Coase, institutionalism, and the origins of law and economics

Indiana Law Journal

Volumn 86, Issue 2, 2011, Pages 499-542

  Hovenkamp, Herbert ^a  

^a UNIVERSITY OF IOWA COLLEGE OF LAW   (United States)

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EID: 79952587676     PISSN: 00196665     EISSN: None     Source Type: Journal    
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References (409)

1. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 23 (6th ed. 2003) (noting that the "new law and economics" began with Ronald Coase's The Problem of Social Cost, 3 J.L. & ECON. 1 (1960) [hereinafter Coase, Problem of Social Cost],
2. and Guido Calabresi's Some Thoughts on Risk Distribution and the Law of Torts, 70 YALE L.J. 499 (1961)).
3. See RONALD H. COASE, Economics at LSE in the 1930s: A Personal View, in ESSAYS ON ECONOMICS AND ECONOMISTS 208 (1994) [hereinafter COASE, Economics at LSE];
4. see also A.W. Coats, The Distinctive LSE Ethos in the Inter-War Years, 10 ATLANTIC ECON. J. 18, 21(1982).
5. Lord Lionel Robbins was chair of political economy at LSE from 1929 until 1961. Coase described Robbins as "the most influential figure of all" at LSE in the 1930s. COASE, Economics at LSE,
6. supra note 2, at 211;
7. see also WILLIAM H. BEVERIDGE, THE LONDON SCHOOL OF ECONOMICS AND ITS PROBLEMS, 1919-1937 (1960);
8. ELIZABETH DURBIN, NEW JERUSALEMS: THE LABOUR PARTY AND THE ECONOMICS OF DEMOCRATIC SOCIALISM 101-36 (1985);
9. LIONEL ROBBINS, AUTOBIOGRAPHY OF AN ECONOMIST 105-31 (1971).
10. See Nahid Aslanbeigui, On the Demise of Pigovian Economics, 56 S. ECON. J. 616 (1990);
11. Roger E. Backhouse, Robbins and Welfare Economics: A Reappraisal, 31 J. HIST. ECON. THOUGHT 474 (2009). On the relationships of Pigou, Robbins, and Coase, see Nahid Aslanbeigui, Introduction to ARTHUR CECIL PIGOU, THE ECONOMICS OF WELFARE, at li-lx (Transaction Publishers 2002) (1932);
12. Nahid Aslanbeigui & Steven G. Medema, Beyond the Dark Clouds: Pigou and Coase on Social Cost, 30 HIST. POL. ECON. 601 (1998);
13. Herbert Hovenkamp, The Coase Theorem and Arthur Cecil Pigou, 51 ARIZ. L. REV. 633 (2009) [hereinafter Hovenkamp, Coase Theorem];
14. Richard O. Zerbe, Jr. & Steven G. Medema, Ronald Coase, the British Tradition, and the Future of Economic Method, in COASEAN ECONOMICS: LAW AND ECONOMICS AND THE NEW INSTITUTIONAL ECONOMICS 209 (Steven G. Medema ed, 1998). On Marshall and the Cambridge School,
15. see Peter D. Groenewegen, Alfred Marshall and the Establishment of the Cambridge Economic Tripos, 20 HIST. POL. ECON. 627(1988).
16. Coase took a Bachelor of Commerce degree at LSE in 1932 and was on its teaching staff from 1935 to 1951, except for an assignment as a government statistician during World War II; he also made a visit to the United States in 1931 and 1932, where he collected observations for his article The Nature of the Firm. See R.H. Coase, The Nature of the Firm: Origin, 4 J.L. ECON. & ORG. 3 (1988) [hereinafter Coase, Nature of the Firm: Origin].
17. For a good history of the principal faculty and most famous students at LSE, see the website at http://homepage.newschool.edU/het//schools/lse.htm. For John Hicks's perspective, see JOHN HICKS, Introductory: LSE and the Robbins Circle, in 2 MONEY, INTEREST AND WAGES: COLLECTED ESSAYS ON ECONOMIC THEORY 3 (Harvard Univ. Press 1982).
18. See Coase, Nature of the Firm: Origin, supra note 5, at 6 (recalling that in his years at LSE as a student he took no courses in economics and spent most of his time studying law, particularly "industrial law").
19. See, e.g., Ronald H. Coase, Nobel Prize Lecture, The Institutional Structure of Production (Dec. 9, 1991) [hereinafter Coase, Nobel Prize Lecture], available at http://nobelprize.org/nobel-prizes/economics/laureates/1991/coase- lecture.html;
20. see also Ronald Coase, The New Institutional Economics, 88 AM. ECON. REV. 72 (1998) [hereinafter Coase, New Institutional Economics].
21. See L.J. Alston, New Institutional Economics, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS (Steven N. Durlaf & Lawrence E. Blume eds, 2d ed. 2008), available at http://www.dictionaryofeconomics.com/article?id=pde2008- N000170;
22. see also OLIVER E. WILLIAMSON, THE MECHANISMS OF GOVERNANCE 3-10, 322-48 (1995).
23. See MARK BLAUG, ECONOMIC THEORY IN RETROSPECT 700-03 (5th ed. 1995);
24. GEOFFREY M. HODGSON, THE EVOLUTION OF INSTTTUTIONAL ECONOMICS: AGENCY, STRUCTURE AND DARWINISM IN AMERICAN INSTITUTIONALISM (2004) (tracing the history of American Institutionalism).
25. Nonetheless, the old institutionalists continue to publish journals, including The Journal of Economic Issues and the Journal of Institutional Economics. Several scholarly organizations support their work, including the Association for Evolutionary Economics.
26. See ASS'N FOR EVOLUTIONARY ECON, http://www. associationforevolutionaryeconomics.org/ divison.php?page=institutional- economics&sub=associations.
27. See, e.g., THE JOURNAL OF SOCIO-ECONOMICS, http://ideas.repec.Org/s/eee/ soceco.html.
28. See infra text accompanying notes 123-24.
29. See infra Part II.
30. See infra text accompanying notes 162-69.
31. This statement seems quite true, notwithstanding that in an essay on new institutional economics, Coase specifically acknowledged "the work of our colleagues in law, anthropology, sociology, political science, sociobiology, and other disciplines." Coase, New Institutional Economics, supra note 8, at 72.
32. See infra text accompanying notes 168-69.
33. See Herbert Hovenkamp, Coasean Markets, 31 EUR. J.L. & ECON. (forthcoming 2011) [hereinafter Hovenkamp, Coasean Markets] (published online Dec. 8, 2010, available at http://www.springerlink.com/content/65031035h363gl 64/fulltext.pdf).
34. See William Dugger, The New Institutionalism: New but Not Institutionalist, 24 J. ECON. ISSUES 423 (1990) (criticizing New Institutionalism for rejecting earlier commitments to behaviorism, cognition, and the study of nonmarket transfers of resources).
35. In 2009 Oliver E. Williamson, NIE's most prominent spokesperson other than Coase himself, received the Nobel Prize. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009, NOBELPRIZE.ORG (Oct. 24, 2010), http://nobelprize.org/nobel-prizes/economics/laureates/2009.
36. See Herbert Hovenkamp, Harvard, Chicago, and Transaction Cost Economics in Antitrust Analysis, 55 ANTITRUST BULL. 613 (2010).
37. See JOHN A. HOBSON, THE INDUSTRIAL SYSTEM 114 (1909) (discussing marginal units and productivity);
38. JOHN A. HOBSON, WORK AND WEALTH 174-75, 331 (1909).
39. See RICHARD S. HOWEY, THE RISE OF THE MARGINAL UTILITY SCHOOL: 1870-1889, at 1-24 (1960) (discussing the origins of marginalist neoclassical economics in the work of William Stanley Jevons in the late 1860s and 1870s).
40. See generally id. (tracing rise of marginalist thought in England, Continental Europe, and the United States).
41. See also EMIL KAUDER, THE HISTORY OF MARGINAL UTILITY THEORY (1965) (focusing on the underpinnings and development of marginalist thought);
42. Richard S. Howey, The Origins of Marginalism, 4 HIST. POL. ECON. 281 (1972);
43. George J. Stigler, The Development of Utility Theory. II, 58 J. POL. ECON. 373 (1950).
44. The most prominent classical political economists were Adam Smith, David Ricardo, James Mill and his son John Stuart Mill, Thomas Malthus, and Jean-Baptiste Say.
45. See BLAUG, supra note 10, at 33-214. On the divide between pre-marginalist and marginalist economics in United States policy,
46. see HERBERT HOVENKAMP, ENTERPRISE AND AMERICAN LAW: 1836-1937, at 193-98 (1991) [hereinafter HOVENKAMP, ENTERPRISE]
47. R.H. Coase, The Nature of the Firm, 4 ECONOMICA 386, 392 (1937) [hereinafter Coase, Nature of the Firm].
48. See Neil Hart, Marshall's Dilemma: Equilibrium Versus Evolution, 37 J. ECON. ISSUES 1139, 1139-40 (2003) (discussing tension between evolutionary and engineering models in Marshall's thought).
49. See, e.g., 1 ALFRED MARSHALL, THE EARLY WRITINGS OF ALFRED MARSHALL, 1867-1890, at 38-39 (1975). On Jevons's and Marshall's indebtedness to Cournot, see HOWEY, supra note 23, at 80-85.
50. See BLAUG, supra note 10, at 277-353.
51. Preference transitivity, a condition of rationality, is a logical consistency condition that if someone prefers A over B and B over C, then she must also prefer A over C.
52. ALFRED MARSHALL, PRINCIPLES OF ECONOMICS (1890).
53. See Lionel Robbins, The Representative Firm, 38 ECON. J. 387, 389 (1928) (noting highly abstract nature of business firm in Marshall's Principles);
54. cf. George J. Stigler, The Place of Marshall's Principles in the Development of Economics, in CENTENARY ESSAYS ON ALFRED MARSHALL 8 (John K. Whitaker ed, 1990) (noting that study of the firm in price theory is largely intended to ascertain its behavior as a demander of inputs and a supplier of outputs);
55. Alan J. Meese, Monopolization, Exclusion, and the Theory of the Firm, 89 MINN. L. REV. 743 (2005) (similar).
56. See Ronald H. Coase, The Institutional Structure of Production, 82 AM. ECON. REV. 713, 714 (1992);
57. cf. Harold Demsetz, The Structure of Ownership and the Theory of the Firm, 26 J.L. & ECON. 375, 377 (1983) ("The chief mission of neoclassical economics [i.e., price theory] is to understand how the price system coordinates the use of resources, not to understand the inner workings of real firms.");
58. Harold Demsetz, The Theory of the Firm Revisited, 4 J.L. ECON. & ORG. 141, 143 (1988) (noting extent to which the firm in neoclassical economics is an abstraction).
59. See, e.g., FRANK H. KNIGHT, RISK, UNCERTAINTY, AND PROFIT 3-5 (1921) (noting neoclassical economics' highly abstract assumptions);
60. GEORGE J. STIGLER, THE THEORY OF COMPETITIVE PRICE 24 (1942) (same).
61. See BLAUG, supra note 10, at 388-92.
62. See DOUGLASS C. NORTH, STRUCTURE AND CHANGE IN ECONOMIC HISTORY 5 (1981). [T]his neoclassical formulation appears to beg all of the interesting questions. The world with which it is concerned is a frictionless one in which institutions do not exist and all change occurs through perfectly operating markets. In short, the costs of acquiring information, uncertainty, and transactions costs do not exist. Id.
63. See PIGOU, supra note 4, pt. II, ch. III, §3, at 138.
64. ALFRED MARSHALL, INDUSTRY AND TRADE: A STUDY OF INDUSTRIAL TECHNIQUE AND BUSINESS ORGANIZATION; AND OF THEIR INFLUENCES ON THE CONDITIONS OF VARIOUS CLASSES AND NATIONS (3d ed. 1919) [hereinafter MARSHALL, INDUSTRY AND TRADE];
65. see also Herbert Hovenkamp, The Law of Vertical Integration and the Business Firm, 18801960, 95 IOWA L. REV. 863, 871-72 (2010) [hereinafter Hovenkamp, Law of Vertical Integration], available at http://papers.ssm.com/ sol3/papers.cftn?abstract-id=1268328 (discussing Marshall's Industry and Trade as an early theory of vertical integration).
66. See, e.g., MARSHALL, INDUSTRY AND TRADE, supra note 38, at 56-59, 799-802 (discussing textile production and markets);
67. id. at 94-95, 218-21, 802-03 (discussing steel production and markets).
68. Id. at 589.
69. Coase, Nature of the Firm, supra note 26, at 392 ("[T]he operation of a market costs something and by forming an organization and allowing some authority (an 'entrepreneur') to direct the resources, certain marketing costs are saved.");
70. see also id. at 395 ("[A] point must be reached where the loss through the waste of resources is equal to the marketing costs of the exchange transaction in the open market...").
71. See, e.g., OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS: A STUDY IN THE ECONOMICS OF INTERNAL ORGANIZATION 82-117 (1975).
72. MARSHALL, INDUSTRY AND TRADE, supra note 38, at 322.
73. Id. at 324.
74. Id.
75. See ADOLF A. BERLE & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY (1932).
76. On this point, see Herbert Hovenkamp, Neoclassicism and the Separation of Ownership and Control, 4 VA. L. & Bus. REV. 373, 375 (2009);
77. see also Thomas K. McCraw, In Retrospect: Berle and Means, 18 REV. AM. HIST. 578 (1990).
78. MARSHALL, INDUSTRY AND TRADE, supra note 38, at 368, 375-77, 385-87.
79. See FREDERICK WlNSLOW TAYLOR, PRINCIPLES OF SCIENTIFIC MANAGEMENT (1911);
80. see also MARSHALL, INDUSTRY AND TRADE, supra note 38, at 368;
81. Neil B. Niman, Charles Babbage's Influence on the Development of Alfred Marshall's Theory of the Firm, 30 J. HIST. ECON. THOUGHT 479 (2008).
82. On Pigou's appointment, see RONALD H. COASE, The Appointment of Pigou as Marshall's Successor, in RONALD H. COASE, ESSAYS ON ECONOMICS AND ECONOMISTS 151, 151-66(1994).
83. PIGOU, supra note 4, pt II, ch. III, §3, at 138;
84. see Hovenkamp, Coase Theorem, supra note 4 (comparing Pigou's broader conception of cost of movement against Coase's conception of transaction costs).
85. PIGOU, supra note 4, pt. II, ch. Ill, §3, at 138-39.
86. Id. pt. II, ch. VII, §1, at 158. Guido Calabresi, the other person that Richard Posner cites as a founder of modem law and economics in the United States, also used "cost" much more broadly in this fashion.
87. See Calabresi, supra note 1 (speaking not of transaction costs, but rather of such costs as those of running the insurance system, costs of administering the system of enterprise liability, and the like). For Posner's comment crediting Calabresi, see supra note 1.
88. See, e.g., Robert Cooter & Peter Rappoport, Were the Ordinalists Wrong About Welfare Economics?, 22 J. ECON. LIT. 507, 515-16 (1984).
89. LIONEL ROBBINS, AN ESSAY ON THE NATURE & SIGNIFICANCE OF ECONOMIC SCIENCE 137 (2d ed. 1935) ("It is safe to say that the great majority of English economists accept them as axiomatic").
90. See WILLIAM STANLEY JEVONS, THE THEORY OF POLITICAL ECONOMY (Penguin Books 1970) (1871). In the introduction, Jevons stated: The reader will find, again, that there is never, in any single instance, an attempt to compare the amount of feeling in one mind with that in another. I see no means by which such comparison can be accomplished. The susceptibility of one mind may, for what we know, be a thousand times greater than that of another. But, provided that the susceptibility was different in a like ratio in all directions, we should never be able to discover the difference. Every mind is thus inscrutable to every other mind, and no common denominator of feeling seems to be possible. ... [T]he motive in one mind is weighed only against other motives in the same mind never against the motives in other minds. Id. at 85;
91. see also HARRO MAAS, WILLIAM STANLEY JEVONS AND THE MAKING OF MODERN ECONOMICS (2005);
92. SANDRA PEART, THE ECONOMICS OF W.S. JEVONS 124-40 (1996) (discussing Jevons's work on political economy in detail).
93. See F.Y. EDGEWORTH, MATHEMATICAL PSYCHICS: AN ESSAY ON THE APPLICATION OF MATHEMATICS TO THE MORAL SCIENCES 101-02 (A.M. Kelley Publishing 1967) (1881).
94. Cooter & Rappoport, supra note 54, at 515 (quoting VILFREDO PARETO, COURS D'ECONOMIE POLITIQUE 3 (1896)).
95. Id.
96. Id.
97. See Herbert Hovenkamp, The First Great Law and Economics Movement, 42 STAN. L. REV. 993, 1053(1990).
98. Alfred Marshall, The Present Position of Economics, Inaugural Lecture at Cambridge University (Feb. 24, 1885), in 1 J. INSTITUTIONAL ECON. 121, 131 (2005);
99. see also ARTHUR C. PIGOU, MEMORIALS OF ALFRED MARSHALL (1925).
100. PIGOU, supra note 4, pt. I, ch. VIII, §3, at 89.
101. See ARTHUR C. PIGOU, ECONOMICS IN PRACTICE: SLX LECTURES ON CURRENT ISSUES 107 (1935).
102. On Pigou, see JOHN SALTMARSH & PATRICK WILKINSON, ARTHUR CECIL PIGOU, 1877-1959(1960).
103. Arthur C. Pigou, Some Aspects of Welfare Economies, 41 AM. ECON. REV. 287, 292 (1951).
104. PIGOU, supra note 4, pt. I, ch. VIII, §3, at 91.
105. For a comprehensive attempt to relate human "utility functions" to Darwin and survival, see RICHARD DAWKTNS, RIVER OUT OF EDEN: A DARWINIAN VIEW OF LIFE 95-134 (1995).
106. ALFRED MARSHALL, PRINCIPLES OF ECONOMICS bk. I, ch. ii, §12, at 18 (8th ed. 1920).
107. Id. at 18-19.
108. Pigou, supra note 65, at 292 (emphasis in original).
109. MARSHALL, PRINCIPLES OF ECONOMICS, supra note 68, at bk. II, ch. iii, §3, at 67-68 ("This brings us to consider the term Necessaries. It is common to distinguish necessaries, comforts, and luxuries; the first class including all things required to meet wants which must be satisfied, while the latter consist of things that meet wants of a less urgent character. But here again there is a troublesome ambiguity. When we say that a want must be satisfied, what are the consequences which we have in view if it is not satisfied? Do they include death? Or do they extend only to the loss of strength and vigour? In other words, are necessaries the things which are necessary for life, or those which are necessary for efficiency?").
110. The distinction is developed in Cooter & Rappoport, supra note 54, at 513-14.
111. Irving Fisher, A Statistical Method for Measuring "Marginal Utility" and Testing the Justice of a Progressive Income Tax, in ECONOMIC ESSAYS CONTRIBUTED IN HONOR OF JOHN BATES CLARK 181 (Jacob H. Hollander ed, 1927) [hereinafter Fisher, Statistical Method];
112. see also IRVING FISHER, MATHEMATICAL INVESTIGATIONS IN THE THEORY OF VALUE AND PRICES (Yale Univ. Press 1925) (1891) (developing alternative mechanisms for making interpersonal utility comparisons).
113. Fisher, Statistical Method, supra note 73, at 159;
114. see David Colander, Retrospectives: Edgeworth 's Hedonimeter and the Quest to Measure Utility, 21 J. ECON. PERSP. 215, 219-21 (2007) (discussing Fisher's model) .
115. See, e.g., JOHN R. COMMONS, THE DISTRIBUTION OF WEALTH 10 (1893) ("To the poor man all the marginal increments may afford high satisfaction, because his supplies are limited; but to the rich man the marginal increments may give little satisfaction. Yet each, though on different levels, endeavours to make the marginal increments in all lines equal.");
116. F.W. TAUSSIG, PRINCIPLES OF ECONOMICS ch. 9, §6, at 132 (3d ed. 1921) ("The principle of diminishing utility, if applied unflinchingly, leads to the conclusion that inequality of incomes brings a less sum of human well-being than equality of incomes, and that the greater the inequality, the less the approach to the maximum.");
117. GEORGE P. WATKINS, WELFARE AS AN ECONOMIC QUANTITY 185-90 (1915) (arguing that total social utility would increase if incomes were leveled somewhat and the right to inherit severely curtailed);
118. J.B. Clark, The Ultimate Standard of Value, 1 YALE REV. 258 (1892) (arguing that social welfare is a function of aggregated individual utilities);
119. Simon N. Patten, The Scope of Political Economy, 2 YALE REV. 264 (1893) (arguing that homogeneity of wealth and property tends to increase total utility);
120. Jacob Viner, The Utility Concept in Value Theory and Its Critics (pts. 1 & 2), 33 J. POL. ECON. 369, 638, 644 (1925) ("Changes in the relative distribution of income as between different classes will bring about changes in the amount of welfare, even though the aggregate real income of the community remains the same.").
121. ROBBINS, supra note 55, at 139-40 (emphasis in original);
122. see also Lionel Robbins, Interpersonal Comparisons of Utility: A Comment, 48 ECON. J. 635 (1938).
123. ROBBINS, supra note 55, at 139.
124. Id. at 137.
125. Id.
126. On this point, see Herbert Hovenkamp, The Limits of Preference-Based Legal Policy, 89 Nw. U. L. REV. 4, 6-10, 22-24, 29-40 (1994).
127. Viner, supra note 75, at 657.
128. F.H. Knight, The Concept of Normal Price in Value and Distribution, 32 Q.J. ECON. 66, 67 (1917).
129. Irving Fisher, Frank H. Knight & Carl E. Parry, Discussion, Traditional Economic Theory, 11 AM. ECON. REV. 143, 145 (1921).
130. See Joan Robinson, The Production Function and the Theory of Capital, 21 REV. ECON. STUD. 81 (1953);
131. see also Joan Robinson, The Production Function, 65 ECON. J. 67, 67 (1955) (using illustration of the production function of a robin as measured by the number of grubs caught in relation to the number of robin-minutes worked).
132. E.g., ROBBINS, supra note 55, at 135-37.
133. See infra text accompanying notes 96-97.
134. See LESTER F. WARD, DYNAMIC SOCIOLOGY, OR APPLIED SOCIAL SCIENCE AS BASED UPON STATICAL SOCIOLOGY AND THE LESS COMPLEX SCIENCES 491 (1883) (cattle);
135. id. at 54142 (seed).
136. Cooter & Rappoport, supra note 54, at 528.
137. See Paul A. Samuelson, Remembering Joan, in JOAN ROBINSON: CRITICAL ASSESSMENTS OF LEADING ECONOMISTS 35, 35-36 (Prue Kerr with G.C Harcourt eds, 2002) [hereinafter JOAN ROBINSON].
138. A woman did not receive the Nobel Prize in Economics until 2009, when it was given to Elinor Ostrom. Noble Prize Awarded Women, NOBLEPRIZE.ORG (Oct. 25, 2010), http://nobelprize.org/nobel-prizes/lists/women.html.
139. See I.M.D. LITTLE, A CRITIQUE OF WELFARE ECONOMICS 54-56 (1950) (repeatedly emphasizing this point).
140. See Herbert Hovenkamp, The Marginalist Revolution in Legal Thought, 46 VAND. L. REV. 305, 305-06 (1993).
141. See HOWEY, supra note 23, at 1-35.
142. On Alfred Marshall and Darwin, see Geoffrey Fishburn, Natura Non Facit Saltum in Alfred Marshall (and Charles Darwin), 40 HIST. ECON. REV. 59, 59 (2004) ("Nature does not make a leap.");
143. Neil Hart, Marshall's Dilemma: Equilibrium versus Evolution, 37 J. ECON. ISSUES 1139 (2003). On uses of Darwin by early American economists,
144. see Herbert Hovenkamp, Evolutionary Models in Jurisprudence, 64 TEX. L. REV. 645 (1985) [hereinafter Hovenkamp, Evolutionary Models];
145. Herbert Hovenkamp, The First Great Law & Economics Movement, 42 STAN. L. REV. 993 (1990). More generally,
146. see THE FOUNDATIONS OF EVOLUTIONARY ECONOMICS, 1890-1973 (Geoffrey M. Hodgson ed, 1998).
147. E.g., RICHARD HOFSTADTER, SOCIAL DARWINISM IN AMERICAN THOUGHT 67-170 (rev. ed. 1959) (1944) (writing as reform critics of Social Darwinism);
148. see also Donald C. Bellomy, "Social Darwinism" Revisited, in 1 PERSPECTIVES IN AMERICAN HISTORY 1 (Bernard Bailyn, Donald Fleming & Stephan Themstrom eds, 1984) (noting how Social Darwinism has been caricatured);
149. Thomas C. Leonard, Origins of the Myth of Social Darwinism: The Ambiguous Legacy of Richard Hofstadter's Social Darwinism in American Thought, 71 J. ECON. BEHAV. & ORG. 37 (2009).
150. See HOFSTADTER, supra note 94, at 6-7.
151. See DOROTHY ROSS, THE ORIGINS OF AMERICAN SOCIAL SCIENCE 156-62 (1991). Ross uses the term "liberal exceptionalism" rather than "Reform Darwinism." Importantly, Reform Darwinism, by whatever name it is called, also led to eugenics and the use of controlled breeding or sterilization to improve the human race, along with exclusion of certain immigrants and other racist policies that quickly became classified as horrific after the rise of Adolf Hitler.
152. See CARL N. DEGLER, IN SEARCH OF HUMAN NATURE: THE DECLINE AND REVIVAL OF DARWINISM IN AMERICAN SOCIAL THOUGHT 45-48 (1991);
153. MARK H. HALLER, EUGENICS: HEREDITARIAN ATTITUDES IN AMERICAN THOUGHT (1984). On the economics,
154. see Claudia Goldin, The Political Economy of Immigration Restriction in the United States, 1890 to 1921, in THE REGULATED ECONOMY: A HISTORICAL APPROACH TO POLITICAL ECONOMY 223 (Claudia Goldin and Gary D. Libecap eds, 1994);
155. Thomas C Leonard, Retrospectives: Eugenics and Economics in the Progressive Era, 19 J. ECON. PERSP. 207 (2005).
156. See generally ROBERT C. BANNISTER, SOCIAL DARWINISM: SCIENCE AND MYTH IN ANGLO-AMERICAN SOCIAL THOUGHT (1979);
157. ERIC F. GOLDMAN, RENDEZVOUS WITH DESTINY: A HISTORY OF MODERN AMERICAN REFORM (1952). For a comparison of American and European views,
158. see MIKE HAWKINS, SOCIAL DARWINISM IN EUROPEAN AND AMERICAN THOUGHT, 1860-1945:NATURE AS MODEL AND NATURE AS THREAT (1997).
159. HOFSTADTER, supra note 94.
160. See id.; see also BANNISTER, supra note 97;
161. PAUL F. BOLLER, JR, AMERICAN THOUGHT IN TRANSITION: THE IMPACT OF EVOLUTIONARY NATURALISM, 1865-1900 (1969);
162. HENRY STEELE COMMAGER, THE AMERICAN MIND: AN INTERPRETATION OF AMERICAN THOUGHT AND CHARACTER SINCE THE 1880's (1950);
163. CYNTHIA EAGLE RUSSETT, DARWIN IN AMERICA: THE INTELLECTUAL RESPONSE, 1865-1912 (1976).
164. See generally MORTON WHITE, SOCIAL THOUGHT IN AMERICA: THE REVOLT AGAINST FORMALISM (Beacon Press 1957) (1949).
165. See Herbert Hovenkamp, The Political Economy of Substantive Due Process, 40 STAN. L. REV. 379, 417-20 (1988) [hereinafter Hovenkamp, Political Economy];
166. see also Gregory Claeys, The "Survival of the Fittest" and the Origins of Social Darwinism, 61 J. HIST. IDEAS 223, 223-24 (2000). Reform Darwinist Lester Frank Ward made plain his belief that so-called Social Darwinism was not a biological doctrine at all, but rather emanated from classical political economy.
167. See Lester F. Ward, Social and Biological Struggles, 13 AM. J. SOC. 289, 292 (1907).
168. See Cooter & Rappoport, supra note 54. The only allusion to the theory of evolution occurs in a footnote discussing Pareto that refers to his conception of material welfare as "some Spencerian ideas of evolutionary fitness." Id. at 516 n.22.
169. See Geoffrey M. Hodgson, Darwinism and Institutional Economics, 37 J. ECON. ISSUES 85, 91-95 (2003).
170. ROBBINS, supra note 55, at 78-79 ("The main postulate of the theory of value is the fact that individuals can arrange their preferences in an order, and in fact do so.").
171. See id. at 91-92 ("[I]n a state of equilibrium the relative significance of divisible commodities is equal to their price does involve the assumption that each final choice is consistent with every other, in the sense that if I prefer A to B and B to C, I also prefer A to C ....").
172. See Robbins's famous definition of economics: "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Id. at 16.
173. Id.; see Marcelo Resende & Rodrigo M. Zeidan, Lionel Robbins: A Methodological Reappraisal (CESifo, Working Paper No. 2165, 2007), available at http://papers.ssm.com/sol3/papers.cfm?abstract-id=l 077055;
174. see also Roger E. Backhouse & Steve G. Medema, Defining Economics: The Long Road to Acceptance of the Robbins Definition, 76 ECONOMICA 805 (2009);
175. D. Wade Hands, Effective Tension in Robbins' Economic Methodology, 76 ECONOMICA 831 (2009);
176. Susan Howson, The Origins of Lionel Robbins's Essay on the Nature and Significance of Economic Science, 36 HIST. POL. ECON. 413 (2004);
177. Roger E. Backhouse & Steve G. Medema, Defining Economics: Robbins's Essay in Theory and Practice (Mar. 11, 2007) (unpublished article), available at http://ssrn.com/abstract=969994.
178. On the connection, see J. Hirshleifer, Competition, Cooperation, and Conflict in Economics and Biology, 68 AM. ECON. REV. 238, 241 (1978);
179. Jack Hirshleifer, Evolutionary Models in Economics and Law: Cooperation Versus Conflict Strategies, 4 RES. L. & ECON. 1 (1982).
180. See T.R. MALTHUS, AN ESSAY ON THE PRINCIPLE OF POPULATION (Cambridge University Press 1992) (1798). On the extent of Darwin's borrowings from Malthus, as well as other political economists, and the extent to which later economists relied on Darwin,
181. see Armen A. Alchian, Biological Analogies in the Theory of the Firm: Comment, 43 AM. ECON. REV. 600 (1953)
182. (responding to Edith Tilton Penrose, Biological Analogies in the Theory of the Firm, 42 AM. ECON. REV. 804 (1952));
183. Sandra Herbert, Research Note, Darwin, Malthus and Selection, 4 J. HIST. BIOLOGY 209 (1971);
184. Peter Vorzimmer, Darwin, Malthus, and the Theory of Natural Selection, 30 J. HIST. IDEAS 527 (1969);
185. Alain Marciano, Economists on Darwin's Theory of Social Evolution and Human Behaviour (Max Planck Inst, of Econ, Papers on Economics and Evolution No. 0521, 2006), available at http://ssm.corn/abstract=673061;
186. see also Scott Gordon, Darwin and Political Economy: The Connection Reconsidered, 22 J. HIST. BIOLOGY 437 (1989).
187. See Luigino Bruni & Robert Sugden, The Road Not Taken: How Psychology Was Removed from Economics, and How It Might Be Brought Back, 117 ECON. J. 146 (2007).
188. See Hovenkamp, Evolutionary Models, supra note 93, at 655-56.
189. The idea of self-awareness of evolution very likely originated with Auguste Comte. See 1 HARRIET MARTTNEAU, THE POSITIVE PHILOSOPHY OF AUGUSTE COMTE 292 (2d ed. 1875)
190. (translating and condensing AUGUSTE COMTE, COURS DE PHILOSOPHIE POSITIVE 1830-1842).
191. The leading exemplars of Reform Darwinism in the United States are EDWARD ALSWORTH ROSS, SOCIAL CONTROL: A SURVEY OF THE FOUNDATIONS OF ORDER (Case W. Reserve Univ. 1969) (1901);
192. LESTER FRANK WARD, DYNAMIC SOCIOLOGY (Johnson Reprint Corp. 1968) (1883) [hereinafter WARD, DYNAMIC SOCIOLOGY];
193. LESTER F. WARD, GLIMPSES OF THE COSMOS (1913) [hereinafter WARD, GLIMPSES OF THE COSMOS].
194. On Reform Darwinism, see L.L. BERNARD & JESSIE BERNARD, ORIGINS OF AMERICAN SOCIOLOGY: THE SOCIAL SCIENCE MOVEMENT IN THE UNITED STATES (1943);
195. JOHN C BURNHAM, LESTER FRANK WARD IN AMERICAN THOUGHT (1956);
196. ROBERT E.L. FARIS, CHICAGO SOCIOLOGY, 1920-1932 (Morris Janowitz ed, 1967);
197. HOFSTADTER, supra note 94, at 64-84;
198. JULIUS WEINBERG, EDWARD ALSWORTH ROSS AND THE SOCIOLOGY OF PROGRESSIVISM (1972).
199. For further development, see Hovenkamp, Evolutionary Models, supra note 93, at 654-61, 671-83.
200. See HOFSTADTER, supra note 94, at 38-44 (discussing Spencer's beliefs).
201. See, e.g., COMMAGER, supra note 99, at 199-226;
202. DAVID W. NOBLE, THE PARADOX OF PROGRESSIVE THOUGHT ( 1958).
203. 3 WARD, GLIMPSES OF THE COSMOS, supra note 112, at 35;
204. see also 1 WARD, DYNAMIC SOCIOLOGY, supra note 112, at 542.
205. 4 WARD, GLIMPSES OF THE COSMOS, supra note 112, at 354.
206. Id. at 355.
207. Id.
208. JOHN R. COMMONS, Natural Selection, Social Selection, and Heredity, 18 ARENA 90, 90 (1897),
209. reprinted in 1 JOHN R. COMMONS: SELECTED ESSAYS 43, 43-49 (Malcolm Rutherford & Warren J. Samuels eds, 1996).
210. See generally R.A. Gonce, John R. Commons's Legal Economic Theory, 5 J. ECON. ISSUES 80, 88 (1971) (discussing Commons's attempt to integrate a theory of artificial selection into economics);
211. Yngve Ramstad, On the Nature of Economic Evolution: John R. Commons and the Metaphor of Artificial Selection, in EVOLUTIONARY AND NEO-SCHUMPETERIAN APPROACHES TO ECONOMICS 65 (Lars Magnusson ed., 1994) (same).
212. See BERNARD & BERNARD, supra note 112, at 611-69 (discussing the rise of social science in American colleges);
213. HAMILTON CRAVENS, THE TRIUMPH OF EVOLUTION: AMERICAN SCIENTISTS AND THE HEREDITY-ENVIRONMENT CONTROVERSY, 1900-1941, at 89-153 (1978);
214. FARIS, supra note 112, at 3-37;
215. MARY O. FURNER, ADVOCACY & OBJECTIVITY: A CRISIS IN THE PROFESSIONALIZATION OF AMERICAN SOCIAL SCIENCE, 1865-1905, at 11-34 (1975);
216. THOMAS L. HASKELL, THE EMERGENCE OF PROFESSIONAL SOCIAL SCIENCE: THE AMERICAN SOCIAL SCIENCE ASSOCIATION AND THE NINETEENTH-CENTURY CRISIS OF AUTHORITY 24-47 (1977);
217. Ross, supra note 96, at 91-99.
218. See ROBBINS, supra note 55, at 87-88 (addressing critique that preferences cannot be observed, but that behavior can be, so behaviorism would provide a better tool for economic analysis).
219. Id. at 87.
220. BLAUG, supra note 10, at 700.
221. See John Maurice Clark, The Socializing of Theoretical Economics, in THE TREND OF ECONOMICS 73 (Rexford Guy Tugwell ed., 1924) [hereinafter Clark, Socializing];
222. Walton H. Hamilton, The Institutional Approach to Economic Theory, 9 AM. ECON. REV. 309 (Supp. 1919);
223. Rexford Guy Tugwell, Experimental Economics, in THE TREND OF ECONOMICS 371 (Rexford Guy Tugwell ed, 1924);
224. see also Ross, supra note 112, at 407-08;
225. Roger E. Backhouse, The Transformation of U.S. Economics, 1920-1960, Viewed Through a Survey of Journal Articles, 30 HIST. POL. ECON. 85 (Supp. 1998);
226. Geoffrey M. Hodgson, John R. Commons and the Foundations of Institutional Economics, 37 J. ECON. ISSUES 547 (2003);
227. Malcolm Rutherford, Understanding Institutional Economics: 1918-1929, 22 J. HIST. ECON. THOUGHT 277 (2000).
228. For a good analysis, see HODGSON, supra note 10.
229. See Thorstein Veblen, The Limitations of Marginal Utility, 17 J. POL. ECON. 620 (1909) [hereinafter Veblen, Limitations];
230. Thorstein Veblen, The Preconceptions of Economic Science (pt. 3), 14 Q.J. ECON. 240 (1900);
231. Thorstein Veblen, Why Is Economics Not an Evolutionary Science?, 12 Q.J. ECON. 373 (1898).
232. Veblen's other works particularly related to the development of institutionalism include THORSTEIN VEBLEN, ABSENTEE OWNERSHIP: BUSINESS ENTERPRISE IN RECENT TIMES (1923)
233. [hereinafter VEBLEN, ABSENTEE OWNERSHIP];
234. THORSTEIN VEBLEN, THE THEORY OF BUSINESS ENTERPRISE (1904) [hereinafter VEBLEN, BUSINESS ENTERPRISE];
235. THORSTEIN VEBLEN, THE THEORY OF THE LEISURE CLASS (1899). On Veblen, institutionalism, and the business corporation,
236. see Forest G. Hill, Veblen, Berle and the Modern Corporation, 26 AM. J. ECON. Soc. 279 (1967).
237. VEBLEN, ABSENTEE OWNERSHIP, supra note 126, at 101 n. 1.
238. See Hamilton, supra note 124, at 316.
239. See Lawrence K. Frank, The Emancipation of Economics, 14 AM. ECON. REV. 17 (1924).
240. See Mitchell's collected essays in WESLEY CLAIR MITCHELL, THE BACKWARD ART OF SPENDING MONEY ( 1937).
241. See Malcolm Rutherford, American Institutionalism and the History of Economics, 19 J. HIST. ECON. THOUGHT 178, 178-79 (1997);
242. see also Malcolm Rutherford, Veblen's Evolutionary Programme: A Promise Unfulfilled, 22 CAMBRIDGE J. ECON. 463 (1998).
243. See, e.g., JOHN DEWEY, HUMAN NATURE AND CONDUCT: AN INTRODUCTION TO SOCIAL PSYCHOLOGY 106-09 (1922).
244. See, e.g., Pier Franceso Asso & Luca Fiorito, Waging War Against Mechanical Man: The Knight-Copeland Controversy over Behaviorism in Economics, in 21-A RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY 65 (Warren J. Samuels & Jeff E. Biddle eds, 2003);
245. Morris A. Copeland, Economic Theory and the Natural Science Point of View, 21 AM. ECON. REV. 67 (1931). University of Chicago economist Frank Knight, who toyed with various aspects of institutionalism throughout his career, was very critical of behaviorism because its list of "instincts" defied rigorous analysis.
246. See Frank H. Knight, Ethics and the Economic Interpretation, 36 Q.J. ECON. 454, 467 (1922) ("If instincts are to be scientifically useful, it must surely be possible to get some idea of their number and identity. But there has always been substantially unanimous disagreement on this point. Logically the choice seems to lie between a meaningless single instinct to do things-in-general and the equally meaningless hypothesis of a separate instinct for every possible act").
247. On behaviorism in American institutionalism, see generally Shira B. Lewin, Economics and Psychology: Lessons for Our Own Day from the Early Twentieth Century, 34 J. ECON. LITERATURE 1293 (1996);
248. Malcolm Rutherford, Institutionalism Between the Wars, 34 J. ECON. ISSUES 291, 298 (2000). For a very good discussion of the development of behaviorist psychology among institutionalists as an alternative to neoclassical marginal utility theory,
249. see Pier Francesco Asso & Luca Fiorito, Human Nature and Economic Institutions: Instinct, Psychology, Behaviorism and the Development of American Institutionalism (Univ. of Siena Dep't of Political Econ., Working Paper No. 373, 2002), available at http://papers.ssm.com/sol3/papers.cfm?abstract-id= 433763;
250. see also Ross, supra note 96, at 414-15 (describing tumultuous meeting of American Economics Association in 1927, where a large majority of economists reacted against the use of empirical analysis to revise economic theory as a throwback to German-style historicism).
251. Ronald H. Coase, The New Institutional Economics, 140 J. INSTITUTIONAL & THEORETICAL ECON. 229,230 (1984).
252. Lionel Robbins was even harsher, describing them as "muddled and slightly disturbed." Lionel Robbins, Foreword to DAVID SECKLER, THORSTEIN VEBLEN AND THE INSTITUTIONALISTS: A STUDY IN THE SOCIAL PHILOSOPHY OF ECONOMICS, at ix (1975).
253. A few examples include Charles E. Clark, Fact Research in Law Administration, 2 CONN. B.J. 211 (1928);
254. William O. Douglas & J. Howard Marshall, A Factual Study of Bankruptcy Administration and Some Suggestions, 32 COLUM. L. REV. 25 (1932);
255. Underhill Moore & Theodore S. Hope, Jr., An Institutional Approach to the Law of Commercial Banking, 38 YALE L.J. 703 (1929);
256. Underhill Moore & Gilbert Sussman, Legal and Institutional Methods Applied to the Debiting of Direct Discounts, 40 YALE L.J. 381, 555, 752, 928, 1055, 1219 (1931) (series of articles describing empirical studies).
257. On the relationship between institutionalism and American legal realism, see Herbert Hovenkamp, Knowledge About Welfare: Legal Realism and the Separation of Law and Economics, 84 MINN. L. REV. 805 (2000) [hereinafter Hovenkamp, Knowledge About Welfare];
258. see also JOHN HENRY SCHLEGEL, AMERICAN LEGAL REALISM AND EMPIRICAL SOCIAL SCIENCE (1995) (describing rise and decline of empirical legal research by Legal Realists).
259. SEE BARBARA H. FRIED, THE PROGRESSIVE ASSAULT ON LAISSEZ FAIRE: ROBERT HALE AND THE FIRST LAW AND ECONOMICS MOVEMENT 10-15(1998).
260. KARL POLANYI, THE GREAT TRANSFORMATION 45-69 (Beacon Press 2001) (1944) ("In spite of the chorus of academic incantations so persistent in the nineteenth century, gain and profit made on exchange never before played an important part in human economy.");
261. see also John Adams, The Corporation Versus the Market, 26 J. ECON. ISSUES 397, 397-98 (1992) (comparing Coase's and Polanyi's concepts of exchange);
262. Abraham Rotstein, Karl Polanyi's Concept of Non-Market Trade, 30 J. ECON. HIST. 117 (1970).
263. On Polanyi and institutionalism, see Walter C. Neale, Karl Polanyi and American Institutionalism: A Strange Case of Convergence, in THE LIFE AND WORK OF KARL POLANYI 145 (Kari PolanyiLevitt ed, 1990);
264. see also Avner Greif, Coercion and Exchange: How Did Markets Evolve? (Stanford Univ. Working Paper, 2008), available at http://ssrn.com/abstract= 1304204 (comparing coercive and exchange economies and identifying secure property rights and contract enforceability as the distinguishing factors).
265. See generally AVNER GREIF, INSTITUTIONS AND THE PATH TO THE MODERN ECONOMY: LESSONS FROM MEDIEVAL TRADE (2006).
266. See POLANYI, supra note 138, at 45-69.
267. See id.
268. See, e.g., Lawrence K. Frank, An Institutional Analysis of the Law, 24 COLUM. L. REV. 480, 482-84 (1924) (using cultural anthropology to account for institutions of private property and contract). On this point, see HODGSON, supra note 10.
269. See Veblen, Limitations, supra note 126.
270. On Clark's marginalism, see infra Part III.D.
271. In particular, see JOHN R. COMMONS, INSTITUTIONAL ECONOMICS: ITS PLACE IN POLITICAL ECONOMY (Transaction Publishers 4th prtg. 1990) (1934) [hereinafter COMMONS, INSTITUTIONAL ECONOMICS].
272. Joseph Schumpeter's critique was particularly harsh, notwithstanding his own sympathy with historical methods generally. He lumped the institutionalists together with practical nonacademic economists who wrote about policy and had no use for theory:
273. They... looked upon 'marginalism' as a sort of speculative philosophy or as a new sectarian 'ism' which it was precisely their business to eliminate by what they considered truly scientific and realistic research. Hence they passed, in methodological and programmatic pronouncements, all sorts of sweeping judgments upon it. On the surface, the result was bedlam, especially in Germany and in the United States - a multitude of discordant voices, all of which seemed to testify to the presence of an impasse. JOSEPH A. SCHUMPETER, HISTORY OF ECONOMIC ANALYSIS 954 (Elizabeth Boody Schumpeter ed, Oxford Univ. Press rev. ed. 1996) (1954) (internal citation omitted).
274. Cf. COMMAGER, supra note 99, at 227-46 (1950) (lengthy discussion of Veblen, while John Bates Clark is barely mentioned and incorrectly identified as a "classical economist");
275. RICHARD HOFSTADTER, THE AGE OF REFORM (1955) (much greater treatment of Veblen than Clark);
276. WHITE, supra note 99 (lengthy discussion of Veblen but no reference to John Bates Clark or Irving Fisher).
277. See, e.g., BLAUG, supra note 10, at 700-03 (briefly describing American institutionalism).
278. See supra notes 85-87 and accompanying text (arguing that Robbins narrowed the scope of economics so as to exclude psychology);
279. James Ronald Stanfield, The Scope, Method and Significance of Original Institutional Economics, 33 J. ECON. ISSUES 231, 233-36 (1999).
280. VEBLEN, BUSINESS ENTERPRISE, supra note 126;
281. VEBLEN, ABSENTEE OWNERSHIP, supra note 126.
282. RICHARD T. ELY, PROPERTY AND CONTRACT IN THEIR RELATIONS TO THE DISTRIBUTION OF WEALTH (1914);
283. see also Herbert Hovenkamp, The First Great Law & Economics Movement, 42 STAN. L. REV. 993 (1990).
284. Robert L. Hale, Coercion and Distribution in a Supposedly Non-Coercive State, 38 POL. SCI. Q. 470 (1923);
285. see also Frank, supra note 141, at 481-89 (describing evolution of coercion in historical cultures, including legal mies among other structural norms and taboos).
286. JOHN M. CLARK, SOCIAL CONTROL OF BUSINESS ( 1926) [hereinafter CLARK, SOCIAL CONTROL].
287. JOHN R. COMMONS, LEGAL FOUNDATIONS OF CAPITALISM (1924) [hereinafter COMMONS, LEGAL FOUNDATIONS].
288. BERLE & MEANS, supra note 46.
289. The writings of Oliver E. Williamson are representative of NIE. See, e.g., WILLIAMSON, supra note 9, at 12, 26, 45, 220, 251, 371;
290. OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM 3-10 (1985);
291. WILLIAMSON, supra note 42, at 3, 6, 24, 254.
292. COMMONS, INSTITUTIONAL ECONOMICS, supra note 144, at 59-72.
293. Id. For some of those sympathetic with institutionalism, such as Richard T. Ely and Robert L. Hale, even bargaining transactions were seen as coercive because they tended to reinforce pre-existing distributions of power and increased the maldistribution of wealth in the process.
294. See, e.g., ELY, supra note 150; Hale, supra note 151. These views eventually found their way into judicial decision making and the Restatement (Second) of Contracts.
295. See GRANT GILMORE, THE DEATH OF CONTRACT (1974) (describing the destruction of contract theory at the hands of legal realists, such as Benjamin Cardozo and Arthur L. Corbin, and the incorporation of these views into the Second Restatement of Contracts).
296. See COMMONS, INSTITUTIONAL ECONOMICS, supra note 144, at 72 ("From this universal principle of collective action in control of individual action by different kinds of sanctions arise the ethical and legal relations of rights, duties, no-rights, no-duties, and the economic relations not only of Security, Conformity, Liberty, and Exposure, but also of Assets and Liabilities.").
297. COMMONS, LEGAL FOUNDATIONS, supra note 153, at 138.
298. On Commons's theory of transactions, see BEN B. SEUGMAN, MAIN CURRENTS IN MODERN ECONOMICS 159-78 (1962);
299. Bruce E. Kaufman, The Institutional Economics of John R. Commons: Complement and Substitute for Neoclassical Economic Theory, 5 SOCIO-ECON. REV. 3, 22-34 (2007);
300. Malcolm Rutherford, J.R. Commons's Institutional Economics, 17 J. ECON. ISSUES 721 (1983).
301. John R. Commons, Law and Economics, 34 YALE L.J. 371 (1925).
302. On the relationship between Commons, Coase, and The Nature of the Firm, see Steven G. Medema, Ronald Coase and American Institutionalism, in 14 RESEARCH IN THE HISTORY OF ECONOMIC THOUGHT AND METHODOLOGY 51, 68-70 (Warren J. Samuels & Jeff E. Biddle eds, 1996).
303. An excellent but typically overlooked example is Lawrence Kelso Frank, whose 1924 Columbia Law Review article, An Institutionalist Analysis of Law, described the evolution of property and contract as social norms, much like tribal taboos, but which had become much more social (rather than individual) as a result of the revolution in "machine production," which Frank believed gave rise to legal mies that emphasized cooperation more than individualism.
304. See Frank, supra note 141. Frank argued that the movement for the new Restatements of the law, which were just underway at the time of his writing, were an effort to bridge the hyper-individualistic tendencies of nineteenth-century law with the realities of coordinated production in the machine age. He saw this as a failed attempt to "pour new wine into old bottles."
305. Id. at 491-92. He ultimately concluded that legislative rather than common law rules were the preferred route for legal change.
306. Id. at 495.
307. The phrase, somewhat misplaced, comes from Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV. 925, 928 (1979) (speaking of viewing all of antitrust law through the lens of "price theory").
308. See Hovenkamp, Knowledge About Welfare, supra note 136.
309. Coase, Nature of the Firm, supra note 26.
310. Coase, Problem of Social Cost, supra note 1.
311. See, e.g., NEW INSTITUTIONAL ECONOMICS: A GUIDEBOOK (Eric Brousseau & JeanMichel Glachant eds, 2008) (contributions discussing wide range of institutions);
312. HANDBOOK OF NEW INSTITUTIONAL ECONOMICS (Claude Menard & Mary M. Shirley eds, 2005) (similar);
313. DOUGLASS C. NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE AND ECONOMIC PERFORMANCE (1990);
314. Douglass C North, The New Institutional Economics and Development (unpublished manuscript), available at http://www.econ.iastate.edu/tesfatsi/ NewInstE.North.pdf (explaining how developmental policy is determined by institutionalism).
315. See supra notes 50-51 and accompanying text;
316. see also Hovenkamp, Coasean Markets, supra note 18.
317. See supra notes 43-70 and accompanying text.
318. MARSHALL, INDUSTRY AND TRADE, supra note 38;
319. see supra note 39 and accompanying text.
320. See, e.g., William Franklin Willoughby, The Integration of Industry in the United States, 16 Q.J. ECON. 94, 108 (1902) (describing the development of vertical integration by English store owners). For an overview of vertical integration during this period,
321. see HOVENKAMP, ENTERPRISE, supra note 25;
322. Herbert Hovenkamp, The Antitrust Movement and the Rise of Industrial Organization, 68 TEX. L. REV. 105 (1989) [hereinafter Hovenkamp, Antitrust Movement];
323. Hovenkamp, Law of Vertical Integration, supra note 38.
324. See, e.g., ARTHUR R. BURNS, THE DECLINE OF COMPETITION: A STUDY OF THE EVOLUTION OF AMERICAN INDUSTRY 441-45 (1936);
325. Hovenkamp, Antitrust Movement, supra note 171, at 164-67 .
326. Lawrence K. Frank, The Significance of Industrial Integration, 33 J. POL. ECON. 179 (1925).
327. 174. Id. at 179-80.
328. Id. at 180 ("[T]he machine process split up production into an ever growing number of separate processes, separate because of the invention of new techniques and new machines for performing each step in the formerly unified handicraft operations.").
329. Id. at 185-86 ("For undoubtedly vertical integration is an attempt to bring together under one management the separate stages of the industrial process which technically require unified direction and control. Since this technical requirement cannot effectively nor continuously be met through buying and selling of goods between separately owned stages, however ingeniously and elaborately those pecuniary operations be conducted, it has become both feasible and desirable to bring a number of consecutive stages of production under one managerial control.").
330. Id. at 190.
331. John Maurice Clark, Soundings in Non-Euclidian Economics, 11 AM. ECON. REV. SUPP. 132 (1921).
332. CLARK, SOCIAL CONTROL, supra note 152;
333. see Herbert Hovenkamp, United States Competition Policy in Crisis: 1890-1955, 94 MINN. L. REV. 311, 323-24 (2009) [hereinafter Hovenkamp, Competition Policy].
334. Clark, Socializing, supra note 124.
335. J.M. Clark, Toward a Concept of Workable Competition, 30 AM. ECON. REV. 241, 241-43 (1940);
336. see Hovenkamp, Competition Policy, supra note 179, at 323, 342-43.
337. J. MAURICE CLARK, STUDIES IN THE ECONOMICS OF OVERHEAD COSTS (1923) [hereinafter CLARK, OVERHEAD COSTS].
338. Id. at 13.
339. See HOVENKAMP, ENTERPRISE, supra note 25, at 308-22;
340. see also George Bittlingmayer, Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case, 25 J.L. & ECON. 201 (1982);
341. George Bittlingmayer, The Economic Problem of Fixed Costs and What Legal Research Can Contribute, 14 LAW & SOC. INQUIRY 739 (1989). The cost controversy culminated in the 1930s in a debate that gave rise to modem theories of imperfect competition.
342. See Nahid Aslanbeigui, The Cost Controversy: Pigouvian Economics in Disequilibrium, 3 EUR. J. HIST. ECON. THOUGHT 275 (1996);
343. Roberto Marchionatti, On the Methodological Foundation of Modern Microeconomics: Frank Knight and the "Cost Controversy" in the 1920s, 35 HIST. POL. ECON. 49 (2003).
344. CLARK, OVERHEAD COSTS, supra note 182, at ix (introducing the book as "a study of discrepancies between an ever fluctuating demand and a relatively inelastic fund of productive capacity, resulting in wastes of partial idleness, and many other economic disturbances. Unused capacity is its central theme").
345. Frank made similar observations in Institutionalist Analysis. Frank, supra note 141, at 491. He noted that, historically, under hand-production there was a close relationship between output and prices because production was responsive to demand virtually on a unitby-unit basis. By contrast, machine production led for the need of machines that kept running at high output regardless of demand. This fact, plus the offsetting correctives made by managers, led to booms and busts as industries swung between over- and underproduction. Joseph Schumpeter's massive study of business cycles came almost two decades later but developed many of the same points with copious historical examples.
346. JOSEPH A. SCHUMPETER, BUSINESS CYCLES: A THEORETICAL, HISTORICAL, AND STATISTICAL ANALYSIS OF THE CAPITALIST PROCESS (1939). While Schumpeter poured his soul into the book, it is largely regarded today as his least successful.
347. See Thomas K. McCraw, Schumpeter's Business Cycles as Business History, 80 BUS. HIS. REV. 231,231 (2006).
348. CLARK, OVERHEAD COSTS, supra note 182, at 258-97.
349. Id. at 318-34.
350. Id. at ix.
351. See, e.g., Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297 (1978) (applying transaction cost economics to problems of vertical contracting);
352. WILLIAMSON, supra note 42 (same).
353. CLARK, OVERHEAD COSTS, supra note 182, at 23-24, 403-07.
354. Id. at 386.
355. Id. at 402.
356. Cf. WILLIAMSON, supra note 42, at 31-33.
357. CLARK, OVERHEAD COSTS, supra note 182, at 136-37.
358. Id. at 137 ("[A]nother gain from integration arises, in the shape of great reliability in the supplying of materials. The two concerns adapt their process to each other, and the supply of materials, both in quality and regularity, can be more carefully suited to the needs of the user....").
359. M at 137
360. Id. at 119-22.
361. Id. at 399-400.
362. Id. at 138.
363. Id. at 137-38.
364. Id. at 138.
365. Id.
366. Id. at 138-39 (citing Lewis H. Haney, Integration in Marketing, 10 AM. ECON. REV. 528 (1920)).
367. Id. at 140.
368. Id. at 139.
369. Id. at 140-41.
370. Klein et al, supra note 190, at 297.
371. CLARK, OVERHEAD COSTS, supra note 182, at 416.
372. T.H. Sanders, Clark's Economics of Overhead Costs, 38 Q.J. ECON. 487, 490 (1924) (book review).
373. Id.
374. A.C. Pigou, An Analysis of Supply, 38 ECON. J. 238 (1928);
375. see also Piero Sraffa, The Laws of Costs Under Competitive Conditions, 36 ECON. J. 535 (1926) (explaining that under competition market-wide costs are generally constant).
376. Pigou elaborated on this work in The Economics of Welfare. PIGOU, supra note 4, pt. H, ch. 11, §§3-12.
377. Nicholas Kaldor,The Equilibrium of the Firm,44 ECON.J.60(1934).
378. Id. Kaldor also concluded that increasing firm costs were inconsistent with perfect competition.
379. Id. at 72-73.
380. E.A.G. ROBINSON, THE STRUCTURE OF COMPETITIVE INDUSTRY (1931). E.A.G. Robinson, also a Professor of Economics at Cambridge, was married to fellow professor Joan Robinson.
381. See JOAN ROBINSON, supra note 89, at 69.
382. ROBINSON, supra note 216, at 40-42.
383. Id. at 115 (citing United States Steel as an example of a firm that gained economies by operating multiple plants scattered across the country).
384. Robinson elaborated on this point in Austin Robinson, The Problem of Management and the Size of the Firm, 44 ECON. J. 242 (1934).
385. See Sraffa, supra note 212, at 535-36.
386. Coase, Nature of the Firm, supra note 26, at 386.
387. See Hovenkamp, Coasean Markets, supra note 18.
388. See, e.g., Coase, Nobel Prize Lecture, supra note 8 (calling for more empirical study of the structure of the firm, and lamenting "blackboard economics" that reduces the firm to a "black box");
389. see also Coase, New Institutional Economics, supra note 8, at 72 ("Mainstream economics, as one sees it in the journals and the textbooks and in the courses taught in economics departments has become more and more abstract over time, and although it purports otherwise, it is in fact little concerned with what happens in the real world.").
390. Coase, Nature of the Firm, supra note 26, at 403.
391. Id. at 403-04 (relying on FRANCIS RALEIGH BATT, LAW OF MASTER AND SERVANT (4th ed. 1950) (1926)).
392. See Coase, Nature of the Firm: Origin, supra note 5, at 8-9 (explaining that during his visit to the United States he took very few classes and instead "most of my time was spent in visiting businesses and industrial plants");
393. see also id. at 13 (noting a visit to Duquesne Power and Light Co. and the viewing of some cost curves that they had constructed);
394. id. at 13 (visit to General Motors and discussion of Fisher Body works).
395. Coase, Nature of the Firm, supra note 26, at 386-87.
396. Some of Coase's work was more empirical, although not statistical.
397. See, e.g., R.H. Coase, The Acquisition of Fisher Body by General Motors, 43 J.L. & ECON. 15, 16-17 (2000) (similar to a case study);
398. see also Ronald H. Coase, The Lighthouse in Economics, 17 J.L. & ECON. 357 (1974).
399. See Hovenkamp, Coasean Markets, supra note 18.
400. See Press Release, Royal Swedish Academy of Sciences, Prize in Economics 2009, available at http://nobelprize.org/nobel-prizes/economics/laureates/2009/ press.html.
401. See WILLIAMSON, supra note 42, at 8-9.
402. See generally DOUGLASS NORTH, UNDERSTANDING THE PROCESS OF INSTITUTIONAL CHANGE (2005);
403. see also Oliver E. Williamson, The New Institutional Economics: Taking Stock, Looking Ahead, 38 J. ECON. LIT. 595 (2000).
404. See supra text accompanying notes 146-47.
405. See supra text accompanying notes 50-53.
406. Coase, Problem of Social Cost, supra note 1, at 1-2.
407. Id.
408. See, e.g., BEHAVIORAL LAW AND ECONOMICS (Cass Sunstein ed, 2001);
409. LAW AND ECONOMICS: ALTERNATIVE ECONOMIC APPROACHES TO LEGAL AND REGULATORY ISSUES (Margaret Oppenheimer & Nicholas Mercuro eds, 2005).