Good Law & Economics, Bad Law & Political Economy

In recent years, a burgeoning literature under the intellectual umbrella of the “Law and Political Economy” (LPE) project has emerged, in response to an alleged disregard of the political and social embeddedness of both law and economics. The focus of our paper will be to render these assumptions explicit in order to argue twofold. First, whatever may seem “new” in LPE is an artifact of the LPE scholars and their conflation of what they refer to as “law and economics” with the “economic analysis of law.” Rather than reincorporating an economic analysis of how markets processes work within a set of legal institutions (i.e. law and economics), they engage in a misplaced critique of an idealized market outcome, implying that markets are always efficient independent of the legal context within they operate (i.e. economic analysis of law). By failing to distinguish between these two analytical approaches, what is overlooked is that the same analytical starting point motivating the “new” LPE movement had been shared by an older tradition of “law and political economy” that took root in the Virginia School tradition of political economy. Secondly, by failing to understand this shared analytical starting point with the Virginia School, we regard the issues and criticisms of the LPE movement as a missed opportunity to diagnose the underlying causes of the social maladies they are highlighting. From a Virginia School standpoint, the very social maladies highlighted by the LPE movement are not caused by any inherent failures of market processes, but, rather ironically, a consequence of LPE scholars failing to embed market processes within a broader liberal market order.

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