The Download of the Week is The Invisible Hand in Legal Theory by Adrian Vermeule. Here is the abstract:
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Theorists have offered invisible-hand justifications for a range of
legal institutions, including the separation of powers, free speech,
the adversary system of litigation, criminal procedure, the common law,
and property rights. These arguments are largely localized, with few
comparisons across contexts and no general account of how
invisible-hand justifications work. This essay has two aims. The first
is to identify general conditions under which an invisible-hand
justification will succeed. The second is to identify several
theoretical dilemmas that arise from the structure of invisible-hand
justifications and that cut across local contexts. These are the
dilemma of norms, which arises because norms of truth-seeking, ethical
action or altruism can both promote and undermine the workings of the
invisible hand; the dilemma of second best, which arises because
partial compliance with the conditions for an invisible-hand
justification can produce the worst of all possible worlds; and the
dilemma of verification, which arises where theorists claim that an
invisible-hand process functions as a Hayekian discovery procedure - a
claim that is empirical but pragmatically unverifiable.
Highly recommended. Download it while it's hot!Do invisible-hand justifications actually work, in a given domain? Across all domains, theorists recognize that the question is at least partly empirical. The preferred mode of argument is then to implicitly shift the burden of proof to the other side. One criticism of Bickel’s contest theory of free speech, for example, is that “[t]he equilibrium theory remains impressionistic and relies on premises that are both unsupported and unlikely.”87 As for the broader claim that the marketplace of ideas produces truth, its “most prominent weakness” is “[t]he absence of . . . a demonstration, in the face of numerous counter-examples,” that truth tends to prevail over falsehood.88 Likewise, a standard criticism of the argument that the adversary system produces truth is that it is merely “a hopeful supposition derived from advocacy ideology. There is no empirical evidence indicating that the contests of advocates deliver truth in this manner.”89 Such arguments rarely explain why the invisible-hand justification should be rejected if there is no evidence for it; the situation is equally compatible with there being no evidence against it, and the lack of evidence favoring the invisible-hand justification is not the same as positive evidence that the justification fails. The critics, that is, confuse or exploit the distinction between absence of evidence and evidence of absence.
This implicit burden-shifting is the usual stuff of legal argument, but I believe that the empirical problems surrounding invisible-hand justifications go deeper than in many other domains. The key problem is that invisible-hand justifications typically include an express or implied claim that competition serves as a discovery procedure.90 The action of participants in express or implied markets itself generates information, to which the analyst may have no other means of access.
Hayek famously made this claim as to explicit economic markets, yet Hayek also suggested an analogy between markets and many other social and political institutions that harness competition, such as “sporting events, examinations, the awarding of government contracts, [and] the bestowal of prizes for poems, not to mention science.” Such institutions, Hayek suggested, are justified when and because we do not otherwise know the information that the competition is designed to reveal. “It would be patently absurd to sponsor a contest if we knew in advance who the winner would be. . . . The only reason we use competition at all has as its necessary consequence the fact that the validity of the theory of competition can never be empirically verified for those cases in which it is of interest.”91
On the logic of this claim, we might have no independent access to the information by which to judge whether an invisible-hand justification does or does not work. As to explicit markets, the analyst who asks the question is a single mind, and on Hayekian premises can never generate the information that socially distributed knowledge can produce through the price system. In the context of adversary criminal trials, “[w]e can’t learn directly whether the facts are really as the trier determined them because we don’t ever find out the facts.”92 This is slightly overstated, because in a tiny fraction of cases DNA evidence or other conclusive proof emerges after the fact, yet it seems a valid generalization. In the setting of free speech, it might be argued – although to my knowledge no one has done so – that it is pointless to ask whether the marketplace of ideas really tends as a general matter to produce truths that cannot otherwise be discovered. Putting aside the possibility of divine revelation, it is not obvious what independent source of truth could be appealed to without begging the question.
The lack of independent access to the information supposed to be generated by competitive processes insulates Hayekian invisible-hand justifications from criticism, but the price is high. Where competition is said to function as a discovery procedure, the success of the invisible-hand justification will be empirical but pragmatically unverifiable. This makes it just as hard for proponents of the invisible-hand justification to prove their case as it is for critics to disprove.
Given this inherent difficulty of direct access to the necessary evidence, proponents and critics fall back upon indirect strategies of assessment. For their part, critics examine the inputs into the competitive discovery procedure in order to indirectly impeach its outputs. A typical response to the informational argument for the adversary system, for example, is that it would be astonishing if the partisan motivations and rhetorical tricks of advocates tended to cancel each other out, rather than simply deepening the jury’s confusion and thus tending to produce random outcomes.93
The problem with such arguments is that all invisible-hand processes are astonishing,94 in the sense that their inputs always seem disreputable taken in isolation. A narrow focus on the self-interested motivations and self-serving actions of individuals in local contexts will always make it seem surprising that the aggregation of individual motives and behaviors could produce social goods overall. That is the very point of invisible-hand justifications, their central alchemy. It is a straightforward fallacy of composition to assume that because market participants are self-interested, the market as a whole cannot serve the public interest, however defined. It is equally fallacious to assume that because advocates in jury trials use rhetorical tricks, the interaction of their efforts must simply sow more confusion.
