The Progressive Assault on Laissez Faire: Robert Hale and the First Law and Economics Movement

by Barbara H. Fried

Law and economics is the leading intellectual movement in law today. This book examines the first great law and economics movement in the early part of the twentieth century through the work of one of its most original thinkers, Robert Hale. Beginning in the 1890s and continuing through the 1930s, progressive academics in law and economics mounted parallel assaults on free-market economic principles. They showed first that "private," unregulated economic relations were in fact determined by a state-imposed regime of property and contract rights. Second, they showed that the particular regime of rights that existed at that time was hard to square with any common-sense notions of social justice. Today, Hale is best known among contemporary legal academics and philosophers for his groundbreaking writings on coercion and consent in market relations. The bulk of his writing, however, consisted of a critique of natural property rights. Taken together, these writings on coercion and property rights offer one of the most profound and elaborated critiques of libertarianism, far outshining the better-known efforts of Richard Ely and John R. Commons. In his writings on public utility regulation, Hale also made important contributions to a theory of just, market-based distribution. This first, full-length study of Hale's work should be of interest to legal, economic, and intellectual historians.

Genres: Economics, Law, Philosophy, Nonfiction

352 pages, Hardcover

First published April 30, 1998

Reviews

[Merlin · Rating 5 out of 5]

This is a fantastic book. In fact, I would be hard-pressed to name a similarly insightful discussion of the (lack of an) ethical case for unregulated market relations. Quite an astonishing feat given that first-order discussion is not even the main business of this book. Primarily, Fried is doing intellectual history, offering a highly informative introduction to the progressive traditions prevailing in the early 20th century, and to the influence they had on Robert Hale's critique of the Lochner Court (the Supreme Court during the first four decades of the 20th century, named after the 1905 case Lochner v New York that really set the tone for this era by ruling that a state-mandated maximum of 10 working hours per day would be illiberal). But by describing Robert Hale's takedown of the Lochner Court, Fried also presents us with crisp arguments touching on fundamental questions concerning the basic concepts of liberty, personal property, desert, value and monopoly. And as if that wasn't enough, Fried is also wonderfully exact, eloquent, and often hilarious writer. (The book already starts with an absolute zinger on p.1)

Throughout the disparate topics he worked on, Hale's style of argumentation is remarkably consistent. Here a sketch of the general shape of his arguments: The starting point is the target of his attack, some argument adduced by the Lochner court to strike down progressive regulation. This target mostly amounts to the claim that some right (freedom from coercion and property rights) would be violated by some progressive regulation, which would thereby be unconstitutional. As a challenge to this argument, Hale illustrates that the invoked right is so general as to be of hardly any guidance in deciding on the merits of a given regulation. Instead, any determinate position which the court did arrive at must have been either baseless or supported by other, unvoiced reasons (consequentialist considerations, or a specific list specifying that unpressured choices should be protected in the case of employers but not of workers). From this Hale draws two lessons. First, given that considerations of freedom and property rights are largely moot regarding market regulation, we should really be discussing those unvoiced reasons that do bear on the matter. Second, legislatures, not courts, are the place where those discussions belong. This is so because the answer to such questions cannot result from a mere application of abstract principles listed in the constitution "but instead has to grow out of some political consensus about the sort of society that we wish to live in." (Fried's words - p. 213)

So much for the general "recipe" of argumentation. However, the way in which it is applied and spelled out sometimes prioritises the flow of the overall argument over analytical depths at the individual steps. One point in particular stands out: Hale's argument that, pace the Lochner court, it is by no means clear that a concern with coercion would translate into a case against market regulations. Again, his critique hinges on emphasising that the notion of coercion is much too wide to lead to a determinate conclusion. According to Hale, the abstract notion of coercion applies just as much to a) the state's threatening to imprison, fine, or delicense employers and employees unless they respect the constraints the state imposes on their agreements, as it does to b) employers threatening not to hire employees unless they accept the terms they set. (Or, for that matter, to employees threatening not to work unless they are offered better terms.) So, the fact that a regulation coerces, says nothing about whether we should be more concerned about the coercion it creates than about the coercion it removes. No victory is won simply by appealing to coercion.

But that's not convincing unless we're told why a definition of coercion could not be narrow enough to focus on state directives only. In fact the most widely used definition of coercion does exactly that by insisting that A coerces B only if A takes an option away from B. The state probably does so, by telling employers that they can no longer demand their workers to suffer through 20 hour days without running the risk of unappealing state sanctions. But, at first sight, employers don't take anyone's options away. They only give an option to employment-seeking workers which they did not have before. In her less guarded moments, Fried (and perhaps Hale?) does ignore this distinction (e.g. p. 59-62, 211). However, there are points at which Fried suggests a better reply: it's not that such distinctions of improving/ hampering someone's choice are unstable, they simply don't apply when we are concerned, not with interpersonal morality, but rather with the organisation of society. This is so because the options we have are always created and shaped by society, and there is no given "baseline" against which we could measure whether options are added or taken away. "The reason that [before the employer's offer, the option of the workers using the employer's equipment to work] were unavailable—and hence the source of the coercion—was not natural necessity. Instead, it was the state itself, which, through its laws of liberty, property, and contract, gave owners the right to withhold property and services from others absolutely, and the power to waive that right upon payment of the price demanded" 50

An interesting answer, suggesting a host of further questions. For example: the state and employers are different agents. Now it is not generally true that if some agent deprives you of options you had and if someone else comes along offering to help on some condition, that then this second person would coerce you. (Think of an assaulter destroying your car, and an auto mechanic offering to fix your car for the going price. Sure, you might feel wronged by the first person, but the mechanic?) I think this question points towards an interesting direction that might allow for a better appreciation of the special role the state plays in conditioning the bargaining positions of market participants and for a more explicit understanding of what we really object to when criticising vast differences in power between market participants. But the book abandons analysis at an earlier stage, suggesting simply that restricted options are restricted options and that anything more discriminating must arise out of democratic discussion. And, to be honest, there are worse approaches!

The remaining discussion of entitlements to property and rents in competitive markets, the heart of the book, is a highly informative synthesis of basic economics and philosophy. Here Fried offers a very compact introduction to the history of an important strand of progressive thought which informs Hale's conviction that the distinction between monopolies, which even libertarians agreed should be regulated, and competitive markets, which should be left alone according to the same libertarians, is largely indefensible. The reason: inframarginal rents ubiquitous even in competitive markets. Such rents imply that a share of the benefits secured by some suppliers do not reflect effort or sacrifice, but simply the fact that demand is high enough that other, less efficient, suppliers enter the market. This is a very convincing negative argument when levelled at the notion that a competitive market would administer deserved rewards. But as Fried notes, here too Hale's analysis does not provide us with a promising basis for a positive agenda. For while it is clear that some inframarginal rents will be thoroughly undeserved, it isn't clear that this holds across the board (a desperate worker who would be happy to work for a pittance but luckily does not have to because demand is high and other workers aren't quite as desperate, also counts as an inframarginal supplier). Nor is it clear that all marginal income would be deserved (marginal costs still reflect reservation options - so if a worker has a lucrative alternative, or could simply afford leisure, that might be the reason why they only offer their services at a relatively high wage). So, an array of further distinctions would need to be drawn to provide a workable guide as to which incomes count as earned and which don't, at which point it isn't clear whether any bureaucracy could efficiently implement such a guide. In the face of such questions, Fried suggests, progressives have turned to the much more straightforward policy of progressive taxation.

As I said, Fried's book never reaches a satisfying analysis of the moral landscape of the market. But her discussion goes far enough to forcefully illustrate just how unforgiving the terrain is. And perhaps that's more than enough to suggest that, in matters of economic justice, we should place less hope in abstract reasoning and rely more on democratic discussion.

[Reed Schwartz]

If only Sam had listened to his mom...