Are you sure? The usual conclusion would be that we don't care whether he behaves ethically, as long as he repays the loan. Therefore, we secure ourselves with collateral we can monitor and reach more easily than we can monitor and reach the borrower. We observe that this is in fact what happens in the world. So if the example you are giving is Rose's example, you should give us a reference so we can verify that this is indeed the quality of his argument, after which we are likely to dismiss him from our minds. If this is your example, on the other hand, your editing is still not adequately self-critical.

Do you mean that he has demonstrated that this is not a culturally-constructed matter, varying from one social setting to another? This would indeed be a contribution. Or do you mean that he ignores the obvious fact that this is a culturally-constructed matter, varying from one society and social setting to another, in which case his contribution is less evident?

You have three problems here. First, you haven't defined "trust." Second. there's no such thing as "the law." Third, you have taken my point, using my words, and modified it just enough to make it wrong. "Reducing law to its function as a transaction cost" is not either under- or over-inclusive. It's just nonsense, unless one or more of the key words is being given an idiosyncratic definition. Try rewriting the sentence in a jargon-free fashion, using words of one syllable.

But if that's the definition given, is it not more simple just to demonstrate that there is no direct relationship between legal rules and level of economic output, thus dismissing the question not by doubting his definition, but by demolishing the whole argument completely?

The reductionist economic framework is tempting.

To whom?

With this tool, you can neatly assemble all of life’s messy bits (morality, cooperation, trust) into a machine that takes in rationally self-interested human beings, applies some incentives, turns the crank, and out comes “prosperity.”

Unestablished. Indeed, if the arguments in favor of this proposition are the ones you have so far advanced under the protective coloration of calling them "Rose," almost certainly false.

Like other ideologies it seems to be universal and self-evident after enough repetition.

This is only true if you turn off your critical thinking after a while.

The econodwarf seems tall when you stoop to his level.

Are you sure? Unless the trees are all the right height, he still looks pretty short to me, because I can still see the trees, and even the forest. The econodwarf is a reductionist who reduced himself. He didn't have the power to reduce me too. Or you, for that matter, if you stop helping.

The first part of the sentence is tautologically correct, so no contribution has been made by Rose. The second part is evidently false. That which is not reached by "law" or "economics" may be guided, in addition to "our morality," by "our aesthetics," "our insecurity," "our unconscious motives," "our sexuality," or "our foolishness," among an actually very large number of nouns. No contribution there either.

I immediately feel awkward making such an argument, as arguments based on “morality” are loaded with negative connotations, especially in today’s political climate.

Which negative connotations? Are you feeling apprehensive about an onslaught of moral relativism? Or a suspicion that your moralism would be treated as culturally primitive by people with a less reductive form of moral argumentation? Or are you saying that hyper-moralism has caused people to believe that every political difference is a conflict between morality and immorality? There are other possible meanings too that occur to me, of course. So it would be desirable to say what you mean, instead of saying something that could mean so many things.

But if our role as lawyers is to imagine a set of social relations and to try to make them a reality through our powers of persuasion, then it is also important for lawyers to recognize the limits of the law and the limits of economic incentives.

Why bother with the rhetoric of "recognizing limits"? Surely I said more than enough times that law is a weak form of social control. Why not just say that if our role as lawyers is to do things, we should know how those things are done?

The promise of a future reward or the threat of a future punishment can only go so far. If we seek to bring about a set of social relations that are just, then our task doesn’t stop at changing legal and economic incentives, but extends into making normative, moral arguments.

Unestablished so far. If this is the conclusion you want to reach, you need to open a road to it. If we seek to achieve results, we must use the means that will achieve those results. But nothing has so far shown, or will show this way, that there are exactly three choices about how to achieve results. Perhaps we need to write satirical comedies, or blow up buildings, or take photographs or paint pictures. Perhaps we need to leap around with guitars while wearing balaclavas and lip-syncing in a Russian cathedral.

The argument is a category error. You're now expressing some sort of theory of social action based on a very peculiar social ontology, in which the only contents of society are "law," "economics" and "morality." How much editorial attention can have been paid to these ideas? The point of editing is to test your ideas, not to worship them.

You mean some kinds of moral arguments advocate self-regulation? Or do you mean that arguments not having the property of being about self-regulation aren't moral arguments? Or do you mean that only self-regulation is moral? If an argument does not advocate self-regulation, is it an "ethical" rather than a "moral" argument? Or is anything that isn't about self-regulation therefore about "law"? What is the ontological category for social processes that advocate self-regulation by lining up people who have not correctly self-regulated and shooting them? The purpose of such advocacy, which is not uncommon, is to produce "self-regulation in the absence of a watchful authority." It is very effective, at least in the short term. No doubt, however, you don't mean to include this form of advocacy in your category of "helpful" behavior. A clearer exposition achieved by more careful editing is called for.

Not even Eric Posner, whom I think you don't mean because you probably mean his father, Judge Richard Posner, doesn't "stick to supposedly objective economic arguments." This time the straw man has a name, and the rhetorical form being employed is therefore clearer, as well as being brief. But in truth the essay is a kind of nested doll arrangement of straw men. Rose, who ought simply to be dismissed out of hand, is now hanging around in order to be faux-dismissed. We were told at the outset that we were now going to be informed about the benefits and drawbacks of reductionism (because the last draft, which was apparently too much in favor of reductionism, was poorly defended). But in fact the only value of this reductionism demonstrated is that it can be replaced with another reductionism. "Rose" is good, on the present account, because sometimes he is wrong one way and sometimes another.

Maybe it is time to take aboard the possibility that ideas aren't valuable because they are right or wrong, but because of the ideas to which they lead. Here, a bunch of supposedly specific ideas have lead to the idea that its good to have multiple approaches to social phenomena in order to understand (or perhaps influence) them. But we've been there before. Indeed, that's the starting point of our whole venture. So either these ideas have not been valuable, because they only place they've lead us is back to the starting point, or the use that has been made of them has not been very effective in showing where they could lead.

As I said about the last draft, I think the problem is the editing. Not the paragraph- or sentence-level editing, but the outline-level editing. What is the new idea of yours that is central to the draft? It should be identified, carefully expressed in the briefest but most lucid form, and be made the subject of the introductory paragraph. Its antecedents, along with the facts and interpretations on which it depends, should be developed in the paragraphs that form the internal sections of the essay. A more ramified statement of the idea, demonstrating or implying for the exploration of the reader further consequences or applications, should form the subject of the conclusion. Each these steps should be tested by unsparing skeptical analysis: each component step—conceptual, factual, rhetorical—should be greeted afresh, as the reader comes upon it. Every hard question should be asked. Only when that habit has become deeply embedded have you mastered the practice of editing yourself. Every shortcut and cheap escape you give yourself in each project you undertake delays the achievement of that very important stage in your development as a writer.

The problem is the reductionism. Now "law" has been defined as a form of social control used to punish opportunistic conduct in economic relations. That's evidently false, both under-inclusive by light-years and over inclusive given the efforts law makes on behalf of defectors from cooperation as well as against them. In short, nonsense. You were able to get to this point, however, because your editorial effort was not spent testing the chain of ideas you were forging, only in forging them without testing.

Of course, if we believed people were trustworthy, there would be no need for most of those institutions or even of most of contract law.

Also obviously false. Whether we trust people has only tangential relevance to whether we need to allocate risks.

If we could trust the clerk to not take money from the cash register because the guilt of doing so would be too much, there would be no need for security cameras or the criminal law. Instead, the law provides a way to exchange trust for assurance, so that we are assured it is in the clerk’s self-interest not to steal.

No, there is confusion about whether particular actions are motivated by predictions of the incidence of governmental force, or by something else. The bad man is a mental construct, an actor whose only concern is avoiding adverse imposition of public force. We discussed this thoroughly in the classroom, and I made every effort to help you avoid falling off the cliff you just dived off.

Are you sure? What is the simplest effective argument on the other side and how would you meet it? The absence of serious skeptical scrutiny in the editorial process is flagrant here, again.

Bad grammar.

Ostracism. Sloppy, ungrammatical word choice is another sign of poor editing.

I think the real work to be done in generating a well-off and happy society is the work in instructing its members to behave morally in the absence of external incentives.

Which requires only coming to a general agreement about what "behaving morally" means?

Only if we can believe rationally that other people are trustworthy will we be able to fully utilize the division of labor that is the hallmark of contemporary economies.

Only when we are rational, not irrational creatures will the contemporary economy work? Too bad that will never happen, isn't it?

Until then, the law is just a transaction cost to make possible these arrangements in the absence of trust. Perhaps by believing that all people are self-interested we make it true and decrease our collective welfare in the process.

Law is just something? That's the conclusion you want to stand behind on the basis of the argument you've advanced? Surely you can see why a reader who has any less blinkered view than this is unlikely to find the current draft interesting.

Law, Morality, Trust, and their Limits

-- By EdiRumano - 16 Feb 2012

This paper is an exploration of the idea that “if you want to know the law and nothing else, you must look at it as a bad man.” By examining a little more thoroughly the distinction between law and morality, and how this distinction plays out in certain types of economic arrangements, I hope to better understand the limits of the law as a force of social control and in fact the weakest form of social control. These ideas come from our class readings as well as David Rose’s “The Moral Foundation of Economic Behavior” (2011).

Economic production requires cooperative behavior among individuals. The fundamental problem with cooperation is the ability of people to behave opportunistically, which is to say that they behave contrary to an agreement that is supposed to maximize group benefit by engaging in behavior that maximizes their own welfare at others expense. The classic problem is the prisoners’ dilemma, but this happens in all contexts. The clerk at the cash register could take the cash, or the business partner could engage in deceptive practices and leave you holding the bag.

In small group scenarios, this kind of opportunism can be controlled by reputational effects so that it’s not individuals’ interests to behave opportunistically because then other actors will refuse to cooperate with them in the future. As the social group grows from a family to a tribe to a nation, these repeat-play effects diminish so other forms of control are necessary. The state, through its courts, officers, legislature, and all the different institutions we call the “law,” can diminish this kind of opportunism by threatening punishment.

Of course, if we believed people were trustworthy, there would be no need for most of those institutions or even of most of contract law. If we could trust the clerk to not take money from the cash register because the guilt of doing so would be too much, there would be no need for security cameras or the criminal law. Instead, the law provides a way to exchange trust for assurance, so that we are assured it is in the clerk’s self-interest not to steal. This is what I believe Holmes meant by thinking of the law as a bad man. For good men, or people who internalize the cost of breaking an agreement, there is no need for law.

Under this analysis, the limits of the law become immediately apparent. To combat certain types of opportunism, the law can be effective if the person can be caught. Large business transactions can then be made possible if both sides specify as much as possible the details of the deal so the force of law can be introduced if they are not attained.

But there are types of transactions where the law cannot reach. In classic principal-agent problems, the agent has agreed to maximize the interest of the principal but finds that he can maximize his own welfare at the expense of the principal. If this effect can be documented, then the law can provide a sanction. But in large economies with fine divisions of labor, the principal often does not know that the agreement was even broken. The law is useless in this type of opportunism because it can’t be detected.

The only way to solve that problem is by changing people’s moral preferences so that they internalize the cost of breaking an agreement by feeling guilty. Without those preferences, individuals will not engage in certain types of transactions because they know in the absence of external incentives, other people will behave opportunistically, e.g. untrustworthy.

This highlights why law is such a weak social force. It operates on large time scales and is only used to solve problems that other forces such as social ostracizing cannot solve themselves.

I think the real work to be done in generating a well-off and happy society is the work in instructing its members to behave morally in the absence of external incentives. Only if we can believe rationally that other people are trustworthy will we be able to fully utilize the division of labor that is the hallmark of contemporary economies. Until then, the law is just a transaction cost to make possible these arrangements in the absence of trust. Perhaps by believing that all people are self-interested we make it true and decrease our collective welfare in the process.

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