American legal realism and modern legal positivism: commonalities:

  • Seperation of law from morality.
  • Rejection of legal formalism.


  • Legal realism rejects a rule-based understanding of law.
  • Legal realism emphasises the importance of law's embeddedness in society and of the personality of the judge.
  • Legal realism investigates the law as it is by studying the decisions of court in conrete cases.

American legal realism:

  • Most judges have a preferred outcome of any given legal case. It's bases on the judge's conception of justice, politics etc. That precedes the judge's consideration of the facts of the case in the light of positive law.
  • Judges need to justify their decisions on the basis of positive law. The positive law can justify any given outcome of a case. Does therefore not constrain the judge's decision-making.
  1. Wendell Holmes: the path of the law as an evolutionary process.
  • Law is rooted in and changes with society.
  • Holmes: the old form of the rule receives new content, and in time even the form modifies itself to fit the meaning which it has received.
  • The role of the court is to adapt the law to changing social conditions.
  • Judges function as legislators, attunding the law to what is expedient for the community concerned.

Law as prophecies: the study of law is the prediction of the incidence of the public force through the instrumentality of courts. Courts are oracles of the law. Legal duties as prediction that is a man does or omits certain things he will be made to suffer in this or that way by judgement of the court.

Citizens are more interested in what the law does to them than in what the law tells them to do.

The bad man perspective: prediction of the reaction works the best from the bad man point of view. Emphasis of the standpoint of those subjected to the law: it is important for citizens to predict the legal consequences of their behaviour. Emphasis on the law as the product of other people's power over the citizen. Emphasis on prudential reasons for following the law.

If law is about predictions what court will do, it is best understood from the viewpoint of the bad man. Prediction of the material consequences of the breach of the law.

Holmes on the nature of judicial decision-making: rule-scepticism.

  • Behind the logical form lies a judgement as to the relative worth and importance of competing legislative grounds. You can give any conclusion a logical form.
  • Judges consider the ends which rules seek to accomplish, the reasons why those ends are desired, what is given up to gain them, and wehther they are worth the price.
  • For the rational study of the law, the blac-letter man may be the man of the present, but the man of the future is the man of statistics and the master of economics.
  • What the judge had for breakfast.

Posner and Law & Economics:

  • Law regulates and affects the economy.
  • Application of economis science to law.
  • Legal rules are efficient and should be efficient.
  • Efficieny means mazimisation of the social willingsness to pay (wealth maximisation) on the basis of a cosy-benefit analysis.

Wealth maximisation: social wealth: aggregate of the values/worth that people attach to things from their point of view. Is not reducible to measured wealth but includes the value people attach to things (social willingness to pay). Comparison of offer price with asking price.

In a market without transaction costs, law doet not matter. The market determines the allocation of goods and entitlements thorugh the comparison of asking and offer prices. The partiet achieve wealth maximising outcomes: goods ans entitlements are allocated to the party that values the most. But legal rules allocate rights and duties in a market with transaction costs.

-> Function of the judiciary: reduction of transaction costs.

Judges and wealth maximisation:

  • Judicial common sense corresponds the economic rationality. Many areas of law are influenced by economic considerations and imitate market transactions.
  • Judicial impartiality promotes economic efficiency: the invisible hand of the market has its counterparts in the aloof disinterest of the judge.

Judges as wealth maximisers:

  • Judges have an interest in deciding cases in a cost-effective way (to avoid appeals).
  • Judgements as response to the popular demand for cost-effective rules governing property, safety etc.

Human beings are rational wealth maximisers:

  • Guided by a calculation of costs and benefits.
  • Seek to attain pre-determined goals to be the greatest extent possible with the least possible costs.

Posner vs Singer on animal rights: chimpanzees example.

Legislation lowers transaction costs: of legal rules are promulgated permtting torture in defined circumstances, officials are bound to want to explore the outer bounds of the rule. Legal compliance is contingent on cost-benefit analysis: it is better I think to tisch with out perhaps overtly strict rules, trusting executive officials to break them when the stakes are high enough to enable the officials to obtain political absolution for their illegal conduct.

If the costs of breaching the law are lower than the benefits of the unlawful act, breaching the law is the most efficient way to maximise wealth.

Critique on Posner: the principle of wealth maximisation does not correspond to individual and social interests (common sense). Wealth maximisation is agnostic to the initial (unequal) distribution of wealth. Wealth maximisation can contradict our moral intuitions.

Posner: wealth maximisation counteractes inefficient initial unequal distributions of rights and enhances the average wealth of the poorest. Correlation of wealth maximisation with moral intuitions: the stronger moral intuitions, the higher the transaction costs of acting against them.

Legal realism: focus on human reality underlying law.

  • Handy: law is a human creature, and judges are human beings.
  • Holmes: law consists of predictions what courts will do in particulr cases.

Legal instrumentalism: focus on social purpose that the law serves.

  • Handy: laws are tools to foster goals in society.
  • L&E: laws are/should be geared towards wealth maximisation.
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