Hale’s impact on law and economics
Hale’s ideas and influence are reflected in two distinct movements in modern- day legal jurisprudence.7 First, there is no doubt that many of Hale’s ideas have been influential among those contributing to the critical legal studies movement (Duxbury, 1990).
Second, and for more immediate purposes here, Hale’s ideas are prominently evidenced in the core set of ideas that at present comprise American institutional law and economics.8The institutional approach draws no distinction between jurisprudential, legislative, bureaucratic or regulatory treatments. All are seen as particular parts or manifestations of the interrelation of government and the economy, or of legal and economic processes. Instead of concentrating on a unidirectional sequence in which the law or legal structure governs behaviour or conduct in the mixed market economy, which in turn drives economic performance, following Hale, institutional law and economics emphasizes the interpenetration and interrelations between government and the economy: that law or legal structure, behaviour or conduct in the mixed market economy, and economic performance are dependent upon each other through a process of circular and cumulative causation. To various degrees, the influence of Hale’s writings is evident within the six major elements of contemporary institutional law and economics.
The evolutionary nature of law and economy
While not eschewing static analysis or denying its value, the role of legal change in affecting the course of this evolution makes the institutional approach to law and economics inherently evolutionary.
Continuity versus change
The recognition of the evolutionary nature of legal-economic relations brings to the fore a second fundamental theme of institutional law and economics: the ever-present tension between continuity and change in legal-economic relations.
The evolutionary path of the legal-economic system is derivative of the legal-economic policy choices that are made over time. Consistent with Hale, continuity and change are seen as the outcome of the policy-making process - the mutual coercion inherent in the interaction between the groups supporting the respective forces for continuity and change and the power that each can bring to bear on this process. The ongoing choice process within the legal-economic arena determines both the institutional structures that obtain at any given point in time and whether the status quo institutional structures, or some other, will prevail in the future: that is, whether there will be change and, if so, how much.Mutual interdependence, conflict and the problem of order
The fundamental problem addressed in institutional law and economics is that of order, which is defined as the reconciling of freedom and control, or autonomy and coordination, including hierarchy and equality, with continuity and change. The existence of conflicting interests necessitates both a process (or processes) for deciding between these competing interests and a method (or methods) for determining how these conflicts are to be resolved.
Rights, power and government
Law is fundamentally a matter of rights creation and recreation. Consistent with Hale, government is seen to play a central and inevitable role within this process, for rights are not rights because they are pre-existing, but rather are rights because they are protected by government. The positive, descriptive nature of the institutional approach is concerned with the rights (re)creation process and the impact of this process on legal-economic decision making and activity.
The problematic nature of efficiency
One of the hallmarks of institutional law and economics is the rejection of the Chicago and general neoclassical emphasis on the determination of the efficient resolution of legal disputes. Like Hale, the institutionalists believe that more is involved.
Whereas the more neoclassical approaches to law and economics seek unique, determinate, optimal equilibrium solutions, institutional law and economics finds such solutions to be question-begging and instead concentrates on identifying and analysing the processes by which the various legal structures, conduct and economic performance are worked out. The institutionalists do not reject efficiency as an important variable in legal-economic analysis, but, rather, maintain that efficiency alone cannot, and should not, determine the assignment of rights.Towards a comparative institutional analysis
The driving force behind institutional law and economics is the need to come to grips with the interrelations between legal and economic processes. Three efforts, each of which are very much reflective of Hale’s approach, are central to this process: (i) models of legal-political and economic interaction must be developed; (ii) objective, positive, empirical studies of government as both a dependent and independent variable, and of economic activity as both an input and an output of political-legal processes, must be undertaken; and (iii) efforts must be made to wed both theoretical and empirical analyses towards a self-consciously objective, positive comprehension of law and economics. Such analysis will serve the twin purposes of deepening the understanding of legal and economic processes and their interrelations, and of providing a more sound basis upon which to predict the potential consequences of legal- economic change.