Four Conceptualizations of the Relations of Law to Economics (Tribulations of a Positivist Social Science)

This brief essay sketches the ways in which four leading economic thinkers (Knight, Coase, Posner and Sunstein) have dealt with a vexing tension in the relations of economics to law, the state, and the social. The tension arises as microeconomists address (or fail to address) the relations of their theories to “soft factors” such as psychology, politics, social institutions, etc. These soft factors are at once clearly consequential for economic behavior (and thus arguably should be included in the theories). At the same time, these soft factors are not self-evidently subject to determination by any known economic laws (and thus arguably should be excluded from the theories.) Neither solution is terribly appealing. The inclusion of such soft factors in economic theory leads to a deformalization of the theory and, at the limit, to its demotion to a kind of interpretive art form. By contrast, the exclusion of such soft factors means that the salience and relevance of economic theory are mediated by and subject to extraneous factors — thus leaving the usefulness and application of the theory unhinged. How then to negotiate the tension? The essay reviews and evaluates four different approaches