| Book Review | Law and History Review, 17.1

Book Review

Heath Pearson, Origins of Law and Economics: The Economists' New Science of Law, 1830-1930, Cambridge: Cambridge University Press. Pp. viii + 202. $64.95 (ISBN: 0-521-58143-5).

The traditional view of law and economics scholarship is that the old generation of such scholarship, which includes most things that happened before 1960, was heavily based on institutionalist approaches, heavily historical, anecdotal, and not very theoretical. By contrast, post-1960s law and economics scholarship is much more neoclassical in its basic paradigm, and as a result much more theoretical and rigorous.

Heath Pearson's history of law and economics before 1930 does little to dispel this notion. Indeed, he argues that an "economic science of law" that developed in Europe and Great Britain during the nineteenth century was in fact the forerunner of the institutionalism in economics that we tend to identify with the first thing that can be called a "law and economics movement," occurring right after the turn of the century. Pearson locates his primordial law and economics entirely in this institutional tradition.

Pearson does a more than adequate job of developing how nineteenth-century economists such as Wilhelm Roscher, Karl Bucher, Emile de Laveleye, Richard Hildebrand, and Friedrich F. von Wieser studied cultural and political institutions in order to see how economies worked. One might prefer to describe their work more as "anthropology and economics" rather than "law and economics," but that would be a quibble, certainly when one is speaking of a far less specialized age. For example, Laveleye studied peasant villages and Bucher German village councils, focusing on such questions as how they assigned property rights or resolved property disputes. As a group, these economists were heavily interested in such questions as whether a law of property rights was universal, or whether it was simply cultural. They studied different cultures in order to identify a common core. In the process, they developed interesting ideas about the evolution of property rights, particularly their relation to population density and the availability of land. As a general rule, property rights increased in importance and became more institutionalized and complex as the perceived supply of land became more limited, or as populations became more stable.

But Pearson's picture of the history of economics that led to law and economics is very truncated and incomplete, in several different senses. First, there is no discussion of Darwin, and very little of the rise of post-Darwinian social science in general. As a result, there is little development of the gradual secularism and scientism that overwhelmed economics as well as the other social sciences during the late Victorian and realist periods. The result of this secularism was to rob legal institutions such as property and contract of their "natural law" rationalizations, and this in turn mandated a need for more scientific, hence economic, explanations.

Second, and more problematically, except for a very brief introductory mention (31), there is almost no discussion of the importance of marginalism to the development of law and economics. Marginalism, which developed simultaneously in England and Austria in the 1870s, threatened the classical conception that markets were (nearly) always robust and efficient and paved the way for significantly greater involvement of the government, and thus of legal institutions, in the economy. For example, the view of Progressive era practitioners of law and economics was that marginalism explained why an incremental ("marginal") dollar was worth a great deal to a poor person, but very little to a rich person who already had millions. As a consequence, one could increase total welfare by transferring dollars from the wealthy, who valued each one only a little, to the poor, for whom they meant a great deal. This belief, now largely rejected, was thought to justify much of the Progressive economic agenda, including its position on labor law, income taxation, welfare, and consumer protection. Developments in Great Britain were much the same, with Arthur Pigou at Cambridge making largely the same arguments that American law and economics scholars such as Richard T. Ely, Edwin R. A. Seligman, and John R. Commons made. In this reviewer's mind, no history of law and economics during the period 1830-1930 is complete without significant discussion of the impact of the marginalist revolution. Indeed, in the eyes of some it provides the most important stone for the foundation of Anglo-American law and economics.

Third, Pearson largely ignores the growing areas of legal policy that invited economic analysis of the law—namely, antitrust, price and entry regulation, consumer protection regulation, labor policy, and progressive income taxation. His work creates the impression that law and economics originated in fairly academic studies of institutional theory with little policy implications, but nothing could be further from the truth. The rise of institutionalist law and economics in the late nineteenth and early twentieth century was a response to a greatly increased perception that market failure was a common thing—something that classical political economy rejected as an article of faith. Further, the Progressive era writers on law and economics, both English and American, all had policy agendas driven in part by marginalist economic theory and in part by their belief that the government should take a much bigger role in regulation of the economy.

Herbert Hovenkamp

University of Iowa

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