How Law Shapes Class Power Under Perfect Competition
Abstract
This Article makes a set of contributions to legal institutionalism, a progressive scholarly approach instigated by American legal realists and economic institutionalists and further developed by contemporary movements like Law and Society, Critical Legal Studies, and Law and Political Economy. Legal institutionalists have long argued that legal rules like those of property, tort, and contract are key determinants of the distribution of income and bargaining power.Yet, for all their rich output spanning a century, legal institutionalists have yet to explain exactly how law can shape bargaining power under competitive conditions. Conservative scholars have in the meanwhile built entire literatures arguing precisely that perfect competition eliminates any role for bargaining by making everyone “price-takers.” In this influential view, legal rules can for the most part only redistribute income by cartelizing markets – as in labor laws fostering unionization – in a way that is inefficient because it deviates from the bargaining-free, perfectly competitive allocation of resources.
This Article provides a new model of the way legal rules can shape distribution even in a perfectly competitive market as commonly defined by economists, honing in on labor markets and the labor/capital relationship. It introduces a distinction between two kinds of legal rules – compulsory terms and pressure rules – that distribute income in different ways. The key novelty in the graphical analysis developed here is that of adding a bargaining move among the warring coalitions of the canonical “limit theorem.” The Article contrasts this model of legally-structured perfect competition with influential concepts in legal institutionalism, including Sanjukta Paul’s “coordination rights,” Katharina Pistor’s “legal coding of assets,” Duncan Kennedy’s “neo-Ricardian distributive analysis,” Barbara Fried’s “progressive rent theory,” and Robert Hale’s “coercive weapons.”