Law, Morality, Trust, and their Limits

-- By EdiRumano - 16 Feb 2012

This paper is an exploration of the benefits and challenges of reductionist economic thinking, and the strengths and benefits of moral arguments. In “The Moral Foundation of Economic Behavior” (2011) David Rose examined the role of trust and the internalization of moral beliefs, and how this internalization affects cooperation among individuals.

The essence of Rose’s argument is that in the absence of methods of enforcing an agreement, such the lack of surveillance or law, people will engage in cooperate behaviors only when the risk of free-riding or breach is minimized because individuals internalize rules of behaviors. For example, we would be unwilling to lend money to someone we can’t monitor or reach unless we are assured that he will behave ethically.

Rose’s starting point, that the moral structure of societies plays a fundamental role in their economic development through their members’ ability to cooperate, isn’t a particularly new idea. That cooperation depends on, among other things, trust, is also obvious. Rose’s contribution lies in his exploration of what beliefs are the most useful in facilitating trust and cooperation if a society’s sole objective is to maximize “general prosperity.”

My initial inclination was to explore what role the law plays in furthering cooperation and trust. However, even on a cursory examination, it’s apparent that the law’s role is both weak and contradictory. For instance, certain aspects of contract law serve to further reliance on promises, while other aspects invite and promote breach. Whole parts of the law have nothing to do with cooperation and trust and instead focus on risk allocation, or freedoms not justified on any economic basis. In short, reducing law to its function as a transaction cost is both under-inclusive and over-inclusive.

On reexamination, I find myself questioning the reasons for my motivation. Even if all the above is true, why I am interested in maximizing “general prosperity”? Rose defines that term as the maximum production of goods and services, but I don’t find that particularly convincing as prosperity. Unanswered in that definition are questions about sustainability, distribution, and justice.

The reductionist economic framework is tempting. With this tool, you can neatly assemble all of life’s messy bits (morality, cooperation, trust) into a machine that takes in rationally self-interested human beings, applies some incentives, turns the crank, and out comes “prosperity.” Like other ideologies it seems to be universal and self-evident after enough repetition. The econodwarf seems tall when you stoop to his level. Steering away from reductionism, I believe it’s important to recognize an important contribution from Rose’s work: there are large areas of our lives where economics and law can’t reach, and in which our behavior is guided only by our morality.

I immediately feel awkward making such an argument, as arguments based on “morality” are loaded with negative connotations, especially in today’s political climate. But if our role as lawyers is to imagine a set of social relations and to try to make them a reality through our powers of persuasion, then it is also important for lawyers to recognize the limits of the law and the limits of economic incentives. The promise of a future reward or the threat of a future punishment can only go so far. If we seek to bring about a set of social relations that are just, then our task doesn’t stop at changing legal and economic incentives, but extends into making normative, moral arguments.

Creativity in legal thinking requires the amalgamation of different ways of thinking and different fields. Just as reductionist economics can be helpful but shouldn’t be the only tool, moral thinking can help generate insights, along with historical analysis, and sociological and psychological frameworks. Moral arguments also have strength where other tools fail, by advocating self-regulation in the absence of a watchful authority.

As future lawyers, we shouldn’t be afraid of making these arguments. Sticking to supposedly objective economic arguments, a la Posner, is both limiting and unhelpful.