Free Trade Free for All: Market Romanticism Versus Reality

Jamee K. Moudud – 

The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.

This type of political theater draws on a romanticized view of international trade and its persistent conflict with empirical reality. As an explanation of global trade relations,  the Heckscher-Ohlin-Samuelson (HOS) model of foreign trade relies on both of the standard neoclassical assumptions about “efficient” markets. First, it assumes perfectly competitive markets, composed of many, small firms, each without any  ability to set prices. Second, it assumes that there are zero externalities to economic transactions, meaning that transactions do not have any un-priced, third-party effects. And of course, the model assumes the economy  is fundamentally based on barter, according  no roles for money, credit, and effective demand. The absence of money implies that there is no possibility of an increase in liquidity preference (a term coined by Keynes to describe the desire to hold cash rather than illiquid assets) in uncertain times and thus no possibility of shortfalls of effective demand. Together, these propositions of the HOS model predict that a legal framework of “free trade” will produce balanced trading relationships on the international level and full employment in each domestic economy. Significantly, assuming that there is perfect competition implies that firms in each country, regardless of its level of industrialization, have access to the same technology needed to produce goods for the international market. Perfect competition implies that no firm injures others, a point of view that has been challenged by many authors. (See the edited volume by Moudud, Bina, and Mason Alternative Theories of Competition: Challenges to the Orthodoxy). The core aspect of the broad alternative perspectives is that firms do seek to damage each other by attempting to take away market shares via price-setting and cost-adjusting processes. This has nothing to do with either “perfect” or “imperfect” markets.

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State Power and the Construction of Contractual Freedom: Labor and Coercion in Bailey v. Alabama

Noah Zatz – 

If forced to choose, I might pick Bailey v. Alabama as my favorite contract law case. That is, if it even counts as one. Which is pretty much my point. Decided in 1911, Bailey is a criminal case – Lonzo Bailey was convicted for fraud.  It is also a constitutional case – the Supreme Court struck down the conviction as violating the Thirteenth Amendment’s prohibition of involuntary servitude. A labor case, too – the criminal statute specifically targeted workers who took advances on wages and then later quit before paying the debt. And a race case, though the Court denied it – Alabama’s “false pretenses” statute was one cog in the wheel of Jim Crow neoslavery. But yes, also a contracts case (in a libertarian’s casebook, no less!) because the Court used the case to erect a boundary between criminal and civil consequences for breach of contract.

This overflowing of conventional doctrinal boundaries makes Bailey the perfect vehicle to deliver key insights of a Law & Political Economy approach. So much so that I will do it over multiple posts.

In this first installment, Bailey punctures the ubiquitous conceit that there is or could be an autonomous sphere of economic life – “the free market” – that stands apart from politics, from contests over whether and when to authorize the coercive exercise of governmental power. That contrast between economic freedom and political power is ubiquitous, as in the language contrasting “private” law with government “intervention” in the market (via “public” law). This conceit renders unremarkable what might seem contradictory: a ubiquitous politics that abhors government regulation (of “the economy”) yet thirsts for a state that is “tough on crime.” Continue reading

Law, Political Economy, and the Legal Realist Tradition Revisited

K. Sabeel Rahman — 

As David, Amy, and Jed note in their opening post, the economic, social, political, and ecological crises of the current moment are helping fuel an exciting wave of legal scholarship. This emerging trend, the “law and political economy” (LPE) approach, interrogates the relationships between law, politics, and economics, exploring issues of power, inequality, democracy, and social change. As we explore what this approach might mean and what its implications might be, it is important to situate these inquiries in a larger history of legal scholarship and reform politics. This is not the first time that a similar moment of crisis has helped spur creative new thinking about the relationships between law, capitalism, and democracy—and it won’t be the last. In this post, I want to sketch a particular aspect of this trajectory: the long legacy of legal realism and its relationship to our current debates around law and political economy.

This legacy is important for two reasons. First, now, as then, we face a similar period of socioeconomic upheaval and political conflict, prompting us to rethink our legal structures. As a result, the substantive insights of legal realism remain valuable for an LPE approach today. Second, recalling the trajectory of legal realism and its successor intellectual movements is helpful in highlighting the kinds of tensions and questions that an LPE approach will have to continue to address.

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