Systems Theory: Emergent Private Law

Henry E. Smith*

April 30, 2019

(prepared for the Oxford Handbook of New Private Law, Andrew Gold, John C.P. Goldberg, Daniel B. Kelly, Emily Sherwin & Henry E. Smith, eds.)

Abstract

Accounts of private law in general and property in particular have downplayed traditional notions of system in favor of a sum-of-the-parts reductionism. Applying complex systems theory to the law leads to a very different picture. Taking the bundle of rights in property law as a starting point, the paper shows that conventional analysis is overly reductive in that it assumes that the attributes of the whole bundle are the additive sum of the attributes of the “sticks” in the bundle taken individually. Theoretically and empirically this aggregative approach is not as accurate as one based on “organized complexity,” corresponding to a rugged fitness landscape from evolutionary models. The paper then shows how systems theory leads to a better and more unified account of the bundle of rights, standardization in property, possession, title, and equity. Systems theory also promises to mitigate some of the dichotomies in private law, such as holism versus reductionism, homogeneity versus specialization, formalism versus contextualism, and the publicness of private law.

Introduction

We often speak of the “legal system” and even law as a “system.” In what sense? Too often, system in law comes across as an empty slogan or as the scapegoat fpor the ills of our legal institutions. On this negative view, “system” is too civilian, too formalistic, and too conceptual. In reaction to the supposed excesses of “system,” American private law has ironically taken too little account of a different – and more important – kind of system in the law, in which connectivity is most important. This is the subject matter of complex systems theory, and it will shed light on how the connectivity of private law lends it much of its character.

* Fessenden Professor of Law and Director of the Project on the Foundations of Private Law, Harvard Law School. Email: [email protected].

1 The word “system” appears often in private law theory, usually pejoratively. But these criticisms assume too much about systems and too little about complexity. On the one hand, negative assessments rest on assumptions that the word “system,” in law, can only refer to a logical or deductive system. This assumption is often coupled with a suspicion that something ideological rather than purely logical is driving the enterprise. At the same time, in situations in which issues of “complexity” come to the fore, an impoverished notion of complexity – based on the mere number of relevant variables – makes systemic considerations appear less important than they are. Theorists make the assumption that increasing complexity in the world means an increase in the number of elements or variables the law needs to track. Sometimes it is concluded that a more globally contextualized, nuanced law – maybe even some kind of public law – is required to capture this kind of complexity.1

Nowhere has this flattened and impoverished approach to complexity and system been more evident than in the so-called bundle-of-rights picture of property. Substantively, the bundle of rights is offered as a reductionist theory of property: property can be broken down into various rights – to exclude, to farm, to build on, to walk across, etc., etc. – all of which contribute additively to the whole bundle, which is nothing more than these parts.2 So “property,” rather than referring to anything interesting, is merely a label for the collection of rights, which can be tailored according to policy by simple addition and subtraction.

Although the strong bundle picture of property is extreme, it is emblematic of much analysis of private law and a fair amount of its practice, which implicitly assume a particular – and I will argue a wildly inapt – version of reductionism. On this version, private law can be analyzed into a set of elements and the substantive character of these elements is most of the story: the properties of each element taken in isolation can be summed up to give us the properties of the whole. Thus, properties of the law, desirable or not, such as efficiency, fairness, stability, and so on, are the sum of the contributions of individual elements such as legal rules. From marginal approaches in economics to incrementalism in common law reasoning.,3 law is treated as a heap of rules contributing to societal effects in aggregating fashion.

Systems theory offers notions of system and complexity that suggest more fruitful alternatives. A system is a collection of elements and – crucially – the connections between and among them; complex systems are ones in which the properties of the system as a whole are difficult to infer from the properties of the parts.4 Complex systems include brains, social

1 See, e.g., Thurman Arnold, The Folklore of Capitalism 114-16 (1937); James E. Herget, American Jurisprudence, 1870-1970: A History 146-47 (1990); G. Edward White, The Evolution of Reasoned Elaboration: Jurisprudential Criticism and Social Change, in Patterns of American Legal Thought 136, 139 (1978); see also Richard A. Posner, Reflections on Judging (2013) (arguing from complexity against formalism and for a new judicial realism).

2 See, e.g., Thomas C. Grey, The Disintegration of Property, in NOMOS XXII: Property 69 (J. Roland Pennock & John W. Chapman eds., 1980).

3 For exceptions, see Gerald Postema, Law’s System: The Necessity of System in Common Law, [2014] New Zealand L. Rev. 69.

4 Melanie Mitchell, Complexity: A Guided Tour (2011); Herbert A. Simon, The Sciences of the Artificial (2d ed. 1981).

2 networks, economies, and ecosystems.5 In such systems, the properties of the system are not the additive sum of the properties of the elements taken in isolation: rather, system properties are emergent. When complexity becomes more important, emergent properties are so difficult to trace to their origins in the interplay of particular elements that reductionism of any kind comes into question. Emergent properties bear a non-straightforward relationship to the properties of their parts because those parts interact in important ways. So, just as biological concepts and principles cannot in practice be restated in terms of quantum physics and social science is even further removed from such underpinnings, higher-order concepts in private law, such as “thing,” “promise,” and “causation,” are far more usable in explanation than a reduction to more primitive relations or even to the atomic or subatomic level – if such is even possible.6

Where does this leave the law? It would be nothing short of miraculous if law were not an interconnected system possessing emergent properties. And there is evidence that law does reflect a situation of organized complexity, neither wholly aggregative nor totally chaotic. Recognizing this reality calls for a different kind of theory about law and a more directed and experimental approach to legal reform. Because much of the action in private law comes from the connections between elements and the need for humans with finite mental resources to employ the law in dealing with the complexity of the world, many – but of course not all – of the interesting features of the private law stem from the how of private law rather than the what or why. It is the interplay of the purposes of private law, which might be quite various, with the techniques sounding in system management that together produce the phenomenon of private law as a whole and its contribution to human flourishing in society. Without denying in the least that the system of private law has a purpose, systems theory helps us understand how those purposes are – and are not – achieved. Thus, systems theory points in the direction of the New Private Law.

Part I will apply the notion of system from systems theory to the system of private law. Then Part II applies the systems approach to various aspects of the law of property, including the bundle of rights, standardization, possession, title, and equity. I turn in Part III to the implications of systems theory for some controversies in private law and show how they can be defused or transcended: holism versus reductionism, homogeneity versus specialization, formalism versus contextualism, and private versus public law. The systems approach is also practical, in that it provides a framework for developing rules of thumb in guiding the process of evolution in private law. The paper ends on an even more speculative note.

I. Private Law as a Complex System

From the point of view of systems theory, private law is indeed a system. The system in private law is grounded in its interconnectedness, which in turn sets limits to the kind of

5 See, e.g. W. Brian Arthur, Complexity and the Economy (2015); John H. Miller & Scott E. Page, Complex Adaptive Systems: An Introduction to Computational Models of Social Life (2007).

6 On strong anti-reductionism, emergent system properties are not even causally traceable in principle. See, e.g., P.W. Anderson, More is Different: Broken Symmetry and the Nature of the Hierarchical Structure of Science’ 177 Science 393, 393, 395 (1972).

3 reductionism that is appropriate for explaining and justifying private law. These interconnections are as important to private law as they have been overlooked in latter day academic and judicial approaches to private law.

Systems theory abounds with definitions of “system.” A typical definition that will work for our purposes is: a collection of interconnected elements. Both the elements and (especially) the connections give rise to the phenomena at the system level. A system gets its character from the connections present and those that are not present. If the elements are not connected at all, we don’t speak of a system. If they are maximally connected (each to each), the system is chaotic. The most interesting systems – and the ones we find in private law – involve a middle level of interconnectedness, especially with patterns – what following Warren Weaver we can call “organized complexity.”7

Systems theory is sometimes called “complex systems theory,” “complexity science,” and “complex adaptive systems.”8 If anything, complexity is harder to define than system, but what the popular definitions have in common is the role that the interconnections play as opposed to the mere elements themselves. One of the earliest systems theorists developed its methodologies to resolve the mechanism-vitalism controversy in biology that raged in the 1920s.9

Complex systems are closely associated with emergence. Thus, for Herbert Simon, a complex system is one in which the properties of the whole are difficult to infer from the properties of the parts, i.e. they are emergent.10 Emergence is often opposed to reductionism in general, and, as we will see, modern private law theory is riddled with excessive reductionism.

It might seem trite to call the law – or the social world of which it is a part – “complex” or “systematic.” The specific notions of complexity and system in systems theory will allow a new perspective on these aspects of the legal world and may eventually lead to better predictive theories. The systems approach highlights an aspect of the problems by private law and so helps explain the architecture of private law. I will highlight one kind of system – the system of private law itself, with side glances on the economic and social systems with which it co- evolves. Specifically relevant to the New Private Law is how private law concepts and baselines, “internal” to the law, serve these “external” functions.

Seeing private law as a system has one immediate payoff, in casting doubt on the prevalent aggregative style of analysis. If private law were a set of rules that have additive

7 Warren Weaver, Science and Complexity, 36 American Scientist 536 (1948).

8 See Ludwig von Bertalanffy, An Outline of General System Theory, 1 Brit. J. Phil. Sci. 134 (1950): see also Mitchell, supra note 4.

9 Ludwig von Bertalanffy, Problems of Life: An Evaluation of Modern Biological Thought (1952); see P.A. Lewis., Systems, Structural Properties, and Levels of Organisation: The Influence of Ludwig von Bertalanffy on the work of F.A. Hayek, 34A Research in the History of Economic Thought and Methodology 125 (2016).

10 Simon, supra note 4.

4 effects, then the sum would not be greater than its parts. If, however, the rules (assuming for now that the basic elements of the law are rules) interact, then we might well find that private law shows emergent properties. If we treat law as a collection of rules that contribute properties like efficiency, fairness, justice, or some kind of justice in an additive fashion, we ignore the possibility that rules or concepts might work in tandem to produce a property that is not a property of any of the parts. Private law as a whole might produce efficiency or justice even if one rule does not.

Closely related to emergence is the evolution of the system. Much of systems theory was developed to enrich evolutionary theory in biology. It has been used to capture what is evolutionary in property law as well.

To see the applicability of systems theory and the stakes involved, consider the intersection of two perennial topics in property theory: the bundle of rights and evolution. In classical genetics and evolution, each gene contributed additively to overall fitness, whereas in more recent models, genes can influence each other, by activation, suppression, or change.11 That is, genes are “epistatically connected.” Lee Alston and Bernardo Mueller apply one such model, the famous Kauffman NK model, to the bundle of rights in property: various sticks in the bundle might be connected to other sticks. In Figure 1,12 each of the N boxes represents the presence (1) or absence (0) of a stick and the curved lines stand for the K connections:

Figure 1. Bundle of Rights with N=8 and K=2

The number of such epistatic couplings has implications for the complexity of the system and how it evolves. If there are no epistatic couplings (K = 0), then each element (gene, legal

11 Stuart Kauffman, At Home in the Universe: The Search for the Laws of Self-organization and Complexity (1995); Lee Alston & Bernardo Mueller, Towards a More Evolutionary Theory of Property Rights, Iowa L. Rev. 2255 (2014).

12 Alston & Mueller, supra note 11, at 2263.

5 relation) can be optimized in isolation because its contribution to the fitness of the whole is additive. At the opposite extreme, if every element is connected to every other (K = N – 1), we get chaos, where any small change might produce large and wildly unpredictable effects. In the middle, where there are some epistatic couplings (K is between 0 and N – 1), we find Weaver’s organized complexity that corresponds to a “rugged” fitness landscape (Figure 2); small changes may lead upward or downward and there may be no way to reach the global maximum by means of small changes.13

The conventional bundle-of-rights picture of property assumes that each stick in the bundle contributes additively to the whole bundle (K = 0), which corresponds to the left-hand fitness landscape. If this were true, it would make reform easy: one simply has to maximize the contribution of each stick and one is automatically maximizing the fitness of the whole bundle. As it is said, one is ascending “Mount Fuji.” The (overly) pessimistic outlook would be that connections are maximal, such that any change to the bundle will produce wholly unpredictable effects and the situation would correspond to the righthand random fitness landscape. Instead, if the sticks in the bundle are connected, but not maximally, we get the rugged landscape in the middle range.

Figure 2. Change in Landscape as K Increases

13 Id., citing Kauffman, supra note 11, at 170-76.

6 Complexity and evolution point to the role of modularity in keeping the system manageable, which allows for an extension of evolutionary models of property rights. In the famous Demsetz Thesis, property rights emerge when spillovers are more costly than the costs of internalizing them through property rights.14 However, evolution is a complex interplay between supply and demand factors vary in a rugged and “dancing” landscape.15 In situations of organized complexity, modularity permits complex behavior at lower cost.16 Many interactions can happen locally without the cost of potential ripple effects or the cost of tracking and controlling them. The architecture of property, by employing legal things and a hybrid of exclusion and governance strategies is heavily modular.17 Modularity promotes certain forms of evolution because variation and selection can happen on one module and the contribution of a substituted or modified module can lead to improvement toward a local optimum. Property can be regarded as law of partial separation, identifying which aspects of the world can be treated as partly (and only partly) in isolation, thus applying Simon’s notion of a partially decomposable system.18 Modularity and decomposability go far beyond property: the concepts of privity, foreseeability and the like, along with devices to prevent decision-making by agents from being too interdependent, are also characteristic of the law of torts and contracts.19

Another advantage of systems theory and modularity is the potential to model the law without prejudging the degree of system. Given a set of interactions between people, either the existing system of legal relations or a hypothetical set of atomized relations, we can employ the kinds of algorithms developed in network theory to derive the degree of modularity that a system exhibits.20

In general, we should expect to find that more interconnected parts of the system (more integrated into the rest of the law) will, from a comparative point view, be the least likely to

14 Harold Demsetz, Toward a Theory of Property Rights, 57 Am. Econ. Rev. 347 (1967).

15 Alston & Mueller, supra note 11.

16 Carliss Y. Baldwin & Kim B. Clark, 1 Design Rules: The Power of Modularity (2000); Simon, supra note 4.

17 Henry E. Smith, Property as the Law of Things 125 Harv. L. Rev. 1691 (2012).

18 Henry E. Smith, The Economics of Property Law, in The Oxford Handbook of Law and Economics, Volume 2: Private and Commercial Law 148-77 (Francesco Parisi ed., 2017). On partial decomposability, see Simon, supra note 4, at __; see also Herbert A. Simon, The Architecture of Complexity, 106 Proc. Am. Phil. Soc’y 467, 477 (1962).

19 Shawn J. Bayern, The Limits of Formal Economics in Tort Law: The Puzzle of Negligence, 75 Brooklyn L. Rev. 707 (2010); Nathan B. Oman, The Failure of Economic Interpretations of the Law of Contract Damages, 64 Wash. & Lee L. Rev. 829 (2007); Henry E. Smith, Modularity and Morality in the Law of Torts, 4 J. Tort L., Issue 2, Article 5 (2011), http://www.bepress.com/jtl/vol4/iss2/art5.

20 Ted Sichelman & Henry E. Smith, Modeling Legal Modularity (draft 2017); M. E. J. Newman, & M. Girvan. Finding and Evaluating Community Structure in Networks, 69 Physical Review E, 026113 (2004); see also Matthew O. Jackson, Social and Economic Networks (2008).

7 converge across legal systems, assuming that they started out in different positions.21 And in twentieth-century American private law, systemic aspects of property have been changed more slowly than more detachable aspects.22 Moreover, we might expect that judicial modification – or even repurposing – of modules would be easier to achieve than whole sale remodularization, and that within the framework of modularity, courts would be fairly good at dealing with polycentric problems (because their ripple effects can be contained).

If properties of a system and its parts are not necessarily related additively and the system is organized in modular fashion, the way is open for specialization (about which more in Part III).23 Consider as a question of possible specialization the perennial debate in law and economics about whether redistribution is better done through the tax-and-transfer system or whether redistribution should be done though legal rules as well.24 Even apart from whether doing redistribution through the private law adds a second distortion to incentives to the distortion through taxes, we have to ask whether the information exists to design legal rules to redistribute, especially where legal rules are part of a complex system that coevolves with the system of economic activity. It is an empirical question whether, once a level of redistribution is desired, which part or parts of the law are the most effective tools.

Crucial to the evolution of complex systems is feedback. As the system produces effects those effects work directly or indirectly on the system to produce further change. Consider law and equity. Law produced injustices or inefficiencies that equity remedies, and the equitable rule sometimes becomes a rule of the common law, notably in the area of fraud.25

Feedback and evolution raise a more fundamental question about private law: is it in an equilibrium state or not? If private law is a complex system, it may be a mistake to apply

21 Yun-chien Chang & Henry E. Smith, Convergence and Divergence in Systems of Property Law: Theoretical and Empirical Analyses (draft December 2018), __ S. Cal. L. Rev __.

22 Henry E. Smith, The Persistence of System in Property Law, 163 U. Pa. L. Rev. 2055 (2015).

23 For an early recognition of this point, see Roscoe Pound, Interpretations of Legal History 154 (1923); Roscoe Pound, The Theory of Judicial Decision III: A Theory of Judicial Decision for Today, 36 Harv. L. Rev. 940, 951 (1923). For a vehement Realist denial, see Jerome Frank, Law and the Modern Mind 227 (1930); see also Felix S. Cohen, Ethical Systems and Legal Ideals 1-40 (1933). See generally Henry E. Smith, The Language of Property: Form, Context, and Audience, 55 Stan. L. Rev. 1105 (2003).

24 See e.g., Ronan Avraham, David Fortus, & Kyle, Revisiting the Roles of Legal Rules and Tax Rules in Income Redistribution: A Response to Kaplow & Shavell, 89 Iowa L. Rev. 1125 (2004); Louis Kaplow & Steven Shavell, Should Legal Rules Favor the Poor? Clarifying the Role of Legal Rules and the Income Tax in Redistributing Income, 29 J. Legal Stud. 821 (2000).

25 In law and economics, feedback effects are located in the litigation process, which is said to produce system effects of efficiency, George Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. Legal Stud. 1 (1984); Lee, Yoon-Ho Alex and Daniel M. Klerman, The Priest-Klein Hypotheses: Proofs and Generality, 47 Int’l Rev. L. & Econ. 59 (2016); see also Keith N. Hylton, Information Costs and the Civil Justice System (July 31, 2018). Boston Univ. School of Law, Law and Economics Research Paper No. 18-17, available at SSRN: https://ssrn.com/abstract=3223581, or more plaintiff-friendly law, Daniel M. Klerman & Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241 (2016); Todd J. Zywicki, The Rise and Fall of Efficiency in the Common Law: A Supply-Side Analysis, 97 Nw. U. L. Rev. 1551 (2003).

8 equilibrium concepts.26 Private law, or at least parts of it, may be designed to facilitate the process of innovation, which is an out-of-equilibrium phenomenon. The system of private law and social interaction may be on the edge of chaos rather than in equilibrium on the one hand or chaos on the other.27

In any event, the systems approach allows us to get a better handle on what exactly is complex and what is simple about private law. The mid-level concepts of private law can be regarded as emerging out of a lower level of complexity: notions like the fee simple or assignment are higher-level concepts that are easier for users to employ. It is striking that internal accounts of private law are based on local rather than (directly) societal justice; various external accounts, from critical schools to conventional law and economics are oriented directly to macro properties rather than this lower level out of which, on the systems approach, the macro properties emerge.28 Middle level phenomena in private law are simpler than the complexity on which they supervene, and across the social system, they interact in a complex way that produces complex macro behavior.

Finally, the nature of complex systems has implications for uncertainty and design. Some paths the law might take may not be knowable in advance. This type of mixed uncertainty and foreseeability has implications for the strategies that legal designers and more ground-level decisionmakers like judges should follow in tinkering with the law. Systems theory can be used to help develop rules of thumb for pushing evolution in certain directions. To begin with, change will be easier to accomplish for those aspects of the system that are less interconnected.29 Incremental common law change can aim for local maximization, whereas even the possibility of attaining a distant maximum may only be reachable through re-doing the system, most often through legislation. And such major changes will be riskier the more they touch on highly connected parts of the system. Complex systems are not immune to reform, but we could be clearer about when and how much we should worry about unintended effects. With the bundle- of-rights picture of property, assuming additiveness of properties is a way to make reform look easier, and yet assuming total chaos would be an overreaction.

The systems approach marks a departure in important ways from previous approaches to “system” and “complexity” in the private law. Going all the way back to the German Historical School of the nineteenth century, jurists often assumed that any system in the law had to be deductive, and this emphasis on a certain kind of logic came under withering criticism from

26 Lewis, supra note 9.

27 César A. Hidalgo, Why Information Grows (2015).

28 See, e.g., Ernest J. Weinrib, The Idea of Private Law 2 (1995); John C.P. Goldberg & Benjamin J. Zipursky, Seeing Tort Law from the Internal Point of View: Holmes and Hart on Legal Duties, 75 Fordham L. Rev. 1563 (2006); see also David Friedman, A Positive Account of Property Rights, 11(2) Social Phil. & Pol’y 1 (1994); Andrew S. Gold & Henry E. Smith, Sizing up Private Law, (draft 2016), available at SSRN: https://ssrn.com/abstract=2821354.

29 See Smith, supra note 22; Chang & Smith, supra note 21.

9 Holmes and later the Realists.30 The notion of system from systems theory need not fall into this trap, because the connections between parts of the system need not be deductive, and the system can be open instead of fully “autonomous.”31 Perhaps because the theorists before the late twentieth century, with notable exceptions in Hayek and Fuller,32 did not possess the notion of complex system, the invocations of complexity in the law, especially as a rationale for innovation or reform, were seriously incomplete and misleading. Complexity was taken to mean the number of facts, rules, and case decisions that might bear on a legal situation, rather than the interaction among them.33 Correspondingly, the solution was to make the law more complex in a direct fashion, and perhaps to organize it better to eliminate redundancies. Again, the solution to problems were embodied in rules that we meant to act in additive fashion. Some of the limits of the Restatement process and the proliferation of multifactor balancing tests in the law can be seen as a frontal assault on complexity, without the benefit of the tools of systems theory.

In current legal theory, systems theory and complexity are making inroads,34 and private law is no exception.35 What is of most relevance to private law is how the structure of the law itself is a complex adaptive system and how different that is from traditional notions of system in the law that have been dismissed wholesale.

II. Applications

This Part shows how, in keeping with the New Private Law, structures internal to the private law can be fruitfully analyzed with the tools of systems theory. Doing so will also allow

30 See Mathias Reimann, Nineteenth Century German Legal Science, 31 B.C. L. Rev. 837 (1990).

31 That systems can resolve internal contradictions features prominently in the systems theory notion of complementarity. See J.A. Scott Kelso & David A. Engstrøm, The Complementary Nature (2006).

32 F.A. Hayek, Notes on the Evolution of Systems of Rules of Conduct (1967), in The Collected Works of F.A. Hayek, Volume 15: The Market and Other Orders (Bruce Caldwell ed., 2014); Lewis, supra note 9; Lon L. Fuller, Principles of Social Order (rev. ed. 2002).

33 See Henry E. Smith, Restating the Architecture of Property, forthcoming Modern Studies in Property Law (Sinéad Agnew & Ben McFarlane eds.)

34 J.B. Ruhl, Law’s Complexity: A Primer, 24 Ga. St. L. Rev. 885 (2008); Adrian Vermeule, The System of the Constitution (2011); John C.P. Goldberg, The Constitutional Status of Tort Law: Due Process and the Right to a Law for the Redress of Wrongs, 115 Yale L.J. 524, 535 (2005); Daria Roithmayr, Evolutionary Dynamics and Method, Encyclopedia of Law and Economics (Gerrit De Geest ed., 2d ed. 2012).

35 Eric Kades, The Laws of Complexity and the Complexity of Laws: The Implications of Computational Complexity Theory for the Law, 49 Rutgers L. Rev. 403 (1997); Jessica A. Shoemaker, Complexity’s Shadow: American Indian Property, Sovereignty, and the Future, 115 Mich. L. Rev. 487 (2017); Smith, supra note 17; Smith, supra note 18; David Harper, Intellectual Property as a Complex Adaptive System: How Entrepreneurship Transforms Intellectual Property Structures, 24 J. Evol. Econ. 335 (2014); Sichelman & Smith, supra note 20.

10 a fresh take on the relationship between the architecture of private law and the social context with which it co-evolves. I will concentrate on those in the area of property.36

The Bundle of Rights: As we have seen, treating the bundle of rights as complex system rather than a heap of sticks has important implications for the structure and evolution of property law and property rights.37 The importance of complexity does not end there: fitness landscapes are a simplified picture that may sometimes need to be supplemented. First, what counts as “fitness” may change over time. Second, the fitness landscape itself is changing, in response to exogenous shocks, innovations, and even feedback from the legal system itself. Third, our knowledge of the fitness landscape is not perfect and there may be a gap between what we think it looks like and what it really is.38 Fourth and finally, in situations of uncertainty and novelty, new possibilities may arise that were not on the original landscape at all.39 Thus, where technological change – the first use of irrigation – calls for a new branch of law, evolution may go beyond the dynamism of the picture sketched out above.

In any event, the strong reductionism of the bundle ultimately rests on mere assertions of the merits of reductionism and its resemblance to “science.” However, in science, regardless of one’s ultimate views on reductionism, employing higher-level concepts is pragmatically crucial when it is not feasible to operate in fully reductionist mode.40 Thus, it is only in academic discussions that one thinks about stating all the relations involved in owning Blackacre or in setting up a corporation in terms of all the bilateral Hohfeldian relations that make it up.

Lest one think that the choice between a reductionist property bundle or one informed by systems theory is purely academic, the case of the right to roam is instructive. After property theorists presented it as an unalloyed Good Thing (with apparently one voice of caution), Jonathan Klick and Gideon Parchomovsky found an economically and statistically significant effect on land values attributable to the legislation.41 The point here is not whether the result will

36 For an application of complexity theory to contracts, see W. Bentley MacLeod, Complexity and Contract, Revue d’Economie Industrielle, 92, trimestre 2000, and for systems theory and torts, see Alan Calnan, Torts as Systems, (March 22, 2018), available at SSRN: https://ssrn.com/abstract=3147117.

37 This account suggests that the “Integrated” is crucial in the “Integrated Title Thesis” in Penner, Property, This Volume.

38 Bernardo Mueller, Beliefs, Institutions and Development on Complex Landscapes, 7 Econ. Analysis L. Rev. 474 (2016).

39 Teppo Felin et al., Economic Opportunity and Evolution: Beyond Landscapes and Bounded Rationality, 8 Strategic Entrepreneurship J. 269 (2014).

40 Compare Shane Nicholas Glackin, Back to Bundles: Deflating Property Rights, Again, 20 Legal Theory 1 (2014) with James Penner, On the Very Idea of Transmissible Rights, in Philosophical Foundations of Property Law 244 (James Penner & Henry Smith eds., 2013).

41 Jonathan Klick & Gideon Parchomovsky, The Value of the Right to Exclude: An Empirical Assessment, 165 U. Pa. L. Rev. 917 (2017); id. at 922 & n.18 (“Taking a markedly more guarded approach to the issue, Henry Smith cautioned that ‘giving the right-to-roam stick to a neighbor or to the public affects the value of the remaining property.’ ”), citing Henry E. Smith, Property Is Not Just a Bundle of Rights, 8 Econ J. Watch 279, 286 (2011); see also Smith, supra note 17, at 1717-18; Smith, supra 33, at __.

11 hold up or whether the right to roam is a good idea (it might exceed its costs, as I believe in some formulations and situations it probably does). Rather, when codifying a custom or inventing a new servitude, we should be clear that we are operating on the rugged landscape and proceed with some humility.

Standardization in Property: Being both in rem and in personam, property rights pose an interesting informational challenge. One aspect of the modularization of property rights is the grouping of information behind exclusion and the relative enrichment of interfaces through governance.42 One aspect of this informational strategy is the numerus clausus and related standardization, which tends to project simpler, more formal messages to impersonal audiences (in rem) than socially closer audiences (in personam).43 Property law seems roughly to tend toward achieving the benefits of autonomy efficiency, and stability effectively in light of the costs of providing and processing information.

A lack of systems thinking gets in the way of seeing how standardization works. If one assumes that each new purpose requires a new property form, then standardization will be downplayed or missed altogether.44 Because property forms are flexible like building blocks, new purposes can be served (up to a point) using existing rules. Given the possibility of contracting and (if available) the trust, much can be accomplished without great third-party information costs.45 Again, the interaction of simple parts can produce complex results.46

Possession: The concept of possession has been said to be a linchpin of property, yet it is also often seen as an empty notion. Something called “possession” is invoked in many areas of the law – from acquisition, to adverse possession, the property torts, and bailment, among others. The proponents of legal science, famously starting with Savigny, made possession a test case for notions of system, and by contrast Realists have proliferated as many notions of possession as

42 See Smith, supra note 17.

43 Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property: The Numerus Clausus Principle, 110 Yale L.J. 1 (2000); Thomas W. Merrill & Henry E. Smith, The Property/Contract Interface, 101 Colum. L. Rev. 773 (2001) Henry E. Smith, Standardization in Property, in Research Handbook on the Economics of Property Law 148 (Kenneth Ayotte & Henry E. Smith eds., 2011); Yun-chien Chang, The Numerus Clausus Principle, Property Customs, and the Emergence of New Property Forms, 100 Iowa L. Rev. 2275 (2015) .

44 Again, the Realists tended to assume that complexity of the world would be reflected directly in the law. See, e.g., the sources cited supra, at note 1.

45 See Ming Wai Lau, The Nature of the Beneficial Interest - Historical and Economic Perspectives (February 22, 2013), available at SSRN: https://ssrn.com/abstract=2213055; Ben McFarlane, The Essential Nature of Trusts and Other Equitable Interests: Two and a Half Cheers for Hohfeld, in The Legacy of Wesley Hohfeld: Edited Major Works, Select Personal Papers, and Original Commentaries (Shyamkrishna Balganesh, Ted Sichelman, & Henry E. Smith eds., forthcoming).

46 For an extreme version of this argument, see Richard A. Epstein, The Static Conception of the Common Law, 9 J. Legal Stud. 253 (1980). Epstein argues that in the greater system, private law can remain not only simple but static in light of its specialization in stability, with private ordering furnishing flexibility. See also Richard A. Epstein, Simple Rules for a Complex World (1997).

12 there are functions it serves.47 From a systems theory point of view, the most interesting approach to possession, initiated by Hume and extended by Sugden, sees possession as a convention originating in small-scale interactions and a perceived need to avoid damaging conflicts.48 One could view this as a kind of evolutionary account, and indeed scholars interested in evolution are now also analyzing possession.49

The advantages of the systems view of possession relate both to spontaneous order and design. From the point of view of spontaneous order, the emergence of a possession convention can be seen as the macro result of small-scale, even bilateral, interactions. On the systems approach, the benefits of a possession-based regime of acquisition and ownership (in which possessors are presumptive owners and ownership is in a sense a beefed up right of possession) are systemic and need not be true of every instance of possessory activity. This explanation of possession captures the appeal and the limits of the bilateral kinds of morality that develops hand in hand with possessory legal norms, in a kind of co-evolution. The system itself exhibits the layering of these kinds of possession.50 This ontogeny explains its appeal to libertarians, and the limits of its attractions to others. As with other aspects of the law that systemically emerge from small-scale interaction, we can ask which kinds of intervention might improve on what spontaneous order has furnished so far.51 From the point of view of the New Private Law, a systems perspective on possession also helps us get a handle on some design questions. Indeed the architecture of private law is a hybrid between the spontaneous and designed, just as much as it is in the architecture of the built environment.52

Title: Famously Karl Llewellyn and other Realists criticized the emphasis on title at the intersection of personal property law and sales. In older law, questions such as who bears the risk of loss would be “derived” from the notion of title. To some Realists, concepts like title were transcendental nonsense.53 In a more moderate vein, Llewellyn believed that concepts should be no more abstract than could be justified by their usefulness. When it came to drafting

47 Burke Shartel, Meanings of Possession, 16 Minn. L. Rev. 611 (1932); see also Joseph W. Bingham, The Nature and Importance of Legal Possession, 13 Mich. L. Rev. 535 (1915).

48 David Hume, A Treatise of Human Nature (L.A. Selby-Bigge ed., 1896) (1739–40); Robert Sugden, The Economics of Rights, Co-operation and Welfare (2004); see also Friedman, supra note 28.

49 See, e.g., Samuel Bowles & Jung-Kyoo Choi, Coevolution of Farming and Private Property, 110 PNAS 8830 (2013).

50 Henry E. Smith, The Elements of Possession, in Law and Economics of Possession 65-102 (Yun-Chien Chang, ed., 2015).

51 See Gold & Smith, supra note 28.

52 Smith, supra note 33, see also Christopher Alexander. See Christopher Alexander et al., A Pattern Language: Towns, Buildings, Construction (1977); Christiane Herr, Generative Architectural Design and Complexity Theory, paper for the International Conference on Generative Art (2018), available at: https://www.researchgate.net/publication/30870757.

53 Felix S. Cohen, Transcendental Nonsense and the Functional Approach, 35 Colum. L. Rev. 809 (1935).

13 the Uniform Commercial Code, Llewellyn downplayed the notion of title and “where” it was located, and yet he found title to be a useful organizing notion.54

The value of complex systems theory extends to institutions surrounding title. Because title conflicts involve third parties and ultimately system effects like certainty and stability, the contribution of recording and registration systems can be seen as stemming from their reshaping of the interactions of owners, purchasers, and others. Even adding up individual three-party interactions may miss the full set of interactions in title records.55 Out of the connections between parties, including ones who don’t deal directly with one another, attributes like stability and security emerge from the system.

Law and Equity. Equity cuts across the legal system, and especially in the law of property. Elsewhere I have argued that, from a functional point of view, equity, even historically, serves as a second-order system to adjust and sometimes override the results of the system of the regular law.56 The idea of second-order systems and control devices is familiar from systems theory.57 Looking at equity from the systems viewpoint causes us to ask about the costs and benefits of going second order, and in particular which problems call for such treatment. I have argued that among such problems are ones of high uncertainty and complexity – in the systems sense – such that the costly effort to establish and maintain meta-law (whether jurisdictionally or doctrinally) is worthwhile. Specifically, these uncertain and complex problems include opportunism, conflicting rights, and multipolar problems. The last category includes “polycentricity,” which Fuller saw as a problem of true complexity and as calling for administration as opposed to adjudication.58 Perhaps incorporating an administrative element,59 equity dealt with situations involving third parties or groups, as in the enforcement of a local property custom. The second problem, of conflicting rights, is important in areas like the property torts, where nuisance can be seen as a second-order reconciliation of neighbors’ presumptive use rights. The first problem, opportunism, involves the countering of behavior that is not provably fraud but that (in some sense) unforeseeably misuses the law. Opportunism is a kind of negative feedback on the legal system, and one can see opportunistic behavior and equity as co-evolving. A familiar property example would be building encroachments, where encroachments are enjoinable unless they are

54 Jeremy Waldron, “Transcendental Nonsense” and System in the Law, 100 Colum. L. Rev. 16 (2000); K.N. Llewellyn, Through Title to Contract and a Bit Beyond, 15 N.Y.U. L.Q. Rev. 159, 169-70 (1938).

55 Henry E. Smith, Comment: Property as Complex Interaction, 13 J. Inst. Econ. 809 (2017). For an emphasis on different system aspects, see Benito Arruñada, How Should We Model Property? Thinking with My Critics, 13 J. Inst. Econ. 815 (2017).

56 Henry E. Smith, Fusing the Equitable Function in Private Law, in Private Law in the 21st Century 173 (Kit Barker, Karen Fairweather, & Ross Grantham eds., 2017); Henry E. Smith, Equity as Second-Order Law: The Problem of Opportunism (January 15, 2015), available at SSRN: http://ssrn.com/abstract=2617413.

57 See, e.g., Karl Ludwig von Bertalanffy, General System Theory (1968); see also John H. Holland, Hidden Order 11-12 (1995) (discussing second-order agents and properties).

58 See Fuller, supra note 32, at ___.

59 See Equity and Administration (P.G. Turner ed., 2016).

14 in good faith and enjoining them would create undue hardship – a proxy for dangerous leverage on the part of the encroached upon party.

The systems view of equity points to possibilities that would be difficult to see otherwise. The conventional wisdom on equity is that it involves discretion in the name of fairness or policy, and that this is greatly destabilizing. Disagreement centers on whether the destabilization is worth the benefits in the tailoring and fairness it provides. However, if equity is triggered by proxies for complex problems (opportunism, conflicting rights, multipolar problems) and ranges over the law (but not vice versa), it is possible that equity may be more stabilizing than destabilizing. The open-endedness of equity is needed to meet such problems (roughly where they occur, based on the limited triggering proxies), a phenomenon known as the Law of Requisite Variety: a control system has to vary at least as much as what it controls.60 At a second level, it is possible to keep a first-order system within boundaries (think thermostats). So even though equity introduces its own uncertainty, it reduces other uncertainty. It is an empirical question which effect is greater. As a thought experiment, imagine trying to deal with all opportunism with ever more complex ex ante rules, instead of being able to intervene ex post.61 A single-level system would be extremely complex or ineffective (or both), and we should consider whether bringing out the dual-level structure in this aspect of the legal system would be an overall (emergent) improvement over it.

III. Further Implications

Seeing law as a complex system allows us to unpack and mitigate some of the persistent dichotomies in private law theory. Let me sketch why systems theory could be brought to bear on them, rather than attempting to resolve them here.

Perhaps most obviously, systems theory addresses the question of holism and reductionism in private law. As Herbert Simon once said, complex systems theory allows one to be an “in-principle reductionist” and a “pragmatic holist.”62 At this point, there is little that forces us to choose between in-principle reductionism and holism and falling back on pragmatism where the in-principle approach fails. Either way, by reconciling holism and reductionism more than is conventionally thought possible, fewer substantive issues in private law should be seen as turning essentially on holism versus reductionism.

In any event, reductionism need not commit us to the additive view of law (e.g. the aggregative bundle-of-rights picture of property), and it does not require vagueness when dealing with the macro properties of law. Indeed, much of the interesting action in private law that helps explain its contours happens at the meso level where additive micro models and large statistical average-based models are not appropriate. Systems theory allows for feedback by strategic

60 W. Ross Ashby, An Introduction to Cybernetics (1956); Y. Aulin-Ahmavaara, The Law of Requisite Hierarchy’ 8 Kybernetes 259 (1979).

61 See David A. Weisbach, Formalism in the Tax Law, 66 U. Chi. L. Rev. 860 (1999).

62 Simon, supra note 4, at 195.

15 actors and the co-evolution of law with economic and social systems in which it is embedded. The system in the law also reflects – and co-evolves with – the cognitive system of its participants, which is modular and makes use of principles like specific-over-general.63 Systems theory is compatible with a range of purposes for private law – which can be seen as alternative accounts of fitness – and points to more convergence than we might expect at the level of incremental changes.

System theory also leads us to expect that private law need not be homogeneous, but rather that different parts of private law may be specialized. Any desideratum of private law need not be reflected in all its parts or at all levels. Every rule need not be efficient or just in order for the system to be efficient or just. Law and equity, property and contract, in rem and in personam, and the like can differ radically in their legal technology because of both the different purposes they serve – but also because of the different audiences to which they are directed. For this reason, we should not expect all areas of private law to be equally formal or contextual or for that matter equally closed- or open-textured. And for those specialized areas that are more open, like equity, we should not be surprised that they refer to system-level purposes and moral notions like fairness.

The idea that different levels are nontrivially related to each other puts a new gloss on the publicness of private law. Private law has macro effects that we often associate with public law. Again, that might mean – but does not necessarily mean – that public law values need to be reflected in every part of the law and at every level. Thus, public law values can come into the law in various places: should antidiscrimination law target housing markets or the law of torts and possession? Likewise, the rule of law is a system effect: it is not an additive property of the law’s parts but an emergent feature of the system as a whole, as we saw with equity.64

Systems theory provides a framework for institutional design that gets beyond the flat, additive heap-of-rules picture assumed in much legal commentary and even promoted by the law reform processes like the Restatements. One of the prime lessons of the Coase theorem is that in a world of positive transaction costs, institutions matter.65 One way of looking at complexity is as another source of transaction costs, in the sense of the costs of delineating and enforcing rights (or institutions generally). If so, we could bring out the role of systems theory though a similar thought experiment. Imagine that all effects relevant to the law were additive. If that looks wildly optimistic, we have reason to start caring about complexity.

Conclusion

Systems theory does not furnish a brief for doing nothing, nor does it point exclusively to spontaneous order. It does have implications for how we go about reforming the law, in light of

63 Henry E. Smith, On the Economy of Concepts in Property, 160 U. Pa. L. Rev. 2097 (2012). 64 On the rule of law and private law, see Lisa M. Austin, This Volume.

65 R.H. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960); see generally Steven G. Medema, The Coase Theorem at Sixty (draft Dec. 2018). See also Barak Richman, This Volume.

16 the nontrivial effects on fitness that even small changes may produce. Whether it can furnish more positive predictions is less clear – as it is in systems theory more generally. In any event, systems theory brings connections back into the picture. Private law is a complex system.

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