We take a common-law approach to economics. This involves avoiding the debilitating constraints of classical and neo-classical economics without discarding their contributions. These we retain in the face of contemporary prejudice against them. This contemporary prejudice can be summarized as “the market is the problem, government intervention is the solution.” To this we cannot subscribe. But neither can we reverse the formula and say “the government is the problem, the market is the solution.” This is a pernicious either/or that revenges itself every time it is implemented.
Both market and government: or, to put a finer point on it, the market embedded in an institutional framework, the chief characteristic of which is the rule of law. Hence, common-law economics.
Why common law? Because without it, society would be either an enclosed organization or an extended family, or it would fall apart. Common law is the integrating principle that holds together the various associations and organization that comprise society. It is this general, universal set of legal institutions and principles that enable a pluralistic society to function. These institutions include property, contract, credit and debt, legal personality, and the citizen ideal. Together they “string the beads” of the various spheres into a coherent whole, without forcing them into the straitjacket of an overarching organizational embrace. In other words, society is not an organization.
Traditional economics attempts to develop economic theory by divesting these institutions from the picture, in order to deal with a supposed “natural” economy. (See Trojan Horse for a comprehensive critique of this approach.) A common-law approach, on the other hand, recognizes the primary importance of these legal institutions to the study of economics. In particular, money, banking, and finance can be accounted for, which on the presuppositions of traditional economics cannot be adequately dealt with.
Common-law economics is nation-state-oriented economics, because it is nation-states which engender the legal order and, in the common-law system, engender the currency. For currencies are the product of credit and debt transactions as conducted through the banking system. All of this functions within the legal framework set up and maintained by the nation-state.
The common-law approach thus promises to bridge the much-lamented gap between economics and finance. A common-law theoretical basis allows us to integrate economics and finance into a coherent whole, from which vantage point many things hitherto obscure become clear.
A common-law order is thus the presupposition. This means a differentiated social order rather than a monolithic one, a social order in which the rule of law provides the framework of activity rather than the “command and control” of a planned economy. There are various social entities, each playing a specific role, each acting on its own account. This is the opposite of a state-run economy such as is envisioned in socialism.[1]
For an introduction to the method of common-law economics, follow the tutorial brought under The Two Markets.
[1] Schumpeter compares and contrasts the two kinds of economic order, socialist and capitalist, in an intelligible and enlightening way in Joseph Schumpeter, Treatise on Money (Aalten: WordBridge, 2014), chs. 4–7.