Finding a Better Terminology for Discussing Institutional Structure

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A key part of the work Eric Scorsone and I have been doing has centered around this idea of creating a general awareness in students and peers of the institutional, legal underpinnings of economic organization and action.  We borrow heavily from the work done by Al Schmid for the foundation of our institutional thought -- Al was incredibly well read and missed little-- but have noticed a need for more concrete vocabulary and structure for how to teach and talk about institutional structure and changes in it. 

Consider this excerpt from Warren Samuels' "Some Fundamentals of the Economic Role of Government"(1989), 

"People tend to define socioeconomic reality in terms of legal rights. Government selectively protects, as rights, certain interests and not others-and it is rights that form, structure, and operate through the market and the economy in toto. What people define as reality is thereby formed and reformed. In helping to define and create socioeconomic reality, law also serves as psychic balm in the face of existential and social ambiguity and uncertainty."

All true. But there is also a disconnect between what is understood to be the reality of rights at any given time from the perspective of those in the legal profession  versus the perspective of those not engaged in law or policy on a regular basis (or have not studied it.)  This latter group includes many economists and is a problem not helped by our fields' constant need to commentate on any and all policy possible. There are plenty of examples in recent literature of "policy implications" or "discussion" sections in journal articles that really have no business saying anything definitive (I would include examples, but feel this is a common enough problem that calling out any one paper isn't necessary). My own advisor in grad school encouraged me to use these sections of papers to say more about what future research is needed rather than guess about how institutions might change as a result of my work. But the pressure to comment on policy, however unqualified I was, was still there.

Samuels continues:

"Government is thus an object of control by those who desire to use government to organize or reorganize the economy and redirect economic performance. This is not a matter of having government intervene into a process in which it hitherto had been absent but of (re)determining the interests to which government will lend its support."

In reading general economics literature, one would get less of the feeling that institutions (government) are ubiquitous but changeable and more of a feeling that the market is somehow separate or 'natural'. None of this is helped by the lack of consistent, clear language used by economists when referring to aspects of legal structure.  We frequently see reference to property rights, the word "right" thrown around generally, "government intervention" (often without clearly specifying what kind and what "no intervention" would realistically look like),....the list goes on.

When we adopt a common language for discussing changes in institutional structure (changes in whose interests count), the omnipresence of government becomes more obvious.  The legal scholar Wesley N. Hohfeld provides a legal model that, used in this context, better defines the relations of various parties in an economic context.  

Hohfeldian Legal Analysis (1917)

Hohfeld observed that certain critical words used to describe legal relations (such as the word “right”), had no agreed upon or clear meaning.  To address this, he developed a set of four legal relationships that he believed provided the “common denominators” of all legal relations (Schlag, 2015). Rather than providing specific definitions for each of these relations, he offered three rules that each legal relation must meet:

1.     Each relation has its unique correlative (each conception is another way of stating its correlative).

2.     Each relation has its unique opposite (opposites cannot be accorded to the same party for the same act).

3.     Each relation is never any of the others (holding parties and act constant).

With these three rules, Hohfeld pared things down to four legal relations that enabled him and later analysts to distinguish clearly between legal and nonlegal relations (Schlag, 2015). John R. Commons of Wisconsin Economics department then added and adjusted some of Hohfeld’s model to make it better suited for the field of economics with a more behavioral rather than logical perspective (Fiorito, 2010). The subsequent analytical framework is referred to as the Hohfeld legal framework and consists of the following:

Figure 1: Jural Relations

Right: A claim by one agent, enforceable by state power, that others act in a certain manner in relation to the stakeholder.  A right that B has a Duty to do/not do something.

Duty: A duty, enforceable by state power, that the other party must do something or not do something in relation to the rightholder. 

Privilege: Permission of an agent to act in a certain manner without being held liable for damages to others.

Exposure: an agent is exposed without legal protection against the privileged for exercising their privilege. 

Power: ability of an agent to change legal relation between parties

Liability: an agent is subject tot having their legal relationship with another party changed

Immunity: an agent is not subject to the power of another agent

Disability: inability of an agent to avoid potential of change in legal relation between parties

Key to this discussion of jural correlatives is that there is always a person (or party) on each end. In this way, Hohfeld’s idea of legal relations is highly compatible with Schmid’s idea of interdependence (discussed in other blogposts).  Any change in institutional structure results in a change in jural relations (or the strength of them). Tying back to Samuels, changing the structure is  "(re)determining the interests to which government will lend its support." 

We'll write more about this is future, but for now it's our hope that working with Hohfeld's legal terminology and incorporating it into our model of practicing and teaching institutional impact analysis will help economists and others talk about policy, institutions, and the law in a clearer, more useful way. 

Fiorito, L. (2010). John R. Commons, Wesley N. Hohfeld, and the origins of transactional economics. History of Political Economy. https://doi.org/10.1215/00182702-2010-003

Hohfeld, W. N. (1917). Fundamental Legal Conceptions as Applied in Judicial Reasoning. The Yale Law Journal. https://doi.org/10.2307/786270

Samuels, W. J. (1989). Some Fundamentals of the Economic Role of Government. Journal of Economic Issues. https://doi.org/10.1080/00213624.1989.11504908

Schlag, P. (2015). How to do things with hohfeld. Law and Contemporary Problems. https://doi.org/10.2139/ssrn.2465148


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