University of California at Berkeley School of law The Uses of History in Law and Economics by Ron harris UC Berkeley School of Law Public Law and Legal Theory Research Paper No. 139 UC Berkeley public law and Legal Theory Research Paper Series UC Berkeley School of Law, Boalt Hall, Berkeley, CA 94720-7200 This paper can be downloaded without charge from the Social Science Research Network Paper Collection at http://ssrn.com/abstract=454501
University of California at Berkeley School of Law The Uses of History in Law and Economics by Ron Harris UC Berkeley School of Law Public Law and Legal Theory Research Paper No. 139 2003 UC Berkeley Public Law and Legal Theory Research Paper Series UC Berkeley School of Law, Boalt Hall, Berkeley, CA 94720-7200 This paper can be downloaded without charge from the Social Science Research Network Paper Collection at http://ssrn.com/abstract=454501
The Uses of History in Law and economics Ron harris During the last quarter of the twentieth century, the humanities and social sciences have turned toward history something that culminated in the 1990s, and this phenomenon was evident in law as well. However until recently law and economics, the most infuential post-World War ll jurisprudential movement, was a-historical in its methodology and research agenda. The first objective of this article is to call attention to this neglected characteristic of law and economics and to explain its causes by analyzing its intellectual origins, its methodological causes, and the nature of its interaction with other sub-fields of law of ond objective of the article is to identifj a change-in-the-making and its characteristics. Law and economics scholars have turned to history more often and for new purposes in recent years. The article identifies the set offactors that brought about this turn to history. These factors include: a growing willingness to conduct empirical research, the integration of public choice analysis Ahich ofren led to the study of past legislation) into mainstream law and economics: preliminary comparative law and economics studies:a growing interaction between law and economics and new institutional School of Law, Tel Aviv University. I thank Lucian Bebchuk, Terry Fisher, Joshua Getzler, Ariela Gross, Alon Harel, Laura Kalman, Dan Klerman, Timur Kuran, David Lieberman, Assaf Likhovski, Andrei Marmor, Geoffrey Miller, Eben Moglen Porat, Daniel Spulber, Christopher Tomlins, Jenny Wahl, Omri Yadlin, and the participants at the ASLH annual meeting at Princeton and in the Writing Legal History Conference sponsored by the Cegla Center, Tel Aviv University Faculty of Law, for advice, assistance, and thoughtful comments at various stages of this project. I thank Nimrod Aviad, Jacob Kastiel, and Itai Rabinowitz for their excellent research assistance and Dana Rothman for the high level of editing
The Uses of History in Law and Economics Ron Harris* During the last quarter of the twentieth century, the humanities and social sciences have turned toward history, something that culminated in the 1990s, and this phenomenon was evident in law as well. However, until recently, law and economics, the most influential post-World War II jurisprudential movement, was a-historical in its methodology and research agenda. The first objective of this article is to call attention to this neglected characteristic of law and economics and to explain its causes by analyzing its intellectual origins, its methodological causes, and the nature of its interaction with other sub-fields of law and of economics. The second objective of the article is to identify a change-in-the-making and its characteristics. Law and economics scholars have turned to history more often and for new purposes in recent years. The article identifies the set of factors that brought about this turn to history. These factors include: a growing willingness to conduct empirical research; the integration of public choice analysis (which often led to the study of past legislation) into mainstream law and economics; preliminary comparative law and economics studies; a growing interaction between law and economics and new institutional * School of Law, Tel Aviv University. I thank Lucian Bebchuk, Terry Fisher, Joshua Getzler, Ariela Gross, Alon Harel, Laura Kalman, Dan Klerman, Timur Kuran, David Lieberman, Assaf Likhovski, Andrei Marmor, Geoffrey Miller, Eben Moglen, Ariel Porat, Daniel Spulber, Christopher Tomlins, Jenny Wahl, Omri Yadlin, and the participants at the ASLH annual meeting at Princeton and in the Writing Legal History Conference sponsored by the Cegla Center, Tel Aviv University Faculty of Law, for advice, assistance, and thoughtful comments at various stages of this project. I thank Nimrod Aviad, Jacob Kastiel, and Itai Rabinowitz for their excellent research assistance and Dana Rothman for the high level of editing
660 Theoretical Inquiries in La Vol.4659 economics, and the importation of the concept of path dependency and of greater awareness of past burdens from other quarters of economic theory. Finally, the article examines the concrete ways in which these developments are being realized, by pointing out the various uses of history evident in specific law and economics studies conducted in recent years. It suggests a classification of this growing literature into six distinct uses of history, four of them emerging only in recent years The general aim of this article is to enhance awareness among la and economics scholars of the actual and potential uses of history. The article further seeks to connect lanw-and-economics historical studies to other relevant historical works so that the law and economics inquiry will not be conducted in a disciplinary vacuum. It thus calls to the published in the field of law and economics. Finally it is also directed at scholars interested in the intellectual history of jurisprudence and in the methodological turn to history in the social sciences INTRODUCTION Many scholars have observed that during the last quarter of the twentieth century, the humanities and social sciences have turned toward history something that culminated in the 1990s. This was manifested in the rise of schools and trends such as historical sociology, ethno-history in anthropology new institutionalism in political science and economics, and new historicism in literary theory. This phenomenon was evident in law as well, with the advance of new types of legal history writing associated first with the Wisconsin School of Legal History and then with Critical Legal Studies But law and economics, the most successful school of jurisprudence of the second half of the twentieth century 2 and whose influence in law schools still on the rise, seems to stand in contradiction to this general shift toward history, at least insofar as legal scholarship is concerned The aim of this article is to enhance awareness among law and economics scholars of the actual and potential uses of history. When dealing with past I Terrence J. McDonald, The Historic Turn in the Human Sciences 1 (1996) 2 Neil Duxbury, Patterns of American Jurisprudence(1995). Richard Posner, The Decline of Law as an Autonomous Discipline: 1962-1987, 100 Harv. L. Rev. 761 (1987): William M. Landes Richard A Posner, Symposium on the Trends in Legal Citations and Scholarship: Heavily Cited Articles in Law, 71 Chi -Kent. L. Rev
660 Theoretical Inquiries in Law [Vol. 4:659 economics; and the importation of the concept of path dependency and of greater awareness of past burdens from other quarters of economic theory. Finally, the article examines the concrete ways in which these developments are being realized, by pointing out the various uses of history evident in specific law and economics studies conducted in recent years. It suggests a classification of this growing literature into six distinct uses of history, four of them emerging only in recent years. The general aim of this article is to enhance awareness among law and economics scholars of the actual and potential uses of history. The article further seeks to connect law-and-economics historical studies to other relevant historical works so that the law and economics inquiry will not be conducted in a disciplinary vacuum. It thus calls to the attention of legal historians and economic historians the new literature published in the field of law and economics. Finally it is also directed at scholars interested in the intellectual history of jurisprudence and in the methodological turn to history in the social sciences. INTRODUCTION Many scholars have observed that during the last quarter of the twentieth century, the humanities and social sciences have turned toward history, something that culminated in the 1990s.1 This was manifested in the rise of schools and trends such as historical sociology, ethno-history in anthropology, new institutionalism in political science and economics, and new historicism in literary theory. This phenomenon was evident in law as well, with the advance of new types of legal history writing associated first with the Wisconsin School of Legal History and then with Critical Legal Studies. But law and economics, the most successful school of jurisprudence of the second half of the twentieth century2 and whose influence in law schools is still on the rise, seems to stand in contradiction to this general shift toward history, at least insofar as legal scholarship is concerned. The aim of this article is to enhance awareness among law and economics scholars of the actual and potential uses of history. When dealing with past 1 Terrence J. McDonald, The Historic Turn in the Human Sciences 1 (1996). 2 Neil Duxbury, Patterns of American Jurisprudence (1995). Richard Posner, The Decline of Law as an Autonomous Discipline: 1962-1987, 100 Harv. L. Rev. 761 (1987); William M. Landes & Richard A. Posner, Symposium on the Trends in Legal Citations and Scholarship: Heavily Cited Articles in Law, 71 Chi.-Kent. L. Rev. 825 (1996)
2003] The Uses of History in Law and Economics 661 periods and changes over time, law and economics scholars need not begin their inquiry from square one. They can build upon modes of historical reasoning, theories, and research methods that have been developed by others This article seeks to connect law and economics historical studies to other relevant historical works so that the law and economics inquiry will not be conducted in a vacuum. The article demonstrates the limitations of some of the uses of history by law and economics scholars and the prospects of other uses from the perspective of legal historians and economic historians It does not seek to offer a single formula for law-and-economics historical studies or to grade various uses of law and economics in history as superior or inferior in absolute terms This article also seeks to call to the attention of legal historians an economic historians the new literature published in the field of law and economics, literature that may make the field relevant to their research interests for the first time. The article also targets scholars interested in the history of jurisprudence. A new trend within a major jurisprudential school is something worth documenting and monitoring. Finally, this article offers those interested in the shift toward history in general with a discussion of one remarkable variant of its manifestation The article proceeds according to the following structure. It first explains the reasons for the a-historical nature of law and economics, by analyzing its intellectual origins, its methodological paradigm, and the nature of its interaction with other sub-fields of law and of economics it next calls attention to recent developments within law and economics that indicate that it, too, may join the general trend within the social sciences toward history. The article discusses the methodological origins of this new trend and the manner in which the new methodological approaches relate to the original methodological paradigm of law and economics. Finally, the article examines the concrete ways in which these developments are being realized by pointing out the various uses of history evident in specific law and conomics studies conducted in recent years L. THE A-HISTORICAL ORIGINS OF LAW AND ECONOMICS A Intellectual Origins in the Chicago school of Neo-Classical Economics The debate over the intellectual origins of the law and economics field is still at a very preliminary stage. Some outside observers suggest a peculiar connection between the law and economics movement and either institutional economics or else legal realism, or a combination of the two in the form of
2003] The Uses of History in Law and Economics 661 periods and changes over time, law and economics scholars need not begin their inquiry from square one. They can build upon modes of historical reasoning, theories, and research methods that have been developed by others. This article seeks to connect law and economics historical studies to other relevant historical works so that the law and economics inquiry will not be conducted in a vacuum. The article demonstrates the limitations of some of the uses of history by law and economics scholars and the prospects of other uses from the perspective of legal historians and economic historians. It does not seek to offer a single formula for law-and-economics historical studies or to grade various uses of law and economics in history as superior or inferior in absolute terms. This article also seeks to call to the attention of legal historians and economic historians the new literature published in the field of law and economics, literature that may make the field relevant to their research interests for the first time. The article also targets scholars interested in the history of jurisprudence. A new trend within a major jurisprudential school is something worth documenting and monitoring. Finally, this article offers those interested in the shift toward history in general with a discussion of one remarkable variant of its manifestation. The article proceeds according to the following structure. It first explains the reasons for the a-historical nature of law and economics, by analyzing its intellectual origins, its methodological paradigm, and the nature of its interaction with other sub-fields of law and of economics. It next calls attention to recent developments within law and economics that indicate that it, too, may join the general trend within the social sciences toward history. The article discusses the methodological origins of this new trend and the manner in which the new methodological approaches relate to the original methodological paradigm of law and economics. Finally, the article examines the concrete ways in which these developments are being realized, by pointing out the various uses of history evident in specific law and economics studies conducted in recent years. I. THE A-HISTORICAL ORIGINS OF LAW AND ECONOMICS A. Intellectual Origins in the Chicago School of Neo-Classical Economics The debate over the intellectual origins of the law and economics field is still at a very preliminary stage. Some outside observers suggest a peculiar connection between the law and economics movement and either institutional economics or else legal realism, or a combination of the two in the form of
Theoretical Inquiries in Lan Vol.4659 the"first great law economics movement. "3 Insiders disdainfully repudiate such intellectual origins. They point to Chicago(not Yale, Columbia, Wisconsin), to economics(not law), and to the neo-classical (not institutional or historical) school ofeconomics as the bedrock of the field. Thus, the official internal history of the field begins in Chicago. The questions that then arise are, When and who? Some trace the origins back in time (or deeper int economics)to Stigler and Friedman or even as far back as Knight and Hayek Some stress the more lawyerly group organized under the guidance of Aaron Director and Edward Levy, which developed an anti-trust -or rather anti- anti-trust-theory influenced by economic price theory. But most stress as the immediate origins both in terms of time and substance the contributions of two economists: Ronald Coase and Gary Becker, circa 1960.Coase,in his seminal 1960 article, reintroduced transaction costs (after doing so for the 3 Peculiar in the sense that they shared the same subjects of research but not me Movement, 42 Stan. L Rev. 993(1990); Morton Horwitz, The Transformation of American Law1870-1960,at247-68(1992) 4 See Edmund w Kitch, The Fire of Truth: A Remembrance of Law and Economics at Chicago, 26 J. L. Econ. 163(1983), for the assessment of some of the participants As for the influence of institutional economics on law and economics, george Stigler has said, "[T]he school died as completely as any school can die in the sense that it has no viable influence. ld. at 170. Henry Manne referred as follows to the impact of the interaction between institutionalist Walton Hamilton and legal realism at Yale: "[Bly the time I was graduate student at Yale in fifty-three no one seemed to remember the episode "ld. at 173. Finally, Milton Friedman has said of the first tenured economist at the Chicago Law School, Henry Simons, that"he was opposed to almost everything that the institutionalists and legal realists stood for " ld at 176 5 See James R Hackney, Law and Neoclassical Economics: Science, Politics, and the Reconfiguration of American Tort Law Theory, 15 Law Hist Rev. 275(1997),for an interesting discussion of the origins of law and economics in terms of analytic scientific turn and antistatist political position, with particular focus on Hayek and Knight. For a discussion emphasizing the role of post World War ll Chicago economists, particularly Friedman and Stigler, and the difference between their approach and that of their teacher, Knight, see Duxbury, supra note 2, at 330-48 For a similar view, see Nicolas Mercuro Steven Medema, Economics and the Law, From Posner to Post Modernism 54-56(1997) 6 Some refer to Guido Calabresis 1961 Some Thoughts on Risk Distribution and the Law of Torts as equivalent to Coase's contribution to the foundation of law and economics. Others view Calabresi as the founder of the New haven school of Law and Economics, as distinct from the Chicago School of Law and Economics See Guido Calabresi, The Cost of Accidents: A Legal Economic Analysis 205-25 (1970); Guido Calabresi A. Douglas Melamed, Property Rules, Liability rules and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089(1972
662 Theoretical Inquiries in Law [Vol. 4:659 the "first great law & economics movement."3 Insiders disdainfully repudiate such intellectual origins.4 They point to Chicago (not Yale, Columbia, or Wisconsin), to economics (not law), and to the neo-classical (not institutional or historical) school of economics as the bedrock of the field. Thus, the official, internal history of the field begins in Chicago. The questions that then arise are, When and who? Some trace the origins back in time (or deeper into economics) to Stigler and Friedman or even as far back as Knight and Hayek. Some stress the more lawyerly group organized under the guidance of Aaron Director and Edward Levy, which developed an anti-trust — or rather antianti-trust — theory influenced by economic price theory.5 But most stress as the immediate origins, both in terms of time and substance, the contributions of two economists: Ronald Coase and Gary Becker, circa 1960.6 Coase, in his seminal 1960 article, reintroduced transaction costs (after doing so for the 3 Peculiar in the sense that they shared the same subjects of research but not method or political positions. See Herbert Hovenkamp, The First Great Law & Economics Movement, 42 Stan. L. Rev. 993 (1990); Morton Horwitz, The Transformation of American Law 1870-1960, at 247-68 (1992). 4 See Edmund W. Kitch, The Fire of Truth: A Remembrance of Law and Economics at Chicago, 26 J.L. & Econ. 163 (1983), for the assessment of some of the participants. As for the influence of institutional economics on law and economics, George Stigler has said, "[T]he school died as completely as any school can die in the sense that it has no viable influence." Id. at 170. Henry Manne referred as follows to the impact of the interaction between institutionalist Walton Hamilton and legal realism at Yale: "[B]y the time I was graduate student at Yale in fifty-three no one seemed to remember the episode." Id. at 173. Finally, Milton Friedman has said of the first tenured economist at the Chicago Law School, Henry Simons, that "he was opposed to almost everything that the institutionalists and legal realists stood for." Id. at 176. 5 See James R. Hackney, Law and Neoclassical Economics: Science, Politics, and the Reconfiguration of American Tort Law Theory, 15 Law & Hist. Rev. 275 (1997), for an interesting discussion of the origins of law and economics in terms of analytic scientific turn and antistatist political position, with particular focus on Hayek and Knight. For a discussion emphasizing the role of post World War II Chicago economists, particularly Friedman and Stigler, and the difference between their approach and that of their teacher, Knight, see Duxbury, supra note 2, at 330-48. For a similar view, see Nicolas Mercuro & Steven Medema, Economics and the Law, From Posner to Post Modernism 54-56 (1997). 6 Some refer to Guido Calabresi’s 1961 Some Thoughts on Risk Distribution and the Law of Torts as equivalent to Coase’s contribution to the foundation of law and economics. Others view Calabresi as the founder of the New Haven School of Law and Economics, as distinct from the Chicago School of Law and Economics. See Guido Calabresi, The Cost of Accidents: A Legal Economic Analysis 205-25 (1970); Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089 (1972)
2003] The Uses of History in Law and Economics 663 first, relatively unnoticed, time twenty-three years earlier in the context of his The Nature of the Firm), but this time with direct reference to the relevance of legal liability rules in a world with transaction costs. Becker, after completing his doctoral dissertation in 1955(published in 1957), extended the realm of neo-classical theory by employing it in the analysis of non-market behavior. His starting point was racial discrimination; he then proceeded to the family(until then a black box for economists), and, by the late 1960s arrived at crime and punishment. Thus the work of Coase and Becker planted the roots of the modern incarnation of law and economics in Chicago and in the neo-classical tradition B. Limiting the research agenda to the economic analysis of the law Both Coase and becker. the intellectual founders oflaw and economics were economists by training and much more interested in the study of economics than law. Ironically the new field of law and economics that their work launched focused mainly on the law. Both noted this a few years ago at a Chicago law School round table on the future of law and economics Becker noted, " I am certainly not an expert in law and economics.[AJ relatively small fraction of my time over the years has been spent on this subject. Coase confessed, "INJow an economist isn't really interested in this part of Law and Economics-the use of economics to analyze the law-at least this economist isn't "l0 Despite the fact that Coase and Becker 7 Ronald Coase, The Nature of the Firm, 4 Economica 386(1937); Ronald Coase, The Problem of social Cost, 3 J. L. Econ. 1(1960) Gary Becker, The Economics of Discrimination(1957); Gary Becker, Crime and Punishment: An Economic Approach, 76 J. Pol. Econ. 169(1968) Interestingly, Coase also showed some interest in history. He used nineteenth-century litigation to illustrate his theorem and studied the history of lighthouses to disprove the use of this famous example in favor of government supply of supposedly public goods. See Ronald Coase, The Problem of Social Costs, 3 J. L.& Econ. 1(1960); Ronald Coase, The Lighthouse in History, 17J. L.& Econ. 357(1974). But this interest, which stemmed from Coase's faith in Empiricism, did not affect the new field of law and economics. The prime manifestation of this interest is to be found in his somewhat later work The Lighthouse in Economics, where he refuted the well-established claim that lighthouses could not be owned by private entrepreneurs but only by the government because of the public-good nature of their service Reviewing the history British lighthouses, Coase asserted that many were privately owned and allowed by the government to levy tolls on ships at 10 See Douglas G. Baird, The Future of Law and Economics: Looking Fonvard, 64 U Ch.L.Rev.1129,1134,1138(1997)
2003] The Uses of History in Law and Economics 663 first, relatively unnoticed, time twenty-three years earlier in the context of his The Nature of the Firm), but this time with direct reference to the relevance of legal liability rules in a world with transaction costs.7 Becker, after completing his doctoral dissertation in 1955 (published in 1957), extended the realm of neo-classical theory by employing it in the analysis of non-market behavior. His starting point was racial discrimination; he then proceeded to the family (until then a black box for economists), and, by the late 1960s, arrived at crime and punishment.8 Thus the work of Coase and Becker planted the roots of the modern incarnation of law and economics in Chicago and in the neo-classical tradition. B. Limiting the Research Agenda to the Economic Analysis of the Law Both Coase and Becker, the intellectual founders of law and economics, were economists by training and much more interested in the study of economics than law. Ironically, the new field of law and economics that their work launched focused mainly on the law.9 Both noted this a few years ago at a Chicago Law School round table on the future of law and economics. Becker noted, "I am certainly not an expert in law and economics. ... [A] relatively small fraction of my time over the years has been spent on this subject." Coase confessed, "[N]ow an economist isn’t really interested in this part of Law and Economics — the use of economics to analyze the law — at least this economist isn’t."10 Despite the fact that Coase and Becker 7 Ronald Coase, The Nature of the Firm, 4 Economica 386 (1937); Ronald Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960). 8 Gary Becker, The Economics of Discrimination (1957); Gary Becker, Crime and Punishment: An Economic Approach, 76 J. Pol. Econ. 169 (1968). 9 Interestingly, Coase also showed some interest in history. He used nineteenth-century litigation to illustrate his theorem and studied the history of lighthouses to disprove the use of this famous example in favor of government supply of supposedly public goods. See Ronald Coase, The Problem of Social Costs, 3 J.L. & Econ. 1 (1960); Ronald Coase, The Lighthouse in History, 17 J.L. & Econ. 357 (1974). But this interest, which stemmed from Coase’s faith in Empiricism, did not affect the new field of law and economics. The prime manifestation of this interest is to be found in his somewhat later work The Lighthouse in Economics, where he refuted the well-established claim that lighthouses could not be owned by private entrepreneurs but only by the government because of the public-good nature of their service. Reviewing the history British lighthouses, Coase asserted that many were privately owned and allowed by the government to levy tolls on ships at port. 10 See Douglas G. Baird, The Future of Law and Economics: Looking Forward, 64 U. Chi. L. Rev. 1129, 1134, 1138 (1997)
Theoretical Inquiries in Lan Vol.4659 laid the theoretical foundations of law and economics and occupy a mythical position in its official history, they were not awarded the Nobel Prize for their contribution to this field, but, rather, for their work in economics in general Nor did they operate in the field of law and economics as later defined by Posner, and they failed to shift the field's research agenda to studying the effects of the law on the economy or the economy on the law It was Richard Posner who, in fact, set and shaped the boundaries of the Chicago school of law and Economics. limiting them to the economic analysis of the law. This school of thought marginalized and may even have prevented other potential connections between law and economics The boundaries set by Posner and his colleagues held strong for at least three decades. a discussion of the reasons for this is beyond the scope of this article. I believe that it is related to Posner's personal interest and eminent position in the field. Limiting the boundaries of law and economics made sense for a newly formed field, as it enabled concentrating on research resources and rapidly advancing learning on a narrow front Moreover, law and economics was institutionalized as a discipline in law schools rather than in economics departments. By analyzing legal rules and providing prescriptions for legal reforms, law and economics scholars could participate in the major areas of discourse within legal academia. They could even demonstrate the power of their coherent and rigorous theory over the confused intuitions of other legal scholars. This further expanded their sphere of activity within the law schools. Only in the last decade has research transgressing these boundaries begun to appear In sum, on the assumption that law has no methodology of its own to contribute to the study of economics, three potential outcomes of the interaction between the disciplines of economics and law appeared around 1960: 1)the study of the effects of law on the economy; 2) the study of the effects of the economy on legal change; and 3)the application of economic methodology to the analysis of law. Until recently, only the third of these possible research agendas was considerably advanced within the field of law and economics. The narrow scope of the newly created field partly explains its a-historical nature and its lack of interaction with economic and legal In addition to developing a normatively-based policy analysis, Posner and colleagues developed a positive branch of law and economics. The two were unified in the framework of the theory of the common law's tendency toward fficiency. This theory deals with the effects of law on economic growth or the effects of economic growth on the law. It also can be understood as encompassing both the positive and normative research agendas by creating identification between them, at least insofar as the common law
664 Theoretical Inquiries in Law [Vol. 4:659 laid the theoretical foundations of law and economics and occupy a mythical position in its official history, they were not awarded the Nobel Prize for their contribution to this field, but, rather, for their work in economics in general. Nor did they operate in the field of law and economics as later defined by Posner, and they failed to shift the field’s research agenda to studying the effects of the law on the economy or the economy on the law. It was Richard Posner who, in fact, set and shaped the boundaries of the Chicago School of Law and Economics, limiting them to the economic analysis of the law. This school of thought marginalized and may even have prevented other potential connections between law and economics. The boundaries set by Posner and his colleagues held strong for at least three decades. A discussion of the reasons for this is beyond the scope of this article. I believe that it is related to Posner’s personal interest and eminent position in the field. Limiting the boundaries of law and economics made sense for a newly formed field, as it enabled concentrating on research resources and rapidly advancing learning on a narrow front. Moreover, law and economics was institutionalized as a discipline in law schools rather than in economics departments. By analyzing legal rules and providing prescriptions for legal reforms, law and economics scholars could participate in the major areas of discourse within legal academia. They could even demonstrate the power of their coherent and rigorous theory over the confused intuitions of other legal scholars. This further expanded their sphere of activity within the law schools. Only in the last decade has research transgressing these boundaries begun to appear. In sum, on the assumption that law has no methodology of its own to contribute to the study of economics, three potential outcomes of the interaction between the disciplines of economics and law appeared around 1960: 1) the study of the effects of law on the economy; 2) the study of the effects of the economy on legal change; and 3) the application of economic methodology to the analysis of law. Until recently, only the third of these possible research agendas was considerably advanced within the field of law and economics. The narrow scope of the newly created field partly explains its a-historical nature and its lack of interaction with economic and legal history. In addition to developing a normatively-based policy analysis, Posner and colleagues developed a positive branch of law and economics. The two were unified in the framework of the theory of the common law’s tendency toward efficiency. This theory deals with the effects of law on economic growth or the effects of economic growth on the law. It also can be understood as encompassing both the positive and normative research agendas by creating identification between them, at least insofar as the common law is
2003] The Uses of History in Law and Economics 665 concerned. I will elaborate below on the emergence of the positive element of this theory and its effects on the interaction of law and economics with legal history. At this juncture, suffice it to say that refining and defending this general theory of the common law's tendency toward efficiency consumed a great deal of the time and energy of law and economics scholarsand impinged on their interest in positive theories. Instead, they were occupied with proposing and examining theoretical mechanisms that might explain the tendency toward efficiency in the common law. This also limited their study of the past. Even when they moved from theory and speculation to actual historical research, the research was devoted to only a single theory This limited work destroyed the reputation of law and economics historic studies in the eyes of legal historians ite a bad start for a movement toward history in law and economics, specifically, and for any empirical and comparative studies in general. This weak start at positive research further removed law and economics scholars from engaging in the first two research agendas, which seemed important to both Coase and Becker. The interest in these two agendas was developed outside law and economics in fields such as New Institutional Economics. Historical New Institutional Economics and the Wisconsin School of Legal History. Only recently has law and economics expanded its agenda to include these two issues More specifically, Chicago law and economics scholars claimed to be interested not only in legal rules but also in how legal incentives affect individuals' behavior. However, their research did not focus on studying the behavior of individuals. and the behavior of societies and basic social structures and trends was entirely beyond the scope of their research agenda The behavior of individuals was assumed to be affected by legal rules that affected individual incentives. Law and economics aimed at changing behavior but, in fact, studied rules and their change. As its other name, economic analysis of the law, implies, law and economics mainly aspired to normatively evaluate legal rules and prescribe their modification. Only rarely, when legal rules functioned within a market setting, as in the case of anti-trust and securities regulation, did Chicago law and economics scholars inquire into the behavior of individual agents more closely. It was more often the case that the legal rules were analyzed in non-market settings and the behavior of individuals was assumed rather than studied The point made here with respect to the initial limitation of the scope of law and economics is extremely relevant to my general argument, and I will return to it. 11 Nicholas mercuro Steven G. Medema Economics and the law from posner to Post-Modernism 61-67(1997)
2003] The Uses of History in Law and Economics 665 concerned. I will elaborate below on the emergence of the positive element of this theory and its effects on the interaction of law and economics with legal history. At this juncture, suffice it to say that refining and defending this general theory of the common law’s tendency toward efficiency consumed a great deal of the time and energy of law and economics scholars11 and impinged on their interest in positive theories. Instead, they were occupied with proposing and examining theoretical mechanisms that might explain the tendency toward efficiency in the common law. This also limited their study of the past. Even when they moved from theory and speculation to actual historical research, the research was devoted to only a single theory. This limited work destroyed the reputation of law and economics historical studies in the eyes of legal historians — quite a bad start for a movement toward history in law and economics, specifically, and for any empirical and comparative studies in general. This weak start at positive research further removed law and economics scholars from engaging in the first two research agendas, which seemed important to both Coase and Becker. The interest in these two agendas was developed outside law and economics in fields such as New Institutional Economics, Historical New Institutional Economics, and the Wisconsin School of Legal History. Only recently has law and economics expanded its agenda to include these two issues. More specifically, Chicago law and economics scholars claimed to be interested not only in legal rules but also in how legal incentives affect individuals’ behavior. However, their research did not focus on studying the behavior of individuals, and the behavior of societies and basic social structures and trends was entirely beyond the scope of their research agenda. The behavior of individuals was assumed to be affected by changes in legal rules that affected individual incentives. Law and economics aimed at changing behavior but, in fact, studied rules and their change. As its other name, economic analysis of the law, implies, law and economics mainly aspired to normatively evaluate legal rules and prescribe their modification. Only rarely, when legal rules functioned within a market setting, as in the case of anti-trust and securities regulation, did Chicago law and economics scholars inquire into the behavior of individual agents more closely. It was more often the case that the legal rules were analyzed in non-market settings and the behavior of individuals was assumed rather than studied. The point made here with respect to the initial limitation of the scope of law and economics is extremely relevant to my general argument, and I will return to it. 11 Nicholas Mercuro & Steven G. Medema, Economics and the Law from Posner to Post-Modernism 61-67 (1997)
666 Theoretical Inquiries in Lan Vol.4659 C. The A-Historical Nature of Law and economics From its inception, Chicago law and economics involved the application of neo-classical tools, which reached a powerful phase in the 1950s and 1960s in the Chicago School of Economics. Neo-classical economics at Chicago University was remarkably a-historical. The detachment of economics from change over real time, and thus from history, began with the marginalist revolution and Marshal, continued with Keynes, and culminated in Chicago in the 1950s 12 For economics, the 1950s was a decade of high theory. It was one of markets, allocation, and equilibrium; of abstraction and deduction; of marginalism and incremental change; of optimization and mathematization It was one in which the basic assumptions of neo-classical theory still held strong. This decade was a low point in economic theory in terms of in history and change over real time. Theory was mainly static, not dynar Insofar as dynamic elements played a role in economic theory, they reflected in shifts of curves, moves from point to point along curves, or leaps from one equilibrium to the next, over a single time period. Time was not discussed in terms of months or years or decades; the flow of time was not treated differently for different historical eras. Not only was change over time neglected, but there was also a perception that the past of any given system had no bearing on its present and certainly not on its future Since any given current regime of functions, allocations, and equilibria is not burdened by its past, it can serve as a good starting point for future predictions. An economic theoretician thus did not have to reconstruct the passage of time, as did historians-and some sociologists, anthropologists, political scientists, lawyers, literary critics, and philosophers. Imagining change was confined to the two-dimensional classroom world of blackboard curves and to figures in books. This static state of economic theory thus hindered the development of a history-conscious law and economics This was the economic theory applied in the late 1960s and early 1970 by richard Posner and his colleagues at the University of Chicago Law School. By that point, law and economics had acquired all its familiar characteristics: reliance on the neo-classical assumption that individuals are rational maximizers; equating change in legal rules with change in 12 For a recent account of this process, see Graeme Donald Snooks, The Lost Dimension: Limitations of the Timeless Economics, in Historical Analysis in Economics 41( Graeme Donald Snooks ed, 1993). For a more detailed discussion, Ron Harris, The Encounters of Legal History and Economic History, 21 Law Hist.Rev.297(2003)
666 Theoretical Inquiries in Law [Vol. 4:659 C. The A-Historical Nature of Law and Economics From its inception, Chicago law and economics involved the application of neo-classical tools, which reached a powerful phase in the 1950s and 1960s in the Chicago School of Economics. Neo-classical economics at Chicago University was remarkably a-historical. The detachment of economics from change over real time, and thus from history, began with the marginalist revolution and Marshal, continued with Keynes, and culminated in Chicago in the 1950s.12 For economics, the 1950s was a decade of high theory. It was one of markets, allocation, and equilibrium; of abstraction and deduction; of marginalism and incremental change; of optimization and mathematization. It was one in which the basic assumptions of neo-classical theory still held strong. This decade was a low point in economic theory in terms of interest in history and change over real time. Theory was mainly static, not dynamic. Insofar as dynamic elements played a role in economic theory, they were reflected in shifts of curves, moves from point to point along curves, or leaps from one equilibrium to the next, over a single time period. Time was not discussed in terms of months or years or decades; the flow of time was not treated differently for different historical eras. Not only was change over time neglected, but there was also a perception that the past of any given system had no bearing on its present and certainly not on its future. Since any given current regime of functions, allocations, and equilibria is not burdened by its past, it can serve as a good starting point for future predictions. An economic theoretician thus did not have to reconstruct the passage of time, as did historians — and some sociologists, anthropologists, political scientists, lawyers, literary critics, and philosophers. Imagining change was confined to the two-dimensional classroom world of blackboard curves and to figures in books. This static state of economic theory thus hindered the development of a history-conscious law and economics. This was the economic theory applied in the late 1960s and early 1970s by Richard Posner and his colleagues at the University of Chicago Law School. By that point, law and economics had acquired all its familiar characteristics: reliance on the neo-classical assumption that individuals are rational maximizers; equating change in legal rules with change in 12 For a recent account of this process, see Graeme Donald Snooks, The Lost Dimension: Limitations of the Timeless Economics, in Historical Analysis in Economics 41 (Graeme Donald Snooks ed., 1993). For a more detailed discussion, see Ron Harris, The Encounters of Legal History and Economic History, 21 Law & Hist. Rev. 297 (2003)
2003] The Uses of History in Law and Economics relative prices; and adoption of Kaldor-Hicks efficiency ("potential Pareto efficiency, in more obscure terms)in the sense of wealth maximization as a standard of evaluation The a-historical neoclassical characteristics of law and economics dominated the field. Well into the 1980s and beyond, law and economics was still engaged in adapting price theory to non-market legal behavior as part of a wider project of the expansion of economics. It focused on the application price theory specific contours aw an legislation; property, contracts, and torts; liability rules; and remedies. Law and economics scholars were engaged in intense normative and policy debates with critics from rival jurisprudential and doctrinal schools. These debates revolved around the imperialistic tendencies of economics, its unrealistic assumptions(e.g, of rationality ), and its ideological bias in favor of efficiency considerations at the expense of distributive considerations. As long as the debates at the normative and policy level were intense, law and economics scholars were not likely to find much time or motivation to turn to the study of history D. The lack of Interaction between Economic History and legal histor The 1960s. which witnessed the birth of modern law and economics also saw the formation of two adjacent interdisciplinary fields. The one field, new economic history(also called cliometrics), was created on the borderline between economics and history. It employs economic theory and econometric and statistical tools to study the history of the economy. The other field the wisconsin School of legal History, formed by willard Hurst, is located on the borderline between law and history. It opened up legal history to external -that is, non-legal- historical perspectives, as well as, to a certain degree, social science methodology A triangular structure can be formed from the three interdisciplinary fields This structure provides a comparative perspective when law and economics is placed beside the two other contemporary meetings"of fields: law and history and economics and history. This facilitates addressing law and economics within its disciplinary dimensions. The encounter of the legal discipline with the economic discipline in law and economics can be examined both in its legal context (in its interaction with legal history)and its economic context(in its interaction with economic history). In fact, there are two triangles, on two levels: one created by the three interdisciplinary fields and the other created by the three original disciplines. This broad perspective is best demonstrated by the interplay within and between the two triangles
2003] The Uses of History in Law and Economics 667 relative prices; and adoption of Kaldor-Hicks efficiency ("potential Pareto efficiency," in more obscure terms) in the sense of wealth maximization as a standard of evaluation. The a-historical neoclassical characteristics of law and economics dominated the field. Well into the 1980s and beyond, law and economics was still engaged in adapting price theory to non-market legal behavior as part of a wider project of the expansion of economics. It focused on the application of price theory to the specific contours of the law: judge-made law and legislation; property, contracts, and torts; liability rules; and remedies. Law and economics scholars were engaged in intense normative and policy debates with critics from rival jurisprudential and doctrinal schools. These debates revolved around the imperialistic tendencies of economics, its unrealistic assumptions (e.g., of rationality), and its ideological bias in favor of efficiency considerations at the expense of distributive considerations. As long as the debates at the normative and policy level were intense, law and economics scholars were not likely to find much time or motivation to turn to the study of history. D. The Lack of Interaction between Economic History and Legal History The 1960s, which witnessed the birth of modern law and economics, also saw the formation of two adjacent interdisciplinary fields. The one field, new economic history (also called cliometrics), was created on the borderline between economics and history. It employs economic theory and econometric and statistical tools to study the history of the economy. The other field, the Wisconsin School of Legal History, formed by Willard Hurst, is located on the borderline between law and history. It opened up legal history to external — that is, non-legal — historical perspectives, as well as, to a certain degree, social science methodology. A triangular structure can be formed from the three interdisciplinary fields. This structure provides a comparative perspective when law and economics is placed beside the two other contemporary "meetings" of fields: law and history and economics and history. This facilitates addressing law and economics within its disciplinary dimensions. The encounter of the legal discipline with the economic discipline in law and economics can be examined both in its legal context (in its interaction with legal history) and its economic context (in its interaction with economic history). In fact, there are two triangles, on two levels: one created by the three interdisciplinary fields and the other created by the three original disciplines. This broad perspective is best demonstrated by the interplay within and between the two triangles:
