REVIEWS

Published date01 November 1983
DOIhttp://doi.org/10.1111/j.1468-2230.1983.tb02556.x
Date01 November 1983
REVIEWS
THE JUSTICE OF ECONOMICS?
THE
ECONOMICS
OF
JUSTICE.
By
RICHARD
POSNER.
[Cambridge, Mass.
and London: Harvard University Press.
1981.
xiii
and
415
pp.
f17-50.1
ECONOMIC
analysis of the law as an academic discipline has grown very
rapidly in the United States over the past
10
or
15
years, and is making its
mark there on legal argument and judgment (a trend that
will
not
be
reversed
by Professor Posner’s recent appointment
as
a
Judge on the United States
Court of Appeals). In Britain, though the academic discipline has gained
a
reasonably secure foothold, it has not attracted the same general interest
among economists and lawyers
as
in the United States,
and
has certainly
not had the same impact on practical matters of law.
A
reviewer of Professor Posner’s latest book for a British legal audience
therefore faces some difficulty.
In
part, this
is
because the book is
a
collection
of essays which do not in themselves have the degree of coherence that
Professor Posner might wish to claim for them: to
a
considerable extent, they
rely upon
a
working acquaintance with previous thinking
in
this area. This
is a better assumption for American readers than for British, and those
wanting
to
develop such an acquaintance would do better to read Professor
Posner’s earlier book,
Economic Analysis
of
Law,’
before this one. But
a
reviewer who is also
an
economist, and no doubt equipped with some pro-
fessional proselytising zeal,
has
the additional difficulty
of
avoiding the
inference that criticism
of
the specifics of Professor Posner’s arguments may
be
construed as general criticism of the application of economic reasoning
to
the structure of the law. Such an inference would be quite inappropriate.
That economic analysis offers sharp tools for the appraisal of the law is
taken
for
granted here.
Posner’s
Economic
Eficiency
Hypothesis
The study of law and economics has organised itself around
a
proposition
with which Posner, more than anyone else, is associated. This is that the
common law is,
or
was, developing towards
a
set of economically efficient
rules,
or,
as Posner himself would put it, towards a set of rules that maximises
the aggregate wealth of the community applying them. In addition, however,
and especially in this book, Posner argues that the law, and public policy in
general,
ought
to
be
developed
in
the direction of economically efficient rules.
Economic efficiency is
a
widely misunderstood term. It emphatically does
not mean having the largest possible gross national product or the most
up-to-date factories (technical efficiency is consistent with economic efficiency
but neither implies the other). As economists use the term, an economically
efficient state
is
one in which
no
one can be made better-off (as
he
assesses
his
position) without someone else being made worse-off
(as
he assesses
his
position). Conversely, if
a
state is economically inefficient, some change of
law or policy can
in
principle make everyone better-off.
In
considerable part because of the subjectivity
of
better-off,” markets
figure prominently in economists’ discussion of what actual policies
or
laws
Richard
A.
Posner,
Economic Analysis
ofLaw
(2nd ed., Boston: Little-Brown,
1977).
789
790
THE
MODERN LAW REVIEW
[Vol.
46
will
be economically efficient. Posner is at that end of the spectrum of opinion
that maintains
an
extensive right of consenting adults to commit capitalistic
acts without interference from the state: he believes that individuals should be
able to exchange eslablished private property rights without coercive regula-
tion of the form of the contract. In terms of law, he advocates the use of a
hypothetical market
approach,
so
that, for example, the central question
in
a
civil dispute is
What would the parties have rationally agreed,
ex
ante,
had they contemplated the occurrence of this set of circumstances
?
Economic efficiertcy
as
a guide to appropriate law or public policy, how-
ever, carries the problem that a movement to economic efficiency
will
typically not
of
itsdf
make everyone better-off. Usually, such
a
policy
will
make some people better-off and some worse-off, Gainers would be able to
compensate losers amd still themselves
be
better-off. But this will not happen
as an automatic consequence of a policy promoting economic efficiency: it
requires
a
separate policy of redistributing gains and
losses.
Many con-
temporary economists hesitate to recommend economically efficient policies
without some assurance that the income distributional consequences will
not be, in their view, adverse.
Professor Posner’s normative economics is distinguished by his rejection of
such caution. He advocates the adoption of economically efficient policies
regardless of their consequences for the distribution
of
income. This
is
the
policy that he refers to
as
social wealth maximisation.
To illustrate the issue, suppose that there are
100
accidents of
a
particular
type each year, costing the injured person
f1,000
on average. Suppose also
that this number could be reduced to
60
per annum
as
a result of an aggregate
expenditure of
515,000
p.a. on precautions by potential tort-feasors. This
is clearly an economically inefficient state: a set of laws or rules that caused
potential injurors
to
spend the
51
5,000
would save potential victims
540,000
p.a.
In principle,
potential victims could compensate potential injurors for
their additional expenditure on precautions and still be better-off. In practice,
however, this may be difficult or impossible to achieve. But
if
it
is
not achieved,
the effect of an economically efficient law
will
be to leave potential victims
f.40,OOO
p.a. better-off, but potential injurors
El
5,000
p.a. worse-off.
The conventional economist would hesitate to say that the move to
economically efficiient policies, with its associated redistribution of income,
was
good,” or that the state thereby created was
better” than the
preceding one. Professor Posner has no such hesitation. He argues that the
economically efficient policy or
law
ought to
be
adopted, and he also claims
that the development of the common law has been based upon such
an
adoption-albeit implicitly-by common
law
judges.
The example above, of course, is extremely simple. Much of the thrust of
scholarship in the economic analysis of law is to extend this form of reasoning
to
those more complex situations with which the
law
must necessarily deal
and into areas other than tort law. Posner’s
Economic Analysis
of
Law
was
an early contribution to this process, and under his editorship the
Journal
of
Legal
Studies
has been
a
central focus
of
scholarship in the area. Lawyers
unacquainted with this literature are likely to
be
surprised by the extent to
which common
law
doctrine can
be
defended in terms of economic efficiency.
Certainly many economists are surprised by the economic sophistication of
much common law. Posner’s work
in
pointing out and elaborating this
connection-which, as he notes (pp.
113-15),
might
have
a
number of
explanations but does not
as
yet have any well-researched oneis
a
major
contribution.

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