NARRATOR: Thanks for joining this episode of the No. 86 lecture series, in which Professor Richard Epstein discusses what the Common Law is. This lecture is part of a series with Professor Epstein on how simple Common Law principles give us tools we can use to deal with complex technological and social challenges. Professor Epstein is one of the most prominent legal scholars of our day. He is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, a Senior Fellow at the Hoover Institution, and Professor of Law Emeritus and a senior lecturer at the University of Chicago. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. - PUBLIUS: What are the basic principles of the Common Law? RICHARD EPSTEIN: Right now, the traditional way in which you study the common law is to divide it up into segments and to worry less about the way in which the pieces fit together and more about the details of each particular area. What I'm going to do today is to try and reverse the process and show how it is that when you look at the four major branches of common law, property, contract, tort, and restitution, how they fit together to form a much more coherent whole, so that if you understand the ways in which these particular rules are done, you can basically put together a rather complete view of human interactions. It is often said that you should be morally relativistic in thinking about the way in which the common law is put together, but a series of simple examples show you that that cannot be the case. Take a case where somebody konks somebody else over the head with a brick and then the answer is ought he to be responsible for what's going on? You could easily imagine situations where this may be justified, but I don't think anybody says that as a matter of course, everybody's entitled to strike everybody in any way they see fit. If one person can do it, everybody can do it, and the moment you have the unlimited use of force, you get a complete disintegration and destruction of the social order. You cannot be a moral relativist about the question of whether or not civilization should or should not survive. In putting together a legal system, it is essential that you have simple rules to guide ordinary conduct. A system of law is highly complex. It regulates not only the way in which judges and other officials administer the rules, it also governs the way in which people conduct their ordinary day-to-day activities. If the basic rules are highly complex, nobody will be able to know what they can do, and this becomes extremely difficult because you have to have interactions on a daily basis with people with whom you have no prior connections, and it's only if the template is simple enough so that you know that you pass on right, that you keep your hands to yourself, and so forth, that ordinary social life can go forward. And these are the basic principles you have: one, the first person to acquire an unowned object is its owner. Second, if you make a promise, you ought to keep it. Third, if you engage in aggression, you are engaged in wrongful conduct. And if you start with those three particular premises, you now have the origins of property, contract, and tort. Well one of the questions that you deal with in looking at the common law is the figure out how you put together the systems of property, contracts, and torts. They are taught as separate classes, but in fact, there's a deep intellectual unity amongst them. What happens is the property rules allow you to figure out who's entitled to control what particular assets in the external world and that, in effect, if clearly delineated, avoids all sorts of conflict and strife. Contract law allows you to combine assets amongst different individuals. They can outright swaps of things, so that they are sold from people who value them less to people who value them more, or there can be various kinds of cooperative developments between people in which they combine skills and therefore can produce outputs greater than either of the parties involved could do by themselves. And what the tort law does is says that nobody's allowed to circumvent the rules on property acquisition by taking things from people or by interfering with the way in which they put their voluntary associations together. So if you understand the way the three pieces are put together in this basic scenario, what you can do is see how you can take a series of assets that are out there unused in a state of nature and manage to develop them through individual and cooperative activities to their greatest value, and that would generally be regarded as a social good. If one looks at the three major subjects of the common law, property, contracts, and torts, as isolated elements, there's a great tendency to think that the rules that evolve in each of these particular boxes is arbitrary, artificial, and without any real sense. If you can see the way in which the three parts fit together, how it is that the rules that give you acquisition of property set the stage for voluntary transactions, and how the torts law prevent those things from being disrupted by outsiders, all of a sudden, the particular rules now take on a form and when you see them, you can understand their functionality and rationality. The great achievement here was that the early lawyers managed to put this system together without any of the modern tools of social sciences and what we can do now in retrospect is to take those tools and to explain how it is that rules which were designed as quote natural law principles actually serve the interests of human welfare and human utility. PUBLIUS: Is it really possible to reduce complex areas of the law to simple rules? Even if you believe in simple rules, isn’t the law just too complex? How do the simple rules work in the real world? RICHARD EPSTEIN: With respect to property, the basic rule is that prior in time is higher in right, so that those people who take possession first essentially are allowed to keep it against all subsequent takers. This requires you, therefore, to understand ... sorry that ... after the subsequent takers. This means in effect that once the property rights are established, no individual is entitled to disrupt them. The second principle on voluntary contract and exchange says, in effect, that if you make an agreement with somebody else for the distribution of services on the one hand or property on the other, and both of you agree with the arrangement, then in effect, it's going to be for your mutual gain, and if you can do this with two people, you can do it with many people, if you do it with two people you can do it with many transactions. So the genius of the contract law is that you can take any given set of entitlements and use contracts to move them to higher and better use. Now the system of property and the system of contract has to be protected against outsiders who would like to wreck it by the use of force or by the use of fraud. And so what we do is we develop rules of trespass on the one hand, rules dealing with the interference with advantageous relationships on the other, either by force or by defamation, in order to solidify the first two parts. So the basic overview of the particular system is that the property rules get things into play, the contracts rules put them to their best use, and the tort rules make sure that no outsider can disrupt what voluntary systems have put together. Oh, the simple rules system that I'm talking about is a bottoms up system in which individuals essentially, by individual and cooperative action, try to devote resources to their highest-value use. The alternative system is a top-down system in which government tries to figure out who is going to get what particular assets and how they're to be used. Top-down systems in end rarely work and the reason is that the people who are in charge of them do not have sufficient knowledge of either the tastes or the abilities of the various individuals who are involved in the situation. So what they must do is to sort of make commands on the basis of abstract principles. They often miss human motivations, they don't understand how people will subvert the kinds of commands that are imposed upon them against their will, and in effect, they cannot figure out from the center, how to orchestrate all of these divergent interests. The theory about decentralized behavior is that you bring to bear the knowledge of the people who care most about an interest and those people are the ones who form the contracts and the various social arrangements that you're talking about, and the tort law keeps outsiders from coming in and messing the whole thing up. The more you apply the simple rules, the greater, the more complex arrangements that you can create. Whereas when you do this by government, as you start to create more complex institutions, the motivations of the government officials can intrude in ways that destroy the operation of the rules on the one hand and utter lack of information about individual preferences and abilities means that you can never assign the right assets to the right people through centralized control. So you want bottoms-up to start and the purpose of government is to stabilize these private arrangements, not to define them. PUBLIUS: Can you further explain the importance of private partnerships and why the role of the government should be to “stabilize them, not to define them”? RICHARD EPSTEIN: When one wants to talk about examples of coordination through simple rules, there're two kinds of transactions that you can worry about. One of them is sort of outright transfers of goods and the other is cooperative behavior. When you're dealing with an outright transfer of goods, it's not as easy as you think. You have to figure out when delivery is going to have to take place, you're going to have to figure out what conditions have to be satisfied in order for the buyer to take the goods. These will typically involve warranties having to do with the ownership of the good, called warranties of title or warranties of merchantability, and it's extremely difficult for anybody from the center to tell you what terms and conditions to a sale ought to be done. More importantly, perhaps, is there's no way any government agency can tell you what the price ought to be any particular goods or services that are sold by one party to another. What a market does that a government cannot do is to set a price for sale or a price for labor, which leaves both parties better off than they were before. When government set these prices, it can easily create a situation in which one party would want to move away from the deal. The similar problem arises when you're trying to do coordinated behavior. The simplest arrangement in this particular point is, generally speaking, a partnership and these arrangements in fact have two major kinds of characteristics. One, they're often very explicit divisions, such that I will put in X amount of dollars, you will put in Y amount of dollars, and very explicit divisions of the ultimate gain upon the conclusion of the enterprise or periodic distributions made from it. But these partnership arrangements only work if the two parties act in good faith and in cooperative arrangements with each other. Partnerships essentially cannot specify at the outset all of the rights and duties that people will have, given the huge number of unforeseen circumstances that could arise in any kind of new business. Think about the way in which a startup is going to work and you could realize that business plans can change as much as every day. So generally speaking, what you have to ingraft on a partnership is a good-faith duty and what that means in functional terms is each person when they make their own decision, has to weight the welfare of their partners equally with their own. This is hopeless to do in large social arrangements where people are strangers to one another, but the great advantage of a partnership is you get to pick your partners and if you pick people whom you trust, the chances are that the good-faith obligations can be much more faithfully observed. So the secret about partnership is selection of trading partners on the one hand, coupled with the right mix of fixed rules on the one side and then these good-faith obligations on the other. And only simple rules can get you through voluntary arrangements to those optimal solutions. The second question that one has to deal with in simple rule is how is it you put cooperative ventures together when there's not just simply a sale or exchange of particular services or goods, and these are partnership arrangements. So the see what happens, assume that you have five or six individuals who want together to put together a startup, and what they're going to have to do is to develop, basically, a framework in which they can divide the gains and losses of the venture on the one hand, and determine their obligations on the other. With respect to the first part, generally speaking, the rules are usually pretty rigid. Each person knows how much they have to contribute to the business and what fraction of the profits they're going to take out during its operation or upon sale or liquidation. But the day-to-day operations in a startup are completely chaotic and the effort to try to specify in advance what each of these partners is going to do is, generally speaking, an impossibility. So what the common law rules have always done is to stress the notion of good-faith behavior. This is not as empty as it might sound to some people. What the rule essentially means is that each of you, when you're engaged in your partnership activities, act as if the welfare of your partners is of equal dignity and of equal importance with your own. This is a hard thing to do and the key feature with respect to partnerships is that you get to select your partners. These are people with whom you have some natural affinity. Often they're brothers and sisters, sometimes they're very close friends, and if you have these relationships of trust with one another, the good-faith obligations, in effect, are much easier to discharge. So a lesson that you sort of learn from this is since many complex ventures require good-faith coordination, the most dangerous thing that a government can do is to force people to come together against their will and that indicates the dangers that exist, for example, with the collective bargaining agreements under labor law and also, in many cases, with the anti-discrimination laws, which tell you that there're only certain grounds on which you're entitled not to associate with other individuals. Freedom of association in the selection of partners is what makes the ventures work. All right. The key feature to understand about partnership arrangements is that the first rule is the most important. Everybody gets to select the partners that he or she wants to work with. This selection feature means you choose your friends, not your enemies. You choose people whom you trust, not people whom you dislike, and if in fact you have that arrangement, it's much easier to get the day-to-day operations working because you can divide things under a good-faith principle, where everybody does what they think to be the best thing in search of the common end. If you have forced associations where you have to deal with people whom you don't trust, it's much more difficult to administer the day-to-day operations of one of these constantly morphing cooperative ventures. One of the things that you should understand is that when people engage in partnerships, they also hire other individuals to work for them, and the logic of voluntary exchange means that you want both the partnership agreement and the employment contracts to be freely set. In many cases today, we have situations like minimum wage laws, which basically limit the kinds of arrangements that you could make with individuals on a wage-type contract. And if you set that wage too high, what will happen is people will essentially abandon that kind of arrangement and move to something else, and if they have to move to something else, it's going to be less efficient than the relationship that they had. So the way to understand external government control over prices, over wages, and so forth is that it limits contractual flexibility between the parties. That reduces the gains that they have, but since it makes the arrangement less efficient overall, it also reduces the opportunities that third parties have in trying to form beneficial arrangements with them. And so the whole point to understand here is that the moment that price and wage controls are introduced into a market, the flexibility that you need to move resources to their highest value will be effectively curbed. PUBLIUS: So is a society better off overall with less government interference and a greater reliance on natural law principles? What is “the” natural law? Is it still relevant for a complex modern society or just for historically primitive associations? RICHARD EPSTEIN: The early definitions of natural law derive from the Roman texts of Gaius and Justinian, two great writers, and they point to three particular elements. They note that natural law involves a understanding of the reasons which allow human beings to flourish and they prove that in two ways. One is they show that these particular rules are widely adapted across many different cultures, each of which have very different sort of social and physical origins, and then within any given culture, these are the rules that tend to survive over time. And the reason we call them natural law is the common biological elements and the common elements of the physical world around them are such that if you try to deviate from these particular rules, no society will be able to survive. One of the common views today's is that older principles of natural law are largely irrelevant to legal discourse. This is a radical shift from the views of all that were taken for thousands of years, in which natural law was thought to be the foundation. What one means by natural law is that there are certain kinds of features of the world which are so common and so powerful that any legal system that tries to put things together in ignorance of those things will always fail. So the natural law has always emphasized the following rules. First of all, you had to have some system of marriage in order to secure the propagation of children. You may have different forms as to how people get married, but you cannot do without that particular function. Natural law essentially is always worried about the dangers of force, and so what it always says is that aggression has to be constrained, lest there be complete chaos. Natural law worried about the question of whether or not production can take place. This will take place everywhere on the globe and so you have to have private property for development. Natural law worries about the question of whether or not people communicate and so you must have open systems. No matter where you look, you will always find these particular elements in play. Where legal systems tend to differ on questions of formalities. One system will have marriage by vows, another will have it by handshakes or by other ceremonies. When it comes to the conveyance of property, the formalities will differ. Some people will use a process of a deed, other people will just hand things over manually. When it comes to promising, you may have to swear an oath or you may just be able to make a simple promise. So what the natural lawyers have always said is that the basic relationships of how you acquire property, how you develop property and human talents, and how it is you protect both of these things from aggression are constant, but when the formalities have to be put into place, dealing with the establishment of ownership or the creation of voluntary transactions, those can differ locally. And given the physical constants in the world and the biological necessities for survival, it would be utterly amazing if these basic solutions could be deviated from because the deviations in question would necessarily lead to the destruction, not the prosperity, of the human race. And what the natural law system was generally involved with is what set of legal and social institutions will allow for human flourishing. There has always been a practical end to what is sometimes regarded as an all too mystical philosophy. The basic rule of simple rules that I've talked about rest heavily on a natural law foundation. Natural law has been defined from the beginning of time as involving the following three principles. One is there's a certain kind of natural reason, i.e. the kinds of rule that allow human beings to flourish, and that you try to understand this by both observation and deduction. Secondly, when you start looking to observation, you see the way in which these rules play out across different cultures, in different climates, and in different situations, and you see a remarkable amount of commonality between them. And third, you see the way in which these particular rules survive within a given culture. And the theory is that the ubiquity on the one hand and the survival on the other hand are practical tests of the natural reason that drives the whole system. One of the ways that you understand the power of natural law is the observation of commonality across legal systems. So every legal system will have to have rules developed to deal with marriage, but the formalities associated with marriage will differ. Every legal system has rules that make sure you can certify who owns things, but the rules of first possession will nonetheless remain constant. Every legal system will have to have rules that allow for the transfer of property by sale, but the formalities, whether they're in writing or whether or not there's some other special kind of oath that must be said, may well differ. And so what you see throughout legal systems is that the underlying social relationships having to do with cooperation, marriage, sales, hire, and so forth, are all the same. The formalities may differ depending upon the seriousness of the transactions and the repetity by which they take place. Nobody signs a deed to buy or sell a newspaper. Everybody signs a deed to buy or sell a house. Natural law essentially are a set of principles that all societies are supposed to observe, independent of the will of the sovereign. Positive law is a very different principle, which says that the sovereign in any particular jurisdiction can make the law. Within the benevolent world, what happens is the sovereign does the following thing: it notes, for example, that property rights have to be created, but if realizes that there'll be huge evidentiary difficulties unless you develop a system whereby transfers are made clear through some kind of ceremonies and perhaps a registry is established to figure out who owns what plot of land. Dealing with voluntary contracts, it's often difficult to figure out when they are formed and so what the sovereign will do is to say that the following formalities, a writing or an oath, is used to make sure that everybody knows that a contract has been entered into. One of the things that one deals with in positive law is the question of whether or not it's a force for good or a force for evil. When the positive law is engaged in setting out sensible formalities to allow voluntary transactions to take place, it works for the good. But the old maxim, which says that whatever is pleading unto the prince hath the force of law, carries with it the real danger that tyrannical rulers will essentially announce that natural law principles need not be followed and that the state can impose upon individuals whatever rules that it wants. So to take the most ancient example, slavery is always inconsistent with natural law because it doesn't respect the autonomy and the equal autonomy of all individuals. Nonetheless, slavery was countenanced by positive law so that what you do is you see many legal systems based upon natural law systematically flouting it on this one vital issue. And in the end, the importance of natural law here is that it gives you a powerful way in which you can criticize the way in which the particular system operates and to point out the dangers of positivism if what positive means that the sovereign has an untrammeled will and can do whatever he or she wants to his subjects. Another one of the difficulties associated with natural law theory is it makes an appeal to a state of nature. This is both a philosophical device on the one hand and a historical necessity on the other. When people say that law starts with the state, they forget that that state is a relatively late development in human history, and when one refers to a state of nature, you're referring to individuals in which there is no central authority and what they do essentially is to figure out how they interact with one another. In a state of nature, it turns out if aggression is always allowed, it will mean essentially that nobody can flourish, so the natural lawyers say that in a state of nature, each person has a natural liberty to acquire property and to enter into voluntary transactions, but must engage in the mutual renunciation of force against one another. Natural law systems cannot enforce these rules. Early on, they're not enforced by the states, but they're enforced by families and by clans whose common genetical origin mean that there's enough self-interest and shared interest amongst these individuals that these rules prove stable. But when it comes to a clash between two clans, often what happens is that war results and one of them may be conquered or destroyed. And so the great challenge has always been to take the natural system of rights that people need, i.e. in a state of nature when there's no government to enforce it, and then to figure out how to create a government which is strong enough to enforce those rights but not so strong as to destroy them. In dealing with simple rules and with natural law, references are often made to the state of nature, and essentially, this is both a historical and an analytical concept. What it means, basically, historically, is that the world begins long before the state is formed and so when people have to figure out what their relationships are with one another, they must do so under circumstances where there's no central power to tell them what is going on. And what natural law says is in this particular state of the world, the following rights and duties will essentially improve the welfare of the individuals in question, and that immediately gets you back to the universals that we talked about: individual autonomy, the acquisition of property, the need for voluntary transactions, and the need to constrain the use or threat of force. The situation in a state of nature is one in which you have very elaborate rights and duties, but no effective means for enforcement. Individuals, of course, can try to enforce their own rights against others and there's enough which says that, in fact, if you are in possession of territory, generally speaking, you will have a strategic advantage so that you could ward off the outsiders if you're of roughly equal strength. But in many cases, what happens is the balance of power starts to become awkward and individual lives and property are threatened. So the great question is how you organize a transition from a state of nature to a state, where the state is strong enough to protect the entitlements in question but not so strong to destroy them. And essentially, the logic that one uses is the logic of the social contract. Each individual has to renounce the use of force against everybody else. Each individual has to contribute some set of money, sum of money, to the central power. The government then tries to use the power that it receives and use the money that it gets in order to stabilize the natural right relationships amongst other individuals. So the theory is how you make a transition from a state of nature with as little violence to the basic rules of individual autonomy, property acquisition, and voluntary transactions that we talk about, which I why all the great thinkers of the social contract constantly emphasize the mutual renunciation of force for the benefit of all. In dealing with the theory of moving out of the state of nature into society, people often refer to the notion of social contract. To understand it, you have to break it down into two parts. The first part is what is a contract, and generally speaking you have a contract here amongst multiple individuals and what you want to do if it's a contract is to make sure that each person who enters into this agreement is better off than they were in a state of nature. And contracts would allow you to do it, but these are social contracts precisely because the transactional barriers are so high that voluntary agreements cannot achieve the movement from a state of nature into a political state. And what the word social means is that we impose this particular contract on all individuals, but the reason that the social imposition is not tyranny is that every individual who is subject to the force of the state is made better off by virtue of this particular operation because of the parallel restrictions imposed upon the actions of others. And it's this movement from a lower to a higher state of social utility, which makes the social contract justified. And so therefore, what happens is contract is used because it suggests mutual improvement and social is used because it indicates that the improvements that are observed cannot be created voluntarily but require some form of government coercion. NARRATOR: Thank you for listening to this episode in the Common Law unit of the No. 86 lecture series, where Professor Richard Epstein looks at long-established common law and regulatory patterns, and lays out six core principles as building blocks. His approach has roots in Roman Law, Anglo-American Common Law, and early Constitutional practice. These rules regulate human interactions in ordinary social life, and deal with individual autonomy, property and first possession, freedom of contract, and tort. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for more lectures and videos on Property, Contracts, and the Common Law. Thanks for listening. See you in class! - Transcript [for YouTube - no speaker names/verbatim] Thanks for joining this episode of the No. 86 lecture series, in which Professor Richard Epstein discusses what the Common Law is. This lecture is part of a series with Professor Epstein on how simple Common Law principles give us tools we can use to deal with complex technological and social challenges. Professor Epstein is one of the most prominent legal scholars of our day. He is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, a Senior Fellow at the Hoover Institution, and Professor of Law Emeritus and a senior lecturer at the University of Chicago. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. - What are the basic principles of the Common Law? Right now, the traditional way in which you study the common law is to divide it up into segments and to worry less about the way in which the pieces fit together and more about the details of each particular area. What I'm going to do today is to try and reverse the process and show how it is that when you look at the four major branches of common law, property, contract, tort, and restitution, how they fit together to form a much more coherent whole, so that if you understand the ways in which these particular rules are done, you can basically put together a rather complete view of human interactions. It is often said that you should be morally relativistic in thinking about the way in which the common law is put together, but a series of simple examples show you that that cannot be the case. Take a case where somebody konks somebody else over the head with a brick and then the answer is ought he to be responsible for what's going on? You could easily imagine situations where this may be justified, but I don't think anybody says that as a matter of course, everybody's entitled to strike everybody in any way they see fit. If one person can do it, everybody can do it, and the moment you have the unlimited use of force, you get a complete disintegration and destruction of the social order. You cannot be a moral relativist about the question of whether or not civilization should or should not survive. In putting together a legal system, it is essential that you have simple rules to guide ordinary conduct. A system of law is highly complex. It regulates not only the way in which judges and other officials administer the rules, it also governs the way in which people conduct their ordinary day-to-day activities. If the basic rules are highly complex, nobody will be able to know what they can do, and this becomes extremely difficult because you have to have interactions on a daily basis with people with whom you have no prior connections, and it's only if the template is simple enough so that you know that you pass on right, that you keep your hands to yourself, and so forth, that ordinary social life can go forward. And these are the basic principles you have: one, the first person to acquire an unowned object is its owner. Second, if you make a promise, you ought to keep it. Third, if you engage in aggression, you are engaged in wrongful conduct. And if you start with those three particular premises, you now have the origins of property, contract, and tort. Well one of the questions that you deal with in looking at the common law is the figure out how you put together the systems of property, contracts, and torts. They are taught as separate classes, but in fact, there's a deep intellectual unity amongst them. What happens is the property rules allow you to figure out who's entitled to control what particular assets in the external world and that, in effect, if clearly delineated, avoids all sorts of conflict and strife. Contract law allows you to combine assets amongst different individuals. They can outright swaps of things, so that they are sold from people who value them less to people who value them more, or there can be various kinds of cooperative developments between people in which they combine skills and therefore can produce outputs greater than either of the parties involved could do by themselves. And what the tort law does is says that nobody's allowed to circumvent the rules on property acquisition by taking things from people or by interfering with the way in which they put their voluntary associations together. So if you understand the way the three pieces are put together in this basic scenario, what you can do is see how you can take a series of assets that are out there unused in a state of nature and manage to develop them through individual and cooperative activities to their greatest value, and that would generally be regarded as a social good. If one looks at the three major subjects of the common law, property, contracts, and torts, as isolated elements, there's a great tendency to think that the rules that evolve in each of these particular boxes is arbitrary, artificial, and without any real sense. If you can see the way in which the three parts fit together, how it is that the rules that give you acquisition of property set the stage for voluntary transactions, and how the torts law prevent those things from being disrupted by outsiders, all of a sudden, the particular rules now take on a form and when you see them, you can understand their functionality and rationality. The great achievement here was that the early lawyers managed to put this system together without any of the modern tools of social sciences and what we can do now in retrospect is to take those tools and to explain how it is that rules which were designed as quote natural law principles actually serve the interests of human welfare and human utility. Is it really possible to reduce complex areas of the law to simple rules? Even if you believe in simple rules, isn’t the law just too complex? How do the simple rules work in the real world? With respect to property, the basic rule is that prior in time is higher in right, so that those people who take possession first essentially are allowed to keep it against all subsequent takers. This requires you, therefore, to understand ... sorry that ... after the subsequent takers. This means in effect that once the property rights are established, no individual is entitled to disrupt them. The second principle on voluntary contract and exchange says, in effect, that if you make an agreement with somebody else for the distribution of services on the one hand or property on the other, and both of you agree with the arrangement, then in effect, it's going to be for your mutual gain, and if you can do this with two people, you can do it with many people, if you do it with two people you can do it with many transactions. So the genius of the contract law is that you can take any given set of entitlements and use contracts to move them to higher and better use. Now the system of property and the system of contract has to be protected against outsiders who would like to wreck it by the use of force or by the use of fraud. And so what we do is we develop rules of trespass on the one hand, rules dealing with the interference with advantageous relationships on the other, either by force or by defamation, in order to solidify the first two parts. So the basic overview of the particular system is that the property rules get things into play, the contracts rules put them to their best use, and the tort rules make sure that no outsider can disrupt what voluntary systems have put together. Oh, the simple rules system that I'm talking about is a bottoms up system in which individuals essentially, by individual and cooperative action, try to devote resources to their highest-value use. The alternative system is a top-down system in which government tries to figure out who is going to get what particular assets and how they're to be used. Top-down systems in end rarely work and the reason is that the people who are in charge of them do not have sufficient knowledge of either the tastes or the abilities of the various individuals who are involved in the situation. So what they must do is to sort of make commands on the basis of abstract principles. They often miss human motivations, they don't understand how people will subvert the kinds of commands that are imposed upon them against their will, and in effect, they cannot figure out from the center, how to orchestrate all of these divergent interests. The theory about decentralized behavior is that you bring to bear the knowledge of the people who care most about an interest and those people are the ones who form the contracts and the various social arrangements that you're talking about, and the tort law keeps outsiders from coming in and messing the whole thing up. The more you apply the simple rules, the greater, the more complex arrangements that you can create. Whereas when you do this by government, as you start to create more complex institutions, the motivations of the government officials can intrude in ways that destroy the operation of the rules on the one hand and utter lack of information about individual preferences and abilities means that you can never assign the right assets to the right people through centralized control. So you want bottoms-up to start and the purpose of government is to stabilize these private arrangements, not to define them. Can you further explain the importance of private partnerships and why the role of the government should be to “stabilize them, not to define them”? When one wants to talk about examples of coordination through simple rules, there're two kinds of transactions that you can worry about. One of them is sort of outright transfers of goods and the other is cooperative behavior. When you're dealing with an outright transfer of goods, it's not as easy as you think. You have to figure out when delivery is going to have to take place, you're going to have to figure out what conditions have to be satisfied in order for the buyer to take the goods. These will typically involve warranties having to do with the ownership of the good, called warranties of title or warranties of merchantability, and it's extremely difficult for anybody from the center to tell you what terms and conditions to a sale ought to be done. More importantly, perhaps, is there's no way any government agency can tell you what the price ought to be any particular goods or services that are sold by one party to another. What a market does that a government cannot do is to set a price for sale or a price for labor, which leaves both parties better off than they were before. When government set these prices, it can easily create a situation in which one party would want to move away from the deal. The similar problem arises when you're trying to do coordinated behavior. The simplest arrangement in this particular point is, generally speaking, a partnership and these arrangements in fact have two major kinds of characteristics. One, they're often very explicit divisions, such that I will put in X amount of dollars, you will put in Y amount of dollars, and very explicit divisions of the ultimate gain upon the conclusion of the enterprise or periodic distributions made from it. But these partnership arrangements only work if the two parties act in good faith and in cooperative arrangements with each other. Partnerships essentially cannot specify at the outset all of the rights and duties that people will have, given the huge number of unforeseen circumstances that could arise in any kind of new business. Think about the way in which a startup is going to work and you could realize that business plans can change as much as every day. So generally speaking, what you have to ingraft on a partnership is a good-faith duty and what that means in functional terms is each person when they make their own decision, has to weight the welfare of their partners equally with their own. This is hopeless to do in large social arrangements where people are strangers to one another, but the great advantage of a partnership is you get to pick your partners and if you pick people whom you trust, the chances are that the good-faith obligations can be much more faithfully observed. So the secret about partnership is selection of trading partners on the one hand, coupled with the right mix of fixed rules on the one side and then these good-faith obligations on the other. And only simple rules can get you through voluntary arrangements to those optimal solutions. The second question that one has to deal with in simple rule is how is it you put cooperative ventures together when there's not just simply a sale or exchange of particular services or goods, and these are partnership arrangements. So the see what happens, assume that you have five or six individuals who want together to put together a startup, and what they're going to have to do is to develop, basically, a framework in which they can divide the gains and losses of the venture on the one hand, and determine their obligations on the other. With respect to the first part, generally speaking, the rules are usually pretty rigid. Each person knows how much they have to contribute to the business and what fraction of the profits they're going to take out during its operation or upon sale or liquidation. But the day-to-day operations in a startup are completely chaotic and the effort to try to specify in advance what each of these partners is going to do is, generally speaking, an impossibility. So what the common law rules have always done is to stress the notion of good-faith behavior. This is not as empty as it might sound to some people. What the rule essentially means is that each of you, when you're engaged in your partnership activities, act as if the welfare of your partners is of equal dignity and of equal importance with your own. This is a hard thing to do and the key feature with respect to partnerships is that you get to select your partners. These are people with whom you have some natural affinity. Often they're brothers and sisters, sometimes they're very close friends, and if you have these relationships of trust with one another, the good-faith obligations, in effect, are much easier to discharge. So a lesson that you sort of learn from this is since many complex ventures require good-faith coordination, the most dangerous thing that a government can do is to force people to come together against their will and that indicates the dangers that exist, for example, with the collective bargaining agreements under labor law and also, in many cases, with the anti-discrimination laws, which tell you that there're only certain grounds on which you're entitled not to associate with other individuals. Freedom of association in the selection of partners is what makes the ventures work. All right. The key feature to understand about partnership arrangements is that the first rule is the most important. Everybody gets to select the partners that he or she wants to work with. This selection feature means you choose your friends, not your enemies. You choose people whom you trust, not people whom you dislike, and if in fact you have that arrangement, it's much easier to get the day-to-day operations working because you can divide things under a good-faith principle, where everybody does what they think to be the best thing in search of the common end. If you have forced associations where you have to deal with people whom you don't trust, it's much more difficult to administer the day-to-day operations of one of these constantly morphing cooperative ventures. One of the things that you should understand is that when people engage in partnerships, they also hire other individuals to work for them, and the logic of voluntary exchange means that you want both the partnership agreement and the employment contracts to be freely set. In many cases today, we have situations like minimum wage laws, which basically limit the kinds of arrangements that you could make with individuals on a wage-type contract. And if you set that wage too high, what will happen is people will essentially abandon that kind of arrangement and move to something else, and if they have to move to something else, it's going to be less efficient than the relationship that they had. So the way to understand external government control over prices, over wages, and so forth is that it limits contractual flexibility between the parties. That reduces the gains that they have, but since it makes the arrangement less efficient overall, it also reduces the opportunities that third parties have in trying to form beneficial arrangements with them. And so the whole point to understand here is that the moment that price and wage controls are introduced into a market, the flexibility that you need to move resources to their highest value will be effectively curbed. So is a society better off overall with less government interference and a greater reliance on natural law principles? What is “the” natural law? Is it still relevant for a complex modern society or just for historically primitive associations? The early definitions of natural law derive from the Roman texts of Gaius and Justinian, two great writers, and they point to three particular elements. They note that natural law involves a understanding of the reasons which allow human beings to flourish and they prove that in two ways. One is they show that these particular rules are widely adapted across many different cultures, each of which have very different sort of social and physical origins, and then within any given culture, these are the rules that tend to survive over time. And the reason we call them natural law is the common biological elements and the common elements of the physical world around them are such that if you try to deviate from these particular rules, no society will be able to survive. One of the common views today's is that older principles of natural law are largely irrelevant to legal discourse. This is a radical shift from the views of all that were taken for thousands of years, in which natural law was thought to be the foundation. What one means by natural law is that there are certain kinds of features of the world which are so common and so powerful that any legal system that tries to put things together in ignorance of those things will always fail. So the natural law has always emphasized the following rules. First of all, you had to have some system of marriage in order to secure the propagation of children. You may have different forms as to how people get married, but you cannot do without that particular function. Natural law essentially is always worried about the dangers of force, and so what it always says is that aggression has to be constrained, lest there be complete chaos. Natural law worried about the question of whether or not production can take place. This will take place everywhere on the globe and so you have to have private property for development. Natural law worries about the question of whether or not people communicate and so you must have open systems. No matter where you look, you will always find these particular elements in play. Where legal systems tend to differ on questions of formalities. One system will have marriage by vows, another will have it by handshakes or by other ceremonies. When it comes to the conveyance of property, the formalities will differ. Some people will use a process of a deed, other people will just hand things over manually. When it comes to promising, you may have to swear an oath or you may just be able to make a simple promise. So what the natural lawyers have always said is that the basic relationships of how you acquire property, how you develop property and human talents, and how it is you protect both of these things from aggression are constant, but when the formalities have to be put into place, dealing with the establishment of ownership or the creation of voluntary transactions, those can differ locally. And given the physical constants in the world and the biological necessities for survival, it would be utterly amazing if these basic solutions could be deviated from because the deviations in question would necessarily lead to the destruction, not the prosperity, of the human race. And what the natural law system was generally involved with is what set of legal and social institutions will allow for human flourishing. There has always been a practical end to what is sometimes regarded as an all too mystical philosophy. The basic rule of simple rules that I've talked about rest heavily on a natural law foundation. Natural law has been defined from the beginning of time as involving the following three principles. One is there's a certain kind of natural reason, i.e. the kinds of rule that allow human beings to flourish, and that you try to understand this by both observation and deduction. Secondly, when you start looking to observation, you see the way in which these rules play out across different cultures, in different climates, and in different situations, and you see a remarkable amount of commonality between them. And third, you see the way in which these particular rules survive within a given culture. And the theory is that the ubiquity on the one hand and the survival on the other hand are practical tests of the natural reason that drives the whole system. One of the ways that you understand the power of natural law is the observation of commonality across legal systems. So every legal system will have to have rules developed to deal with marriage, but the formalities associated with marriage will differ. Every legal system has rules that make sure you can certify who owns things, but the rules of first possession will nonetheless remain constant. Every legal system will have to have rules that allow for the transfer of property by sale, but the formalities, whether they're in writing or whether or not there's some other special kind of oath that must be said, may well differ. And so what you see throughout legal systems is that the underlying social relationships having to do with cooperation, marriage, sales, hire, and so forth, are all the same. The formalities may differ depending upon the seriousness of the transactions and the repetity by which they take place. Nobody signs a deed to buy or sell a newspaper. Everybody signs a deed to buy or sell a house. Natural law essentially are a set of principles that all societies are supposed to observe, independent of the will of the sovereign. Positive law is a very different principle, which says that the sovereign in any particular jurisdiction can make the law. Within the benevolent world, what happens is the sovereign does the following thing: it notes, for example, that property rights have to be created, but if realizes that there'll be huge evidentiary difficulties unless you develop a system whereby transfers are made clear through some kind of ceremonies and perhaps a registry is established to figure out who owns what plot of land. Dealing with voluntary contracts, it's often difficult to figure out when they are formed and so what the sovereign will do is to say that the following formalities, a writing or an oath, is used to make sure that everybody knows that a contract has been entered into. One of the things that one deals with in positive law is the question of whether or not it's a force for good or a force for evil. When the positive law is engaged in setting out sensible formalities to allow voluntary transactions to take place, it works for the good. But the old maxim, which says that whatever is pleading unto the prince hath the force of law, carries with it the real danger that tyrannical rulers will essentially announce that natural law principles need not be followed and that the state can impose upon individuals whatever rules that it wants. So to take the most ancient example, slavery is always inconsistent with natural law because it doesn't respect the autonomy and the equal autonomy of all individuals. Nonetheless, slavery was countenanced by positive law so that what you do is you see many legal systems based upon natural law systematically flouting it on this one vital issue. And in the end, the importance of natural law here is that it gives you a powerful way in which you can criticize the way in which the particular system operates and to point out the dangers of positivism if what positive means that the sovereign has an untrammeled will and can do whatever he or she wants to his subjects. Another one of the difficulties associated with natural law theory is it makes an appeal to a state of nature. This is both a philosophical device on the one hand and a historical necessity on the other. When people say that law starts with the state, they forget that that state is a relatively late development in human history, and when one refers to a state of nature, you're referring to individuals in which there is no central authority and what they do essentially is to figure out how they interact with one another. In a state of nature, it turns out if aggression is always allowed, it will mean essentially that nobody can flourish, so the natural lawyers say that in a state of nature, each person has a natural liberty to acquire property and to enter into voluntary transactions, but must engage in the mutual renunciation of force against one another. Natural law systems cannot enforce these rules. Early on, they're not enforced by the states, but they're enforced by families and by clans whose common genetical origin mean that there's enough self-interest and shared interest amongst these individuals that these rules prove stable. But when it comes to a clash between two clans, often what happens is that war results and one of them may be conquered or destroyed. And so the great challenge has always been to take the natural system of rights that people need, i.e. in a state of nature when there's no government to enforce it, and then to figure out how to create a government which is strong enough to enforce those rights but not so strong as to destroy them. In dealing with simple rules and with natural law, references are often made to the state of nature, and essentially, this is both a historical and an analytical concept. What is means, basically, historically, is that the world begins long before the state is formed and so when people have to figure out what their relationships are with one another, they must do so under circumstances where there's no central power to tell them what is going on. And what natural law says is in this particular state of the world, the following rights and duties will essentially improve the welfare of the individuals in question, and that immediately gets you back to the universals that we talked about: individual autonomy, the acquisition of property, the need for voluntary transactions, and the need to constrain the use or threat of force. The situation in a state of nature is one in which you have very elaborate rights and duties, but no effective means for enforcement. Individuals, of course, can try to enforce their own rights against others and there's enough which says that, in fact, if you are in possession of territory, generally speaking, you will have a strategic advantage so that you could ward off the outsiders if you're of roughly equal strength. But in many cases, what happens is the balance of power starts to become awkward and individual lives and property are threatened. So the great question is how you organize a transition from a state of nature to a state, where the state is strong enough to protect the entitlements in question but not so strong to destroy them. And essentially, the logic that one uses is the logic of the social contract. Each individual has to renounce the use of force against everybody else. Each individual has to contribute some set of money, sum of money, to the central power. The government then tries to use the power that it receives and use the money that it gets in order to stabilize the natural right relationships amongst other individuals. So the theory is how you make a transition from a state of nature with as little violence to the basic rules of individual autonomy, property acquisition, and voluntary transactions that we talk about, which I why all the great thinkers of the social contract constantly emphasize the mutual renunciation of force for the benefit of all. In dealing with the theory of moving out of the state of nature into society, people often refer to the notion of social contract. To understand it, you have to break it down into two parts. The first part is what is a contract, and generally speaking you have a contract here amongst multiple individuals and what you want to do if it's a contract is to make sure that each person who enters into this agreement is better off than they were in a state of nature. And contracts would allow you to do it, but these are social contracts precisely because the transactional barriers are so high that voluntary agreements cannot achieve the movement from a state of nature into a political state. And what the word social means is that we impose this particular contract on all individuals, but the reason that the social imposition is not tyranny is that every individual who is subject to the force of the state is made better off by virtue of this particular operation because of the parallel restrictions imposed upon the actions of others. And it's this movement from a lower to a higher state of social utility, which makes the social contract justified. And so therefore, what happens is contract is used because it suggests mutual improvement and social is used because it indicates that the improvements that are observed cannot be created voluntarily but require some form of government coercion. Thank you for listening to this episode in the Common Law unit of the No. 86 lecture series, where Professor Richard Epstein looks at long-established common law and regulatory patterns, and lays out six core principles as building blocks. His approach has roots in Roman Law, Anglo-American Common Law, and early Constitutional practice. These rules regulate human interactions in ordinary social life, and deal with individual autonomy, property and first possession, freedom of contract, and tort. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for more lectures and videos on Property, Contracts, and the Common Law. Thanks for listening. See you in class!