Institutional Law and Economics: The Legal-Economic Nexus

Upon further reflection of Komesar’s critique of Schmid and others approach to IE and the notion of institutions, here are some further rebuttal remarks.  Schmid perceived that institutions lie within the mind of each individual in a society or group and not simply as a written down dead letter law or rule which appears to be Komeasr’s main point of contention.  John R. Commons wrote of the “institutionalized mind”. I will only focus on the main thinkers in the Great Lakes IE tradition and no others such as North or Williamson. Schmid believed and wrote that institutions are ordered or structured sets of relationships amongst individuals.  Borrowing from John R. Commons and Wesley Hohfeld, an institution told the hodler in their mind of what they can, cannot, must, must not may and may not do.  These “institutions” are carried around in people's minds how they act and react to others around them. The stability of institutions varies and can certainly change ove...

In his 1987 book entitled, "The Reconstruction of Economics", Professor Allan Gruchy had some pointed criticisms especially of the post Veblen economists between the war years.  As these are an important foundation piece to the ILE school, it is useful to consider Gruchy's complaints and criticisms. We can no do better than start with Gruchys, perhaps harsh criticism, that "the late 1920's and the 1930's were not a fruitful period in the development of institutional economic thought" (pg.26). This pretty clear sets the stage for his views on Commons and the Wisconsin school so closely related to the ILE.  He further writes that they (referring to the Wisconsin institutionalisats amongst others), "a survey of their writings does not reveal much advance beyond Veblen" (pg. 26).   and then again, Gruchy writes that "Commons never developed what one of his graduate students described as a theoretical roof" and further that "Commons h...

Neil Komesar wrote a piece in the book, "Alternative Institutional Structures" that was edited in honor of Al Schmid's retirement entitled "The Essence of Economics".  In that piece, Komesar takes on the approach used by Schmid and north regarding their approach to IE. Komesar believes that Schmid and other economists use the law in a fixed sense as a driver of economic performance.  He does note the difference in performance perspective with Schmid focused on distribution and North, as an example, focused on allocative efficiency.  Komesar believes that this is not a fruitful approach and that law moves around and should be endogenous versus exogenous. The Komesar approach is based on the idea that the number of participants is the driving force in his approach to IE.  A large number of participants increases the transactions and the difficulty of securing cooperative action.  Komesar borrows the two force model from political science to engage in his compa...