Samuel's Legal Economic Nexus Part 2

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 Samuel's Legal Economic Nexus Part 2

 

Warren starts off the next section of the paper with the title, “the legal Economic Nexus” which is the real heart of the paper.  He constructs a system whereby markets allocate goods and services, government allocates property rights which drive market decision making and in turn market participants attempt to shape those government decisions.   This is where we understand the nature of the interdependence between markets and government[1]. Samuels then shows how this same framework is essentially implicitly applied in the case of production possibility curves, community indifference curves or social welfare functions in neoclassical economics.  The parameters of these constructs are shaped by underlying governmental decision making.

 

In the next subsection, Samuels writes that, “In both regards, the arena of the economy and the law-the economy and the polity-are jointly produced, not independently given and not merely interacting.” (pg. 1567) This is a crucial point for him as to we should interpret and rethink how we talk about the economy and government. He then goes on to write that, “Both are a product of common determining forces that are frequently selectively identified with one sphere or the other, whereas in fact they are part of the common legal-economic nexus.”(pg. 1568) Thus we see that there is some common factors that can help us identify how this legal economic nexus works.

 

As we move towards a full understanding of the Samuels approach, he gives us several key variables to guide the work.  The first variable is power. Power as exercised and available to the various market and government participants.  Power is not explicitly  defined but generally means the ability of one agent to impact the decision making or options of another agent.  The second variable is belief systems.  These sets of beliefs shape how and when agents will use power and respond to the use of power against themselves. The third factor is that government and market are normative and reflect choices that we as society.

 

Finally a long citation from Samuels, “The legal-economic nexus is at the center of the process through which, on the basis of the selective legal change of legal rights, trading in economic commodities is undertaken to the point at which, within the existing structure of rights, gains from trade are exhausted (Pareto optimality). The twin processes of pursuing gains from trade and reworking the structure of rights on the basis of which trade takes place are paralleled by the twin processes of (re)working out the economy and the polity-and all this takes place in the legal-economic nexus. Failure to appreciate the legal-economic nexus can only result in partial and attenuated comprehension of what actually goes on at the most fundamental levels of legal-economic life.”(pg. 1572).  The best way to think about what Samuels wants us to do is that anytime we consider doing analysis or trying to understand markets and governments we need to do them together as one system rather than isolating one system or holding it constant.  This is certainly more  challenging than traditional models with a simple linear function. It also may be more difficult in terms of quantifying all of the terms.  However, Samuels is urging us to consider our approach to understanding the world because the current options are potentially very harmful to how we make decisions.


[1] We could more broadly define government to include any governance decision making that occurs within going concerns including churches, families, corporations and so forth. The “government” also impacts the nature of decision making that can occur within these going concerns at least to some extent.

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