Professor Bruce Pardy has written an enjoyable and thought-provoking book entitled Ecolawgic: The Logic of Ecosystems and the Rule of Law. He argues from a familiar libertarian perspective, but his thesis is original in that he compares markets to ecosystems. His argument is summed up nicely in the abstract to the full text on SSRN as follows:
Ecosystems contain their own immutable logic: competition for scarce resources leads to natural selection, in which those organisms better adapted to conditions survive and reproduce, resulting in evolutionary change. Markets share this logic: competition for scarce resources leads to commercial success for those enterprises better adapted to economic and social conditions, producing economic variation and development. In both, the dynamics of the system arise from the interaction of a multitude of individual actions, decisions and adaptations.
These basic features of ecosystems and markets are not controversial. No one versed in the ways of these systems would seriously propose to control the population of butterflies or the price of duct tape. Yet result-oriented government measures and practices have become commonplace, not because the systems are misunderstood, but because the role of the state is misconceived. Government policies are not able to dictate how ecosystems or markets work. The notion of prescribing particular ecological or economic ends conflicts with the natural behaviour of these systems and their immutable rules.
Modern legal regimes do not respect how ecosystems and markets operate, but ecosystems can provide insight about how the law should work. Legal decisions should emanate from a SYSTEM of governance. Isolated, instrumentalist legal commands are incompatible with the operation of law as a system. Providing ad-hoc answers case-by-case is as much of an affront to legal principles as controlling butterflies is to the nature of an ecosystem.
In essence, Professor Pardy is attempting to ground law-making in an objective overarching principle. In Chapter 1, which he published on Advocates for the Rule of Law, Professor Pardy attacks the traditional modes of law-making: instrumentalism, positivism/formalism and natural law. Each of these methods is flawed according to Professor Pardy – instrumentalism because it relies wholly on subjective preferences and results-based reasoning; formalism because it is too mechanical and does not sufficiently account for the ambiguities inherent in law; and natural law because the absolute truths upon which it purports to rely are in fact unproven preferences. Professor Pardy’s answer is to tie lawmaking entirely to market forces, which resemble ecosystems in that both arise spontaneously in nature. Thus Professor Pardy argues that markets have a universal quality about them and provide an objective truth upon which a legal system can be anchored. Any law that interferes with the natural operation of the market is akin to the state choosing winners and losers, and should be opposed.
Full Disclosure: Professor Pardy was one of my professors when I was a law student at Queen’s University. His classes were always as engaging as his teaching style was creative. He inspired his students to think critically about the subject matter at hand, and in that way, Ecolawgic is no different. But I must nevertheless dissent from my learned ex-professor. While there is much to appreciate in this book, the thesis is problematic for two reasons. First, it relies, in my respectful view, upon a flawed premise regarding the need for objectivity, and its prescription – an unfettered free market – is not itself an objectively sound principle. Second, opposing any instrumentalist regulation of the market whatsoever leads to absurdities and undermines the market’s own viability. I discuss each of these criticisms below.
I. Objecting to Objectivity
Professor Pardy believes that the legal system ought to be founded on an objective principle or principles. However, this is itself a subjective preference held by Professor Pardy. Our instrumentalist preferences may be subjective, but this fact in and of itself does not provide an “objective” or “rational” basis to dismiss them. There is no a priori principle that subjective principles ought to be rejected or ought not to form the foundation of a legal system.
The great Scottish philosopher, David Hume, long ago demonstrated that one cannot derive an “ought” from an “is”. It does not logically follow that because murder is bloody and violent that one ought not to do it. We may all agree that murder is wrong, but this is not the same thing as demonstrating this objectively by way of a logical syllogism. Many intelligent philosophers have attempted to rebut Hume’s argument, but in my view, this is a fool’s errand, not simply because Hume’s argument has stood the test of time, but because it ultimately does not matter. Regardless of whether or not we can objectively demonstrate certain moral beliefs to be true, we will live our lives as if they are true. Thus, to reject the “objectivity” of morality (and therefore of law) is not to enter the realm of relativism; it is simply to concede that morality lies within the realm of human experience not a priori logical truth.
So yes, Professor Pardy is absolutely correct that legislative instrumentalism is replete with “preferences,” but this does not, in and of itself, invalidate the legitimacy of making law based on those preferences.
Moreover, to the extent that objectivity is attainable and desirable, I am far from convinced that the value of the market is an “objective” truth (certainly no more so than other widely-held values whose objectivity Professor Pardy would discount, such as prosperity, order and human dignity). The market is only able to exist because of the infrastructure that sustains it, infrastructure that amounts to state-imposed and directed interferences, most notably courts and police. The “spontaneous” market is in fact nothing more than a gentleman’s agreement. If Dick wants Tom’s basket and Tom offers to sell it to Dick for $10, Dick can either pay Tom the $10 or steal the basket from Tom. What helps prevent the latter from occurring is a state that punishes theft, thereby indirectly facilitating commerce. Similarly, if Dick is inclined to sell Tom a defective basket since this would mean less work and more profit for him, what helps prevent him from doing so are the courts of law, which could find Dick liable for breach of contract. Thus, while Tom and Dick may each see it in his self interest to conduct commerce in good faith (for example, to ensure further profitable dealings down the road or to bolster his reputation), each may also see it in his self interest to swindle the other. The market may certainly self-regulate to an extent and facilitate enlightened self-interested behaviour, but the system’s fail-safe is not the market itself, but rather a set of artificial structures.
These artificial structures are replete with their own preferences. At base, these include preferences for consent over coercion and commerce over violence. We can agree that these preferences are all but universal, but that does not make them objectively true in a syllogistic sense. The vast majority of people may agree that a market governed by law is a better means of regulating individual conduct than coercive violence; but I suspect a warlord in a failed state would disagree and vote in favour of violence and intimidation.
Moving beyond the fundamental preferences underlying the system, the market will also have to be governed by a plethora of rules to address specific situations likely to arise. When has a contract been accepted? Should I gain title over my neighbour’s property if it is abandoned and I have peaceably squatted there for some time? And if so, how long should it take? Am I required to take reasonable care to ensure that persons entering my property remain safe from hazards? What is the correct amount of compensation to award a plaintiff who has suffered irreparable brain damage? These are but a few of the many questions the laws of contracts, property and negligence deal with and it is safe to say there are no objectively correct answers. Lawmakers will need to make choices based on experience and these choices will invariably reflect their own subjective preferences. These preferences may be widely held and they may be inextricably connected to other widely held preferences; but they remain preferences nonetheless. The bare market itself can offer no guidance.
II. The Necessity of Instrumentalism
At the root of Professor Pardy’s argument lies an opposition to instrumentalism, which he defines as laws that are “designed to achieve a specific purpose.” Professor Pardy recognizes that there are two types of instrumentalism in the legislative realm: specific rules and ad hoc judgments. Professor Pardy will get no argument from me that ad hoc lawmaking should be rejected. It is antithetical to the rule of law since individuals are unable to know in advance what the law is and are unable to plan their lives accordingly. The defining feature of most totalitarian societies is not that they enact oppressive or onerous laws, but that, as we would understand the term, there are no “laws” to speak of – only arbitrary commands that may be made or changed at a moment’s notice. The ever-present fear among the subjects of totalitarian regimes is not that the government will pass an unjust law, but that they can never know if and when the police will kick open their door and come for them in the night.
But this same objection does not apply to rules-based legislative instrumentalism. The Insurance Act of Ontario, for example, contains numerous provisions that amount to ‘instrumentalist’ interferences in the market. To name a few, the Act forces motor vehicle owners to purchase insurance; it limits the right of plaintiffs injured in car accidents to recover in tort; and it empowers plaintiffs to obtain indemnity from the defendant’s insurer directly despite the fact that the plaintiff and the insurer enjoy no privity of contract. Each of these interferences is “designed to achieve a specific purpose,” but each is also capable of being applied consistently and predictably. The rule of law is not endangered because individuals are able to know in advance what the rules are and can plan their lives accordingly.
The Insurance Act is far from a perfect piece of legislation, and I could probably devote an entire paper to suggestions for its improvement. It has undergone numerous amendments over the years, some of them extensive. But in this way, the Act also embodies the wisdom of a gradualist rule-based instrumentalism. It is not the abstract brainchild of a few social engineers; it has been developed and refined slowly over time. And I dare say we are better for it, even and especially from a markets perspective. Take the provisions that make motor vehicle insurance mandatory and that enable plaintiffs to recover directly from the at-fault defendant’s insurer upon obtaining a judgment against the defendant. Without these provisions, many injured plaintiffs would never obtain compensation for their injuries. This would be more than just an unfortunate “result” of the market; it would represent a defect in the market’s intended operation. Tortious negligence has historically been understood – correctly in my view – as a sort of contractual breach. We each promise not to injure one another and when we break that promise we are required to make our neighbour whole. But without insurance, enforcing court judgments becomes impossible in many situations. Many individual defendants do not have the financial means to compensate injured plaintiffs with the six and seven-figure sums to which they are entitled under the law of negligence; and those who do often find ways of protecting their assets after being sued. Unless we wish to lock up tortfeasors in debtor prisons, compelling all motor vehicle owners to buy insurance and providing plaintiffs with a way of accessing that insurance policy is the only way to ensure that plaintiffs are duly compensated. Put another way, it is the only way to ensure that the market transaction is enforced.
Professor Pardy may nonetheless shrug his shoulders and take the view that these instrumentalist interferences skew the “natural” order of the market. So let us take a simpler example of an instrumentalist law. Under s.159 of the Highway Traffic Act, vehicles are required to move over to the right shoulder of the road to allow a police car, ambulance or firetruck to pass. The purpose of the law is naturally to allow these emergency vehicles to attend to emergencies. I cannot imagine any reasonable person would object to the law especially if it means saving a life. And yet, the logic of Professor Pardy’s thesis demands that the law be opposed. It is, after all, choosing winners and losers; it is deciding that the interests of Person A who is strapped to a gurney inside the back of an ambulance are more important than those of Person B who is trying to get to his appointment and must now pull over to the side of the road. I do not pretend to know Professor Pardy’s view on the subject, but it seems to me he can either adopt the strict market position of his thesis, or he can concede that in certain situations – namely where someone’s health or very life is at stake – individuals can be forced to make small sacrifices for the common good. But this, it seems to me, is a choice that any self-respecting libertarian would rather not make. To adopt the former position is clearly to embrace an absurdity, at least in the eyes of most reasonable people; but to adopt the latter position is to concede that some instrumentalist measures are necessary. In so doing, the libertarian concedes that the issue is not really a matter of absolute principle but of degree.
But once again, Professor Pardy may hold steadfast to the position that individuals should not be compelled to move aside simply because an injured person in an ambulance needs to get to the hospital. So let us take a third example. I would venture a guess (or at least hope) that even the most vociferous Second Amendment advocate would be in favour of some market restrictions upon the sale of firearms: say, the free sale of bombs. Better yet, the free sale of bombs to those who were previously convicted of violent crime – maybe even terrorism. The free-market purist would say: “Let the market decide! Perhaps the former terrorist is rehabilitated and is simply looking to start a mining operation. He has paid his debt to society, and unless and until he does something illegal again, it is none of the government’s business. It is in the self-interest of the firearms dealer to avoid selling a firearm to someone who may use it to harm others illegally or destroy private property. After all, his business would hardly succeed if it came to be known that the terrorist bomb was purchased at his store! Is not the arms dealer therefore in the best position to decide what items he sells and to whom?”
Of course, permitting this sort of transaction would be utterly absurd as it would dramatically increase the risk of violence between individuals, which is contrary to the market’s very ethos (and the basis upon which Professor Pardy argues that the market has objective value).
As a final example, there are numerous market interferences that are designed to maintain and enhance the market’s own efficiency and effectiveness. These “unnatural” interferences may include anything from public roads to laws governing bankruptcy and competition. Whether or not these measures are effective is debatable; but to the extent they are effective, opposing them in principle, it seems to me, is the height of foolishness. It is the philosophical equivalent of ‘burning the village to save the village’. What is the point of a free exchange of goods if those goods cannot be transported to market due to the absence of public roads? What is the point of preserving choice if several large entities monopolize the market or collude to fix prices?
In sum, there are numerous legitimate legislative objectives – including laws to support the proper functioning of the market itself – that will necessitate instrumentalist interventions. Professor Pardy may deem all of these interferences to be nothing m ore than state-sanctioned “coercion”, and in a basic sense he is correct. But coercion is a necessary (though unfortunate) aspect of any civil society. What differentiates free societies from unfree societies is not the presence of coercive laws but the methods of coercion and the ends for which they are employed. A free society can employ coercion to prevent murder; it cannot do so to stifle political dissent. We leave it up to democratic legislatures to determine most of what lies in the middle. This does not mean that the majority has the right to dictate to the minority; indeed, there are strong arguments in favour of limiting majoritarian power, both through structural constraints and a constitutional bill of rights (though in both cases, these limits on majoritarianism will require majority assent). But it does mean that majority rule must form the organizing principle of a free society, not because the majority is objectively good or just, but because the majority is best suited to balance competing interests, and is less likely to oppress the people. To paraphrase Winston Churchill, democracy is the worst system of government save for all the others.
Professor Pardy’s defence of the free market is cogent, but I find his central thesis – that markets should be left entirely alone – to be lacking. The real question in my view is not whether the state may interfere in the market, but to what degree and for what reason? I do not pretend to have the answers, and in general I believe it is unwise to attempt to craft “theories of everything.” Society is far too complex so as to be amenable to a philosophical blueprint. Within the adjudicative realm, it is possible to craft workable rules that, if applied neutrally, foster certainty and predictability and give effect to the democratic will; but in the legislative realm, we are confronted with innumerable interests that render a coherent abstract “system” of laws both unattainable and unwise. We will continue struggling with the meaning of human happiness and what policies best promote its realization for many years to come. As we continue to do so, we should be ever mindful of the law of unintended consequences, hold steadfast to the principles of freedom and the rule of law, and not lose sight of our historic institutions that have proven themselves over time. The market is undeniably one of these institutions and is central to the workings of a free society; but we ought not to embrace it to the exclusion of all else.