The legal realists’ views on political economy

When President Roosevelt faced a Supreme Court unfriendly to his legislative agenda, he floated his Court packing proposals. These proved very unpopular with the public and were eventually abandoned, but, before that happened, some legal realists turned to newspapers and magazines to show their support (Arnold Reference Arnold1937b; Green Reference Green1937; Llewellyn Reference Llewellyn1937; compare Arnold Reference Arnold1933).Footnote ² This mobilization in defense of a sitting president’s plan does not quite match the realists’ radical reputation. But it matches other contexts when most of the legal realists were not just reliable supporters of Roosevelt but also boosters of his vision for American law and democracy.Footnote ³

Consider Jerome Frank. In making the case for the radicalism of the realists, their detractors often present him as a prime example of an extreme and unprincipled nihilist. Even those otherwise sympathetic to realists’ ideas often distance themselves from the views of someone they consider an unrepresentative outlier (Leiter Reference Leiter2007, 17; Dagan Reference Dagan2013, 25–26). In reality, Frank was among the most unflinching in his praise of the virtues of law and liberal democracy. Frank (Reference Frank1938a, 228) considered it the “unique value of political democracy” that it “alone [was] congenial to free experimentation.” The following year, he expanded on this idea in a radio broadcast debate on the question of whether the speech of political groups advocating fascism or communism should be curtailed. Dismissing both fascism and communism as anti-American, Frank (Reference Frank1939, 14–15) offered full-throated support for the American brand of liberalism:

A few years later, Frank explained the important role law had to play in this vision. Taking to the pages of Good Housekeeping, he described law as “one of the best means worked out by human society for the adjustment of society’s many difficulties” (Frank Reference Frank1944, 43). Of course, Frank was speaking here only for himself, but—with one exception discussed below—I do not know of any legal realist holding fundamentally different views.

When we turn to political-economic ideas, it is now quite common to see the legal realists as closely connected to institutional economics (Kamp Reference Kamp1995; Williamson Reference Williamson1996), with some commentators arguing that legal realism was, in effect, the legal sibling of institutional economics (Rutherford Reference Rutherford2004). It is true that the call for more “realism” was heard at the time in other university departments and that, in economic departments, institutional economists were among the most vocal in rallying under this banner (Spiegel Reference Spiegel1991, 629). However, institutional economics was, and remains, a loose idea with its share of internal disagreements, and it is not necessarily hostile to market economy. Therefore, to say that the realists accepted institutionalist ideas, by itself, does not tell us much.

Turning to the writings of the realists themselves, some have attempted to find in them radical economic positions to match their supposed jurisprudential radicalism. The one name that stands out in discussions of this matter is Robert Hale (Reference Hale1923, Reference Hale1935), whose writings on economic coercion are by far the most frequently cited sources in this context. Based on these, several scholars have placed Hale at the center of the realist movement (Horwitz Reference Horwitz1992; Fried Reference Fried1998). I will not spend much time discussing Hale, precisely because his economic views have been discussed extensively by others. However, I will point out that there are some difficulties both with his characterization as a major figure among the legal realists and as a political-economic radical. For all of Hale’s criticism of markets, he did not want to abolish the market system (Duxbury Reference Duxbury1990, 440; Hovenkamp Reference Hovenkamp2000, 855–57). As such, his views are broadly in line with my central claim in this section that most legal realists held views that were within the political economic mainstream of their day. Second, whatever Hale’s views were, it is not clear how much they were shared by other legal realists. Debating whether Hale “really” was a legal realist may be a pointless intellectual exercise, but it is worth noting that there is relatively little evidence of much personal or intellectual interaction between him and the (other) legal realists, and also not much evidence that they shared his ideas or had much use for them (Schlegel Reference Schlegel2000, 154; Leiter Reference Leiter2007, 18–19; Priel Reference Priel, Chiassoni and Spaić2021a). Whether Hale was a central figure within legal realism or whether his views were a radical critique of market economy, his was just one voice.

At the other extreme, some commentators have argued that there was no real connection between the realists’ jurisprudential works and economic ideas. In an article revealingly subtitled “Legal Realism and the Separation of Law and Economics,” Herbert Hovenkamp (Reference Hovenkamp2000) concluded that most of the legal realists had relatively little to say about economics. In a different way, Neil Duxbury (Reference Duxbury1995, 155–58) reached a similar conclusion. Duxbury acknowledged that several prominent legal realists worked for the Roosevelt administration, but he questioned the connection between legal realism and the New Deal. The legal realists, he said, focused primarily on common law and commercial law and did not develop any serious ideas on administrative law and legislation in general or on the legislative reforms that were at the heart of the New Deal.

I believe that both the view that sees Hale’s views as reflecting “legal realism” and the one that sees little connection between the legal realists and political economy are overdrawn. I want to contribute to this discussion by examining the writings of six legal realists, focusing mostly on their writings from the 1930s, the period when the American legal and political landscape was being reshaped by New Deal legislation.

In selecting a subsection of the legal realists, I open myself to the charge of cooking the evidence, picking the ones that fit a particular narrative. This might have been true if I presented “legal realism” as a uniform creed. But, as the realists often emphasized, there was no creed. My aim, therefore, is not to deny the existence of other legal realists who may have held other views; indeed, one aim of this article is precisely to show the diversity of opinion on questions of economic policy among the legal realists. Having said that, my choice is not random. To begin, I do not discuss many of the legal realists (for example, Hessel Yntema, Edwin Patterson, Max Radin, Walter Wheeler Cook, Joseph Bingham, or Arthur Corbin) who wrote little or nothing on questions of political economy.Footnote ⁴ Though not considered below, it is worth remembering that they existed and that they provide further support for my contention that the legal realists as a group could not be associated with any distinct, let alone radical, political-economic agenda.

Of the realists I discuss, four (Karl Llewellyn, William O. Douglas, Thurman Arnold, and Jerome Frank) appeared in Llewellyn’s (Reference Llewellyn1931a) list of legal realists, while the scholarship of another (Adolf Berle) is mentioned favorably several times in that essay and his name also appeared in some longer lists of legal realists who Llewellyn considered (Hull Reference Hull1987, 967). More importantly, these five were also among the more influential legal realists, especially with respect to matters of economic regulation. Influence, admittedly, is a notoriously difficult quality to measure. Citations are a popular, if contested, currency of influence within academic circles. But whatever value they have, it is limited in its ability to measure influence in the world beyond. The legal realists I consider in this section were influential not (just) because they were prominent contributors to academic debates but (also) because they were in government positions that gave them the opportunity to change economic policy. As already mentioned, four of the five held high-level positions in the Roosevelt administration, all in roles dealing directly with the regulation of economic activity: Douglas and Frank both chaired the Securities and Exchange Commission (SEC), Frank after earlier stints in other departments, including serving as general counsel of the Agriculture Adjustment Administration (AAA). Arnold held several government positions (including both at the AAA under Frank and at the SEC under Douglas), before moving to the Antitrust Division of the Department of Justice, eventually heading it. All three later served as federal appellate judges (Arnold only briefly, Frank for over fifteen years, Douglas remains the longest-serving justice on the US Supreme Court). Berle was a member of Roosevelt’s original brain trust, giving him unique access to the president during the early days of shaping New Deal policies. Karl Llewellyn did not leave academia, but starting in 1937, he spent much of the following fifteen years leading the project of overhauling American commercial law. The result of this effort, the Uniform Commercial Code (UCC), has been enacted (with some revisions) in all fifty states and remains the basis for commercial law in the United States to this day.

It is useful to start with Llewellyn, as one of his early writings provides a good summary of a foundational idea that, I think, other realists discussed in this section accepted. In one of Llewellyn’s (Reference Llewellyn1925, 668) earliest publications, he wrote: “Legal institutions provide a general atmosphere of security from personal aggression without which economic life could hardly be expected to unfold, an atmosphere wholly distinct from the particular technical regulation of any particular activity.” This is a familiar institutionalist idea, which sees markets as supported, or even constituted, by law (Deakin et al. Reference Deakin, Gindis, Hodgson, Huang and Pistor2017; Pistor Reference Pistor2019, 21ff). Interestingly, Llewellyn did not limit his discussion to what Katharina Pistor (Reference Pistor2019) recently called the “code of capital.” As he put it, it is not just commercial law that was necessary for markets to function: “The law of murder, robbery, rape, does not relate to banking; yet only as it is effective does banking become possible” (Llewellyn Reference Llewellyn1925, 668).

In subsequent years, Llewellyn largely shifted his attention to other questions. Neither the famous jurisprudential works of the early 1930s, nor the more doctrinal studies on contract and commercial law written toward the end of that decade, pay a great deal of attention to questions of political economy. Here and there, however, Llewellyn made scattered remarks that showed his support for market economy. In 1934, as part of his tribute to the US Supreme Court for the “rather sweet job” it has been doing, Llewellyn praised it for recognizing and following the “ideology of the country” and “[o]ne of the things that have been outstanding in our country,” namely that “our whole idealogy [sic] is built up in terms of business men, that what the business man does is great, if he is successful” (Llewellyn Reference Llewellyn1934b, 117). Those shocked by the fact that Llewellyn, during the so-called “Lochner era,” was speaking so positively about the Supreme Court may be even more surprised to learn that, a few years later, Llewellyn refused to explain legal doctrine from that era “by the mere philosophy of laissez-faire” (Llewellyn Reference Llewellyn1942, 240).

Interestingly, what made markets attractive to Llewellyn was not that they promoted efficiency; it was that they upheld and sustained human cooperation and social traditions. In other words, it was not the self-interest of the baker or the brewer that gave us our bread and beer, nor was it the disciplining power of market competition. It was, on the contrary, norms of cooperation that lay at the basis of a successful market economy. This was true of individual contracts, which did not create a precise and carefully articulated formulation of parties’ obligations toward each other but, rather, a flexible “framework” of “real working relations” (Llewellyn Reference Llewellyn1931b, 736–37). This was also true of market economy more generally, where “self-maintenance and traditional ways of bargaining outweigh … governmental factors” in maintaining order (Llewellyn Reference Llewellyn1934a, 34).Footnote ⁵

These ideas later formed the intellectual foundation for Llewellyn’s work on the UCC (Batshaw Wiseman Reference Batshaw Wiseman1987; Twining Reference Twining2012, ch. 12). In a document written in 1940 (reproduced in Twining Reference Twining2012, 580–85), Llewellyn spelled out what he considered the central goals for the code. Much of commercial law, he said, was “non-political in character,” and its main goal was to “afford[] material guidance” to those doing business. This was not just a matter of improving the clarity or simplicity of the law. Llewellyn considered it his goal to create a code that businesspeople could not just understand but also relate to: “A democracy needs law which is friendly to its people, law which is known to be friendly, even neighborly law” (581). This is a central idea in Llewellyn’s (Reference Llewellyn1941) thinking and central to his account of American (common) law more generally (see also Whitman Reference Whitman1987; Priel Reference Priel2017, 631–34). From this perspective, the problem with Christopher Langdell’s approach was that it treated law as a matter of abstract reason, not as “people’s right-way-of-life,” eventually resulting in “remote law,” which is not “law to love, but law to dodge, or to use” (Llewellyn Reference Llewellyn1942, 263). This was not law emerging from the people but, rather, law imposed on the people. Contrary to the claim that the realists rejected traditional values, it was precisely traditional commercial values that Llewellyn saw as the basis of the market economy and social order that the law had to uphold. Llewellyn emphasized the need to design a commercial code that would incorporate and reflect the prevailing values of the commercial community, thereby giving law both predictability and legitimacy. There is thus close congruence between Llewellyn’s views on the role of custom and tradition in regulating markets and as the source of law’s norms and its legitimacy.

I do not see these views as a repudiation of Llewellyn’s earlier idea that a functioning market economy needs the security that law provides, nor is there here anything like the opposition to almost any form of market regulation found in some of the law-and-economics writings of the subsequent decades.Footnote ⁶ But it is also quite evident that Llewellyn, perhaps more than other legal realists, accepted some version of the idea that markets are capable of, perhaps even dependent on, some degree of self-regulation derived from dominant commercial customs.

Llewellyn looked at commercial law through the lens of particular transactions. Berle, Douglas, Arnold, and Frank were in government positions that encouraged them to look at the regulation of entire industries. As such, unlike Llewellyn, all four of them figure prominently in some histories of the New Deal (see, for example, Irons Reference Irons1982; Schwarz Reference Schwarz1993; Brinkley Reference Brinkley1995). However, these books tend to pay relatively scant attention to the jurisprudential debates on rules, adjudication, and legal reasoning that dominate the legal scholarship on legal realism, leading to a certain disconnect between the two discourses. Against this background, and especially against the denial by some legal historians of the relationship between legal realism and the theory or practice of political economy, my aim in this section is to show that, at least for some legal realists, there was a clear connection between the two.

In somewhat different ways, Berle, Douglas, Arnold, and Frank all accepted that a market economy was the key to the economic success of the United States. At the same time, they also saw a need for active policing of the operation of markets to secure the potential benefits of a market economy. In numerous publications written during their time in government and often aimed at the general public, they explained why such reforms were needed to prevent the collapse of market capitalism. Like Llewellyn, they did not limit their discussion to economic performance or efficiency. They saw a direct connection between economic regulation and broader questions of political and legal theory, thus demonstrating a relationship between their jurisprudential and political-economic views (compare Curtis Reference Curtis2015).

Adolf Berle got his start at Columbia by asking for a meeting with Dean Harlan Fiske Stone and telling him that his law school’s corporate law course was “rotten.” It focused on small corporations that had dominated the American economy in past decades, altogether ignoring the dramatic changes taking place in the securities markets and their effect on modern corporations. He proposed a more realistic course, one that studied the corporation through the lens of its financing (Berle Reference Berle1974, 115–16). Understandably, Berle expected to get promptly thrown out of the building; instead, he got himself a job. What he told in class to his students, and what his scholarship told the world, was that old ideas that drew a direct connection between private property and the power to determine what was to be done with it did not correspond to the realities of modern corporations, where ownership of shares of a corporation often did not translate to the power to control it. This was a key claim of Berle’s best-known book, The Modern Corporation and Private Property (Berle and Means Reference Berle and Means1932). It was this separation that made possible the concentration of property in the hands of a few, resulting in half of corporate wealth in the United States being held by the two hundred largest corporations. This “corporate oligarchy” had the potential to lead to “corporate plundering” (355).

Berle drew rather surprising conclusions from this view. More than the others discussed in this section, he was open to the blurring of boundaries between private and public, not as philosophical abstractions but, rather, as implying support for more collectivist policies. As he saw it, since some industries have effectively “ceased to be private,” greater government control of them had become inevitable (Berle Reference Berle1935a). In a memo from 1932, he even predicted that, if trends were to continue, the American economy would look quite similar to the Russian one within the space of two decades. After all, “[t]here is no great difference between having all industry run by a committee of Commissars and by a small group of Directors” (Berle Reference Berle1971, 46). For these views, Berle has been considered to be one of those who were exploring at the time pathways toward a “postcapitalist” future (Brick Reference Brick2015, ch. 2).

Berle was not entirely clear about what this meant in practice (Schwarz Reference Schwarz1987, 66). He seems to have been enamored of the benefits of centralized planning and terrified by the “general breakdown” that he foresaw as the likely outcome of the lack thereof (Berle Reference Berle1933). (He was so worried about it that in 1931 he confided in a friend that he hoarded food [Schwarz Reference Schwarz1987, 67].) Berle was also troubled by the allocative inefficiencies of a system that produced an abundance of goods yet had millions living in poverty. He saw centralized planning as a solution to these problems and often expressed indifference as to who was in charge, as long as there was someone: “Whether it was rugged individualism, Fascism, Communism, Socialism, or what-not, made not the slightest bit of difference. Actually, the job was to satisfy the perfectly legitimate needs of a huge mass of people, all of whom were entitled to their right to live” (Berle Reference Berle1933, 5; see also Berle Reference Berle1935b, 46). This attitude led him to express more enthusiasm than one would expect for “the idea of the ‘corporate state’, … fathered by Messrs. Mussolini and Hitler, in which the corporation, instead of being regarded as private, is frankly absorbed into the state machinery, working a real revolution in government technique” (Berle Reference Berle1934, 125; on some New Dealers’ infatuation with such ideas, see also Schwarz Reference Schwarz1987, 120; Whitman Reference Whitman1991). In later writings, he still suggested that what people call “free markets” was itself a “statist instrument,” which delivered results only under state control (Berle Reference Berle1963, 10).

Berle’s favorable views of planning led him to positions that were quite different from some of the realists discussed below. Like other liberals of this era, he recognized the need to put corporations under greater government control but, unlike many of them, he was rather ambivalent about anti-monopoly action (Sternsher Reference Sternsher1964, 51; Schwarz Reference Schwarz1987, 74; Brinkley Reference Brinkley1995, 125). He was unimpressed with the rhetoric of the “so-called sixty families” controlling the American economy (the New Deal’s era equivalent of the “one percent”) (Berle Reference Berle1938, 330). Throughout his life, he was ambivalent about the benefits of aggressive antitrust policies and also adamant in his opposition to courts using the broad language of the antitrust statutes to change the economic structure of the country. If some corporations were deemed to be too big, he thought it was Congress that should take action (Berle Reference Berle1949, Reference Berle1960a, Reference Berle1960b, 6–7).

Overall, however, “bigness” did not seem to Berle (Reference Berle1962a) to be a problem of great magnitude. On the contrary, Berle thought that, up to a point, bigness improved efficiency. What mattered more was the concentration of power. Here, he put his famous idea about the modern corporation’s separation of ownership and control to surprising use: it implied it was possible to enjoy the benefits accrued by large economic units while avoiding the danger of excessive concentration of power. The largest American corporations, he wrote after the Second World War, are “not owned or operated by or for the benefit of any handful of billionaires. They are actually operated by thousands of executives in [sic] behalf of stockholders who, if they do not always exercise direct control, directly reap the rewards of good management” (Berle Reference Berle1952, 12). The Soviet image of the American capitalist as a tuxedoed, cigar-smoking businessman was wrong; in reality, everyone who invests in the stock market “more than four-fifths of the families in the United States are ‘capitalists.’” Berle could thus contrast the “‘socialization of wealth through state ownership’ contemplated by the Marxian revolution” with the real wealth distribution as provided by “the individual, or democratic, ownership of the national wealth and national production proceeding spontaneously from the growing wealth of the United States” (Berle Reference Berle1952, 33; see also Berle Reference Berle1962a). In these postwar writings, Berle (Reference Berle1962b, 436) was satisfied that, though far from perfect, the American way, which relied on private enterprise “under guidance and control,” achieved far better results than either classical laissez faire or communism.

All this jibed with Berle’s commitment to liberalism. Like many others during the New Deal years, he looked for some “middle ground” between nineteenth-century individualism and twentieth-century collectivism (in either its socialist or fascist guise) (Berle Reference Berle1950a, 56–57; 1962b, 436–37; Schwarz Reference Schwarz1987, 83). It was during these years that Berle (Reference Berle1935b, 45) spoke of the need to find solutions to the United States’ economic woes that accorded with core American values such as freedom and democracy. Years later, Berle (Reference Berle1950a, 56–58) said that some of the policies adopted by American governments were “socialist,” while others looked downright “laissez faire.” He was fine with both as long as they did not compromise on his core liberal values of “freedom and development of individuals” (Berle Reference Berle1950b, 43), along with “individual dignity and worth, combined with the greatest attainable opportunity for self-reliance” (Berle Reference Berle1950a, 58).

Though sometimes considered a legal realist, it must be acknowledged, that (as far as I know) Berle never associated himself with legal realism and did not say much about the jurisprudential questions that interested most legal realists. Not so William O. Douglas, who in a short but stellar academic career established strong connections with many of the leading legal realists, including some that remained lifelong friends. Like Berle, he felt that the corporate law that had been taught was outdated and ignored modern realities. And, like Berle, he suggested that focusing on corporate finance could provide a more realistic alternative to learning the workings of the modern corporation and its impact on society (Douglas Reference Douglas1936a, 5). But he was more attuned to realist slogans like the emphasis on a “functional approach,” which he applied to the study of corporate and bankruptcy law (Douglas Reference Douglas1929, Reference Douglas1932).

Despite his spectacular success as a professor, academic life was not enough for the ever-ambitious Douglas. When the SEC was formed in 1934, Douglas left Yale Law School to join it, becoming a commissioner in 1936, then serving as its chairman from 1937 until his appointment to the US Supreme Court two years later. Shortly after joining the SEC, Douglas established a reputation as a hard-charging regulator. He made no secret of his view that the dramatic changes in financial markets justified a more aggressive role for government in the regulation of the economy. At the same time, even before joining the SEC and throughout this period, he also insisted on leaving “responsibility on industry for its own planning” (Douglas Reference Douglas1934, 532; see also Schwarz Reference Schwarz1993, 163–66). Despite some heated rhetoric during this period, Douglas maintained that his approach was in no way a challenge to market economy but an attempt to protect it from forces seeking its destruction (see, for example, Douglas Reference Douglas1936b, 87, 93; 1937, 37).Footnote ⁷ The SEC, in Douglas’s (Reference Douglas1938c, 1) words, was “one of the outposts of capitalism” tasked with patrolling financial markets to catch the fraudsters and manipulators.

Douglas respected market economy for allowing honest human toil to improve humanity’s lot. He acknowledged that business failure was an inevitable part of capitalism, a byproduct of the development of new technologies. That it ruined some businesses by making some old technologies obsolete was still justified because it improved most people’s living conditions. Therefore, his target was not capitalism but those who created “fancy corporate structures” so arcane that investors had to turn to “magicians and higher mathematicians” to know the value of securities (Douglas Reference Douglas1938b, 1). Douglas (Reference Douglas1936b, 87) described those engaged in such activities as “the termites of high finance” because, like their biological counterparts, the termites of the financial world destroyed the structures they occupied from within, except that “[i]nstead of feeding on wood they feed and thrive on other people’s money.”

“Other people’s money” was, of course, Louis Brandeis’s phrase, and it was not the only one Douglas adopted. More than any of the legal realists I discuss in this section, Douglas subscribed to the Brandeisian idea of “the curse of bigness,” the view that big corporations, simply due to their size, were a source of economic trouble. They were inefficient, they had too much power, and they undermined human values, causing people to lose “opportunities to develop [their] personality and [their] capacities” (Douglas Reference Douglas1940, 14–16). Douglas thus added to his critique of “mysterious” financial practices an attack on large corporations for the social upheaval they instigated and the threat they posed to democracy (Rogers Reference Rogers2008, 906–7, 924–26). Against those who thought that the regulation of financial markets undermined freedom and “interfere[d] with the American way,” Douglas (Reference Douglas1936b, 93) countered that it was modern economic developments that were a perversion of capitalism and of American life. Though his style was very different from Llewellyn’s, his writings also convey a certain nostalgia for older forms of market economy. In line with that, Douglas called for “old-fashioned conservatism” in finance for the sake of “preserv[ing] capitalism under a democratic form of government” (Douglas Reference Douglas1938b, 1; Reference Douglas1938c, 5).Footnote ⁸

If Douglas compared the SEC to a patrolman, for his successor at its helm, Jerome Frank (Reference Frank1938c, 1), it was a physician who practices “preventative financial health service” to make sure past ills do not recur. In another address, Frank (Reference Frank1938c, 14) expanded on the role of the SEC and summarized his views on political economy:

In a sense, then, Frank was no different from Douglas. He too saw the Great Depression and its aftermath as an opportunity for both economic and democratic renewal. In fact, his first line of defense for the US economic system was that “the majority of the American people are still devoted to the profit system” and that, therefore, “it would be impossible, even if anyone considered it desirable” to challenge it (Frank Reference Frank1934, 12414). But Frank did not rest his case merely on political expediency. Frank had no desire to see the market capitalism replaced for “the truth is that the profit system has not heretofore been given a fair trial” (12412).

Frank’s (Reference Frank1938a) Save America First (a title that even one contemporary reviewer called “lamentable” [Thompson Reference Thompson1938]) was his attempt at such a trial. Unlike Frank’s (Reference Frank1930) first book, Law and the Modern Mind, which was a widely discussed best seller, controversial but also much praised, the reaction to Frank’s second book was muted, and many of the reviews were tepid at best. Today, the book is virtually forgotten, but it cannot be ignored here because it contains Frank’s most sustained discussion of questions of economic policy. The book is an example of intellectual patriotism, drawing a sharp contrast between “disintegrated Europe” with “integrated America.” Against the twin European evils of fascism and communism, Frank presented the United States as a beacon of democracy and progress. Pushing this line further, one of the book’s most contentious ideas was that the United States should seek economic self-sufficiency. Frank (Reference Frank1938a, 10) described this as a challenge to the European idea of free trade, which Americans accepted as part of their “blind acceptance of certain scarcely scrutinized attitudes—many of them imported by [American] economists, conservative and radical alike, from Europe.” Frank’s call for separation from the troubled continent was thus an intellectual one as much as it was economic.Footnote ⁹

The remainder of Frank’s book is an extended defense of the New Deal. Frank largely avoided the word “capitalism” (and, when he did, he put it in quotes) to distance himself from the laissez-faire ideology he opposed. But to the consternation of socialist critics (Mitchell Reference Mitchell1938), Frank was adamant on retaining the “profit system,” which he saw as deeply connected to human freedom. Frank had an almost visceral dislike for the idea that humanity was subject to immutable “laws,” be they the laws of supply and demand of classical economics or Marxist doctrines of historical inevitability. Frank considered both as inimical to the very idea of human freedom (a theme expanded on in one his later books, Fate and Freedom [Frank Reference Frank1945a]).

The active welfare state Frank favored was the antidote, a practical proof of the error of those approaches that denied human freedom and the possibility of its improvement: “We can have property, profits, democracy and true individual initiative coupled with a good life for all our people,” grounded on the “revised Adam Smith philosophy” that takes “selfishness, if adequately enlightened” as its “motive power” (Frank Reference Frank1938a, 392, 349). Frank did not keep his discussion at the level of abstract ideas. He identified the cause of the Great Depression as the concentration of money in the hands of too few people, leading to insufficient demand. He thus advocated for what we now call “stimulus spending,” including public works (235–50, 366–81),Footnote ¹⁰ as well as a stronger social safety net. He asked rhetorically: “Does [the state] owe no duty to see to it that the potential wealth of this country becomes an actuality, and that all citizens adequately share in that increase of wealth?” (392). At the same time, he opposed the nationalization (“governmentalization” in his terminology) of struggling industries following the Great Depression (330), worrying that if such practices were adopted “we would probably have some form of Socialism, or perhaps even Communism” (334).

All the policies that Frank (Reference Frank1938a) favored required extensive use of the law—hence, Frank’s remarks quoted earlier about the positive role of law in improving society. But the New Deal legislation did not just make good economic sense; it was also part of a grander plan to revitalize American democracy (400–1). The Great Depression provided a “magnificent opportunity, through wise statesmanship, to make in America a unique civilization—an economic-political democracy every citizen of which will have a full life” (416). The New Deal promoted the interests of the majority against the interests of a small minority that controlled industry (407). For most people, the New Deal meant more, not less, freedom (402–3, 408).

It is this view of human freedom that ties Frank’s ideas on political economy to his more familiar jurisprudential ones. Frank (Reference Frank1932) criticized those who adopted a “Euclidean” approach to law, one that started with self-evident, foundational truths and derived from them answers to more concrete problems. Beyond the more familiar epistemological criticism of this approach—namely, that the foundational principles it proclaims are not self-evidently true, Frank also challenged its underlying politics. He favored an “experimental” approach to jurisprudence because it saw humans as free to make their own laws as they see fit for the sake of achieving their desired goals (Frank Reference Frank1932, 586; Reference Frank1934). Frank (Reference Frank1938a, 413–14) conceded that, given his own views about the impossibility of predicting human action, he could not guarantee that his policy prescriptions were the right ones, but at least the active state he favored was determined to try rather than to succumb to “fatalism,” which he considered the real enemy of human freedom. Frank thus saw his own liberalism as a counter to the ideas of Marxists, legal formalists, and classical economists who in their different ways were all “Euclidean,” treating humans as the playthings of immutable laws that they did not devise and could not change. For this reason, the occasional characterization of Frank as a “nihilist” is not simply a caricature, an exaggeration of Frank’s ideas for emphasis or effect; it is the very opposite of his wholehearted endorsement of liberal values and of the idea of using the power at the government’s disposal to improve the life of those living under it.

If there is a legal realist to whom the “nihilist” label may seem more fitting, it is Thurman Arnold. In his best-known works, he expressed the view that all principles—legal, philosophical, economic—were, at best, useless. He was cynical about all grand statements and enjoyed poking fun at them. One example, by no means the most significant but illustrative of Arnold’s style and substance, is his treatment of the Post Office motto (“[n]either snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds”). All this meant, Arnold (Reference Arnold1934, 29; Reference Arnold1935, 95) said, was that mail is delivered in winter. With equal glee, Arnold scorned the economic and jurisprudential shibboleths of his day. He was especially impatient with legal theorists who sought to show that, with some effort and ingenuity, all moral and political principles cohered with each other. In a letter from 1937, he wrote that any “workable philosophy … is necessarily a maze of contradictions so hung together that the contradictions are either not apparent or else are reconciled by a mystical ritual” (Arnold Reference Arnold1977, 267).

Despite all this, I do not think Arnold was a nihilist either. He wanted to get things done and believed that too much thinking could get in the way. He complained about “burning idealists” who “attack unprincipled practices, even when they are producing humanitarian results” (Arnold Reference Arnold1935, 7). For example, Arnold thought the first generation of antitrust reformers failed to achieve any real results because they were “[o]bsessed with a moral attitude toward society, they thought in Utopias. … Philosophy was for them more important than opportunism and so they achieved in the end philosophy rather than opportunity” (Arnold Reference Arnold1937a, 220). When opportunity came his way, Arnold did not let it slip by. After his appointment to head the Antitrust Division of the Department of Justice, he committed to it with abandon. He secured a five-time expansion of its budget and a vastly expanded staff, reinforcements that allowed him to pursue a far larger number of cases than any of his predecessors (Miscamble Reference Miscamble1982; Brinkley Reference Brinkley1995, ch. 6).

Ironically, it was during these years of intensely practical work that Arnold discovered a sovereign idea that came to dominate his thought: free competition. In The Folklore of Capitalism, after spending many pages on critique, Arnold (Reference Arnold1937a, 332) was elusive, even evasive, on his positive agenda, admitting that he was “play[ing] safe and refus[ing] to be specific.” By the time he published his next book, there was no cageyness: “In a society where individual freedom is the prevailing ideal, the main method of distributing goods and services must be by free exchange in a free market” (Arnold Reference Arnold1940, 10). To be sure, Arnold still emphasized practicalities over theories, still insisted on the importance of explaining antitrust legislation in a manner that made sense to laypeople. But in addition to the rhetoric familiar from his earlier works, Arnold now stated that maintaining free markets is “the first concern of every political democracy” (11).

Of course, for Arnold, these ideas had very practical implications. In his mind, the real scourge was not the curse of bigness but, rather, “the disease of cartelization” (Arnold Reference Arnold1942b, 30). Characteristically, Arnold dismissed the question of size as meaningless in the abstract while, at the same time, expressing much less concern than Douglas over corporation size itself. He even acknowledged that consumers, whose protection he saw as the main goal of antitrust law, liked the cheap products made by big corporations (Arnold Reference Arnold1940, 122–23, 129; Reference Arnold1942a, 14–16). For him, the real problem was restraint of trade, that led to higher prices. In an article published in the New York Times Magazine, Arnold (Reference Arnold1938) contrasted the “almost unlimited competition” of “farmers, retailers, and small business men,” where prices adjusted according to changing supply and demand, with the world of “concentrated industrial power,” where cartels could keep prices high even when demand dropped.Footnote ¹¹

Despite touting the “free markets” mantra, Arnold was no libertarian. Unsupervised markets invited what we now call “rent seeking behavior,” resulting in what he described as the “hardening of the arteries of commerce” (Arnold Reference Arnold1942b, 30). Neither economic forces alone nor private legal action could match these disruptive forces on their own (Arnold Reference Arnold1940, ch. 8). Keeping markets free was a never-ending battle, which only aggressive government action had any chance of successfully waging: “This job will not take care of itself” (Arnold Reference Arnold1939, 525).Footnote ¹² To further complicate matters, employing the same analysis, Arnold held some highly anti-trade-union views. As he saw it, unions were another example of anticompetitive groups restraining trade, and he argued that their actions hurt not just the interests of consumers but those of labor as well (Arnold Reference Arnold1940, ch. 11).

As with the other legal realists discussed so far, Arnold’s economic ideas were related to his democratic ideals. Competition was valuable not just for its ability to distribute goods efficiently; Arnold occasionally echoed the eighteenth-century idea of doux commerce, the civilizing power of commerce. He claimed that the Renaissance began with a rebirth of commerce and that “[f]ree commercial enterprise breeds free dissemination of ideas” (Arnold Reference Arnold1940, 283). One could not have political freedom, he suggested, without free exchange as the main form by which goods are allocated (10–11, 283; see also Arnold Reference Arnold1942a, 15). With the war raging in Europe, he could maintain that upholding a system of free market exchange was part and parcel of the fight against fascism: “Unless we can preserve our industrial democracy [that is, market competition], our political democracy will disappear” (Arnold Reference Arnold1940, 127). Two years later, cartels became Arnold’s (Reference Arnold1942b, 29–30) chief reason for the country’s lagging productive efficiency when compared to Germany’s. With the two countries now at war, fighting cartels was no longer just a matter of economic necessity but was also a patriotic duty (80–81).

By then, Arnold treated competition as a justification not only for market economy but also of democracy. This was not just the familiar marketplace of ideas. The connection Arnold drew between political and economic freedom provided him with a response to those who worried about contradictions in the New Deal legislation. As mentioned, in his earlier writings, Arnold (Reference Arnold1935, ch. 5) criticized efforts to show how all values and all principles cohere when what mattered was that they produced results. In later writings, he used the idea of competition to give internal tensions within legislation a positive spin. Rather than a problem, the contradictions found in the law were indicative of the dispersal of power emblematic of a functioning democracy, evidence that the laws were the product of compromises among competing interest groups. The only way to avoid them was to have one group in charge of designing all the laws (Arnold Reference Arnold1940, 107–9). Next to the more familiar checks and balances, these compromises were “economic checks and balances” (109; emphasis in original), showing that no group got everything it wanted.

The (only?) radical legal realist

It should be clear that none of the legal realists discussed so far offered any serious critique of market economy. Along with many others during that era, they rejected laissez-faire capitalism, and they endorsed one of the commanding ideas within the Roosevelt administration—namely, that an active state was the key to fixing its shortcomings (Brinkley Reference Brinkley1995, 10–11; Frieden Reference Frieden2006, 195–96, 229). They were all liberals, with Frank and Douglas and probably Berle somewhat to the left of Llewellyn and Arnold. As shown above, they did not always agree about what their liberalism meant in practice,Footnote ¹³ but even Frank and Berle, who were less enthusiastic than Arnold about market competition, did so more out of concern for efficiency and not because they considered markets inherently unequal. Given the positions they held, they can be seen as being among the architects of the postwar American regulatory state that saw market economy as a corollary, not the enemy, of democracy and freedom.