--- begin forwarded text Date: Thu, 8 Jan 1998 14:56:33 EST Reply-To: Hayek Related Research <HAYEK-L@MAELSTROM.STJOHNS.EDU> Sender: Hayek Related Research <HAYEK-L@MAELSTROM.STJOHNS.EDU> From: Gregransom <Gregransom@AOL.COM> Organization: AOL (http://www.aol.com) Subject: HAYEKWEB: Hackney on Law & Econ History & Hayek To: HAYEK-L@MAELSTROM.STJOHNS.EDU

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Hayek on the Web << -- Law & Economics

From "Law and Neoclassical Economics: Science, Politics, and

From "Law and Neoclassical Economics: Science, Politics, and

"Law and Neoclassical Economics: Science, Politics, and the Reconfiguration of American Tort Law Theory" by James R. Hackney, Jr. on the Web at: http://www.press.uillinois.edu/journals/lhrforums.html the Reconfiguration of American Tort Law Theory" by James R. Hackney, Jr.: " .. C. The Antistatist Imperative: F. A. Hayek and the Road to Law and Neoclassical Economics The technique of analysis coming out of early twentieth-century Vienna was not linked to any particular ideological position. In fact, Janik and Toulmin illustrate that the fundamental position could be characterized as "apolitical." However, F. A. Hayek independently provided a distinct ideological position shaped by the Viennese experience41 that had a profound impact on ideological debates in post-World War II America and, by extension, on economic analysis. Hayek's migration to England influenced the LSE debates that are crucial to understanding the strands of economic thought that framed Coase's work in particular, and law and neoclassical economics in general. In addition, Hayek directly shaped the law and neoclassical economics project at the University of Chicago.42 Hayek stated his ideological position in The Road to Serfdom.43 He asserted that Serfdom "is a political book" and that "all I shall have to say is derived from certain ultimate values."44 Written while Hayek held a professorship at the LSE, Serfdom was conceived as a direct response to a socialist ethos that permeated the European continent and endangered the liberal underpinnings of English politics. The goal of the book was to sound a "warning to the socialist intelligentsia of England"45 that their program would lead to the very totalitarianism so many had fought against. Despite its focus on the English intellectual scene, the book had an enormous impact in the United States.46 In fact, it produced a more extreme reaction, both positive and negative, in the United States than in England. No doubt part of the consternation on the American left was due to the boldness and scope of Serfdom.47 While the argument that "hot socialism" would poison a society might not have unsettled leftists, Hayek made similar claims regarding the welfare state.48 The problem articulated in Serfdom was that some of the core beliefs of hot socialism had become so embedded in the conceptual framework of intellectual thought that they threatened to undermine liberal society under the guise of the welfar state or egalitarian rhetoric. This would come, for example, in the form of knee-jerk calls for state/bureaucratic intervention in the economy when "judicious use of financial inducements might evoke spontaneous efforts."49 The polemical force of Serfdom stemmed from its evocation of the dangers of totalitarianism, particularly the Nazi Germany variety, manifest in social approaches to the ills that befall society. Hayek boldly and flatly asserted that "[i]t is necessary now to state the unpalatable truth that it is Germany whose fate we are in some danger of repeating."50 The core of the antistatist stance as articulated in Serfdom grew out of the belief in the uniqueness of individual activity and thought ("ethical individualism"). It was unacceptable, in fact impossible, for anyone other than the individual to make decisions for the individual without imposing an alien set of values. At that point, seemingly benign policy prescriptions dissolved into naked, unjustifiable coercion. Thus, "individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else's."51 In the antigovernment sentiment and proincentive policies articulated in Serfdom, we see the ideological seeds that helped influence, but were not determinative of, the American law and neoclassical economics movement. The ways in which the antistatist ideal set forth in Serfdom would be reflected in social institutions are clear in Hayek's discussion of the legal system and are fundamental in linking his intellectual project to the law and neoclassical economics movement. Hayek's views on the legal system were shaped by his core belief that "competition" is the central means of "co-ordinating human effort" and the "conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other."52 Thus, in the effort to protect the individual, it is free market competition, not government intervention, that is presumed to be for the good. So, what of the law "[I]n order that competition should work beneficially, a carefully thought-out legal framework is required. ." In particular, some legal structure may be needed in order to accurately reflect the price of goods and services, which is the vital information for individuals.53 In sum, the law serves to facilitate competition, which is the system most conducive to individual freedom. It does so by setting the boundaries of competition. The law should "recognize the principle of private property and freedom of contract." In this regard, it acts as a neutral arbiter facilitating individual preferences and defining the "right to property as applied to different things." The rights associated with property, notwithstanding antistatist ideals, were not absolute, but contingent upon the particular situation. Efficiency was the criterion: the "systematic study of the forms of legal institutions which will make the competitive system work efficiently." Regarding legal rules specifically, Serfdom articulated a system in which "[t]he only question . . . is whether in the particular instance the advantages gained are greater than the social costs which they impose."54 Hayek's emphasis on legal rules, particularly as they affected social costs,55 is the link connecting him to the law and neoclassical economics movement. Hayek gave a detailed analysis of social costs and the limits of government intervention as a tool for minimizing such costs. However, to the extent that legal rules limiting property rights represent an activist role for government, Hayek stated that, though the scope of this permissible intervention on individual autonomy was not defined, "these tasks provide, indeed, a wide and unquestioned field for state activity."56 I argue below that the possibility of "state activity" within neoclassical economics provides the ground for progressive political appropriation of neoclassical economics. This discussion of postwar antistatism, as represented by Serfdom, and its logical progression to concrete neoclassical analyses of legal institutions, specifically property rights, begins to substantiate the first major claim of this essay: law and neoclassical economics is, at its core, about politics. It also shows how the conservative politics associated with neoclassical economics could be taken seriously if the dangers of progressivism articulated in Serfdom, including progressive ideals espoused by pragmatic instrumentalists, were heeded.57 Now we turn to the connections between neoclassical economics and the science of the analytic turn in order to begin establishing the other claim of this paper: law and neoclassical economics is, at its core, also about science. At the end, we find that there is a synthesis of the politics and science of law and neoclassical economics .. " the Reconfiguration of American Tort Law Theory" by James R. Hackney, Jr. Law and History Review. Vol. 15, No. 2, Fall 1997

From "'Law and Neoclassical Economics': A Response to Commentaries 163-172" by James R. Hackney, Jr.:

" .. I never identify Hayek as a "neoclassical economist" but I think it is (1) fair to say that Hayek, and Austrian economics generally, have had considerable influence on neoclassical theory;16 and, more importantly for my thesis, (2) Hayek has had a profound influence on the strand of law and neoclassical economics coming out of the University of Chicago.17 (footnote 17. Coase's recognition of his intellectual debt to F. A. Hayek and the institutional role Hayek played in establishing law and neoclassical economics studies at the University of Chicago is illustrative of this point. Hackney, "Law and Neoclassical Economics," 284, n. 42, 306, n. 141.) .. "

From "'Law and Neoclassical Economics': A Response to Commentaries 163-172" by James R. Hackney, Jr. _Law and History Review_ Vol. 16, No. 1, Spring 1998.

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