.

The ot he r critique has been best developed by the A m e r i c a n

Institutionalists, who a r gu e that value m a x i m i z a t i o n based

on w i l l i n g n e s s and a b i l i t y to pay is a p r e s u m p t i v e precept,

for it r e q u i r e s some a n t e c e d e n t p r em is e as to the rights

that determine willingness and ability to pay. Wealth-

maximizing solutions are actually d et e rm i n e d , in the Institution

alists' view, by d e c i s i o n s m ad e prior to the c a l c u l a t i o n

of value.

It is n e c e s s a r y to r e vi e w th ese important critiques

in o rd er to a ss es s full y the "new" law and e c on om i cs , especially

Posner's principle of value maximization. Also, it will

be sho wn that both critiques s up p o r t the c e n t r a l t he si s that

economics does not a n s w e r substantive questions regarding

what constitutes ha rm and injury.

43
 44

B. Taking Subjectivism Seriously

The Austrians h av e developed most thoroughly the impli

cations of s u b j e c t i v i s m for economic t he or y in general, and

they have not been s il e n t in the ar ea of law and e c on om i cs .

Before considering particular a r gu m en t s, it will be h e l p f u l

to r e v i e w the e s s e n t i a l te n et s of the A u st ria n, or "subjectivist"

c r it iq ue . Briefly stated, they are as follows:

1. Valu e is s u b j e c t i v e and e x is t s only in the

mind of the decision maker.

2. V al ue ca nn o t be m e a s u r e d by s o m e o n e o th er than

the c h o o s e r si nc e t h er e is no way that subjective

m en t a l experiences can be d i r e c t l y o bse rv ed .

3. V al ue is forward-looking (ex ante) and is based

on a n t i c i p a t i o n s .

4. In a w o r l d of uncertainty, economic go od s will

be e v a l u a t e d differently by d i f f e r e n t i n di v i d u a l s ,

and there is no o b j e c t i v e way of discerning a

p ri o ri w h o s e e v a l u a t i o n s are correct.

5. Only when the economy is in full, g en e ra l

equilibrium would market p ri c es accurately

represent value.

6. The economy is nev er in full equilibrium;

only a dynamic v ie w of economic processes

approaches re al i ty .

7. The divergence from equilibrium is probably

most significant when economic t he or y i n fo r ms

p ub li c policy. There is re a ll y no way for

 the cour t or l e g i s l a t u r e to k n o w a w e a l t h -

maximizing assignment w he n they see one, and

to p r et e nd that they do could have far-

reach in g, unintended and undesirable conse

quences .

The subjectivists c on t e n d that the relevance of the

principles enumerated ab ov e to e c o n o m i c analysis of the law

is lost on ma ny economists, especially those of the

" C h i c a g o " school. Subjectivists a r g ue that some t h e o ri s ts

do not recognize at all the s u b j e c t i v e nature of value, whi le

o th e rs try to get around the i n h e r e n t problems by p r o p o s i n g

to m e a s u r e value in term s of w i l l i n g n e s s and a b i l i t y to pay.

In o th er words, some a n a l y s e s i gn or e subjectivism, while

o th e r s fail to take it s eri ou s ly . In an a t t a c k on C o a s e ' s

discussion of so cial cost , S. C. L i t t l e c h i l d *' f ol l ow s H ay ek

in stressing that economic "data" are necessarily subjecti-

v ist ic in nature. Hayek h im s e l f w ro te that:

. . . mo st of the o b j e c t s of so ci al or
h um an a c t i o n are not " o b j e c t i v e facts"
in the s p e c i a l n a r r o w sens e in wh ic h
this term is used by the S c i e n c e s and
c o n t r a s t e d to " op in i on s ", and they
c an n ot at all be d ef i ne d in p h y s ic al
terms. So far as hum an a c t i o n s are
c o nc e rn ed , the t hings are what^ the
a ct i ng p e o p l e thin k they are.

The implications of a s u b j e c t i v i s t perception of value

are far-reaching, and p e rh ap s mo st obvious in c as e s involving

"hypothetical" ma rk e ts . The subjectivist critique s t re s se s

the impossibility of a c c u r a t e assessments of valu e by the

c ourt when transaction cost s prohibit explicit b a rg a in i ng .

Littlechild has this to say a bout such cases:

It migh t be c o n c e d e d that, in practice,

the li k el y o u t c o m e s of any p a r t i c u l a r
m e a s u r e are unsure, but it is n e c e s s a r y
to make a "best guess". This e le me nt
of s u b j e c t i v i t y of c ou r s e ra i se s the
d i f f i c u l t i e s r e f e r r e d to in the last
se ction. W ho se guess is a p p r o p r i a t e
for p ol i cy purpo se s, and how is the
e f f i c i e n c y of the g u e s s i n g p r o c e d u r e to
be a s c e r t a i n e d ? M or e ov er , there is a
cr u c i a l d i f f e r e n c e b e t w e e n this s i t u a t i o n
and that of the p r iv at e firm in that no
u l t i m a t e o b j e c t i v e c h e c k on e f f i c i e n c y
is a v a i l a b l e : If the d e c i s i o n - m a k i n g
p r o c e d u r e is i ne f f i c i e n t , there is no
d i re c t f e e d b a c k c o m p a r a b l e to ^hat of
f i n a n c i a l loss and b an k ru p t c y . /

Difficulties inherent in the a b i l i t y to o b s e r v e d ir e c t l y

the subjective valuations of o th e rs are compounded when a

dynamic analysis replaces the usual static-equilibrium

a p p r o ac h . Not only are subjective valuations i n ta ng ib le ,

they are f o re v er subject to change, and this potentiality

for c ha n g e introduces the .a d d i t i o n a l uncertainty that m ak e s

calculations of v a lu e i m p o s s ib l e. K a re n V au g h n has succintly

explained why subjectivism i mp l i e s a d yn a m i c approach to

economic an al y si s:

Each p e rs o n e v a l u t e s the a l t e r n a t i v e s open

to him w i t h i n the c o n t e x t of u n c e r t a i n t y
abo ut the l i k e l i h o o d of e x p e c t e d o u t
comes, i g n o r a n c e of the total r ea lm of
a l t e r n a t i v e s open to him and the p o s s i
b i l i t i e s of error in j u d g m e n t abo ut the
value to him of the a l t e r n a t i v e s he does
pe r ce iv e . In such a world, it w o ul d seem
to be pu r el y h a p p e n s t a n c e if two s e p a r a t e
i n d i v i d u a l s we re to e v a l u a t e the same set
of a l t e r n a t i v e s in the same ways. Thus
the c en t r a l p r o b l e m of e c o n o m i c a n a l y s i s
in this c o n t e x t . i s to e x p l a i n how m i l l i o n s
of s e p a r a t e i n d i v i d u a l s w i t h d i f f e r i n g
p e r c e p t i o n s of r e a l i t y and d i f f e r i n g
v a l u a t i o n s and e x p e c t a t i o n s a bo u t the
 f ut u re ever m a n a g e to a c h i e v e any kind of
c o o r d i n a t i o n of e c o n o m i c a ct iv it y . With
such an u n d e r s t a n d i n g of the p ur p os e of
e c o n o m i c t he o r y it is the very s u b j e c t i v
ity, i gn o ra nc e, er ror and u n c e r t a i n t y
c o n f r o n t i n g man that h e lp s to e x p l a i n the
d e v e l o p m e n t and p e r s i s t e n c e of m a r k e t s as
c o r r e c t i v e and c o o r d i n a t i n g i n s t i t u t i o n s .
That is, m a r k e t s e n a b l e i n d i v i d u a l s to
co m pa re thei r s u b j e c t i v e j u d g m e n t with
the e v a l u a t i o n s of o th e rs in a c o n t i n u a l
pr o ce ss of gi v in g and r e c e i v i n g i n f o r m a - ^
tion r e l e v a n t to e c o n o m i c d e c i s i o n making.

In V a u g h n ' s understanding of e c o n o m i c theory, the

n ot i on of st at ic equilibrium is v i r t u a l l y i r re l e v a n t , the

d y n am i c p r oc e ss of a d j u s t m e n t to n ew and changing informa

tion being the true subject of an a ly s is . I srael X i r z n e r also

has stressed that st a ti c equilibrium is of l it t le importance

in the subjectivist's "dynamic" a p p r o ac h :

As a m a t t e r of c o n s i d e r a b l e t h e o r e t i c a l
i n t e r e s t we may i n v e s t i g a t e the p o s s i
b il it y of a state of a f f a i r s in whic h
no m ar k et i g n o r a n c e is pr es en t. We wou l d
then have a p a t t e r n of p e r f e c t l y d o v e t a i l
ing de c is i on s . No d e c i s i o n made will fail
to be c ar r i e d out, and no o p p o r t u n i t y will
fail to be e xp l oi t e d . Ea ch m a r k e t p a r t i c i
pant will have c o r r e c t l y f o r e c a s t all the
r e l e v a n t d e c i s i o n s of others; he will have
laid his plans fu lly c o g n i z a n t of what he
will be u n a b l e to do in the market, but at
the same time fu lly a wa k e to w ha t he i_s^
able to do in the market. C lea rl y, w i th
such a s ta te of a f f a i r s the m a r k e t p ro c e s s
must i m m e d i a t e l y cease. Without autonomous
c h a ng e s in tastes, or in t e c h n o l o g i c a l
p o s s i b i l i t i e s , or in the a v a i l a b i l i t y of
r eso ur ce s, no one can have any i n t e r e s t in
a l t e r i n g his plans for the s u c c e e d i n g
periods. T he m ar k et is in e q u i l i b r i u m ;
the p a tt er n of m a rk e t a c t i v i t y will g o n t i n u e
w it h o u t c ha n g e pe r io d a f t e r period.

The implication for w e a l t h m a x i m i z a t i o n is that even

explicit pr ic es in a ct u a l markets are not very hel pf ul , for

 48

they are a lm o s t certain to be d i s e q u i l i b r i u m prices, henc e

once r em o v e d from the true so c ia l opportunity costs they

are supposed to r ep r es en t . M a r io Rizz o has commented on

disequilibrium pr ic es in the context of the perennial d eb a te

over negligence and s tr i ct l ia bi lit y:

S u p p o s e that in orde r to a vo id an a c c i d e n t
with an e x p e c t e d cost of $100, A
must spend $80 on r e s o u r c e s w h ic h are
disequilibrium-priced. B, on the
oth er hand, must s pend $90 on s i m i l a r l y
pr ic ed r e s o u r c e s if he is to avoid
the ac ci de n t. If the court r es po nd s
only to e x i s t i n g m ar k e t p ri ce s and
seeks to p l ac e l i a b i l i t y on the
c h e a p e r - c o s t a vo id e r, A will be
held liable. H owe v er , e x i s t i n g m arket
p ric es do not r e f l e c t true s ocial
o p p o r t u n i t y co st s w he n they are not
at their g en e r a l e q u i l i b r i u m values
. . . This will be the case, for
example, if the g en e r a l e q u i l i b r i u m
price of A's r e s o u r c e s is $95
w hi le that of B 's ^ ( d i f f e r e n t )
r e s o u r c e s is $85.

Coase, P os n er and ot h er s in the C hi c a g o tradition have

stressed the difficulty of e s t i m a t i n g the ma rk et price in

hypothetical markets, but seem quite w i l l i n g to a cc e p t the

market price, when it is e x p l i c i t l y given, as the equilibrium

price. The more fundamental question for subjectivists is

not whether the m a rk e t pric e can be di sc ov e re d, but w he t h e r

that price expresses true so c ia l c o s t s w h e t h e r , in other

words, equilibrium can be a s s u m e d to have obtained. Subject

i vi sm taken seriously implies a concept of e q u i l i b r i u m such

that it s ur el y cannot be a s s u m e d to have obtained.

 49

Another problem in d y na mi c a na l ys is , as L i t t l e c h i l d

p oi nt s out, is that of specifying the time span over w hi ch

the relevant c os t s and benefits are to be m ea s ur e d:

If e c o n o m i c a c t i v i t y is viewed, not
as an e q u i l i b r i u m state, but as a
p ro c e s s i n v o l v i n g c h a n g i n g p e r c e p
ti ons and values, then it is not
c l e a r at what time, or a f t e r what
p er i od of r e f le ct i on , it is a p p r o p r i - ^
ate to c a l c u l a t e the valu e of product.

R izz o examines a specific case, ag ai n in the c o n te x t

of the n e g l i g e n c e l i a b i l i t y debate, in w h i c h a pedestrian

is s t r u c k by a s ub wa y train. If one w er e to c o n s i d e r a ra th er

br oad time span, perhaps the pedestrian c o u ld a voi d the

accident at le ast cost by si mp l y not walking near the tracks.

H ow ever, R iz zo p oi nt s out that if the time span is r e s t r i c t

ed to the m o m e n t s just be fo re the a cc i de nt , the l e a s t - c o s t

g
avoider m i g ht w el l be the s ub w ay op er a to r . How is the court

to d e ci d e what time span to use in d e t e r m i n i n g who was negligent?

The general poi nt of R i z z o ' s critique is to a r gu e that a

st r ic t liability approach ough t to be t aken i ns t e a d of a

negligence approach in v i r t u a l l y all cases because the l at te r

cannot be m ad e operational due to the difficulties in m e a s u r i n g

so ci al cost:

N e g l i g e n c e can be d ef i ne d in e c o n o m i c
terms as the b eh a v i o r of the u t i l i t y -
m a x i m i z i n g i n d i v i d u a l w h en he bears
less than the full s oc i al cos ts of his
a c t i v it y . To make such a d e f i n i t i o n
o p e r a t i o n a l the a n a l y s t m us t be able
to m ea su re , with t o l e r a b l e g a c c u r a c y ,
the r e l e v a n t s ocial costs.

Gerald O'Driscoll also r ej e c t s the n e g l i g e n c e approach

 50

but his c r i t i q u e transcends that of Rizzo. O'Driscoll goes

be yo nd the difficulty of m e a s u r i n g s oc i a l costs, and suggests

that the very idea of inefficient b eh a v i o r is dubious:

T he p ar ti es to any d i s p u t e s u b j e c t to
a d j u d i c a t i o n will o r d i n a r i l y h av e
formed d i f f e r e n t e x p e c t a t i o n s on the
basis of d i f f e r e n t data. E_x p o s t , at
most one p a rty will have been c o r r e c t
. . . It will not do to s ug g e s t that the
judge adopt the e f f i c i e n t c o u r s e of
action. Ex_ a n t e , both p ar t ie s to a
d i sp u te w e r e e f f i c i e n t l y a ^ J o c a t i n g
their me ans to their ends.

One migh t a rg ue that the n e g l i g e n c e approach is based

-on p r e c i s e l y the a s s u m p t i o n that p er s on s do act efficiently

on the basis of perceived costs; th e re f or e , holding p er so ns

responsible for certain cos ts (i.e., internalizing certain

so ci al costs) will r es u lt in b e h av io r that is, in the c o n t e x t

of society, more e ff i ci e nt . But this kind of rebuttal m i ss e s

the point. The subjectivist view is not that external behavior

c an n ot be mo di f ie d, but that the p re c i s e c os t s that must

be internalized to a c h i e v e efficiency c a nn o t be k no w n b ef or e

the fact by the cou rt or other governing body. To reiterate

O'Driscoll's point, the very c on c e p t of "inefficient" behavior

ex ante is m e a n i n g l e s s . It is o nly after the fact that some

perceptions can be j ud ge d e rr o ne ou s, and the a c t i o n s stemming

from them "inefficient".

The subjectivists r eject the 'notion that the c ou r ts

o ught to try to e n g i n e e r wealth maximization. This is not,

ho wever, to say they r ej e ct the ideal that the goods of the

w o rld ough t to be a l l o c a t e d to tho se who va lue them, as a

 51

ma t te r of s u b j e c t i v e preference-, the most. As Riz zo points

out, it is r e a l l y a question of means, not ends:

The c en t r a l q u e s t i o n is this: wh ic h
legal f r a m e w o r k p r o v i d e s a m or e st ab le
e n v i r o n m e n t for i n d i v i d u a l s to p ursue
their own ends in h a r m o n y wi th each
ot h er ? I ro n ic a l l y , it is p r e c i s e l y
b ec a us e we live in a d y n a m i c w o r ld
wh er e the i n f o r m a t i o n n ee d ed by the
" f i n e - t u n e r s " is not a v a i l a b l e that
the a ns w e r m us t be the a n t i q u a t e d ^ d
s tat ic s y s t e m of s tr ic t l ia bi li ty.

As r eg a r d s the m e a n s to a c h i e v e val ue m a x i m i z a t i o n , the

subjectivists are diametrically opposed to the P o s n e r i a n

a pp ro ac h: w h i le Posner attempts to e n g i n e e r wealth maximization,

the subjectivists r e je c t the very idea that such engineering

is pos si bl e. It s e em s that what re a ll y is at i ss u e here

is a p r o b l e m of v a lu a ti on , i.e., the problem of determining

precisely w h ic h a c t i o n s constitute ha rm and injury. Ultimately

what c ou nt s for the Austrians, and for most Chicago economists

also, is s u b j e c t i v e value. The que st io n, then, is w h e t h e r

or not there is any objective measure of s u b j e c t i v e value.

The Austrians contend that ther e is not, while o th e rs are w i l l i n g

to ac c ep t market p ri c e s as reasonable measures of value for

purposes of the law.

Paul Rubin, a theorist in the C h i c a g o traditi on , a dm it s

that, giv en the subjectivist p re mi se s, one c an no t a void the

conclusion that "it is impossible to tell if the law is

12
efficient in any gi ve n situation." He sees three options:

( 1 ) re je ct subjectivism altogether; (2 ) r e c o g n i z e the subjective

n at u r e of value, but assume "near-efficiency" (i.e., the

"nearness" of m ar k et pr ic e s to e q u i l i b r i u m and the a p p r o p r i

ateness of p ri ce s as a m e a s u r e of value), or (3) a cc ep t the

Austrian position that the re can be no o b j e c t i v e calculation

of value. Rub in a c c e p t s 2, but it is s i g n i f i c a n t that both

R ubi n and the subjectivists would say the o p t i o n s he e n u m e r a t e s

are m u t u a l l y exclusive and exhaust the possibilities. What

the subjectivists and ma ny Chicago theorists have in co m mo n

is the b el ie f that subjective preference is the u l t i ma t e

basis for n o r m a t i v e pronouncements.

It s ho ul d be s t r e s s e d that this belief' is it s el f a value

jud gm en t. Even if R u b i n ' s assumptions of "near-efficiency"

are corre ct , they do not im ply that wealth maximization is

good in the sense that persons ou ght necessarily to have

what they prefer. To p r es u me that this is i mp l i e d is to

overreach the p ro pe r b oun ds of e c o n o m i c r at i o n a l i t y .

C. The Institutionalists

N oted I n s t i t u t i o n a l i s t H. H. Liebhafsky be gi ns his critique

of the "new" law and economics with a p a ss a ge from The Common

Law by H o l m e s :

The law e m b o d i e s the sto ry of a

n at i o n ' s d e v e l o p m e n t t hr o u g h many
ce nt ur i es , and it c an no t be dealt
w ith as if it c o n t a i n e d o n l y the
a xi o ms and c o r o n a r i e s of a book
of m a t h e m a t i c s .

"In essence," w ri t e s Liebhafsky, "the jurisprudence

of the C h i c a g o S ch oo l of economics is n o t h i n g oth er than

the view of H ol m es multiplied by 'minus one'

 53

T he s e quotations s ug g es t the context in w hi ch the Institu

tionalist critique can best be u n d e r s t o o d : it is a part

of their la rg er criticism of the formalistic character of

Chicago-style m i c r o e c o n o m i c s , particularly the tendency

to e mp lo y the a s s u m p t i o n s , axioms and techniques of c o n s t r a i n e d

maximization when a more comprehensive approach m i g ht be

appropriate.

It will be h el pf ul , as with the subjectivists above,

to offer a brief overview of the Institutionalist c ri ti que :

1. The C h i c a g o - s t y l e e c o n o m i c a n a l y s i s of law views

v i r t u a l l y all legal p r o b l e m s in the c on t ex t of
c o n s t r a i n e d m a x i m i z a t i o n : w e a l t h is a t t a i n e d by
m a x i m i z i n g an o b j e c t i v e f u n c t i o n s u b j e c t to a
give n set of c o n s t r a i n t s .

2. But, c o n s t r a i n e d m a x i m i z a t i o n per se is a t a u t o l o
gy with re ga r d to the o b j e c t i v e f u n c t i o n by w h ic h
m a x i m i z a t i o n is r e ck on ed . What is " i n e f f i c i e n t "
by one c a l c u l a t i o n may be " e f f i c i e n t " when the
o b j e c t i v e f u n c t i o n is c ha n g e d (or a s s u m e d to be
d i f f e r e n t ) or w he n the o p p o r t u n i t i e s a v a i l a b l e to
the i n d i v d u a l are l e g a l l y or o t h e r w i s e a lte re d.

3. The i nd i vi d u a l , in a t t e m p t i n g to r e ac h a m a x i m i z
ing e q ui l i b r i u m , e x e r c i s e s w h a t e v e r o p t i o n s are
a v a i l a b l e w h a t e v e r c h o i c e s are a part of his
o p p o r t u n i t y set. And it is a l ar ge r p r o c e s s of
m ut u a l c o er ci on, a p e r p e t u a l powe r stru gg le,
w h i c h g e n e r a t e s the a ct u a l (and c h a n g i n g ) s t r u c
ture of the o p p o r t u n i t y set.

4. T he r ef or e , it is m e t h o d o l o g i c a l l y m y o p i c to view
e c o n o m i c a c t i v i t y in g en eral, and legal p r o b l e m s
in p a r ti c ul ar , as a m a t t e r of c o n s t r a i n e d m a x i m i -
zatio'n, of m a x i m i z i n g some o b j e c t i v e f u n c t i o n
s ub j ec t to a give n and fi xed set of c o n s t r a i n t s .

For the Institutionalists the fundamental problem in

settling m ost disputes is d e c i d i n g whose choices and preferences

should count. Cranking out decisions in the c o n t e x t of

constrained maximization is a l m o s t trivial, for the procedure

presupposes precisely what is at issue. The real question

is al w ay s begged: W hat c ou nt s?

The Institutionalists are inarguably correct; the r ea ll y

crucial decisions in the m a x i m i z a t i o n calculation come prior

to the a ct u al calculation, w it h the determination of the

objective function by w hi c h maximization is r ec ko ne d. Thus

Warren Samuels criticizes the economic analysis of law:

E c o n o m i c a n a l y s i s of law r e q u i r e s a
u ti l i t y (or o b j e c t i v e ) fu nction. It is
r e m a r k a b l y easy to m a n i p u l a t e the s u b
s ta n ce of the a n a l y s i s by a d o p t i n g an
a p p r o p r i a t e o b j e c t i v e f un c t i o n to
p r o du c e the c o n c l u s i o n that such and
such legal a c t i o n is o pt i ma l or sub-
o p t im a l . . . . In all cases, the a n a l y s t ' s
a s s u m p t i o n w it h r eg ar d to the o b j e c t i v e
f u n c t i o n g o v e r n s the a n a l y t i c a l c o n c l u
sions on o p t i m a l i t y . Constrained
m a x i m i z a t i o n c l e a r l y is p r o p o s i t i o n a l :
it d ep e n d s on w h o s e o b j e c t i v e f u n c ti on
d e f i n i t i o n of o u t p u t ^ g n d c a p a c i t y to
d eci de are domin an t.

S a mu e ls w ar ns a ga i n s t a kind of m e t h o d o l o g i c a l sleight-

of-hand, and there is at least the hint that he has found

Chicagoeconomists to be d i s i n g e n u o u s in their an al y se s .

A c tua ll y, it w o ul d be mo re c or r e c t to say that he finds their

analysis presumptive:

It is b e c a u s e of the role of i m p li c it
n o r m a t i v e p r e m i s e s that most, if not
all o p t i m a l i t y r e a s o n i n g in a p pl i ed
e c o n o m i c s is p r e s u m p t i v e . A verdi ct
of e f f i c i e n t or i n e f f i c i e n t is a
f u n c t i o n of the p r e s u m p t i o n of some
a n t e c e d e n t ri g ht s s t r u c t u r e or c r i t e r i o n
of a d v a n t ag e . E f f i c i e n c y c an no t be
ju dg ed w i t h o u t first d e t e r m i n i n g the
aim of t h e ^ c t i v i t y , and this is
normative.
 55

S u re l y it w ou ld not be fair to a cc u se Posner of

intentional ambiguity a bo ut the d e f i n i t i o n of output, or

abo ut whose preferences s ho u l d d o mi na te . He c l e a r l y specifies

wealth as the end-product of e c o n o m i c a ct i vi ty , d e fi n es

wealth as the d ol l ar v alue of any good or s e r v i c e for w hich

p er s o n s are w i l l i n g and able to pay, and identifies the

d o m i n an t preferences as those b ac ke d by the m os t d o ll ar s

or d ol l ar equivalents. The quest io n, then, is w h e t h e r the

presumptiveness of the economic analysis of law, and particular

ly the w e a l t h maximization pr i nc i pl e, invalidates the stronger

c l ai m s made for it. In short, is the "new" law and economics

pretentious?

It is no m o d e s t claim to suggest, as P os n e r has, that

"it may be p o s s i b l e to d ed u ce the basic fo rm al characteris-

18
tics of the law i ts e lf from economic theory." Liebhafsky

has questioned what it m e a ns to say that economics is the

universal logic of the law, pointing out that Posner h im s e l f

has been unclear as to w h i c h principles and what kind of

law he has in mind. Consider Posner's discussion of

s ta t ut e law:

If mu ch of the c o m m o n law seem s i n f o r m e d

by an i m p l i c i t e c o n o m i c logic, the same
c an n ot be said for s ta t u t e law . . . One
p o s s i b l e e x p l a n a t i o n for the d i f f e r e n c e
in the r e l a t i v e e m p h a s i s on e f f i c i e n c y
and d i s t r i b u t i o n is that the c o m m o n law
rules c r y s t a l l i z e d in the n i n e t e e n t h
centur y, w h i l e the s t a t u t e s . . . are for
the most part p r o d u c t s of this ce nt ur y.
The n i n e t e e n t h c e n t u r y was one of r e l a
t iv e ly g r e a t e r s c a r c i t y of e co n o m i c
r e s o u r c e s than today and e f f i c i e n c y may
be a mo re h i g h l y pr i ze d value under
 c o n d i t i o n s of s c a r c j ^ y (at least in
Western societies).

Regarding this quotation, Liebhafsky p oi nt s out

that, "Economic efficiency s ta n ds here confessed a culturally

determined val ue . . . [H ]o w , then, can 'economic e f fi c ie nc y '

20
be a d v a n c e d as a b a si s for a u n i v e r s a l rule of law?"

Consider the m o r e specific claim by P o s n e r that the

law "ordains a system of e x c l u s i v e r ig h t s " and then d ic t a t e s

that they "should be i n i t i a l l y v es te d in those who are

21
li k el y to val ue them the m o s t . " The Institutionalists

see a serious problem of c i r c u l a r i t y in this claim.

Ro na ld Dworkin has articulated the circularity argument

succinctly:

If e c o n o m i c a n a l y s i s m a k e s s o m e o n e ' s
i n i t i a l r i g h t . . . d ep e nd upon
w h e t h e r he w o u l d p u r c h a s e the right
if a s s i g n e d to an ot he r, that right
c a n n o t be " d e r i v e d " from e c o n o m i c
a n a l y s i s u n l e s s we a l r e a d y k n ow who
i n i t i a l l y has the right. This a pp e a r s
to be a s e r i o u s circle. We ca nn ot
s p e c i f y an i ni t i a l a s s i g n m e n t of r ig ht s
u nl e ss we a n s w e r q u e s t i o n s that ca nn ot
be a n s w e r e d un l es s an i n i t i a ^ 2 a s s i g n_
m ent of r i g h t s is s pe ci fi ed .

Samuels makes essentially the same point in the

c o nt e xt of valu e maximization:

M a x i m i z a t i o n of the value of ou tp ut
r e q u i r e s an a n t e c e d e n t p r e m i s e as to
the r ig h t s g o v e r n i n g that m a x i m i z a t i o n .
M a x i m i z a t i o n is a f u n c t i o n of rights;
it is c i r c u l a r to a s se r t r ig h t s on the
basis of t h ei r mo ne y value. The c r uc ia l 23
d e c i s i o n is that of the r ig h ts t h e ms el v es .

In g en e ra l the Institutionalist objection to the "new

law and economics is that it is p r e s u m p t i v e and ultimately

 57

decides nothing. The economic analysis of law, particularly

the w e a l t h maximization p ri n ci pl e , accepts the underlying

legal and economic s t r u c t ur e, then proceeds to g e n e r a t e p ur e ly

redundant " d ec is i o n s " .

C. Concluding Remarks

Bo th Austrians and Institutionalists r ej ec t the "new"

law and e c on om i cs , t ho u gh for different re asons. W hi l e the

Austrians st re ss subjectivism and the irrelevance of prices,

the Institutionalists s tr e ss the conclusionary n at u r e of

efficiency a na ly si s. Both critiques s up p o r t the n o t i o n that

economic rationality is instrumental, not substantive. Both

deny that economics alone can establish what has value, or

w h i ch actions constitute ha rm and injury.

Two secondary p oi n ts deserve brief mention here. It

was suggested a bo ve that the e c o n o m i c analysis of law is

"partial" in the sen se that its conclusions are particular

to the underlying distribution of wea lt h. Posner has tried

to d e m o n s t r a t e , via his t he o ry of the " n a tu r al o wn er" that

the w e a l t h maximization principle itself establishes the

crucial i n iti al distribution. If the Institutionalists are

co rrect, however, Posner's reasoning is c ir c ul ar , and his

attempt to c o m p l e t e the a n a l y s i s in this way has failed.

A s ec o n d point mentioned a b ov e is that an e c o n o m i c analysis

w hi c h proceeds entirely on the basis of m o n e t a r y prices w o ul d be

incomplete b e c au se m a ny real c os ts and benefits nev er find

monetary e x pr es s i o n , t ho u g h they do i n f l u e n c e c ho i ce behavior.

The Austrians w o ul d certainly a g ree wit h this c o nt e nt io n .

 58

The unresolved q ue st io n, still, is w h er e to draw the line

on o b j e c t i v e data. The Austrians are unwilling even to a ss um e

near-efficiency, yet one mu st a cc e p t the n o ti o n of near

efficiency in o r de r to say m u ch about the law from an e c o no m ic

perspective. In o r d e r to do even a p ar t ia l analysis one

mu st of ten a ss u m e that pr ic e s r ef l ec t p r e f er e nc e s, and that

preferences and t astes are relatively stable. Ot he rw i se ,

we ca nn ot even beg in to s p e a k of su p pl y and d em an d curves.

This dissertation will not a t t e m p t to e s t a b l i s h where,

pr ec is e ly , to dr aw the line. C ha p t e r V will', however, d is cu ss

the limitations imposed by a s u b j e c t i v i s t view of cost and

b e ne f it and will conclude that even if "near-efficiency"

is a s s u m e d for the sake of a na ly si s, the limitations are

mo re se v er e than most economists, including those in the

Chicago tr ad it io n, h av e r ec o gn i z e d .

The critiques put forth by the A u s t r i a n s and Institutional

ists are essentially concerned w it h e c o n o m i c the or y r ather

than m or a l s and ethics. The following chapter will r ev i ew

the legal t he or is t s, who, unlike the e co n om i s t s , c o n si d er

primarily Posner's contention that w e a l t h maximization generates

the substantive mora l foundation for a c o m p l e t e theory of

law.
 Notes to C h a p t e r III

S. C. L i t t l e c h i l d , "The P r o b l e m of S oc i a l Cost",
N ew D i r e c t i o n s in A u s t r i a n E c o n o m i c s , ed. L ou is M. S pa d a r o
( K a ns a s City: Sh ee d A n d r e w s and McMeel, Inc., 1978),
p p . 77-93.
2
F. A. Hayek, T he C o u n t e r R e v o l u t i o n of S ci e n c e
( Glencoe, 111.: The Fr ee Pres, 1952), p. xx.
3
Littlechild, op. c i t . note 1, at 84.

^ Ka r e n Vaugh, "D oes It M a t t e r What Costs Are

S u b j e c t i v e ? " , S o u t h e r n EJ (Jan., 1980).

^1, K ir zner, C o m p e t i t i o n and E n t r e p r e n e u r s h i p

( Chic ag o: U n i v e r s i t y of C h i c a g o Press, 1973).
g
M a r i o Rizzo, " L a w Amid Flux: The E c o n o m i c s of
N e g l i g e n c e and S tr i c t L i a b i l i t y in T ort" JL S t u d , IX
(March, 1980): 309.

^Littlechild, op. c i t . note 1, at 8 8 .

g
Rizzo, o p . c i t . note 6 , at 300.

9 I b i d ., p. 292.

^ G e r a l d P. 0 ' D r i s c o l l , "Jus ti ce , E f f i c i e n c y and the

E c o n o m i c A n a l y s i s of Law: A C o m m e n t on Fried", JL Stud
IX (March, 1980); 357.

^Rizzo, o p . cit . note 6 , at 318.

12
Paul Rubin, " P r e d i c t a b i l i t y and the E c o n o m i c A p p r o a c h
to Law: A C o m m e n t on Rizzo", JL Stud IX (March, 1980):
320.
13
H. H. L i e b h a s f k y , " Pr i ce T h e o r y as J u r i s p r u d e n c e " ,
The C h i c a g o Sc h oo l of P o l i t i c a l E c o n o m y , ed. W a r r e n J.
S a m u e l s (East L an si n g: A s s o c i a t i o n for E v o l u t i o n a r y
E c o n o m i c s and D i v i s i o n of Re se a rc h, M i c h i g a n St ate U n i v e r
sity, 1976), p . 237.
 14
Q uo te d by L i e b h a f s k y , o p . c i t . note 13, at 237.

15Ibid.
16
W. S am u e l s and A. Schmid, Law and E co n om ic s : An
I n s t i t u t i o n a l A p p r o a c h (Hingman: M a r t i n u s Ni jh of f, 1981),
p. x.

1 7 W. J. Samuels, The C h i c a g o S ch o ol of P o l i t i c a l
E c o n o m y (East L an si ng : Michigan S t at e U n i v e r s i t y , 1976),
p. x.
18
R ic h a r d Posner, E c o n o m i c A n a l y s i s of Law (Bos to n and
T oro nt o: Little, B r o w n and Co., 1977), p. 189.
19
Quoted by L i e b h a f s k y , o p . c i t . note 13, at 238.
20 ri ,
Ibid .
21
R i ch a rd Posner, " U t i l i t a r i a n i s m , E c o n o m i c s and
Leg al Theory ", JL St ud VIII (Jan., 1979): 125.

^ R o n a l d Dworkin, "Is Wealth a Value?", JL Stud IX

(March, 1980): 208.
23
Samuels, op. c i t . note 16, at xx.
 IV. The L eg al Theorists

A. Introduction

The Austrians and Institutionalists put forth critiques

of law and economics that are, for the most part, t e c h ni c al

and economic as distinguished from ideological and philo

sop hi ca l. Bo th gr ou p s st and within the s c i e n c e of e co n o m i c s

and their critiques mainly concern the n a t u r e and integrity

of e c o n o m i c theory. The p re s en t c h ap t er r e vi e ws a fundamentally

different kind of c r i t iq u e. This critique may be d e s c r i b e d

as philosophical, e thi ca l, or p er ha ps jurisprudential--

generally it is not concerned with the technical a s pe ct s

of e c o n o m i c s per se. It is put forth most f or ce f ul l y, though

not singularly, by legal theorists who focus primarily on

m or al and et hi ca l, not technical a sp e c t s of the e co no m ic

analysis of law.

This chapter r ev i e w s the more important critiques put

for th by th ose lega l theorists who r eject the "new" law and

economics in part or in whole. The purpose is p r i m a r i l y

to d e t e r m i n e whether the economic a na l ys i s, particularly

the principle of w e a l t h m a x i m i z a t i o n , consistently g e n e r at e s

for it sel f the normative principles that are necessary if

it is to sta nd as a c o m p l e t e analysis of law. In a d d i t i o n

to e x a m i n i n g the consistency and completness of the e c o n o m i c

61
an al y si s, the r e v i e w w il l consider whether it yi el ds p re c e p t s

sharply contrary to w i d e l y recognized moral and e th i c a l m ax i m s

precepts such as that muder is good, or that producing halluc

inogenic drug s is of the same mor al st at u s as producing pol io

vaccine.

The review b eg in s w i th th ose who discuss wealth m a x i m i z a

tion from the perspectives of two w i d e l y accepted e t hi c al

s ystems: Kantianism and Utilitarianism.

B. Kantianism and Utilitarianism

One widely accepted theory of s o c i a l justice, d ra w i n g

upon the thought of Kant, Rousseau and mo re recently John

Rawls, ho lds that social o b li g a t i o n , the obligation to obey

society's ground-rules, can only be justified to the ex te nt

that a rational and free p e rs o n wo ul d be e x p e c t e d to a cc e p t

those rules. Obligations to w h i ch a rational p er so n w ould

not c on s e n t ( under certain conditions precluding narrow sel f-

i n t e re s t) are not just. T h is is g e n e r a l l y what is me ant

by the Kantian principle of c on sent.

With this principle of c on s e n t there are concomitant

rights. Ea ch person is to be t re a te d as an a u t o n o m o u s being,

and allowed the freedom to p ur s ue his c ho s e n g o a l s to f o l l o w

his own "life plan"--subject to the principle of reciprocity:

the exercise of o ne 's r ig ht s is not to i n f r i n g e upon a n o t h e r ' s

identical rights.

It will be recalled from the previous review of P os ne r

that he c o n t e n d s his wealth maximization principle embodies

a principle of c o n s e n t that is e s s e n t i a l l y K an tian, though

not identical to the Rawlsian f o r mu l at i on . It is r ea so n ab l e,

Posner argues, when e xp li ci t, expressed c on s en t does not

exist, for the c ourt to look for i mp l i e d consen t, as by t rying

to an s we r the h y p o t h e t i c a l question of whether, if t r a n s a c t i o n s

c os ts were zero, the a f f e c t e d p a rti es woul d c on s e n t to (or

p ur ch a se ) a giv en state of a f f a ir s .^

There is an obvious similarity b e tw ee n Posner's approach

and that of Rawls, which pl ac es a free and r a ti o na l p erson

b ehind the "veil of ignorance" and then asks whether or not

that p er s on w ou ld consent to this or that s oc ia l a r r a n ge me n t.

T h e r e is, h ow ever, a c ru c i a l d i ff e r e n c e . A p er s on in Rawls'

"original position" is a s s u m e d to be " a r t i f i c i a l l y , " to use

P o s n e r s t e rm i n o l o g y , i gnorant. Th at is, no pe r so n knows

the nature of his particular circumstances, or the d e tai ls

of his personal plan of life, or even the generation in h i s t o r y

to w h i ch he b el ongs. Po s ne r places one not in this p o s i ti o n

of "artificial" i g n o r an c e, but what he terms "natural" i g n o r an c e

In [Rawls'] o r i g i n a l po sition, no one

kno ws w h e t h e r he has p r o d u c t i v e
c a p a b i l i t i e s . . . T hi s re s ul t o b s c u r e s
the i m p o r t a n t mora l d is ti n ct io n ,
b e tw e en the c a p a c i t y to e nj oy and the
c a p a c i t y to p r od u ce for o th er s that
d i s t i n g u i s h e s u ti l i t y from wealth. I
prefer, t he re fo r e, to i ma g in e actual
p eo p le d i s p l a y i n g a ct u al e n d o w m e n t s of
skill and e n er g y under u n ce r t a i n t y . I
pr ef er that is, to i ma g i n e ch oi ce under
c o n d i t i o n s of n at u r a l i g n o r a n c e to
c h o i c e u nd e r the a r t i f i c i a l i g n o r a n c e
of the o r i g i n a l position.
 Thus, Posner's alternative t he ory p r oc e ed s from a m o d i f i e d

original p os i ti o n. It is, according to some cri tics, a fatally

wrong starting point for a t he o ry that cl ai ms to e m b o d y any

thi ng close to K a n t i a n co nsent. Probably the most extensive

treatment of this a sp ec t of P o s n e r ' s approach come s from

3
R on a l d Dw or k in . According to Dworkin, the mo ra l significance

of the veil of ignorance is that it i m po s es a "deep equality"

a mo ng pe rsons:

In d ee d Rawls' o r i g i n a l p o s i t i o n is a
p o w e r f u l m e c h a n i s m for t h i n k i n g abo^t
j us t i c e b e c au s e the d es ig n of that
p o s i t i o n e m b o d i e s and e n f o r c e s the
th e or y of deep e q u a l i t y . . . It e m b od ie s
that t he or y p r e c i s e l y t hr o ug h the
s t i p u l a t i o n that p a rt i es c o n s e n t to
p r i n c i p l e s o,f j us t ic e with no k n o w l e d g e
of any q u a l i f i t i e s or a t t r i b u t e s that
give them a d v a n t a g e s over others, and with
no k n o w l e d g e of what c o n c e p t s of the ^
go od they hold as d i s t i n c t from others.

R aw ls did not a r b i t r a r i l y specify the d eg ree of i gn ora nc e.

His original position was carefully constructed to p r e cl u de

choice m a de in light of the particular r es u lt s in c on c r e t e

s oc iety. Dworkin's criticism of P o s n e r ' s "natural" ignorance

is p r e c i s e l y that its specification is w h o l l y dependent upon

the particular results that P os n er already has in mind.

Dworkin m ak e s his point w it h the e xa m p l e of st ric t liability

as an a l t e r n a t i v e to n e g l i g e n c e rules for a u t o m o b i l e acc id en ts .

Posner has argued that a negligence approach to a u t o m o b i l e

accidents (in w h i c h one p ar ty w ou ld receive monetary compensation

only if the ot her party is c l e a r l y at fault) is not only

cheaper than a st ri ct liability approach in terms of insurance

 65

p remiums, but also that it e m b o d i e s the principle of consent.

The l at te r point is s o m e w h a t surprising; in what sense may

a d ri ve r injured by a n o t h e r driver in an a c c i d e n t in w h i c h

neither was at fault be said to have consented to the

accident? Posner points out that insurance premiums are

lower unde r the negligence system, then contends that the

l owe r insurance c osts constitute a kind of ex ante compen

sation. By a c c e p t i n g the reduction in i n s u r a n c e cos ts p e rs on s

are consenting, in effect, to a c c i d e nt s :

The n o ti o n of c o n s e n t used here is

what e c o n o m i s t s call ex ante c o m p e n s a
tion. I co nt en d, I hope u n c o n t r o v e r -
sially, that if you buy a l o tt ery
t ick et and lose the lo ttery, then, so
long as th er e is no q u e s t i o n of fraud
or duress, you have c o n s e n t e d to the
loss . . . S u p p o s e some e n t r e p r e n e u r
loses m o n ey b e ca us e a c o m p e t i t o r
d e v e l o p s a s u p e r i o r p ro duct. Since
the r e t u r n to e n t r e p r e n e u r i a l a c t i v i t y
will i n c l u d e a p r e m i u m to cov er the
ri sk of lo ss e s due to c o m p e t i t i o n , the
e n t r e p r e n e u r i s ^ c o m p e n s a t e d for those
l oss es ex a n t e .

Dworkin argues, ho we ve r, that in this and other cases

the de g re e of ignorance seems to d e p e n d upon the r e sul ts

one desires:

For any p a r t i c u l a r p l a i n ti f f, he
(P onser) w a n t s to i nv it e c on s e n t at
some time a f t e r the p e r s o n ' s d ri v in g
h a b i t s are s u f f i c i e n t l y well formed
so that he is a ga in er from r ed uc ed
d r i v i n g costs, but b ef o r e the time he
has s u f f e r e d an u n i n s u r e d acc id en t.
W hat time is that? Why is that time
decisive? R a w ls c ho se his o r i g in a l
p o sit io n, w i t h its r a d i c a l i gn or an ce ,
for r e a s o n s of p o l i t i c a l m o r a l i t y . . .
P o s n e r s ee m s able to de f in e his
c o n d i t i o n s of c ou n t e r f a ct u al c ho ic e
only s(j as to reach the r es u l t s he
wants.
 66

D wo r k i n is e s s e n t i a l l y c or rect. Posner begins by i d e n t i

f y in g the less c os t ly a pp ro ac h, then a rg u e s that this approach

can be r e c o n c i l e d w it h a n o t i o n of c on s e n t under particular

conditions of u n c e r t a i n t y and i gn or an c e. This ha r dl y

demonstrates that a u n i v e r s a l principle of c o n s e n t is d e ri v ed

from w ea l t h maximization. And only a universal c on ce pt

can ser ve consistently as a n o r m a t i v e guide for p olicy

makers in a vari et y of different cases involving considerations

of co nsent.

Several critics of the economic analysis of law, including

g
Co le ma n, Baker, Kr onman, Michelman and M a r k o v i t s have a rg u ed

that w e a l t h maximization is not tr uly Kantian p r e c is el y

because it is i d e n t i c a l to the K a l d o r - H i c k s c ri te rio n, a

measure of a g g r e g a t e welfare which is u n c o n s t r a i n e d by the

P ar e t o injunction that no party sh o ul d be made w ors e off if

a c ha n ge is to be c o n s i d e r e d e f fi cie nt .

Since Posner himself has equated wealth maximization

9
wi th the Kaldor-Hicks c r it er i on , a brief digression on

it is w a r r a n te d . The Kaldor-Hicks principle may be s tated

as follows: If i n d i v i d u a l A is ma de so much be tt er by

some c h an g e or e vent that he cou ld compensate B for the

loss inflicted upon him by that change, and still have

something left over, then the c ha ng e or event represents

an u n e q u i v o c a l i mp r o v e m e n t .

Si nce a ct u al compensation need not be paid, the principle

of c o n s e n t seems to be absent. Commenting on the K al d o r -

H ic ks cr it er i on , F ra n k M i c h e l m a n points out that it

. . . r e q u i r e s only h y p o t h e t i c a l
w i l l i n g n e s s to pay and accept; it
 does not require a c tu a l payment.

Thus the r es ul t of an " e f f i c i e n t "

c h a n g e may well be b en e fi t to syge
at the e x p e n s e of o th e r s . . .

He goes on to s tate that

. . . the m os t bas ic o b l i g a t i o n a l value

is r e s p e c t for the c a p a c i t y of the
i n d i v i d u a l to f o r m u l a t e and act ^
a c c o r d i n g to his or her own life plan.

Kaldor-Hicks interventions p r odu ce losers, so why

would a loser c on s e n t to such i n t e r v e n t i o n s ? , Po s ne r says

that in m a n y ca se s the lo se rs can be said to have consented

to the loss by a c c e p t e d e_x ante compensation, as in the

accident liability example discussed above. The point

was ma de by D w o r k i n that Posner's description of the c i r c u m

stances u nd er w h i c h c o n s e n t is i n vi t ed is s o m e w h a t a rb it r ar y .

A second, and perhaps more f u n d a m e n t a l point is made by

C ol em a n, who argues that accepting compensation ( whether

ex ante or ex p o s t ) is not the equivalent of g r a n t i n g c o ns e nt

Even if it m a de s en s e to say that

e v e r y o n e unde r the fault [ ne g li ge nc e]
s y s t e m a c c e p t e d the lower costs, it
w o u l d h a r d l y f ol l o w that by a c c e p t i n g
the r e d u c e d cost s the ac tu al v ic t im s
had c o n s e n t e d to the loss . . . C o m p e n
s a t i o n e n f o r c e s my rig ht to s ecurity;
it is not the i n s t r u m e n t t h ro ug h
w h i ch I e xp r e s s my c on s en t to h av j ^g
the l evel of my s e c u r i t y reduced.

While Dworkin a rg u e s the fundamental point that w ea lt h

maximization does not embody the true Kantian principle

of co ns en t, ot h er s have a r gu e d more specifically that w e al t h

maximization can lead to r e s u l t s whic h are inconsistent

with the principles of a u t o n o m y and individual freedom.

 68

Lewi s Kornhauser, for in stance, argues that wealth maximization

justifies coercing people who a bh or certain activities

into undertaking them if they are more productive in the

undesired activities than the ones in wh ic h they would

13
c ho o s e to engage. He c o n t e n d s that w ea l th maximization

m i g ht even dictate "a good deal of w h o l e s a l e slaughter:"^

All those who are u n p r o d u c t i v e , who

cost mo re than they produce, must go.
In p a r t i c u l a r , w e a l t h m a x i m i z a t i o n
r e q u i r e s that we d e s t r o y the m e n t a l l y
r e t a r d e d and the m e n t a l l y ill who are
institutionalized.

Kornhauser goes on to m e n t i o n oth er " g ro up s sub je ct

to e x t i n c t i o n " , including welfare mothers and r e t a r d a t e s

with no s ou r c e of income. P o sn e r has an es ca pe route,

h ow ever, to get aw ay fr om such unappealing c on c l u s i o n s :

The indo le nt , the re ta r de d, the si ck and the old could be

" sa ved"; indeed, they wo ul d be s u p p o r t e d as a m at te r of w ea l th

maximization, lf_ they were, in P o s n e r ' s words, "part of

the utility function of s o me o ne who has wealth."^ However,

to a r gu e that the "nonproductive" m i g ht be s u p p o r t e d under

a system of w e a l t h maximization is a far cry from d er i v i n g

the principles of a u t o n o m y and h u m an ri gh ts from that system.

Generally, the same kind of a r g u m e n t is made by F ra nk

M i c h e l m a n .^^ To demonstrate his point, Michelman c o n s i de r s

a str ic t liability case. Suppose an a c c i d e n t has o c c ur r ed

in a r en t al housing unit, and it a p p e a r s that the contribu

tory a c t i v i t y of the landlord consisted of c o n d u c t that

violates a pu bl ic standard of right beha vi or . The q u es t io n

 69

oug ht to be s t r i c t l y liable. He ar gu es that s tr ic t liability

oug ht to be e n f o r c e d because it r e f l e c t s the "purpose of

protecting a certain c l as s of c i t i z e n s against a c er t a i n

c l ass of h a z a r d s h a z a r d s against which the protected class

is believed otherwise relatively defenseless by r ea so n

of l i mi te d m ar k e t power."^

Perhaps the a s s u m p t i o n that landlords and tena nt s

fall perfectly into the categories of economically powerful

and economically defenseless, r esp ec tively, is dubious.

At any rate, such a situation would impl y very n o n - c o m p e t i t i v e

market conditions in the h ou s i n g i ndustry, so it is important

to note that M i c h e l m a n ultimately res ts his c o n c l u s i o n s

on the principle that all persons are to be t r ea t ed as

ends in th em s el v es . He contends that in this case . . .

[t]he p r e e c o n o m i c de m an d for r e sp ec t
for each i n d i v i d u a l ' s p e r s o n a l i n t e g r i t y
and h u m a n i t y the K a n t i a n i n j u n c t i o n to
treat each pe r so n as a m e a n s get^g
se co nd a ry , if any, c o n s i d e r a t i o n .

Another statement by M i c h e l m a n s eems to be g r o u n d e d in

the same p ri nc ip le :

[T]he s o l u t i o n to the q u e s t i o n of
c o r r e c t i v e j u s t i c e is not t h ou g ht to
de pe nd or p a r t a k e of the private,
s u b j e c t i v e v al u es of any individual . . .
The solu ti on, rather, r ef l e c t s a p ublic
value of fair d e a l i n g and righ t r e l a t i o n s
b e t we e n f e l l o w m e m b e r s of a s o c i e t y e n
c o u n t e r i n g one anothe-r und er c i r c u m -
s t a n c e s i n w h i c h th ey m us t sha re a co mm on
burden.

Unfortunately, Michelman is not clear as to what the

specific "burdens" m i g ht be or how they ought to be"s hared".

(Does strict liability constitute "sharing"?)

 70

What can be said in c o n c l u s i o n abo ut K a n t i a n i s m and the

economic analysis of law? First, the connection b et wee n w ea lt h

maximization and the c o n c e p t of c on s e n t seems quite tenuous.

Second, Posner's c l a im that "the commitment of the e c o n o m i c

approach to the principle of e x c l u s i v e ri gh ts is m uch stronger

21
than that of . . . m a ny Kantians" is d ub i o u s at best. Wh il e

certain particular rights are i mp l ie d by w e a l t h m a x i m i z a t i o n ,

that principle also i mp l i e s the violation of such fundamental

r i gh t s as to ch oo s e one's p r o fe ss i on , and p er h ap s even the

r ight of an individual to his or her own life'. Thus it seems

reasonable to c o n c l u d e that the e co n o m i c a pp ro ac h, particularly

wealth maximization, has not been show n to give rise to a

consistent set of principles in cases involving considerations

of conse nt , rights, or the a u t o n o m y of the i n d iv i du al . Further

more, in some cas es where normative principles are implied,

those principles are contrary to w i d e l y recognized m o ra l and

ethical norms.

Utilitarianism, as it is o r d i n a r i l y u n de r s t o o d , and as
22
Po s ne r uses the term , ho lds that the m oral val ue of an ac ti o n

(or an institution, law, etc.) lies in its effects in p r o m o t i n g

h a pp i ne s s. Happiness in this c o nt e xt m e a ns the s ur p lu s of

pleasure over pain, and w hi l e it is u s u a l l y restricted to

human h ap p in e ss , some v er s i o n s of u t i l i t a r i a n i s m i nc lu de all

sentient beings.

There are a c t u a l l y two k inds of u t i l i t a r i a n i s m two

"ways of b eing a utilitarian", as R on a l d Dworkin put it.

One way is to hold that happiness is good in itself, so the

 71

more of it the better, regardless of its distribution. The

o th er is to hold that distributional considerations are important,

so goods ough t to be d i s t r i b u t e d so as to m a x i m i z e the a ve r a g e

happiness over some stipulated p op u la t i o n . The l at ter may

be ca l le d "egalitarian" utilitarianism and the f or me r " t el eo -

l og i c a l " utilitarianism.

Am ong the s e v e r e s t critics of e c o n o m i c t he or y are those

who eq ua te it with philosophical utilitarianism, then a t t a c k

utilitarianism. Writing in the G e o r g i a Law R e v i e w , H. L.

A. Hart uses this tack. He c la im s that P os n er acknowledges

utilitarianism to be the inspiration of the economic analysis

23
of the law; it is, h ow ev er , a fals e charge. Posner has

sho wn that w e a l t h maximization is not utilitarianism, and

goes on to argu e that wealth maximization is a s up e r i o r basis

for a normative theory of law.

In his most thorough treatment of the relationship b et we en

24
economic t he or y and utiliarianism, P os n er draws the c r uc i al

distinction b e tw e en the e c o n o m i c principle of w e a l t h , and

w e l f a r e . i.e., happiness in the utilitarian sense. W ea l th

discriminates a mo n g preferences on the basis of w i l l i n g n e s s

and ability to pay, while the felicific c a lc u la s of utilitar

i an i s m must i nc l ud e any and all preferences w it h i n the

relevant p o pu l at i on . On ly those preferences manifested in

de ma nd functions cou nt as wealth:

W e a l t h is the value in d o ll ar s or dollar

e q u i v a l e n t s (an i m p o r t a n t q u al i f i c a t i o n ,
as we shall see), of e v e r y t h i n g in
s oc i et y . . . The only kind of p r e f e r e n c e
 72

that c ou nt s in a s y s t e m of w ea lth
m a x i m i z a t i o n is thus one b ac k ed up by
m o n e y in o t h e r words, g^e that is
r e g i s t e r e d in a market.

The ma r ke t need not be an e x p l i c i t one, however, P os n er

discusses the c o n c e p t of "hypothetical m ar ke ts ", it will

be r ecalled, in w h i c h the co urt must m i mi c the m ar k et when

transactions cos ts preclude a ct ua l market t r a n s ac t io n s.

In such cas es the operative principle is still w ea lt h

maximization, t ho ug h information cost s wou ld inevitably bring

a d eg r ee of u n c e r t a i n t y to the court's c al c ul a t i o n .

P os n e r uses the following example to d e m o n s t r a t e that

maximizing wealth is not the same thin g as m a x i m i z i n g

26
utilitarian happiness : Suppose a polluting f ac t o r y causes

residential property values to fall by $2 mi lli on , but it

w o ul d cost the c o m p a n y $3 m i l l i o n to e l i m i n a t e the pollution.

Wealth maximization requires the r e s i d e n t s to bear the costs,

irrespective of c o n s i d e r a t i o n s of h a p p i n es s . Reverse the

numbers and you r e v e r s e the w e a l t h - m a x i m i z i n g de cision.

In d i s c u s s i n g the problems w it h utilitarianism, Po sn e r

be gi ns wi th the so-called boundary problem: Whose preferences

are to coun t in d e s i g n i n g policies to m a x i m i z e happiness?

Where is one to draw the line? P os n e r a rg ue s that in the

wealth maximization approach the boundary p r ob l em is much

less acute, for it s p e c i f i e s quite clearly that those preferences

w h i c h coun t are only t h os e b ac k ed by w i l l i n g n e s s and a bi l i t y

to pay. 27

Closely r e la t ed to the boundary p ro b l e m is what P os ner

c a lls "the p eri ls of instrumentalism". What he is referring

to is the " mo ra l m o n s t r o u s n e s s " of u t i l i t a r i a n i s m : The

willingness of utilitarianism to "sacrifice the i n n o ce nt

28
individual on the altar of s oc ia l needs", and its f a il ur e

to d i s t i n g u i s h a mo ng different types of ple as ur e. As an

example of the fir st kind of m o n s t r o u s n e s s , P os n er cites

the possibility that a s t ri c t utilitarian w o ul d condone the

killing of old, unhappy grandfathers whos e riddance w ould

relieve his c h i l d r e n of his m i s c h ie f , as well as g rant them

t heir inheritances. "I believe," Posner writes, "that a

consistent utilitarian would have to r ec k on the m u r d e r e r

a good man . . . Yet to call the m u r d e r e r . . . a 'good man'

29
does unacceptable violence to c o n v e n t i o n a l mo ra l notions."

Regarding the utilitarian's refusal to distinguish

a mo n g the different kinds of p le as ur e, Posner contrasts the

pleasure of feeding pigeons with that of p u l l i n g the wings

off flies. He find s it m o r a l l y unacceptable to favor the

l at t e r a c t i v it y , though the utilitarian mi gh t not be able

30
to e sc ap e that result. Posner finds the pe ri ls of

instrumentalism much less acute wi th wealth maximization,

because the w ea l t h maximizer confines l aw ful coercion to

a mu ch m or e restricted do m ai n than does the utilitarian.

The sole basis for coercion in the w e a l t h approach is "a

failure of the m a r k e t to o p e r a t e that is so s e ri o us that

the w e a l t h of a s o c i e t y can be i n c r e a s e d by public c oercion,

31
ise lf costly." While Posner acknowledges the difficulty

in recognizing market failures as well as the cost of

correcting them, he c o n t e n d s that "at least these are
32
empirical ra th er than v alue questions." What P os ne r m ea ns

by m a rk e t f ai l ur e is a p p a r e n t l y r e s t r i c t e d to t r a n s a c t i o n s

costs:

Some l i b e r t a r i a n s w o r r y that the

e c o n o m i s t wi ll e x p l o i t the m e a s u r e m e n t
p r o b l e m s i n h e r e n t in the use of a
h y p o t h e t i c a l m a r k e t c r i t e r i o n to
im po se all sort s of d ut ie s on people
in the name of e f f i c i e n c y . But, to
repeat, the i m p o s i t i o n of du ti es is
a p p r o p r i a t e in the e c o n o m i c view only in
the e x c e p t i o n a l case w h e r e m ar ke t t r a n s
a ct i o n c os ts are p r o h i b i t i v e . Epstein
is i n c o r r e c t in s u g g e s t i n g that the
wealth-maximization p r i n c i p l e would
en ta il f o r c i n g a s u r g e o n to travel
ac ro ss I n di a if he were the only
p h y s i c i a n who c ou ld save some i n di v id u al .
This is not a case of hi gh t r a n s a c t i o n
costs. If the i n d i v i d u a l can meet the
s u r g e o n ' s price, the s u r g e o n will travel
to treat him, and if not, the s u r g e o n
will m a x i m i z e ^ h e s oc i al w ea l t h by
s t a y i n g home.

Another s er i o u s problem with utilitarianism is the

dilemma of w h e t h e r to m a x i m i z e average or total utility.

According to P o sn e r th ere is no cle ar basis in u t i l i t a r i a n

t he or y for c h o o s i n g between average and total h ap pin es s,

th o ug h the latter, he cl a im s without elaboration, is more

consistent wi th the " si m p l e insistence of utility as the

3^
maximand." In a s y s t e m of w e a l t h maximization, the

a v e r a g e - total c o n f l i c t w ou ld not arise, Posner argues, i_f

all external effects w er e accurately taken into account.

He uses immigration as an ex ample:

The a ve r a g e w e al t h of the e xi s t i n g
p o p u l a t i o n is bo und to i n c r e a s e as a
r esult of i m m i g r a t i o n so long as any
 75

po t e n t i a l n e g a t i v e e x t e r n a l i t i e s of
i m m i g r a t i o n are fully i n t e r n a l i z e d to
the i m m i g r a n t s . And c o n f l i c t b e tw ee n
m a x i m i z i n g the w e a l t h of a n at i o n and
the wo rld w i ll al so be rare, b ec au se
most trade r e s t r i c t i o n s hurt both
p a rt i es to them.

Finally, there is the problem of m e a s u r e m e n t . W hile

utility or h a p p i n e s s cannot be m e a s u re d, dollars, of course,

can. W it h we al t h maximization that is, however, a measurement

problem when the m a r k e t is h y p o t h e t i c a l . Po sn e r a rg ue s that

it is n o n e t h e l e s s easier to m e a s u r e wealth in such cases

than ha p pi n es s :

For examp le , the right of the p h y s i c i a n

who treats an u n c o n s c i o u s a c c i d e n t
v i ct i m la ter to c l a im his r e g u l a r fee
from the v i c t i m is f o un de d on the
r e a s o n a b l e a s s u m p t i o n that if the
v i ct i m c o u l d have n e g o t i a t e d with the
p h y s i c i a n for such s e r v i c e at such price,
he w o u ld ha ve done so . . . It is much
e as i er to g u es s p eo ples' m a r k e t p r e f e r
en ce s . . . than to guess what p o l i c e s
will m a x i m i z e s u b j e c t i v e ha p pi ne ss .

In summary, Posner has considered what he feels are

the ma in problems with regard to u t i l i t a r i a n i s m , and in each

instance finds w ea l t h maximization to be a p r e f e r a b l e e t hica l

criterion. It will co me as no s u r p r i s e that the c r it ic s

of law and economics take exception on m a ny points.

P e r ha p s it w o ul d be u se f u l first to r e v i e w the points

of a g r e e m e n t b et w ee n Posner and his cr it ic s. Th er e is gener al

agreement that w e a l t h maximization is not philosophical

utilitarianism. Actually, Richard Markovits made this point

37
even be for e Posner, but m os t of the discussion has come .

in the wake of P o s n e r ' s "Utilitarianism, E c on omi cs , and

Legal T h e or y ". In a d d i t i o n to M a r k o v it s , Coleman, Kronman

 76

and Kornhauser have written at some l en g t h on the relation-

38
ship between wealth maximization and utilitarianism, and

e ac h has concluded that they are, as P o s n e r m ai n ta i n s , competing

t he o ri e s, not different versions of the same theory.

The point that allocations on the basis of w e a l t h maxi

mization can di f fe r f ro m those m ade on u t i l i t y considerations

was n e at l y demonstrated by A n t h o n y Kronman in his "wall"

39
ex am pl e, which can be summarized as follows: Suppose A

and B are on o p p o s i t e si des of a high wall and c an no t

communicate wi th one a not h er . B has a book w h i ch he is w i l l i n g

to sell for $2; A would be w i l l i n g to pay $4 for it, though

he is unaware of B's existence. T h e re is a third person,

C, who is able to e f f e c t a transfer of the book a nd / o r the

money, t ho ug h without bringing the two p ar t i e s into communi

c a t i o n w it h one an ot h er . He has several op ti on s. W ea l t h

maximization demands that the book be t r a n s f e r r e d to A, but

in K r o n m a n ' s particular examp le , does not necessarily require

a transfer of money. T hu s wealth maximization leaves the

question of p a y m e n t unanswered. On the o th er hand, a considera

tion of utility (i.e., happiness) unambiguously r equires,

in this exampl e, a transfer of the book and no transfer of

money. Utilitarianism is thus, shown, c or r ec t ly , to be

distinct from w e a l t h maximization.

In this example utilitarianism is sho wn also to be

superior by v ir t ue of its a b i l i t y to d e t e r m i n e solutions

w he n wealth considerations cannot. Kronman reaches this

conclusion through arbitrarily assigning u ti l i t y v alu es to

 77

40
v a ri o us p os s i b l e s ol u ti o n s , and therein lies a s er i ou s fallacy.

The analysis is c o n s t r u c t e d from the beginning to favor utili

t ar ia ni sm . It could, h ow ever, have been similarly "r ig g ed "

to g e n e r a t e the result that utilitarianism is i n d e t e r m i n a t e .

J ul es Coleman goes more d ee pl y than K ro n ma n into the

meanings of v a ri o us efficiency criteria and thei r relation

ships to u t i l i t a r i a n i s m . He c o n s i d e r s P ar e t o su pe r io r it y,

Pa re to optimality and K a l d o r - H i c k s , and finds in each case

that any connection with utilitarianism is i n va l id b e cau se

that w o ul d require a standard of c o m p a r a b i l i t y of u t il i ty

41
w h i ch does not exist.
His discussion of K a l d o r - H i c k s is the most relevant,

since wealth maximization is g e n e r a l l y accepted to be a m o n e t a r y

expression of K a l d o r - H i c k s . There are two problems with

Kaldor-Hicks which preclude its transformation into an inde x

of utility, he po i nt s out. First, in ord er to infer from

satisfaction of the Kaldor-Hicks test that there has been

a net gain in u ti lity, one needs to k no w that the w in n er s

have g ai n ed m or e than the l osers have lost. In the a b s e n c e of

actual, voluntarily accepted compensation this requires an

impossible interpersonal comparison of total utility. Second,

the Kaldor-Hicks test can lead to the p ar a d o x that two s ta te s

of a f f a i r s may be K a l d o r - H i c k s efficient to one another.

This is the w e l l - k n o w n Scitovsky Pa ra do x. Thus Kaldor-Hicks

efficiency is paradoxical as a s t a n d a r d of u t il i ty and c ould

not be transformed into a utility index even if interpersonal

utility comparisons w er e possible.

 78

The mo st d ir ec t attack on
" U t i l i t a r i a n i s m , Economi cs,
^2
and L e ga l T h e o r y " comes from L ew is K o rn ha u s e r . He a cc e p t s

Posner's analysis of the problems w it h utilitarianism, but

challenges his contention that the difficulties are "less

acute", or even non-existent, w it h wealth maximization.

Concerning the boundary problem, Kornhauser a ru g es that in

the w e a l t h a p p r oa c h, precisely the same questions are left

unanswered as in the utilitarian a p pr oa ch . W h i le he s pe ak s

specifically of "tim e horizons", and "global" as o p po se d

to " lo ca l" s o l u t io n s, his g e ne r al point is that the n e c e s s i t y

of d ra w i n g the boundaries b efore proceeding wi th one's calcu

l at i o n is e v ery bit as real wi th wealth maximization as

utilitarianism. For ex amp le , he aruges, wi th r eg ar d to the

potential wealth of unborn persons, that including such wealth,

43
as P os n e r does, in the calculation

. . . r e st s on the same g r ou nd s as a
d e c i s i o n to i nc l ud e them in an u t i l i
t ar ia n c a l c ul u s; those c o n s i d e r a t i o n s
r e c o m m e n d m a x i m i z i n g w e a l t h or o ther
c o n c e p t s of u t i l i t y over a long tiijig-
h o r i z o n as o p p o s e d to a shor t one.

And wi th regard to f o r ei gn populations, Kornhauser

p o in t s out that

To m a x i m i z e g lo ba l wea lt h, it may,
t h er e fo r e, be n e c e s s a r y to enact or
e n f o r c e laws in the U n i t e d S t a t e s ^
that do not m a x i m i z e w e a l t h here.

T h ere is e v e r y reason, Kornhauser maintains, for the

46
total-average conflict to aris e al so with w e a l t h maximization.

He o ff e rs a couple of exa mp le s. First, he th in ks it r e a s o n a b l e

that maximizing total wealth m ig ht r e qu i re making some people

poor. Second, he suggests it m i g h t be p o ss i bl e for the h i gh es t

average wealth to be a t t a i n e d when the population is r e l a t i v e l y

small, w hi l e the highest total wealth m igh t occur with a

very large population, all of w h os e members are l iv i ng at or

c l os e to s u b s i s t e n c e .

W hen all externalities are considered, as in the a n a l y s i s

P os n er of f er s above, it is c e r t a i n l y impossible for total

wealth not to be i n cr e a s e d , for any a c t i o n w hi ch increases

net w e a l t h at the m a r g i n must increase total wealth. However,

an i n c r e a s e in the to tal does not necessarily m ea n an i n c r ea s e

in the a v e ra ge . By focusing on w e a l t h at the margin, P osner

arbitrarily eliminates consideration of a v e r a g e wealth from

the be gi nn i ng . One could, of course, m ake the same prejudgment

about happiness maximization, then p ro c e e d to ar gu e that

w hen all external effects are considered, the re is "no c o n f l i c t "

between average and tot al happiness. The r e l ev a nt q ue s t i o n

remains: Wh at is the basis for c h o o s i n g total a b o ve a ve r a g e

as the m a x i m a n d ?

Kornhauser hits hard on the iss ue of m oral monstrous

ness, arguing that wealth maximization (a) uses p e r so n s as

instruments in the p ur s u i t of so ci a l wealth, henc e cou ld

c oe r ce them into undesired activities; (b) m ak e s no moral

distinction between the different preferences that give

rise to e f f e c t i v e demand; and (c) is w i l l i n g to s a c r i f i c e

the innocent for the good (i.e., w e al t h) of society as a

whole.
 P oi n ts (a) and (c) are closely related, and K o r n h a u s e r ' s

discussion of them was sufficiently c ov e r e d a bo v e in the

discussion of w ea l t h m a x i m i z a t i o n and huma n rights. His

discussion of the m o r a l distinction b e tw e en the different

preferences w h i ch give rise to w i l l i n g n e s s and a b i l i t y to

pay (or s i mp l y "effective de ma n d" ) is also i l lu m i n a t i n g .

He a rg u e s that w ea l t h maximization w o ul d theoretically honor

those who produce h e ro i n the same as those who p ro d u c e p en ici ll in,

thus m a k i n g no d i s t i n c t i o n b et w e e n "perverse d es i r e s and

noble ones."^ But P o s n e r nev er absolutely de ni es this result.

Rather, he po in ts out that the p er so n with perverse preferences

m ust also be a p r o d u c t i v e m em b er of s oc i e t y if he is to have

48
the w e al t h necessary to make his preferences felt. ,P o s n e r ' s

response altogether misses the point, for in the we al t h

maximization sc h em e producing h er o i n is by d e f i n i t i o n being

a productive member of society as long as some pr ef e r h er oi n

and are w i l l i n g and ab le to pay to get it. It is p r e c i s e l y

the point that w ea l th maximization fails to d i s t i n g u i s h amon g

the different preferences g iv ing rise to e f f e c t i v e demand.

Wh at can be said in s u m m a t i o n a bo u t the relationship

b et w e e n wealth maximization and utilitarianism? First, w ea lt h

is distinct from h a p p i n e s s in the utilitarian sense, hence

wealth maximization sh o ul d not be e qu a t e d with utilitarianism.

Nor does a wealth approach necessarily lead to r e s u l t s that

are consistent w it h utilitarianism. The discussion also

s eems to s u p p o r t two previous conclusions: w ea l th maximi

za t io n has not been show n to y ield a consistent or c om p l e t e

 81

set of n o r m a t i v e p r in c ip l es , and it can lead to r es ul t s that

are sharply contrary to a c c e p t e d mo ra l and e th i ca l norms.

T he literature reviewed abo ve is c o n c e r n e d wi th comparing

wealth maximization to u t i l i t a r i a n i s m , and before that, to

Kantianism. Several critics have discussed wealth maximi

zation without s pe c ia l reference to K a n t i a n or u t i l i t a r i a n

considerations, and it is a p p r o p r i a t e that they be r e v i e w e d

b ef o r e a final assessment of w e al t h maximization as an e t hi c al

system is m a d e .

C. O th e r Ethical and M or a l Considerations

Without adopting specifically a Kantian or u t i l i t a r i a n

49
p o si ti on , Ronald Dworkin discusses whether w ea l th ought

to be c o n s i d e r e d a worthy s oc ia l goal, e it h er as a c o m p o n e n t

of val ue or as an instrument of value. He r ej ec ts both possi

bilities .

Dworkin fe els that w e a l t h is not a component of value

because it m a k e s no s ense to s pe a k of a t r a d e - o f f b et w ee n

wealth and ju stice. He c o n s i d e r s choosing amon g hypotheti

cal societies by t r a di n g off j u s ti c e a g a i n s t wealth, and

concludes that if one w e r e to c ho os e the m o r a l l y best society,

all t hi ng s considered, then "the very idea of a t r a d e - o f f

b et w e e n justice and wealth now b e co me s mysterious. If the

individual is to c ho os e the m o r a l l y best society, why s hould

not its j us t i c e a lone m a t t e r ? " ^

He re Dworkin is o b j e c t i n g to t h o s e ^ who s ug ge st that

political decisions sometimes m us t be made b et wee n justi ce

 82

on the one hand, and efficiency on the other. In this context,

Dworkin is co rrect: ther e is no reason, from a m or a l point

of view, to ch oos e less justice. However, when the a r g u m e n t

is a p p l i e d to the c o n t e n t i o n that w ea l t h is a c o m p o n e n t of

value, it b e c om es mo re semantical than s u bs t a n t i v e . D wo r k i n

implicitly d e fi n es justice as that set of principles whic h

is m o r a l l y p re f er a b l e ; thus, he begs the question whether

wealth should be i n c l u d e d in that set.

The instrumental claim for w e a l t h maximization is not

that it is a c o m p o n e n t of justice, but that it promot'es justice.

Dworkin po in ts out that the instrumental c l a i m must be a c c o m

p ani ed by some specification of the v alues or goals--the

"true ends" as he c a ll s them--which are supposedly advanced

t hr o u g h wealth maximization. He l am ent s the fact that there

have been few a t t e m p t s by law e c o n o m i s t s to do this, t hough

he of f er s no s p e c i f i c a t i o n either. But the h eart of his

critique of the instrumentalist c l a im seems to be the e mp i r i c a l

question of w h e t h e r wealth maximization w ou l d in fact lead

to the desired "true ends":

My point is not that it is i m p o s s i b l e

a n t e c e d e n t l y to d es c ri be the "best"
mix of c o m p o n e n t s , other than the I-
know-it-when-I-see-it-fashion--although
that is a bad sign. But ra th e r that at
the level of fine t uning n e c e s s a r y ' t o
d i s t i n g u i s h the r es u l t s of w e a l t h m a x i
m i z a t i o n from the r e s u l t s of c o mp r o m i s e s ,
there s im p ly is_ no one "best" mix a n t e
c e d e n t l y m or e l ik e ly to be p ro d u c e d by
one r at h er the oth er of these social
techniques.
 His subsequent discussion of c e r t a i n suggested "true

e n ds" is w or th a brief review. Concerning the proposition

that w e a l t h m a x i m i z a t i o n w ou ld p ro d uc e m ore "beneficial-for-

o th e rs activity" than a society pursuing a more d ir ec t altruism

Dworkin stresses that the m o r al c on t e n t of an act lies in

the intentions of the actor:

For the m o r a l value of b e n e f i c i a l

act iv it y, c o n s i d e r e d in itself,
c o n s i s t s in the wi ll or i n t e n t i o n s
of the a c tor . . . P o sn e r m akes
pla in that his p r o d u c t i o n - f o r - o t h e r s
c l a i m has n o t h i n g to do wi th the o th e r -
r e g a r d i n g i n t e n t i o n s of ac t or s in the
e c o n o m i c p r o c e s s . . . Any bene fi t
to o th er s c o me s f r o ^ t h e i n v i s i b l e
hand not good will.

Dworkin also considers the m e r i t o c r a t i c theory, w h ic h

h olds that j u s ti ce consists in that distribution which r e wa rd s

persons in a c c o r d a n c e with their merits. He a rg u es that

. . . sinc e w h i ch t al e nt s are r e w a rd e d
by the m a r k e t is h i g h l y c o n t i n g e n t on
a v a r i e t y of factors, the purs ui t of
e f f i c i e n c y c a nn o t be r el i ed on to
r ewa rd any p a r t i c u l a r set of ^ e s e as
i n d e p e n d e n t m e r i t s over time.

For in stance, he w o n d e r s whether the m ar k et co ul d a lw a ys

be re l ie d upon to r e w a r d "that set of t a le nt s necessary consist

e n tly to hit a breaking p i t c h . I t is probably true that

Joe Dimaggio w ou ld not have been so well rewarded in a s oc i et y

that did not e nj o y b aseball, but this w ou ld seem to be a

m at t e r of particular job skills, not merit. One c ou ld a rgue

that such "independent" attributes as ind us tr y, s h re wd n es s,

c ourage, and self-sacrifice, which are rewarded on the a t h l e t i c

field, are equally important in m an y othe r departments of life.

 84

D w or k in does b r ie f ly consider such "relatively f ixed" a t t r i b u t e s ,

as he c alls them, and ad m it s that they are rewarded by the

56
market " t y pi c al ly , although not inevitably."

The e th i c a l position w hi c h may be very generally t er me d

"egalitarianism" has been the basis for some c r i t i c i s m of

the economic analysis of law. Utility considerations ofte n

s er ve to j us t if y egalitarian po licies, th o ug h o ther justifications

exist, and will be t o u c h e d on below. L u ci a n Bebchuk's"^

critique is an e xa m p l e of the utility a pp roa ch. He begins

with the proposition that the m a r g i n a l u ti l i t y of i nc om e

is likely to be r e l a t i v e l y less for the w e a l t h y than for

the poor. Thus, the w e a l t h y may not only be b et ter able

than the poor to get w ha t they want on the basi s of a b i l i t y

to pay, but to get it at a lower cost in utility.

58
Another c ri ti c who takes a s i m il a r tack is Edwi n Baker.

He a c k n o w l e d g e s , h ow ev er , that it is i m p o s s i b l e to be c e r t a i n

abou t interpersonal comparisons of the u t i l i t y of money,

59
and following Abba L er ne r postulates a ra n do m distribution

of the second-derivative v al ue s for the utility of money

f unc ti o ns . Gi ve n this a s su m pt i on , it f ol l ow s that an equal

distribution of i nc om e woul d m a x i m i z e the u ti l i t y of money.

B ak e r ' s point is the same as B eb ch uk 's , n am e ly that in a

world of u n e q u a l i nc omes, the rich are favored, in u ti l it y

terms, by w e a l t h m a x i m i z a t i o n .

A r e l at e d point m ad e by Baker, Bebchuk and others is

that the rich are favored o ut r i g h t since the a b i l i t y to pay

is so c r uc i al in the d e f i n i t i o n of wealth. In f a i rn e ss to
 85

P osner, it sh o ul d be m e n t i o n e d that this kind of o b j e c t i o n

tends to c o n f u s e ability to pay with willingness, or at

least fail to r e c o g n i z e the importance of the latter. W ha t

a relatively less wealthy p er so n w i s h e s to have m ig ht ha p pe n

not to.be what a wealthy p er s on also wants. Ability to pay

is only a part of the criterion of wealth.

Ba ker also a rg u es that w ea lt h maximization is li k el y

to favor the rich because they are the more pr od uc ti v e, and

wealth maximization f av o rs the more p r o du c ti ve . Bak er establishes

the c ru c i a l link between the rich and the productive in two

ways. The first is really only a play on words, for he ident

ifi es the rich as th ose who "own a d i s p r o p o r t i o n a t e sha re

of the productive assets."^ The o ther way he links the

rich and the productive is to s u gg es t that

. . . if a p a r t y ' s gain of a c l ai m ed
right in a p r e v i o u s case had the
e f f e c t of m a k i n g his p r o d u c t i v e
r e s o u r c e s (e.g. labor) m or e v a l ua b le
to him, then a rig ht not to have his
p r o d u c t i v e r e s o u r c e i n t e r f e r e d with
or d a m a g e d w o u ld be v a l u a b l e g<j> him
be c au se of the p r e v i o u s gain.

The efficiency of capital markets m i gh t be r e l e v a n t here,

s i nce much of the advantage of previous gains is lost if

c ap i t a l markets allow one to b o r r o w a g a i n s t fu ture ear ni ng s.

Still, Baker's general contention that the productive are

f a v or e d over the n o n p r o d u c t i v e is co rrect. The point is

repeatedly stre ss ed , h ow ev er , by P o s n e r himself. He c o n s i d e r s

productivity a virtue, not a vice, and ar gu e s precisely that

the productive oug ht to be f a vo r ed over the nonproductive.

 86

62
B e ch u k a rg u e s that the distinction b et w e e n producers

and nonproducers is inconsequential. His argument is that

the pr od uce rs ' pr ic es de pe nd upon the c on s um e r s ' monetary

valuations which in turn de p en d upon the ir wea lt h. "To that

extent," he c on c lu d e s , "assigning the e n t i t l e m e n t to the

p ro d u c e r is in de ed granting it to the c us t om e r s ' consumptive

63
activity." His poi nt is c e r t a i n l y not inconsistent with

the neoclassical vi ew of the firm as a c o o r d i n a t i n g entity,

reconciling the plans and purposes of resource suppliers

on the one hand w it h t hose of c o n s u m e r s on the other. He

might have gone on, h ow ever, to say that c o ns um e rs ' w ea l t h

d ep e nd s ultimately and in the long run upon their productivity.

The point r em a in s that w ea l t h maximization does r ew ar d pr odu c ti on ,

in P o s n e r ' s v ie w a s t re ng th , not a weakness of his proposed

system.

A few w o rd s of s u m m a r y are in order. This c ha p t e r has

reviewed the more important ethical and m o r a l critiques of

wealth maximization. The g en e ra l conclusion is that Po s ne r

has f ai le d to d e m o n s t r a t e that a consistent and complete

set of n o r m a t i v e principles can be d e r i v e d from the e c o no m ic

analysis of law. Mo re o ve r, it seems that wealth maximization

can in fact lead to p r a c t i c e s that are s ha r p l y contrary to

accepted e t hi c al and m o r a l norms.

T h e se conclusions s up p o r t the c e n t r a l thesis of this

dissertation, that e c o n o m i c s is not us ef ul in m a t t e r s of

substantive rationality. The crucial questions regarding

what constitutes h ar m and i nj ur y are not satisfactorily

 87

answered by e c o n o m i c s alone.

The p ur po se of this c ha p t e r has not been to d e v e l o p

a particular definition of harm and injury, but m e r e l y to

a rg ue that economics fails to do so for essentially two reaso ns .

First, the economic approach does not consistently s erve

e it he r K an t i a n or u t i l i t a r i a n p r i nc i pl e s; second, it contravenes

certain widely held maxi ms, and can lead, in fact, to c o n c l u s i o n s

that are m o r a l l y a b h o r r en t. Some will ob je ct to this conclusion

on the basis that no c o h e r e n t system of m o r a l i t y has been

developed in this dissertation in order that an a c t i o n can

be ju dg ed morally a b ho rr e nt . O nl y the following defehse,

if it can be ca ll ed that, is o ff ere d; It is s im p l y obvious

to the conscience that such th ings as m u r d e r i n g the retarded

b e ca u se they ca n no t purchase the right to life, or selling

i l l eg a l narcotics to chil dr en , or even torturing dumb animals

are morally wr on g and i nv o lv e m or e h ar m than good. Some

actions do c o n s t i t u t e harm and injury, and this is true regard

less of "how one talks abou t it", to b or r ow a p hr as e from

Professor Ar th ur Leff. It is only hop ed that the sophistication

of the re ad er is not terribly offended by such a position

as this.

E. Some Concluding R em a r k s on the C o m p l e t e n e s s of the "New"

Law and Economics

Both Chapters III and IV have been concerned with those

who are c r i t i c a l of the economic analysis of law. In light

of the critiques reviewed in these c hapters, it is now possible

 88

to a ss es s more f ully the completeness of the "new" law and

e c on o mi c s, especially Posner's e ff or ts to c o n s t r u c t a complete

theory on the basis of w e a l t h maximization.

Chapter II s u g g e s t e d three important criteria that must

be met if the economic analysis were to give rise to a c o m p l e t e

t h eo r y of law. First, the economic analysis must not d ep en d

upon prior or exogenous determination of the distribution

of w e a l t h and income. In o ther words, it m us t be able to

determine endogenously, or "for itself", the initi al distribu

tion of w e a l t h and income. Second, the e c o n o m i c analysis

m ust not p ro c ee d entirely in terms of some particular c on cep t

of value (e.g., in c om e or m ar k et price) without reference

to "utility" or " hu ma n satisfaction" since the latter are

considered in m o d e r n microeconomics to be the ultimate motivation

in all " c h oi c e" b e hav io r. Finally, and m os t i m p o rt a nt ly ,

the economic analysis m us t not rely upon external m oral consid

erations'. It must be able to g en e r a t e for it s el f the n e c e s s a r y

" val ue judgments" regarding the ends the law is s u p po s ed

to pursue. It must, in other words, i nv o lv e substantive

as well as instrumental r a t io n al i ty .

Concerning the first c rit er i on , C ha p t e r III p r e s e nt e d

the Institutionalist critique which r e je ct s the we al t h maximiza

tion appro ac h, stressing that w i l l i n g n e s s and ability to

pay are a function of the d i s t r i b u t i o n of in co me and wealth:

a lt e r the distribution of i ncome and wealth, and you alter

the structure of demand. Hence, the w e a l t h - m a x i m i z i n g allo

cation of e co n o m i c goo ds is particular to the initial

 89

distribution of i nc o me and wealth. Posner de ni es this conclu

sion and a rg u es that the w e a l t h maximization principle its el f

establishes the initial ( " na t u r a l " ) distribution. But if

the Institutionalists' so-called circularity argument is

co rrect, and it wo uld a p pe a r to be, then Posner's reasoning

must be r ejected.

Wi th r eg a rd to the s ec o n d c ri t er i o n , the discussion

of C oase in C ha p te r II p oi n te d out, a m o ng other things, that

if one speaks of "wealth" in the n a r r o w c o n t e x t of m a r k e t

prices, this n ot i o n of w e a l t h is qu ite divorced from the

g e ne r al concept of u ti lity, or what Po sn e r himself terms

" human satisfaction". The Austrian critique argues in e s s e n c e

that one c an no t claim, as even the ea rl y P os n er does, to

be able to say very m uc h a b o ut " hu m an satisfaction" if one

is c o n s t r a i n e d to s p e a k in terms of prices. Fur ther, the

discussion in C ha p t e r III suggested that the c o m p l e t e l y

generalized c o nc ep t of u t i l i t y is a p p r o p r i a t e , even ne c es s ar y,

for developing even descriptive analysis of be hav i or in the

choice-theoretic f ra m ew or k , si nce relevant cos ts and benefits

often fail to be e x p r e s s e d monetarily.

The third c r i t e r i o n has received more attention than

the ot he rs in this study. Chapter II d i s c u s s e d the view,

expressed by n u m e r o u s economists including the e arly Posner,

that efficiency can be a goal independently of other goals,

particularly "morality" goals such as equal it y, rights, u ti lity,

etc. It was argued, ho we ver , that in s t u d i e s such as B e c k e r ' s

analysis of crime, the derivation of e f f i c i e n c y or o p t i m a l i t y

 90

conditions d e pe nd s upon prior assumptions of c e r t a i n m or al

principles .

The necessity for m or a l and e th i c a l principles w o ul d

not re nd er the e c o n o m i c analysis a p a r ti a l or i n c o m p l e t e

analysis if w e a l t h m a x i m i z a t i o n c ould generate for it se lf

the requisite principles. The need for principles concerning

h um an rights, for i n st an ce , would not r eq u ir e that we look

b eyo nd economics if e c o n o m i c s c ould it self generate a th eo ry

of rights. T hat it can, in terms of w e a l t h maximization,

is precisely the a r g u m e n t advanced in some of P o s n e r ' s more

re c en t wr i ti ng s .

Whether wealth maximization does in fact impl y ei th er

u ti l i t y or r ig hts goa ls is q u e s t i o n e d by s e v e r a l c ri ti c s

w h o se arguments are reviewed in C h a p t e r IV, and it was concluded

that w h i le exclusive r ig h ts are in ma ny cases a me an s to

wealth, ri ghts goals are not necessarily derived from the

principle of w e a l t h maximization. Mu ch the same was said

a bo ut wealth maximization and utilitarianism. H.L.A. Hart

notwithstanding, the consensus is that wealth maximization

is c o n s i s t e n t with utilitarianism only by c o i n c id e nc e ,

at all.

Without adopting specifically a K an t ia n or u t i l i t a r i a n

p e r s pe c ti v e, a n um b er of w r i t e r s questioned whether we a lt h

maximization consistently generates any consistent set of

v alu es or n o r m a t i v e p r in ci p l e s . While all of the points

made w er e not ac ce pt e d, the g e ne ra l conclusion held, that

wealth maximization does not p r o du ce its own system of values,

 91

or even s erve generally accepted va l ue s consistently. It

can lead, in fact, to conclusions that are morally unacceptable.

Chapter II did not offe r a final j u d g me nt on w h e t h e r

or not Po s ne r has successfully developed a complete s c ie nc e

of law. But now, in lig ht of the insights and c o n c l u s i o n s

of the' c h a p t e r s that f o ll ow ed , it can be c o n c l u d e d that the

"new" law and economics is not, and sh o ul d not claim to be

a complete s ci e n c e of law. This is not to say, however,

that the economic analysis of law o ug ht to be restricted

once a ga in to c e r t a i n a r ea s of the law, such as taxation

and an t it r us t , w h i ch have been traditionally analyzed in e c o n o m i c

terms. To understand the proper function of e c o n o m i c s in

jurisprudence, one m u st understand the distinction b e tw ee n

law-and-economics, a partial science of law, and e co no mi cs ,

the universal s ci e n c e of choice. The p u rp os e of C h a p t e r

V is to a rgue that e c o n o m i c s is a u n i v e r s a l s ci e nc e in the

s e nse that it c o n t a i n s h ig h l y universalized pr in ci pl e s, in

terms of w h i c h it can analyse the ch oi ce a sp ec t of h uman

a n ti o n in all departments of life. But it is also ar g ue d

that economics is a h a n d m a i d e n scienc e, and i ns t r u m e n t a l ,

not s u bs t a n t i v e , in its rationality. To r ep ea t yet again,

economics c an n o t provide the substance of a sy st em of law.

 N o tes to C h a p t e r IV

"^Arthur Leff, "Economic Analysis of Law: Some Realism

a b out Nominalism," V a . LR 60 (1974).

^See his d i s c u s s i o n in R i c ha r d Posner, E c o n om ic

A n a l y s i s of Law (Boston: Little, Brown, 1977), pp. 10-12.
2
R i c h a r d Posner, "The E t h i c a l and P o l i t i c a l Basis of
the E f f i c i e n c y N or m in C o m m o n Law A d j u d i c a t i o n " , H of s tr a
LR 8 (Spring, 1980): 499.
3
See his d i s c u s s i o n in Ro na ld D wo rkin, "Why E ff i c i e n c y ? " ,
H o f s t r a LR 8 (Spring, 1980): 556-570.

4 Ibid., p. 578.

^Posner, o p . c i t . note 2, at

6 I b i d ., pp. 491-92.

^Dw or ki n, o p . c i t . note 3 at 579.

g
For f ur t he r d i s c u s s i o n on this point see Edwin
Baker, " U t i l i t y and Rights: Two J u s t i f i c a t i o n s for State
A ct i o n in I n c r e a s i n g E qu a li t y " , Yale LJ 84 (1974); Ju les
C ole ma n, " E f f i c i e n c y , U t i l i t y and W e a l t h M a x i m i z a t i o n " ,
H o f s t r a LR 8 (Spring, 1980): 432-39; A n t h o n y Kronman, " We al th
M a x i m i z a t i o n as a N o r m a t i v e P r i n c i p l e : JL Stud 9 (1980),
and R i c h a r d S. M a r k o v i t s , " Legal A n a l y s i s and the E co n o m i c
A n a l y s i s of A l l o c a t i v e E f f i c i e n c y " , H o f s t r a LR 8 (Summer,
1980).
9
Posner, o p . c i t . note 2, at 493.

^ F r a n k M i ch e l m a n , "Norms and N o r m a t i v i t y in the E c o n om i c

T h e o r y of Law", M i n n e s o t a LR 62 (1978): 1024-25.

^Markovitz, op. cit note 8 , at 881.

12
Co le m an , o p . c i t . note 8 at 536.
13
Le wis K o r n h a u s e r , "A G u i d e to the P e r p l e x e d C l a im of
E f f i c i e n c y in the Law", H o f s t r a LR 8 (Spring, 1980).
 ^Ibid.,p. 602.
15 tIbid
k ^ .

16
R i c h a r d Posn er , " U t i l i t a r i a n i s m , Ec on om i cs , and Legal
T h e o ry " , JL Stud VIII (Jan., 1979): 128.

^ M i c h e l m a n , o p . cit note 10, at 1015.

18t, . .
Ibid .

1 9 I b i d ., p. 1024.
20
M i c h e l m a n m e n t i o n s n o n c o m p e t i t i v e c o n d i t i o n s in his
d i s c u s s i o n of value m a x i m i z a t i o n and s tr ic t lia bi li ty , but
goes on to e m p h a s i z e that his c o n c l u s i o n s do not rest on
noncompetitive assumptions.
21
Posner, o p . c i t . note 16, at 125.

2 2 I b i d . , p. 104.
23
H. L. A. Hart, " A m e r i c a n J u r i s p r u d e n c e T h r o u g h E ng l i s h
Eyes: The N i g h t m a r e and the N o bl e Dream", G a . LR 11
(1977): 987-88.

2^ P o s n e r , op . cit. note 16.

I b i d . , P- 119.'
26x, . ,
I b i d ., pp . 1 2 0 - 1 2 1 .
2 7 t k .,
I b i d ., pp . 128-29.

2 8 I b i d ., P 117.

29Ibid.

30-Itkb i
,d ., 116.
P-

I b i d ., P 130.
32
Ibid .
33
Ibid .
3 4 Ibid
t , .. , 113.
P-
35T, . .
I b i d ., P- 129.
36 I
Tub ij
d ., 130.
P-
 37
R i c h a r d S. M a r k o v i t s , "A Basic S t r u c t u r e for M i cr o -
E c o n o m i c P o l i c y A n a l y s i s in Our W o r s e - t h a n - S e c o n d Best
World", Wis. LR (1975): 983-90.
38
See J u l es Co le ma n, " E f f ic i en cy , Ut ility, and W ea l t h
M a x i m i z a t i o n " , H o f s t r a LR 8 (Spring, 1980); Kronman,
o p . c i t . note 8 ; L e wis K o r n h a us e r, "A Gu id e to the P e r p l e x e d
C l a i m s of E f f i c i e n c y in the Law", H o f s t r a LR 8 (Spring, 1980).
39
K ronman, o p . c i t . note 8 , at 233-34.

4 0 Ibid.

^Coleman, op . cit . note 8 , at 523.

^ K o r n h a u s e r , o p . cit. note 13.

43d
Posner, op. cit. note 16, a t 128.
44
K o r n h a u s e r , op. cit. note 13, at
4 5 Ibid
T K . ..

4 ^ I b i d ., p . 602.
47t k . ,
Ibid .
4 8 dP os n e r , o p . cit. note 16, a t 131-

^Ronald Dw orkin, "Is W e a l t h a Va lu e? ", JL Stud 9 (1980).

5 0 I b i d ., p. 203.

~ ^G u i d o C a l a b r e s i has a p p a r e n t l y s u g g e s t e d such a t r a d e
off. See e s p e c i a l l y The C o s t s of A c c i d e n t s (1970). Calabresi
later d e ni e d that he a c t u a l l y saw the p r i n c i p l e s of fa ir ne ss
and e f f i c i e n c y as c o n f l i c t i n g or as p r e s e n t i n g a p o l i t ic a l
d ile mm a. See G. C a l a b r e s i , "A Letter to D wo rk in ", H of s tr a
LR 8 (Spring, 1980).
52
D workin, op. c i t . note 49, at 215.

5 3 Ibid., p. 211.

5 4 Ibid., p. 213.
55t k.,
Ibid.
5 6 Ibid
t k . ,.

^ L u c i a n Be bchuk, "The P u r s u i t of a B ig g er Pie: Can

E v e r y o n e Ex pe c t a B i g g e r Slice?", H o f s t r a LR 8 (Spring, 1980).
 58
See Baker, op. c i t . note 8.
59
Ab ba Lerner, " D i s t r i b u t i o n a l E q u a l i t y and A g g r e g a t e
U t i li t y: A Reply", A ER 78 (Jan., 1970): 138-39.
f\n
E dw in Baker, "The I d e o l o g y of the E co n o m i c A n a ly s is
of Law", P h i l o s o p h y and Pu bl ic A f f a i r s 5 (Fall, 1975): 15.
6 1 t ,. .
Ibid .
62
B eb chuk, o p . c i t . note 57.

^ I b i d . , p . 684 .
 V. A Digression on the N a t u r e and

Significance of E c o n o m i c s

A. Introduction

To this poin t the dissertation has been m a i n l y a negative

critique of the "new" law and e c o n o m ic s . The remaining

chapters will attempt to e s t a b l i s h positively what economics

can contribute, in g en eral, to legal theory. A necessary

first step in that direction is to d is c u s s the na tu r e and

significance of e c o n o m i c science.

There are t hose who conclude that economics does not

have a definable nature, and that the search for a p re c is e

statement of its essential characteristics has only been a

w as te of time. Pareto, Myrdal and H u t c h i s o n are amon g those

who hold this view, the most succinct expression of whic h

is J a c ob Viner's flippant quip that "economics is what economists

do."

In the ot her g ro up are those who maintain that e ff o rt s

to de f in e economics have been, and continue to be, u t te rl y

crucial to the development of the science in all of its fields

and s u b f i el d s. R ob bins, Knight, Kirzner and ot he rs have s t re s se d

the point that a fa u lt y understanding of the n at ur e of e c o n o m i c s

can lead to m i s c h i e v o u s , even disastrous distortions and m i s

applications of theory.

96
 The present essay ad o pt s the l atter view. Just as the

behavior of an individual is n e c e s s a r i l y influenced by his

own s el f -i m a g e , the directions t aken in law and economics

are necessarily predicated upon an understanding of the na tu re

and sco pe of e c o n o m i c s . Thus the economist who seriously

considers wh at his science can c o n t r i b u t e to legal t he o ry

must s oo ner or late r turn his a t t e n t i o n inward, and focus

upon the n a t u r e of e c o n o m i c s itself.

Chapter V w ill r e v i e w and interpret the m ore important

efforts to .und er st an d the n at ur e of e c on o mi cs . The first

section sketches the dominant classical and post-classical

formulations pri or to L io n e l Robbins' c r uc ia l s tudy first

published in 1932. Robbin s' conception of e c o n o m i c s is then

considered in some depth. The final s ec t i o n develops a post-

Robbins pos it io n, which later se rv es as a f o u n d a t i o n - p i l l a r

for the prudential v i e w of law and ec on om ic s.

The essence of this post-Robbins p o s i ti on is this:

Positive economic science ca nn o t concern "economic efficiency"

b ec a u s e this ultimately i n v ol v es i nv a l i d u ti l i t y c o mp a r i s o n s .

Therefore, the signifcance of e c o n o m i c s lies essentially in

its analysis of c h o i c e be havior. In this view e c o n o m i c analysi

is e n t i r e l y instrumental, and not concerned w it h evaluating

different " st a te s of the world", even in terms of " e c o no m ic

efficiency." The implication for law and ec on om ic s, whic h

implication is d e v e l o p e d m or e f ul ly in C h a p t e r VI, is that

e co n o m i c analysis m us t play e s s e n t i a l l y a handmaiden role

in legal th e or y and pra ct ic e.

 98

A s eco nd central them e developed in the following re v ie w

is that economics has become, in a sort of P o p p e r i a n manner,

increasingly u n i v e rs a l. Th at is, the g e ne r al direction in

the e v o l u t i o n of e c o n o m i c s has been from the or ie s, principles

and definitions of a lo we r level of u n i v e r s a l i t y to theories,

etc., of a h i g h e r level. Thus the relevance of e c o n o m i c s

has continually extended into new a r ea s of hum an behavior.

The implication for law and e co no mi cs , a g a in developed more

ful ly in C h a p t e r VI, is that economic analysis is re levant,

albeit only in an instrumental way, to v i r t u a l l y all are as

of the law.

The p re sen t chapter is not intended as a r e v i e w of those

who have interpreted the e ff o r t s to de fin e e c on o mi c s. In

o ther words, the focu s is upon the "primary" literature of

Smith, Say, Mill, Hayek, R ob b i n s and o t he r s ra ther than the

"secondary" literature (of w h ic h th ere is a t r e m e n d o u s volume)

which interprets Smith, Say, Mill, etc. The p ur p o s e of C h a p t e r

V is to offer a particular interpretation of the "primary"

literature concerning the n at u r e and scope of e co n om ic s .

T his interpretation happens to di f fe r somewhat from pr ev i ou s

interpretations, and a full treatment of both "primary" and

"secondary" literature c ould discuss these differences at

some length. The c o n s t r a i n t s of time and space preclude such

a discussion here.
 99

B. Classical and Post-Classical Formulations

In general, economists of the C l a s s i c a l period d ef i n e d

economics as the s tu d y of the n at u r e and c a u s e s of wealth.

Thus their e f f or ts to d e f i n e economics were in large measure

attempts to de fi ne the m e a n i n g of wea lth . Th is is not to

say that the C l a s s i c i s t s (or economists who came later, for

that m at t er ) we re preoccupied with philosophically under

standing the n at u r e of w e a l t h as pertaining to the sustenance

of the Soul. The C l a s s i c i s t s te n de d to take a r at he r c om m o n -

sense, even m a t e r i a l i s t i c view of wealth; besides, they were

ultimately more interested in the c au se s of w e a l t h than in

defining it. Their search for a r e a s o n a b l y p re c i s e statement

of the na tur e of w e a l t h reflected the recognition that their

yo ung s c ie n ce cou ld not develop wi th ord er and direction until

the o bj ec t of its inquiries was clearly in view. As J. B. Say

put it:

How, i nd e ed was it p o s s i b l e to
be co me a c q u a i n t e d wi th the ca u se s of
m a t e r i a l p r o s p e r i t y when no clear
or d i s t i n c t n o t i o n s had been f ormed
r e s p e c t i n g the n a t u r e of w e a l t h
i ts el f? . . . The o bj e ct of our
i n v e s t i g a t i o n s mu st be t h o r o u g h l y
p e r c e i v e d b e fo r e the meaijis of a t t a i n
ing it are s o u g h t after.

The Classicists w er e not in u n a n i m o u s agreement as to

the proper definition of wealth. The principal debate c on c e r n e d

whether or not the te rm s ho u l d encompass non-material as well

as m a t e r i a l goods. The discussion began wi th Ad am S m it h 's

distinction b et w e e n "productive" and "unproductive" labor.

 100

The m a t e r i a l fr ui t s of "productive" labor were p la ce d in a

separate category from the i material products of "unproductive"

2
labor. Thus materiality became, for most Classicists, the

criterion of wealth, whether Smi th actually i nt e n d e d such

a delimitation or not.

Most prominent among those who explicitly restricted

the category of w ea l t h to m a t e r i a l goods was Mal thus.

"The fact is", he writ es , "that if we once d es er t ma tt e r in

the definition of weal th , there is no s u b s e q u e n t line of

3
demarcation which has any t an g i b l e d eg re e of distinctiness,. "

Malthus was correct in the implicit principle that a

description w hi c h excludes very l itt le also describes very

i na d eq u a t e l y . The question is w h e t h e r materiality is the

appropriate criterion of e x c l u s i o n for purposes of e co n o m i c

a na l ys i s. J. B. Say and J. S. Mill were predominant among

those who included nonmaterial objects in the c a t e g o r y of

wealth. Both u n d e r s t o o d the necessity for some bond in logic

amo ng the o b j e c t s to be c o n s i d e r e d as wealth, i.e., they felt

that any u se ful description of w e a l t h o ught to be quite clear

as to what is not w ea lt h. Th ey just did not see m a t e r i a l i t y

as a us ef ul criterion in e co n om i cs . Say, for i nstance, contends

that Smit h and M a l t h u s

. . . sh o ul d have i n c l u d e d . . . values
which, a l t h o u g h i m m at e ri al , are not
less real, s uc h as n at u r a l or a c q u i r e d
talents. Of two i n d i v i d u a l s e q ua l ly
d e s t i t u t e of fortune, the one in
p o s s e s s i o n of a p a r t i c u l a r t a l e n t^ is
by no m ea ns so poor as the other.
 101

Say made the idea of w e a l t h a m uc h mo re universal c on ce pt

in what he te rm ed " ut ili t y" :

P r o d u c t i o n is the c reation, not of

m at t e r but of u ti l i t y . . . The
v alue that m a n k i n d a t t a c h e s to
o bj e c t s o r i g i n a t e s in the use it
can m ak e of them. Some a f f o r d
s u st e n a n c e ; ot he r s s erve for
cl ot hi n g; some de f en d them from
the i n c l e m e n c i e s of the seasons,
as houses; o th e rs g ra t i f y their
tastes, or a t ^ a l l events, their
va n it y . . ."

S ay 's concept of u t i l i t y was very c lo se to what the

te rm m e a ns for economists today; thus, in r e t r o s p e c t it may

se em peculiar that economists a f ter Say retreated from

utility to m o r e particularistic definitions of wealth.

Ac tu al l y, it may not be that u ti l i t y was altogether r ej ec t ed

as an a b s t r a c t concept in pure theory. It must be r e m e m b e r e d

that the classicists w e re practicing the art of P o l i t i c a l

E co nomy, the purpos.e of w hi ch they understood to be the pur su it

of economic goods, the most urgent of which, in that day and

age, we re material things. Thus we find Mi ll agreeing with

Say that wealth ough t to be d ef i ne d as u ti lity, for purely

theoretical pu rp os e s, yet c h o o s i n g not to use the term in

that contex t. He e x p l i c i t l y a gr ee s with Say that "to p ro du ce "

means, u lt i ma t e l y , to p ro d u c e utility:

In the f i rst place, even in what is

c al l e d the p r o d u c t i o n of m a t e r i a l
ob jects, it must be r e m e m b e r e d that
what is p r o d u c e d is not the m a t t e r
c o m p o s i n g th em . . . T h o u g h we ca n no t
cr ea te matt er , we can cau se it to
a s su m e p r o p e r ti e s, by which, from
h a v i n g been u se l es s to us, it b e
c omes useful. What we produce, or
 102

d es i r e to produce, is -always, as ^
M. Say r ig h t l y terms it, an utility.
L ater on he reasserts the theoretical correctness of

the concept of utili ty , as well as the term:

[W]e s ho ul d r eg ar d all labor as

p r o d u c t i v e w h i c h is e m p l o y e d in
creating permanent utilities . . .
T hi s n o m e n c l a t u r e I have, in a
f ormer p ub l ic a t i o n , r ec o mm e n d e d ,
as mo st c o n d u c i v e to the ends of
classification; ^n d I am still
of that opinion.
Mi l l' s reluctance to em p lo y the term "utility" synon

y m o u s l y with "wealth" see ms to stem e n t i r e l y from his d es ir e

not to go against the grain of c om m on usage:

But in a p p l y i n g the term we al t h

to the i n d u s t r i a l c a p a c i t i e s of
h uma n beings, there see ms always,
in p o p u l a r a p p r e h e n s i o n , to be a
tacit r e f e r e n c e to m a t e r i a l p r o d
ucts . . . I shall, therefore, in
this t r ea ti se , when s p e a k i n g of
wealth, u n d e r s t a n d by it only what
is c a l l e d m a t e r i a l wealth, and by
p r o d u c t i v e lab or only those kinds
of e x e r t i o n wh ic h p r od uce u t i l i t i e s
e m b o d i e d in m a t e r i a l objects.
The period in w h i c h economics was considered as regarding

material wealth coincided r ou g h l y with the C l a s s i c a l period.

Economists a ft er this p er io d continued to d e f i n e economics

as the s c i e n c e of wealth, but there was a d i s t i n c t e m p h as is

of the n o n - m a t e r i a l n at u r e of wealth, e s p e c i a l l y in the w ri t i n g s

of the m a r g i n a l utility theorists in the late 19th Century.

Jevons m a ke s the etymological po in t that the word " we al t h"

d er i v e s from w e a l , w h i c h signifies the state of w e l l- b ei ng ,

9
of w e l f a r e in a g e n e r a l sense. Menger held essentially the

same n ot io n of w e a l t h as J ev o ns did, but was more explicit

 103

about the subjectiveness of the c on cept. He m a i n t a i n e d that

wealth included even "imaginary" goods, " th i n g s . . . as de ri ve

their goods-character merely from properties they are imagined

to possess, or from n ee d s merely imagined by men . .

Gradually the n o t i o n of w e l f a r e replaced that of

material wealth. According to K ir zner, the idea that economics

is e s s e n t i a l l y concerned with w e l f a r e was the most generally

accepted view a m o ng English and A m e r i c a n economists by the

end of the 19th C e n t u r y . ^ T hus it m i g h t be said that Jevons,

Menger and ot her marginal utility theorists were able to bring

to f r u i t i o n the s ee d s p la n t e d back in the Classical pe ri od

by Say.

There are, ho wev e r, some important similarities b e tw e en

the m a t e r i a l wealth and welfare conceptions of e c on omi cs .

Both are "departmental" ra th er than "analytical", as K i r z n e r

put it. In othe r words, both d ef in e economics in terms of

something p ro du ce d, be it m a t e r i a l goods or subjective utility,

ra th er than in term s of a d i s t i n c t type of ac t iv i ty . Indeed,

the definitions in t erms of w e l f a r e and utility are generaliza

tions of the original definition in t erms of m a t e r i a l wealth.

From M a l t h u s to M e ng er , changes in how e c o n o m i s t s conceived

their science were e v o l u t i o n a r y , the evolution being t o wa rd s

increasingly universal definitions of the products of e c o n o m i c

activity.

A different t re nd amo ng post-Classical theorists co uld

be d e s c r i b e d as r e v o l u t i o n a r y , for it s h i f t e d attention away

from the products of e c o n o m i c activity and f oc u s e d upon the

 104

n at u re of the a c t i v i t y itself. This approach saw e c o n o m i c s

as n e c e s s a r i l y connected wi th the act of e x c h a n g e in one way

or a n o t h e r .

In it ia l ly , theorists in the e x c h a n g e tradition saw e c o n o m i c s

as revolving a r ou n d a f ai r l y l i m it e d concept of excha ng e.

Archbishop W ha te l y, one of the fir st theorist to m ake exchange

the very essence of economic a ct iv i ty , wrote in 1831 that

"the name I sh o ul d h av e preferred as the mo st descriptive

. . . is that of C A T A L L A C T I C S , or the ' Sc ience of E x c h a n g e s ' .^

It is cle ar that exchange for W h a t e l y meant interpersonal

e x cha ng e, for he insisted that "Robinson Crusoe is in a p os i t i o n

13
of w h i c h Political Economy ta kes no c o g n i z a n c e . "

Whately did not define economics in terms of the n atu re

of things be ing exchanged and his reluctance to do so was

the s ou rc e of mu ch criticism f ro m tho se steeped in the

Classical t r ad it i on . Henry Geor ge , for ex am p le , contended

that "without the c l o g of an o b j e c t - n o u n political e c on o my

. . . has p lu n g e d out of existence . . ." ^ Franklin H.

Giddings argued before the American Economic Association in

1887 that "that definition of P o l i t i c a l Economy w h i ch calls

it the s ci e n c e of exchanges is a b s u r d . " ^

Despite the alleged absurdity of the "catallactics" app ro ac h,

it e v e n t u a l l y attained a measure of p o pu l a r i t y , t ha nk s l a rg e ly

to the A m e r i c a n A. L. Perry. He e m b r a c e d the catallactics

approach of W h a t e l y precisely b ec a us e it e n a b l e d economists

to a vo id the definitional quagmire of the w e a l t h a p pro ac h.

Perry's tack is r a th e r ingenious. First, he r e p l a c e s " we al th "

with " v a l u e , then construes valu e as being s y no ny m o u s , in

essence, with "the terms of trade":

P o l i t i c a l e c o n o m y is the s c ie n ce
of value, and of n o t h i n g else . ..
V alu e is a r e l a t i v e word. It is
u s ua l ly d e f ^ g e d as p u r c h a s i n g
power . . .
And regarding the value of gold:

It is not a q u a l i t y in and of
itself, of gold, but a r e l a t i o n
w hi ch gold hold s to other things
w h i c h gold will buy. The no t io n
of value is not c o n c e i v a b l e
e xce pt by a c o m p a r i s o n of two
things, and what is more, <j>^ two
t hings m u t u a l l y e xc ha ng e d.

Thus for P e r ry ther e is no need for definitions of wealth;

no c r i t e r i o n of w e a l t h external to the exchange p ro ce ss itself

is requ ir ed . He n o n e t h e l e s s held a relatively constricted

view of the p ro ce ss of exc ha ng e, as W h a t e l y did b ef or e him.

P er h ap s "specific" is a more appropriate a d j e c t iv e , for they

both seemed to e n v i s i o n s p e ci f ic individuals trading in spec if i

markets for specific rewards. Put d if fe r e n t l y , they seemed

to be focusing on f u n c t i o n a l relationships b et w e e n individual

economic a ge n ts r a th e r than the totality of the system of

exchanges.

The first economist of prominence to focus explicitly

upon the t o t a li ty of the s ys t e m was Basiat. In his E c on o mi c

H a r m o n i e s , he was concerned with explaining the efficiency

with w hi ch the laissez-faire e co n o m i c system, a "prodigiously

ingenious mechanism", in his words, produced relatively c opi ou s

quantities of e c o n o m i c goods. "This m e c h a n i s m " , he s tressed,

 106

18
"is the ob j ec t of s tudy of political economy." Wicksteed

is a n o t h e r w hose primary interest was the e x p o s i t i o n of the

entire system of e c o n o m i c relationships. "The industrial

wor ld ", he wrote, "is a spontaneous organization for transmitting

19
what e v er y man has into what he d e s i r e s . "

Perhaps the m os t eminent 20th C e n t u r y theorist who object

ified the g e ne ra l o rd e r of e c o n o m i c activity is F. A. von

Hayek. The following passage from "The T r e nd of E c o n o m i c

Thinking" is an e s p e c i a l l y lucid statement of this perception

of e c o n o m ic s : '

In the n a t u r a l scie nc es, we have .

l e a r n e d that the i n t e r a c t i o n of
d i f f e r e n t t e n d e n c i e s may p ro duce
what we call an order, w i t h o u t any
mind of our own kind r e g u l a t i n g it.
But we s t il l r ef u s e to r e c o g n i z e
that the s p o n t a n e o u s i n t e r p l a y of
the a c t i o n s of i n d i v i d u a l s may
p r o du c e s o m e t h i n g w h i c h is not the
d e l i v e r a t e o b j e c t of their a c t i o n s
but an o r g a n i s m in w h i c h e very part
performs a necessary function . . .
wi t ho ut any h um an mind h av i ng
d e v is e d it. . . . The r e c o g n i t i o n of
this o r g a n i s m is the r e c o g n i t i o n
that t h e r e 2 ^s a s u b j e c t - m a t t e r for
economics.

The most ambitious attempt to g e n e r a l i z e the c on c e p t

of exchange is r e p r e s e n t e d by S c h u m p e t e r ' s purely f ormal

exchange of "economic quantities". Speaking of the

Classicists, Schumpeter c ha r g e s that "they did not suffi

ciently r ea l i z e themselves that exchange value is but a

special form of a u n i v e r s a l coefficient of transformation

on the derivation of w h i c h p iv ot s the w hole logic of e c o no m ic

21
phenomena." Exchange for Schumpeter is the completely
 107

generalized c on c e p t of a c h i e v i n g some different configuration

of goods. It can conceivably i nv o l v e only a s in gl e i n d iv id u al :

when Robinson Crusoe h un ts game, he "exchanges" time, en e rg y

and c ap i ta l for food. In fact, E. R. A. Seligman has ar g ue d

that Schumpeterian exchange can be p ur e l y mental. In his

words, " C ru so e exchanges in his m in d a pp l e s and nuts in e s t i m a -

22
ting their value to hi m. "

It mi ght be h e l p f u l to summarize the discussion up to

this point in the context of K i r z n e r ' s distinction b et we en

the "departmental" approach to d e f i n i n g the scope and na tu r e

of e co n om ic s , w hi ch f oc u s e s on the products of economic a ct i vi t y,

and the "analytical" a p p r o ac h , which examines the na t ur e of

the a c t i v i t y itself. The Classicists clearly took the depart

m en t a l a p pr oac h, defining economics in terms of wealth, and

t ho u gh Say and a few o th e rs insisted upon a nonmaterial defini

tion of wealth, the predominant classical conception was

materialistic. The marginal utility theorists popularized

a more u ni ve rs a l, nonmaterialistic no t io n of wealth, and by

the clos e of the 19th Ce nt u ry , it was generally accepted that

what economic activity prod uc es , ultimately, is "welfare"

a c on c e p t virtually identical w it h the "subjective u t i li t y"

of m o d e r n m ic ro theory.

The "analytical" approach was first expressed in W h a t e l y ' s

ra th er constricted view of e xc h an ge . L at er the c on t ex t of

exchange broadened into the view of B a s t i a t and Hayek, who

saw the g e ne ra l orde r of the s ys t e m of exchanges as the subject-

ma tt er of e c on o mi c s. Fi nally, Schumpeter articulated a p urely

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formal c o nc e pt of exchange w hich .has been interpreted si mp ly

as d e l i b e r a t i o n the " me nt al exchange" in S e l i g m a n ' s interpreta

tion which characterizes all purposive action.

Though the point is s el d o m emphasized, one important

a sp e ct of the e v o l u t i o n of both a p p r o a c h e s is the t e nd e nc y

to make each new formulation m ore universal than the one b efore

it. In order to u n d e r s t a n d b et te r the path that this br an ch

of e c o n o m i c thou gh t has taken, it is h e l p f u l to e n v i s i o n two

roads. The roads b egin as s ep ar at e, ra t he r narrow tracks,

but as the roads e x te n d they broaden, thus reducing the distance

b et we en them. Eventually the roads b r oa de n e no u g h that they

make contact, and join. Then they are seen not as two separate

roads, but as different parts of the same road. L ik ew is e,

the different approaches to d e f i n i n g economics have broade ne d,

and made co ntact, and become different parts of the same g e ner al

c o nc e p t i o n . The theorist who is most responsible for a c h i e v i n g

the synthesis of t hese separate approaches is L io n el Robbins.

C. Lionel R o bb i ns

Since the publication in 1932 of Li on e l Robbins'

Na t ur e and Significance of E c o n o m i c S c i e n c e , discussions of

the p ro b l e m of d e f i n i n g economics have t en d ed to r e v o l v e a ro u nd

Robbins' f o r mu l at i on . Indeed, 'he is r e g a r d e d by m an y as ha v in g

so l ve d the problem once and for all. As T a g l i a c o z z a put it:

Be fo re Robbins' d ef in i t i o n , c r i t i c i s m
of e c o n o m i c s on the gr o un d of its being
"too w id e " or "too n a r r o w " was still
understandable. Now, h ow ev er , such
d i s c u s s i o n s have b ec om e m e a n i n g l e s s :
e c o n o m i c s is a given pie, w h i c h the
 109

e c o n o m i s t is only a l l o w e d to dre ss a
bit, to cut as d ee p ly and into as many
parts as he l u sh e s and to eat a c c o r d i n g
to his n e e d .

The present discussion will ar gue two general points. The

fir st is that Ro bbins' formulation can best be u n d e r s t o o d

as a s y n t h e s i s of the approach which focused on the ends of

economic a ct iv i ty , and the a p p r o a c h which f o cu s ed on the n at ure

of the a c t i v i t y itself. The s ec on d point is that for all

that is correct in Ro bb in s' conception of the n at u r e of e co no mi cs,

he stil l fails to r e c o g n i z e precisely the b o un d ar ie s , henc e

the true significance, of e c o n o m i c s ci en ce : m uc h of what

he c o n s i d e r s to be a part of e c o n o m i c s p ro pe r b e lo ng s actually

to the para-scientific r ea l m of w e l f a r e e c on om i cs .

The core of R ob bi ns ' conception is the relationship of

me an s to ends:

From the p oi nt of view of the e c on o mi s t,

the c o n d i t i o n s of hu ma n e x i s t e n c e
e x h i b i t four f u n d a m e n t a l c h a r a c t e r i s t i c s .
The ends are various. The time and the
mea ns for a c h i e v i n g these ends are
l im i t e d and c a p a b l e of a l t e r n a t i v e
application. At the same time the ends
have d i f f e r e n t i m p o r t a n c e . . . The
e x t e r n a l w o r l d does not of fe r full
o p p o r t u n i t i e s for their c o m p l e t e
achievement.

N ow b_y_ it se lf the m u l t i p l i c i t y of
ends has no n e c e s s a r y i n t e r e s t for the
e c on o m i s t . If I want to do two things,
and I have a m p le time and a m p l e mean s
wi th w h i c h to do them, and I do not
want the time or the m e a n s for a n y t h i n g
else, then my c on d u c t a s s u m e s none of
those forms w hi ch are the s u b j e c t of
economic science . . .

But wh en time and the m ea ns for

a c h i e v i n g ends are l im it ed and c ap a bl e
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of a l t e r n a t i v e a p p l i c a t i o n , and the ends

are c ap a b l e of being d i s t i n g u i s h e d in
ord er of i m p o r t a nc e, then b eh av io r
n e c e s s a r i l y a s s u m e s the form of ^jaoice
. . . It has an e c o n o m i c aspect.

S ca rci ty , in a word, characterizes the relationship of

m e a ns to ends. The limitations of m ea ns p re ve nt the full

attainment of ends, and thus affects the c h a r a c t e r of all

activity in the pursuit of those ends. It is this relation

ship b e tw ee n m ea n s and ends, r at h e r than ei th e r the me ans

or ends t h em s el v es , which is f u n d a m e n t a l in R ob bins' conception

of ec ono mi cs . Thus he r e je c ts the idea that the definition

of e c o n o m i c s turns entirely upon any particular concept of

either m ea n s or ends.

Regarding specifically the "material wealth" definition

of ends, he st ate s that it

. . . may c o ve r the field, but it does

not d e s c r i b e it. For it is not the
m a t e r i a l i t y of even m a t e r i a l means
of g r a t i f i c a t i o n w h i c h gives them
their s t a t u s as e c o n o m i c goods; it is
their r e l a t i o n s h i p to g iv e n w ants
r at he r than their t e ^ n i c a l s u b s t a n c e
w h i c h is s i gn if c a n t .

Elaborating on the st at us of ends, R o bb in s b ri ng s out

the point that only the m os t g e ne ra l i z e d , least exclusionary

conception of ends would be a p p r o p r i a t e .

It s ho u ld be clear, t he re fo r e, that
to s pe ak of any end as b eing itself
" e c o n o m i c " is e n t i r e l y m i s l e a d i n g .
The habit, p r e v a l e n t a mo ng c er t ai n
g ro up s of e c on o m i s t s , of d i s c u s s i n g
" e c o n o m i c s a t i s f a c t i o n s " is a l ie n to
the c e n t r a l i n t e n t i o n of e c o n om i c
a na l ys i s. A s a t i s f a c t i o n is to be
c o n c e i v e d as an e n d - p r o d u c t of a cti-
 Ill

vity. It is not i ts e lf part of that

a c t i v i t y w h i ch we stu dy . . .

The e c o n o m i s t is not c o n c e r n e d
w ith ends as such. He is c o n c e r n e d
w ith the w ay in w h i c h the a t t a i n m e n t
of ends is limited. The ends may be
n ob le or they may be base. T he y may
be " m a t e r i a l " or " i m m a t e r ^ g l " - - i f
ends can be so d es cr ib ed .

W ith the p ur el y f ormal c o nc e pt of e x c h a n g e attributed

to S ch u mp e t e r , the approach to e c o n o m i c s w hi ch f o cu sed on

exchange had reached its logically most universal f or m ul a t i o n .

The activity was no lo ng er restricted to i n t e r p e r s o n a l

ex ch an g es , or even th ose that are actual, as d i s t i n g u i s h e d

from pu re ly p o t e n t ia l. Exchange had come to me an "the

techniques of production" in the most g e ne r al sense, the

variation of different sets of "economic q u a n ti ti e s" .

For Robbins, the category of m ea ns is r o u g h l y synony

mous w it h this all-inclusive concept of e xc ha ng e. As with

ends, Robbins clearly r e je ct s the idea that economics is c o n c e r n e d

only with particular ki nds of means:

The t e c h n i c a l arts of p r o d u c t i o n are

si m pl y to be g r o u p e d among the given
f a c to r s i n f l u e n c i n g the r e l at i ve
s c a r c i t y of d i f f e r e n t e c o n o m i c goods.
The t e c h n i c q u e of c ot t on m an u fa c t u r e ,
as such, is no part of the s u b j e c t -
m at t er of E c o n o m ic s, but the e x i s t e n c e
of a giv en t e c h n i q u e of v a ri ou s p o t e n
tialities, t o g e t h e r w it h the other
f a ct or s i n f l u e n c i n g supply, c o n d i t i o n
the p o s s i b l e r es p o n s e to any v a l u a t i o n
of c ot t o n goods, and c o n s e q u e n t l y
i n f l u e n c e s the a d a p t a t i o n s w h i ch it 27
is the b u s i n e s s of E c o n o m i c s to study.

Thus we see again that for R ob bi n s it is the relationship

of me an s to ends, both universally co nce iv ed , that forms

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the character of e c o n o m i c problems.

It f o ll o ws from the a r g u m e n t of the

p r e c e d i n g s e c t i o n s that the s u b j e c t -
m a t t e r of E c o n o m i c s is e s s e n t i a l l y a
s er i es of r e l a t i o n s h i p s - - r e l a t i o n s h i p s
b e t w e e n ends c o n c e i v e d as the p o s si b le
o b j e c t i v e s of c o n d u c t on the one hand,
and the t e c h n i c a l and so cia l e n v i r o n
me nt on the oth er . . .

The n a tu r e of E c o n o m i c T h e o r y is
clear. It is the study of the f ormal
i m p l i c a t i o n s of th ese r e l a t i o n s h i p s
of ends and means on v ar i ou s a s s u m p t i o n s
c o n c e d i n g the na t ur e of the u l t i m a t e
data .

R o b bi n s thus synthesized the previous approaches to /

defining economics by way of the e n d s m ea ns di ch ot o my .

The concepts of m u l t i t u d i n o u s ends and limited m e a ns are both

indispensable in his description of e co no mi c s, for w i t h o u t

both there w ou l d be no s c a r c i t y and no ne ed for economizing

beh av io r. And it is precisely this economizing a sp ec t of

hum an be ha v io r that economic s c ie n ce investigates.

R o b b i n s ''c h a r a c t e r i z a t i o n of the n a tu r e of e c o n o m i c s

is perfectly correct as far as it goes. Ho we ve r, in his

discussion of the significance of e c o n o m i c s he goes further,

and c r os s es over the b or d er that separates economic s ci enc e

from the para-scientific field of w e l f a r e ec o no m ic s.

Welfare economics attempts to e st a bl is h, as a m at t er

of scientific fact, whether a g iven po li c y has a beneficial

or a d e l e t e r i o u s e ff e ct upon total s oc ia l we lf ar e. The data

of w e l f a r e economics are ultimately different persons'

experiences of s a t i s f a c t i o n ; hence, they are subjective and

ca nn ot be o b j e c t i v e l y o bserved. The term " s o ci a l" i mp li es

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more than one person, so 'social w e l f a r e m i gh t be d ef i ne d l o os el y

as the a g g r e g a t e of all i nd i v i d u a l s ' subjective s at i s f a c t i o n ,

as d e r i v e d from the consumption of e c o n o m i c goods, and a lt e r e d

t hr o u g h the redistribution of those goods.

The fact that satisfactions are subjective mean s that

one p er s o n c an n o t t r ul y experience another's s a ti s f a c t i o n s ,

any m or e than one can experience another's subjective

perceptions of colo r or sound. T h e re is n e c e s s a r i l y a d egree

of a g n o s t i c i s m a b ou t any comparison of s u b j e c t i v e e x p e ri e nc e s:

P e ter might a ss u m e the c olor red is perceived identically

by Paul, but there can be no c e r t a i n t y ab out it. And so it

is wi th subjective satisfactions. Thus the w e l f a r e economist

faces an inevitable c u l - d e - s a c , si nce the interpersonal compar

isons involved in a t t e m p t i n g to so lve distributional c o n f li c ts

can never really be a m a t t e r of s c i e n t i f i c d em o n s t r a t i o n .

A n um b er of i n g e n i o u s "compensation criteria" have been

formulated to se rv e as a gu ide in re aso ni ng , but they are

a m at t e r of c o n v e n t i o n , u l t im a te ly , and can make no cl aim

to s c i e n t i f i c v al idi ty . T hi s is not to deny the scientific

validity of the so-called Pareto c ri t er i on , by w h i ch at least

one p arty is benefited w hi le no par ty is made wors e off.

But there is no m e a n i n g f u l sen se in w h i c h Pa r et o redistri

b ut i on s can be said to i nv o l v e distributional conflicts.

Few e c o n o m i s t s n ow deny the insuperability of the

problem of interpersonal u ti l i t y c om p ar i s o n s . The Samuelson-

Bergson welfare function represents a v a li an t a tt e m p t to

generate solutions to distributional p r o bl e ms w it h i n the

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context of a m od el which accepts subjective satisfacttions

as the u l t i m a t e data. But the ef fo rt is ra t he r like trying

to s q u e e z e bloo d from a turnip, as K e n n e t h Arrow's Impossibility

Theorem sug ge st s. Arrow p ro v ed that if s a t i s f a c t i o n s are

i n co m p a r a b l e , and dictatorial imposition is not a l l o w e d to

supersede subjective satisfaction, then no set of r ules e xi st s

to c o n s t r u c t a so cia l welfare function in the m a n n e r of S a m u e l -

29
son and Bergson. T hu s in 1969 M a u r i c e Dobb was able to

conclude that the discussion of interpersonal utility compari

sons had be co me "increasingly restricted in s cope and appears

30
now to have r ea c h e d a dead end."

Returning now to Robbins, there is e v e r y reason to b e li ev e

that he w ou l d ag re e w it h the preceding assessment of the scienti

fic sta tu s of w e l f a r e e co n om i c s . In an a d d r e s s be fo re the

American Economic Association in 1981, he c o n c l u d e d that

. . . the Ne w W e l f a r e E c o n o m i c s . . . has
b roken down in the s t r i c t l y s c i e n t i f i c
sense and left us w ith the f u n d a m e n t a l
i m p l i c a t i o n s of the p as s a g e in J ev on s
w hich I have a l r e a d y quoted, n a me l y
that all r e c o m m e n d a t i o n s o f ^ j o l i c y
i nv o lv e j u d g m e n t s of value.

Robbins' mistake is not that he fails to see the limitations

of w e l f a r e e c on o mi c s, but that he fails to see the limitations

of "positive" e c o n o mi c s. M uc h of what he wou ld call p os i t i v e

economics is a c t u a l l y in the r e al m of w e l f a r e e co n om i cs .

Put d i ff e r e n t l y , it is not so much the n a tu r e of e c o n o m i c

s ci e nc e w hi ch Robbins misunderstands, but its significance.

It s ho ul d be n o t ed t-hat wh en R o bb in s speaks of the

significance of e c o n o m i c s he has in mind not m er e l y the laws

 115

and generalizations that form the theoretic substance of

the sc ie nc e. He m e an s instead the value of e c o n o m i c s as

a guid e to s oci al choice; in his words, "the b ea r in g of E c o n o m i c

32
Science of p ra c ti c e" . He e x p r e s s e s his view of the signifi

c a nce of e c o n o m i c s succinctly in the following p as sa ge from

The Na t ur e and Significance of E c o n o m i c Science;

But what, then, is the s i g n i f i c a n c e

of E c o n o m i c S ci e n c e ? We have seen
that it provi de s, w i t h i n its own
s t r u c t u r e of g e n e r a l i z a t i o n s , no
n orms w h i c h are b in d i n g in prac tic e.
It is i n c a p a b l e of d e c i d i n g as b et w ee n
the d e s i r a b i l i t y of d i f f e r e n t ends.
It is f u n d a m e n t a l l y d i s ti nc t from
ethics. W he re in , then, does its
u n q u e s t i o n a b l e s i g n i f i c a n c e c on si s t?

S ur e l y it c o n s i s t s in just this,
that, when we are faced wi th a ch o ic e
b e t w e e n u l ti ma t es , it e n a b l e s us to
c h o o s e w i th full a w a r e n e s s of the
i m p l i c a t i o n s of what we are c h o o s i n g . . .
T he r e is n o t h i n g in any s ci e n c e that can
de c id e the u l t i m a t e p r o b l e m of
p re f er e n c e . But, to the ra tional, we
m us t kn ow what it is we prefer. We
must be a w a r e of the o b j e c t i v e i mp li - ^5
c a t i o n s of the a l t e r n a t i v e s of choice.

Robbins comments further on what he m e a ns by "the

objective implication of the a l t e r n a t i v e s of choice":

It is not r a t i o n a l to will a c e r t a i n
end if one is not c o n s c i o u s of what
s a c r i f i c e the a c h i e v e m e n t of that end
i n vo lv es . And, in this s u p r e m e w e i g h i n g
of a l t e r n a t i v e s , only a c o m p l e t e a w a r e
ness of the i m p l i c a t i o n s of m od e rn
e c o n o m i c a n a l y s i s can c o n f ^ the c a p a
city to judge r at i on a l l y .

Clearly R o bb in s feels that economics c an n ot judge the

ends of our ac ti on s, but can evaluate the m e an s in some objective

sense. Particularly, he seems to be sa y in g that w h il e economics

 116

ca n no t j udge the correctness or u l t i m a t e goodness of an end,

it n o n e t h e l e s s can evaluate objectively the e f f i c i e n c y with

w h ic h society pursues that end. The idea that the s i g n i f i c a n c e

of e co n om i cs , for R obb in s, has mu ch to do wi th efficiency

is s u p p o r t e d by his lengthy discussion in Na tu re of what he

terms the "criterion of ec o no my " . He states, in part, that:

The c r i t e r i o n of e c o n o m y w h i c h f o ll ow s
from our o r i g i n a l d e f i n i t i o n s is the
s e c u r i n g of giv en ends with least
means. It is, t he r ef or e , p e r f e c t l y
i n t e l l i g i b l e to say of a c er t a i n p ol ic y
that it is u n e c o n o m i c a l , if, in order
to a c h i e v e c e r t a i n ends, it uses more
s c a r c e m e a n s than are n e c e s s a r y . . .
We c a n n o t say that the p ur s ui t of given
ends is u n e c o n o m i c a l b ec a u s e the ends
are u n e c o n o m i c a l ; we can only say it
is u n e c o n o m i c a l if the ends are p ur su ed
w ith a ^ u n n e c e s s a r y e x p e n d i t u r e of
means.

He goes on to d i s t i n g u i s h b e tw e en technical and e c on o mi c

efficiency:

To use a c o n v e n t i o n a l jargon, it is
i m p o r t a n t to bear in mind the d i s t i n c
tion b e t w e e n t e c h n i c a l and value p r o
d u ct i vi ty . The mass p r o d u c t i o n of
p a r t i c u l a r things, i r r e s p e c t i v e of
d em a n d for them, h o w e v e r t e c h n i c a l l y
e f f i c ie n t, is not n e c e s s a r i l y
" e c o n o m i c a l " . . . For a b l a c k s m i t h
p r o d u c i n g for a s mall and i s o l a t e d
c o m m u n i t y to s p e c i a l i z e s ol e l y on the
p r o d u c t i o n of a c e r t a i n type of h o r s e
shoe, in o rd er to s ec u re the e c o n o m i e s
of mass p r o d u c t i o n , w o u l d be folly.
A ft er he has made a l i mi t ed n um b er of
sh oes of one size, it is c l e a r l y better
for him to turn his a t t e n t i o n to ^5
p r o d u c i n g s ho e s of other sizes . . .

The p r o b l e m wi th R o b b i n s discussion here is not the

distinction between technical and economic e f f ic i en cy , but

 117

in the presumptive conclusion that "it is c l e a r l y b e t t e r "

for the blacksmith to p ro d uc e a different size shoe. Here

Robbins seems to have accepted implicitly some measure of

comparative value among different buyers of h or se s ho e s.

But if this is so, then he has contradicted other conclusions

r ea c h e d in N a t u r e . C o n s id e r, for example, his comments on

the L aw of D i m i n i s h i n g Marginal Ut ility:

The "Law of D i m i n i s h i n g M a r g i n a l
U t i l i t y " . . . does not f ol l o w in the
leas t from the f u n d a m e n t a l c o n c e p t i o n
of e c o n o m i c goods; and it m ak es a s s u m p
tions which, w h e t h e r they are true or
false, can n e v e r be v e r i f i e d by o b s e r
v at i o n or i n t r o s p e c t i o n . The p r o p o s i
tion we are e x a m i n i n g begs the great
m e t a p h y s i c a l q u e s t i o n of the
s c i e n t i f i c c o m p a r a b i l i t y of d i f f e r e n t
individual experiences.

The horseshoes example clearly employs the Law of

Diminishing Marginal Utility to s up p or t the c o n t e n t i o n that,

be yo nd some point, it is economically inefficient to p r od uc e

additional u ni ts of a p a r t i c u l a r good. Buy how can it be

demonstrated precisely when e no u g h is enough; and what kinds

of e v i d e n c e wou ld be a d m i s s i b l e ? In point of fact, the

criterion of e c o n o m y is scientifically undemonstrable on

precisely the same g ro u n d s that " so cia l welfare" is u n d e m o n s t r

able; namely, it n e c e s s i t a t e s interpersonal comparisons of

subjective satisfaction. For if there is to be any economic

measure of "means", it must ultimately be in the c om mo n

denominator of the satisfaction value of ends. To what does

"expenditure of m ea n s " refer if not the loss in satisfaction

from ends forfeited w he n sc a rc e mean s are committed to an

 118

alternative end?

An a sp e ct of R ob bins' t ho ug ht w h ic h is c ru c i a l to note

is that he c o n s i s t e n t l y conceives the value of ends as s u b j e c t

ive, but the value of m ea ns as s o m e h o w o b j e c t i v e l y m ea s ur a b l e .

T his tendency to v ie w m e an s objectively overlooks the m e d i a t e

status of means: they m at t e r only as they contribute to

the a t t a i n m e n t of ends. Thus it seems that R ob bi ns fails

to a p p r e c i a t e the derivative subjectiveness of means.

The p r o b l e m may be u n d e r s t o o d more generally as a f ai lu re

to r e c o g n i z e the a r b i t r a r i n e s s of the ends-means di ch ot omy .

No e co n o m i c good is s i n g u l a r l y an end or a means, but may

be either, depending upon the perspective of the an alysis.

It is p e r f e c t l y correct to c o n s i d e r the h am me r and anvil

as m ea n s in the production of h o r se sh oe s . But in a differ en t,

yet e qu a l l y co rrect, an al y si s, horseshoes are themselves

means in the production of transportation. R ob b in s seems

to c o n c e i v e of ends and m e a ns as a b s o l u t e c a t eg or ie s , and

from there it is but a small step to the presumption of c oncrete,

objectively defined means in terms of w h ich efficiency is

scientifically demonstrable. This is not to say the ends-

m e ans dichotomy is not us ef u l for a n a l y z i n g behavior in

a choice-theoretical c ont ex t. The point is that the dichotomy

establishes no c at e go ry , and generates no data, in wh ich

to g ro u nd the c r i t e r i o n of economy. The la tte r is i n e s c a p a b l y

a non-scientific c on ce pt . Thus whi le e f f i c i e n c y may be

an intelligible c on ce pt , the significance of e co no mic s, its

"bearing on practice" can ha r dl y rest upon it.

 119

If the: p r i n c i p l e of e co n o m i c efficiency is non-

s ci en t if i c, then one m i g h t wo n de r whether or not e c o n om i c

s c i en c e has any s i g n i f i c a n c e at all. F o rt un a t e l y , there is

life afte r efficiency for e c o n o m i c science. The p r i n c ip a l

p ur po se of the next section is to r e i n t e r p r e t the s i g n i f i c a n c e

of e c o n o m i c science.

D. A f te r Ro bbins: A Suggested Reinterpretation

The preceding section a rg u e d that Robbins' " c r i t e ri on

of e c o n o m y " b el o ng s in the para-scientific rea lm of w e lf a re

economics wi th oth er criteria that i n vo l ve interpersonal

comparisons of s u b j e c t i v e utility in the calculation of

aggregate "welfare" in one se ns e or an other. The prese nt

section will arg ue that there is s i g n i f i c a n c e to e co no m ic

science apar t from s uc h w e l f a r e considerations. It should

be r e i t e r a t e d that what distinguishes the suggested post-

Robbins understanding of e c o n o m i c s is n e it he r its view of

the e c o n o m i c problem nor its approach to a n a l y z i n g ch oice

be havior. It is s i n g u l a r l y in the s i g n i f i c a n c e it a t t a c h e s

to e c o n o m i c s that it t akes exception with Robbins.

Very generally put, the significance of e c o n o m i c scie nc e

is that it e x p l a i n s purposive hum an a c ti o n in a c ho i c e -

theoretic context. By f or m a l l y modeling the rationality

of choice, economists are able to e xp l a i n a remarkable range

of a ct i vi t i e s , from decisions ab out the purchasing of m ar ke t

goods to the m a n i f e s t a t i o n of a l t r u i s m in f a m il ia l relation

ships.
 120

As the s c ie n ce of choice, economics can s ug g es t ways

to s t r u c t u r e incentives so as to a c h i ev e d e si re d patterns

of be havior. For i n st an ce , Gary Be c ke r has demonstrated

that w h e t h e r the probability of p u n i s h m e n t is more effective

than the s e v e r i t y of punishment in d e t e r r i n g cr im e d ep e nd s

38
upon the d eg re e to w h i c h the o f f e n d e r is a v e r s e to risk.

This conclusion se ems intuitively r e as o na bl e , but often

the c o n c l u s i o n s of h i g h l y formalized m o de l s go b ey on d immediate

i n tu it io n; t h e re in lies the value of m a t h e m a t i c s , of course.

39
One example is Isaac Ehrlich's mode l of c r i m i n a l a ct iv it y.

Building on B e c k e r ' s a n al ys is , Ehrlich demonstrates that

if an o f f e n d e r were r is k pr ef er ri n g, an i nc r e a s e in the a ve r a g e

p en a l t y per o ff e ns e m i gh t not deter his participation in

crime. In fact, it c o u l d have precisely the o p p o s i t e effect.

This conclusion is h ar d l y in tu it iv e, yet it is c o n s i s t e n t

with the o b s e r v e d b eh a v i o r of some c ri m in a l s . It is s u g g e s t i v e

of the usefulness of e c o n o m i c s that it can e x p l a i n and pred ic t

such b eh a v i o r w it h o u t h av i ng to r eso rt to ad. hoc "explanations"

in terms of irrationality or i n h e r e n t v ag a r i e s of huma n

behavior.

Economic s c ie n ce can help determine whether different

p ol i c i e s are consistent and h a rm o ni o us , or c o n t r a d i c t o r y

and at cross-purposes. Do we want protective t ar if fs or

m ore trade, easy m o n e y or less i nfl at io n, minimum wa ge s or

a lower unemployment rate?

Economics can trace out the effects, in terms of e x t e r n a l

 121

behav io r, of a ch a ng e in tastes and p r e fe r en ce s. For

i n sta nc e, there w ou ld be some o bvious, and some n o t- s o-

obvious repercussions of an end to ra ci al pr ej ud ice , and

economic analysis can help us to u n d e r s t a n d b et te r what

tho se repercussions might be. Becker argues, for example,

that wh en w h i t e s discriminate against blacks, the i n com es

of both gr o up s are r ed uc e d. Ho wever, an end to d i s c r i m i n a

tion would, under certain circumstances, i n c re as e the net

i nc o me of discriminators m o re than those discriminated against.*

S i mi l ar l y, economic analysis can s ug g e s t the e ff ec ts

of a c h a n g e in t e c h n o l o g y upon prices, incomes, and so on.

Examples w o u ld be v i r t u a l l y endless, but to r e i t e r a t e the

g en e ra l point, economics a ll o w s for a relatively comprehensive

awareness of the c o n s e q u e n c e s in terms of e xt e r n a l behavior.

The point s ho ul d be e m p h a s i z e d that economics is c o n c e r n e d

only wi th explaining external beh av io r. That is, it must

take as " g iv e n" characteristics w h i ch are "internal" to the

i n d i v i d ua l : tastes, preferences and qu ir k s of p e r s o na li t y.

For e xa mp le , psychology w ou ld perhaps re l at e one' s taste

for g re e n sh ir ts to a c h i l d h o o d fixation on one's s co u tm as t er .

Economics w o ul d address the very different ma t te r of one's

demand for gr een s h ir t s as r el a te d to income, p rices and

ot he r external constraints. As a no t h e r example, traci ng

out the effects of a c h a n g e in r ac i al attitudes is not the

same th ing as e x p l a i n i n g the psychology of racial p r ef er en ce .

Whenever economists h av e discussed the significance

of their science, one point is m ad e virtually w it hou t

e xc e pt i on , namely that pure economic s c ie n ce is p ositive,

not n or m at iv e . In the w or d s of M c K e n z i e and T ul lock:

The a p p r o a c h of the e c o n o m i s t is
a m o r a l . E c o n o m i c s is not c o n c e r n e d
w it h what s h o u l d b e , or h ow i n d i v i
duals s h o u l d behave, but rather with
u n d e r s t a n d i n ^ w h y p eo pl e b eh ave the
way they do.

Concerning the positive-normative distinction, s ev er al

po in ts must be made. First, the distinction b e in g drawn

here b et we en positive and normative is not the d i s t i n c t i o n

m a d e e a r l i e r b et w ee n what is s c i e n t i f i c a l l y d e m o n s t r a b l e and

what is not. Second, the positive-normative distinction

is not the same thing as the fact-value d is t i n c t i o n . Third,

economic science is i nd e e d amoral, but not in the sense

conveyed by the most of the more recent d i s c u ss io n s.

It was a rg ue d above that efficiency is para-scientific

because it i n v o l v e s interpersonal comparisons of utility.

Efficiency in the economic sense, i.e., in terms of utility,

is not scientifically demonstrable. Thus, it was argued,

we are left with a pure th e or y of ch o ic e which expresses

its conclusions always in terms of e x t e r n a l be havior, but

n e ve r in terms of e f f i c i e n c y . It is q uite a different thing

to say, as the M c K e n z i e and T u l l o c k quotation ab ov e says,

that economic s ci e nc e embodies no mo ra l p rin ci pl e s, or e n d o r s e s

no e t h i c a l system. S up po se , for instance, that subjective

utility were somehow perfectly measurable. In this case

economic efficiency w ou l d be s c i e n t i f i c a l l y d em o n s t r a b l e ,

but economic s ci e nc e would not t he r e b y b ec om e a kind of

philosophical utilitarianism. To desc ri be , even perfect ly ,

 123

the set of c i r c u m s t a n c e s under w h i ch u t il i ty is m a x i m i z e d

is not to a r g ue that u ti l i t y ough t to be m a x i m i z e d . Man

is a s s u m e d to act in p ur s ui t of s u b j e c t i v e u ti li ty ; this

is the u l t i m a t e foundation of e c on om ic s . But, as M i l t o n

Friedman put it, "The function that e na b l e s us to p re d i c t

h ow a c o n s u m i n g unit does b eh a ve is not necessarily the same

42
function that w ou ld tell what is d es i ra b l e " .

It is no s u r p r i s e that economics has been confused

wi th philosophical utilitarianism, but to t heir cr ed it economists

have produced a vast v ol um e of literature disassociating

the one from the other. Unfortunately they have done

much, a lb e i t p er h ap s unintentionally, to c o n f u s e economic

s c ie n ce w it h a different normative system, namely, d em o cr a cy .

Here "democracy" is used in the context of a p o l i t i c a l philos

ophy, not merely as s i g n i f y i n g a method for selecting governmen

tal leaders. The p re s e n t c on t e x t is that of P l a t o in his

discussion of d e m o c r a c y in the R e p u b l i c . For Plato, democracy

is truly a philosophy in the f u ll e st sense. Democracy's

first principle is the f a c t val ue distinction, i.e., the

n ot io n that v al u es are not grounded in facts, that the

two are of fundamentally different ontological status.

Democracy's supposed v ir t u e s are freedom, va riety, and a bo ve

all, e qu ali ty. Pla to describes the democratic man, the

"man a t t a c h e d to the law of e q u a l i t y " as one who

. . . d o e s n ' t a d mi t true s p ee c h or let

it pass into the g u ar dh o us e, if s om e o n e
says that there are some p l e a s u r e s
b e l o n g i n g to bad desires, and that the
 124

ones must be p r o t e c t e d and h o n o r e d and

the o t h e r s c h e c k e d and ensl av ed . Rather,
he s ha k es his head at all this and says
that all are a l i k e ^ n d must be h on o r e d
on an e qu a l basis.

P l ato goes on to a rg u e that democracy is a s o rr y

condition of s tate and of soul, eventually degenerating

f u r th e r into t yr anny. But the p u r po s e here is not to c r i ti q ue

Plato's political and ethical p h ilos op hy . The point is to

a r gu e that what m a n y economists c on s i d e r "value-free" economics

is a c t u a l l y thoroughly i nf u s e d with the s u b s t a n c e of d e m o

cr a ti c political philosophy. Let us r eturn to M c K e n z i e and

Tullock and f in i sh the quotation presented in part above.

Note the s i m i l a r i t y with Plato's description of democra cy :

Like e v e r y o n e else, we have our own

value s y s t e m s . . . We also r e c o g n i z e
that you have your own va lu es and we
in no way s u g g e s t that you d i s p e n s e
w ith them . . . All we ask is that you
a l l ow us the o p p o r t u n i t y to a d d r e s s
the q u e s t i o n of why such p h e n o m e n a
[as p r o s t i t u t i o n and p o l i t i c a l c o r
r upt io n] occur. In the p r o c e s s you
may find a s o l u t i o n to the p ro b l e m
that is m o re c o n s i s t e n t w it h your
v alues thgg the s o l u t i o n you now
perceive .

Mises has expounded similarly on the "positive"

character of e c o n o m i c theory:

E t hi c al d o c t r i n e s are i ntent upon

e s t a b l i s h i n g s ca le s of value a c c o r d
ing to w h i c h men s ho u ld act but does
not n e c e s s a r i l y a l wa y s act . . . Th ey
are not n e u t r a l wi th r eg ar d to facts;
they judge them from the point of
view of f re el y a d o p t e d st and ar ds .

This is not the a t t i t u d e of

p r a x e o l o g y and ec o no mi cs . T he y are
 fully aw are of the fact that the
u l t i m a t e ends of h uman a ct i o n are not
open to e x a m i n a t i o n from any a b s o l u t e
s t a n d a r d . . . Any e x a m i n a t i o n of u l t i
mate ends turns out to be p ur e ly ^
s u b j e c t i v e and t h e r e f o r e ar b it r ar y.

M is e s o ff ers no s u b s t a n t i v e s up p or t for his contention

that there can be no r a t i o n a l discussion of ends, so the

s t a t e m e n t i ts elf must be taken as a value j u dg me nt . It is

one thing to point out that economic s ci en ce is not ethics,

but qui te a no t h e r thin g to a ss e r t that there ca n no t be an

objective evaluation of ends qua ends.

M i s es and o th e rs are c o r r e c t in d e s c r i b i n g e co n o m i c

s c i en c e as amoral. The st udy of m o r a l i t y and e th ic s is

certainly d i s t in ct from the s tu dy of e c o n o m i c p ri nc ip l es .

It is o b j e c t i o n a b l e , howeve r, when they go on, usually in

the same pa ra gr ap h, to a ss e r t that all " ends" are necessar

ily of equa l status. This is democratic political philo

sophy, not e c on omi cs , and the two mu st be d i s t i n g u i s h e d

if the significance of e c o n o m i c s is to be p r o p e r l y u n de r st o od .

This chapter has striven to d ev e lo p a correct under

standing of the n at u r e and significance of e c o n o m i c science.

The r es ul t is a ra t he r more servile view of e c o n o m i c s than

most economists would, or at least have, en do r se d. It is

the principal contention of this ess ay that w h i le economics

is app-licable to the c ho ic e a s pe c t of huma n b eh a v i o r in all

departments of life, it is n o n e - t h e - l e s s essentially a hand

maiden science, and instrumental, not substantive in its

r a ti o n a l i t y . Economists ough t not to be a s h a m e d to admit

this view, but most apparently are. Th ey are co mp el le d,

 126

for one r ea so n or a no th er , to spin pretentious theories of

"efficiency" and "wealth maximization" which are ultimately

d e vo i d of substance th ou gh they give the a p p e a r a n c e of p re c i s e

guidance .

The following chapter will propose, on the ba sis of

this vi ew of e co n om ic s , a "prudential" law and economics

which sees jurisprudence not as Scien ce , but as Art. The

economic analysis must unashamedly accept as g i v en the ends

of policy, and the v al ues upon whic h they rest. It must

acknowledge reliance u po n m or al and ethical principles w h ic h

are inherently more difficult to d e m o n s t r a t e than the laws

of n a t u r a l science.
 Not es to C h a p t e r V

^J. B. Say, A T r e a t i s e on P l i t i c a l Economy (New York:

A. M. Kelly, 1964), xxvi.
2
See S m i t h ' s d i s c u s s i o n in C h ap te r III, Book II of the
Wealth of N a t i o n s .
q
~ T . R. Ma lt hu s , P r i n c i p l e s of P o l i t i c a l E co n o m y (New
York: A. M. Kelly, 1964), p. 33.

^J. B. Say, A T r e a t i s e on P o l i t i c a l Economy (New York:

A. M. Kelly, 1964), xiii.

5 I b i d ., p. 62.

J. S. Mill, P r i n c i p l e s of P o l i t i c a l E co n o m y (London:
T on gm a ns , G r e e n and Co., LTD., 1926), p. 45.

^ I b i d ., p . 48.

8 Ibid.

S. Jevons, T he P r i n c i p l e s of E c o n o m i c s (London:
McMillan & Co., 1905), p. 13.

1 0 C. Menger, P r i n c i p l e s of E c o n o m i c s (Glencoe: The

Free Press, 1950), p. 53.

^ I . Kirzner, The E c o n o m i c Point of View (P ri nceton:

D. Van N o s t r a n d Co., Inc., 1960), p. 47.
12
Whately is q uo t ed in K i r z n e r ' s Economic Po int of V i e w ,
p . 7 2.

1 3 Ibid .

^Ibid., p. 75.

^ 3 F. H. Gi dd i ng s , "The S o c i o l o g i c a l C h a r a c t e r of
P o l i t i c a l E co no my ", A EA P u b l i c a t i o n s , 1889, p. 43. This
piece was read be fo re the AEA at its s ec on d a nn ua l meeting.
 ^ A . L. Perry, E l e m e n t s of P o l i t i c a l Economy (New
York: S cr ib ner , A r m s t r o n g & Co., 1877), p. 53.

^ I b i d . , p. 54.
18 F. Basti at , E c o n o m i c H a r m o n i e s (I r v i n g - o n - H u d s o n ,
N.Y.: Foundation for E c o n o m i c E du c at io n , 1968), p. 5.
19
P. H. W i ck s t e e d , The C o m m o n Sen se of P o l i t i c a l
E c o n o m y (London: G e o r g e R a u t l e d g e & Sons, Ltd., 1935),
P. 781.
on
F. A. v. Hayek, "The T r e nd of E c o n o m i c T h in ki n g" ,
E c o n o m i c a (May, 1933): 130-31.
21
J. A. S c h u m p e t e r , H i s t o r y of E c o n o m i c A n a l y s i s
(New York: O x f o r d U n i v e r s i t y Press, 1954), p. 911. For
an e l a b o r a t i o n on this theme see K i r z n e r ' s d i s c u s s i o n in
The E c o n o m i c Poi nt of V i e w , pp. 79-81.
22
E. R. A. S e li gm an , " So c ia l Elements in the T h e o r y of
V alue", ^ J E (May, 1901): 327.
23
Q u o t e d by K ir zn er , I. K ir zn er , The E c o n o m i c Point
of Vi ew (P ri nc e to n : N o s t r a n d Co., Inc., 1960), p. 108.
2A
L. Ro bbins, An E s s a y on the N a tu r e and S i g n i f i c a n c e
of E c o n o m i c S c i e n c e (London: M a c M i l l a n adn Co., 1945),
p p . 12-14.
25t k . ,
I b i d ., PP . 21-22.

I b i d . , PP . 24-25.
27
I b i d . , P 33.
28., . .
I b i d ., P 38.
29
See E. J. M i s h a n ,
19 39 -1 95 9 ", in W e l f a r e E c o n o m ic s : Five I n t r o d u c t o r y
E s s a y s , by E. J. M i s h a n (New York: R a n d o m House, Inc.,
1964 ) , p p . 63-66.
30
M. Dobb, W e l f a r e Economics and the E c o n o m i c s of
S o c i a l i s m ( C am br id ge : Cambridge U n i v e r s i t y Press, 1969),
p. 3.
31
Fr om Robbins' a d d r e s s to AEA, reprinted in A m e r i c a n
E c o n o m i c R e v i e w , May, 1981.
 32
L. Robbins, An E s s a y on the N a tu r e and S i g n i f i c a n c e
of E c o n o m i c S c i e n c e (London: M a c M i l l a n and Co., 1932),
P 1 2 0 .
33
Ibid. , pp. 135-36.

I b i d ., pp. 139-40.

Ibid . , p. 129.
36T . j . ,
Ibid pp. 48-49.

37-ru j . , p.
Ibid 121.
O O
G. Be ck e r and W. L
C ri m e and P u n i s h m e n t (New York and London: Columbia
U n i v e r s i t y Press, 1974), pp. 40-41.

^Ibid., pp. 68-134.

. S. Becker, The E c o n o m i c A p p r o a c h to H u m a n B e h a v i o r
( Chi ca go and London: The U n i v e r s i t y of C h i c a g o Press,
1974), pp. 17-30.

^ R . M c K e n z i e and G. Tu llock, The New W o r l d of

E c o n o m i c s ( Ho me wo od , Illi no is : R i c h a r d D. Irwin, Inc.,
1975), p. 6.

M. F ri ed ma n, Price T h eo r y (C hicago: Aldine Publish

ing Co., 1976), p. 35.
43
See A. Bloom, The R e p u b l i c of P l a to (New Yo rk and
London: Basi c Books, Inc., 1968), p. 239. The p a s s a g e is
from Book VIII, 561c.
44
R. M c K e n z i e and G. T ul lock, The New W o r l d of E c o n o m i c s
(Homewood, I ll in oi s: R i c h a r d D. Irving, Inc., 1975), p. 7.

^ L . V. Mises, H u m a n Ac t io n (Chicago: Contemporary

Books, Inc., 1966), p. 95.
 VI. Toward a Prudential Law and Economics

In light of the c r i t i c i s m of the new law and economi cs,

and the d i s c u s s i o n of the na t ur e of e co n o m i c sc ience, what

can be c o n c l u d e d about the proper role of e c o n o m i c analysis

in legal t he or y? In a n s w e r i n g this question, the p r es en t

chapter will p ro p o s e a "prudential" approach to law and e c on omi cs .

The prudential law and economics does not c l ai m to be a c om p l e t e

th eo ry of law. In fact, it is not a theory of law at all.

One c an no t a pp ly the prudential analysis to a p a r t i c u l a r

problem and g en e r a t e "the so lu ti o n" , as one s u p p o s e d l y can

w it h Posner's w e al t h maximization a n al ys is . Thus it make s

l it tl e sen se to s p ea k of c o m p a r i n g the p ol i c y conclusions

of the "new" and the "prudential" a na lyse s. The prudential

analysis is not a "theory" or " s y st e m" of law, as the "new"

law and economics c la i m s to be. It is r at he r an a t t i t u d e

abo ut the significance of e c o n o m i c s in all a r ea s of legal

theory, a perspective on the role w hi c h economic analysis

sh ou ld play in the formulation and administration of the

law.

The essence of the prudential approach is the understanding

that economics is p ur e l y an instrumental science, and ultimately

of no s e r v i c e in a n s w e r i n g substantive questions on the na tu re

of harm and injury. The prudential view r e c o g n i z e s that

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questions of value necessarily dissolve into a discussion

of " mo ra ls and ae sthetics," to b or ro w a g a in the terminology

of R on a ld Coase.

"The basic function of the law", Posner wrote in E c o n o m i c

Analysis of L a w , "is to a lt er incentives." To alte r incentives

is an instrumental function of the law; this does not, however,

say a n y t h i n g abou t its substantive purpos e. The distinction

b e tw e en function and p ur pose, as the terms are used here,

is that b et w ee n means and ends. It is c r u c i a l for under

standing how the prudential and Posnerian wealth maximization

approaches differ, for the prudential view sees economics

as concerning only f u nct io n, whereas economics regards both

function and p ur p o s e in the Posnerian view.

Elsewhere in E c o n o m i c Analysis of Law P o s n e r of fe rs

what mi gh t seem to be a r e l a t i v e l y "prudential" conception

of the significance of e c o n o m i c analysis of law:

A l t h o u g h (the e c o n o m i s t ) ca n no t tell s oc i e t y
w h e t h e r it s ho u l d seek to limit theft,
he can show that it w ou l d be i n e f f i c i e n t
to a l l o w u n l i m i t e d theft; he can thus
c l a r i f y a v a lu e c o n f l i c t by s ho w i n g how
m u ch of one v a l u e e f f i c i e n c y , su r el y
an im p or ta n t, if not n e c e s s a r i l y
p ara mo un t, v a lu e in any s o c i e t y ^iust
be s a c r i f i c e d to a c h i e v e an ot he r.

Though "v al u e clarification" may seem a m o d e s t e no ug h

g o a l - - " p o s i t i v e " , at l e a s t a li t tl e reflection will reveal

that it is n e i t h e r modest nor posi ti ve . Establishing pre

cisely "how mu ch of one va lue must be s a c r i f i c e d to a ch i e v e

another" is q u ite a task. The prudential law and economics

a ss i g n s a much mo re instrumental, less substantive role

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to e c o n o m i c a n a l ys i s. Economics is as su m ed , in the prudential

c o n ce p ti o n, to c o n c e r n only external b e ha vi or. Evaluating

that behavior by c o m p a r i n g sacrifices of one v a l ue with

g ains of a n o t h e r is c o n s i d e r e d b ey on d the rea ch of e co no m ic s .

The prudential law and economics is g r o u n d e d in the under

standing that economics is e q u a l l y d ev o i d of s u b s t a n t i v e

rationality as say, chemistry or ph ysics.

T he re is, then, this crucial difference between the

Posnerian and prudential a n a l ys e s: The fo rm er t ak e s economics

b eyo nd p ur el y instrumental reasoning to the evaluation

of d i f f e r e n t states; the la tt er strictly confines economic

analysis to the instrumental role of u n d e r s t a n d i n g external

behavior and some of the m e an s by w h i ch it can be m od i fi e d.

In the terminology suggested at the beginning of this section,

the Posnerian law and economics is c o n c e r n e d with both

function and purpose, but the prudential analysis deals

only w it h the former

The prudential law and economics s ho u l d not be understood

as a w h o l e s a l e rejection of the m e t h o d o l o g i e s of Coase,

B eck er and Pos ne r. It was argued above that the analyses

of C oa se and Be ck er are essentially instrumental; therefore

they are, for the m os t part, acceptable as prudential theory.

Even much of the analysis of P o s n e x , i n c l u d i n g some

of his work, is e c o n o m i c a l l y co rr ec t, and would be a l e g i t i m a t e

part of the prudential law and e c o n o m i c s . There is, however,

a distinctly "prudential" interpretation of their work.

A few e x a m p l e s will illustrate the point.

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Consider a "Coasian" analysis of the "externality"

problem c re a t e d when a confectioner's machinery ren de r ed

a doctor's instruments unusable bec aus e of nois e and vibrati on .

In the prudential perspective the significance of the analysis

lies entirely in t r a c i n g out the responses of the a ct or s

to p o s s i b l e legal s ol u ti on s . It is i m p o r t a n t to u nd er s ta nd ,

for i nstance, that if th ere are "zero transactions costs",

then the i n it ia l assignment of r i g h t s - - t h e right of the c o n f e c i o n e r

to use his m a ch in e ry , or the right of the do ct or to q u i e t - -

will not determine the final allocation of rights. The firm

w ho se p ro d uc t is most valuable will purchase the right to

continue its production. Assuming that both p ar t i e s are

pr o fi t maximizers, an economic analysis of their a c ti on s

in the choice-theoretic c on t e x t leads to this co ncl u si on .

If transactions cos ts are high, on the other hand, the i ni ti al

assignment m i gh t be final, depending upon the costs of n e g o

tiating, and the e ff e ct on pr o fi t in the long run.

T h o s e who embrace the prudential approach w ould c on t en d

that the significance of the a n a l y s i s is l im i t e d to such

instrumental considerations, and t he r ei n lies the difference

b e twe en the prudential and the w ea l th maximization a p p ro a ch e s.

The l atter w o ul d go on to a r g ue that if transactions costs

were high, the court sh ou l d mi mi c the market, and a w ard the

rig ht initially to the firm whose p r od uc t is more valuable,

based on ( es t im a t e d ) market prices. (This conclusion holds,

of course, regardless of w h e t h e r the a l t e r n a t i v e s in q u e s t i o n

are m e d i c a l services and candy, or m ed i c a l services and,

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say, hallucinogenic drugs or acts of m a s o c h i s m . )

Some will c o n s i d e r the w e a l t h - m a x i m i z a t i o n approach more

u se f ul b e ca us e it does generate conclusions, whereas the

prudential approach o nly tr ace s out the l ik e ly responses

to given legal a ct io ns . But it is precisely the point, in the

prudential view, that economic rationality ough t to be l i mi te d

to a study of the function of the law, and not consider its

purpose.

It will be h e l p f u l in c o n t r a s t i n g the "new" and prudential

analyses to c o n s i d e r again Becker's analysis of crime.

As an a n a l y s i s of c r i m i n a l b eh a v i o r in the c h o i c e - t h e o r e t i c

context, it is quite v a l u a bl e. His specification of the

s up pl y function for offenses is s o l i d l y grounded in e co n o m i c

analysis of choice, as it a s s u m e s that a person chooses to

commit an o f f e n s e if the expected utility to him e x c e e d s

the u ti l it y he coul d get by u si n g his time and oth er resources

in a l t e r n a t i v e ways. Becker's deductions regarding the l ik e ly

responses of "criminals" to v a r i o u s lega l and o th er constraints

are rigorous and imaginative. Certainly the a n a l y s i s has

tremendous instrumental value.

The significance of B e c k e r ' s a n a l y s i s stops there, h owe ve r.

His specification of the s oc ia l loss function is i n t e r es t in g,

but as he i n d i c a t e s h imself, it- is us efu l only for the special

case in w h i c h his underlying m or a l consensus p re va il s. G iv e n

all of his assumptions, B ec k er is able, of course, to a p pl y

the w ea l t h maximization criterion and go b ey o nd the pu re ly

instrumental role of the prudential a n a l y si s . He is able

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in his ovvn words,

. . . to a n s w e r n o r m a t i v e q ue s ti on s,
n a m e l y how m a n y r e s o u r c e s and how m u ch
p u n i s h m e n t s h ould be used to e nf o r c e
d i f f e r e n t k in ds of l e g i s l a t i o n ? Put
e q u i v a l e n t l y , a l t h o u g h more st ra ng e ly ,
h ow m a n y o f f e n s e s s ho ul d be p e r m i t t e d
and how m a n y o f f e n d e r s sh o ul d be p e r m i t t e d
to go u n p u n i s h e d ? The m e t h o d used f o r m u
lates a m e a s u r e of the so cia l loss from
o f f e n s e s and finds those e x p e n d i t u r e s 2
of r e s o u r c e s that m i n i m i z e this loss.

The prudential approach does not claim to be c o n c e r n e d

wi th these things. In order to see m o re concretely what

the prudential approach is all about, consider the trade

in i ll e ga l n ar c ot i cs . There is m uc h that economics can

contribute to the formulation and administration of drug

law, but it sh o ul d be recognized that the economic rationality

has its limitations. A discussion of this issu e will sugge st

what those limitations are wi th r e ga r d to drug laws in

p ar ti c ul a r, and by i m p l i c a t i o n , to legal th e or y and p r a c ti c e

in general.

The prudential analysis does not claim to be able

to d e t e r m i n e the o pt i m a l a mo u n t of drug t ra f f i c or use,

or the a mo u n t of resources society ou ght to d e vo t e to the

enforcement of drug laws. To understand the difficulties

of such tasks, and the inadequacies of a p ur el y economic

approach to such normative q u es t io ns , consider what it

w ou l d mean to spea k of "the a mo u n t of narcotics use that

sh o ul d be p e r m i t t e d . " It is r e a s o n a b l e to a s s u m e that

drug use ca us es a certain de g re e of external harm, just

as factories cau se smo ke and stri p m i n i n g destroys the

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b ea u ty and vitality of the land. On the other hand, narcotics

use presumably yields some sort of p ri v at e gain or benef it

to the user also. If the m a r g i n a l harm al w ay s outweighed

the m a r g i n a l gain, the o pt i m a l a mo u n t of drug use wou ld

be zero. But if, as s e em pl au si b le , drug user s initially

c a us e low m a r g i n a l c os t s which, however, i nc r e a s e as drug

use grows (in terms of the i n d i v i u a l s 1 usage or the n umber

of users) then it is l i k e l y that the o pt im a l am o un t wou ld

be g re a t e r than zero.

Since the cost of enforcing drug laws m us t also be

considered in a more complete a na ly si s , the optimality

condition w ou l d be that the m a r g i n a l gain must equal the

marginal h arm plus the cos ts of e n f o r c e m e n t . - In othe r words,

the m a r g i n a l gain mu st be sufficient to c o m p e n s a t e s oc i et y

for any e x t e r n a l h ar m plus the cost s of a p p r e h e n d i n g and

punishing the c r i m i n a l .

This kind of reasoning is not objectionable, of course,

but neither is it very u se fu l in c o n c r e t e s i t u a t io n s. To

say that the o p t i m a l amount of n a r c o t i c s tra de is that w h ic h

equates costs and benefits at the margin, is to s p e ak a

t ru i sm w h i c h c re a t e s on ly the a p p e a r a n c e of p re c is e gu idance.

Consider the d i f f i c u l t y of m e a s u r i n g the external costs.

T h e re are some costs which can be m e a s u r e d relatively well

in m o ne y or m on ey equivalents: the s al a r i e s of p ol ic em en ,

co urt officials and ot h er s involved in law e n f o r c e m e n t , for

in stance. If drug use leads to s h o p l i f t i n g as a s ou rc e of

income for the user then the value of r e s o u r c e s devoted to

preventing shoplifting would be re levant. It is not difficult

to i ma g in e o ther c o s ts which can be e x p r e s s e d relatively

well in m o n e t a r y terms.

W ith narcotics use certain c osts are i mp o se d which are

not li k el y to find m o n e t a r y expression however, and these

m ay in fact be more important as a m a t t e r of so ci al concern.

Consider the following passages regarding drug addiction

in Harlem, from the acclaimed autobiography of C l a u d e Brown,

Manchild in the P r o m i s e d Land:

I r e m e m b e r that a r o u n d 1952 and 1953, when cats

first s t a r t e d g e t t i n g s tr u n g out good, p eople
were s ay i ng "Damn, man, that cat went and ro bb ed
his own family. He s tole his f at h e r ' s suits, stole
his m o t h e r ' s m o n e y . . In some case s the lack
of m o n e y had a l r e a d y k i l l e d most fa mi ly life . . .
Cats were ta ki ng b u t c h e r k n iv e s and g oi n g at their
f at h er s b e c a u s e they had to have m o n e y to get drugs.
A n y b o d y who was s t a n d i n g in the way of a drug
ad d ic t wh en his ha bi t was down on h i m - - f r ^ m mo t he r
and fa t he r on d o w n was r i s k i n g his life.

An y on e who w o ul d th in k seriously ab ou t the s oc i a l costs

of n a r c o t i c s use mu st somehow take a cc o u n t of the costs, so

real in B ro w n ' s experience, w h i ch are not expressed as w i l l i n g

ness and ability to pay. Surely no one w ou ld suggest that

the cost to the family be m e a s u r e d s im p l y as the ma r ke t

val ue of the father's suit plus the s to len money.

The limitations of the w e a l t h maximization approach

are no less o bv i o u s with re g ar d to the benefit, or gain,

to the user. Here one m i g ht a r g ue that the b en e fi t can be

measured relatively simply as the m a r k e t or s tr e et price

of na rc ot i cs . What us ers are w i l l i n g and ab le to pay to

ob ta in drugs w ou ld r e p r e s en t , in this view, the valu e of

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drugs.

Unfortunately, the implications of this approach are

not necessarily in a c c o r d w i th experience and the d i c ta te s

of good c o n s c i e nc e . As user s of heroin, for e xa mple, become

more f ir ml y entrenched in their habit, the a m o u n t they are

willing to pay for the drug i n cr ea s es . T hi s implies, according

to the we a lt h m a x i m i z a t i o n c a lc ul us , an increase in the opt im al

a mo u n t of he r oi n traded. But even if th ere we re no e x t e rn a l

costs, one m i gh t sensibly argue that it w o u l d be w r o ng and

unconscionable for society to s a n c t i o n an increase in the

use of heroin. Again, Brown's account deserves serious medita

tion:

A rou nd 1955 . . . n o b o d y w a n t e d to kick the habit

much. T he y were s t r u n g out, and they w e re r ea ll y
going down. T h e r e w er e r ag g e d and b ea t-up. Cats
who had ne ve r come out of the h o use w i t h o u t a pair
of shoes on that d id n ' t cost at least t h i r t y - f i v e
d o l l a r s . . . w e re g re a s y and d ir ty . . . T h e s e were
p eop le who had a w h o le lot of pride. T h ey were
people who had had too m uc h p ri de to put a ^
di rty h a n d k e r c h i e f in the ir p oc k e t s at one time. . .

The inadequacies of e c o n o m i c analysis as a normative basis

for drug laws are thus revealed wh en one c a r r i e s the a n a l y s i s

to its conclusions. T he prudential attitude is that economics

ought to be l i mi te d to the pu r el y instrumental role of d e s c r i b i n g

the ch oi ce b e h av i or of the p ar t ie s i n vo lv ed , and their r es p o n s e s

to d i f f e r e n t laws and methods of e n f o r c e m e n t .

An e x c e l l e n t analysis of the illegal narcotics trade

has been offered in the s pi r it of the prudential law and

economics by Simon Rottenberg.^ A brief review of parts

of his s tudy will illustrate the s c o pe and significance

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t hou gh not the sophistication or rigor, of the prudential

analysis.

Considering the supply side of the mark et , Rottenberg

identifies the m a j or cost ("unit of m i n i m i z a t i o n " in his

terminology) as the probability of be ing apprehended times

the value of the punishment. S ev e r a l f a ct or s affect the

probability of g e t t i n g caught. For i n st an ce , the extent

of the m ar k e t will determine the specialization of labor

in the n a r c o t i c s i n dus tr y, and in turn, the le n gt h of the

production c h ai n from primary producer to fin al user. As

the le n gt h of the c h ai n grows, the probability that the p ri m ar y

producer will be c au g h t diminishes b e ca us e of the necessity

for m or e p er s on s to be "busted" be f or e the source is reached.

One implication, according to R o tt en b e r g , is that a given

expenditure to a p p r e h e n d pushers will li k el y re su l t in a

la rg er n um be r of busts, the smaller the marke t. A se cond

implication is that information gathering o ug h t to be t a r ge t ed

at the m id d l e links of the c ha in ra the r than at the poles,

sin ce information gathered at the m i dd l e is l ik e ly to ex te nd

in two directions, providing helpful leads in g et t i n g at

both producers and s tr e e t d ea l e r s (r et a il er s) .

T he r e may be c e r t a i n technical economies in s to ri ng

l arge quantities of dru gs in a s in g l e place, but there is

one important diseconomy: the m or e contraband found, the

g r ea t er the probability of c o n v i c t i o n and the mo re s ev er e

the penalty. It mi gh t be good, th er ef or e, to e n c o u r a g e

storag e. This coul d be a c c o m p l i s h e d by r e d u c i n g the punishment

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for me re possession of drugs. Th is would, Rottenberg feels,

induce illegal operators to hold la rg er inventories and,

in turn, provide information to a u t h o r i t i e s about w hich

persons to w a t c h for ot he r i ll e g a l activities, and ultimately

r ai se the incidence of discovery and a p p r e h e n s i o n .

Regarding the demand side, Rottenberg f oc u s e s mostly

on two issues: the pr ic e elasticity of de m an d for vario us

n a r c o t ic s , and the tendency of u se rs to "infect" others,

thus bringing them into the m a rk e t as buyers. If the de mand

for a p a r t i c u l a r drug, say, heroin, we re highly i ne la sti c,

then a reduction in its su p pl y w o u l d r es ul t in h ig he r p rices

and greater expenditures by the user. Some of the significant

so c ia l costs of h e r o i n addiction are the result, directly

or indirectly, of crimes such as m u g g i n g s , s ho p li f t i n g ,

burglaries, etc., committed by the user who must somehow

support an e n o r m o u s l y expensive habit. P r ic e elasticity

is determined by the a v a i l a b i l i t y of s u b s t i t u t e s ; thus, Rotten

berg suggests that if the supply of relatively safe substitutes

for heroin (e.g., methodone) we re allowed to g ro w as the

supply of h e r o i n is restricted, the pric e of the l atter w ould

be held down. A second implication, (this re al l y for the

supply side) is that law e n f o r c e m e n t w h i ch is d i r e c t e d only

at "newcomers" w o u ld encourage the creation of m o n o p o l y

suppliers wh os e p ri c es w o u ld be p r e d i c t a b l y higher.

One widely held v i e w is that drug addiction is a n a l o g o u s

to a c o n t a g i o u s disease in that the us ers tend to i nf li ct

their addiction upon n o n u s er s. (This analogy b ec am e the

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subject of m uc h d eb a t e du ri ng the 1965 m a y o r a l race in New

Y o r k C it y. ) Rottenberg of f er s some support for the analogy,

and c alls attention to an interesting implication: Sin ce

t her e appear to be r e t u r n s to s ca le in the "infection" of

n o n u s er s , i.e., the average " cost" of "infecting" p e rs on s

decreases with an increase in the n um b e r of ad dicts, then

law enforcement ough t to c o n c e n t r a t e on c lu s t e r s of addicts.

Removing such c l u s te r s, or a s s o c i a t i o n s , w ou ld be more

effective than busting the isolated addict. Rottenberg's

analysis supports the suggestion ma de by one of the 1965

N ew York m a y o r a l candidates that addicts oug ht to bo q u a r a n t i n e d

just as o th e r c a r r i e r s of contagious diseases are q u a r a n t i n e d .^

Robbenberg gets into o t her aspects of the n a r c o t i c s trade

but it w ou l d serv e no f ur t h e r purpose to r e v i e w all of them

here. It sh o ul d be a p p a r e n t that his prudential analysis

could be u se f ul in f o r m u l a t i n g and administering drug laws.

It does not pretend, h ow ev er , to m e a s u r e up to the larger

purposes suggested by economists who take the w e a l t h - m a x i m i z a t i o n

a p p r o ac h . Rottenberg sums up the significance of his analysis

in a way w hi c h suggests the importance of e co n o m i c analy si s,

yet carefully a vo i d s pronouncements on the n at ur e of harm

and injury, statements involving substantive rationality:

M a x i m i z i n g i n d i v i d u a l s s ee k i n g e up h o r i c
u t i l i t i e s wi ll pr e fe r those i n s t r u m e n t s
for s e c u r i n g it w h i c h are ch ea pe st .
Can the s u b s t i t u t e s for d a n g e r o u s
drugs ( e it her in the form of drugs
that are not d a n g e r o u s or other
c o m m o d i t i e s ) be r a n ke d? If so,
p oli cy can p e r h a p s re d uc e their prices,
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r e l a t i v e to the p rices of d a n g e r o u s
drugs. The a u t h o r i t i e s c ha r g e d with
the e n f o r c e m e n t of the n a r c o t i c s
laws are faced wi th a set of a l t e r n a t i v e
s t r a t e g i e s a m o n g w hi c h they e x e r c i s e
o ptions. Th is paper has t ou ch ed upon
some of the v a r i a b l e s that af fe ct
o p t i m i z i n g b g h a v i o r by those
authorities .

Concerning the n a r c o t i c s trade, the prudential approach

suggests that the p ol i c y conclusions of w e a l t h m a x i m i z a t i o n

m i g ht be w ro ng as a m a t t e r of c o n s c i e n c e and right judgem en t,

i.e., as a m a tt e r of p ru de nc e. The prudential law and economics

does not c l a im to o f fe r a complete analysis of the n a r c o t i c s

trade, or any other a re a of legal c on cern. It i ns ists upon

a handmaiden role for e co no mi c s, the final po li cy d e c i s io ns

b eing a matter of e c o n o m i c rationality and political and

m o ral wisdom. Though pu bl ic p oli cy can and should be i n f o rm ed

by e co n om ic s , it must ulimately rely also upon prudential

considerations.

Concluding Re marks: A Plea to the S ys t e m B u i l de r s

The p u rp o se of this dissertation has been to define

the role of economics in a s y s t e m of jurisprudence. The

p u rp o se has not been to a d v a n c e any particular mor a l po sition;

rather, it has been a major theme that economists ought

to o b s e r v e mo re carefully the boundary b e tw e en p o s i ti v e

and normative e co n om ic s . Yet it o u gh t not to seem paradoxical

that this s tudy s ho ul d end with a call for the re t ur n to

h o ne s t m o r al discourse in jurisprudence. W hi le it has been

a r gu e d at le n gt h that economics is a s ci en ce de voi d of

substantive rationality, it has also been suggested that

jurisprudence is an a r t , wi th ethical and mo ral t h o ug h t

at its very heart.

A rt h ur Leff has described the m o d e r n intellectual w orld

9
as "normatively empty . What has a c t u a l l y h ap pe ne d, it

w o u ld seem, is that h o ne s t m o r al discourse has been r ep l a c e d

by i d e o l o g i c a l system b ui ld ing . K a n t i a n i s m and utilitarianism

are amo ng the more impressive, at least the more popular,

of such s ys te m s. Whether wealth maximization will take

its place as an equa l a mo n g them r em a i n s to be seen. To

be sure, it is a f u l l - g r o w n system in P o s n e r ' s view, complete

unto it s el f and distinct from all the others. M or e ov er ,

he c o n s i d e r s it a s u p e r i o r system sin ce it c o nt ai ns , in

his view, the o th e r ' s own best el em e nt s. It is no p ar a d o x

for P os n er that to a b s o l u t i z e wealth is to serve a variety

of mo ra l and e th i c a l goals. But if the c r iti cs of the "new"

law and economics h av e been correctly interpreted above,

then it w o u ld se em that P os n e r is wr on g on both counts:

Wealth maximization is n e i t h e r a theoretically complete

system, nor one that serves, u lt i ma t e l y , any goal other

than wealth.

The point, ho wever, is to say that regardless of their

relative succes s, Posner and oth er law e c o n o m i c .s of the

"new" s ch o ol are primarily and most essentially engaged

in the b us i n e s s of s y s t e m build ing . Like the Kantian and

the utilitarian theorists with whom they quarrel, they are

c o n c e r n e d m a i n l y with the logic of the system, not the

 144

knowledge of good and evil.

The discussions a b ov e have b r ou g ht to light some of

the f a i li n gs of the system-builing approach to j u r i s

prude nc e. T he y boil down to two: First, it seems that

nothing of real significance is a c c o m p l i s h e d in a debate

a mo n g system bu ilders. Honest discussion of the ec on o mi c

analysis of law has te n de d to d e g e n e r a t e into a tri vi al

and pointless sort of logic-chopping. Th er e is, however,

a potentially significant consequence: as the v ar ious camps

continue to do battle, they are for ce d to build their pallisades

ever higher. T he re is n ow a very real d an g er that the s y st em s

will become so t ig h t l y c lo se d that communication amon g the

theorists will become i m p os s ib le , discussion being r e p l ac ed

by what amounts to a l t e r n a t e l y sp ok en monologues. Consider,

for ins ta nc e, the d i f f i c u l t y of c o m m u n i c a t i o n toda y bet we en

sociologists and e c o n o m is t s.

A s ec o n d and m o re fundamental objection to s y s t e m building

is that all s ys t em s ultimately r eq u ir e the a b s o l u t i z a t i o n

of some particular good: w ea l t h for the e c on o mi st s ; freedom,

utility, etc., for the others. Perhaps it is time to r e c o n s i d e r

Socrates and the a n c i e n t philosphers who b el i e v e d that when

a s in gl e good is a b s o l u t i z e d and p u rs u ed e xc l us i v e l y , in

disregard to the harmonic ordering of all goods, then ideology

has replaced wisdom.

The principle difference b e tw e en a nc i e n t and mo der n

e th i ca l t ho ug ht is that the ancients b e l i ev e d in the e xi s t e n c e

of an o b j e c t i v e mor al order, whi le most moderns do not.

U nl i ke the mo de rn s, Socrates and the a n c i e n t s took seriously

 145

the knowledge of good and evil.

Arthur Leff has suggested that the tendency to build

systems is h a r d l y a mystery in light of m o d e r n ethical though t.

He tells us that long b ef or e the rise of law and economics

. . . the k n o w l e d g e of good and evil, as an

i n t e l l e c t u a l subjec t, was being s y s t e m a t i c a l l y
and e f f e c t i v e l y d es t ro y ed . The h i s t o r i c a l fen
t hr o u g h w h i ch e th i c a l w a n d e r i n g s led was
a b o l i s h e d in the e a rl y years of this c en t u r y
(not for the first time, but very c l e a r l y
this time); n o r m a t i v e t h ou g ht c r a w l e d out of
the swam p and died in the desert. T he r e
aros e a gr eat n um b e r of s c ho ol s of e t h i c s - -
axiological, materialistic, evolutionary,
i n t u i t i o n i s t , situational, existentialist
and so on -- but they all s u f f e r e d the same
fate: e i th e r they w er e seen to be u l t i m a t e l y
p r e m i s e d on some i n t u i t i o n ( b u t t r e s s e d or not
by n o s e - c o u n t s of those s e e m i n g l y h a v i n g the
same i n t u i t i o n s ) , or they were ev en more
a r b i t a r y than that, bas ed s o l e l ^ o n some "for
the sake of a r g u m e n t " prem is es .

To s pe ak objectively abo ut the tru th or falsity of

values, as the a n c i e n t s did, does not necessarily take one

aw ay from s c i en c e and into the re a lm s of r e l i g i o u s revelation

or superstition. There is an undeniable paradox in m o d e r n

thought: A gre at ma ny "moderns" are d ev o te d to scientific

analysis and objective k n o w l ed g e, yet steadfastly committed

to the scientifically unfounded proposition that there

is no possibility of o b j e c t i v e knowledge in the r ea lm of

e th i c s and m o r a l it y , i.e., that one can k no w n o t h i n g about

the m or a l na tu re of m an ki nd , and the institutions most

conducive to ha p pi n es s .

S er i o u s m o ra l and ethical t hinking, the kind of thinking

w hi ch e ng a g e d Socrates and the an ci en t s, is the most difficult

 146

of all. P er h ap s that is part of the r e as o n why so ma ny

e c o no m is t s, and non-economists too, have retreated from

it. What Professor Solow of M I T said abo ut economists is

true of so many intellectuals today: "Economists are determined

lit'tle-thinkers," he w rote, adding that, "Little-thinking

can ea s il y degenerate into m i n i - t h i n k i n g or even into ha r dl y

thinking at a l l . " ^

A number of intellectuals, both w i t h i n and without

the science of e c o n o m i c s , have reached the po int of h a r d l y

thinking at all a bo ut jurisprudence. And ma ny of those

who sti ll do t hi nk are engaged in the relatively less difficult

kind of m i n i - t h i n k i n g in w h i c h one constructs a tightly-

closed system on one principle or a no th e r, resolving to

accept any conclusion, however preposterous, in or der to

preserve the a b s o l u t e sanctity of the principle chosen.

It is time to rise up to a h i g h e r lev el of d i s c o ur s e.

 147

N o tes to C ha p t e r VI

^ Ric ha rd Posner, E c o n o m i c A n a l y s i s of Law (Boston:

Little, B rown and Co., 1977), p. 17.
2
Gary Becker, "C ri me and P u n i s h m e n t : An E c o n o m i c Ap pr oa c h" ,
JPE 76 (1968), 169-70.
3
C la u de Brown, M a n c h i l d in the Promised Land (New York:
M c M i l l a n Co., 1965), p. 181.

^ I b i d ., p . 185.

^ Sim on R o t t e n b e r g , "The C l a n d e s t i n e D i s t r i b u t i o n of
H eroin, Its D i s c o v e r y and S u p p r e s s i o n " , JPE (1968): 78-90.
g
See W i l l i a m F. Bu ck le y, The U n m a k i n g of a M ay o r (New
Roc he ll e: A r l i n g t o n House, 1977), pp. 216-219,

7 I b i d . , p. 217.
g '
R o tt e n b e r g , o p . c i t . note 5, at 90.

^ A rth ur Leff, " E c o n o m i c A n a l y s i s of Law: Some R ea l i s m

N o mi n a l i s m " , Vja. _LR 60 (1974): 455.

^ I b i d . , p . 454 .

''R. M. Solo, "The New I n d u s t r i a l St ate or Son of A f f l u e n ce " ,

The P ub li c I nt e r e s t (1967): 100.
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 VITA

Will C a r r i n g t o n H ea t h
1261 G r e e n s b o r o Road
Birmingham, Alabama 35208

PERSONAL DATA:

Born: May 26, 1953, Chattanooga, Tennessee

Married to the f or me r Li sa L. Lalande of L a f a y et t e, Lo ui si an a.

E DU C AT I O N :

Graduated from Scottsbo.ro High S ch oo l in 1971.

Earned B. S. de g re e from Auburn U ni v er s i t y , 1975.

Earned M. S. de g re e f rom A u b u r n U ni v er s i t y , 1979.

EMPLOYMENT

A s s i s t a n t P r o f e s s o r of E c o n o m ic s , B i r m i n g h a m S o u t h e r n
C ol lege, B i r m i n g h a m , AL, S ep t em be r, 1982 - present.

152
 EXAMINATION AND THESIS REPORT

Candidate: W ill C a r rin g to n H eath

Major Field: Econom ics

Title of Thesis: The M e th o d o lo g ic a l F o u n d a tio n s o f Law and Order

Approved:

Lu'JLU t . <r;
Major Professor and Onairman

Dean of the Graduate!

a te / School

EXAMINING COMMITTEE:

f-v t / ---

U3 ..

7 > U ^ ^

Date of Examination: