Law, Legislation, and Libertarianism – Econlib

• A Review of Common Law Liberalism: A New Theory of the Libertarian Society, by John Hasnas.

Hasnas introduces the concept of inattentional blindness to critique the market failure argument, which suggests that government intervention is essential to rectify the market’s negligence towards social costs in private transactions. While this view is widely accepted among economists, they might be indulging in an overly idealistic vision of the market as a realm of unregulated voluntary exchanges. In contrast, law is often regarded merely as a set of governmental norms designed to mitigate the fallout of these interactions.

However, both definitions fall short. The law is not limited to legislation, which is merely the product of lawmakers’ intentions. In reality, numerous norms that underpin our daily interactions stem from the “old” common law—rules derived from historical case resolutions and customary practices.

Moreover, Hasnas contends that the notion of a “realm of unregulated voluntary transactions” is a theoretical illusion. Human actions are perpetually influenced by “ethics, custom, and common law,” which are emergent orders formed through human interactions without direct oversight from any specific authority. The simplified economic model of a free market inaccurately presents a landscape devoid of regulations, when in fact, it merely illustrates a scenario prior to governmental intervention.

According to Hasnas, beliefs and customary practices evolve through trial and error, aiming to mitigate harm to others. He argues that common law civil liability developed to address actions causing harm that existing laws failed to prevent. Contrary to the belief that civil liability is weak or irrelevant, he asserts that the evidence indicates it may be excessively punitive. A prime example is the infamous 1994 McDonald’s coffee cup lawsuit.

In this case, a 79-year-old woman, while attempting to add cream and sugar to her coffee in a parked car, spilled scalding coffee on herself, resulting in severe burns. McDonald’s corporate policy at the time required coffee to be served at a temperature of 180 to 190 degrees Fahrenheit. The woman was awarded $640,000 in damages, leading McDonald’s to lower its coffee temperature to 158 degrees. This case is often cited as evidence that civil liability imposes overly stringent safety regulations. Hasnas, however, points out that this example merely illustrates civil liability as an alternative to regulatory measures. He contrasts this with the BP oil spill incident, where it was the lack of civil liability that necessitated regulatory intervention to curb risky drilling practices.

After a period of decline in classical liberalism throughout the first half of the 20th century, its resurgence post-World War II reignited discussions about the rule of law as a fundamental component of classical liberal thought. Some trace this revival to the formation of the Mont Pelerin Society in 1947, while others point to landmark publications in the early 1960s, such as F.A. Hayek’s The Constitution of Liberty and Milton Friedman’s Capitalism and Freedom. These theorists posited that the rule of law could provide a pathway out of authoritarianism, thereby restoring some credibility to market economies. While the 20th century largely rejected the notion of a free market, it at least acknowledged the need for rules that limit arbitrary power—rules that are arguably more favorable than the whims of an unchecked bureaucracy.

Yet, Hasnas warns against a blanket endorsement of “rules.” His writing echoes the arguments of Bruno Leoni in his 1961 work, Freedom and the Law, which criticized Hayek’s perspectives. Leoni highlighted the stark differences between British common law and the European Rechtsstaat, emphasizing how each fosters different interpretations of the rule of law. He argued that while written laws might suggest certainty, they can be altered at the discretion of legislative bodies, often resulting in unpredictable outcomes. Hasnas provocatively asks: how many among us truly read and understand the laws that govern us, especially as legislation proliferates weekly?

Hasnas draws a distinction between “political” and “nonpolitical” law. Nonpolitical law evolves organically, without centralized control, while political law is shaped by deliberate human efforts directed towards specific ends.

Despite the prevailing political culture that favors political law, Hasnas challenges the assumption that law should inherently pursue the common good or be rooted in a consensus from democratic assemblies. He posits that many legal norms, arising from political processes, often serve the interests of select groups rather than the broader society.

Legal norms, he suggests, should serve as mechanisms for resolving conflicts peacefully, rather than as tools for enforcing a theoretical ideal of justice. He recounts the historical shift in England post-Roman Empire, where rules naturally developed to promote peaceful coexistence. The transition from blood feuds—where retribution was the expected response—to negotiated settlements illustrates how societies have historically sought to avoid violence through compromise. Such negotiations often involved compensatory payments, leading to the establishment of customary laws that outlined community members’ obligations toward one another. In this context, rights become “problems solved,” representing efforts to calibrate appropriate compensations for various transgressions.

Hasnas likens customary law to a communication system that facilitates social coordination, akin to how price mechanisms function in economics. This raises a vital question: isn’t law, in all its forms, a means to achieve order, regardless of its origins? Hasnas doesn’t assert that customary or common law is infallible; he acknowledges the potential for “legal failure” in systems lacking centralized planning. Nevertheless, he argues that political legal systems often fail to produce “rules of just conduct”—universal principles that do not cater to specific interests. Entrusting law-making to particular individuals or groups tends to skew the resulting norms to benefit certain factions over others.

Many may accept this imbalance as a necessary compromise. After all, a society devoid of laws is often considered ungovernable. However, Hasnas prompts us to reconsider this belief, drawing on historical examples from early Medieval England, the Law Merchant, and contemporary international arbitration systems. He highlights the numerous interactions in our daily lives governed by norms that are not the result of formal legislation. Indeed: look around.