Karl Llewellyn and the Origins of Contract Theory

Abstract

This essay reviews a relatively neglected body of Llewellyn's work, the contract and sales articles he published between 1925 and 1940. The essay claims that Llewellyn was an important founder of the modern law and economics approach to regulating contracts. He argued, among other things, that the state should reduce contracting costs, draft default rules for parties and use economic thought to understand parties' contracting behavior. Llewellyn's recommendations for rules to govern concrete cases, however, are out dated because the economic thought of his time was too primitive to offer policy analysts much help. Analysts today draw on the economics of information, the theory of finance and transaction cost economics when devising rules to regulate contracts, but none of these bodies of thought were available to scholars of the thirties. The essay concludes with a showing that Llewellyn's contract scholarship differed substantially from the current view of what legal realist scholarship was like in general and what Llewellyn's work was like in particular. On these views, there was no law and economics in private law until modern times. This seems mistaken.

JEL Classification: K12