A "Law and Personal Finance" View of Legal Origins Theory

Abstract

What makes Legal Origins Theory so interesting is its claim to be more than simply a set of results. It claims to offer prescriptive value for policy development. Beyond simply offering a descriptive narrative of what legal choices in the past have led to the economic consequences of today, it purports to offer ex ante a narrative on what economic consequences will arise tomorrow from legal conditions today. Put crudely, if we were to form a new country today, we would see future outcomes determined by which legal family our new country belongs. These outcomes would be consistent with what we have seen in the past. Or so the Theory holds!

This claim of inevitability may overstate, to some extent, the claims of the primary proponents of the Theory. Some have dubbed it the "strong form." However, without some assertion of predictive value, the Theory becomes substantially less interesting. To say that certain good economic outcomes have come out of certain legal policies is, of course old beer. To be something more than another in a long line of law and economics papers, "law & finance," as some have labeled LLSV's work, needs to find a "big truth." And like any assertion of discovery of a big truth, no matter how modestly stated, the assertions of Legal Origins Theory have attracted critics. I would join their ranks.

There are two aspects to Legal Origins Theory that I find the most difficult to accept. Professors Aguilera and Williams' paper highlights one, Professor Fairfax's, the other.