capitalism

80 Common Law
several meanings in describing those institutions.
Libertarian writers in particular use common law to contrast,
on the one hand, the body of judge-made legal rules
developed through the resolution of disputes between
private parties with, on the other hand, the statutes and
regulations created by legislatures and enforced by state
authorities. Many nonlibertarian legal scholars have
expanded on this definition to include the legislative
behavior of contemporary American courts. Common law
also is frequently used to contrast legal systems with
British heritage to those derived from French and Roman
law, which are termed civil law or civilian systems.
Perhaps the most important meaning of the term common
law is to describe the process of generating rules
through judicial consideration of private disputes. Classical
liberal and libertarian authors, including Bruno Leoni,
Friedrich Hayek, and James C. Carter, have written about
this aspect of the common law. More recently, authors like
Bruce Yandle have shown common law to be a powerful
means of addressing modern problems like pollution.
The common law process has several important characteristics.
First, the common law relied on private parties to
bring a dispute to a court. Relying on private actors substantially
limits rent seeking by restricting the courts’ ability to
choose the issues they address. Second, the common law
evolved rules incrementally. Change was thus largely on the
margins and based on the specific facts of a dispute. Third,
the substance of the common law to a substantial degree
rested on the intent of the parties. To an extent surprising to
a modern reader, the early common law was the law of contract.
When the common law specified a rule, it most often
did so in the form of a default rule, leaving the parties free
to alter the rule in future transactions if they so chose.
Finally, the common law developed out of a competitive
market for dispute resolution in England where, during
much of the early development of the English legal system,
different court systems competed for litigants’ business.
Statute law, by contrast, is the product of some legislative
process subject to all the problems identified by public
choice theory. Changes in statutes occur discontinuously.
The passage of the federal Clean Air Act Amendments of
1970, for example, radically changed the rules governing air
pollution. Statute rules are most often written as commands,
rather than as suggestions, and so contracting around statutes
is generally not permitted. Finally, statute law is typically
the province of a state-monopoly legal institution.
An example can clarify the difference between the common
and statute laws. Consider the problem of consensual
behavior that is alleged to cause harm to third parties. A legislature
is able to pass a statute making the activity the subject
of severe penalties, as state and federal legislatures
have at one time done with regard to everything from
sodomy to interracial marriage. The legislature might hold
hearings to gather information or might rely solely on its
members’ beliefs about the appropriateness of the conduct.
If hearings were held, respected experts or Hollywood stars
might be the witnesses. Questions, if any, would be asked
by politicians and legislative staff, not by interested parties.
A vote of the legislature, likely cast with an eye toward how
the issue would play out in the next election, would decide
the issue.
How would the common law address a claim of harm
from consensual third party behavior? First, a specific individual
would have to allege and prove the claim of harm in
court. Procedural safeguards like cross-examination would
be available to weed out frivolous claims. Both sides would
have an actual interest in the subject matter of the dispute,
ensuring vigorous analysis of the strength of the claim.
Second, even if a third party could prove harm from the
behavior with respect to one individual, that precedent
would be subject to further testing in future lawsuits if an
attempt were made to extend it. Thus, for example, if an
individual claimed and proved harm from his next-door
neighbor’s conduct, applying the precedent against someone
living in the next town would be difficult. Finally, the
issue would be determined by a neutral decision maker.
Most state courts in the United States, as well as government
courts in many other English-speaking countries, continue
to render decisions applying what they term common
law. The modern understanding of the term differs significantly
from the institution described earlier. Courts today
tend to view a common law rule merely as a rule that the
courts are free to alter at will. The development of legal theories
under which gun manufacturers are sued by cities
alleging the manufacturers’ responsibility for illegal
weapons sales, employers sued by employees alleging violations
of an “implied covenant of good faith and fair dealing”
in discharge, or McDonald’s sued for serving coffee
too hot are all examples of modern common law reasoning.
In sharp contrast, courts applying the common law in the
19th and early 20th centuries felt constrained by not only
their own prior decisions, but by the structure of the rules
laid out in cases across jurisdictions. Recognizing that their
function was primarily to ensure that the expectations of the
parties were met, those courts rarely abandoned earlier
precedent, but restricted legal remedies to cases of actual
harm and demanded a causal link between the defendant’s
conduct and the alleged injury.
The world’s legal systems are traditionally divided into
two families: common law and civil law. The civil law system,
derived in part from Roman law, is dominant in Latin
America, continental Europe, and the former colonies of
continental European powers. Civil law differs from common
law in several important respects. Rather than relying
on judicial opinions, civilian jurisdictions are centered on
comprehensive codes of written laws. Unlike the collections
of statutes Americans call codes, civilian codes are intended
to be consistent, complete, and written at the highest possible