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Courts and Capitalism

On Courts, Exchanges, and Rights


Matthew Dimick (@mddimick) is Professor of Law at the University at Buffalo School of Law. 

Movements to challenge capitalism, or at least reform its worst excesses, have often exhibited a healthy skepticism about courts, preferring to place their faith in the more democratic branch of government, legislatures. (In our times of deadlocked legislatures and unbounded executives, nurturing such a faith is challenging indeed, but that is a different issue altogether.) But just how far does the connection between courts and capitalism go?

My starting point is the insight from critical legal studies (CLS) that “law is politics.” CLS critiqued the idea that adjudication was somehow fundamentally different—neutral, technical, apolitical—than legislation. I largely accept that insight, but it poses a serious puzzle: if adjudication is not fundamentally different from legislation, why does the separation between law and politics exist and persist in our contemporary capitalist society, practically and institutionally if not conceptually? There are bad answers to this question. One possible (bad) answer is that adjudication is just a smokescreen through which judges and other political and economic “elites” consciously manipulate society or “legitimate” existing power relations. A more plausible answer raised in this blog post is that the bilateral mediation of social relations through courts tracks the extent to which we live in an “exchange society,” a society where production for exchange—for profit—has become generalized.

Like the market itself, where the success of businesses or individual exchange decisions is validated by sufficient demand, which is guaranteed only after the fact, adjudication is a means of regulating social relations ex post, allowing legal individuals to act “autonomously,” and then intervening after the fact to “correct” certain actions when a violation of law occurs.

We can see most clearly the centrality of courts to capitalism by taking a peek at the idealized libertarian society. Such a society would have little role for legislatures, insofar as property entitlements are fully assigned to legal individuals, along with the legal powers to—through contract—create, alter, or destroy legal rights and duties. In contrast, courts would enjoy pride-of-place in such a society, necessary as they would be to protect property rights and enforce contracts. Notice, also, the way that the institutionalization of law through courts and adjudication works in this model. Like the market itself, where the success of businesses or individual exchange decisions is validated by sufficient demand, which is guaranteed only after the fact, adjudication is a means of regulating social relations ex post, allowing legal individuals to act “autonomously,” and then intervening after the fact to “correct” certain actions when a violation of law occurs. But this is more than an analogy: ex-post adjudication is a necessary part of the totality of norms, practices, preferences, and objects that constitutes the exchange society. When property rights and legal powers are fully assigned to legal individuals—members of the political community, however defined—the forms of legal obligation will exist primarily between legal individuals (if not entirely, in libertarianism’s idealized conception). Thus, at its most idealized limit, we might be able to imagine a capitalism without legislatures, but we cannot imagine one without courts. The bilateral character of adjudication is thus the necessary form of regulation for a society that assigns legal powers to individuals who create new legal relationships bilaterally—in exchange.

Certainly, the centrality of courts to capitalism is most conspicuous in a libertarian society. But that fundamental connection does not change in a more realistic setting, like our contemporary regulatory society. In fact, the realization of regulation is premised on the existence of an exchange society, and is not a departure from it. More specifically, the regulatory society does not abolish the assignment of the vast range of legal powers possessed by legal individuals in the libertarian society, but rather stipulates conditions under which those powers may be exercised. At first glance, regulation is an attempt to govern the economy ex ante, by collectively establishing rules to guide the conduct of society’s actors.

However, precisely because these actors remain dependent on the market for their way of life, ex-ante regulation requires the complementing intervention of ex-post adjudication. Consider the example of minimum-wage legislation. Production for the sake of private profit motivates a business’s violation of a wage and hour standard. The profit motive also justifies the use of adjudication—as opposed to a more bureaucratic, interventionist approach—to correct the violation. Likewise, the judicialization of the administrative state is a compelled concession to the fact that most economic activity is undertaken by market-dependent, “private” actors, to prevent bureaucratic overreach from undermining the ex-ante expectations and stability required by actors whose economic activities are bilaterally coordinated and validated ex post.

Thus, the bilateral relationships in the exchange society are not just reflected in but in a fundamental sense are the bilateral relationships in adjudicatory proceedings. This view departs from the prevailing view of regulation, which sees itself as an alternative to private ordering. Although the legal realist attacks on laissez faire and the fictitious idea of pre-political property rights are entirely valid, they were made from a decidedly positivist point of view. One unfortunate consequence of that positivist view is that it homogenizes and quantifies legal relations, destroying any qualitative differences among them. By reducing a conception of the market to the “bundle of rights” view, it regards every departure from idealized laissez-faire capitalism either as a non-market form of legal ordering or at least a market-ordering with meaningfully different values and goals. Unfortunately, this quantitative view of legal relations invests the market/regulation distinction with more significance than is warranted, while simultaneously obscuring the qualitative differences between capitalism and other ways of organizing human productive activity.

Why does this matter? The view of courts presented here does not imply that adjudication cannot improve the lives of its intended beneficiaries, nor that courts and legal rules cannot be used to change the distribution of wealth and income. But if courts are a fundamental characteristic of regulating social relations in an exchange society, we should not be surprised that adjudication tends to reproduce, rather than transform, that kind of society.

A good example of the distortionary effects of adjudication is the fate of labor law in the United States. Several well-known scholars have analyzed how courts “deradicalized” the National Labor Relations Act (NLRA), in ways less favorable to workers and unions. But was this judicial deradicalization caused by the importation of alien “values and assumptions” that were extraneous to the NLRA itself, as these scholars propose? Or was it simply, if no less perniciously, a process by which the purposes of the NLRA were given a legal form, however indeterminate the content of that form? In Between Facts and Norms, Jürgen Habermas explains, “No doubt values or teleological contents also find their way into law, but law defined through a system of rights domesticates, as it were, the policy goals and value orientations of the legislator through the strict priority of normative points of view.” In other words, when abstract legislative goals are “legalized” in concrete cases or controversies, they acquire the form of universal legal norms. They are translated from particular, ethical ends—which have the character of “attractive goods”—into universally binding legal rights—which “like moral rules, [are] modeled after obligatory norms of action.”

However, there is a necessary distinction to make, which is that for Habermas one gets the impression that the adjudicatory transformation of ethical ends into legal rights has mostly laudable consequences. However, and in fact, as just indicated above by the literature on the “deradicalization” of the NLRA, the “domestication” of legislative goals as legal rights looks far less propitious for workers and unions. Therefore, one way of interpreting this deradicalization is not as a clash of values and policy goals between new-school legal realists and old-school formalists, but as a necessary legal formalization of those statutory policy goals. That a dispute can be adjudicated, that it may take a legal form regardless of the content of the dispute, itself imposes a (legal) distortion on the creation of substantive legal doctrine. Those outcomes are hardly determinate, but given the very different normative orientations—ethical goods versus moral-like duties—we should not be surprised that they have a tendency to vitiate the intended statutory goals and values.

It is eminently possible to envision organizing human productive activity outside the exchange society, and therefore outside adjudication. I am not making the claim that we can do entirely without adjudication; I am only questioning the presumption of its universal necessity. The best indication of this possibility remains the welfare state—as distorted as it is by the exchange society in which it is embedded. Particularly in its universal dimensions, we find in the welfare state the possibility of providing for social and economic needs directly, without mediation by exchange or adjudication. Surprisingly, what the acknowledged absence of a right to welfare demonstrates is that rights are neither a universal nor necessary means for, but rather a historically-specific and contingent way of, securing human ends. As such, the welfare state shows that legal relations are not self-defining but ultimately socially constituted, in this case through the “democratic class struggle,” as Walter Korpi put it.

Just to that extent, the conspicuous shortcomings of the welfare state stem, not from a failure to constitutionalize it through rights, but from a profound democracy deficit—at every level of society. The entirely laudable goal of establishing a right to welfare expresses a desire to turn welfare claims into an incontestable given. In doing so, however, it forgets the necessary social—and democratic—basis for welfare claims, necessary even to bring such a right into being. Yet, seeing that welfare claims can only have their basis in a social struggle to create them, what value would be added by establishing them as rights if not to create the (mistaken) belief that they are somehow beyond politics? In the end, it seems to me, the goal of welfare rights expresses a wish to place welfare claims outside of politics; it is a politics of depoliticization.

In the end, we can agree with critical legal studies that law is politics. But the persistent role of adjudication reveals that law still remains within the horizon of a certain kind of politics, one that may forestall the kind of society we want and need.