Austrian economics identifies three reasons, any one of which invalidates antitrust as a mechanism for ensuring competition. The first is the political economy realization that antitrust cannot be administered without political cronyism, which will blunt its effectiveness. The second is the problem of knowledge; no antitrust judge or regulator can know all the relevant facts for rendering a decision that improves the operation of markets. Either of these is fatal to the arguments for antitrust. This chapter will focus on the third objection: antitrust is premised on a flawed, static model of competition. By not recognizing that competition is a dynamic process involving innovation, antitrust actually thwarts competition, achieving the opposite of its intended effect.
Browse by title
Peter G. Klein and Thomas A. Lambert
This chapter applies Austrian insights relevant to analysis of American business law. Modern corporation and partnership law, perhaps surprisingly, largely coheres with an Austrian theory of the firm, although recent regulations affecting corporate conduct and securities offerings, enacted in the wake of financial scandals, undermine these principles. On the other hand, antitrust law operates under a static view of markets that is inconsistent with Austrian principles, although recent antitrust decisions have been more consistent. We set forth aspects of Austrian thought most relevant to an analysis of American business law. We have shown that this rich body of thought that has proven so useful in analyses of institutions (e.g., the Socialist Calculation debate) and monetary and fiscal policies (e.g., Austrian business cycle theory) has much to offer in the economic analysis of specific legal rules.
Michael E. DeBow
This chapter provides a history of the expanding domain of tort law in the United States, with a particular focus on the spread of the concept of strict liability and a consonant erosion of contractual liability in favor of torts. It then surveys differing Austrian viewpoints on the moral standard underlying torts, the merits of the common law, intentional and unintentional torts, and product liability. It concludes that Austrian scholars who are comfortable with the normative standard of “individual freedom from domination” should conduct research countering the case for the ever-growing expansion of tort law.
Todd J. Zywicki and Edward P. Stringham
Is the common law efficient? Neoclassical economists debate whether our inherited systems of judge-made law maximize wealth whereas Austrian economists typically adopt much different standards. The chapter reviews neoclassical and Austrian arguments about efficiency in the common law. After presenting Hayek’s views on the common law as a spontaneous order it concludes that the common law can indeed be viewed as a spontaneous order only when judges provide their services in a free and competitive system.
Todd J. Zywicki and Shruti Rajagopalan
In this chapter we provide an explanation for why the Chapter 11 reorganization process cannot accurately value and reorganize an insolvent firm. Due to the information and incentive vacuum of the reorganization process, Chapter 11 places the bankruptcy judge in the same institutional setting as a central planner. Therefore, the bankruptcy judge is given the impossible task of economic calculation without the relevant market data to calculate the same. Given the inability to make market allocations, Chapter 11 allocations are prone to rent-seeking and interest group capture.
Jeffrey S. Parker
The economic analysis of civil procedure can be enriched by a more thorough consideration of the productive functions of civil adjudication, in particular the production of new knowledge, as distinguished from the revelation or use of pre-existing knowledge. As adjudicative facts often involve the particulars of time and place, their production through litigation has some of the same properties noted by Hayek in the determination of prices by the market system. Most importantly, the determination of adjudicative facts may reflect investment decisions made both before and after litigation has arisen, and those decisions have consequences for productive activity. Therefore, decisions to invest in litigation are not merely “rent-seeking,” but also embody some element of innovation. They are analogous to other investments in new knowledge, such as research and development, or exploration for natural resources. Rules of civil adjudication can affect the supply and price of new knowledge, and thereby affect welfare, through their influence on the timing and nature of investments in new knowledge. The implications of these factors range across a variety of topics in civil procedure.
Peter T. Leeson
This chapter has two purposes. First, it considers what the components of an “Austrian” law and economics might consist of. I argue that Ronald Coase’s conception of law and economics precludes the economic analysis of legal institutions and, in particular, the beliefs that support them. In doing so, Coase’s conception precludes an Austrian law and economics. In contrast, Richard Posner’s conception of law and economics makes such analysis the core of its study. In doing so, Posner’s conception provides a productive foundation for an Austrian law and economics. Second, to illustrate what some aspects of an Austrian law and economics might look like in practice, I consider several examples of the economic analysis of beliefs of import for the law. I focus on objectively false beliefs, or superstitions, and argue that some such beliefs are socially productive.
Peter J. Boettke and Todd J. Zywicki
The future of “Austrian” law and economics is informed and draws its inspirations from past methodological battles faced by the Austrian School in its development. From this past methodological battles arose Austrian-inspired developments, including transaction cost economics, property rights economics, public choice economics, and market process economics. Central to this interpretive slant in the narrative on the history of modern economic thought is law and economics. The research program in law and economics related to endogenous rule formation takes on, as we argued, a new urgency in a world where, analytically and empirically, we are effectively reasoning “out of anarchy.” Methodologically and analytically, this is best tackled by pursuing “invisible hand” theorizing. One of the real intellectual conundrums of the modern world is that if we recognize the role of spontaneously grown institutions, we must admit that actors within the society do not necessarily have to understand the function and purpose of those institutions to benefit from their operation. But, citizens may indeed have to understand and appreciate these spontaneously grown institutions in order for these institutions to be sustained and respected in our modern democratic societies.
Bruce L. Benson
Hayek (1973, 83) pointed out that: “It is in the … law merchant, and the practices of the ports and fairs that we must chiefly seek the steps in the evolution of law which ultimately made an open society possible.” A large literature has examined this medieval Lex Mercatoria, or Law Merchant, much of it supporting Hayek’s contention, but there also is a growing literature criticizing the Law Merchant story. One criticism is that during the high Middle Ages, and even the late Middle Ages, non-simultaneous trades were virtually nonexistent, so issues such as credibility of promises and enforcement of contracts were not relevant. Some critics go so far as to argue that the Law Merchant literature is grossly inaccurate, and that those who have written about the system have intentionally misused evidence in order to support a particular political view. Some of these criticisms are addressed in this chapter. The medieval Law Merchant was customary law, and many of the criticisms of the literature reflect a misunderstanding of customary law. Therefore, this concept and its implications for interpretation of historical evidence are explained. Aspects of trade in the high Middle Ages are then discussed, stressing the roles of contracting and credit while simultaneously emphasizing some characteristics of the Law Merchant that apparently have not been adequately explained, given recent criticisms. Finally various relationships between the medieval Law Merchant and other legal systems are examined, as these relationships also are significant sources of misunderstanding underlying some criticisms.
Richard E. Wagner
In bringing economic analysis to bear on the settlement of legal disputes, it is commonly presumed that the parties to the dispute are governed by the principles of private property and so are residual claimants to their legal expenses. This institutional framework promotes a substantive rationality that is often conducive to the settlement of disputes without trial. In contemporary mixed economies, however, a political agency is often party to a dispute. These agencies operate under a different substantive rationality because the framework of collective property under which they operate means they do not have residual claims on their legal expenses. They can, however, convert those expenses into investments in politically preferred activity. What results is a conflict between rationalities that generates societal tectonics that often are misidentified as market failures when they are really systemic properties of the conflicting rationalities.