 So let me state at the outset what my question is, the question that I want to answer in this little talk. The question is how can the common law adapt to novel circumstances and still promote the coordination of plans? Now both claims have been made for the common law. One, that it is flexible and adapts to new circumstances and two, that it provides certainty of expectations. But it would seem, at least prima facie, that adaptability implies change and change implies unpredictability. So it's my task to try to dissipate this paradox and to show more precisely how the common law both adapts to new circumstances and promotes the certainty of expectations. In order to do this, I have to make a distinction which I hope doesn't sound overly philosophical and abstract because I think that it has very, very practical implications as you will see. And the distinction is between two types of legal coherence. The first type of legal coherence is simply the order or logical coherence of the law. So in an sort of academic or intellectual sense, do the various rules follow from each other? Are there deductive relationships between rules, facts, and their application? That type of logical tightness. The second type of legal coherence is the coherence or the coordination of plans that the law either gives rise to or allows to develop. And so the first type I'm going to call logical coherence, the logical coherence of the law. And the second type I'm going to call, since I'm an Austrian economist, the praxeological coherence of the law. That is to say, the coherence generated by law of the plans of the agents subject to the law. Now I'll elaborate on all of these things as we go on, but let me tell you what my conclusion is with regard to these two types of coherence. Many thinkers, especially German jurisprudence, actually in English we have two words that we can use for people who study jurisprudence. One is jurisprudent and the other is jurisprud. And I don't really like the term jurisprud, so I will say jurisprudent. But we have among German, especially German jurisprudence, a view that the most logically coherent law is also the best one from the point of view of the coherence or coordination of plans. Now we'll get into that. So let me start out by talking a little bit about this idea of coherence of the law. And if there are philosophers here, you know the concept of coherence is a very difficult one, and so I'm going to skirt a lot of issues. But I think I can start out by quoting Leibniz, the German philosopher Leibniz, who wrote a lot on legal matters, although I don't believe much of that is translated into English, at least I've not been able to find it. In any event, in criticizing some aspects of Roman law Leibniz said that he, quote, wishes to reconstruct a legal order corresponding to nature, commencing from first truths to draw their direct consequences, and from consequence to consequence, arrive in the most logical way possible at an axiomatic system, end quote. Now that's quite an ambition. But immediately there's a fundamental problem, and I'll give an illustration of this problem, but the fundamental problem is that in any legal system, the premises of that legal system cannot be, at one and the same time, fixed and specific. And the reason for that is because circumstances, exact circumstances, do not repeat themselves. Let's take an example. Suppose there's a rule of law arising out of a history of accidents in a given society, which let's say when formulated reads like this. Whenever a person riding a horse runs into cattle crossing the road, he is liable for damages to the cattle. Well, what in this is essential, and what in this is inessential? Suppose the person is not riding a horse, but he's riding a coach. Does the liability still follow? Suppose it's not a cattle that he runs into. Suppose it's pigs, his liability still follow. I think you can see that for this to be effective at really regulating conduct, the premises must be general principles that can't be really very specific. I mean that there's a whole issue of the trade-off between specificity and generality, but I guess you can see where I'm going, that very specific principles are not going to work and be fixed at the same time. They're going to have to constantly change every time there's some new tweak in the event. So for them to be fixed, they have to be fairly general. Now, what I want to say is that if we take this idea to the limit that the principles have to be general, we can arrive at something like a system in which there's one general principle. And I'm just going to take for purposes of illustration, and to make this more concrete, the system of wealth maximization. Let us just say the general principle, the general fixed principle, is that all activity, all rules should be arranged or such that they provide the proper incentives for maximizing social wealth. So that's the general principle. And so in every specific case, what is fixed is the general principle to maximize wealth, and what varies are obviously the particular facts and exactly the way those facts manifest, the way those facts adapt or align themselves with social wealth maximization. So from now on, when I talk about a logically coherent system of law, I want you to think efficiency as the dominant principle or wealth maximization as the dominant principle. And everything else is coherent with respect to that. And that's an example of a coherent, logically coherent system of law. Now let me deal with a question of actions, the praxeological coherence or the order of actions. The order of actions to which the common law gives rise or perhaps better allows to give rise is a coordination of plans, right? And we've heard a lot about this in this conference. Now the key criterion, the key condition for plans to be coordinated in an ex-ante sense is that expectations of the future must be consistent. Let us just say that it is possible in principle for the plans of all the agents to be carried out. If people's plans are inconsistent, if you'll excuse me, expectations are inconsistent, then in principle we cannot implement all of their plans. I make a plan on the basis of expecting it to rain tomorrow. You make a plan on the basis of expecting it to be sunny tomorrow. And since those expectations are inconsistent, in principle, only one of us, at most one of us, can implement his plans. So to have a mutual coordination of plans, a mutual ability to implement plans successfully, we have to have consistent expectations. Now one important form of consistent expectations are consistent legal expectations, right? People have to know what's expected of them in different contexts. Now that's not the only form of expectations that are important, but it's clearly a fundamental form of expectations that need to be consistent in order for there to be the ability to implement plans on the part of all parties. All right, so now it's clear that we must determine whether the requirements of wealth maximization or efficiency or the economic legal order are of such a nature as to bring about a coordination of plans. Will logical coherence bring about praxeological coherence? And what I believe I'm doing here is I'm confronting the Hayekian paradigm with the Chicago-Posnaryan paradigm of efficiency, the expectations paradigm versus the efficiency paradigm. And I'm asking whether the efficiency, achievement of efficiency, will harmonize with or will produce coordination of plans. Now whose expectations are we concerned about? Well, we're concerned about at least two parties, the judges, and the people who are subject to the law. Bystanders are not included. In other words, when I say subject to the law, I mean the people whose actions are relevant to the law and for whom the law is relevant to their actions. Now judges, will judges, will fellow judges rule in the same way? That's a critical issue. No judge likes to be overruled and even when a judge is being creative, they'd like to see, they'd like to have the ability to, they'd like to be assured that other judges could in principle follow their decisions in future cases. So the question is with respect to expectations is first, will fellow judges rule in the same way? Apply to the efficiency idea of law, we're really asking are cost-benefit calculations, the weighing of costs and benefits, unique or nearly so? Do they produce determined outcomes? Or is there a great diversity in what comes out of cost-benefit analysis such that decisions will not be the same even though they're using the same method? The second form of the second area or the second group of people for whom consistency of expectations is important, the public, those governed by the law. Will other agents governed by the law have the same or similar expectations? That is to say, will they be able to predict the results of the cost-benefit analysis? Do they have the information to predict what efficiency-minded judges are going to do? Now years ago, I wrote a series of articles detailing the information problems inherent in the wealth maximization approach. I don't wish to repeat that here so I'm gonna deal in more general terms, but the moral of those articles, the moral of the story in those articles was that, except in very simple-minded examples constructed for the purpose of showing that the efficiency system works, it's very complicated to get the appropriate information to make efficient decisions. Complicated for the judges and complicated for the public to know what the judges are going to decide. There's a history here that goes beyond criticism of the efficiency analysis. James I of England is quoted somewhere other is saying, reason is too large, give me a precedent and I'll follow it. And I think that's what I'm saying with respect to cost-benefit analysis. It's too large, give me a precedent and I'll follow it. The history is not only James I, but Jeremy Bentham in his early works, in these manuscripts that were discovered in boxes that have not been published yet, but they have been talked about in articles and books by an author, Gerald Postema, I guess he's a philosopher, in which Bentham says, the road to utility is the road to precedent. That trying to balance utilities is too uncertain and the best way to balance utility is to follow precedent, because at least people will know what you're going to do. So I guess if you want to make a slogan of my talk, or at least as part of the talk, the slogan would be something like reason is too large, utility is too large, efficiency is too large, give me a precedent and I'll follow it. Let me be sort of illustrative here. Let's consider a case like that one with the man on the horse running into the cattle crossing the road. Let's say the first case of novel circumstances has arisen in this general class. Let's say it's the first automobile pedestrian accident. So we're replacing the man on the horse with an automobile and the pedestrian replacing the cow or the cattle with a pedestrian. Now how should the judge decide this first novel case of the automobile pedestrian accident given this previous history? What style of reasoning should the judge adopt? For our purposes there are two alternatives. One I associate with the Chicago approach and the other I associate with the Hayekian approach. The Chicago approach is what I call top down. I'm not the first to call it top down. The judge adopts a theory about an area of law and then uses it to explain previous decisions and to then generate an outcome in each new case that will be consistent with the theory. So it's just hypothesis testing, right? How do you work in economics? You have observations, you generate a hypothesis, you test them on the observations that already have happened and then you may use it to predict some new case that arises. Well in judging you're not predicting a case, you're deciding a case. So it's the same idea. You've got all these old cases. You generate a theory that rationalizes them and then you apply that theory to the new cases. Now this theory is not drawn from the law except in so far as it uses decisions as points or observations but it's superimposed upon the law. So wealth maximization for example is a super imposition from economics. But there can be theories from philosophy, sociology, what's popular in the United States now, feminist legal studies, whatever that is. But it's not part of the law, it's part of something outside the law. The second method of reasoning is what I call bottom up. Now nothing to do with the expression the English use bottoms up or anything of that sort that you might imagine. This is a case where the judge reasons about the new case by analogy with the old cases. He appeals to precedent and thus to a rule which is naturally projectable from the body of settled law. Now this term naturally projectable from the body of settled law is a treacherous one. What do I mean? I mean the analogy is one which is expected by the community of judges and by those governed by a particular area of the law. So when you make an analogy, you know, you've all experienced people who make analogies which are far-fetched. You can imagine somebody taking a specific case and then trying to show how another case is similar and you say, well, wait a minute, that's a fantastic analogy. Who would ever have thought of that? But then there are analogies which you think are fairly commonplace. For example, you probably all think that in the case of that rule about the man on the horse running into the cattle that I've replaced the cattle with pigs that the analogy is straightforward. There's nothing controversial about that. Go ahead. And I would say that then you probably would agree with me that maybe we could call that a naturally projectable analogy and keeping with your expectations. Now let me say here to forestaw any misunderstanding, I am not implying that analogous reasoning is theory free. But what I am saying is that the theory that the analogy employs is a theory that comes from the people, so to speak, and not from the academic disciplines. It's what common sense produces, not what academic disciplines produce. So that, you know, in any analogy you have to decide what's essential and what's inessential. Is it essential that there were cows or is it essential that there were animals or is it essential that there's just some other party that's hit by the coach or is it essential that there be a coach? So it takes a theory, a normative theory to tell you what's essential and what isn't. But what I'm saying is that that theory in the bottom-up approach comes from the people, so to speak. All right. Now let's let me nod in favor of a Frenchman, although it's a long dead Frenchman, Montesquieu. Montesquieu says about the various powers of government, the legal executive and judicial that of all of them, judging is in some fashion null. And I think this is what he means. This is the meaning that, say, the English lawyers have referred to as finding the law rather than creating the law. Why are you finding it? What sense does that mean? In what sense do they mean finding? Well, you're finding what it is that people naturally expect that goes just a little bit beyond we are already. So in some sense, you're not really finding the law. There's a little bit of creation there. But it's so little that we can just say, well, it's finding the law. It's what's implicit in people's expectations. So the top-down approach would require an order to enhance the coordination plans that both the judges and the members of the public be able to predict the rules of the judicial cost-benefit analysis. And this is only going to be effective to the extent that it focuses that cost-benefit analysis can focus expectations. That is to say, in the special case, when the wealth maximizing outcome is manifest or where it is obvious. And as I've indicated, I do not believe this is generally the case that it's obvious. But the expectations approach goes right to the source of the stability in the common law. The expectations arising from the common sense theories implicit in the normative views of the people governed by the law and the judges who have to follow the other judges that have to follow the initial judges precedent. Okay, so what conclusions can we draw? Try to wrap things up. The first conclusion is that a coordination or coherence of the law in a logical sense does not necessarily imply the coordination of plans. That you can have a logical system like the efficiency or wealth maximization system, which is very satisfying perhaps from an academic point of view, but it will not necessarily imply the coordination of plans, unless you're dealing with a special case where the wealth maximizing outcome is obvious. The second conclusion is that the bottom-up legal reasoning or the expectations approach is more likely to result in the coordination of plans than the top-down approach. Analogous reasoning is rooted in what is reasonably projectable from existing law. Now, before I finish, I want to deal with some possible objections. First objection, aren't expectations diverse? Here I am, Austrian economist, especially one who's written a lot about divergence of expectations, and now I'm saying just follow the expectations of the people. Well, that worried me for a while, but then I decided I'm going to be really practical here, and this is what I mean. Yes, expectations are in general diverse, but I think that there is more agreement when we're making marginal changes in existing law going just a little bit beyond the existing rule than when we go a lot beyond the existing rule. So what I'm saying is that I think that there is a very narrowed range or divergence of expectations down to a very manageable set of possibilities when we're dealing, the smaller the change that we're dealing with, the less we're going beyond the existing law. If we were to have to go way beyond the existing law, then I think people's expectations, their projections from existing rules and institutions would be more diverse. And I should also add that this approach, or I consider the Hayekian approach, is not unique in having, in dealing with difficulty with non-marginal or large divergences or changes in the law. For reasons which I can't go into here, the efficiency approach also breaks down when you're dealing with large changes. Okay, finally, second possible objection, would not a sophisticated wealth maximization approach really incorporate everything I've said. In other words, suppose we can take account of planned discoordination that arises out of uncertainty, the lack of knowing where the law is going to go. Can we not measure the discoordination costs and therefore put that into a notion of wealth, right? And then just say, well, we'll maximize wealth and include as part of a cost the cost of discoordinating or frustrating people's expectations. Now, Bentham, I think, believes that that would be the case. So instead of talking about efficiency, he talked about utility, your utilitarianism, but it's saying it's just a slight difference. And as I indicated earlier, Bentham said, the road to utility lies in the beaten track of precedent. So he believed that, yes, you could do that. Now, maybe you can. I'm not sure that an expanded wealth maximization approach would give you the same results as an expectations approach. It might or it might not. I'm leaving it open. But I do know that if it did, it would only be extensionally equivalent. The two approaches would only be extensionally equivalent. Let's say they would only point to the same result, but the rationale, the underlying rationale would not be the same. One would be a cost minimization rationale. The other would be a expectations rationale. But more important than even that, I don't think the wealth maximization people would have ever thought of this to throw this into the wealth maximization unless the Hayekians had brought it up first. So in that sense, it's really dependent. It's really derivative. It's really secondhand kind of secondhandism of a sense. Okay. So let me go back to the original question and then give the answer. The original question was, how can the common law adapt to novel circumstances and still promote the coordination of plans? The answer is, by extending the law by one, very small degrees and two, in accordance with the expectations of the relevant parties, then that way, the common law can achieve both the goals of adaptability and of certainty of expectations. The twin goals that have been claimed for it by people like Bruno Leone and others for a long time. Thank you.