Old Law Is Cheap Law
17 Pages Posted: 20 Nov 2020
Date Written: July 1, 2020
The legal system has expanded enormously over the centuries. The number of rules has grown exponentially, and so has the capacity of the legal system. In this paper, I show that the growth of legal rules can best be understood as a function of the growth of the capacity. A larger capacity changes the law in several ways. First, it allows the law to attack more types of undesirable behavior. When the legal system’s capacity is limited, it can attack only the most harmful acts. As capacity grows, it can also attack acts that are less harmful at the margin. Take pre-contractual liability — rules that deal with bad behavior during negotiations that do not lead to a contract. Although this act is socially harmful, its harm tends to be low — usually just the time lost by the candidates. In addition, adjudicating such cases is labor-intensive, as proving the parties’ intentions and statements during negotiations is intrinsically difficult. Not surprisingly, no court on this planet accepted pre-contractual liability cases before the 20th Century. Second, a larger capacity allows courts to use rules that are better but require more work for the courts. Consider the strict, 17th-century version of the parol evidence rule. The rule held that whenever there was a writing, no “parol evidence” (literally, “oral evidence,” for instance testimony from witnesses) was allowed. A strict parol evidence rule is cheap law: Courts only have to read within the “four corners’ of the document. On the bright side, this allows courts to decide cases in fifteen minutes, so to speak. On the not so bright side, this often leads to courts getting the facts wrong as the writing does not always reflect the true agreement. In the 19th and 20th century, American courts carved out a growing list of exceptions. Today, parol evidence is permitted in a wide range of circumstances, for instance, when the document contains an error or looks incomplete. In some American states (the so-called “Corbin jurisdictions”), parol evidence is permitted even to contradict written terms. All these exceptions lead to higher-quality outcomes (courts are more likely to discover the truth), but they also require more work from the courts. Given capacity constraints, a strict parol evidence rule may have made sense in the 17th Century. By “old law is cheap law,” I mean that in the past, when the economy was less developed, law was a product society spent less money on. Law was, in other words, a low-quality-low-price product. Just like low-income people buy a cheap house or a cheap car, poor societies buy cheap law. Cheap law is of lower quality in that it tolerates more harmful acts or leads to courts getting the facts wrong more often.
Keywords: legal evolution, legal capacity, parole evidence, precontractual liability
JEL Classification: K00, K40
Suggested Citation: Suggested Citation