 I don't really have a paper with this title, I'm actually in the process of writing a book on the evolution of law. And what I hope to do today is give you an idea of the theoretical basis for my view of legal evolution along with some brief, selective discussion of some of the implications of this process and the institutions that tend to evolve. For that, though, I think I do need to quickly tell you what I mean by law. Because there are different definitions, and if you have one in mind that's different than mine, my presentation won't make much sense. Lawn Fuller wrote that law consists in the enterprise of subjecting human conduct to the governance of rules. And I take this to mean that law is not just a set of rules. Whether it consists of, if you want to use Hart's terms, the basic or primary rules of conduct along with secondary institutions or mechanisms for applying these rules. And this is the view that I'm going to adopt here. It's certainly not the only definition that exists. I suppose the main alternative is John Austin's definition of law as the command of the sovereign or perhaps more generally command from the apparatus of the state. Labeling state-made rules and law as or institutions as law and everything else is not law. It simplifies things a lot. But I think it leaves a lot of things outside the discussion that are very important parts of the governance process. In fact, it leaves out things like primitive so-called stateless societies. It leaves out many of the early medieval societies, for instance, Iceland that David has written about, leads out most international trade today, and so on. So I have a definition or adopt a definition that is much broader, that in general considers any system of governance, or not any, but systems of governance as legal systems and recognize that they may or may not be related to the state. So the first point now given that definition that I want to make about the evolution of law and legal institutions is that we should be thinking about law in the same way that we think about economic institutions. In fact, law is an economic institution, I think. It evolves very much like markets can evolve. Or it can evolve that way. In fact, what I'm going to do is suggest that a positive analysis of the evolution of law should be based on the fundamental assumptions that drive all of economic theory. Scarcity, methodological individualism, and rationality. Or scarcity. David Hume pointed out almost two and a half centuries ago, I guess now, that a primary or maybe the primary motivation for developing rules in institutions, whether spontaneously or deliberately, is that rational individuals are attempting to find ways to expand personal wealth in the face of scarcity, just like markets then. But importantly, I think we have to recognize that there are two ways for individuals to expand wealth, personal wealth. One is what Franz Oppenheimer has labeled the economic means, cooperative voluntary interaction, team production, division of labor, all those things we're all familiar with in economics, voluntary exchange. The second involves the taking of wealth produced by others through the use of force or guile. Oppenheimer calls this the political means, so I'll use his terms. My point then is that a positive analysis of legal evolution should simultaneously account for the influences of the rules and institutions which facilitate the economic means of wealth expansion or enhancement for individuals. Those rules and institutions that are part of the political process of wealth transfer. And I think this view is at least somewhat different from some of the earlier work in law and economics that approached the evolution of law from the point of view of efficiency suggesting that at least the common law was an efficiently evolving institution. On the other hand, it's somewhat different than the rent seeking literature in public choice that views everything as all rules and things as evolving in response to transfer seeking or rent seeking because my contention is that both of these things are going on and so we have this schizophrenic system that is simultaneously defining crime and creating crime and so on. Most people find themselves involved in both types of activity under different circumstances. We are often subject to different sets of rules and institutions under different circumstances. In other words, we're part of simultaneously perhaps of more than one system of law. The evolution of law is a process of continual interaction and competition and influence going in both directions. So what I want to do is give you some idea of how I'm beginning to think about this evolutionary process. In order to do that, I'm going to first look at the two extremes of this continuum between cooperation and coercion or between the economic means and the political means. First start about spend some time talking about cooperative institutions and how they might evolve. Then shift to the other extreme of coercive or political institutions and then hopefully I won't run out of time and I can talk about the interaction between the two for a few minutes as well. In order to illustrate the process of legal institutions and some of its consequences, I want to begin with the Hobbesian state of nature where many of us begin when we think about these things. Where there's no cooperative interaction at all, obviously not something we've ever observed completely, but let's start there. I will assume that there is considerable uncertainty and therefore high transactions costs, but I'm not assuming some sort of Rawlsian veil of ignorance or something like that. I'm assuming that individuals are rational, they have some expectations about the consequence of alternative actions and so on. Because of scarcity, competition over the use of property is inevitable, as Hume pointed out. How do we make property claims, well the standard view is that individuals all act unilaterally by investing in efforts at violence in order to make threats against other people or actually violent actions against other people in an effort to make property claims. Since several individuals are likely to have similar incentives for a particular scarce resource competition through violence supposedly occurs, we have the war of all against all and the winner I guess has relatively secure property rights for a while until somebody else comes along. The argument I want to make first is that the war of all against all is not an inevitable characteristic of the state of nature as Hume pointed out. For scarce resources is multi-sided and any subset of individuals might be able to reduce the cost of conflict by voluntarily recognizing some subset of each other's claims and ending the conflict so they don't have to invest so much in violence. Interesting set of papers have been produced over the last few years developing one shot games in this competition conflict power area and surprisingly perhaps they predict a continuum of outcomes of course but ranging from full cooperation to partial cooperation to conflict and the difference between these games and the standard prisoner's dilemma game perhaps is the recognition that people may have different capacities for violence and therefore relative capacities for production. Full cooperation these models suggest arise when neither person's investments in violence are expected to change the probability of winning very much in other words the marginal product of investing in conflict is very low so a large differential investment for violence produces only a small change in the probability and the incentives then are to tacitly cooperate and the result in these models is a private property arrangement in which no party attempts to claim resources controlled by the others. The conflict strategy or outcome dominates when the marginal product of violence is expected to be high for both parties each believes that increasing investments in violence will enhance their probability of winning and you have the typical prisoner's dilemma and you end up then with the war of all against all and the third sort of broad category of outcomes is partial cooperation where one party's opportunity cost of investing in conflict differs substantially from the other parties and so one individual invests in violence and the other one doesn't and you get the command arrangement or what I like to call the protection racket or something like that where one individual subjugates and extracts tribute from another so one individual produces wealth and the other one produces violence and extracts wealth. The Oppenheimer concept of the political means of wealth expansion of this tribute or extortion or whatever you want to call it obviously applies now in a dynamic setting things aren't obviously quite as simple but I think this is a good starting point for thinking about a dynamic or evolutionary process. The potential static outcomes of cooperation conflict and partial cooperation are sorting the starting points. In a dynamic setting the probability of the conflict outcome may might be reduced for instance as we move into the potential for repeated game reciprocities increasing the likelihood of a cooperative outcome although repeated games obviously don't guarantee cooperation. Other incentives to cooperate I'll explore shortly but the point is that in a when people have a little bit longer time horizons when reputations matter that sort of thing then the potential for agreements expands but importantly the initial agreement still has to ration to each individual as much wealth as he or she would expect to have through the use of force. So force determines the initial distribution of wealth even when it's achieved voluntarily essentially in this framework might makes right. The degree to which individuals reduce their investment in violence after an agreement depends on how credible each other's promises are and on the source of the credibility. If the agreement stems from an initial situation involving asymmetric capacities for violence then the dominant power can demand a relatively large share of property rights and wealth. In fact if we think of someone with an absolute advantage in violence then the outcome is something like slavery where the one individual owns everything including the labor time of the other individual. But in this case of course the source of credibility of the promise of the slave is fear and so in order to maintain credibility on the part of the slave the investment in violence has to continue and so accepting slavery after all the choices aren't very attractive die or be a slave but if you become a slave there might be some possibility of escaping later and so the slave owner has to continue to invest in violence or the tools of violence to maintain that arrangement. When no one has a comparative advantage in violence then individuals can contract to recognize some initial distribution of private property rights. The incentives to cooperate in this case are generally positive individuals enter because they expect to increase their personal wealth by being able to focus more of their resources on production and less on perhaps on violence. In a dynamic on certain world the resulting property rights arrangements still require the support of institutions and I'll talk briefly about that shortly but under this circumstance the institutions that evolve will tend to provide sources of information and resources of increased credibility for promises without the use of violence. Between those extremes of slavery and full cooperation we have a whole range of possibilities for instance a person a very productive person might choose to pay tribute or extortion simply because even though that individual might be able to resist effectively if the opportunity cost of resisting is greater than the cost of the extortion which means the extortionist is constrained clearly in how much that can be extracted. So I visualize a continuum of possible systems naturally evolving under different circumstances and law in the resulting behavior varies as a result. Let me think a little bit about the laws that might evolve in a cooperative arrangement first. Van Bergen and Buchanan define trust rules to be rules of behavior toward others which individuals have positive incentives to voluntarily accept and they explain that these incentives are associated with such rules are the basis for voluntary group formation. Individuals essentially agree to behave in certain ways with other individuals and then you get a network of such relationships creating some sort of network of group interaction based on these bilateral agreements. Assuming trust rules are voluntarily recognized the outcome is some sort of implicit or explicit contract where individuals agree to adopt predictable behavioral patterns or norms in dealing with other individuals. The one party who adopts cooperative behavior has to believe the other party is trustworthy of course. So there has to be a belief that promises are credible that belief initially may reflect each other's similar capacities for violence or something like that. Since the initial conflict tends to be due to scarcity the development of cooperation is an establishing trust rules will focus on the allocation of property rights I would argue. Security of each individual's property claims will be increased by adopting trust rules respect property rights of others who are in your cooperative cluster. And they do so because others are expected to cooperate as well. With this kind of cooperation property rights become relatively more private relatively more secure. Individuals time horizons are linked and all those good things that we think about with private property rights. The importantly these trust rules regard recognition of private property then and they are customary rules or norms initially which evolve spontaneously through voluntary interaction. Robert Elexon had a paper in Yale Law Journal in 1993 where he pointed out that there is abundant evidence that a group need not make conscious decisions to establish private property rights. People who repeatedly interact can generate institutions through communication monitoring and sanctioning contrary to Hobbes and Locke a property system can get going without an initial conclave. And he provides a good deal of interesting evidence to that effect. How does such evolution occur? Well I mentioned repeated game reciprocities. That's certainly part of the story. The furthermore once a group starts forming even in a primitive setting there will generally be a network of interactions on many dimensions. Essentially everyone is in a community where you your relationships are direct and multi-sided. And so with a multifunctioning web of cooperation the incentives to cooperate are strengthened because of potential reputation sanctions. If you don't cooperate then it's possible that the other person can spread negative gossip if you want to call it that. And the consequences on reputation can limit the non-cooperative player's ability to enter into other games. There's little doubt that such information will travel and in fact an important development often in these systems is the development of institutions to spread information about reputation. These come very quickly and I would suggest that this is how individuals spontaneously end up producing ostracism sanctions. You spread information about non-cooperative behavior on the part of others. Others choose not to cooperate with the non-cooperative player too and pretty quick you can't find anyone to deal with. So importantly then other sanctions start developing. Nonviolent forms of sanctions can develop in these arrangements where you can reduce your investment in violence as a source of credible commitments and perhaps increase your investments in information mechanisms and that sort of thing as a substitute a low cost substitute in general. Information especially in a close net group is cheap to send and cheap to obtain so it's probably a much lower cost mechanism of sanctioning and less dangerous for the individual. You have social ostracism substituting for violence. So what I'm imagining then is an evolutionary process in which individuals gradually emerge from the state of nature as they recognize the high cost of violence as a means of establishing property rights. They face the likelihood of repeated interactions with certain neighbors with similar capacities for violence. Relatively tentative bilateral relationships based on reciprocity incentives arise. Each bilateral repeated game involves probably tit for tat kinds of strategies or something like that. But as more relationships are formed the potential for reputation sanctions arise. Exit options arise which make reputation sanctions stronger because if you've got a lot of different intermeshing relationships there's often a competitive alternative to the person you were dealing with who becomes non-cooperative so you simply refuse to deal with the individual anymore and announce to your group that he's a bad guy and so you end up with unconditional cooperation essentially but it's limited to those people who are known to be cooperative and it's a voluntary kind of arrangement not unlike many primitive societies. Van Bergen Buchanan explained that once a group is voluntarily formed based on trust rules the possibility exists for establishing other kinds of rules that they define as solidarity rules and these are rules targeted at the entire group rather than bilateral rules between individuals. The solidarity rules I suppose are things like do not behave recklessly to put other people at risk but they can also involve rules about individuals' obligations to cooperate in the production of rule enforcement. Rules like inform your neighbors about individuals who violate trust rules don't cooperate with individuals who are on cooperative with other people. These are solidarity rules in a sense but again I would argue they evolve spontaneously as individuals recognize the benefit of accepting them so as ostracism does for instance and they typically if we look at the evidence we see things like inform your neighbors when individuals violate trust rules are clearly at place but they go beyond that. They include watch out for your neighbors. They include respond to the hue and cry if we go back to Anglo-Saxon England when a theft has occurred and help your neighbor pursue the thief. The empirical fact is that one joint product of these cooperative clusters generally is cooperation in the policing function. Other solidarity rules arise as well. Of course a lot of people say well with these kinds of solidarity rules we're talking about public goods and so you got obvious free rider problems but in these close knit groups in general if you don't follow the solidarity rule you're ostracized too so people are excluded if they don't obey these rules and so we don't have the public good free rider problem. Now I might be creating the impression that threats and sanctions are the primary source of incentives to recognize rules involving in these evolving cooperative groups. That's clearly not the case. Ostracism is a threat obviously that substitutes for violence but there are all sorts of very significant positive incentives to recognize cooperative trust and solidarity rules and in fact I'm not going to have time to talk about it but a number of other institutions clearly arise in these systems in order to for instance when circumstances change to try to create incentives for people to continue to accept the rules for instance hard times arise for someone due to floods or fires or something like that these systems typically have insurance mutual insurance kinds of arrangements where you help out your neighbor and there are those circumstances because if you don't the neighbor's incentives to respect your property right clearly are undermined they want to stay alive so they might have to turn to theft. One way to avoid that is to insure against it through these kinds of mutual insurance arrangements. Another thing that always arises obviously there will be disputes as to whether someone is actually guilty of committing a breaking a trust rule and these we could have prosecution through violence to decide guilt but that has significant spillover effects for the rest of the community so in general we see nonviolent third party dispute resolution mechanisms arising some sort of arbitration or mediation. Gordon talked about trial by ordeal. One way to think about that of course was that the chosen arbitrator was God and if the person survived the ordeal God saved them and said they were innocent. If you trust God then that's a pretty good third party and so these kinds of third party mechanisms develop as well. What we have then is a system of evolving norms and evolving institutions to support those norms. At some point as society gets more and more complex those norms might be written down but it's not the writing down of the norms that makes them law of course it's the acceptance of the norms. What I'm talking about then is essentially a customary law system. Well I better turn to the other end if I'm going to have any time to talk about the middle so let me go to the other extreme where an individual has a significant comparative advantage in violence and chooses instead of cooperation to take wealth produced by others. The Oppenheimer's political means of wealth expansion. The individual with such a comparative advantage may expect to be better off by taking other people's wealth than he can become by cooperating producing trading and so on. Given that information spreads the individual who employs this comparative advantage is going to develop a reputation too for taking wealth and such reputations can in fact be quite valuable as increasingly the threat of violence alone might be sufficient to extort payments. Once the reputation develops however the potential for entering cooperative relationships with other people have pretty much been cut off and so a decision to employ violence in order to take wealth often times involves a permanent commitment to extortionist behavior. You're not going to be able to change down the road because no one will trust you. Among other things that means that the extortionist has incentives to create an environment that will produce a steady stream of transfers from subjects of threat rather than just going out raiding and taking and then finding somebody else to raid. That can work for a while but ultimately you might run out of people to raid so you might instead choose to establish institutions that allow people to continue to produce and to extort money from them or income from them. This means of course that the extortionist has to attempt at least to establish a monopoly in violence. Some people define states as monopolist in violence and I wouldn't disagree at least that they have attempted to do so. If the potential target for extortion can turn to another specialist in violence for protection or if the potential target can turn to a cooperative group that jointly produces protection then the extortionist's ability to extract tribute is limited so the incentive is to try to monopolize violence and raise barriers to exit. Try to keep people from escaping the system. No individual of course is likely to be powerful enough to establish a permanent undisputed monopoly in violence. There's going to be competition perhaps from other individuals who also want that monopoly. The transactions costs of control mean that some interaction between individuals and some wealth will remain outside even the most powerful extortionist control but the extortionist my point is that they have incentives to try to control these margins where people are attempting to escape them. They have to try to erect barriers to exit from this extortionist kind of game. There are a number of institutional developments that can help in that regard. One possible institution would be in an alliance or collusion among potentially competing extortionists recognizing each other's domains. Such an alliance of course is probably not very stable because none of the parties trust each other. They all have reputations for being extortionists so it might not be a stable kind of thing. The scale of violence required to compete for and maintain power is generally greater than any individual can produce so typically the potential entrepreneur in extortion will establish a firm of some sort to jointly produce violence. Others who have comparative advantages but aren't so entrepreneurial become the strong arm enforcers or the army or the police or whatever you want to call them or the military industrial complex the producer of the tools of violence that sort of thing. In return for cooperating with the extortionist of course they receive part of the transfers and that cooperative arrangement also requires credibility of promises within the extortionist firm I guess you need to have honor among thieves. Historically many examples of organizations like this have evolved where you have some sort of entrepreneurial leader who convinces perhaps people in one of these voluntary organizations that I talked about before that the way for them to expand their wealth is to go out to raid. I mean tribal war chiefs became kings. And so we do see these kinds of institutions evolving once they have raided and successfully conquered then the traditional cooperative legal arrangements within the group won't suffice because you're obviously you want to discriminate now between those you conquered and those who are conquering and you have to transfer wealth and so on so you need a centralized command kind of legal arrangement to force people to accept the transfer of wealth from the conquered to the conquerors. The organization for conquest and for extortion has to be maintained by the entrepreneur of course and this could be a problem oftentimes you have coups and so on by the military or the police. So there are incentives to keep the evolving military policing organization decentralized and competing among the one another rather than centralized and collusive because you want to prevent competition from your own organization for power. Another way to secure a position like this relatively of course is to try to reduce the incentives of other individuals and groups to enter competition for the monopoly in violence and one way to do that is to offer exchange with other potentially powerful individuals part of the wealth that's being transferred in exchange for not entering the game essentially and as a result the protection racket can involve a mix of rules supporting extortion of the weak and protecting the relatively powerful in exchange for them not entering the game. If you think this is all made up read Gambetta's book 1993 book on the Sicilian mafia great book for public choice economists. The mafia simultaneously extorts wealth and supports its production by enforcing contracts and protecting property rights of people within its circle of influence. The same is true of most other protection rackets things we call kingdoms and nation states and things like that. In order to maintain power the extortionist also has incentives to redistribute wealth as the relative power of subgroups within his sphere of influence begin to change. Redistribution involves or requires gathering information and learning about who's becoming powerful and influential that sort of thing. So the incentive there is to develop institutions to channel this competition for transfers. We see the development of advisory panels that sort of thing advisory councils representative assemblies and so on where the monitoring of various groups can be observed and their competition for transfers can be channeled of course again keep them divided and competing makes it less likely that they'll collude and take over. As relative power changes the amount of representation in these councils or assemblies can change the franchise can be expanded or contracted for new groups. There may be some transfer to the poor if you think the poor are likely to rise up and revolt but in a relative sense compared to for instance the voluntary insurance arrangements I talked about for the cooperative groups the transfers are from the poor to the wealthy or from less powerful groups to more powerful groups and so we see the evolution of legal institutions focused on transfer processes. At any point in time the extortionist ruler is clearly constrained in regard to how much can be transferred. After all some wealth has to be produced if it's going to be transferred and so private property rights create the strongest possible incentives for long run wealth creation and it follows that some private property rights will be maintained even for the most significant victims of the extortion probably. That means five minutes. All right good. Slavery with all property rights including those to a person assigned to the extortionist is a very costly system to maintain it might not survive. Essentially the extortionist faces a trade off large levels of extortion in the short term including widespread slavery per perhaps reduces productivity and wealth creation and the potential for transfers over the long run. So the actual degree of transfers in any period depend on the extortionist's time horizon if he thinks his hold on power is very tenuous. His incentives are to take a bunch now and get out of there and get out of there. If he thinks his hold on power is very tenuous his incentives are to take a bunch now and get out of there. If he thinks his power is significant then the incentives are to establish a system that allows for long term wealth creation at least more of it. And of course that creates incentives for those being extorted to actually try to lengthen his time horizon. So you recognize a dynasty, a king and his successors trying to lengthen the time horizon of the individual making decisions because the more you can do that the perhaps the greater the property rights will be. But property rights remain in play in such a system. They can always be taken. The losers then have conflicting incentives to try to escape but also to recognize the power and lengthen the time horizon. Let me quickly here turn to some discussion of the interplay between the incentives because obviously we don't have either one in the extreme very often. In some cases the rise of extortion authority has been resisted quite effectively. Even within modern developed nations there are enclaves that either don't need or actively avoid contact with the national legal system. I would recommend Lisa Bernstein's paper 1992 in the Journal of Legal Studies on the Diamond Industry for instance. Great paper or Hernando DeSoto's 1989 book detailing the informal sector in Peru or Robert Ellison's book on what is it, Order Without Law but he defines law different than I do. Number of papers of that kind are books detailing these arrangements that are outside the state's law but quite effective at enforcing rules. To the degree that the extortionist is successful in preventing exit from the extortion game, competitive options are reduced. It may be for instance the extortion options are reduced. It may be for instance that the alternatives can't use ostracism effectively because of state rules. They have to move their arrangements underground so to speak and they're forced to use more violence as a result. Certainly the informal sector in Peru violence is the main mechanism for the main sanction. If you can't ostracize, if you can't force restitution payments of some sort, if you can't take someone else's property as restitution for a violation then you might have to turn to violence as the only option that's left. So we see then an interaction between these systems, one influencing the other, certainly in terms of the extortionist system. Oftentimes as I said they do enforce private property rights to a degree and many of the laws that are codified are simply codified norms, customary law that the state has copied down because they've been successful but they often of course also add a few extra rules about distribution of wealth and so on. So what we have then is an environment that involves continual conflict between these incentives to take and to cooperate. Rules evolve in reflection of this continual interplay and institutions do as well. And that's, I have about 1500 pages describing all of that. I don't have time to do it now so I'll stop.