Law in a Market Context: An Introduction to Market Concepts in Legal Reasoning / Edition 1

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In Law in a Market Context Robin Paul Malloy examines the way in which people, as social beings, experience the intersection of law, markets, and culture. His work recognizes that experience varies by such characteristics as culture, race, gender, age, and class, among others. Thus, market analysis must account for these variations. Through case examples, illustrative fact patterns, and problems based on hypothetical situations he demonstrates the implications and the ambiguities of law in a market society. In his analysis he provides a complete and accessible introduction to a vast array of economic terms, concepts, and ideas - making this book a valuable primer for anyone interested in understanding the use of market concepts in legal reasoning.
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Editorial Reviews

From the Publisher
'In Law in a Market Context, Robin Paul Malloy has effected an important, innovative, and thorough reinterpretation of the dominant model of law and economics by 'reframing' the market and exchange processes in terms of creativity, discovery, and community. As someone who writes in the areas of critical race and feminist theory, I find Malloy's approach to be particularly useful because it provides critical scholars who are concerned with issues of social justice and equality with a new and theoretically sophisticated way to understand and reckon with the market. Law in a Market Context should find its way on to every critical scholar's reading list.' Professor Emily Houh, University of Cincinnati, USA

'Professor Malloy builds a strong and long-needed bridge between humanistic and economic approaches to the study of law. Malloy humanizes market analysis by showing how our conceptions of markets are structured by cultural values. As a law professor and an economist I recommend this book to lawyers, judges, policymakers, and academics who want to sharpen their critiques of market thinking, as well as those who want to be better armed in the defense of markets.' Professor Shubha Ghosh, State University of New York, Buffalo

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Product Details

  • ISBN-13: 9780521016551
  • Publisher: Cambridge University Press
  • Publication date: 2/29/2004
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 280
  • Product dimensions: 5.98 (w) x 8.98 (h) x 0.79 (d)

Meet the Author

Professor of Law and Economics, and Director of the Program in Law and Market Economy, College of Law and Maxwell School of Citizenship and Public Administration, Syracuse University.

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Cambridge University Press
0521816246 - Law in a Market Context - An Introduction to Market Concepts in Legal Reasoning - by Robin Paul Malloy


Introduction to law in a market context

An overview

This book examines the way in which people, as social beings, experience the relationship among law, markets, and culture. It does this with the recognition that people understand their experiences through the mediation of institutions of language, communication, and interpretation (interpretive institutions). Furthermore, it acknowledges that experience varies by a number of characteristics including race, gender, age, class, education, income, and geographic location, among others. Thus, law and market analysis must account for these variations.

With this in mind, the book advances two primary objectives. The first objective involves providing a framework for understanding the relationship among law, markets, and culture. This includes a framework for understanding the interpretive process and the ways in which interpretive institutions facilitate wealth formation and (re)distribution. In particular, attention is focused on understanding the way in which law functions to mediate the tension between culture (as an expression of a public and community interest) and the market (as an expression of private and self-interest). This involves an examination of the way in which legal actors and advocates understand and create legal arguments. This is important because it establishes a framework for understanding the way in which market ideas are borrowed and incorporated into law.

The second objective of the book involves providing an accessible introduction to a number of important economic terms and concepts that are frequently used in legal analysis. This involves an examination of economic terms and concepts as strategic "tools" for shaping legal reasoning. This is important because it provides a working vocabulary for understanding economic ideas that are already at work in the law, and it facilitates the use of these ideas in new situations. Attention is focused on understanding the way in which these tools create market advantages for particular individuals and groups, and on learning to use these tools to one's own advantage.

The connection between these two objectives is in understanding how to use market concepts to influence the mediating process of law and legal institutions. This includes learning about the numerous ways of selecting, substituting, and re-characterizing the many economic terms and concepts available for advancing alternative lines of legal argument. This is important to effective legal reasoning - and to exercising favorable influence in the wealth formation and (re)distribution process.

As will be explained, understanding law in a market context is not the same as doing an economic analysis of law. This is because law in a market context focuses on the meanings and implications of using market concepts in law - not on doing an economic analysis of law. Before we begin our examination of this difference, however, it is appropriate to acknowledge the pioneering work of a few of the people that have greatly influenced the integration of legal and economic reasoning. This group includes such people as Gary Becker,1 Guido Calabresi,2 Ronald Coase,3 and Richard Posner,4 all of whom advanced new and thoughtful ways of understanding law and legal institutions. They, and others, made important contributions in many areas of law, and this should be recognized even though there may be disagreement with the subjective and political framing of their legal reasoning. Collectively, they helped develop new frames of reference, and new patterns of legal thinking. As a result, we now have new rhetorical tools for discussing matters of liability, risk allocation, criminality, and property, among others. Our legal vocabulary has embraced new terms such as transaction costs, externalities, efficiency, wealth-maximization, preference shaping, reasonable investment-backed expectations, and cost-benefit analysis. We have also absorbed conceptual frameworks such as those referenced by such names as the Coase Theorem, the prisoner's dilemma, the tragedy of the commons, the anti-commons, the theory of path dependency, efficient breach, public choice, and game theory. Thus, for better or for worse, and without regard to one's politics, the borrowing of market concepts has transformed legal reasoning and captured an authoritative position in the legal imagination.

This book is concerned with the meanings and values created and promoted in law by the use of various market concepts. It seeks to examine and explain how these references to economics shape socio-legal meanings and values, and how they influence the allocation of scarce resources and the opportunities for capturing, creating, and distributing wealth.

The book also brings a humanities-based approach to recent trends in law and market scholarship. Thus, it contributes to an impressive expansion of law and market thinking brought on by a variety of approaches that might collectively be called the "new law and economics." Examples of "new" approaches include ventures into behavioral law and economics (referencing work in behavioral psychology and sociology),5 the law and economics of norms (referencing theories of norm-building and of informal relationships and organizations),6 institutional law and economics (referencing institutional economics rather than the more traditional appeal to neoclassical economics),7 feminist law and economics (referencing feminist theory),8 and interpretive and representational law and economics (referencing the humanities, various forms of interpretation and rhetoric theory, and law and society).9

In this book attention is focused on the emergent interest in interpretive and representational approaches to law and market theory, and on the experiential process by which legal and market reasoning is transformed. Therefore, in exploring an interpretive or representational approach, the book embraces the humanities, including references to esthetics, ethics, and logic. It explores the subjective nature of markets, the lack of universality in a number of economic concepts, and the role of interpretive institutions in generating value and redistributing resources. Moreover, it advances an understanding of the relationship among law, markets, and culture, indicating a need to democratize and enhance access to the meaning and value formation process.

At the outset, however, it must be noted that there are numerous approaches to interpretation theory, and to the cognitive processes that ground interpretation. The focus in this book is, therefore, limited. This book makes reference to the interpretation theory of one of America's greatest philosophers who was also a founder of the philosophical school identified as American Pragmatism, Charles Sanders Peirce.10

Peirce's work on interpretation and representation theory is categorized under the term or subject of semiotics, which means the study of "signs." By this term Peirce simply meant to reaffirm the idea that humans are sign making and sign interpreting beings. Signs, as such, include language as spoken and written, visual images, colors, symbols, art, architecture, music, and a variety of other ways in which ideas are communicated. In this book I refer to semiotics as a cultural-interpretive approach, because this term expresses the semiotic ideas that the individual interpretive actor is situated within a cultural context and that a culture, in essence, is an implicit interpretive system. This is how one experiences the intersection of law and market economy - not as an isolated and atomistic individual but as an individualized participant in an interpretive community.

In popular culture perhaps the best known semiotician is Umberto Eco, who has numerous successes in both the popular and the academic communities.11 It is, however, Peirce's work that is of particular value in exploring the relationship between law and market theory because it shares an affinity with a number of core ideas expressed in the works of Adam Smith,12 and with work in Austrian economics.13 The compatibility with Austrian economics is most apparent with respect to the idea of "market process theory," as expressed in the work of such well-known economists as Friedrick Hayek and Israel Kirzner.14 Peirce's work also shares a conceptual grounding that is similar to economist Joseph Schumpeter's theory of "creative destruction," which is central to an understanding of creativity in economics.15 In addition, because Peirce was interested in developing a theory of the sciences, his approach lends itself to the deconstruction and interpretation of empirical and social science work, such as that done within the framework of an economic analysis of law. Peirce's concern for understanding the way in which we experience the sciences makes his approach readily applicable to the study of law and market theory.16

Peirce's work and the idea of understanding law in a market context should also be of interest to critical theory scholars.17 Critical theorists have contributed a great deal to our understanding of the experiential nature of law, and these insights are valuable to the cultural-interpretive process. Critical theorists, and other non-law and economics scholars, have also reminded us of the fact that law is not a natural science. And, even though references to the natural and social sciences can be helpful, law involves human practices and experiences that are not fully explainable or understandable in scientific terms.

This book, therefore, examines the way in which the "institutions" of language, communication, and interpretation function to redistribute and create wealth. It also explores ways in which an interpretive approach can make us better and more effective lawyers by facilitating an understanding of law in its market context. This can be done in at least three ways. First, Peirce's approach enhances our ability to use framing devices to identify value-enhancing opportunities in the exchange process. Framing involves identifying a category or general viewpoint from which a fact pattern or problem will be addressed. Second, it facilitates the use of referencing devices that enhance our ability to mediate between contested matters within a given interpretive framework. Referencing involves the identification and selection of particular criteria, from among several, for use in analyzing issues within a given frame. And, third, it explains how semiotic devices can be used to create value by transforming legal convention - by creating new representations that extend the networks and patterns of exchange. Representation involves the way in which abstract ideas and concepts are made comprehensible and able to be exchanged, as in using a written deed to represent an estate interest in land so that it can be sold or mortgaged. Each of these points can be initially illustrated with some simple examples.

As to the idea of framing, consider a typical real estate financing transaction.18 Imagine that a developer has formed a corporate entity to deal in real estate transactions. In an effort to raise needed cash for a new venture, the developer seeks to borrow against $10 million in equity that it has in an office building. At the outset one needs to consider the way in which this financing transaction might be framed. It might be framed as a loan secured by a mortgage on the office building. In this setup the developer retains full ownership of the building and gives a mortgage lien as collateral for the promise of repayment. On the other hand, the transaction could be set up as a sale and lease back of the property. Here the developer sells the building to a buyer to raise cash and then leases it back to use the space. The proceeds of sale provide funding as a substitute for the mortgage loan, and the lease payments to the buyer mimic the repayment of a mortgage. Now the transaction involves a sales contract, coordinated leasing terms, and no mortgage. A third way of doing this transaction might involve the sale or pledge of the stock in the corporate entity holding legal title to the property. In this framing of the transaction the exchange is shifted out of real property law and into the law governing corporate stock transfers. Each of these three transactional frames is common practice and collectively they illustrate several different ways of approaching the problem. Each framing of the transaction triggers different aspects of law, and different cash flow, tax, and other economic consequences.

Once a specific frame and transactional view have been decided upon, there are still many points to be considered and evaluated. Within the chosen frame there are multiple ways of structuring the details of the transaction. Interpretive references may be made to internal rates of return, out-of-pocket costs, sunk costs, opportunity costs, market penetration, and net and gross cash flows, among others. Different references used to evaluate the desirability of a given transactional frame will provide different conclusions about the consequences of the proposed project.

In a similar way, particular drafting points may be referenced against different interpretive criteria to evaluate the status of the terms as covenants, warranties, or one of three types of conditions (simultaneous conditions, conditions precedent, and conditions subsequent). The point is, that these different interpretive references may result in different risk allocations and in different legal and economic opportunities. This is true even when operating within the given transactional frame. Moreover, understanding the meanings that each side attaches to particular words, terms, or conditions used in documenting a transaction is essential to advancing a client's transactional expectation. Being an effective advocate for either side, therefore, involves an ability to understand the framing and referencing of the transaction from each side.19

We can appreciate another aspect of framing and referencing when we consider a transaction in a cross-cultural context.20 Consider, for example, a real estate transaction involving an American developer negotiating for a project in a transitional economy such as China. Here, the developer must contend with additional framing and referencing issues. Here, she must appreciate the interpretive implications of different worldviews as value frames - different conceptions of property, capitalism, profit, individual autonomy, and different formulations of the proper balance between private and public interest in market exchange. Consequently, understanding the deal requires an ability to effectively use the tools of interpretation theory to successfully navigate the cross-cultural waters of commerce, and this ability is of even more importance as we consider the process of globalization.

We can also examine these framing and referencing conflicts between interpretive communities within one country. Consider, for example, the case of American Nurses' Ass'n v. Illinois.21 This case involved a class action suit that challenged the appropriate frame of reference for determining wages for certain classifications of workers.22 The plaintiffs in the case, brought on behalf of nurses and typists employed by the state of Illinois, alleged that the state pay scales were unfair and discriminatory.23 The claim was that jobs associated with women paid less than jobs traditionally done by men.24 On the surface of the text, the dispute seemed to be one of contested facts concerning the determination of wages when a comparison was made between the "work of women" and the "work of men."25 The underlying tension in the case, however, really involved deeply contested values regarding market operations.26 The State of Illinois, for instance, defended its wage structure by showing that it was implemented with reference to the wage rates established by the supply and demand for particular types of employees in the general labor market.27 The plaintiffs, however, rejected the fairness of the marketplace and interpreted the market frame as inappropriate.28 To them, markets were inherently biased in favor of men, and a market frame simply served to perpetuate the unfairness of the labor market to women.

Understanding the underlying debate in a case such as American Nurses' Ass'n, and working to effectively mediate the tension between the two conflicting interpretive frames, requires an understanding of the conflicting meanings and values dividing the two sides of the case. The dispute is not simply about facts (differences in wages between jobs); it's about values and the interpretation of market relationships. Both sides can recognize that getting the court to understand the dispute from their own particular frame and reference will affect the outcome, and ultimately the allocation of economic resources.29 Thus, interpretation theory facilitates a deeper understanding of conflicts such as the one illustrated by the case of  American Nurses' Ass'n, while directing attention to the use of law in positioning social and gender relations.30

In addition to explaining the significance of framing and referencing, this book addresses the way in which Peirce's semiotic interpretation theory facilitates exchange.31 In general, semiotics deals with the way in which abstract ideas are represented.32 This simply means that it deals with the devices, concepts, and tools that we use to communicate and interact with each other. The ability, for instance, to represent different forms of property ownership in terms of deeds, leases, and mortgages, permits exchange in ways that would not be possible without such representational or interpretive devices.33 A deed representing fee ownership of real property, for example, permits a homeowner to control a property as a physical object and at the same time use it as collateral for a secured loan, or lease it for rental income.34 Law, through legal convention, permits the property to serve multiple market functions. Not only does it provide a home and shelter, it can provide access to credit and to cash flow. In a similar manner, the ability to use a credit card as a recognized symbol or representation of financial ability enhances market exchange by eliminating the need for individuals to carry large sums of gold when they shop or travel.35 In so doing, it raises the possibility of extending exchange beyond the boundaries of small or informal communities, and thus expands the potential for meaningful and profitable market interaction. In this way, the transformation of the interpretive frames and references of legal representation enhances our ability to create value.36

In the hope of further advancing an understanding of framing, referencing, and representing, I wish to briefly discuss several more cases that illustrate these ideas in law. These additional case examples should help in setting a foundation for further discussion. These cases include Pennsylvania Coal v. Mahon,37 Keystone Bituminous Coal Ass'n. v. DeBenedictis,38 Dolan v. City of Tigard,39 and Moore v. Regents of the Univ. of California.40

© Cambridge University Press
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Table of Contents

1 Introduction to law in a market context 1
2 Understanding the contested meaning of markets 26
3 The law and market economy framework 56
4 Market concepts of exchange 114
5 Additional economic concepts for law in a market context 142
6 The not-for-profit exchange context 212
7 Parting thoughts 227
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