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Chapter Twelve
Law Is Sort of Like Economics
It is indeed tempting to ask how economists can hope to explain the divorce rate when they cannot even explain [market] behavior under oligopoly. ... [But] [e]conomics does not have a predestined mission to dispel all the mysteries of the market. Maybe it will do better with some types of nonmarket behavior than with some types of market behavior ....
-- Richard A. Posner, Problems of Jurisprudence, page 369.
Can Economic Theory Explain Law?
For starters, I offer a theory: whenever people have a choice (not counting people who are screwed up – e.g., drugged, crazy, or retarded), they choose the thing they think will make them most satisfied. {354} This includes people’s actions in legal contexts: in deciding whether to sue, for example, or whether to exceed the speed limit. Nothing in this theory implies that people’s "choosing" and "thinking" are always correct or even intelligent; the theory is perfectly comfortable with mistakes and impulse decisions.
Thus, I assume that legislators choose the wording of statutes according to their own self-interest, which they often define in terms of votes and campaign contributions. Likewise, the people who join organizations that support one political candidate over another do so because they think they can get their preferred candidate to act in ways that will benefit their own interests. Frequently, this benefit comes at the expense of people who do not organize themselves into an effective opposing political force. {355}
In this way, we get various statutes passed by the legislature. Think, if you will, of one such statute, on some subject or other. This statute will probably reflect the influences of various politicians and their supporting groups. Now imagine that some judge has to apply that statute to a particular case. The special interest groups would not have supported their favorite legislator if they had thought this judge would just invent a reason to ignore the statute. If the judge wants the system to continue to produce legislation that favors special interests, he’s going to have to enforce the statute as the interest groups have intended it.
If judges didn’t insist on being independent of the legislators, special interest groups would just funnel their money to legislators, expecting them to exercise a favorable influence on both the laws and, indirectly, the judges. Under our system, by contrast, special interest groups must funnel money to legislators in order to influence legislation, and then they must also funnel money to lawyers in order to influence judges. This is a more divided system; it’s why we say we have a system of separation of powers in which checks and balances (but especially checks) help to maintain democracy. I think special interest groups are a good thing, so I see the judge as a key player who, by his independence, helps to maintain the whole ugly system.
If the public weren’t so ignorant of the extent to which judges fail to enforce the laws consistently, then people wouldn’t think that they can rely on law when someone tries to screw them. You’re a lot less likely to engage in trade, travel, or other worthy actions when you realize the extent to which the laws leave you vulnerable. Legislators pass laws, and judges enforce those laws, in order to let us know that the legal system is there for us when we need it. Here are a few examples of how judges construe the laws in ways that encourage freedom of action:
they make people afraid of speaking up, for fear that they might be sued for telling the truth;
they send the message that you can lose your life’s savings for being a Little League coach, if Spastic Johnny hits himself on the head with a bat and his parents sue you for it;
in some states, they convict people for public intoxication when those people choose to walk home after a party instead of driving drunk.
Historically speaking, you may be interested to learn that, when our tribe first emerged from the jungle, we wanted our legislators to concentrate on the important things, like nuclear missile defense and maximum security prisons. Once these bare minimum requirements of the "night watchman" state were in place, however, we turned our attention to more picayune matters, and that’s when special interest groups began to have an impact on legislators; this is when judges became more important for sorting out the "everyday" gripes that people can afford to pay an attorney $100/hour to handle.
Getting back to our economic theory, the judge will always decide cases in whatever way maximizes his own satisfaction. For example, it is in his self-interest to make his decisions sound good. Stability is something that sounds especially good. {356} Thus, judges like to explain why their decisions enhance stability. They are very good at this. They’ve sure got me fooled: I actually believe that our laws are remarkably consistent and stable, even though I know that judges have continued to rewrite vast areas of law throughout the 20th century (see page 53) and that judges are forever changing the rules governing countless people, often right in the middle of the game (see page 50).
As rational economic actors who try to maximize their own satisfaction, judges act in ways that destroy the fabric of society only when they find it in their self-interest to do so – as when, for example, they find it more rewarding not to rely on big-picture values like equal concern and respect. (See page 349.) I do not know how often judges’ personal self-interests conflict with the best interests of society. I also do not know how much wealth our society could produce. I do know that consistency in law is good, however, so I conclude that since our judges are remarkably consistent, they must be acting as though it were in their personal interest to maximize society’s wealth. Not that maximizing society’s wealth really is in their interest; just that it looks as if it were.
Let me explain that "wealth" is not exactly the same as the "satisfaction" that I mentioned at the start of this chapter. Wealth is limited to things you can put a price on. We measure wealth by taking the difference between what people pay for something and what they could get if they turned around and sold it. So if the Rolls-Royce you inherited from your dear departed Aunt Betsy becomes an antique, increasing its value by $15,000, then your wealth (and society’s) rises by that amount. If you decide not to sell it, but instead to keep it, the $15,000 increase exists, not in cash form, but in the satisfaction of owning an antique Rolls-Royce. You’re essentially paying $15,000 for that satisfaction.
"Satisfaction," however, is not really the point. Some people are never satisfied, but they keep on trying to scratch whatever it is that’s itching them. They’re willing to pay for things they believe may help to fulfill their desires. Now, we could observe that a person who can never be satisfied is the poorest person of all, but that’s not how economics works. Instead, at this starting point, we’re going to focus on your effort to be happy, not on your actual success at it. This may make no sense: it could be like being more impressed by the busy person than by the one who’s actually getting something done. If you wanted to use financial terms for emotional or spiritual concepts, you might say there’s a difference between (1) an asset-oriented measure of satisfaction, where the people at the top of the scale are those who know how to be thankful for what they’ve got, how to really experience those things (such as the unbeatable feeling of a simple hot shower and a bed after a dirty, grueling day), and (2) an income-oriented measure of satisfaction, where you aren’t as worried about being happy (which may be something that you have no idea how to achieve anyway) as about scratching your perpetual itch. We are going to use the latter; that is, we will assume that the purpose of life is to try to satisfy every random desire, no matter how much time you can fritter away in that pursuit or how miserable it can make you.
To explain my theory about the link between law and economics, I need to define economics in such a way as to make the existing justice system look OK. To do that, if you’ll bear with me, I will make a few more assumptions.
First, let me admit that we cannot obtain any direct measurements of your progress toward satisfying your desires. We utterly lack the science of mind – not to mention the medical equipment – that we would need in order to measure and analyze the thousands of desires flitting through an ordinary person’s mind during a given day. Therefore, we will adopt an indirect method of measuring your progress: we will convert everything to money terms. This is how we justify the transition from talking about satisfactions and desires, which belong in the realm of psychology, to talking as economists about wealth.
And that’s where we lose track of happiness. We adopt this indirect method, as I say, because we want to measure progress, and not because money really has much to do with our most important desires. As we know, it does not. A few examples may remind us of that fact:
A child’s love is simultaneously free and priceless.
Ann flings the damn diamond ring into the lake, not because it has suddenly lost its monetary value, but because, to her, it now symbolizes something non-monetary that makes that monetary value seem puny, even repulsive.
Peter, a highly paid executive, and Joey, a seventh-grader, are both equally nervous about speeches they have to give tomorrow.
Money really has very little to do with what’s important. We have arranged things so that we need money to obtain things, including stuff that keeps us alive and makes us laugh; but money can’t buy us love – and beyond a certain minimum level, it does not seem to make people much happier. Life – in either its length or its quality – is not a freely convertible currency; you cannot switch your dollars into or out of it at will.
Another assumption we must make is that the whole of society, or any group, is no greater than the sum of its parts. This is a very dubious assumption. We contradict it all the time. To use the previous example, Peter and Joey get nervous about their speeches to groups even though they could quite comfortably utter those same words to each member of those groups individually. We treat corporations, churches, and street gangs as entities, not merely as collections of individuals. We all know the experience of feeling pride, strength, or camaraderie by being part of a team, a city, or a nation. We have heard, and seen for ourselves, that people behave differently in groups than alone.
These are the things that experience tells us. Yet we will assume, here, that the emphasis in such experiences should be, not on the group that makes these feelings possible, but on the individual who has the feelings. This is like trying to comprehend the beauty of a song by discussing each of its individual notes. We constantly talk about "society," but now we are going to pretend that’s just another way of saying "all of us individuals."
With these assumptions, we have what we need to justify the conclusion that we can, and should, measure America’s wealth by adding up the dollar-measured progress of its citizens’ efforts to satisfy their internal desires. We are now ready to proceed – with the caveat that our unrealistic starting assumptions will require us to rely on additional unrealistic assumptions at various points along the way. This is the first way in which our system of economics really is like our system of law. {357}
Generally, we see that trade increases wealth because it gets things into the hands of people who value them more highly. For example, if I don’t get any satisfaction from having Aunt Betsy’s Rolls-Royce, I might decide to sell it to someone who will. I create wealth by selling it at the market price; I create additional wealth for myself, but no additional wealth for society, if I sell it above its market value (because what I gain, the buyer loses); and I create wealth for someone else, but not for myself – and, again, neither a net gain or a net loss for society – if I give the car away because I have adopted a new "easy come, easy go" philosophy. (Economics says that the car would become worthless if everyone shared it freely.)
Law encourages trading, and thus indirectly helps to increase society’s wealth, by protecting the property rights and contract rights of buyer and seller. Indeed, law is preoccupied with society’s wealth to the point of disregarding fairness: it encourages transactions in order to create wealth for society, but (except where specified) does not care whether a one party to a transaction immorally misrepresents the true market value of an item in order to trick another person out of his money. You’d think that an economic system that treats society’s wealth solely as the sum of its individual members’ wealth would be concerned with the welfare of those individual members, but now it seems that the wealth of those individuals counts only in the aggregate, just as it might under a communist system.
Using trade as an analogy, we can also describe other activities as economic transactions, and can use economic theory to measure their effect on wealth. For example, a car accident is not a transaction between a buyer and seller, but you could say it was a tradeoff – or at least it was the result of a tradeoff – between (1) what the person thought they were gaining by driving that way (or by using a defective car, or whatever) and (2) the tiny probability that any harm would come of it, and the expense and hassle of doing things some other way.
Now, everyone has to take some risks sometimes, so if we’re calculating the liability of the driver who took a chance and caused an accident, somehow we have to compare his decisions against the reasonable risk percentages for an imaginary "normal" driver in these very circumstances. God only knows how we’ll do that. (For example, will we say that a normal driver wouldn’t have cut through the parking lot, or wouldn’t have gone as fast through the parking lot, or what?) Then we have to decide how much a real-world driver will be allowed to vary from that norm. Then, if our actual driver went beyond that limit, they were in the wrong. Busy judges are probably not going to get into these detailed calculations and do them right, not unless they happen to be interested in them, and juries certainly aren’t trained in how to calculate probabilities. (See page 213.) So this is basically just one more complication they can fumble around with and muck up. As such, it represents an advancement in bogus precision over the way the judge would decide what happened in car accident if he didn’t have the benefit of economic theory. {358}
If you like this example of the technique of economic analysis, you’ll be pleased to hear that you can apply it to lots of areas of law. I wrote a whole book about it. Two books, in fact. An especially interesting application of the technique is to analyze the legal system itself, or at least the part that says judges should be guided by the opinions of previous judges in similar cases.
Consider, if you will, the following course of events. First, let’s say you’ve filed a lawsuit in a particular area of law, and you find that there have been a lot of recent decisions by other judges in that area. The more recent opinions you’ve got, the more likely it is that some judge has recently discussed some of the very facts and legal arguments that you’d be using at trial. So you and your adversary will probably be able to look at these previous opinions and make a reasonably good guess as to what will happen if you take this case to trial. {359} Given the huge costs of trial, it’s almost certain that the two of you will settle out of court. The same thing is meanwhile happening with all the other people who are filing lawsuits in this area of law. So whereas everybody used to be going to trial in this area (hence the many recent opinions), now everybody’s settling. If this keeps up, eventually there won’t be many recent opinions in this area, and then people will start taking cases to trial again to see if their odds have changed from what they used to be.
That’s not an economic analysis. That’s just how it works. Now I’ll give an economic analysis, and you can see for yourself how much more light it sheds on the whole process. Let’s begin with the assumption that the legislature tends to make precise laws only when interest groups force them to. The rest of the time, using economic terminology, it’s in the legislator’s self-interest to do what’s in the interest of the general, non-lobbying public. In that latter situation, the legislator knows that the public interest is best served – that is, his own interest is best served – if he just stays out of it and lets judges invent the laws themselves. We invented legislators so that judges would sort out the issues that lobbyists don’t care about. The thing that makes unelected judges so good at inventing laws on behalf of the general public is that judge-made laws help the public maximize its wealth; they do this by penalizing behavior that is economically inefficient.
Judges are eager to help the public become more prosperous because there’s nothing controversial about that and, of course, non-controversial means status quo. But please don’t conclude that judges would reward economically inefficient behavior that happens to keep things nice and stable. {360} If they did, the people who lost those cases would appeal to a higher court, which in most cases would not overturn the lower court’s decision; or they’d form interest groups to yell at the legislators and, by their very existence, would probably stimulate the creation of opposing interest groups, so in many cases they’d probably get nowhere in the long run; or they’d join the powerless poor, in which case economic inefficiency could persist as long as those people have no genuine recourse through which they might seek a more efficient solution.
I didn’t say that right. What I mean is that legislatures use taxes and other means to redistribute wealth from rich to poor, and no doubt that’s another thing that most voters like about having a legislature. Without a legislature, the rich would assert that they got that money from the poor and now they’re going to keep it. The rich find that harder to do that when a legislature goes prowling around, because then they have to organize powerful interest groups and buy the legislators off. The goal of a legislature, I’m saying, is to rearrange wealth, not create it. Judges, not legislators, are the ones who make the world safe for the creation of wealth in the hands of people and their lawyers.
If we reduce everything to economic terms, then wealth-creation is the only social value to which judges can make much of a contribution. Wealth, not justice, is the standard by which we should decide whether judges are doing a good job. Presto! The goal of achieving justice for the individual has become transformed into the goal of maximizing social wealth. {361} Our courts are valuable to the extent that they are contributing to society’s total wealth. (As noted on page 358, that wealth remains the same regardless of whether one party takes advantage of the other.) It is beyond the scope of this book to explain how we might actually measure the courts’ contributions to society’s wealth, or to assess the implications of a political theory that converts the needs of the individual into group terms.
I think you begin to see the merits of the economic approach. Once judges decide that their purpose is to maximize society’s total wealth, they just have to sit down and apply complex mathematical rules for which they are not trained. The judges will apply these rules in a rigid, logical method – almost like applying rules of tax law. (See page 57.) This attempt to use mathematical economics in law is not like the overdone formalism I was complaining about earlier. (See page 61.) Anyway, the rules will come from economists who, as scientists, can be expected to continue to debate and change them without warning. This will promote stability, in the sense that ordinary people will be able to understand why the rules are changing and can thus more easily adapt themselves to the new concepts. If I may use a phrase that could come straight out of Bill Blackstone’s work in the 18th century, I like to think that in this way economics "will express and perfect the inner nature of the common law."
Some might say that you can’t reduce thousands of rules of law, and millions of cases, to a little list of mathematical principles. But when you really understand those mathematical principles, you begin to see how much they can explain. Sometimes we may have to describe one type of case as though it were a different kind of case before we can apply the rules properly – like that example I gave on page 357, where we interpreted a car wreck as though it were a contract – but overall I think this approach would make it a lot easier to understand law, and to teach it. {362} Some people might say this is a lot like Socrates’ idea - considered absurd by my idol, Ollie Holmes - that we can cut through all this superficial chaos of our daily world to discover deep principles. (See page 15.) But that’s OK: that’s what science does.
"Positive" Problems
Critics reject both the "positive" and the "normative" parts of the theory I just presented. The positive part is where I describe the roles of legislators and judges. It’s "positive" because it posits a description of the way things are, as distinct from the "normative" part, which lays down a norm on how things ought to be – saying, that is, that law should concentrate on maximizing wealth.
Here, I’ll address criticisms of the positive part. These criticisms are basically that economics doesn’t work and that, even if it did, it’s the study of markets, which leaves out all the non-market things we expect law to address. {363} I’ll respond to these criticisms by starting with a more detailed description of economics.
As noted above, economics starts with the assumption that people always try to maximize their satisfactions. This leads to lots of theories, such as the "law" of demand, which makes observations about things like the relation between an item’s price and its availability – for example, that if the world discovers that it has a lot of something, sellers will outnumber buyers, and the price will drop. These theories aren’t just armchair philosophizing: economists gather data on them, and they seem to be true. Many of them aren’t as simple as they seem, so economists have to refine them with additional assumptions and theories.
Those assumptions and theories have multiplied. {364} It has now reached the point where an economist can find some explanation for almost anything that happens in markets, including things that seem to contradict economic basics like the law of demand. When your theories allow you to prove almost anything you want, they start to sound more like a religion than a science. When you can’t prove that a theory is wrong, you never know whether there’s another theory that might be more accurate and complete. Example: for thousands of years, everyone accepted the theory that the Sun went around the Earth because it explained most people’s experience with sunrise, sunset, etc.
Here are some indications that economics is half science and half guesswork:
As I say, economists typically test their theories by gathering a lot of data on them. Unfortunately, you can’t bring an economic or legal situation into a laboratory, put it in a test tube, change it, and see if it still works the same. Instead, economists make do with second-best: they run imitation experiments, where they bring in the data they can get, examine it statistically, and make assumptions about everything else – that is, about most of life and the world.
As in religion, economists find themselves much more celebrated for finding something that seems to prove rather than disprove that economics is Truth. {365}
In some minor ways, economists have cooked up various financial toys that help in areas like banking; but compared to sending someone to the Moon, this is not very dramatic proof that this particular "science" knows what it’s doing.
Even allowing for our definition, which excludes genuinely crazy people (see page 353), we see that people often seem to behave irrationally. A family, finding a starving man, might offer him some food. Yet he might refuse. Why? The answer takes psychological inquiry, not economic study. Possible explanations: he might fear they’re trying to poison him (because someone else just did), or the kind of food might offend his religion, or he might be too proud to accept charity. You need to know the reason before you can predict how he’ll behave if a different family offers him a different kind of food. In short, we can describe almost anything in economic jargon, but the rules of economics do not normally fit the seemingly weird ways in which sane people might behave. As noted above, we do not have the kind of science of mind it would take to study such things well or on a large scale; therefore economics will probably always be playing catch-up with the ever-changing real world. {366}
Despite these comments, I’m going to insist on calling economics a science – and a better one than psychology, which is partly to blame for inventing tests like the LSAT that send people like me to places like Harvard. Economics can’t tinker with rats in a cage, but it sure does throw around a shitload of data, and therefore I feel it’s superior. Besides, with or without the numbers, economics has some interesting theories. I don’t think Marxist theories could ever be this interesting, even if I were to make equally huge assumptions on their behalf. And I can certainly assure you that I have studied astrology enough to know it’s a joke, in case you were interested in my opinion on how economics compares to palm-reading.
What makes economics interesting to me is its promise of reducing all the world to a small number of mathematical principles. That’s what sciences like physics do. This is not "reductionism," which is a word that should be used only for "unsuccessful efforts to explain one thing in terms of another." Economics is not an unsuccessful effort to explain behavior in terms of maximizing satisfactions, and I am not conducting an unsuccessful effort to explain law in terms of economics. Not at all. These efforts will be "unsuccessful" only when we give up, which won’t happen any time soon. For an example of true reductionism, consider the attempt to show that ideas in our minds are ultimately a matter of molecules in our brains.
I can sense that I’m being ridiculous, so maybe I should change strategies and try attacking the concept of science itself. Along those lines, I just want to point out that other kinds of science, like astrophysics and geology, can’t be taken into the laboratory either, and therefore are just as hokey as economics – so it would be just as reasonable to base our search for justice and the operation of our entire society upon them, too, if we could think of a way of putting justice and society up in the stars or down in the ground. Another problem with science is that you can’t prove theories like evolution. (I don’t actually use the theory of evolution much in my courtroom, so that example may not be the best for proving that science can’t help law.) {367} Also, sometimes experimenters make mistakes, and economists do conduct experiments; so there’s not really that much difference between the reliability of, say, chemistry and that of economics. While I’m at it, let me point out that you shouldn’t reject economics just because common sense says it is nutty; after all, common sense also rejects the theories of quantum mechanics, which we have reached through decades of careful scientific study. I mean, if common sense doesn’t understand quantum mechanics, what good is it?
I do think sciences that try to understand people’s behavior are important. Economics is one such science. Behavior is often baffling, and economics assumes it’s rational, so economics likes to finesse the matter by saying that there just must be a reason for this behavior somewhere, although economics itself may not be able to supply that reason.
Given these inauspicious roots, economics of law can’t help being a pretty lame field, but its not the only one; behavioral sciences are generally useless for such purposes. Examples include "psychology of law" and "sociology of law." So instead of asking myself why I work all day to keep building up a legal system that a wide variety of social scientists can’t make sense of, I believe I’d prefer to add "economics of law" to the list of unproductive attempts. Who knows? This might be my best shot at becoming one of the great pioneers in Western legal history, like the guys whose errors I summarized in the Introduction. (See pages 1-23.)
Some people think "economics" means "the study of markets," so when you start studying nonmarket behavior, you’re not doing economics anymore. {368} The flaw in that reasoning is that economics doesn’t mean anything more than "the things that economists call economics." You know how the members of a religion are the ones who get to decide who’s a believer and who’s an infidel? Same principle here. I have learned some things about economics, and I want my approach to law to sound like a science, so I’m entitled to say that I’m doing economics. I grant that, historically, economists focused on markets rather than nonmarket situations, but that’s because they could get lots of data on markets and because experts in other fields – judges, for example – were not interested in markets, as I am. Also, economists were able to talk persuasively about "most" financial transactions and make their vague generalizations sound scientific because, after all, their examples and studies were full of numbers and graphs, unlike the vague generalizations that people in other fields might propose about "most" relationships or "most" trips to Jamaica. {369}
Now, some people say economists won’t have much credibility if they go fiddling around in new fields, like law, when they can’t even figure out the answers to important questions about markets, which they’ve been studying for generations. The error in this view is to trust dictionaries, which would lead you to think that economics is only the study of markets. Who knows? Maybe economists have accomplished most of what they can accomplish in learning about markets. Maybe it’s time for them to pull up stakes and migrate to other fields, where they can build whole new kinds of graphs and discover whole new kinds of questions that they can’t answer. There are probably some lessons that baseball or basketweaving could teach to judges, so there must be some that economics could teach too. {370}
People make a number of criticisms of the way economics of law works in practice. Here are some:
Criticism:
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Criticism:
Scientists are searching for other theories, but haven’t found any helpful explanations for our strange legal system. In the meantime, I intend to keep waiting for the day when some new branch of science will clarify everything. I figure it may have some use for what I’m doing with economics, so that’s why I piddle around with my studies of the occasional things that this theory does seem to explain. Since I can keep myself occupied this way, I conclude that the economic theory of law, involving wealth maximization, is the theory that a person should use to analyze law.
"Normative" Problems
As some of my comments have just shown, the question of which theory we have used to understand law tends to get mixed in with the norm-oriented question of what theory we should use. Nevertheless, I will try to keep the two separate. {375} Here are some normative criticisms of the wealth-maximization theory of law:
The wealth-maximization theory just accepts whatever exists, in terms of people’s wealth and opportunities, and goes on from there. But that attitude would accept an economy that began with slavery. {376} The theory might show that a modern slave economy produces less than a modern free one - that the latter maximizes wealth, and therefore is right. But what if it doesn’t? Suppose slavery were legal, but only for people who are so useless that this is the only way of getting them off their butts. Would Americans accept slavery in that case? I don’t think so. We already fought the slavery war once. Admittedly, we tolerate imprisonment, even though it’s not productive, but that’s different. It’s different because it’s a form of slavery that we are willing to accept. Same thing with forcing people to fight and die in wars they don’t believe in, or the bankruptcy court decisions that give hopeless people no way to start over.
Wealth maximization treats people like mere pieces of the larger group, or pawns in the big picture. {377} That’s not our style. In America, we believe that each person is important, no matter how unimportant we consider them. So you won’t find Americans putting anyone into slavery, except when it’s an acceptable kind of slavery, like the ones I just mentioned. This shows we are decent. Ultimately, our decency comes from our gut instincts, which somehow differ from the gut instincts that insure the survival of the fittest, on which we proudly base our market economy.
Our morals tell us that people are entitled to a fair hearing, even when it might be more productive - i.e., more wealth-maximizing - to let things slide. This is different from my statement that judges often have to let things slide because that’s more economical for the judge’s limited time and patience. (See pages 53, 97 & 333).
If all we’re thinking about is what works best, then we will probably find that sometimes torture is quite effective. I am a pragmatist, and therefore am interested in what works best. (See pages 153 & 223.) Torture is immoral. Physical torture, at least. So I get my morals from someplace other than my pragmatism, at least when my pragmatism is just too ugly to believe.
Mormons might be better-behaved citizens. If we’re just concerned with what maximizes wealth, maybe government should subsidize Mormonism. By contrast, Rastafarians are a pain in the ass. I’ve known several of them in my courtroom, and they really are. {378} They probably cost more than they’re worth. In terms of wealth maximization, we should outlaw their religion. In other words, if you’re concentrating on wealth-maximization, you can’t necessarily justify separation of church and state. But we’ve already fought those wars and learned those lessons too.
If civil liberties must stand or fall according to whether they produce wealth, how do we do the wealth calculation? On one hand, if we give Rastafarians the right to their beliefs at the outset, but let them sell those rights if they want to, they’ll probably never sell at any price. In this case, we’ll always have Rastafarians. On the other hand, if we require them to purchase the rights to believe what they want and be a pain in the ass, we’ll probably set the asking price far above what they could afford. In this case, no Rastafarians.
Maybe we do find that freedom of religion and other rights provide a wealth-producing solution. Maybe we wouldn’t allow such rights, and maybe we would allow torture, if we thought that would maximize our wealth. {379} Right now, though, we’re fat and happy, so we’re not under pressure to reconsider anyone’s rights, except criminals, and people who get sued for speaking freely, and anyone else who goes to court for some reason, because people are finding that their legal rights are being reconsidered all the time. (See page 356.) So maybe we allow equal rights for everyone because we’re good people who believe in freedom except when the goal of maximizing our wealth suggests a different course of action. {380}
The rich don’t tend to prefer equal rights. If you’re rich, you want to be able to buy things, including things you don’t really need that maybe some poor people need desperately. We like to see the rich spend a hundred times as much as the poor on their homes, clothing, meals, and everything else because this drives up the market prices on the things they like. As the Rolls-Royce example showed (see page 356), society’s wealth increases when market prices rise. That is, the more difficult it is for the rest of us to buy things, the better off we are. We are better off because society’s wealth is being channeled into important things, like million-dollar mansions for the elite. We calculate wealth this way because we are like an accountant, focused on the bottom line, who tells the boss that the company is doing great because the money is rolling in and expenses are dropping – which, the boss thinks to himself, is just what he expected when he started selling the company’s buildings and equipment and laying off workers.
Every now and then, the rich overplay their hand, and then the rest of us get mad and start yelling, The market be damned, we want equal treatment. It’s not easy for equality or other ideals of the American Revolution to win out over the ideals of capitalism, but sometimes the law does stand up for the little guy who threatens the whole status quo; at such times the law may say that wages can’t drop beyond a certain point, or that medical care has to be available. {381} This is the "redistributive" function that the legislature can provide on a massive scale, beyond anything that judges can do. (See page 360.) So while I don’t make this point, it does seem that the laws invented by judges are best suited for one-on-one street-fighting, whereas the legislature is the place that can turn lofty ideals into realities for us all.
My overall point is that economics explains law, and law restricts the ordinary workings of economics, although that seems contradictory. In more specific terms, I can’t quite figure out how the law maximizes society’s wealth when it clips the rich people’s wings. The closest I can come is to admit that maybe getting rich doesn’t maximize society’s wealth in the first place, if you get rich through transactions that hurt others. (See page 357.) On that subject, I like to think of most wealthy people as being like a guy who started a little bicycle shop and somehow converted it into a multibillion-dollar global enterprise by sheer hard work and ingenuity. This, to me, is a lot more appealing than the old saying: Behind every great fortune, there’s a great crime. {382}
I am vaguely aware that there’s a difference between what capitalism would prefer and what the Declaration of Independence would say, although I tend to submerge this awareness in a murk of random ideas that I’ve picked up from assorted scholars. On one hand, I think the person who makes money should have the right to spend it as he wishes. This necessarily favors the rich over the poor: it will drive the prices of many things beyond the reach of most people. On the other hand, if our nation is built on capitalism alone, then our law can’t very well claim to give equal rights to everyone regardless of wealth. Even if you do increase society’s wealth more than someone else does, you might not qualify to have more rights than someone else. Then again, you might. I’m not sure.
I guess it depends on what we’re talking about. I believe in generosity: we all know it’s better than piggishness, at least when the piggish person is someone else. But I don’t believe in generosity to the point of saying, "From each according to his ability, to each according to his need" – at least not unless the legislature exercises its ability to redistribute money from the rich to the poor.
Maybe what I believe is that people have a right to be selfish, to make and spend their own money in whatever way they wish, except where a judge feels otherwise. Personal, selfish wealth-maximization is a good thing in many ways. In the U.S., for example, we have free markets along with our other freedoms, and people from less free countries are just dying to move here. It seems that our free markets are responsible for creating our wealth, and our wealth is what makes us able to afford all these civil rights. So we base our civil rights on our wealth; hence, if we ever stop being wealthy, we’ll stop having civil rights, and it becomes terribly important to keep becoming wealthier, no matter what. {383}
Back in 1973, Brian Barry tried to get us off this merry-go-round. He philosophized that maybe money didn’t really motivate people. He suggested, for example, that people might still seek jobs as business managers if they earned lower pay, just because there are some people who like to be the boss and are good at it, and there are others who are glad to avoid those headaches. He also said that, instead of having to pay people a hefty salary to handle undesirable jobs like collecting garbage, we could just have a national service force in which all young people were required to serve for a couple of years, and it would be good for them to learn a little bit about what it takes to keep our streets clean and our bridges painted. {384} This, to me, is nuts. It is communism; it is a formula for disaster. Capitalist theory tells us that communism should fail; communism failed; so despite the fact that capitalist economics is not a genuine science (see page 364), we should feel more confident about it, and therefore should dismiss theories like Barry’s.
In other words, I say we should start with the assumption that money motivates people, even though capitalist economics begins by defining money as something that has value only to the extent that people believe in it. I haven’t bothered asking myself whether Barry was saying that if you really want to find what motivates people, you have to figure out what prompts them to believe in money in the first place. Why do some people keep on pursuing money when they already have more than they could ever spend, and why do others want to go home from work at 4 PM even though they could make time-and-a-half by working until 8? I have no clue. I don’t care that paper money is ultimately just paper, and I don’t care to ask myself whether the people with their heads on straight are the ones who leave at 4 to see their kids, and that these are the kinds of people whose values should be steering our economy. I’ll readily admit that these people and their kids do steer the economy en masse, as consumers; I just won’t admit that any one of them, struggling to keep up with the bills, would be a better source of sensible values for our society than a corporate big shot who adds huge numbers to the bottom line of society’s accounting sheet. {385}
In a more traditionally communist vein, Richard Rorty speculated that it might be good if some country made everyone’s income the same, even though there’s no theoretical reason why this should be good. {386} I acknowledge that this is a lot like the non-linear thinking of a pragmatist like Holmes (see page 222), but it doesn’t always make sense to change things just for the sake of change. The problem in this particular case is that people have already tried this, and it doesn’t work. I’m sure there’s a country where they have given everyone the same amounts of money or other incentives. {387} I disagree with Barry and Rorty, basically, because they just don’t know what experts like me know about economic science.
I have now laid the groundwork for my suggestion that maybe the best thing would be if governments started to cut themselves back to the minimal "night watchman" level. None have done it yet, so we don’t know what would really happen if they did. (See page 355.) I think that’s probably when you’d see real wealth maximization. Since we haven’t yet run that experiment, I can’t wholeheartedly advocate wealth maximization. Better to move carefully in that direction and observe the results as we go. My idea of "caution" in this regard would be to just go ahead and make wealth maximization our ordinary way of doing things, except where someone can prove a better reason to do things some other way. I suggest this because I’m tired of "jurimprudence" – i.e., non-pragmatic legal philosophy.
So let’s take another look at how the principle of wealth maximization might guide judge-made law. First, the Constitution plainly rejects the worst aspects of the principle, and it also sets out the rights that the judge must enforce. (See pages 375-79.) {388} Also, as I say, it’s up to the legislature, not the judge, to redistribute wealth. (See page 360.)
I suggest that the judge is most likely to want to use the wealth maximization principle in situations where economics is already a source of guidance. For example, let’s say there’s a dispute between a landlord and a tenant. The dispute centers around the theory that the landlord should fix the place up if it becomes disgusting or dangerous, even if the lease doesn’t require him to do so. The judge is going to have to do some research to decide whether the theory applies in this case. The research will include finding out whether the tenant needs the protection of this rule, and whether forcing landlords to keep their properties in decent shape will require them to raise rents to a point where poor people won’t be able to afford them. This is not an allocation-of-wealth question that the legislature should decide. No, it’s actually a situation in which the judge could rephrase the problem in terms of wealth maximization. Of course, the economic research necessary to answer the question may be difficult, the judge may have no training in it, and he probably won’t have time for it. I only offer this as an example of how legal philosophy can become more practical.
Maybe the best way to approach wealth maximization is to use the Pareto principle, which asks whether a transaction is "Pareto superior," i.e., it hurts nobody and helps somebody. If you look at things from a before-the-event perspective, you have to assume that all agreements are Pareto superior: both parties think they’re getting something out of the deal. {389} After the fact, of course, one or both parties may feel very differently.
Now, the whole point of Pareto superiority is to make sure that no one comes out worse off; but if we ignore that and just use the concept as though it were intended to examine matters before the fact, then we can claim to be using an economic principle to support the view that you ought to hold people to their agreements, regardless of how things turn out. So the tenant in my example should have gotten this rule in writing – that is, we shouldn’t hold the landlord responsible for fixing the place up unless the lease says so explicitly. This is how Holmes would have decided it. (See page 18.) {390}
You can use my modified concept of Pareto superiority in another kind of situation where the economic principles are pretty close to the legal principles: liability. Before the fact, the judge – or I guess we’re talking about the legislature now – adds up all the costs of all the expected accidents, and figures out all the amounts that people are expected to pay for their insurance premiums, and so forth. Let’s say this calculation shows that the way to maximize wealth is to decide a certain kind of liability case by a negligence principle (i.e., the legislature tells the judge to figure out whether you actually screwed up) rather than a strict liability principle (i.e., the judge is going to decide as if you screwed up, regardless of whether you really did).
This calculation says, in other words, that in this particular kind of case, total social wealth will be maximized by a negligence approach (which makes life a little easier for the accident-prone, whom the law does not automatically blame). Of course, society may have to pick up the tab for the catastrophically injured people who aren’t covered by their own insurance and whose negligence lawsuits fail to prove that the other guy was at fault. So does this maximize society’s wealth? I’m not sure. I think someone should study this whole proposal carefully, figure out the mathematics and science behind it, and see if maybe they can use it. {391-392}
Judges sometimes think they’re following the principles of "utilitarianism" – i.e., maximizing happiness – but you sure don’t see these judges saying that robbery is OK if the pain suffered by a victim who didn’t even miss the stolen goods was less intense than the pleasure the robber experienced in getting those goods. What these judges are really doing is applying my wealth maximization principle, weighing what society as a whole got out of the deal, and concluding that society loses something (e.g., the expense of requiring property owners to install security cameras) when it lets these bad players go creeping around.
Overall, wealth maximization encourages productivity and cooperation rather than the destructive selfishness that sometimes comes with utilitarianism. But it doesn’t always do this, mainly because luck – including the luck of being born in the right place, or with the right genes – is such a big part of who wins and loses in a given transaction. So wealth maximization isn’t really a good principle, and pragmatism is all we’re left with. {393}
