To wrap up our little analysis on the neoclassical view of judging, let’s look at Posner’s theories of the emergence of law.
Adam Smith saw estate rights as emergent from the collective, which then instituted publicly coordinated dispute settlement procedures to adjudicate between competing claims. Even in hunter and shepherd civilizations, group-coordinated powers of exile existed. The quality and quantity of judicial institutions could vary due to institutional features and the extent of democracy, neither of which moved forward in deterministic fashion.
Neoclassicals instead promote individual rationality as a permanent feature of human life. In primitive societies, retaliation was the norm. How is this rational? The costs of retaliation, on the surface, would appear to outweigh the benefits. Yet, for primitive man, it was a rational response to the high information costs inherent in adjudging whether aggression was accidental, or the result of recklessness or negligence. In addition, retaliation (as applied) worked by targeting not just the aggressor but also the aggressor’s family, which reduced retaliation costs by multiplying available targets, and also created incentives for family members to control potential aggressors in their ranks, thereby further lowering the retaliators’ outlays of effort. (Posner, 2010, at 329-333)
Landes and Posner also explored a case study of the Yurok Indians of California. In this society, a Yurok could prosecute a legal claim by hiring two, three or four nonrelatives from outside his community (known as “crossers”) to hear his claim, and the defendant would do the same with an equal number. The crossers would be paid in shell currency by the parties.
Even in the “absence of public coercive authority,” these rules emerged and damages were paid by the losing party. Why? The rules were enforceable because, if the payment did not occur, the losing party could be made a wage slave or killed. The rules emerge because societies that have no dispute settlement and therefore kill one another are dead societies.
The only faults that the authors find is the system was theoretically open to corruption and that is was overly case-specific, and did not create generalized norms. The former problem they discount as “a general threat to judicial integrity rather than a special problem of primitive society.” The latter problem is a result of the aforementioned positive externality of precedent production. Landes and Posner argue that the problem is diminished with societies where the chief is the settler of disputes, since he is able to internalize the positive externality since he values societal effectiveness and stability. (Landes and Posner, 1979, at 243-245) This again advances that the only reason for the public nature of judiciaries is to resolve a market failure.
There are several weaknesses in this case. First of all, it is unclear why the Yurok example (assuming it is accurately described) should be described as wholly pre-state. There are collective rules and collective punishment even in this example. Second, it is unclear from the description whether these were disputes over property, or other forms of rights. As such, the neoclassical account does not appear to account for Smith’s distinction between natural and collectively created rights.
Finally, it is difficult for the neoclassicals to explain the evolution of institutions without reference to some exogenous force outside of the neoclassical framework of self-interest. The explanation of the Yurok as creating dispute settlement in order to outcompete rivals suggest some type of collective optimization that cannot be neatly explained at the individual level. Likewise, the account of the chieftain as resolving the market failure because of his internalization of social interests seems to individualize the collective and make him special – a problem that Posner also has in explaining the motivations of judges as unique in their value-imposition preference.[i]
Variations in the Law
Posner lays out an ideal type of growth-promoting judiciary that corresponds essentially to the Anglo-Saxon common law norm.[ii] But he acknowledges that some countries (i.e. China) do not approximate that norm. To account for such anomalies, Posner introduces a distinction between substantive and procedural efficiency: the former is the role of efficiency-maximizing judge in the West, and the latter are aspects of Western procedure (like paying post-award interest on punitive damages) that even countries like China could adopt.
The end result seems to be that Posner throws his idealized judge under the bus, suggesting that privatized arbitration might even be able to fill many of these functions.[iii] Indeed, he goes on to suggest that it is precisely the move from communal norms [enforced through arbitration] to depersonalized law [where norms are no longer binding] that led to legislatures finding “it necessary to empower courts to enforce arbitration awards” (Posner, 2010, at 341).
This seems difficult to square with his contention (as per Arrow) that judges must be insulated from political and market pressures in order to perform their idealized function, which in turn is difficult to square with his contention that judges (like the rest of us) are essentially self-interested beings.[iv]
[i] Landes and Posner also make an unusual distinction between “mediation” and “adjudication,” “the former referring to negotiation through intermediaries who have no decision-making powers.” (Landes and Posner, 1979, at 243) At first glance, this would appear to truncate the forms of dispute settlement to only those that existed after the commercial-modern period. If so, this would in turn have two implications. First, it would undermine neoclassicals’ claim to explain earlier periods of time. Second, it would blur the social role in the creation of property, which also occurred during that time. Finally, it is unclear what types of mediation would not carry some point of collective penalty, making the basis of the distinction between adjudication and mediation likely overstated.
[ii] Curiously, he seems to suggest that it is the state (rather than the private sector) that will bring about these norms: “There is a growing awareness that the failure of governments in poor countries to provide the basic legal infrastructure of a capitalist economy is an important factor in keeping these countries poor. The required infrastructure consists centrally of a machinery for the enforcement of legal rights, especially property and contract rights. In its ideal form the machinery consists of competent, ethical, and well-paid professional judges who administer rules well designed for the promotion of commercial activity, who are numerous enough to decide cases without interminable delay, who are insulated from interference by the legislative and executive branches of government, who are advised by competent, ethical and well-paid lawyers, who operate against a background of rules and practices, such as accounting standards, bureaus of vital statistics, and public registries of land titles and security interests, that enable them to resolve factual disputes with reasonable accuracy and at reasonable cost to the disputants, and whose decrees are dependably enforced by sheriffs, bailiffs, policy, or other functionaries (again, competent, ethical and well paid).” (Posner, 2010, at 333)
[iii] Posner writes: “A poor country may not be able to afford a good legal system, but without a good legal system it may never become right enough to afford such a system. It can be argued, therefore, that since it is much more costly and time-consuming to create efficient legal institutions than to enact efficient rules for the existing inefficient institutions to administer, the focus of reform should be on the latter. The creation and dissemination of a rule involve small fixed costs and (like other information goods) negligible marginal costs, while legal institutions require heavy inputs of high-price, educated labor. This implies that the rules-first strategy is better the more populous a country is, because the cost of creating a rule is invariant to the number of people the rule will apply to. China, the most populous country, has followed the rules-first strategy, introducing modern, commercially oriented rules of law at the same time that it liberalized the economy.”
“Two types of rule efficiency should be distinguished. A rule is substantively efficient if it sets forth a precept that if obeyed will internalize an externality or otherwise promote the efficient allocation of resources… a rule is procedurally efficient if it designed to reduce the cost or increase the accuracy of using the legal system. Examples are a rule that contracts must be in writing to be enforceable, a rule that no claim of infringement of legal rights is enforceable unless filed within three years of the alleged infringement, a rule requiring that certain disputes, say between employers and employees or between securities brokers and their customers, must be referred to binding arbitration, and a rule entitling a litigant who obtains a judgment for damages to receive interest on the judgment at the market rate from the date the suit was filed. The first two of the procedural rules in the list are designed to reduce the information costs the legal system, the third to reduce judicial workloads by shunting some disputes to an alternative method of dispute resolution, and the last to enable the judges to use queuing to cope with a heavy workload without destroying the utility of the legal system to persons whose rights have been infringed. Requiring arbitration of certain disputes has additional importance as a method of encouraging the formation of trade associations and other business groups, which in a commercial society are important intermediate institutions between the individual and the family on the one hand and the state on the other; they steer between nepotism and statism.” (Posner, 2010, at 335)
[iv] Posner writes: “The relative simplicity of rules as compared to standards has two consequences for the kind of weak judiciary common in a poor country. The application of rules places fewer demands on the time and competence of the judges and is therefore both cheaper and more likely to be accurate. Rules also facilitate the monitoring of judges and so reduce the likelihood of bribery and the influence of politics in the judicial process: the less discretion a judge has in making decisions, the easier it will be for observers to determine whether he has decided a case contrary to law or is systematically favoring one class or group of litigants over another.”