How von Stein became a precursor of the law and economics approach

We have to bear in mind three points if we want to understand how von Stein gradually came to embrace ideas which justify our considering him as a precursor of the law and economics school:

3.

The points of contact between von Stein’s ideas and those of the propo­nents of the law and economics school become apparent if we consider the characteristic features of the school in question (Schafer and Ott, 1995, p. 10). First, the legal system is viewed not as a datum, but as a variable. Second, the history of the origins of property rights is analysed. Third, the influence of legal structures on the efficiency of economic processes is inves­tigated. Fourth, efforts are made to determine the circumstances in which efficient legal structures would develop. Fifth, the requisite properties of such efficient legal structures are described. Von Stein did not ask such questions about civil law, but he did consider the implications that such questions have for public law and the optimal way to develop public law in order to render it capable of fulfilling meaningful state functions.

As far as the first two features of the law and economics school are concerned, von Stein’s approach was strongly influenced by his study of Fichte and Hegel, as well as by his stays abroad. As a result, he considered political and economic history as the outcome of a battle of ideas waged by various pressure groups - a combat that would lead to concrete improve­ments in the legal systems of states which were at different stages of development. By adopting a comparativist approach to law, he believed, one could therefore ascertain the characteristics of an efficient legal structure towards which history was advancing (Kamp, 1950).

The cameralistic origins of German public finance are important because the cameralists’ insights resulted from the observation of economic processes which took place under initial conditions quite different from those prevail­ing in countries such as France and England. In the wake of the Thirty Years’ War, the Holy Roman Empire had broken up into a multiplicity of indepen­dent states ruled by absolutist princes who had the right to levy taxes directly. This had consequences which we may explain with the aid of an admittedly somewhat daring comparison. Let us imagine a region where several bands of mafiosi are fighting for predominance in a protection racket. This state of affairs is in some respects comparable to the situation that existed during the Middle Ages in feudal states where the property rights of the various classes of the nobility had not yet been clearly defined. The war and marriage policies pursued by the higher nobility led to the establishment of absolutist states ruled by princes whose right to levy taxes was undisputed; and the upshot of all this was a state of affairs which presents certain points of resemblance to the situation which arises once the claims of rival mafia bands have been staked out. Those who have acquired the right to levy taxes or extort protection money participate, so to speak, in the commercial success of their subjects or ‘proteges’.

In the German Lander, this now came about in circumstances quite differ­ent from those which existed in relatively closed nation-states such as France and England. It was hard to enforce border controls between a great number of small states, and there were virtually no linguistic or geographical barriers to mobility. As a result, factors of production (labour and capital) were able to move freely (de facto, though not de jure) between the numerous small states, and there was keen competition between the Lander, which vied with each other for enterprises and workers (Backhaus and Wagner, 1987). Ger­man princes were therefore very interested in advice concerning a practicable site development policy. The upshot of all this was a comprehensive doctrine of political economy. It was this kind of doctrine that was one of the major distinctive features³ of von Stein’s work, and it was this kind of doctrine that he sought to establish by carrying on the cameralistic tradition and combin­ing public finance with the science of administration.

Finally, nineteenth-century German economic history was marked by Ger­man unification and Germany’s transformation into an industrial state. These events unfolded between 1840 and 1890 - a crucially important period in von Stein’s career. As a result, they reinforced his ideas about efficiency and his quest for suitable legal structures for the public sector.