 Yesterday I had a talk called The Common Law in Real Time and last night I decided I didn't want to speak exactly on that. I'm going to speak mainly on that. For reasons which I'm not quite sure I can articulate, except to say that this consists of this talk that I am going to give and the talk that I would have given, both consist of a lot of ideas which are in very preliminary form and as such I hope that they really make sense. I did a lot of work in law and economics up until about the mid-80s and then I got a little bored with it but now I think I would like to come back to this area because I think there's a lot of important things that can be said from an Austrian perspective or at least my Austrian perspective on issues of law and economics and I would like to be able to do that. So let me start out by saying that I view the common law, the common law system to be more precise, as a creative tension between order on the one hand and disorder on the other. I think it's a mistake to try to understand the common law in terms of ordering or self-ordering properties alone. Now what do we mean by order ordering properties? Of course we could get into a lot of trouble here by trying to set out a precise definition so I will skirt the issue slightly by reading to you what Hayek says the word order means in law legislation and liberty and more or less endorse what Hayek says unless you show me that the definition it doesn't really hold it's not very useful in which case I'll retreat. In any event Hayek says in law legislation and liberty the first volume that order is a state of affairs in which the elements are so related to each other that we may learn from our acquaintance with some part of the whole to form correct expectations concerning the rest or at least expectations which have a good chance of proving correct. What Hayek exhibits here is his lifelong concern with the coordination of individual activities and what he's saying in effect when he says that the common law creates an order or has ordering properties is that the common law makes it easier for people to coordinate their decisions than it would be the case in the absence of those common law rules. So we can also look at this tension that I talked about the tension between order and disorder as an attention between equilibrating and disequilibrating properties of the common law system. So going back to the original quotation by Hayek when he says expectations concerning the rest what he really means or what he can be interpreted as meaning is expectations concerning the plans of other economic or legal agents. So the idea then is that in an order or an orderly society or an orderly framework people's expectations about what other people will do have a good chance of proving correct. Now a good chance of producing a proving correct is not the most rigorous way to state it but on the other hand I think we'll see that it would be quite difficult to state this in a rigorous way. Okay so the common law I will assert now and and show you hopefully as I go along embodies planned coordinating tendencies but also planned discoordinating tendencies. Within a legal system this order and disorder actually complement each other rather than are in conflict with each other but it obviously raises a puzzling question at least primathecia. How can such a thing as a system in which there are ordering and disordering forces be coherent and in what sense is it a system if it has both of these forces. I guess the solution or the preliminary answer to the question is to look at the common law system as a process generating emergent properties not as a process whose function it is to come to some end or produce some end that is knowable if the without outside of the process. As Hayek says about competition a competition is valuable mainly because it produces information that would not be available without it not because it is a system whereby certain relationships or certain information that is known to observers or the economists are somehow transmitted to the economic agents but actually is a system whereby discoveries are made. In the same way I think the legal system generates discoveries and emergent properties. The whole question of the knowledge problem that Yvonne brought up earlier in the context of legal institutions is something which I've thought about a lot and talked about in the early 80s and I think that this is I think the crucial or critical problem that law and economics needs to address but it is also perhaps the most difficult problem. All right what I want to do at this point is contrast this dynamic view of the legal system which I've only sketched in a very abstract way and I hope to get more concrete as I go along but I want to contrast that with what I call the static view of a legal system and I was surprised to learn that there is actually quite a lot of literature in legal theory embodying this static view and it bears a very close or very interesting similarity to static views in economics for example only Arode de Bruyne general equilibrium theory other forms of economic analyses in which there are no processes of adjustment. The legal theorists who embody or who advocate the static view of a legal system have said things such as the following that the addition or substitution of a rule to a legal system has the effect of creating a whole new system why because every new rule every norm affects some other norm or rule within the system sounds like the general equilibrium argument right you change something somewhere and the whole equilibrium is changed because of some small change anywhere within the system if that's the case if that's the way basically you're going to look at it then the idea of a system which is changing is in a way a sort of contradiction in terms and theorists in this tradition the static tradition recognize that for example there are two French theorists who have written a book called normative systems Alcheron and Bulgin there is not obviously French names but in any event they conceive in their book is a French law as the sequence of all momentary legal systems that have been in force in France what kind of talk is that well what is this really saying is look the only way we can conceive of the of a legal system is to say that it is a snapshot or a series of snapshots of static legal systems that the legal system itself is not something with changes but is something which is static and it's just changes with respect to exogenous or autonomous factors in the environment perhaps some costs in the in the economic system change and that changes the the the context of the the nature of the legal system but there's nothing endogenous to the legal system that brings about change the legal system is not in this view an endogenous process of change but is merely a process of reacting to exogenous changes changes from without the outside the system changes in the economic or political or social framework what I would like to understand is the law the legal system as a not a collection of elements that responds to exogenous changes but rather a system which responds to endogenous changes a system which has at least partial control of its own transformations now let me go through a few characteristics so we can get a little more concrete in this area but I warn you I'm not going to get all that concrete but I want to get somewhat more concrete let me go through some areas of concern of to the legal legal system and try to show how in each one of these areas there is a an important endogenous dynamic that the legal system embodies the common law legal system embodies Paul Rubin's talk made me think that maybe I should say the the pre-new deal common law legal system but I'm not sure this is an ideal type so doesn't necessarily refer to any particular era in the common law system but hopefully refers to what is essential in that process okay we often hear it said and Hayek was one of the people who said it the most that the common law is based on pre-existing but implicit rules now what exactly does that mean pre-existing rules well one thing it does not mean is that the common law judge has in his office a shelf of the pre-existing rules and as cases come across his desk he pulls down from the shelf these rules and applies them in particular cases that's not what Hayek or what certainly not what I have in mind rather the point and the the force of the word implicit rules is that these rules are things which come into existence only as the need arises in other words as the case comes before the judge of the rule sort of comes into existence at that very moment what makes it a pre-existing rule is that once it's decided in the way that it's decided people generally assent they say yes that's sort of consistent with the way we think about these issues but it's not as if the rule is on the on the shelf and it's simply pulled down or it's not as if it's a innovation in the shampoetarian sense where the actual scientific discoveries are somehow made beforehand and the innovator just simply pulls them off the shelf and and applies them in particular context so the first thing to keep in mind is that even if this very basic level of applying rules that are pre-existing there is a dynamic element and the dynamic element is the following that the rules have the appearance of being new rules but have the acceptability of old rules so what the common law really is doing by drawing on pre-existing rules is once again a balancing or I should say balancing but in but but utilizing both the forces of order and the forces of disorder or surprise or novelty the novelty or you might say judicial entrepreneurship comes into play when the judge applies the pre-existing rules but he does it in a way which is creative and not obvious to people before he's before he did or before the issue arose on the other hand there is the sort of mundane or not so novel aspect of this is that once the rules are announced they oftentimes are greeted with wide ascent as if people knew them all along so here at the very core of the common law method is a is a is a is a a cooperation a a complementarity of the forces of order and the forces of disorder or the forces of novelty or innovation as you might alternatively want to state it and not again at the very basis base of the common law method is the abstraction of the kinds of rules that the common law embodies now I thought about you know is there a nice definition of abstract abstract I could use and I'm not all that confident that I could present a formal definition of the of the idea of abstract or abstract rule as opposed to simple rule but so let me try to make some progress on intuitively here with an intuitive understanding of abstraction in the common law people are treated defendants and plaintiffs are treated in a particular way not because of their personality or because of their particular station in life but by virtue of their conduct belonging to a certain class right so that we would have for example you take the old Epsteinian paradigms of causation a hit b states a prima facie case for recovery and in the tort law but that's to be contrasted with the fact that B did not hit a a hit B but B did not hit a so there's an asymmetry of their relationship and the it's the asymmetry that establishes the grounds for the recovery of the plaintiff now this is stated really in effect abstractly it's for any plaintiff and any defendant in a myriad of circumstances so we're dealing with classes or types of relationships now this has been important in the common law because it's one of the ways in which the common law can can demand the deference of of people the only way that it can lay claim to authority if people are treated the same regardless of their personal and eccentric circumstances and people can justify in their own mind treatments a particular plaintiffs or defendants on the grounds that other people in their circumstances would have also been treated in the same way okay now how does this relate to our point about order and disorder well the the point is that abstract rules are rules which are effect flexible they allow for lots of changes in the concrete circumstances and yet the rule doesn't fall apart the rule doesn't doesn't break in effect the rule is in a very particular sense is decomposable from the changes that occur in the overall day-to-day activities of individual actors so for example when we talk about contracts right we have an idea of what is required for a valid contract including at least done on the classical theory the presence of consideration that's what is bargain for an exchange but we don't have anything in the common law the classic common law about what the just price is going to be of a particular commodity we don't invalidate the contract because of the particulars the economic particulars that have to do with the variations of supply and demand there isn't a different fundamental contract law every time the economic data change we have a contract law which is in effect a separated or decomposable from the changes in the everyday economic system now the significance of this is that the common law then accommodates the what I will say is the relative disorder relative to the stability of the abstract rules the relative disorder of the market system but more than that that this so-called disorder of the market system is actually something very desirable because what is it it's the ability to change with respect to changing circumstances right so people can adjust in accordance with changing economic circumstances so for example if I make a contract with somebody specifying a certain future price for wheat I may do it with the expectation that the contract price say a year from now is going to be it's going to be cheaper than the spot price a year from now well this was not indelible ink the spot yeah the spot price all right the spot price a year from now may in fact be higher maybe in fact be lower than the contract price but no matter I mean the common law in there might be breach and we can talk about efficient breach and all that but what the common law doesn't change the contract law doesn't change because of though that particular adjustment in the market but more importantly than that it's because of the very abstractness of the common law that permit that these adjustments can in fact take place and their beneficial adjustments for example we could not be continually supplied with the products we want if producers refused or could not change their behavior in light of new circumstances it might be physically impossible in view of changing resource constraints to continue on as before and if the law did not permit agents to change their behavior with a certain flexibility we would not have then the certainty that week relative certainty that we could get the products we want with the reliability that we have grown to expect and so therefore paradoxically the order or certainty embodied in an abstract rule allows for the flexibility novelty and adjustment of the economic system which in my way of looking at this is the disorderly aspect or the or the unpredictable aspect of the of the of the common law system or the or the unpredictable aspect of the system of common law in conjunction with the system is designed or we hope will it will govern so once again there is this interplay between order and disorder between novelty and stability in the in the common law okay I want to go on and Hayek has said a lot about this point that we can only assure the we can only assure the protection of certain expectations if we allow the frustration of other expectations the common law does not in a rigid sense ensure everybody's expectations right just as I was arguing a moment ago if it did that it would really have to prevent economic adjustments which then in turn would frustrate the expectations that people have developed for the availability of products and for the adjustment of the economic system when circumstances change all right I want to go on now to some other matters and that has to do with the form that legal reasoning takes common law legal common law reasoning takes this is a very interesting area to me because there seems to be a conflict or at least a tension between the way economists look at the common law and the way those legal theorists who have written about common law reasoning have looked at the common law it's generally thought that the common law method generally thought by legal theorists that the common law method is not a deductive method but it is is the case that there has been a school of legal theory which is I think is very consistent with some of the ways economists have tried to model the common law in a fairly deductive fashion there is a tradition of legal theorists who have done really the same thing this system goes back at least to the philosopher Leibniz when he was criticizing some aspects of the Roman law gave what he thought was an improved way of treating war or a way of reconstructing of the legal order and here he says that what you want to do is reconstruct the order in a geometrical fashion commencing from first truths and drawing from these direct consequences and from consequence to consequence arrive in the most logical way possible at an axiomatic legal system so this is Leibniz the Leibnizian tradition has it that we can have a deductive theory of legislation and this is makes perfect sense in a static world in a static world there's no reason why especially after a long period of development a law or legal system could not have a series of premises and then just simply deduce consequences from those that series of premises Montesquieu took this idea and said well we can apply it all we can apply this idea also to adjudication he thought adjudication judging was essentially a trivial operation why well this is how he looked at it he said well the major premise is the general is a general statute of some sort or general norm that's the major premise the minor premise of the practical syllogism is the action confer conforming or not conforming to the statute so we have a general statue that's our major premise we have some action on the part of some particular individual which either conforms or not to the statue that's the minor premise and the conclusion is either release the guy or punish him so it's just a practical syllogism doesn't take much of an imagination than to be a judge Bentham in his utilitarian approach to law viewed law basically as a mechanism or as a calculational device once the utilitarian standard is set right all we have to worry about is correct calculation so here again it's beer it's basically taking certain premises and calculating correctly the right result as many of you know Bentham placed a high emphasis or great emphasis on calculational error is really the source of our difficulties both legally and morally our difficulties arise because people are not good calculators they should be sent to school basically or educated to be good calculators and once they they learn to calculate pleasures and pains well then everything is just a matter of this churning out finally there is something which in the early part of this century was called the exegete exegetical school of legal interpretation and here what they these people were concerned about was statutory interpretation and they said that statutory interpretation is basically a deductive enterprise we don't have to go to the you know this original attempt business so they use that term we don't have to go to the subjective intent of the of those who were who fashioned the law who created the law but simply we are to simply deduce logically from the statute all the conclusion statutes for all the conclusions that are implicit in it and that's statutory interpretation even better than that we can begin from a statute or the legal rules drawn from it and go back infer from that the higher principle that that enables us to rationalize that law of that statute and then deduce conclusions from that higher principle that might not have been already seen this is very much like seems to me the sort of classic post-nary and economic approach to law right that we can take a legal rule and we can reach back to that higher principle efficiency that informs the legal rule and then once we know that's the higher principle we can deduce all sorts of things for efficiency and then correct the parts of the law that are not right or at least not consistent with efficiency so we can we can both have a a a we can both engage in a positive activity right inferring what the rationale is and also a corrective or normative activity that's why I believe it was never quite clear whether posner more than land as for example posner was doing normative or positive economics because there was this this aspect of well you know now that I really understand the common law I can go where they are and correct those areas that happen to get messed up for some random reason now the non-deductive method which I think is the method of the common law is based on a method known as analogous reasoning now some people probably most people involved in various academic disciplines think that analogies are a primitive form of reasoning in a sense that's true but I also think that the analogies are an appropriate form of reasoning when we're dealing with open systems and I'm going to I want to show that by an illustration but why should we believe or what what grounds do we have to believe that the common law is an open system well the grounds that we have to believe the common law is open system is our two and they're both were pointed out by HLA Hart first is that there's a relative indeterminacy or indeterminism of the judge's aims the judge does not start out with a clear objective function now if Hart's right that the judge's objective function is not set beforehand but that his aims are in fact decided in the process of his making decisions that could account for the difficulty in trying in the economic and political science literature of trying to find a objective function for judges and deal with that it's I admittedly this is not a comfortable idea for economists but nevertheless I think it's an important idea to consider the second source of indeterminacy is the unpredictability of future fact patterns and this is a limitation of our of our knowledge we don't know what future facts are going to going to be and therefore we can't really predict how a rule or even if we had a rule plus a objective function will play itself out in particular circumstances and often times people find that in particular circumstances that they don't like the rule they don't like its implications and there's a real question in in in the area of ethics and also I guess in in the law is how do you judge a a legal rule whether legal rule is good or bad as I rule undesirable right do you judge it by the abstract or general considerations or do you judge it by the considerations that come about in a particular application so the legal rule leads to a grotesque application for example remember there is that famous 19th century case in which the people were stranded stranded on a lifeboat and they cannibalized the yes right Dudley versus Regina versus Dudley and Stevens they cannibalized the the cabin boy and what happened was they were convicted of murder and they were condemned to death but then the queen commuted the sentence right do we judge the rules against murder or the rules against unjustified killing on the basis of that obnoxious consequence perhaps obnoxious to some people consequence that is to say the consequence that they were condemned to death under those circumstances where if they didn't do that they all all them would have died probably well it's a real it's a really important question I think empirically as a matter of fact people oftentimes when they come to conclusions which are repellent step back and modify the generalization in which case then if we don't know the particular fact patterns we can't predict them in advance we can't predict what kind of modification is going to take place in the rule and so once again there's a kind of uncertainty or indeterminacy in the in the legal system arising out of the unpredictability of the future of fact patterns let me give an example of analogous reasoning an example which I have given before and elsewhere but nevertheless I think it's a it's a very interesting one and it has the good I can I consider the good result that it leads to it's a spontaneous development based on analogous reasoning that does not lead to a good place I mean I you know it's easy for me as an Austrian to to give you examples of spontaneous developments that lead to something good and that's what you would expect me to do but I'll I'll disappoint your expectations here because I think there are some important issues involved that we can deal with once we understand this this process of analogous reasoning and how it can sometimes go wrong what I want to talk about is this doctrine of the negligent infliction of mental stress the history of the doctrine is very interesting because it can be presented in a way which very clearly shows how analogies or analogous analogous reasoning is responsible for the expansion of the doctrine but the expansion of the doctrine ways which I think a lot of classical liberals would find to be very unfortunate the original rule or at least the original as far as back as I'm willing to go is what was known as the impact rule for mental distress the negligent for recovery for the negligent infliction of mental distress the original rule had it that there must be a physical impact on the plaintiff however slight that impact was so the recovery for physical harm would take place and then there would be a recovery for consequential mental distress but if a person was not physically injured they could not get any recovery for mental distress negligent infliction of mental distress well people began to think about it in the context of new cases emerging and it began to appear as new fact patterns emerged that the impact rule might be unjust the reason for that was for example individual who had who was slightly had a slight impact in terms of let's say a car hitting him very slightly would get damages for mental distress but a person who narrowly escaped some major catastrophic harm would get nothing but obviously the mental distress was much worse in the second case the case that a person narrowly escaped a major catastrophic harm so it seemed that the impact rule was a little too narrow and so what developed there on the basis of this comparison of the previous situation the previous rule and new factual situations which seem to be more or less in the ballpark of the kinds of things that the impact rule what was designed to remedy that is to say designed to remedy substantial and mental distress that took place in the context of some sort of physical impact it's not too big a deal not too big a jump to say well it's probably also the case that if you're if you narrowly escape a physical harm that's really the same thing as actually be impacted by some physical object it's really more or less the same thing and in fact it might be even a better case to the extent of the mental distress in escaping worse harms maybe in fact more intense than the mental distress of suffering slight harms okay well again new fact patterns develop and the zone rule seemed on a dually restrictive recoverable mental distress could only be with respect to the danger suffered by the individual himself but now think of a another situation distress suffered by witnessing of harm to others that was not recoverable but seemed that unjust in the context of a close family relations suppose a mother sees a child run down killed by or killed or injured by a an automobile the mental distress there would prove as they be quite intense it does relate to a physical harm the physical harm to the child it's true not a physical harm to the mother but nevertheless the bond the connection between mother and child is so close right as to make it the case that well maybe we could in fact it seems right that we expand the rule because just think suppose you're in the zone of a physical danger and you experience a mental distress the previous rule your mental distress may not be anywhere near as severe as a mother who sees a child killed okay well the point I'm making and this this could this evolution could go on is by a process of analogous reasoning analogies with the previous situation the law tends to can did in this case expand its domain change the the nature of the of the rule the new the changes are incremental no one intends the final outcome no one can predict the final outcome it seems to be a spontaneous development yet I say that this is not necessarily been a benign or beneficial development in the law well one could view this as the disorderly or novelty aspect of the of the law in engendering new doctrines that could not be predicted on the other hand to the extent of the common law judges apprehend or understand that at bottom or unifying all their deliberations is some sort of basic philosophy about individual autonomy there is a constraint brought in from the from you can say the outside or you can say it's another part of the common law which provides a a an order of predictability that in fact can regulate this kind of analogous analogous reasoning development so that the common law proceeds by analogous reasoning but is constrained by a orderly concept of the underlying purposes or underlying philosophy of the common law am I running out of time okay finally I want to give another example of the interplay very briefly between order and disorder in the common law and that has to do with something which generally people think is a bad thing ambiguity should be should legal rules be ambiguous well there's a case to be made that legal rules should be ambiguous to the extent at least have some ambiguity to the extent of the future is unknowable and to the extent that you'll have to adjust to that unknowable future you want to protect yourself in the fact by having a a rule or a set of rules which are sufficiently flexible to accommodate new situations so ambiguities or equivocations disord redundancies even some disorders are really the the basis or the groundwork for innovations or moments of self-organization the disorder is really the the the dim vision of the emergent rationality of of adaptation to new circumstances so it's not in our interest to have a tight logically airtight deductive legal system because such a system in the app in a world of uncertainty is not going to give us the flexibility to adjust to this unknown future and that's why I think economists have a lot to learn from legal theorists about the virtues of some of the things some of the aspects of the common law which here to four have been considered the sloppiness of the lawyers or the judges and we economists are going to go in and fix it all up so there's a kind of defense here of ambiguity and of disorder as well as the defense of the ordering properties of the common law