The common law as central economic planning

Central economic planning traditionally has set goals and allocated resources by supplanting the price system with central direction. Planners engaged in industry-by-industry and firm-by-firm decision making, all to achieve predetermined targets. The neoclassical approach to law and economics posits that common law judges engage in a similar activity, in rendering decisions that maximize wealth. A significant feature of this approach is the placement of judges in the position of calculators of comparative values. Neither advocates of central planning nor those of judicial wealth maximizing address or solve the economic calculation problem. The various aspects of that problem hold two implications for common law judges. First, they cannot accomplish the tasks that the neoclassical approach sets out for them. Second, a recognition of the calculation problem leads to a rejection of balancing and the choice of rights-based, bright-line rules that return actual and potential litigants' decisions to the market. An earlier version of this essay was prepared for a Liberty Fund, Inc., Conference on “The Problems of Economic Calculation under Socialism,” New York City, January 26–27, 1986. Some time after the completion of the 1986 draft, I received working papers from Louis De Alessi and Bob Staaf. They were pursuing the same themes that this paper explores, but in a more focused manner. I gained greatly from their work, for it gave me confidence that these ideas are worth pursuing. I thought it appropriate to revisit this paper for a volume in Bob Staaf's memory. I have also benefitted greatly from extended discussions with Andrew Kull and Paul Rubin.