May 8, 2002


When the top communist holiday was May 1, lawyers in the U.S. responded by branding that day Law Day.  The idea was to associate the day with reason and justice rather than the individual helplessness that a command society such as communism can inflict upon individuals. 

Early in my life, I wanted to be a lawyer.  I still remember one prominent Philadelphia lawyer telling me that as a lawyer he was getting paid to help develop civilization.  How wonderful life was. 

More than a decade ago, I was privileged to present a paper at Vanderbilt Law School on the economics of the law.  My focus was narrow and only dealt with the law as an industry using resources to meet customer needs.  The important issue, the value provided by meeting those needs, was never addressed.

At that time, the law was using about 3 percent of resources.  That number has since grown but not dramatically.  The average lawyer earned about 6 times the earnings of the average shop worker.  Just like compensation of CEOs, that number has grown more rapidly relative to shop workers in the past ten years than in the previous 50. 

Why corporate decision makers and their professional helpers are receiving a larger share of the pie is an interesting question that must be delayed until more information is available.  I certainly do not wish to be sued for misinforming my readers. 

But the question about whether the law is about reason and justice certainly deserves some discussion.  I once wrote a paper about the law in second century Rome (what weird work I used to do).  Not only did I establish that some of the foundations of modern law already existed, but I tried to state that the strength of the Roman Empire at its height was the result of this rule of law. 

Those who know Roman history realize that this was the century when emperors adopted worthy successors.  While it was only one man's vote, at least the vote was cast with the interests of Rome at heart. 

Economic historians now believe that the "Glorious Age" of America's late 19th century was as much the result of social innovations, such as corporations with limited liability, than electricity and the telephone.  Indeed, the rapid exploitation of those wonders relied upon the legal fiction that corporations were self contained entities. 

Before this, partners would combine to create the factory system, but the entire wealth of the partners, including their retirement nest eggs, would be exposed to any factory mishaps.  This clearly limited the risks that owners were willing to take.  Early in that century, bank directors not only lost their wealth but also their freedom if their bank could not meet the promises made to depositors. 

About 15 years ago, a strong movement in legal thinking developed with the assumption that defined legal remedies for malfeasance by corporations was not an appropriate remedy.  They maintained that corporations would merely use the remedy as a cost and would still conduct anti-social behavior if the returns were strong enough.  Only if the very economic value of the entity was at stake would the malfeasance be avoided. 

Whether such thinking reduced social remedies, it certainly was self-serving.  Unknown remedies (and presumably higher ones) meant more compensation for the lawyers. 

All of which gets to the legal activities surrounding Enron. 

Is justice being served when a law firm searches for even the hint of culpability by banks and investment companies because the apparently culpable have few assets to provide remedy to the victims?  Thus, the investment banker who created the off budget balance sheet corporation is culpable because Enron could not have hidden their debts without such a vehicle. 

Let us grant that minor malfeasance might have been created.  Using the self serving principle that the victim's remedy cannot be compromised if any culpable person has the capacity to make the victim whole, the economic costs suffered by the miscreant is independent of the part that was played.  This is not justice, but it does provide compensation to the lawyers.  

(We do not blame the gun manufacturer for the murder conducted with his/her product, but there appears to be no problem in blaming the investment community for the economic loss created by inappropriately using their processes). 

And then I ask about the Arthur Andersen partners who never even knew that Enron was an account as they appropriately served their own customers.  Look at the retirement savings they have lost because of the abuses of some individuals in their firm.  Where are the Congressional hearings examining their plight?

If protection from some risk led to the "Golden Age", what will the spreading of risk to even those who had no knowledge and had no reason to have knowledge of malfeasance do to the next age.  I wonder if my Philadelphia lawyer would still believe that he was being paid to create civilization, or that some lawyers are seeking payment over justice. 


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