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The Economy as a System of Power and its Legal Bases: The Legal Economics of Robert Lee Hale

  • Warren J. Samuels

Abstract

Law is an instrument for the attainment of economic objectives and the economy is an object of legal control. The substance of that proposition is widely acknowledged and even more widely, if tacitly, followed. Although economists are increasingly concerned with the legal framework of economic activity and lawyers have long been concerned with the structure of economic organization and relations, no general model of the interrelations between legal and economic (i.e., market) processes has been developed which has found wide acceptance and application. Actually, such a model would have to be developed in terms of an even more general model of the fundamental social relations and forces in terms of which and within which both legal and economic forces and their interaction take place and accordingly may be understood. The complexities of such an analysis, encompassing many if not all the problems of theories of social control and social change, and the difficulties of specifying the social forces in both relatively neutral, yet meaningful, and general yet precise terms, among other factors, have precluded the generation of a widely acceptable and useful model.

Keywords

Bargaining Power Individual Liberty Coercive Power Labor Legislation Legal Factor 
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Notes

  1. 1.
    The biographical information in this and the following paragraph is based in part on J. Dorfman, The Economic Mind in American Civilization (1959) vol. 4, pp. 160–3 [hereinafter cited as Dorfman]Google Scholar
  2. 1a.
    J. Goebel, Jr (ed.), A History of the School of Law, Columbia University (1955), pp. 324–5, 361; Law Alumni Bulletin, vol. 11, 39 (Winter 1969).Google Scholar
  3. 2.
    Goebel, A History of the School of Law, Columbia University p. 325; E. L. Brown, Lawyers, Law Schools and the Public Service (1948) p. 142 [hereinafter cited as Brown]. Hale’s course on Legal Factors was brilliantly complemented by Julius Goebel, Jr’s Development of Legal Institutions.Google Scholar
  4. 2a.
    See W. C. Warren, ‘Julius Goebel, Jr. — An Appreciation’, Columbia Law Review vol. 61, 1195 (1961). Hale would have agreed with Joseph Dorfman’s tribute to Goebel for ‘insisting that the development of modem legal institutions rests in good part on the delicate interplay of law and economics in response to the requirements of a growing economy,’ which tribute applied equally to Hale himself.CrossRefGoogle Scholar
  5. 2b.
    J. Dorfman, ‘Chancellor Kent and the Developing American Economy’, Columbia Law Review vol. 61, 1290 (1961). See text at n. 13 below.CrossRefGoogle Scholar
  6. 7.
    I. Barnes, The Economics of Public Utility Regulation (1942), p. 402.Google Scholar
  7. 11.
    R. Hale, Legal Factors in Economic Society (1st edn 1935, 2 vols.; 2nd edn 1937, 3 vols.; 3rd edn, 1940, 2 vols.; 4th edn, 1946; 5th edn 1947) [hereinafter cited as Legal Factors. References below are to the third edition, the longest edition in terms of pages of which the subsequent editions are primarily condensations.Google Scholar
  8. 12.
    W. C. Mitchell, ‘Commons on the Legal Foundations of Capitalism’, American Economic Review vol. 14 (1924), pp. 240, 253 [hereinafter cited as Commons];Google Scholar
  9. 12a.
    J. Dorfman (ed.) Types of Economic Theory (1969), p. 736. At least one reviewer of Freedom Through Law favourably compared it to John R. Commons’ Legal Foundations of Capitalism (1924).Google Scholar
  10. 12b.
    T. I. Emerson, Book Review, Lawyers Guild Review vol. 13,139, 140 (1953) [hereinafter cited as Emerson]. Commons and Hale were not only familiar with each other’s work but corresponded occasionally.Google Scholar
  11. 12c.
    For example, Hale cites Commons’ ‘Legal Foundations of Capitalism and Economics’, Yale Law Journal vol. 34, 371 (1925) in Economics and Law’, in W. F. Ogburn and A. Goldenweiser (eds), The Social Sciences and Their Interrelation (1927), p. 131, n. 1 [hereinafter cited as ‘Economics and Law’], and Commons cited two articles by Hale in his Legal Foundations of Capitalism p. 91, no. 1. See also Hale Papers, Folders 28, 29. Commons was, with Thorstein Veblen and Mitchel, a leader of Institutional Economics.CrossRefGoogle Scholar
  12. 15.
    S. D. Rose, Book Review, Vanderbilt Law Review vol. 6, 958 (1953) [hereinafter cited as Rose]. See J. Stone, The Province and Function of Law (1950), pp. 780, 781 [hereinafter cited as Stone]. Jerome Frank, dissenting in M. Witmark & Sons v. Fred Fisher Music Co. 125 F.2d 949 (2d Cir. 1942), cited several articles by Hale in support of his argument that minimization of government interference was ‘not the actual practice, even when laissez-faire was in its zenith. ...’ ibid., p. 963. The case is discussed in n. 32 on p. 125 of Freedom Through Law. See also letter from J. N. Frank to R. L. Hale, 23 April 1946, in Hale Papers, Folder 13.Google Scholar
  13. 17.
    F. S. Cohen, Ethical Systems and Legal Ideals (1933), p. 80, n. 22.Google Scholar
  14. 18.
    E. Cheatham, A Lawyer When Needed (1963), pp. 122, 124.Google Scholar
  15. 19.
    A. S. Miller, ‘Private Governments and the Constitution’, in A. Hacker (ed.) The Corporation Take-Over (1964), pp. 138–9 [hereinafter cited as Miller].Google Scholar
  16. 20.
    J. M. Clark, Social Control of Business 2nd edn (1939), pp. 111–12 and n. 1. Clark also cited Commons’ ‘Legal Foundations of Capitalism’ (1924).Google Scholar
  17. 27.
    E. Cahn, Book Review, New York Times 18 January 1953, p. 14, col. 1, [hereinafter cited as Cahn].Google Scholar
  18. 28.
    Emerson, Book Review, p. 139. This formulation accords with Frank H. Knight’s understanding of the concept ‘theory of economic policy’, see his ‘Theory of Economic Policy and the History of Doctrine’, Ethics vol. 63 (1953), pp. 276, 282, and W. Samuels, The Classical Theory of Economic Policy (1966) [hereinafter cited as Samuels].Google Scholar
  19. 31.
    In notes dating back to the First World War, Hale wrote: ‘It has been customary to ignore the fact that the owner of property derives his income from the government’s interference with others ... However we may explain the persistence of the notion that our existing system of property rights implies no governmental interference with the distribution of wealth, that notion has now begun to lose its hold. ... The need of protecting the public from the owner was first clearly seen in the case of the railroads, then of other public utilities. ... No longer are we able to delude ourselves with the comfortable theory that private property is no special privilege. And no longer, on the other hand, do we seek the panacea of abolishing all special privileges. Like all special privileges of a pecuniary nature, we seek to allow income from ownership to the extent, and to the extent alone, that it conduces to some social purpose. ...[W]e aim to measure the privilege by the end to which it is supposed to conduce. ...[and] to leave the owner so much income only as is thought socially desirable.’ Hale Papers, Folder 24. This functional analysis (without, in the case of Taussig, the normative element supporting reform) has its analogue in Taussig’s functional treatment of the leisure class, F. W. Taussig, Principles of Economics 3rd edn (rev. 1929), vol. 2, pp. 275–7, and possibly one source, and certainly support (acknowledged by Hale in Hale Papers, Folder 90–3 at 2) in R. T. Ely’s social theory of property in his Property and Contract in Their Relation to the Distribution of Wealth (1914). In 1951, at the University of Chicago, Hale similarly argued that public utility rate regulation ‘cannot be intelligently solved without passing judgement on the desirable economic relationships between property owners in general and the rest of the community. Once that judgement is made, the question at once arises why the government should not readjust the relationships between the public and other property owners, not utility owners alone, whenever the present relationships seem to call for readjustment’ Hale Papers, Folder 59–1 at 6.Google Scholar
  20. 33.
    Hale was undoubtedly also influenced by Taussig’s emphasis upon the importance of an instinct of domination, which he felt extended throughout both political and economic affairs, though Hale nowhere generalizes about psychology in relation to power and coercion. See W. Samuels, ‘Taussig on the Psychology of Economic Policy’, Indian Economic Journal, vol. 15 (1967), p. 1.Google Scholar
  21. 34.
    R. Hale, Political and Economic Review, American Bar Association Journal vol. 9, 329, 330 (May 1923). Hale’s ‘Coercion and Distribution’ was a review of T. N. Carver’s Principles of National Economy (1921). Although Carver wrote Hale that the latter’s review failed to choose ‘a representative case’ (Letter from T. N. Carver to R. L. Hale, 19 November 1923, in Hale Papers, Folder 1), Roscoe Pound wrote to Hale that his critique of Carver was ‘not only characteristically acute, but seems to me entirely convincing’ (Letter from R. Pound to R. L. Hale, 14 November 1923, in Hale Papers, Folder 1) after earlier having written that Hale’s article, ‘Law Making by Unofficial Minorities’, Columbia Law Review vol. 20, 451 (1920) [hereinafter cited as ‘Law Making by Unofficial Minorities’], showed ‘an unusual power’ in looking ‘realities in the face, divesting them of their coverings of legal theory’. (Letter of R. Pound to R. L. Hale, 20 May 1920, in Hale Papers, Folder 4.) Hale’s own depth of reasoning, realism and candour were further praised by R. B. Gosh, for ‘showing up the absurdities in the existing window dressing’ of laws and institutions (Letter from R. B. Gosh to R. L. Hale, 2 May 1922, in Hale Papers, Folder 6), and by J. Viner, writing like Gosh in praise of Hale’s ‘Rate Making and the Revision of the Property Concept’ that ‘[he] fully appreciate[d] its acuteness of reasoning, its grasp of economic and .., presum[ably] of legal principles, and its determined search for fundamental bases for the guidance of governmental action’ (Letter from J. Viner to R. L. Hale, 23 September 1922, in Hale Papers, Folder 6.) Of interest also in this regard is A. Lawrence Lowell’s reaction to Hale’s ‘Law Making by Unofficial Minorities’. Then President of Harvard, Lowell wrote Hale: ‘Surely we have discovered, to the great surprise of its early advocates, that democracy means, in large part, the rule of minorities. On the other hand, those who have always claimed that minorities are usually right ought to rejoice; but the question arises, what minorities?’ (Letter from A. Lawrence Lowell to R. L. Hale, 29 May 1920 in Hale Papers, Folder 4.) Compare, however, Douglas Maggs’ reaction to Hale’s ‘Commissions, Rates, and Policies’, Harvard Law Review vol. 53, 1103 (1940), stating that he would ‘succeed eventually in forcing out into the open the hidden and therefore half-baked policy decisions which dictate results in this field’. (Letter from D. Maggs to R. L. Hale, 4 June 1940, in Hale Papers, Folder 16, which included the letter of a former student, Edward S. Godfrey: ‘I should like to tell you also how thoroughly I enjoyed your course — especially the book, which I read in entirety. Though I still hold some doubts as to whether or not it should be suppressed! It clears away vast stretches of underbrush, but I think you are still groping yourself to find what to plant in its place. The great Llewellyn can laugh at the fear of skepsis, but I think his critics have something there. I’m thinking of less extraordinary people, less informed, and of that infernal arbitrariness of choice that turns up after all your analysis. Truly I believe that if every one in the country took Legal Factors we should have a civil war. But I really enjoyed it tremendously.’ (Letter from E. S. Godfrey to R. L. Hale, undated, in Hale Papers, Folder 40.)Google Scholar
  22. 37.
    Hale, ‘Decisions on Valuation and Rate Making: Discussion’, American Economic Review vol. 14 (1924), pp. 264, 265.Google Scholar
  23. 38.
    Hale, ‘Economic Theory and the Statesman’, in R. G. Tugwell (ed.), The Trend of Economics (1924) p. 193 [hereinafter cited as ‘Economic Theory and the Statesman’].Google Scholar
  24. 39.
    See generally S. Fine, Laissez Faire and the General-Welfare State (1956).Google Scholar
  25. 42.
    L. Hobhouse, Property: Its Duties and Rights (1915), pp. 9–10.Google Scholar
  26. 43.
    H. Croly, Progressive Democracy (1914).Google Scholar
  27. 48.
    A. Corbin, ‘Foreward’ to W. N. Hohfeld, Fundamental Legal Conceptions ed. W. W. Cook (1964), p. viii.Google Scholar
  28. 52.
    Hale used and praised Hohfeld’s analysis but he did not attempt to state his own analysis in rigorously Hohfeldian terms, though he sometimes used or referred to Hohfeld’s terminology for clarity or strength. See Hale, ‘Labor Law. Anglo-American’, in Encyclopedia of the Social Sciences, vol. 8 (1932) p. 669 [hereinafter cited as Hale, in Encyclopedia of Social Sciences]; Hale Papers, Folders 1 (Letter from A. T. Hadley to R. L. Hale, 12 November 1923, and letter from R. L. Hale to A. T. Hadley, 24 November 1923, 30–1, 30–2, 58–3, 58–5, 91–5); Hale, ‘Rate Making and the Revision of the Property Concept’, pp. 214 and p. 16.Google Scholar
  29. 54.
    E. Levi, An Introduction to Legal Reasoning (1951), p. 1.Google Scholar
  30. 56.
    ‘Coercion and Distribution’ ; Hale, ‘Force and the State: A Comparison of “Political” and “Economic” Compulsion’, Columbia Law Review, vol. 35, 149 (1935) [hereinafter cited as Force and the State].CrossRefGoogle Scholar
  31. 65.
    Hale, Book Review, Columbia Law Review, vol. 59, 821, 828 (1959) [hereinafter cited as Hale, Book Review].CrossRefGoogle Scholar
  32. 74.
    Hale, ‘Bargaining, Duress, and Economic Liberty’, Columbia Law Review, vol. 43, 603, 626, 628 (1943) [hereinafter cited as ‘Bargaining, Duress, and Economic Liberty’].CrossRefGoogle Scholar
  33. 80.
    Hale, ‘Labor Legislation as an Enlargement of Individual Liberty’, American Labor Legislation Review, vol. 15, 155 (1925) [hereinafter cited as ‘Labor Legislation as an Enlargement of Individual Liberty’].Google Scholar
  34. 87.
    Hale, ‘Value and Vested Rights’, Columbia Law Review, vol. 27, 523, 526 (1927) [hereinafter cited as ‘Value and Vested Rights’].CrossRefGoogle Scholar
  35. 102.
    E. J. Mishan, ‘Pareto Optimality and the Law’, Oxford Economic Papers, vol. 19 (1967), p. 255 [hereinafter cited as Mishan].Google Scholar
  36. 125.
    Ludwig von Mises, ‘Freedom is Slavery’, The Freeman, vol. 3 (1953), 9 March, p. 410. Hale Papers, Folder 76.Google Scholar
  37. 136.
    M. Adler, The Idea of Freedom, vol. 2 (1961), p. 5; see also pp. 12,50 passim. Google Scholar
  38. 137.
    Interestingly, Adler also includes as exponents of this view such figures as Aquinas, Bentham, Burke, Dewey, Hayek, Hume, Kelsen, Knight, Laski, Mill, Pareto, Russell, Spencer, and Adam Smith; the list is interesting, in part, because it includes major figures on the ‘left’ and on the ‘right’, and in part also because of Knight’s critical review of Hale’s Freedom Through Law. F. H. Knight, Book Review, Virginia Law Review, vol. 39, 871 (1953). The difference between Hale and Knight lies not in their comprehension of the circumstantial character of liberty, but in Hale’s relative eagerness and Knight’s relative caution against and indeed general unwillingness to deliberately reform and to reform along egalitarian lines. In other words, their positive analysis is not fundamentally far apart, though their normative analysis diverges considerably. See below, for a discussion of deliberative versus nondeliberative social change in Hale’s thought.CrossRefGoogle Scholar
  39. 165.
    ‘[W]hile the state is capable of destroying our liberties it is also essential to their very existence. We must rely on the state to restrain powerful private individuals from unduly restricting the liberty of weaker ones.’ Freedom Through Law, p. 3. [T]he choice of the channels into which industry should be made to flow ought not to be left to the whims of a comparatively few rich men to whom the government seems at present to have delegated the power so to choose.’ Hale, ‘The Concentration of Wealth: Discussion’, American Economic Review, vol. 7 (1917), pp. 174, 175 [hereinafter cited as ‘The Concentration of Wealth’].Google Scholar
  40. 167.
    Ibid., 69–2 at 3 & 80–3; Hale, Book Review, The Survey, vol. 45 (1921), 1 January, p. 514, Folder 79.Google Scholar
  41. 168.
    Hale Papers, Folder 80–16 at 1. Elliott Cheatham quoted to Hale an excerpt from Hamilton (whom Cheatham called ‘the greatest secretary of the treasury before Mellon’) in The Federalist, no. 79 (first paragraph) that, ‘[a] power over a man’s subsistence amounts to a power over his will’. (Letter from E. Cheatham to R. L. Hale, 14 April 1932, in Hale Papers, Folder 57.) And Taussig, writing to compliment Hale on the latter’s article on the Nebbia case, ‘The Constitution and the Price System: Some Reflections on Nebbia v. New York’, Columbia Law Review, vol. 34, 401 (1934), stated his ‘feeling as to the lack of significance for economics in the distinction between public and private business’. (Letter from F. W. Taussig to R. L. Hale, 19 May 1934, in Hale Papers, Folder 10.) The distinction applies to the question of a category affected with the public interest, as opposed to ordinary private enterprise, and not to the distinction between public and private government; however, one of the historical criteria for inclusion within the former ‘category’ was concentration of economic power, or strategic market position, which was often juxtaposed to another, degree of consumer necessity, and to still another, the capacity to discriminate in price and service.CrossRefGoogle Scholar
  42. 189.
    Political and Economic Review, American Bar Association Journal, vol. 9, 179 (March 1923). Thomas Reed Powell thus wrote to Hale that ‘what you are proving is that freedom against the state does not leave you a free agent’. (Letter from T. R. Powell to R. L. Hale, 24 June 1939, at 2, in Hale Papers, Folder 17.) Hale wrote to Arthur S. Miller, in response to a manuscript of Miller’s, that ‘your main point is good, that someone should have power to limit private governing power’. (Letter from R. L. Hale to A. S. Miller, 13 September 1959, in Hale Papers, Folder 72.) Miller quoted Hale’s Freedom Through Law, p. 548 on the importance of governmental control of private power. A. S. Miller, pp. 138–9 and in ‘The Constitutional Law of the “Security State”’, Stanford Law Review, vol. 10, 620, 653 (1958).CrossRefGoogle Scholar
  43. 193.
    One further way in which Hale stressed the importance of considering the entire system of governance, and therefore private government, was in his criticism of anarchism as neglecting the threats to liberty coming from private power concentrations. He wrote to his brother that ‘certainly the anarchist ideal of freedom from restraint is a very high one, the only difficulty being in the necessity of keeping you as free from the restraint of other individuals as from that of the government’. (Letter from R. L. Hale to M. Hale, 29 July 1913, at 3, in Hale Papers, not in folder.) Later he wrote: ‘It is only the anarchist who can conceive of no possible curtailment of individual liberty except that imposed by the political state.’ (Hale Papers, Folder 58–5 at 3.) See also ibid. 81–2 at 4–5, 93–5 at 1, 57–9 at 1. Immediately after making the point quoted in the text at note 189 above, Hale wrote: ‘Perfect freedom from restraint by the official government is attainable only under anarchy; and under anarchy, we might be even less free than now from restraint imposed by non-governmental groups and individuals.’ Political and Economic Review, American Bar Association Journal, vol. 9, 179 (March 1923). The logic of mutual coercion or of governance is that the absence of coercion from one source does not imply coercion from another source.Google Scholar
  44. 194.
    Hale did apply his analysis to Webb’s Constitution for the Socialist Common-wealth of Great Britain in a short review. Hale, Book Review, The Survey, vol. 45 (1921), 1 January, p. 514.Google Scholar
  45. 208.
    Hale, Book Review, Columbia Law Review, vol. 31, 916 (1931).CrossRefGoogle Scholar
  46. 256.
    For a critique of productivity theory, see M. Blaug, Economic Theory in Retrospect, rev. edn (1968), pp. 444–6.Google Scholar
  47. 283.
    Legal Factors, pp. 128, 132; Hale, Political and Economic Review, American Bar Association Journal, vol. 10, 51, 52 (January 1924).Google Scholar
  48. 286.
    Legal Factors p. 129, quoting R. F. A. Hoernle, ‘Politics in South Africa’, The New Republic vol. 13 (1917), 8 December, p. 147. For current policies with the same or similar purposeGoogle Scholar
  49. 286a.
    see P. M. Boffey, ‘Japan: A Crowded Nation Wants to Boost its Birthrate’, Science, vol. 167 (1970), 13 February, p. 160 and articles on South Africa in New York Times, 5 April 1970 (city edn), p. 12 and Newsweek, 27 April 1970, p. 40.Google Scholar
  50. 342.
    Emerson, p. 139. See also Rose, pp. 958–9. T. Broden, Book Review, Notre Dame Law Review, vol. 28, 435 (1953) [hereinafter cited as Broden].Google Scholar
  51. 369.
    ‘Law Making by Unofficial Minorities’, p. 455. In his review of Hale’s Freedom Through Law Harvey C. Mansfield wrote that, according to Hale, ‘the state is the necessary partner in the establishment of every individual in his unique and unequal estate, rich or poor, and in every decision by which he comes to terms with those who can help him to what he wants or those who can get what they want by driving him toward what he seeks to avoid’. H. C. Mansfield, Book Review, The Annals, vol. 287 (1953), May, p. 189.Google Scholar
  52. 408.
    M. L. Kafoglis, ‘Marriage Customs and Opportunity Costs’, Journal of Political Economy, vol. 78 (1970), pp. 421, 423.CrossRefGoogle Scholar
  53. 447.
    The text paraphrases O. H. Taylor, A History of Economic Thought (1960), p. 134.Google Scholar
  54. 499.
    S. Perlman, in The Development of Economic Thought, ed. H. W. Spiegel (1952), p. 411.Google Scholar
  55. 502.
    Letter from R. L. Hale to E. E. Cheatham, 2 November 1933, at 1, in Hale Papers, Folder 57. Hale’s policy strategy is similar to that of Knight in the latter’s review of Freedom Through Law. F. H. Knight, Book Review, Virginia Law Review, vol. 39, 871, 871–72 (1953); see n. 137 above.CrossRefGoogle Scholar

Copyright information

© Warren J. Samuels 1992

Authors and Affiliations

  • Warren J. Samuels
    • 1
  1. 1.Michigan State UniversityUSA

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