Institutional Law and Economics: The Legal-Economic Nexus

 On November 14, 2020, Neil Irwin of the New York Times write a piece about capitalism and the pandemic arguing how the capitalist system both works within a pandemic and needs government action as well. https://www.nytimes.com/2020/11/14/upshot/coronavirus-capitalism-vaccine.html?campaign_id=29&emc=edit_up_20201116&instance_id=24151&nl=the-upshot&regi_id=15895369&segment_id=44604&te=1&user_id=8a8710e84fff940945beb27c1ab4daf8 Irwin’s argument is that big business (corporations) and big government (primarily federal) need each other for their to be successful.  In particular, he focuses on the role of the federal government as a “risk absorber” as he calls it. Here, Irwin is channeling the argument made by Paul Krugman (who was quoting Peter Fisher, (an undersecretary from Treasury in 2002) that the “federal government is an insurance company with an army”. Ther government is the one entity that can take on big and uninsurable risks, like a global pandemic a

We can further examine Marc Tool's social value principle by looking at the book edited by Charles M.A. Clark in 1995 in honor of Tool entitled, "Institutional Economics and the Social value Theory".   Tool wrote about social value principle in several places but most importantly in his Discretionary Economy in 1979.   As outlined by William Dugger in the book honoring Tool in 1995, Dugger argued that Tool had moved the field beyond the concerns of the institutionalist Clarence Ayres and his focus on the importance of technology in human society in the 1940’s and 1950’s.   Both Ayres and Tool think about the Veblenian dichotomy of instrumental knowledge versus ceremonial knowledge. Ayres, as argued by Dugger, was focused on how human innovation and technological improvements will help move us past ceremonial or unproductive parts of human society.  Dugger then goes on to argue that Tool had moved on to a focus on the importance of democracy and civil rights and general p

The Paerto efficiency concept has often been used by neoclassical economists to provide a guide to deciding between states of resource allocation and policy.  The concept simply means that no one can be made better off without making someone else worse off.  It was thought to be a value or ethical free principle for making policy decisions in which economists did not have to take sides.  It is not, but that is a longer story (See Schmid 1987). Institutional economists have tried to fashion their own guide to how policy or resource allocation decisions can be made.  They do not base this attempt on a belief that there is a neutral or non-ethical way to do this. That said, some believe we can fashion a concept that has a broad consensus and can guide decision making. Marc Tool is the best known institutional economist for this type of attempt with his social value principle. The social value principle:   "choose  or do that which provides for the continuity of human life and the non