capitalism

284 Law and Economics
Spaniards living in the New World could only trade with
the motherland and also were banned from trading with
other colonies.
Las Casas, in contrast, is an unlikely figure given his
fame as a champion of individual rights inasmuch as he was
an orthodox Catholic. He did not depart from his creed,
which today would be regarded as radically conservative in
values and religion, while his views on economics were
close to those of classical liberalism. However, Las Casas’s
self-adulatory but engaging propagandist style and rhetorical
skills, in addition to his indiscriminate attack on powerful
figures of his day, lent his writings to those who later
sought to manipulate the public. By manumitting his slaves
and foregoing a search for economic or social power, he
lent credibility to his popular, yet sometimes exaggerated,
accounts.
See also Imperialism; Racism; Rights, Natural; Slavery, World;
Scholastics/School of Salamanca
Further Readings
AlC
Hanke, Lewis. All Mankind Is One: A Study of the Disputation
between Bartolomé de Las Casas and Juan Gins de Sepulveda in
1550 on the Intellectual and Religious Capacity of the American
Indians. DeKalb: Northern Illinois University Press, 1974.
Watner, Carl. “‘All Mankind Is One’: The Libertarian Tradition in
Sixteenth-Century Spain.” Journal of Libertarian Studies 2 no. 8
(Summer 1987): 293–309.
LAW AND ECONOMICS
Economists have long offered insight into the law. With
respect to libertarianism and the analysis of the market,
Nobel laureate Friedrich von Hayek’s definitive works The
Constitution of Liberty and Law, Legislation, and Liberty
applied crucial insights from the Austrian School of
Economics to legal issues. On the left, John R. Commons of
the University of Wisconsin, in his The Legal Foundations
of Capitalism (1921) and other works, applied economic
analysis to legal institutions. A number of other economists
also have dealt with legal issues, among them Nobel laureate
Gary Becker’s pioneering work on issues centering on discrimination
and family law. During the 1960s and 1970s,
however, a group of scholars went beyond simply applying
economic insights to legal issues and developed a body of
work that became the known as the law and economics
movement. The emergence of this movement was one of the
most important developments in 20th-century legal thought.
Indeed, Professor Ian MacNeil, despite being critical of
many aspects of the movement, called law and economics
“the most powerful single monofocused discipline in
American legal studies.” Largely associated with the
University of Chicago during its early days, scholars who
have centered their study on the interrelationship between
law and economics today apply a variety of methodologies to
bring the tools of economic analysis to bear on legal issues.
Two individuals dominated this movement. Ronald
Coase, who was awarded the Nobel Prize in 1991, and
author of a pathbreaking article in the field, “The Problem
of Social Cost,” is often credited with initiating this
approach in 1960. He was quickly joined by University of
Chicago law professor Richard Posner, who is currently a
judge on the U.S. Court of Appeals for the Seventh Circuit.
Posner, through numerous articles and books and his definitive
treatise, the Economic Analysis of Law, has played a
major role in expanding the parameters of the field.
Coase’s contribution cannot be understated. “The
Problem of Social Cost,” one of the most often cited articles
in both economics and law, laid most of the intellectual
groundwork for many of later developments in the field.
Coase wrote the article as a response to the earlier work by
A. C. Pigou, which was crucial in structuring modern welfare
economics. In the 1920s, Pigou pioneered the analysis
of market failures and focused on the most appropriate
means of correcting these failures. For example, where a
firm polluted a river with waste water, thus imposing costs
on downstream users, the appropriate response had been to
create a tax on waste water that brought the firm’s private
costs into line with the social costs of its behavior.
Pigouvian solutions are correspondingly heavily reliant on
central government intervention. Coase’s analysis, in contrast,
focused on the allocation of property rights. If downstream
entities held a right to receive unpolluted water, they
would be in a position to then use the legal system to force
the upstream polluter to pay damages or stop to polluting.
The solution to “market failures” thus lay with better definition
of property rights, not corrective taxes.
Equally important, Coase took his analysis a step further
by showing that, at least in economic terms, the precise
allocation of property rights was irrelevant to the parties
involved reaching a solution. Nor does it matter if property
rights are allocated to the upstream polluter or to the downstream
user because in either case having a clear property
right would produce an equally efficient solution. If the
gains from polluting the river outweighed the harms done
to the downstream user, the two parties would be able to
negotiate a transfer of the rights to the polluter regardless of
where the right originated. If the costs of the pollution were
to outweigh the gains, the inverse would hold true. The
problem was thus reciprocal and not one-sided.
Finally, and most significant, Coase used these insights
to argue that where transaction costs (e.g., the cost of hiring
negotiators, drafting agreements, etc.) were zero, the
same solution would result regardless of who was initially