Well, Rich reminded me this morning that the last time he and I were on the same panel,
I caused Jack Kemp to blow a gasket and run out of the room.
This was a long time ago, but I became instantly famous over that.
Anyway, it involved some comments on Rich's paper where I said he and his partner in crime, Galloway,
should have gone back another hundred years with their data to the Civil War era,
because there was a paper on the growth of government and that because you know
we had the first income tax, the first military conscription, the National
Currency Acts, seemed to me they were a boost to big government then and Kemp
just couldn't tolerate it and ran out of the room cussing and swearing and I
didn't even mention his hero Lincoln's name but he took it as an insult to
Abe Lincoln. Anyway, as Peter asked me to comment on a paper of
Henry's wrote five years ago called how law and economics was marketed in a
hostile world a very personal history and Peter asked me to do this one I guess
because I was a graduate student at VPI in the 70s I was student of Jim Buchanan
Gordon Tullock and a lot of the faculty were publishing in the Journal of Law
and Economics at the time my office mates for a couple years was Henry
Butler who left and went to the University of Miami is one of your early
Students at Miami in Law and Economics. And so I was sort of a fly on the wall of the
development of the public choice segment of Law and Economics. And also a lot of the faculty
were publishing in the Journal of Law and Economics and Journal of Legal Studies and
places like that. And then of course I was a colleague of Buchanan and Tollex at George
Mason for several years too. And so I guess Peter for some reason thinks I would have
I have some insights on this, on Henry's entrepreneurship.
And one thing I'll say about his famous article,
Mergers in the Market for Corporate Control,
is I would never have been surprised at all
if I had read that article for the first time
and an Israel Kirzner or Fritz Machlop were the authors of it.
It's very good sound economic analysis based on a real-world problem.
That's what attracted me to the Austrian School in the first place
when I was a student, that sort of research.
And so I'm going to read you some of the things that Henry says in his article.
It really reminded me of really the parallel between the development of public choice and law and economics.
He says the law and economics was, quote, a bad joke originally in a lot of places.
That's how public choice was treated. When I first went to graduate school,
I talked to some of the students who had been there for a few years and were out interviewing for jobs.
They would come back saying they'd go to some economics department somewhere and there would be like uproarious laughter at what they were doing, applying economic analysis to political institutions.
And these are people who eventually would publish these articles, their dissertations, in pretty good journals.
But the economics profession was so, you know, they thought they had the market failure way of looking at economics so nailed down that any challenge to that was they would just laugh.
and those are the same thing and Henry said another quote is quote I was
probably the most reviled law professor in America end quote and that's it that
was a good thing that was a good thing that he was reviled if the right people
hate you you're doing the right thing and and Buchanan and Tullock and the
others face this too it reminded me instantly of Jim Buchanan and Jeff
Brennan wrote a book called The Power to Tax and in it they made the argument
and that excise taxes are more virtuous than the income tax because there's more escape
routes for the consumer, for the taxpayer. It's easier to escape paying taxes. And it
was reviewed in the economics journal, which is kind of prestigious economics journal and
the reviewer called them fascists for making an intellectual argument for limiting government.
And so there certainly was a lot of that. Henry talks about ideological discrimination
against the Whole Idea of Law and Economics.
Well, I've heard this story many times
of why Gordon Tullock didn't get tenure
at the University of Virginia,
which is why they all ended up at VPI.
Where I went to school was the president
of the University of Virginia.
Said he just could no longer tolerate all this individualism
among the faculty associated with the economics department
and the public choice center.
And so they had that kind of discrimination too.
And, but an important point that Henry makes in his essay, I thought, was, you know, he's talking about the anti-Chicago school bias in academe.
But one of his statements is, most of this was overcome by, quote, the raw intellectual power of the works of Milton Friedman and Friedrich Hayek, end quote.
And that's certainly true. I think that's what happened with public choice, too, that, you know, I get there in graduate school and I'm thinking, what am I doing?
The people who have been there for three or four years are interviewing and are coming back saying there's no hope of getting this job. They laughed at me and things like that.
But the sheer intellectual power of someone like Henry Manning, I would add, into that group of Milton and Hayek did overcome these things.
So nowadays, public choice is pretty much a mainstream discipline.
The kind of economics that was taught in Henry's famous seminars for judges
was the same economics that every graduate student in the public choice school,
at least when I was there, was told you had to learn this first.
That is the Alcheon and Allen textbook.
And this was the most Austrian-friendly textbook at the time.
University Economics was the title of it.
And it incorporated property rights and transactions costs
and, you know, it explored the incentive effects of alternative property rights regimes
as opposed to the sort of the mechanistic engineering problems that you would learn
in other economics textbooks. In fact, the first thing the older students told me when I was a
first-year graduate student is to pass the comprehensive exams, the first thing you have to do
is just master Alchean and Allen, you know, then you can learn all the other more sophisticated
stuff. Then you can learn all the game theory and all this stuff, but you're
gonna have to answer several questions on the prelims that are sort of Alchi and
Allen questions. So every graduate student there in my day anyway, in
addition to all the coursework, made sure you understood Alchi and Allen inside
and out, and I've talked from it for the first several years out of school,
but by that time it was too advanced for undergraduates in the most American
University, alcohol-soaked sex fiends, as Richard said. It doesn't really work with undergraduates, but it was a great book at the time. It was very Austrian-friendly.
Speaking of that, a lot of the work in law and economics, one of the fields I published over the years is industrial organization.
And there was somewhat of a revolution in the Chicago School of Law and Economics movement in the antitrust area.
And sort of one of the famous books is Industrial Organization, The New Learning.
I'm sure Peter is very familiar with this.
And I always thought, well, this is not new at all.
This is the old learning of how the Austrians thought of competition as a dynamic, rivalrous process.
Some of the classic articles, for example, a real simple, even simplistic article by the late Yale Brozin,
at Yale-Broson, where some of the Harvard economists would look at just correlation coefficients between profitability and industrial concentration and just the mere existence of a correlation they claimed proved that there was market power there, that the concentration somehow caused monopoly power, case closed.
All Yale-Broson did was to look at the same data, the same industries, over time.
Look at 20 years prior to this date where they collected these data, and what happens
to market shares?
Well, there was a big movement from the top earners down toward the median, and most of
the ones from the bottom ascended up toward the median also.
And so manufacturing, he thought that was very competitive.
and Harold Dempsets too, some of his hallmark articles, one of them in particular, he looked
at the same data set that Rosen was looking at and he noticed that within an industry
that had high profitability for an extended period of time, there were some companies
that had much higher profit margins than others.
Why is that?
Well, they were bigger and they had economies of scale.
And so, in other words, what they did was to disaggregate these data and that's the
is the kind of thing Austrians would do and that point was very powerful that Harold Demsitz came up with and it really broke the back of this old system of just assuming industrial concentration meant monopoly power of some kind and I always thought that well this is very Austrian and I've probably several articles in it also. Another aspect of law and economics that I would never be surprised if I heard someone who calls himself an Austrian economics
The famous article about the lighthouse in economics and Stephen Chun, the fable of the bees, these articles that challenge the market failure ideas in the economics profession.
This is exactly the kind of thing Austrians have done and ought to be doing a lot more of in good, solid historical research guided by economic theory.
And they really did a great job in debunking these assumptions that markets fail based on just theorizing.
My students always laugh when I teach this stuff and I talk about Stephen Chung's famous essay,
famous among law and economics people, anyway, The Fable of the Bees,
that he did something very unusual for an academic economist.
He actually got up out of his swivel chair and looked around outside.
And for those of you who aren't familiar with this, for decades in economics literature, an example of market failure was apple orchards and beekeepers.
The bees pollinate the apple orchards, the apple orchards feeds the bees.
There's a reciprocal positive externality, but generations of economists said there's market failure here because there's no way of compensating this externality.
Stephen Chun found out that for generations the beekeepers and apple orchard owners had had very
explicit contracts doing just that, paying each other. If there's money to be made, someone will
figure out how to make it, in other words. And so in Henry's, his seminars for judges, they've had
had just a tremendous impact. Just in my own studying of some of the antitrust literature,
Well, probably one of the worst, the dumbest statements ever made by a judge was Judge
Learned Hand in the Alcoa Antitrust Case and I can paraphrase it, I didn't bring it with
me right here, but he found Alcoa guilty of having the best management around and never
missed an opportunity to cut costs or to hire the best people and his condemnation of Alcoa
sounded like what should be in every MBA student's package of knowledge of how to run a good
Company, and hopefully, I'm sure, the Law and Economics Center and its programs with
judges did a lot to defeat that.
And here's my favorite statement, although in Henry's paper, quality innovation in an
institution, that is, institution of higher education, is inversely related to the power
that the faculty exercise.
And he's talking about how he created the Law and Economics Center at George Mason,
and that is certainly true.
I almost had an opportunity like that myself, but I was too much of a chicken where I had
a trustee member of a small college in Maryland say, we're going to kick out this president.
He wanted me to be a candidate for the president of this small college with my job of firing
two-thirds of the faculty.
This was about 12 years ago, and I regret that I didn't take him up on it, but the time
wasn't right.
If he called me back today, I would do it just for the fun of it, even if I didn't succeed.
Richard Vetter would be the first person I would hire as my assistant in doing that.
And so, anyway, the lesson I get from, I would recommend, read this article that's online by Henry,
how law economics was marketed in a hostile world about how an academic entrepreneur can prevail.
So Henry is sort of the Chicago school Lew Rockwell, in my view, as far as what he has achieved.