American Bar Foundation

The Economics of Justice by Richard A. Posner

Review by: Eli M. Noam
American Bar Foundation Research Journal, Vol. 7, No. 1 (Winter, 1982), pp. 269-274
Published by: Wiley on behalf of the American Bar Foundation
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 Book Reviews
RICHARDA. POSNER;The Economics of Justice. Cambridge, Mass.:
Harvard University Press, 1981. Pp. xvi + 415.

Reviewedby ELIM. NOAM

RichardPosner'sviews on the economicfoundationsof the legal systemhave

significantlyinfluencedlaw schools, regulatoryagencies, and courts. Now that
he has been elevatedto the SeventhCircuitbench, this recentbook is of particu-
lar interestas evidenceof the currentthinkingof a man who is likely to have
much impactthroughhis judicial opinions. Yet the readerwho approachesthis
book with the hope of gleaningJudgePosner'sviewson topics of the day will be
disappointed.Except for subsectionson privacystatutesand on affirmativeac-
tion, neithercentralto the book, currentissuesare discussedonly indirectly.The
readerwill find, however,a dazzlingbreadthof topics and academicdisciplines
marshalledin pursuitof wider intellectualand public policy issues.
The book covers a great deal of ground in its thirteen essays, organized
around four broad subjects:justice and efficiency;primitivelaw; privacy;and
discrimination.This review will concentrateon some of the more provocative
themes.
Over the past decade, Posner, often in collaborationwith his Universityof
ChicagocolleagueWilliamLandes,has examinedthe hypothesisthat "common
law is best explainedas if the judgesweretryingto maximizeeconomicwelfare"
(p. 4) and that "commonlaw adjudicationbringsthe economicsystemcloserto
the resultsthat wouldbe producedby effectivecompetition-a free marketoper-
ating without significantexternality,monopoly, or informationproblems" (p.
5). Such findings have importancebeyond the historical-jurisprudential, since
they imply that, even today, judge-madelaw will tend to produceeconomically
more efficient outcomesthan will statutoryor regulatoryrules.
In one of the most interestingpartsof this book, Posner carrieshis investiga-
tion back severalmillenniainto primitivesocietiesand legal anthropology,pro-
viding a fascinating look at early legal institutions. The chapter on the
economicsand politicsof the Iliad and the Odysseyis particularlyoriginal.Here

Eli M. Noam is an AssociateProfessorof Businessand a Lecturerin Law, ColumbiaUniversity.

A.B. 1970, A.M. 1972, Ph.D. 1975, J.D. 1975HarvardUniversity.

@ 1982 American Bar Foundation 269

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270 AMERICANBARFOUNDATIONRESEARCH
JOURNAL 1981:269

Posner arguesthat earlyGreeksocieties,as describedby Homer, werenot states

in the modern sense. This challengesthe assumption, "largely unquestioned
since Hobbes, that a state (if only a minimal,'nightwatchman'state)is necessary
to maintainthe internaland externalsecurityof society" (p. 119). The Homeric
epics refer to no discerniblegovernmentalfunctions in these societies beyond
defense:there are no taxes, no public works, no law enforcement,no coinage,
no bureaucracy,no regulationof commerce,no rulerin the conventionalsense,
and no rulesof succession.Instead,the leaderof the most powerfulclan has cer-
tain vague attributesof authorityand claimsto loyalty whichlead to a mistaken
translationof basileusas "king."
A striking example of the minimal characterof the Homeric state is that
Odysseus'sabsencefrom Ithaca for two decadesmakes very little differenceto
his "kingdom," his immediatefamily excepted;in twentyyears, no publicbusi-
ness appearedto have arisenthat requireda ruler,nor was there any clear form
of successionthat would have devolvedpower on Telemachos,Odysseus'sson.
Even a war, as describedin the Iliad, is not a matterof state or publicpolicy, or
of nationalaggrandizement,but rathera highly personaldisputebetweenallied
clans, linked by obscure personal obligations, against the clan of one (Paris)
who, in his conduct, had breachedthe code of hospitality.
In short, Homer's epics manifest the absenceof a state (even the minimalist
state held to be requiredby Hobbes and Nozick) as a coercive entity. Posner
arguesthat the Iliad and the Odysseydemonstratethat even a minimaliststate is
not a preconditionof social order. In ancientGreece,'societiesfunctionedon the
basis of exchangeof gifts, individualprotectionby a clan, and enforcementof
law through the clan's responsibilityto outsiders for the misdeeds of their
members,ratherthan by publiccoercion.An analogyis the moderncooperation
of sovereignstates with each other, which functions fairly smoothly through
relianceon reciprocityand retaliation,even in the absenceof a supra-national
coercivemechanism.One should take care not to read into this an advocacyof
statelessanarchy,since Posner makes clear that in modernsociety a state is re-
quired for a variety of reasons. But by this thought-provokingessay, Posner
challengesthe nearlyaxiomaticreasoningoften used to justify the state.
It is possible to find fault with some parts of the argument.On a practical
level, the questionmay be raised:who in peacetimebuilt and paid for the formi-
dable defensive walls of Troy that withstood the Greeks for a decade? That
Homer describesthem as the creationof Poseidon and Apollo (as Posnernotes)
does not dispose of this inconvenientfact. Instead, this disregardfor govern-
mental detail may reflect Homer's own undeveloped state of consciousness
about governmentratherthan underdevelopedgovernmentitself. For Homer,
the Iliad is a highly personalstory ratherthan a historical-politicaldescription;
Hollywood does much the same in its treatmentof historicalevents. Therefore,
the absence of attributes of state in an epic need not mean that such were not re-
quired. Tax systems have rarely been the stuff of sagas, with the Boston Tea
Party a notable exception. Moreover, even if one concedes the existence of a
Homeric stateless society, the Iliad, after all, is hardly an advertisement for its

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No. 4 BOOKREVIEWS 271

successfulfunctioning.Greekepics are full of interminablewarfare,treachery,

and murderof all conceivablevarieties;if a state emerged,as it eventuallydid, it
may have well been in responseto the previousfragility.
These qualificationsnotwithstanding,Posner'sinterpretationof the Homeric
society of the Iliad is still highlyoriginaland importantfor an understandingof
the why and whenceof government.It depictsa culturethat is in transitionfrom
clans to statehood,that is unableto separatepersonalfrom publicdisputes,and
that views political solutions to problemsas gifts from the gods (Zeus, alas,
lacks a heavenlybureaucracy,the "supportingstructuresand personnelwithout
which no one can exercisepower effectively" (p. 133)).
Many of these themes are developedby Posner in the next three chapters.
Here, he developsa "theoryof primitivesociety," whichexplainsmanyof its in-
stitutionsas rationaland efficient responsesto the twin problemsof uncertainty
and the high cost of obtaining informationto reduce that uncertainty.These
lead to variousforms of mutualinsurance,of which the widerclan is the most
important;one manifestationof this relianceis the extensivelinguisticattention
devoted to the nuances of kinship relations. This discussion is again highly
original.Comingfrom a differentdirection,some economistshave also explored
aspects of group formation; writers such as James M. Buchanan,' Martin
McGuire,2and MancurOlson3have establisheda "Theoryof Clubs"; its inclu-
sion into the analysismay have added to the discussion.
Posner's conclusionin this section is that "the legal and other social institu-
tions of primitivesocietyare economicallyrationalor efficient" (p. 204). One of
his explanationsfor the mechanismthat createssuch efficiencyis part Darwin-
ian, part Malthusian:a more efficient society is wealthierthan an inefficient
one, and thereforewill supporta largerpopulationand survive.However,most
of the primitivesocieties observedby anthropologistsare those that developed
least and were left behind. We may thus be studyingsome of the losers rather
than winnersof the strugglefor survivalof the most efficient. This does not
negate Posner's point but suggeststhat it must be interpretedcarefully.
In anothersignificantsectionof the book, Posnerdealswith the philosophical
underpinningsof economicanalysisof the law. He entersthe subjectthrougha
fascinatingdiscourseon the eighteenth-century disputebetweenBlackstoneand
Bentham.Why did Benthamsavagehis formerteacherBlackstone,and exagger-
ate the scope of their differences?As Posner explains it, Benthamwas less a
philosopherwith a consistent ideology than a social reformerwith a political
agenda. His utilitarianismwas a spongy and nonoperationalconceptthat could
be used to justify almost anything,be it libertarian,totalitarian,or simplyper-
sonal. (For example, Bentham,notoriouslyfond of animals, wantedto outlaw

1. James M. Buchanan, An Economic Theory of Clubs, 32 Economica 1 (1965).

2. Martin McGuire, Private Good Clubs and Public Good Clubs: Economic Models of Group
Formation,72 Swed. J. Econ. 84 (1972).
3. Mancur Olson, Jr., The Logic of Collective Action (Cambridge, Mass.: Harvard University
Press, 1965).

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272 AMERICANBARFOUNDATIONRESEARCH
JOURNAL 1981:269

sport fishing on utilitariangrounds.)Utilitarianismas a philosophyservedpri-

marilyas a justificationfor Bentham'szeal as a legislativereformer.These re-
forms, however, were proceedingat a glacial pace through the common law
courts, far too slowly for the impatientBentham.Blackstone,as the champion
of the commonlaw, was thus a logicaltargetof Bentham'sprolificoutpourings.
As Posner demonstrates,Blackstonewas far from a defender of the status
quo. Indeed, in this book he emergesas somewhatof a hero, surprisinglyad-
vanced methodologicallyin his merging of abstract Montesquieuiansocial
theory with an analysisof how Englishlaws functionto achievesocial goals. To
Posner, Blackstone'sfunctionalismis a "distant ancestor of the positive eco-
nomic analysisof the commonlaw" (p. 15). Blackstone"studiedthe operations
of an actual social system, the system of English law as it had evolved . . . His
study revealed a system of enormous intricacy, with impressivesurvivaland
growth characteristics,and a significant capacity for reform-in short, a
resilient, adaptable, viable social organism" (p. 39). Bentham, on the other
hand, "never studied systematicallyany social or legal institution, English or
foreign, contemporaryor historical.He nevertried to masterthe workingprin-
ciplesof the institutionshe soughtto reform.Insteadhe deducedoptimalinstitu-
tions from the greatesthappinessprincipleand then triedto work out the details
of their implementation.This is a mode of social researchthat breeds uto-
pianismand its bittercousin radicalism"(p. 40). Needlessto say whom Posner
favors. And yet, Benthamexertsa strongfascination,and his conceptof the uni-
fying criterionas a guidingprinciple(for Bentham,"utility")occupiesPosnerin
the next two chaptersof the book. First, he establishesphilosophicaldistance
betweenhimselfand utilitarianism-whichin the first editionof his earlierbook
EconomicAnalysis of Law he had still regardedwith more favor-for a variety
of practicaland principledreasons, not the least of which is that utilitarianism
can justify coerciveand even totalitarianpolicies.
In rejectingutilitarianism,Posner is of course in good companywith most
liberal critics. But when he substitutesa new criterion-that of "wealth maxi-
mization"-as the guiding principleof common law, he invokes their wrath.
Posner substitutesthis criterionfor his previousone of "Paretoefficiency"as a
more operationalmeasuie. WhilePareto efficiencypermitsonly the comparison
of economicstatesin whichno one is made worseoff than before, wealth-maxi-
mizationallows one partyto be made worseoff, providedthat he could be com-
pensatedby the gains of the others. This criterion,Posner explains,is not only
economicallyefficient but also an ethicallyattractivenorm. Here Posner opens
himself to a series of strong attacks from a variety of angles.' By opting for
wealthmaximizationas a guidingprinciple,the Harvardlegal historianMorton
Horwitz writes, "After twenty years of attemptingto claim that they stood
above ideology in their devotion to science, the practitionersof law-and-

4. It would lead too far afield to describe the arguments, which appear, together with one of
Posner's original articles, in two admirable issues of the Hofstra Law Review (Spring/Summer
1980).

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No. 4 BOOKREVIEWS 273

economics have finally been forced to come out of the closet and debate
ideology with the rest of us."' While Horwitz may exaggeratethe previous
denial of ideology, the point is neverthelessthat a wealth-maximizingcriterion,
even if it could be made operational(which critics such as RichardMarkovits
deny), raiseshighlychargedissues of wealth distribution.This is indeeda lively
debate, and we surelyhave not heard the last of it.
In the final two sectionsof his book, Posnerintroducestwo new topics. First,
in an extensiveanalysisof privacyrights,he arguesthat an optimalpublicpolicy
would not stresspersonalprivacy.The latter'smajor functionis to concealper-
sonally unfavorable information (whereas an efficient employment market
would weed out irrationaldiscriminators),and there are inefficienciesto those
seekingself-protectionin ferretingout relevantbut unfavorablefacts about in-
dividualswith whom they deal. On the other hand, businessprivacyought to be
protected,since it encouragesthe productionof informationand enablesan en-
trepreneurto appropriatethe social benefits he creates. The trend of public
policy, however, has gone in the opposite direction: subjecting business to
disclosurerequirementsand protectingindividuals.Fromthere, Posnerproceeds
to deal with other discussionsof privacy,this author'sincluded,and of Supreme
Court decisionson the subject,concluding"it is as if the Courthad become in-
fected with the studentradicalismof the late 1960sand early 1970s,with its em-
phasis on candorat the expenseof privacy,its slogansof doing your own thing
and "letting it all hang out" (p. 345). Cases (such as Erzonick,Cox, Griswold,
togetherwith suggestionsin Paul v. Davis, and Smith v. Daily Mail) "suggesta
tendency on the part of the Supreme Court to confuse privacy with sexual
freedomand display" (p. 346).
This section contains a thorough discussionof legal, philosophical,psycho-
logical, and economic aspects of privacy, even providinga statisticalmultiple
regressionmodel to test for the hypothesisthat some privacylaws are actuallya
responseto interestgroup pressures.Posner tests the hypothesisthat a privacy
statuteforbiddingquestionsabout racein creditapplicationsis more likelyto ex-
ist in states with a high minoritypopulation,which would supportan "interest
group" explanationof privacy. The statisticalresults, however, "provide but
limitedsupportfor the interest-grouptheory-and none to speakof for the com-
passionate or altruistic [explanations of privacy] .. . " (p. 307), though they
"lend some supportto the 'soft on crime' theory of privacystatutes" (p. 309).
The last section of the book deals with the law and economicsof discrimina-
tion and with the SupremeCourt's recent affirmativeaction decisions. Posner
beginsby followingthe influentialtheoryof his ChicagocolleagueGaryBecker,
which suggeststhat in a free competitiveeconomythe self-imposedcosts of dis-
criminationwould hurt bigotedemployerssufficientlyto be unsustainablein the
long run. One of Posner'spoints is that in some instancesdiscriminationmay be
economically efficient, for example if information costs are high. This does not

5. Morton J. Horwitz, Law and Economics: Science or Politics?, 8 Hofstra Law Review 905, 912
(1980).

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274 AMERICANBARFOUNDATIONRESEARCH
JOURNAL 1981:269

mean, he stresses,that it shouldbe lawful. However,he warnsthe advocatesof a

"balancingapproach"to discriminationthat they, "confidentthat discrimina-
tion will never be sustained[in a balancingtest] becauseit is alwaysirrational,
may be in for a rude shock" (p. 363).
This book covers much ground and many disparatetopics, and it strains
somewhatundertheir divergence.They are unitedby a commondenominatorin
that they all explainlegal institutionsas rationalnonmarketresponsesto uncer-
tainty. But thereis still a greatdistancebetweenOdysseusand Bakke. Yet I find
no particularneed to have a common denominatoramong the essays. It is
enough that they are united by being intellectuallyextremelystimulatingand
highly interesting to read. They are creative expressions of original inter-
disciplinaryresearch,writtenlucidlyand nontechnically,and will no doubt have
a positive impact on severalacademicdisciplines.

MARKTUSHNET, The AmericanLaw of Slavery, 1810-1860: Considera-

tions of Humanity and Interest. Princeton: Princeton University
Press, 1981. Pp. 262.

Reviewed by M. WIECEK
WrLIAM

Lawyers,with their utilitarianand ahistoricalbent, have shown little interest

in the law of slavery.Why study a body of law that is not only obsoletebut also
professionallyembarrassingto contemplate?For it was, after all, the legal pro-
fession that createdthis corpusof law, that interpretedit from the bench, coun-
selledits clientson its application,and modifiedit in the legislatures.'This body
of law was the profession'screature,and it was essentialto the maintenanceof
black slaveryin America.
Before discussingTushnet'scontribution,let me relate an incidentin the law
of slaveryto illustratethe topic's fascinationand importance,and then briefly
sketchwhat work has been done in the area to date. We can peer into the heart
of the law of slaveryby examiningthe insurancelitigationsurroundingthe slaver
Zong. On a voyage from the west coast of Africa to Jamaicain 1781 with 470

WilliamM. Wiecekis Professorof Historyat the Universityof Missouri-Columbia

and a member
of the New Hampshirebar. LL.B., HarvardLaw School, 1962;Ph.D., Universityof Wisconsin,
1968.
1. On lawyers'complicityin supportingslaverythroughlaw, see RobertM. Cover, JusticeAc-
cused:Antislaveryand the JudicialProcess(New Haven, Conn.: Yale UniversityPress, 1975),and
WilliamM. Wiecek, Latimer:Lawyers,Abolitionists,and the Problemof Unjust Laws, in Lewis
Perryand MichaelFellman,eds., AntislaveryReconsidered:New Perspectiveson the Abolitionists
219 (Baton Rouge:LouisianaState UniversityPress, 1979).

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