Co-Evolution of Law and Economics—Judicial Sovereignty

John R. Commons’ Legal Foundations of Capitalism documented the co-evolution of law and economics. Commons reviewed legal cases that affected economic development. Courts had endorsed emerging business practices unleashing endogenous forces of change. Scarcity was the dominant feature of the pre-industrial economy, but Commons’ Stages of Capitalism demonstrated that the economy had evolved to industrial production. As industrialism became more dominant, production was potentially abundant. However, abundance was a source of instability. Stabilized scarcity policies relieving instability were confirmed by the judiciary. Judicial review established judicial sovereignty that Commons called “dictatorship of the courts.” Intangible property was legalized. Use value of property was replaced by exchange value. Edicts of the courts could supplant the work of the legislative and executive branches risking a movement toward the fascism of pre-war Italy. The economy continues to evolve. The cutting edge of the economy is knowledge-based production, which is not manufacturing commodities. It is about the design and use of technology for the application of ideas that are built on increasing returns and positive feedback (further sources of instability). Competition is different in these industries where market power is prominent. This will require policies to deal with market power.