Gmu Economists Conflict on Hayek and the Discovery of Efficient Laws, I Think

Michael Giberson

Two recent papers by George Mason University economists* appear to conflict on the question of whether competition in the legal arena should be expected to yield more efficient laws. I say “appear to conflict” because I have only just glanced through both papers and they both appear rich, dense, and worthy of careful study. Both invoke Hayek, one to warn that a Hayek analogy between spontaneous emergence of law and spontaneous ordering in markets may be misleading and the other to claim that Hayek didn’t take that analogy far enough.

In one corner, the heavyweight James Buchanan, wielding his paper “The limits of market efficiency“:

ABSTRACT: The framework rules within which either market or political activity takes place must be classified in the non-partitionability set under the Samuelson taxonomy. Therefore there is nothing comparable to the profit-loss dynamic of the market that will insure any continuing thrust toward more desirable rules. ‘Public choice’ has at least partially succeeded in getting economists to remove the romantic blinders toward politics and politicians as providers of non-partitionable goods. It is equally necessary to be hard-nosed in evaluating markets as providers of non-partitionable rules

In the other corner, tag-team contenders Edward Stringham and Todd Zywicki with “Hayekian anarchism“:

ABSTRACT: Should law be provided centrally by the state or by some other means? Even relatively staunch advocates of competition such as Friedrich Hayek believe that the state must provide law centrally. This article asks whether Hayek’s theories about competition and the use of knowledge in society should lead one to support centrally provided law enforcement or competition in law. In writing about economics, Hayek famously described the competitive process of the market as a “discovery process.”  In writing about law, Hayek coincidentally referred to the role of the judge under the common law as “discovering” the law in the expectations and conventions of people in a given society.  We argue that this consistent usage was more than a mere semantic coincidence—that the two concepts of discovery are remarkably similar in Hayek’s thought and that his idea of economic discovery influenced his later ideas about legal discovery.  Moreover, once this conceptual similarity is recognized, certain conclusions logically follow: namely, that just as economic discovery requires the competitive process of the market to provide information and feedback to correct errors, competition in the provision of legal services is essential to the judicial discovery in law.  In fact, the English common law, from which Hayek drew his model of legal discovery, was itself a model of polycentric and competing sources of law throughout much of its history.  We conclude that for the same reasons that made Hayek a champion of market competition over central planning of the economy, he should have also supported competition in legal services over monopolistic provision by the state—in short, Hayek should have been an anarchist.

*Buchanan is GMU distinguished professor emeritus of economics; Edward Stringham is a PhD graduate in economics from GMU, now teaching at Fayettville State University; technically speaking Todd Zywicki is a legal scholar at GMU’s law school, but he knows enough economics to earn the honorific.

(HTs to Marginal Revolution on JB, Volokh Conspiracy on ES/TZ.)

2 thoughts on “Gmu Economists Conflict on Hayek and the Discovery of Efficient Laws, I Think

  1. I am a lawyer by trade, and I had this discussion with an economist about 25 years ago. I took the position that the law & economics theorists of that time had assumed common law rules were economically efficient, but had provided no mechanism for making sure that the rules were good at all. I cited public choice as an obstacle to good rules, and I posited that jurisdictional competition had, supplied an incentive for good laws in the 19th century and before.

    That competition had disappeared in the 20th century because court jurisdictions were rationalized and bureaucratized. In the US a SCOTUS decision from the 1930s (Erie v. Tomkins) eliminated federal vs state jurisdictional competition. After that everything in the legal system went to hell, although it could also be the baleful effects of the socialist New Deal.

    Hayek may have also be affected by the “Civil Law Tradition” inherited from the Roman Empire. But it too involved dramatic jurisdictional competition in it formative years. And, even more dramatic attempts to shut down that competition in the 19th and 20th centuries.

Comments are closed.