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Positivism and the Separation of Law and Economics Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 1996 Positivism and the Separation of Law and Economics Avery W. Katz Columbia Law School, [email protected] Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship Part of the Business Organizations Law Commons, and the Law and Economics Commons Recommended Citation Avery W. Katz, Positivism and the Separation of Law and Economics, 94 MICH. L. REV. 2229 (1996). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/610 This Essay is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact [email protected]. POSITIVISM AND THE SEPARATION OF LAW AND ECONOMICS Avery Wiener Katz* INTRODUCION The modem field of law and economics - that is, the application of economic analysis to legal subjects other than trade and business reg- ulation - is now over thirty years old, but it remains controversial in the legal academy and, to a lesser extent, in the profession at large. Since its beginnings in the early 1960s, the economic approach has pro- voked substantial opposition and antagonism. The sources of this resis- tance, however, are a matter of dispute. Many economists and economi- cally influenced lawyers attribute it to more traditional lawyers' reluctance to learn a new and unfamiliar set of concepts and techniques. Critics of the economic approach offer a variety of other explanations. Some are skeptical of the utility of abstract theoretical modeling in the social sciences,' others object to economics' central behavioral assump- tion of rational choice,2 still others criticize economics' supposed liber- tarian politics and ideological allegiance to laissez-faire. 3 The explana- tion that has attracted the most attention by far is economics' commitment to the efficiency criterion: proponents of the economic ap- proach tend to argue that more traditional lawyers have not paid enough attention to efficiency, and its detractors tend to argue that economics * Professor of Law, Georgetown University Law Center. B.A. 1980, University of Michigan; A.M. 1983, J.D. 1985, Ph.D. 1986, Harvard. - Ed. I am grateful to numer- ous colleagues, students, and teachers for conversations that helped me work out my ideas on this subject; to Rick Beckner, Jules Coleman, Heidi Feldman, Christine Jolls, Steven Medema, Dennis Patterson, Rip Verkerke, Wendy Wiener Katz, and workshop participants at Georgetown, the University of Michigan, and George Mason University for helpful comments on this essay; to Constantine Potamianos and Martin Sand for re- search assistance; and to Georgetown University Law Center and to the Cook Fund of the University of Michigan Law School for financial research support. 1. See, e.g., Arthur Allen Leff, Economic Analysis of Law: Some Realism About Nominalism, 60 VA. L. REv. 451 (1974). 2. See, e.g., Mark Kelman, Choice and Utility, 1979 Wis. L. REv. 769; Richard H. Pildes & Elizabeth S. Anderson, Slinging Arrows at Democracy: Social Choice Theory, Value Pluralism, and Democratic Politics, 90 COLUM. L. REV. 2121 (1990). 3. See, e.g., Morton J. Horwitz, Law and Economics: Science or Politics?, 8 HoFs'RA L. REv. 905 (1980). 2229 2230 Michigan Law Review [Vol. 94:2229 inappropriately focuses on efficiency to the exclusion of other norma- tive considerations. 4 All these explanations, however, are too narrow. As with any con- flict between rival disciplines, the underlying division between law and economics is methodological and cultural. The two fields use different rhetorics, different styles of discourse, different epistemologies, and dif- ferent literary forms in developing and articulating their respective ac- counts of the world. Resistance to interdisciplinary exchange between lawyers and economists comes partly from the fact that neither group wishes to give up its own culture in favor of the other's. 5 It also comes, however, from the two sides' failure to understand each other's cultural practices in full context. My thesis is that one of the foremost cultural differences between law and economics is economists' methodological commitment to posi- tivism - the idea that it makes sense to distinguish between things as they are and things as they should be, between fact and value, between is and ought. While this distinction has a long tradition in Western thought, it has come under substantial attack in the twentieth century and today is regarded as highly controversial in the field of philosophy in which it originated and in most social sciences other than economics. Economists, however, are for the most part untouched by this contro- versy; they continue implicitly to adhere to positivism within their pro- fessional circles and, when the issue is raised explicitly, typically assert it to be a metaphysical truth. Within economic culture, it is an article of faith that fact and value can be distinguished and that one can talk about the former without talking about the latter. Accordingly, when their policy recommendations are challenged on normative grounds - typically because the recommendations are based in substantial part on the goal of Pareto efficiency, and the chal- lenger disputes the merit of this goal - economists have tended to de- fend their arguments by appealing to the positivist distinction. Even if the efficiency norm is controversial, this standard defense goes, eco- nomic analysis is still valid as a descriptive theory of human behavior. Hence, it will still help to predict what will happen if the policies under consideration are adopted. For example, in the area of federal agricul- tural policy, economists will point out that if government price supports for individual crops are cut, then prices will fall, output will rise, farm- ers will become poorer, and consumers and taxpayers will become 4. See, e.g., Symposium on Efficiency as a Legal Concern, 8 HOFSTRA L. REv. 485 (1980); A Response to the Efficiency Symposium, 8 HoFsTRA L. REV. 811 (1980). 5. See James Boyd White, Economics and Law: Two Cultures in Tension, 54 TENN. L. REv. 161 (1987). June 1996] Positivism 2231 wealthier. Furthermore, the net outcome will be a potential Pareto im- provement, in that the total dollar amounts gained by consumers and taxpayers will exceed the dollar amount lost by farmers. All this is just a matter of objective fact, economists will say, and can be corroborated by referring to the empirical world. Whether or not the net efficiency gain from cutting farm supports is worth the distributional conse- quences is an entirely independent question, the answer to which de- pends on one's normative commitments. There is, after all, often a trade-off between efficiency and fair distribution, and economists do not necessarily expect everyone to like efficiency as much as they do. The proper resolution of this trade-off will have to depend on political, moral, and pragmatic arguments, in which some economists will wish to engage and some will not.6 The underlying descriptive analysis, how- ever, is an indispensable starting point for anyone who wishes to make an informed normative choice, for it is only through such analyses that we can discover the extent of the trade-off and begin to design policies that best address it. Indeed, as Milton Friedman argued in his classic es- say on the subject, The Methodology of Positive Economics, a clear positive understanding of the situation often will help resolve normative 7 disagreement. To a substantial extent, the critics of law and economics have been unmoved by this defense, and it is worth asking why. The beginning of an answer comes from recognizing that while positivism is uncontrover- sial in economic culture, it is highly controversial in legal culture - es- pecially in late twentieth-century American legal culture. Furthermore, economists are not absolutely consistent in their methodological prac- tices. In their official and quasi-official pronouncements, most econo- mists maintain that proper scientific method requires a clear separation between positive and normative discourse and commonly defend this claim by citing Friedman's essay." This is especially true for those econ- 6. See, e.g., Richard A. Posner, The Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication, 8 HOFSTRA L. REv. 487 (1980). For a classic de- fense of economic efficiency as a criterion for public policy, see Thomas C. Schelling, Economic Reasoning and the Ethics of Policy, PUB. INTEREST, Spring 1981, at 37. For a pragmatic argument limited to the field of law and economics, see Louis Kaplow & Steven Shavell, Why the Legal System Is Less Efficient than the Income Tax in Redis- tributing Income, 23 J. LEGAL STUD. 667 (1994). 7. See MILTON FRIEDMAN, The Methodology of Positive Economics, in ESSAYS IN PosmvE ECONOMICS 3 (1953). 8. Typical invocations of Friedman's methodological orthodoxy in the law and ec- onomics literature include Fred S. McChesney, Positive Economics and All That, 61 GEO. WASH. L. Rav. 272 (1992) (reviewing FRANK H. EASTERBROOK & DANIEL R. FIs- CHEL, THE ECONOMIC STRucaURE OF CoRPoRATE LAw (1991)); Paul H. Rubin, Some Notes on Methodology in Law and Economics, 7 RES. L. & ECON. 29 (1985). See also 2232 Michigan Law Review [Vol. 94.2229 omists trained in the Chicago school, who have been most influential in promoting the economic approach to law. In practice, however, both Chicago and non-Chicago economists often adopt a less stringent ap- proach, mixing positive with normative discourse as their particular pur- poses require.9 This inconsistency between official methodology and actual prac- tice remains workable within the discipline of economics. Indeed, there are good pragmatic reasons for economists to talk this way to each other, as I will explain; it allows them to do their work while communi- cating with reasonable clarity.
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