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The Legal Foundations of Free Markets The Legal Foundations of Free Markets Edited by STEPHEN F The Legal Foundations of Free Markets The Legal Foundations of Free Markets edited by StePHeN F. COPP with contributions from norman barry david campbell stephen f. copp richard a. epstein samuel gregg peter t. leeson julian morris anthony ogus cento veljanovski the institute of economic Affairs CONTENTS About the authors 9 Foreword 13 List of tables and figures 15 First published in Great britain in 2008 by 1 The legal foundations of free markets 19 the institute of economic Affairs 2 Lord North Street Stephen F. Copp Westminster introduction 19 London sw1p 3lb do free markets need rules? 21 in association with Profile books Ltd How can the rule-making process be made more consistent the mission of the institute of economic Affairs is to improve public understanding of with free markets? 24 the fundamental institutions of a free society, by analysing and expounding the role of markets in solving economic and social problems. What particular types of law contribute to free markets? 33 Conclusions 39 Copyright © the institute of economic Affairs 2008 References 40 the moral right of the authors has been asserted. All rights reserved. Without limiting the rights under copyright reserved above, no part 2 Do markets need government? 42 of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, Peter T. Leeson recording or otherwise), without the prior written permission of both the copyright introduction 42 owner and the publisher of this book. does the social dilemma imply the need for government? 43 A CiP catalogue record for this book is available from the british Library. Self-enforcing commercial law 46 isbn 978 0 255 36591 8 Self-enforcing criminal law 52 Many ieA publications are translated into languages other than english or are reprinted. Concluding remarks 61 Permission to translate or to reprint should be sought from the director General at the References 62 address above. typeset in Stone by MacGuru Ltd 3 Natural law, Scholasticism and free markets 65 [email protected] Samuel Gregg Printed and bound in Great britain by Hobbs the Printers introduction 65 5 What is natural law? 66 7 Breach of contract and the efficiency of markets 140 From Aristotle to Aquinas 69 David Campbell the late Scholastics and the market 77 introduction 140 Conclusion 80 the structure of the law of remedies for breach of contract 141 References 81 the current criticism of the law of remedies 145 Why the law of remedies works the way it does; 4 The common law and wealth 84 or, why not prevent breach? 146 Cento Veljanovski Choice over levels of precaution 149 introduction 84 Conclusion: the complexity of spontaneous order A tale of two laws 85 and the morality of competition 154 Structure of the common law 88 References 156 Why would the common law be efficient? 91 is the common law efficient? 95 8 Limited liability and freedom 158 Conclusions 98 Stephen F. Copp References 99 introduction 158 Limited liability was an integral characteristic of companies 161 5 Economics and the design of regulatory law 104 Unlimited liability was impracticable to enforce 162 Anthony Ogus Contractual limited liability was unsatisfactory 164 introduction 104 Unlimited liability resulted in disproportionately high risk for Public interest analysis 105 investors and a suboptimal level of investment 166 Private interest analysis 108 Unlimited liability resulted in disproportionately low risk for Renewed public interest analysis 109 creditors and led to an above-optimal level of credit being behavioural law and economics 116 allocated to unmeritorious business activities 169 Conclusion 120 Limited liability would remove disincentives to enterprise, References 121 working-class investment and diversification 171 Limited liability was irrelevant to the incidence of 6 Economic rights 127 incompetence/fraud 173 Norman Barry A right to limited liability would discourage the loss of introduction 127 company formations to more competitive jurisdictions 174 Protection of economic rights in America 129 A right to limited liability would avoid the delay, Common and civil law 134 inconsistencies and costs associated with discretionary the state and economic rights 135 government control and the influence of vested interests 176 Conclusion 138 Statutory limited liability was not inconsistent with free trade References 139 and freedom of contract 181 experimenting with limited liability was desirable to ascertain the most effective rule 183 ... but concessions were necessary over size and ABOUT THE AUTHORS solvency regulation 185 Conclusions 186 References 188 9 Unilateral practices and the dominant firm: the Norman Barry European Community and the United States 191 Richard A. Epstein Norman barry is Professor of Social and Political theory at the Univer- the two faces of competition policy 191 sity of buckingham. His research interests include analytical political the rule of law 195 philosophy, welfare theory and business ethics. His books include Fairness – or efficiency? 197 Hayek’s Social and Economic Philosophy; On Classical Liberalism and Liber- the official ambivalence within the eC 201 tarianism; The New Right; and Welfare and Business Ethics. He has been A tale of two statutes 211 a Visiting Scholar at the Social Philosophy and Policy Center, bowling References 222 Green State University, Ohio, and the Liberty Fund, indianapolis. He is a Appendix 223 member of the Academic Advisory Councils of the institute of economic Affairs and the david Hume institute (edinburgh). 10 Private versus public regulation of the environment 228 David Campbell Julian Morris introduction 228 david Campbell is a professor in durham Law School at durham Univer- the theory of environmental policy 228 sity. He was educated at Cardiff University (bSc, 1980), the University environmental policy in practice 231 of Michigan (LLM, 1985) and the University of edinburgh (Phd, 1985). Problems with the theory of environmental policy 236 He is a Fellow of the Chartered institute of Arbitrators. Since 1985, he Private regulation of the environment 239 has taught at a number of british universities and in Australia, Hong Nuisance law as a means of preventing industrial pollution 245 Kong, New Zealand, Spain and the United States. Professor Campbell Using contracts to improve environmental amenities 248 has written on a wide range of legal and social scientific issues. He is Private versus public regulation of the environment 249 currently working on a book refining Fuller’s model of contractual inter- Possible reforms 251 ests and another on Coase’s critique of intervention. References 253 About the IEA 256 9 the legal foundations of free markets about the authors Stephen F. Copp Peter T. Leeson Stephen Copp gained his LLb (Hons) from exeter University in 1982. Peter t. Leeson is bb&t Professor for the Study of Capitalism at George He holds the dual qualifications of solicitor and barrister, having been Mason University. Previously he was a Visiting Fellow at Harvard Univer- called to the bar in 1985 and admitted as a solicitor in 1989; in 1994 he sity and the F. A. Hayek Fellow at the London School of economics. He was made an Honorary Fellow of the institute of indirect taxation. in has been an Adjunct Scholar of the Mackinac Center for Public Policy 2004 he completed his Phd on ‘the early development of company since 1997, and has served as an Associate editor of the Review of Austrian law in england and Wales: values and efficiency’. He is currently an Economics since 2005. in 2007 he received the Fund for the Study of academic, based at bournemouth University, and does not practise. Spontaneous Orders Prize for his research on anarchy and the Olive dr Copp speaks and publishes widely on company law and corporate W. Garvey Prize for his paper, ‘escaping poverty: foreign aid, private governance. property, and economic development’. Richard Epstein Julian Morris Richard A. epstein is the James Parker Hall distinguished Service Julian Morris is executive director of international Policy Network, Professor of Law at the University of Chicago, where he has taught since a London-based think tank that works on global policy issues relating 1972. He is also the Peter and Kirstin Senior Fellow at the Hoover institu- to health, environment, trade and development. He is also a Visiting tion (since 2000), a visiting professor of law at New york University Law Professor at the University of buckingham. Professor Morris holds School (since 2007), and a director of the John M. Olin Program in Law degrees in law and economics and has published widely on matters and economics. He has also served as editor of the Journal of Legal Studies relating to the environment, health, technology and development. Prior (1981–91), and editor of the Journal of Law and Economics (1991–2001). to founding international Policy Network in 2001, he was director of the Professor epstein is the author of numerous books and articles on a wide environment and technology Programme at the institute of economic range of legal and interdisciplinary subjects. Affairs. Samuel Gregg Anthony Ogus Samuel Gregg has an MA in political philosophy from the University Anthony Ogus is Professor of Law at the University of Manchester and of Melbourne, and a d.Phil in moral philosophy from the University Research Professor at the University of Maastricht. He has held visiting of Oxford, where he worked under the supervision of Professor John posts at a number of european and North American universities. Since Finnis. He is the author of several books, including his prize-winning The the late 1970s Professor Ogus has specialised in the economic analysis of Commercial Society (2007), and a regular writer of newspaper opinion law, having been one of the first european legal scholars to work in this pieces. He is director of Research at the Acton institute, an Adjunct field.
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