Robert Lee Hale and the Role of Coercion in Markets

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Robert Lee Hale was an important lawyer and economist who worked at Columbia University from the 1920's through the 1960's. He is an important figure for thinking about institutional law and economics and we will explore more of him in this blog over time.
One of Hale's most important articles is:

 Hale, Robert L. "Coercion and distribution in a supposedly non-coercive state." Political Science Quarterly 38.3 (1923): 470-494.

Warren Samuels wrote a very long and well thought out article on Hale in the Miami Law Review entitled “The Economy as a system of power and its legal base” by Warren Samuels which can be found here:
 
https://repository.law.miami.edu/cgi/viewcontent.cgi?article=2750&context=umlr
 
This may be more useful for economic scholars rather than legal scholars, but economics is based on the idea of voluntary exchange and economists have gone out of their way to avoid questions of power, coercion and equity. The standard economic approach is the voluntary exchange of goods and services in a market with minimal consideration of even the existence of law.  Economists rely on the principle of Paerto or economic efficiency in judging changes in the economy based on the idea that “gains from trade” are exhausted and at that point and this is where economic policy should rest. Anything beyond that point is an equity decision and economists have nothing to say. In law and economics, the Coase Theorem is used to describe a world where law is neutral because the parties will bargain to address externalities.
 
The neoclassical tradition pretty much ignores coercion or only talks about it as addressing market failures.  The neoliberals at least address the question of law and a legal basis for the market.  Prof. Friedrich Hayek defined coercion as “when one person’s actions are made to serve another person’s will, not for his own but for other purposes” (Hayek, pg. 133, 1960). He is at pains to tell us that coercion does not include many things including “from the conditions or terms  on which our fellow men are willing to render us specific services or benefits” (Hayek, pg. 135, 1960). Finally, we can cite Hayek as stating that, “the decisive condition for mutually advantageous collaboration between people based on voluntary consent rather than coercion, is that there be many people who can serve ones needs” (Hayek, pg. 141, 1960).
 
As another example, we can take from Prof. James Buchanan in his article “Individual choice in Voting and Markets”, that, “(taking about voting) he may be compelled to accept a result contrary to his expressed preference. A similar sort of coercion is never present in market choice”.  In general, economists have convinced themselves that their field of study is about voluntary exchange and does not involve coercion in the main or at least that coercion (government or collective action) comes from outside the model. The neoliberal school has made it their mission to dismantle any rationalization or justification for “coercion” or collective action by eliminating any idea of market failure or public good.
 
This leads me back to the importance of the Hale approach in economic thinking.   I read Hale as saying that coercion is ever present in a market economy even when it does not appear obvious. These quotes for me strike at the heart of what I think about as institutional economics, “The distribution of income , to repeat, depends on the relative power of coercion (Hale, pg. 478). I think the point here is that coercion and freedom are coevolving and in existence at the same time.  Hayek’s statement that coercion is the absence of freedom is wrong because , freedom for one party is coercion for another party. There may be degrees of coercion, but it is always there. Economics has been built on Hayek’s notion rather than Hales. This may be obvious to legal scholars, but it is not obvious in the economics field yesterday or today.
 
 


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