Everyone probably knows that law and economics are closely tied. Both law and economics are social systems that arise within cultures. Every member of society is affected by participates in both systems. It might be more accurate to say that both law and economics are sub-systems within the total framework of culture. Both, like religion, are faith dependent.  They are not produced by science and technology, but exist because the people believe in them and support them.

The two systems – law and economics – are supported by differing motivational forces, and to that extent, are distinguishable, and exist independently of each other as cultural systems.  Human motivation is complex. Adam Smith assigned “enlightened self-interest” as the motivational basis for his atomistic theory of economics. Somewhat similarly, Thomas Hobbes believed that “self-preservation” is the first law of nature. Needless to say, the motivational forces that support both economics and law are far more complex than either Smith or Hobbes suggested, but their suggestion helps one to understand the role of the elemental motivational forces that energize the systems.  Ultimately, both systems are energized by collective motivational forces—the interaction of individual motivational forces.  An oversimplified explanation of how the motives that support the two systems differ, is that individual need for security motivates law, while individual need for beneficial material exchanges motivates economics.

Regardless of the similarities or differences of the underlying motivational forces, the organization of these systems evolved quite independently. Economics, beginning with the kind of reasoning that Adam Smith expressed in The Wealth of Nations arises in the marketplace. In western society we strongly believe that a free market economy is the most efficient means of satisfying the greatest good for the greatest number – a concept that Jeremy Bentham and other Utilitarians helped popularize. Law, on the contrary, has its institutional home in the governmental system—not in the free market.  Human motive force is a pre-requisite for the effectiveness of law, as I asserted in my 1994 book, Conscience and Command, but the enforcement of law in the modern world is vested in governmental entities. For law to be really effective, government must try to capture the normative force that arises in society to energize law. Morality, of course, is not a governmental function, but the same normative motive force that energizes law arises in society and is the motivational basis for morality, independent of government.

In other essays, I allude to the connections between law and economics. In the series of articles dealing with family law, I described the effects of the introduction conflicting of economic motive forces into the family. As important as child support and spousal support are, their impact in the legal system introduces conflicting economic motivation that can lead to the destruction of the important emotional aspects of family. The economic conflict creates tensions that are not good for children. Economics forces are also a strong factor in criminal justice. Economically, the people who most often become involved in crime are those who do not have strong talents that enable them to provide an economic contribution to society for which they are compensated.

In the series of essays that examine race and culture, I pointed out that four hundred years of slavery and segregation did not inspire a black culture to strongly endorse the existing legal system. I pointed out that the absence of a strong working system of law, economic development is difficult, and these difficulties plague Alabama’s Black Belt counties. Economic development depends on law: the ability to enforce property rights and contracts.

The interplay between law and economics and the impact of the economics of law practice on the legal systems are fertile areas for discussion. In the current series of essays found I will discuss how the economics of law practice tend to shape the legal system itself and the problems with which it can deal. I will discuss the economic motives of corporate America and its relationship to defense firms, who are normally paid on hourly rate, as well as the economics of law practice for Plaintiff’s attorneys who are usually paid on a contingency fee basis. Because both Plaintiffs and defendants are operating in the same system, these economic forces interact with profound effect on the civil justice system.  The system matches plaintiff’s lawyers who are compensated on a contingency basis against defense lawyers computed an hourly rate basis.  Economics also has a profound effect on the criminal justice system, but this series of essays deals mainly with civil justice.

I discuss the pervasive presence and influence of liability insurance. It is time for the people who operate the legal system to examine the fact that insurance spreads the risk of loss that is involved in litigation and that we are not dealing with insurance in the legal system with sound policy. For instance, automobile liability insurance is required by law, and everyone—jurors included—knows that, but the law still fails to take that knowledge into account. I discuss the implications of all of these economic issues for the legal system in this series of essays. The economics of law practice, ironically, renders the legal system less efficient for conflict resolution, often actually creating conflict.