How far an Austrian law and economics should be Posnerian?
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- Marciano, A. Rev Austrian Econ (2012) 25: 351. doi:10.1007/s11138-012-0185-5
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The purpose of this note is to stress that Posner’s conception of law and of the role of judges in a legal system might be problematic for an Austrian approach to law and economics, despite the praxeological dimension of his analysis.
KeywordPosnerAustrian economicsLaw and economicsEconomic analysis of lawConstructivismJudgesCommon law
In “An Austrian approach to law and economics, with special reference to superstition”, published in this review, Peter Leeson develops an argumentation about” what an Austrian law and economics must be” or “what the components of an “Austrian” law and economics might consist of” (2012, p. 1).
Leeson’s paper is made of two parts. The second one focuses on the role that certain individuals’ beliefs-in that case, superstitions, that is “objectively false beliefs”—play in the emergence of rules or institutions and in their functioning. In other words, the second part of the paper examines how important for legal systems beliefs are. Such an approach is not only presented by Peter Leeson as an instance of Austrian Law and Economics but also a form of economic analysis of law à la Richard Posner. The connection between Richard Posner and Austrian economics is made in the first part of the paper, where Peter Leeson compares Ronald Coase’s and Richard Posner’s conception of economics and of law and economics, explains that “Ronald Coase’s conception of law and economics precludes” the analysis of phenomena that are central to Austrian economics while”Richard Posner’s facilitates it” (Leeson 2012, p. 3) and concludes that “[a]n Austrian law and economics can’t be built on Coasean foundations. But it can and should be built on Posnerian ones.” (p. 3; emphasis added).
Methodologically, the demonstration made by Peter Leeson raises no difficulties or doubts. He rightly reminds us that Ronald Coase defined economics as having a relatively strictly defined object of study or through a relatively strictly delineated subject matter, that he did not include legal rules or any institution in this subject matter and that he studied legal rules only because they influenced the functioning of the economy—which was Ronald Coase’s main object of study. In other words, to Coase, rules and institutions are exogenous to the analysis and economists have no legitimacy to discuss them. Ronald Coase thus ignores the praxeological dimension of legal phenomena for economists; actually, Ronald Coase ignores the praxeological of economic phenomena too since he insists that economics is not a science aimed at analyzing any form of purposive behavior. By contrast, Richard Posner does not ignore the praxeological dimension of economic and legal phenomena and can even be said to have such a “praxeological” perspective in his work. In effect, he envisages economics as a method of analysis-an “approach” à la Becker—that can be applied to any kind of phenomenon, including legal ones; in other words, as Peter Leeson notes (see also, Marciano 2007), Richard Posner endogeneizes the legal rules that Ronald Coase saw as falling outside of the economist’s scope of investigation. More precisely, endogeneization takes place at two levels: first, legal rules are part of the set of phenomena that economists can legitimately analyze and are the product of purposive, rational, behaviors.
This is precisely where a problem arises that can threaten or at least question a close, or closer, connection between Richard Posner and Austrian economics. The problem relates to the nature of legal rules and how they result from purposive behaviors. My claim is that, from this perspective, Richard Posner is very different from Austrian economics.
To start with the latter, one knows how spontaneous order is a crucial aspect of Austrian economics. Rules are supposed to emerge, through a bottom-up process, from repeated interactions between individuals. Certainly the latter are (or may be) rational and intentional and their actions purposeful. But intentionality and purposefulness does not include the creation of rules. Order, and rules, are “the result of human action, but not the execution of any human design” to quote a most celebrated sentence that Friedrich Hayek has contributed to popularize. Friedrich Hayek, precisely, who praised the English system of common law because he viewed it as a perfect instance of spontaneous and emerging order. In particular, what makes such systems so interesting to Friedrich Hayek, is that judges are not supposed to create legal rules. They are arbitrators or intermediaries, middlemen, whose role is to clarify and explicit rules when coordination problems arise. Their role consists in “discovering the ‘efficient’ assignment of rights and liability for future cases.” (O'Driscoll 1980, p. 357)
That Friedrich Hayek was over-optimistic about the virtues of common law systems and about the role of judges is beyond the point. What is interesting is that Richard Posner’s and Friedrich Hayek’s conception of the common law sharply differs as it is put forward by Richard Posner himself. In his monumental Economic Analysis of Law, Richard Posner significantly speaks of the “interesting challenge to the economic analysis of the common law [that] comes from a Nobel-prize-winning economists—Friedrich Hayek” (2007, p. 259), evidencing without a doubt that there are differences between his an economic analysis of the common law and Friedrich Hayek’s, that is between his analysis and an Austrian analysis. Richard Posner notes that Friedrich Hayek contends “the only thing that judges should do is enforce custom without regard to consequences” (2007, p. 260). This is problematic insofar as it implies that customs are the only basis for legal rules. Such an approach neglects that “customs often support cooperative activities that are harmful to society as a whole” (2007, p. 260). Customs are “acephalous” (2007, p. 260) and therefore “tend to change very slowly” (2007, p. 260) and “may fail to keep up and become a drag on progress” (2007, p. 260). It is then up to judges to do something about customs lagging behind social or economic practices. And to promote efficiency through their legal decisions. We do not discuss the (in)validity of the claim but simply stress, following Gerald O'Driscoll, that this approach implies that judges engage in nonmarket or nonprice ressource allocation (1980, pp. 359–360). Assuming that they would be able to do that does not seem to correspond to the tenets of Austrian economics.
In addition, to Richard Posner, judges can certainly not be viewed as “impartial” observers. And the law is not—at least “not only”—a means to coordinate individual exchange activities. Richard Posner envisages legal rules and institutions as an “output”, similar to any other marketable good, of professional activities or practices. He adopts “an ‘activity’ theory of the law” (1990, p. 26) because he believes that “the law is not a thing [judges] discover; it is the name of their activity” (1990, p. 225). And, “judges in acting—that is, in deciding cases, make law” (Richard Posner 1990, p. 225; emphasis added). More precisely, one has to keep in mind the conditions in which such an activity develops because it impacts on the nature of legal rules: “[t]he important thing is that law is something that licensed persons, mainly judges, lawyers, legislators, do, rather than a box they pull off the shelf when a legal question appears, in the hope of finding the answer in it (Richard Posner 1990, p. 225; emphasis added). Not only do judges make law but also, law is equated to what is produced by the legal profession. This “top-down” perspective primarily aims at promoting the logical coherence of the order of law rather than the “praxeological” coherence of the order of actions (Rizzo 1999, pp. 500–502).
It seems to me that these two features are problematic in the perspective of a strong connection between Richard Posner and Austrian economics. This does not mean that I disagree with Peter Leeson’s analysis. Actually, his claim that “[a]n Austrian law and economics can’t be built on Coasean foundations. But it can and should be built on Posnerian ones.” (Leeson 2012, p. 4) seems to be correct. Richard Posner’s methodological perspective allows analyzing phenomena-such as customs or emerging rules—analyses that are impossible in Ronald Coase’s narrower frame. This is why one can accept a distinction between “law and economics” and “an economic analysis of law” (see Harnay and Marciano 2009). However, Richard Posner goes far beyond Austrian economics. He reaches places that Austrian economics would not reach.