I recently emailed a question to the Mises email list. The subject line: “Legal foundations and presuppositions of economic analysis.” An edited version:
I am looking for economic articles or textbooks that explicitly discuss the legal assumptions that economic analysis rests on. For example economists take for granted certain legal institutional features and concepts such as property rights, enforceability of contracts, negotiability of promissory notes, fraud, trespass, corporations, firms, interest, torts, title, insurance, and so on. If you are aware of any standard treatment of this issue—say, preliminary chapters in standard economic text books, classic journal articles, and the like—please let me know. For example, is this topic explicitly addressed as a normal part of the education or curriculum of economics undergrads?
One reason I am interested in this, aside from exploring it for its own sake, is to consider doing something like this but with a particular focus on (a) the Rothbardian-libertarian conception of property and related norms; and (b) Austrian economic analysis.
The only thing that occurs to me off the top my head that is even similar to something along these lines is Bohm-Bawerk’s chapter “Whether Legal Rights and Relationships are Economic Goods” in his Shorter Classics (ebook; Amazon); it’s also discussed in Gael J. Campan, “Does Justice Qualify as an Economic Good?: A Böhm-Bawerkian Perspective” The Quarterly Journal of Austrian Economics 2, no. 1 (Spring 1999) and Joseph Salerno, “Böhm-Bawerk’s Vision of the Capitalist Economic Process: Intellectual Influences and Conceptual Foundations,” New Perspectives on Political Economy, Volume 4, Number 2, 2008, pp. 87–112) [see also Richard Ebeling, Eugen von Böhm-Bawerk: A Sesquicentennial Appreciation].
In a discussion about this on Facebook, the always-amazing polymath Timo Virkkala told me:
Bohm-Bahwerk’s work—which really impressed John R. Commons, by the way—is what I would have recommended. The importance of institutions as the basis for human cooperation and markets has been written about extensively from a variety of points of view, Marxist, institutionalist (Veblen and Commons and others), New Institutionalists (Alchian, Coase, Demsetz, et al), and many others. A fraction of the work of the above folks looks at what you are interested in. Though this issue has long fascinated me, I’ve read little in this literature. Have you read Samuel Read? [Referencing his 1829 book Political Economy. An Inquiry into the Natural Grounds of Right to Vendible Property, or Wealth, available at Google books]
Me:
Actually I can’t find this guy Samuel Read in wikipedia or indeed any info about him at all on the web, other than this book. What do you know about him? Or do you know of any websites with further info on him?
Timo:
Samuel Read was highlighted in Rothbard’s history of econ theory. I acquired the book, and quickly lost it, back in the early 1980s. If I have him right (and I never got far in his book), he’s an early and important anti-Ricardian, and an analyst of property rights. But I’m not at all sure. I was asking the question hoping you’d know more than me!
Well, I have since obtained the PDF copy of the Read book, plus a print-on-demand version from Amazon (and as noted above, available online at Google books), and have begun to read it. It is really amazing. I’ll get into that in a minute. The funny thing is Virkkala recommended it to me as being discussed in Rothbard’s Austrian Perspective on the History of Economic Thought. Yet I can find no discussion of Read in Rothbard, or in Wikipedia, or elsewhere on the web. Virkkala then said he had confused “Samuel Bailey, an anti-Ricardian, for Samuel Read.” And indeed, Rothbard does mention Bailey in his book. But what is fascinating is what a great find this Read book is. If you just read the introduction you’ll be amazed. Further, Read cites Bailey approvingly in the Preface, but in a bizarre and cryptic way. On page vii-viii he refers to “a very able writer on Political Economy” and “the writer I allude to” without ever using a citation or name; a google search for the text he quoted reveals the author he is quoting was in fact Bailey, in his 1825 book A critical dissertation on the nature, measures, and causes of value (available at google books here). I am not sure why he refused to name Bailey. Some bizarre custom? Was Bailey anonymous at the time? Rivalry?
In any case. Back to Read. I haven’t finished the book yet, but just a few observations from the Preface and Introduction alone:
The importance of a systematic economics treatise. Preface, pp. vii-viii: Read emphasizes the importance of doing a systematic treatise on economics, from the ground up: “The science cannot yet be exhibited as a regular and perfect structure. The rubbish must be removed, the ground cleared, the scaffolding taken down, and all unnecessary and cumbrous appendages must be discarded, before the building can rise upon the eye in that simple beauty in whcih it is destined hereafter to appear.” One is reminded here of the systematic economic treatises of Mises and Rothbard, as noted by Hans-Hermann Hoppe in his Introduction to Rothbard’s Ethics of Liberty [also Hoppe’s Murray N. Rothbard: Economics, Science, and Liberty (2), in: Randall Holcombe, ed., Fifteen Great Austrian Economists (Auburn, Al.: Ludwig von Mises Institute, 1999) (also in The Great Fiction)]
What it means to be “natural”. Preface, p. x: Read quotes Hume to justify his attempt to justify the “natural grounds of right” to wealth, as part of political economy. The Hume quote is:
If self-love, if benevolence be natural to man; if reason and forethought be also natural; then may the same epithet be applied to justice, order, fidelity, property, society. Men’s inclination, their necessities, lead them to combine; their understanding and experience tell them that this combination is impossible where each governs himself by no rule, and pays no regard to the possessions of others: and from these passions and reflections conjoined, as soon as we observe like passions and reflections in others, the sentiment of justice, throughout all ages, has infallibly and certainly had place to some degree or other in every individual of the human species. In so sagacious an animal, what necessarily arises from the exertion of his intellectual faculties may justly be esteemed natural.
This is interestingly similar to Hoppe’s explanation of whether his own argumentation ethics approach is compatible with the natural rights tradition. As I note here:
Nor do I claim that it is impossible to interpret my approach as falling in a “rightly conceived” natural rights tradition after all. What I claim, though, is that the following approach is clearly out of line with what the natural rights approach has actually come to be, and that it owes nothing to this tradition as it stands.
Legal positivism. I discuss this issue in Logical and Legal Positivism. I point out that the libertarian should have no problem with the insight from legal positivism that says that we can identify a law even if it is unjustified (contrary to the natural law types who would insist that you cannot “separate” law and morals in this way). In Read’s Introduction, p. xvii, he makes a similar observation: he explicitly points out that we can distinguish law that is from law that should be. On p. xvii, e.g., he speaks of the “first branch” of political science, that dealing with rights of persons (the second being political economy, or economics, or rights in property, or as he suggests it be called, “Political Justice”—the subject of his book; the third being international law or rights and duties of states). In this connection he speaks of what “rights” and “wrongs” should or should not be “established as compulsatory law, or ‘positive institutions'”:
If I might be allowed to coin a word … I would say institutional, in the sense of established and compulsatory law, and as opposed to, or distinct from, natural law or right. Established or institutional law may be right or wrong; but natural law is the same thing with natural or real right itself.
Obviously his “institutional” law is the same as what we now mean by “positive” law; and Read had no trouble distinguishing between positive [institutional] law and natural law all the while also adhering to and favoring natural law. Unlike some modern adherents of “natural law” who seem unable to grasp that we can identify existing law without thereby condoning it.
He also has a devastating criticism of the bloodless legal positivist mindset, when he writes (xxvi-xxvii):
… we observe every day men, and even legislators, pretending to reason concerning political justice and the general principles of law, as if there we no such distinction as that which has been here pointed out, and who seem to have scarcely the most distant comprehension that there is a natural code discoverable by the light of reason, to which alone reference ought to be had when any law … is brought into question either for the purpose of enactment or repeal. Instead of reasoning like legislators, such persons merely contend as lawyers; they but inquire what is, or what has been, not what ought to be; and, provided they can find a precedent, think they have no need to trouble themselves with any farther investigation as to right or wrong. They pronounce the two cabalistic words, “vested right,” and think themselves at once entrenched behind an impregnable fortress, without considering it as at all incumbent upon them to show that the investiture is consistent with real and natural right.
How many times do we see this stunted “reasoning” trotted out by statists, positivists, and conservatives? If you ask a conservative why cigarettes or alcohol should be illegal while marijuana is not, the answer is, why marijuana is illegal! And the legalistic reasoning of lawyers who argue before courts is mired in appeal to what the law says and what courts have done before, as if this is the standard of justice. And modern social democrat types simply point to the statutory law as if this proves that there really are rights to welfare and housing and employment and education. And if you say American States have a constitutional right to secede, the modern legal positivist brutish might-makes-right central-state loving liberal will sneer, “Well, the Civil War settled that, didn’t it?”
Indeed, this criticism foreshadows the criticisms of legislative positivism of Bruno Leoni in Freedom and the Law and, before him, New York lawyer James Carter, who in 1884 wrote the paper The Proposed Codification of Our Common Law: A Paper Prepared at the Request of The Committee of the Bar Association of the City of New York, Appointed to Oppose the Measure. This was an attack on David Dudley Field’s attempt to (legislatively) codify New York’s common law. Carter opposed replacing case law with centralized legislation. Carter notes that caselaw precedents are flexible and allow the judge to do justice (see also John Hasnas’s classic The Myth of the Rule of Law), while statutes are applied literally, even where injustice is done or the legislator did not contemplate this result. Thus, Carter argues, one of the worst effects of legislatively codifying law–replacing organically developed law with artificial statutes–is that it changes the role of courts and judges from one in which the judge searches for justice into mere squabbles over definitions of words found in statutes. As he wrote:
At present, when any doubt arises in any particular case as to what the true rule of the unwritten [i.e., judge-found, common-law developed] law is, it is at once assumed that the rule most in accordance with justice and sound policy is the one which must be declared to be the law. The search is for that rule. The appeal is squarely made to the highest considerations of morality and justice. These are the rallying points of the struggle. The contention is ennobling and beneficial to the advocates, to the judges, to the parties, to the auditors, and so indirectly to the whole community. The decision then made records another step in the advance of human reason towards that perfection after which it forever aspires. But when the law is conceded to be written down in a statute, and the only question is what the statute means, a contention unspeakably inferior is substituted. The dispute is about words. The question of what is right or wrong, just or unjust, is irrelevant and out of place. The only question is what has been written. What a wretched exchange for the manly encounter upon the elevated plane of principle!
(See Another Problem with Legislation: James Carter v. the Field Codes.)
Capitalist Privilege and Labor. Read even touches on an issue hotly debated today between plumbline anarcho-libertarians and “anti-capitalist” left-libertarians. He notes that both labor and capital have a role in the creation of wealth. He writes (xxix-xxx):
Although it seems to be one of the most obvious things imaginable, that, in all advanced periods of society, capital is at least as potent in its effects as labour in the production of wealth; yet the labourers have been flattered and persuaded that they produce all; whilst the capitalists, on the other hand, not contented with their proper and just advantages, as being the possessors and proprietors of capital, and with the profit naturally and fairly arising from it, have combined and established laws of preference and favour—laws of restriction, monopoly, and exclusion—which increase that profit beyond its legitimate bounds, and really trench upon the rights of the labourers, not only as limiting unnecessarily and partially, and consequentially unjustly, the field for their exertions, but in various other ways preventing those exertions from being crowned with that ample and adequate remuneration which would naturally and necessarily reward them under a different and juster system.
Here Read insightfully and concisely demolishes the vulgar capitalism derided by left libertarians (by noting the unjust privileges accruing to capitalists by virtue of the state) and the vulgar leftist Marxism that unduly emphasizes the role of labor.
Later (xxxiii-xxxiv) Read says:
The error lies in supposing that labour produces all,—that the whole of the produce of labour and capital arises from the exertions of the labourers, independently of the capital with which they work, and are assisted.
The capitalists have indeed always appeared to decline looking into the bottom of this question, as if afraid they should discover in it nothing to their advantage; but there are, in truth, no rreal grounds for any apprehensions on this head; and they will never enjoy their wealth in confidence and quiet till they discard this slavish and groundless fear, and meet their adversaries, as they may very safely do, on the fair field of argument and reason.
The labourers must be informed, and made to understand, that they do not produce all wherever they take the assistance of capital; and the capitalists lending that assistance must be equally instructed that whilst each should be free to demand what he pleases for his particular contribution or portion of capital, no individual, or body of men, can have right to exclude or interdict others from coming forward with their portions of capital also, in open and equal competition, or to attempt to enhance their gains by means which are unjust and injurious to their neighbors.
Who could say it better today? Capital and capitalists have a role; they do not exploit labor by virtue of being capitalists; but they should have no privileges, and there should be free competition. Amen!
And this is all from the Preface and Introduction alone!
Update: I still have located no biographical details of Read, but did find this critique of him at Daily Kos: Classical Economics: Samuel Read an exercise in apologetics.
Awesomeness. Looking forward to hearing about the rest.