The Legal Construction of Economic Rationalities?
| DOI | http://doi.org/10.1111/j.1467-6478.2013.00617.x |
| Published date | 01 March 2013 |
| Author | Andrew T.F. Lang |
| Date | 01 March 2013 |
JOURNAL OF LAW AND SOCIETY
VOLUME 40, NUMBER 1, MARCH 2013
ISSN: 0263-323X, pp. 155±71
The Legal Construction of Economic Rationalities?
Andrew T.F. Lang*
This article makes the claim that certain strands of thinking within the
sociology of knowledge, including the sociology of science, may
provide some of the most powerful intellectual resources for rethinking
the role of law within economic life. Starting with an understanding of
the `rationality' of economic actors as a situated social construction,
this literature encourages us to explore law's role in the construction,
dissemination, and evolution of the structures of knowledge which form
the foundation of particular market rationalities. It offers one potential
avenue for answering recent calls for further research into the
constitutive role of law in economic life.
I. LAW'S CONSTITUTIVE ROLE IN THE ECONOMY
The question of law's constitutive role in economic life was first posed by
the institutional economists and legal realists of the early twentieth century.
Reacting against mainstream economic thought of the time, which tended to
naturalize the market as an essentially spontaneous order, the institutional
economists foregrounded questions around the origins, nature, and evolution
of the institutional foundations of modern market economies. Veblen,
Commons, Mitchell, Ely, Ayres, and others all sought to show how the
apparently independent and autonomous sphere of market relations was
neither natural nor spontaneously generated, but required a great deal of
collective effort to create and sustain. This core thesis was later memorably
elaborated in Karl Polanyi's The Great Transformation, and is now
entrenched as a core tenet of much sociological thinking about economic
life.
Within the tradition defined by classical economic thought and its
subsequent developments, law is understood as primarily regulative in its
effects on economic life. That is to say, it is a mechanism of public
155
ß2013 The Author. Journal of Law and Society ß2013 Cardiff University Law School. Published by Blackwell Publishing
Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
*Department of Law, London School of Economics and Political Science,
Houghton Street, London WC2A 2AE, England
a.lang@lse.ac.uk
intervention into a pre-constituted economic sphere, acting to modify pre-
existing market logics and pre-existing behavioural dispositions of economic
actors. However, once we adopt the anti-naturalizing approach of the
institutionalists, and accept the socially and institutionally constructed nature
of markets, then our understanding of the relationship between law and
markets also changes: markets, it becomes clear, should not be imagined as
existing prior to law, but are in part constituted by law. Law's relationship to
economic life is both regulative and constitutive.
1
It was the legal realists ± especially Robert Hale ± who first explored in
detail what it meant for law to help `constitute' economic life. Hale showed,
for example, how the relative bargaining power of parties to a market
transaction is legally constituted. By defining the rights, duties, privileges,
powers, and so on of each party with respect to all economic resources, law
bestows different capabilities on each party, fundamentally shapes the
alternatives available to each party, and defines the various ways in which
(and extent to which) each party can pressure each other in the course of
negotiation. Against mainstream economic and political thought of the time,
which drew a clear distinction between the `freedom' of markets and the
`coercion' of government interference through law, Hale argued that `free
markets' were themselves shot through with coercion ± and that the state was
implicated in such coercion through, among other things, the legal institutions
of contract, p roperty, tor t, and their ass ociated mec hanisms of sta te
enforcement. Similarly, he also showed that market prices are also legally
constituted, in part because they represent the expected value stream of
specific legal rights associated with the good or service which is the subject of
the transaction, and thus depend fundamentally on the content of those rights.
2
It was a formidable intellectual achievement of this `first great law and
economics movement'
3
simply to draw attention to the constitutive role of
law in economic life, and the insights it has yielded are powerful and
enduringly relevant. If market prices are themselves recognized to be the
product of legal `intervention', and if free markets are understood to be
premised on politically sanctioned coercion, then the distinction fundamental
to many contemporary economic debates, between `free' markets on the one
156
1 For an account which usefully distinguishes between not only the regulative and
constitutive but also the facilitative role of law, see L.B. Edelman and R. Stryker, `A
Sociological Approach to Law and the Economy' in The Handbook of Economic
Sociology (2005, 2nd edn.) 527±51.
2 See, for example, R.L. Hale, `Coercion and Distribution in a Supposedly Non-
Coercive State' (1923) 38 Political Sci. Q. 470±94; R.L. Hale, `Bargaining, Duress,
and Economic Liberty' (1943) 43 Columbia Law Rev. 603±28; R.L. Hale, `Force and
the State: A Comparison of ``Political'' and ``Economic'' Compulsion' (1935) 35
Columbia Law Rev. 149±201. See, also, B. Fried, The Progressive Assault on Laissez
Faire: Robert Hale and the First Law and Economics Movement (2001).
3 H. Hovenkamp, `The First Great Law & Economics Movement' (1990) 42 Stanford
Law Rev. 993±1058.
ß2013 The Author. Journal of Law and Society ß2013 Cardiff University Law School
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