In new research, David Gindis and Steven G. Medema trace Henry Manne’s entrepreneurial role in the development of the field of law and economics, beginning with a failed venture to bring together economists and legal scholars, but one that established the foundations for later success.
The field known as “law and economics” occupies a prominent place in legal and economic analysis. To understand how this came to be, one must look beyond the ideas and examine the institutions and academic ventures that supported the development, dissemination, and diffusion of those ideas. The most important figure in this respect was Henry Manne, a Vanderbilt economics graduate with law degrees from Chicago and Yale. Manne was honored as one of the field’s “four founders” by the American Law and Economics Association at its inaugural meeting in 1991.
Manne’s scholarship bringing economics to bear on corporate law and securities regulation was of no small consequence. However, he left his most significant mark as an institution builder. Manne laid down the foundations for the law and economics movement in the 1970s by establishing a summer Economics Institutes for Law Professors at the University of Rochester in 1971 and setting up the Law and Economics Center at the University of Miami in 1974. The training programs he ran through this center enabled the economic analysis of law to grow and flourish within and beyond the walls of law schools, leaving a lasting imprint on legal education and the judiciary.
Manne pursued several academic ventures before encountering success. One such early effort to bring law and economics together involved convincing the Association of American Law Schools (AALS) and the American Economic Association (AEA) to create a joint committee in 1965 with the stated purpose of exploring “matters of common concern in education and scholarship in law and economics.” We tell the story of the committee’s origins and operations in greater detail in recently published research.
The initial plan of the committee was to look at how to develop both joint curricula and research programs to promote what would become the law and economics discipline. On the research front, the committee sought to explore how greater integration of legal and economic analysis might be achieved in discussions of regulated industries, tort liability regimes, and corporations—fields that leading academics Ronald Coase, Guido Calabresi, and Manne himself were already advancing.
The endeavor began with some promise. Manne was able to draw prominent economists—including Coase, Armen Alchian and George Stigler—and legal scholars—including Robert Bork, William Klein, and Eugene Rostow—into its orbit. Unfortunately for Manne, while the committee formation was successful, it soon became clear that that path ahead was not going to be as smooth.
Stigler, for example, was skeptical about what the committee could accomplish. “The main task of the committee,” he commented, “is to determine why a past tradition of indifference or slight mutual hostility between lawyers and economists should now be interrupted.” It was unclear to him whether an AEA-AALS committee was necessary or helpful to bridge the divide.
For Stigler, lawyers—like most other intellectuals—were both insufficiently disposed toward the market process and excessively predisposed toward government solutions. This made it hard for them to assimilate the insights of economics. Manne, whose work on insider trading had encountered substantial resistance from his fellow law professors, could only agree.
In his report to the AEA drafted shortly after the committee’s first meeting in the fall of 1966, Manne also noted significant methodological problems: lawyers’ opinions were littered with “implicit and explicit errors of economic analysis,” and their regulatory proposals were not grounded in “empirical proof.” (In 1964, Stigler had mounted a similar critique of the Securities and Exchange Commission.) The value of economics for law was that it could improve both the framing of legal issues and the formulation of policy responses. Lawyers needed to be made aware of the economist’s product.
The problem with economics was different. According to the committee report, much economic theory was irrelevant to “current problems”—an implicit critique of the abstract mathematics with which the profession was preoccupied. Furthermore, the report lamented that too often economic theory was produced “from the more comfortable but less helpful vantage point of hindsight.” There was a large untapped market for economists’ insights into legal issues, and it was therefore imperative that economists become more informed about problems requiring their expertise.
It was clear from the outset that this was not going to be the equal-footed interdisciplinary affair that had been initially pitched to the AEA and the AALS. If economic thinking was going to improve legal reasoning and therefore the law itself, then economics would be the dominant player. Moreover, it seems that Stigler was able to steer the committee away from the educational pillar of its mission and toward focusing solely on interdisciplinary research. Manne, who was independently planning to run a summer economics school for law professors, was happy to go along with this plan. What was left was an attempt to integrate what he considered “sound” economic thinking into the legal reasoning process.
The one-sided nature of the arrangement was reflected in the committee’s first (and ultimately only) project. As the report submitted to the AALS in the fall of 1967 clarified, the idea was to recruit a “first-rank academic economist to study a particular area of law intensively.” The economist would examine the “leading law review literature and judicial opinions” with a mandate to “criticize this material in terms of the quality of its implicit and explicit economic reasoning.” In addition, they would produce a monograph, and several prominent lawyers and economists would be invited to comment. Some form of general “consultation” with a broader audience would then be held.
Manne enlisted his former Vanderbilt professor Roland McKean to write a monograph on products liability. This area of law was undergoing substantial changes at the time, with a growing number of products liability suits reaching the courts since the start of the 1960s. The American Law Institute’s Restatement (Second) of Torts established in 1965 the principle of strict liability for defective products, just as the consumer movement spearheaded by Ralph Nader had succeeded in making auto and product safety more generally a matter of intense public debate.
McKean completed his monograph in the fall of 1968, and a one-day “research consultation” took place at Stanford University in March 1969. The event featured McKean’s analysis and extensive comments by two economists—James Buchanan and Robert Dorfman—and two law professors—Guido Calabresi and Grant Gilmore. The proceedings were published in the University of Chicago Law Review in 1970.
Woven throughout the discussion of alternative liability regimes was a debate about the usefulness of economic reasoning when considering legal questions. (There were more specific disagreements about the value of constructs such as the Coase theorem and the effects of transaction costs and market forces.) It is notable that the optimism about the utility of economics for legal analysis was not unanimously shared by the two economists and unanimously rejected by the lawyers, with Buchanan and Calabresi’s enthusiasm more than matched by Dorfman and Gilmore’s pessimism.
The Stanford conference was the high-water mark of the committee’s efforts, after which it began a slide into oblivion. The lack of funding to support a second research consultation was a clear barrier, but the real culprit was the diversion of Manne’s attention. He refocused his efforts on education-related activities at the University of Rochester, where he had moved in 1968 to set up a new economics-oriented law school and was preparing to run his long-contemplated summer economics school for law professors.
In 1970, Richard Musgrave and Kenneth Dam took over committee leadership. The AEA and the AALS made efforts to diversify the range of perspectives among the committee’s members. Though Manne nominally remained on the committee, this new blood came at the cost of missionary zeal for the cause and the influence of perspectives on law and economics that did not reflect Manne’s vision. The result was a committee in disarray, plagued by ineffective leadership, uncertainty about membership, and an overall lack of interest in the effort. The AEA and AALS records show that neither society had a clear sense of what the committee was about.
As a growing number of economists were being appointed to law faculties, the AALS began questioning whether a joint committee was even necessary at this point. With the AEA doing nothing and the AALS going its own way with the creation of a “Section on Law and Economics” in 1972, the joint committee seemed to be on life support. It was allowed to die quietly in 1975.
Thus, although the committee persisted for more than a decade, its initial promise was never realized, and its impact remained insignificant. But what’s particularly interesting about its history is that it highlights the challenges that law and economics confronted in establishing a toehold within both economics and law. None of the economists Manne enlisted were strongly invested in the effort, and neither the AEA nor the AALS had any interest in throwing their weight behind an effort to remake large swaths of law in the image of a particular brand of economics.
Despite its tumultuous path, the committee’s ultimate legacy was far from negligible, because it provided Manne with lessons that fueled his ultimate success. The reservations about the usefulness of economics to address legal issues expressed by Gilmore and other law professors at the Stanford conference confirmed Manne’s opinion that it was essential to train law professors in what he viewed as sound economics. The need for an independent organizational vehicle—one that he was able to control and that was capable of attracting regular, as opposed to ad hoc, funding—was also evident. The subsequent establishment of the Law and Economics Center at the University of Miami provided exactly the type of well-funded organizational arrangement in which a one-man-driven show could succeed.
Note: Parts of this article have been adopted from the original paper.
Authors’ Disclosures: The authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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