The Methodological Foundations of Law and Economics.

Today there is a burgeoning new law and economics literature which extends the application of economic principles virtually across the board. The essence of the new law and economics is value (or wealth) maximization, which means exploiting economic resources in such a way that value--human satisfaction as measured by willingness and ability to pay--is maximized. Value maximization has become essential in both explanative and reformative analyses of the law. This new science of law is not without its critics. They include economists, especially those of the Austrian and American Institutionalist schools, as well as various legal theorists and practitioners not professionally trained in economics. In the wake of their criticisms, this assay attempts to get at the heart of the question of what economic theory can, in general, contribute to the making and administering of the law. The principle thesis is that while economics can be enormously useful in matters of instrumental rationality--matters of procedure, of the means to achieve given ends, it does not suffice in matters of substantive rationality, viz, in a discussion of ends. Thus economics cannot adequately support a complete theory of law, for one ultimately must look beyond economics for the ends the law is designed to achieve. In order to establish positively what economics can contribute to legal theory, it is necessary first to discuss the nature and scope of economic science in general. This dissertation develops the position that economic efficiency is of dubious scientific value (since it rests ultimately on invalid utility comparisons) and that the significance of economic science derives essentially from its analysis of choice behavior. Upon this conception of economic science an alternative, prudential law and economics is proposed. This type of analysis is shown to be relevant to virtually all categories of the law, but concerns only instrumental considerations. It calls for a broad application of economic principles, yet is subservient to political and moral wisdom. Instead of claiming to avoid substantive rationality, it urges a return to serious moral discourse