Law and Guido Calabresi

In his latest book, Sterling Professor Emeritus Guido Calabresi ’58 discusses the nuances found within the law and economics movement, a theoretical mode of analysis that Calabresi himself pioneered in the mid-twentieth century. 

Described by the University of Chicago’s Sam Peltzman as “a collection of original essays by one of the towering figures in the development of the economic analysis of law,” The Future of Law & Economics posits that there are two separate areas within the discipline, most clearly identified with the English philosophers Jeremy Bentham and John Stuart Mill. The Benthamite strain, according to Calabresi, understands that the law should be understood merely in the light of economic theory, and suggests ways in which economics might improve legal effectiveness. Such a theoretical mindset, he says in the book’s first essay, “casts doubt upon, and often seeks reform of legal reality.” The Millian strain, however, places economics and the law on more egalitarian footing. Coming from a more realistic and less theoretical understanding, this perspective is one of bilaterality, allowing for economic theory to be just as correctable as the law. It is this approach—from the legacy of Mill and in opposition to Bentham—for which Calabresi most clearly advocates.

The series of essays that follow arise from this distinction, and Calabresi discusses related topics such as altruism, merit goods, and the liability rule. Though ultimately a work of historical and contemporary legal-economic analysis, The Future of Law & Economics is decidedly forward-looking. In the concluding words of the book, Calabresi thoughtfully notes: “Economists, working with legal scholars, can, by making economic theory richer and more nuanced, make that theory more capable of responding to both these needs. They can do so without abandoning those limits that economics has traditionally, and understandably, placed on itself in order to retain its rigor. Law and Economics scholarship has done this to wonderful effect in the past. But there is much still to be done, and it is this that makes the future of Law and Economics so bright and exciting to me, an early tiller in the field.”

Q and A with Guido Calabresi

Guido Calabresi ’58 is Sterling Professor Emeritus at Yale Law School and a senior judge on the United States Court of Appeals for the Second Circuit. A preeminent legal scholar, Calabresi served as dean of the Law School from 1985 to 1994 prior to his appointment on the Second Circuit. He began teaching at the Law School in 1959 at the age of 26, and is widely acknowledged as a leading figure in the field known as law and economics.

Yale Law Report: In your view, what is the lawyer’s unique role in changing, or even bettering, economics and economic theory?

Guido Calabresi: Lawyers are like institutionalists. They’re people of the world. When we look at the law, we see how the world has treated some situations. That enables us to see whether a theory—be it economics, philosophy, or another theory—really fits the world. And that gives us insights that are particularly useful to whatever theoretical field we’re addressing.

The group of economists known as institutionalists argued that that’s what should be done in economics. Ronald Coase was one of them, as was Walton Hamilton, who taught at Yale Law School. So why is it not their job to look at economic theory from the standpoint of the world and say what is wrong with it? Traditionally, institutional economists came from the left, and they were treated with suspicion by economic theorists for that reason. There was always the thought that they might say that the world doesn’t fit for ideological reasons rather than for empirical reasons. Lawyers are institutionalists but come from every possible point of view, and so one can’t attack lawyers that way, which makes us much, much more useful.

That puts lawyers in a position to question any theory. I happen to be interested in questioning economic theory because that’s what I’ve worked on, but also because it’s been such a dominant part of legal scholarship in the last fifty or sixty years. The first thing that the lawyer does when looking at the world and seeing that the theory doesn’t fit is to make demands of the theory: Why doesn’t it fit? Is it the world that should be changed or is it something that’s wrong with the theory? By making demands, it asks the theorists to rethink their theory.

In my recent book, I say: Isn’t it interesting that economists seem to treat most goods either as a means of getting from here to here? Is it a useful way of delivering health care? Is it an efficient way of getting from point A to point B? Or they look at goods as ends. We want this. I like this. That’s something I would like to have.

But when one looks instead at the world of law, one realizes that most goods are both ends and means. We like caviar because we like it, but it also feeds us. And almost everything is, to some extent, both. And this being “both” is something that economists haven’t really thought about. It helps us to explain altruism. It helps us to explain any number of things. It asks economists to think about the theoretical implications of this more broadly. And that’s why this book raises some deeper theoretical questions for economics. For example, once one talks about ends and means both, one looks at people like the great free market scholars F. A. Hayek and Milton Friedman and one realizes that they not only think that the market is an efficient way of delivering goods and services, but that they like it. Of course they like it, and that’s one of the reasons they push for it. Conversely, Trotsky didn’t just think command was an efficient way of delivering goods and services, he liked it!

The book also discusses the importance of looking at how not just the people who are negotiating something react—the person who is selling health care, or the person who would like to sell blood or a kidney to somebody else, and the person who wants to buy it—but how third parties react, whether they are offended. Economic theory traditionally does not take into account what, in their own terms, they call third-party utilities. But one cannot discuss any number of things—why we prohibit the sale of blood or why we do things about healthcare or education—without realizing that the third party’s values are part of the game, too.

YLR: Your new book sketches the distinction between the Benthamite (“economic analysis of law”) and the Millian (“law and economics”) traditions of economic-legal analysis. Given your long scholarly history of advocating for Mill’s approach, what do you think Bentham’s analysis can offer to the continuing conversation about law and economics?

Calabresi: The Benthamite tradition is very useful, first for questioning, for demanding change. It says, “The past isn’t necessarily right. It has to prove itself.” And the second thing that the Benthamite tradition does is to ask, “Are people of the world looking at the world as it is, or are they missing something?”

Bentham was famous for pushing for reform. The theory demands change. The theory looks at what was there before and says, hey, this doesn’t seem to work. And that’s very powerful. One has a theory that is believed, whether it is Bentham or it is Chicago or is Marxist—but it looks at the world and it says there is something wrong. Being able to question what has been before is fundamental. It is what the “law and…” movements all began as. They didn’t want to take law as a given, as necessarily right, rather than as the history of exploitation or as rules that make no sense, so it is a tremendous engine for reform. The only problem from my Millian point of view is that sometimes the reform it seems to push for is simplistic unless one goes back and asks whether the theory is nuanced enough, or whether the world might represent, as Mill said, the whole unanalyzed experience of a human race. In Europe the notion was that law is unchanging, that law is what it should be, and that any scholarship that tried to change it was not scholarship—that was what Bentham and all similar theorists (and therefore economic analysis of law) rebelled against and said, let’s question. If one takes the world as it is, law as it is, as unchanging, then one either has a tyranny of history, where history rules regardless, or one has a tyranny of revolution because at a certain point people have had enough and they explode. “Écrasez l’Infâme” was the French phrase: Destroy the infamous, the indecent. And create a wholly new, revolutionary structure that rules thereafter.

When a theoretical Benthamite approach looks at the world, and the world doesn’t fit the second question it asks us to ask is: Am I actually seeing the world? Or is something about where I am looking from causing me to miss what is going on? The theory says something should be happening. It doesn’t seem to be happening. But is it really not happening or am I only looking through blinders? For instance, am I looking only at appellate cases, and ignoring all that is decided administratively?

YLR:  What are the other scholarly disciplines that you could imagine as being important to strengthening the law and economics framework, with an eye toward the future development of and work within the field?

Calabresi: When one does the law and  economics approach, the Millian approach, and one says the theory is not complex or nuanced enough to help explain what goes on, one asks a field to change itself. Sometimes that field such as economics, can change itself. For example, Coase said if markets were costless, there would be no firms. There are firms. Is it really impossible for economic theory to treat markets as costing something? No, it’s not impossible. It’s a little more complicated, but it isn’t that hard. And economic theory adjusted with tremendous help to it and to what it could say about the world.

I think the same is true about ends and means. I think the same is true about values. Third-party utilities are harder for economists to deal with. I would like them to try. But there are some things that are too difficult for that field.

What does it mean to say “too difficult for that field”? It means that it asks economists to do some things, which, if they did them, would no longer make economics the powerful discipline that it is. It would ask economics to make certain problematic assumptions, to be uncertain about certain things, not to be as rigorous as it is. At that point, economists can do one of two things. They can just throw their hands up and say, too bad. We’re still going to do things the way we did before. or they can say, we can do this much, but another field has to come in and do the part that we cannot do without being untrue to our own discipline.

What is that other field? Well, that depends on the particular question that one is asking. There are some things that economics can’t answer where anthropology is the field that could help us enormously. I happen to think that that’s the field that has been least examined from a “law and…” point of view. There have been some great lawyer-anthropologists, but there hasn’t been the same systematic treatment that economics has given to law and law to economics. I think anthropology is a particularly useful one. But there are others. history, and seeing what historians have said. literature—what the great canons of literature suggest. Whenever one finds that the theory of the field one is first applying, say, economics, doesn’t explain the world, and the world says: to explain what goes on and make sense, one would have to do certain things which that field cannot do. Then the question is what other field can help to do that.

YLR:  When considering your book’s subtitle, “Essays in Reform and Recollection,” how would you relate your own experiences as a student and scholar of law to the writing of this book?

Calabresi: That takes us back a long way. The beginning of this is this kid (me) who had studied economics and had fallen in love with the most theoretical sides of economics. This theoretical side of economics seemed to me to be fun but not to explain the world adequately, not to be really useful. So I kind of faute de mieux came to law school. And I found myself in Jimmy James’s [Fleming James, Jr.] torts class where all sorts of questions were being raised that Jimmy, as a great teacher, said we don’t know the answers to, but which economic analysis of law gave the answers to as easily as could be. Now the reason that was so was because the materials that Jimmy James had put together derived from materials that had originally been put together by Walton Hamilton, an institutionalist economist, and Harry Shulman. Shulman, really, knew no more economics than James but the materials had been put together, by Hamilton, I think, to ask the questions. So that’s how I started looking at torts law from an economic analysis point of view. And economics was able to explain things that most legal scholars had said could not be explained, like master-servant liability. Everybody in torts said there was no explanation for master-servant liability. Instead, from an economic analysis point of view, it was the easiest thing in the world to explain. But then immediately after, I saw that there were some things in that same theory, which when applied to law didn’t explain the governing rules. I had been a little unhappy with economic theory from a realistic point of view, so that led me to say, “Is that theory necessarily right?” So, at the very beginning, I was both applying economic analysis of law and doing law and economics. I did this in my first year in law school.

I wrote the article “Some Thoughts on Risk Distribution and the Law of Torts,” which came out a few weeks before, and independently of, Coase’s great article, “The Problem of Social Cost,” in 1960/1961. I had first written it in my second year in law school as my comment for a journal officership, from what I’d learned in torts. I got an officership, but the editors of the Law Journal didn’t really like the comment because it was so new. Kids didn’t under-stand it, and so I didn’t publish it then. This was very lucky because if I had published it as a student piece, nobody would have read it. When I came back to teaching two years later, I published it as my first article. And since it came out at the same time as Coase, the whole place exploded and, among other things, I got tenure! That was the start.

The next thing that happened which pushed me in the direction of what I’m doing now, was the European reaction to the law and economics and economic analysis of law that I was doing. Europeans were very troubled originally. The thing that bothered them was: Aren’t you really putting law in a subsidiary position? Doesn’t law have something to offer on its own? The European tradition had been very much that “law must be right,” that law can’t be changed. And so, the notion, not only of looking at law from an outside theory perspective and thinking reform, as Bentham had advocated, but that reform would be dictated by a theory outside of law was something that was very troubling to people in Europe.

Well, I’m also European. From the very beginning, I started going back to Italy, where I was born. And I started feeling this sense of unease, fear, which interestingly, this particular book has in many Europeans kind of laid to rest. This book says law, and your notion that law has had something to tell us for a very long time and still does, is true. It discusses this in a systematic way by talking about law and economics, rather than economic analysis of law, and says the two things work together. This traditional European notion that law had things to say about the unanalyzed experience of the human race, and economic theory, this Benthamite, powerful, out-of-law engine of reform were now coming together. And the two sides of me, Italian and American, were now coming together in my scholarship.

There’s one other thing worthy saying about all of this. One example of me being the economic theoretician, the model building, and using that to explain and make law stronger, is, of course, my article, “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral.” That article built a little economic model, and used it to explain law and to show how something that people didn’t think existed in law really did. In that sense, in my development I was both criticizing economics and criticizing law, while doing both. it’s kind of nice after all these years to look back and see that all of these “boths” have a reason for being. But what makes it especially nice is the end of the book, where I publish for the first time, I believe, what was Arthur Corbin’s farewell address to the Yale Law faculty. I publish it as an appendix because, in fact, Arthur Corbin, the great legal realist, and one of the founders of the “law and…” movement, was saying something that is really very similar to what I try to say in this book. He said: we the legal realists have criticized law and have looked to other disciplines as a way of doing it. but we all should realize that although those other disciplines can help us, they also do not hold the absolute truth. They can no more become dominant over law, than law can over them. They are all ways to reform, to make the world better, in this very complex enterprise in which we learn from the world and give back to it.