Vol. 2 No. 2 (February, 1992) pp. 23-25
ENTERPRISE AND AMERICAN LAW 1836-1937 by Herbert Hovenkamp.
Cambridge: Harvard University Press, 1991. pp. x + 443. $39.95.
Reviewed by Paul Kens, Southwest Texas State University
In his introduction Herbert Hovenkamp states that the purpose of
ENTERPRISE AND AMERICAN LAW is to explore the relationship
between classical political economy and the law. Although there
are any number of books available that do this, Hovenkamp
captures the relationship in an unusually compelling way. The
reason lies in his method and his focus. This is not a study of
property and the law, but rather a study of the law's treatment
of business. It is not an attempt to explain legal history in
terms of a particular economic philosophy, but rather to
demonstrate that "American political economists and American
judges operated in the same uniquely American "market"
for ideas."[p. 96]
Using historical analysis, Hovenkamp illustrates how social,
organizational, and technological development led to changes in
theories of political economy. Covering a period from the early
nineteenth century to the New Deal, he describes the challenges
this evolution created for the legal system and how the system
responded. The result is a book made up of two distinct parts
which are linked by the subject of government regulation of
business.
The first part deals with business regulation in general and
touches upon some of the great constitutional debates of the
middle to late nineteenth century. It begins by describing early
challenges to the legal system as stemming from the move from a
mercantile to a classical model of political economy. Evolution
of the modern business corporation provides a major focal point.
Under the mercantile model, Hovenkamp explains, the corporation
served as a vehicle through which the state granted special
privilege to a particular business venture. Regulation of the
corporation's business was viewed as part of the contract that
established the franchise. State law thus provided an appropriate
mechanism for regulating the corporation, and the contract clause
was logically the appropriate mechanism for testing the limits of
state authority.
The modern business corporation, Hovenkamp reminds us, grew out
of the desire to democratize. General incorporation laws were
enacted by Jacksonian state legislatures to separate business
from privilege and politics. The result was that the corporation
eventually ceased to be a device for granting monopoly, franchise
and privilege. Rather, it became simply an efficient means of
raising capital and doing business. As a practical matter
regulation continued to exist, but it became difficult for either
political economics or the law to explain regulation as part of
an agreement granting the corporate franchise. Unlike the British
who had undergone a utilitarian revolution, American economic
thinking continued to be dominated by the classical tradition
until late in the nineteenth century. It was a tradition founded
upon private agreement and emphasizing free will. There was
little room for general business regulation under this theory
because assessment of the public good
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was not viewed as a proper function of either economics or
government. This was said to be best left to the market.
Economic theory responded by developing addenda to the classical
tradition. Theories of market failure and public purpose
explained regulation in certain circumstances and economists
afforded special status for new technologies and natural
monopolies. Emphasizing the Slaughterhouse cases, Hovenkamp
describes how such ideas worked their way into the law. And, for
him, MUNN V. ILLINOIS represents a maturation of the process of
legitimizing general business regulation based on statute rather
than the mercantile form of franchise based regulation.
In the second part of this book the discussion of government
regulation shifts to antitrust law. Hovenkamp recounts the
history of antitrust policy as it was directed at both business
and the labor cartel. He describes the impact of the classical
tradition on both state corporate and regulatory law and the
Sherman Antitrust Act, and points out that its emphasis on
contract caused both to be misdirected. A more efficient and
realistic neoclassical model influenced by utilitarian and
marginalist economic theories did not become dominant in legal
thinking until well into the twentieth century.
Hovenkamp is one of a growing group of authors who challenge the
idea that nineteenth century American courts were the tool of a
conservative elite. Liberal critics today, he says, suffer from
the tendency to view the classicists through the lens created by
Progressives and New Deal policy makers. His purpose is to
demonstrate that, although the judiciary was affected by economic
ideas, it was not the pawn of one economic theory. Although one
might surmise from his study that the judiciary was influenced by
a set of economic ideas most popular among the elite, Hovenkamp
shows that this set of ideas was more complex and changeable than
has traditionally been portrayed.
The strength of this study is that it dispels suspicions about
the nineteenth century judiciary's motives. It is not as
convincing, however, if it is intended to disprove the
traditional view of the impact of judicial policy. In discussing
competing economic theories, Hovenkamp for the most part confines
himself to a single tradition. He argues, for example, that the
legal doctrine of substantive due process reflects British
economist Arthur Cecil Pigou's theory of externalities rather
than a more classical version of laissez faire economic theory.
Hovenkamp supports his argument very well, but one might wonder
what is the point. Although Pigou may have offered a variant that
provided a different basis for regulation, he shared with the old
classical tradition a view of political economics that envisioned
a very limited view of the role of the state. Neither these
variations nor the discipline of political economics represented
the only ideas regarding politics or philosophy available to
judges of the era. Other political, economic, moral, theological,
and sociological theorists argued that the classical tradition
and its variants had failed to assure fairness in the
distribution of the nation's resources. They believed the state
should assume a more active role than any version of the
classical economic model would allow.
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In describing the role that economic theory played in judicial
decision making, Hovenkamp does not question whether it was
proper. He assumes it was. And, given this assumption, he has no
need to distinguish between constitutional and statutory
interpretation. Describing the nineteenth century view of the
rights protected by the fourteenth amendment due process clause,
for example, he makes a startling claim for the power of economic
theory. "That these absolute rights should be identified
with economic liberties was uncontroversial," he says,
"But economic liberties had to be defined. That was the
province of political economy." [pp. 94-95] This mixing of
law and economics as if they were parts of the same process
suggests that, at any time, the dominant economic theory should
be the test for constitutional truth.
Skeptics may question whether the task of interpreting the
fundamental law of the nation is best left primarily to
economics. Certainly some of the Court's nineteenth and early
twentieth centuries critics did. Although Hovenkamp recognizes
that the law was sometimes behind the current economic trend, he
never considers whether the Court may have been making the
mistake of attaching onto the Constitution an economic theory
that is not part of the document.
Despite periodic statements of his purpose or thesis, the
implication of portions of Hovenkamp's work are difficult to
discern. To the extent that it reflects even handedness in his
treatment of the subject, however, this characteristic reflects a
strength as well as a fault. Hovenkamp avoids the temptation of
treating traditional legal history as little more than a
conspiracy perpetrated by Progressive historians to disgrace the
judiciary and thus advance their political agenda. Taking this
extreme, some revisionists seem to be apologists with a political
agenda of their own. In contrast, Hovenkamp and others use the
revisionist trend as an opportunity to dig deeper into the past
and avoid being limited by conventional views. What the reader
ends up with as a result of their inquiries is a more
sophisticated understanding of the law and the process of
judicial decision making.
Although parts of this book tend to be tedious, the author's
insight and analysis make it well worth the extra effort. It
would be a valuable addition to the library of anyone who is
interested in legal history, constitutional theory, or the study
of law and economics.
Copyright 1992