Institutional Law and Economics: The Legal-Economic Nexus

I spent the last two weeks reading some of the work of insitutionalist John R. Commons in preparation for a reading group centered on topics around capital and capitalism. I thought I'd share a crib-notes version of some of Commons thoughts regarding the relationship between law and economics, particularly from his 1925 article Law and Economics. This is in no way an exhaustive summary of the paper, which also includes numerous historical references and exploration of foundational econ topics such as capital and scarcity.  In this nearly century-old piece, Commons considers why "the two sciences of law and economics" have not been treated as one and advanced together.  He asks us to consider the core economic concept of scarcity (among others) and how they are fundamental to the legal concept of property.   It is in thinking about property and rights, and how they are defined, that Commons makes his case for a stronger joint understanding of law and economics. Given the f...

Complexity science and complexity science economics has become a very popular part of scientific thinking.  The general idea is that the individual parts of a system interact and emergent behavior occurs that is often difficult to predict. Eric Beinhocker wrote a book in 2006 entitled "The Origins of Wealth" that focused on complexity science economics*.  In that book he defined complexity science economics as involving: 1) the economy is dynamic and nonlinear, 2) individual agents are modeled with bounded rationality, 3) interactions between economic agents is key in networks, 4) there is no distinction between micro and macro and system behavior is emergent and 5) the system evolves without equilibrium over time. What does this set of ideas have to do with capitalism and its critique of socialism? In terms of socialism, complexity science is in line with Hayeks critique.  The concepts underlying complexity science that individuals agents knowledge cannot be captured cen...

Last week, Eric wrote about George Will's thoughts on capitalism and the spontaneous order . I haven't yet read the book,   The Conservative Sensibility (2019) but being from the rural Midwest, I'm pretty familiar  with the conservative heart of his work. Check out Eric's post for a brief  run-down. What's most interesting to me in these kinds of arguments about capitalism and social order is that there are often two distinct kinds of discourse occurring:  we have the defense of some idea or view of how the world ought to be, and we have discussion of how the world currently is, and how we might address issues in it (Will engages in both at times, the former more so in his book, the latter in his columns). What we rarely get in either type of discourse is a clear, detailed definition of the role of government.   There is plenty of opposition to the "centrally planned economy" on the basis of the work of Hayek (the  knowledge problem ) and Ludwig ...

The idea and concept of capitalism may have many different definitions which makes it difficult to assess arguments for or against capitalism.  George Will is a principled defender of capitalism and the spontaneous order. We unpack his arguments here to make sense of what case can be made in defense of capitalism.  This information comes from George F. Will, "The Conservative Sensibility" from 2019.* George Will's defense of capitalism is not necessarily anything new but is instructive on how the conservative side thinks about the arguments needed.  The definition of capitalism can often be elusive but is generally defined as having to do with a system dependent on private property ownership, a price system and reliant on voluntary exchange.  To defend this system, Will primarily relies on Hayek's idea of information and Locke and others defense of private property and the moral implications of those who act within a market.   Will subtitles the chapter in his b...

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 reali...

 There has been a lot written about the relationship between the work of John Maynard Keynes and Institutional Economics (IE).  Here, I want to specifically look at the work of Hyman Minksy and his view on this question (Joan Robinson who will we talk about later as well). Minsky was a financial and macro economist who took seriously the work of Kenyes.  The "Minsky moment" became famous during the 2008 financial crisis, defined as a moment when major financial players realized that everybody was bound up with everybody else and liquidity was drying up everywhere leading to collapse. Minsky actually wrote a book called “ John Maynard Keynes ” in the 1970’s which was re-released in 2008.  Minsky had bona fide institutional credibility as a winner of the Commons-Veblen award from the Association of Evolutionary Economics. Minsky writes in the first chapter of his Keynes book that, “ The General Theory , although concerned with the implications of institutional ...

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. https://www.jstor.org/stable/pdf/2142367.pdf 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 ...