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The most important legacy of Realism therefore was its challenge to the orthodox claim that legal thought was separate and autonomous from moral and political discourse.
The Realist Critique of the Naturalness of the Market
A conception of a self-executing, decentralized, competitive market economy was central to ideas of legitimacy in all areas of late-nineteenth-century American thought. It formed the foundation for ideals of social justice according to which individual self-interest and distributive justice could, "as if by an invisible hand," be harmonized. It was the source of the pervasive view that justice required only equality of opportunity-that everyone be enabled to begin the competitive race equally-and that any requirement of equality of condition or results certainly was illegitimate.' For it was well recognized that, given the unequal distribution of talent, energy, and luck, equality of opportunity inevitably resulted in organized inequality. As justice Pitney put it in Coppage v. Kansas (1915):
No doubt, wherever the right of private property exists, there must and will be inequalities of fortune; and thus it naturally happens that parties negotiating about a contract are not equally unhampered by circumstances. This applies to all contracts, and not merely to that between employer and employe. Indeed a little reflection will show that wherever the right of private property and the right of free contract co-exist, each party when contracting is inevitably more or less influenced by the question whether he has much property, or little, or none; for the contract is made to the very end that each may gain something that he needs or desires more urgently than that which he proposes to give in exchange. And, since it is self-evident that, unless all things are held in common, some persons must have more property that others, it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.'
The assumptions of a self-executing market economy thus ensured that unequal results were just because they reflected the unequal abilities that individuals brought to the competitive race. Every effort to interfere with outcomes-to judge overall social justice by results-inevitably subverted the legitimacy of the market process as a neutral and apolitical arbiter of the just distribution of wealth.
This vision of a self-executing, competitive market constituted the foundation of all efforts to create a sharp separation in legal thought between processes and outcomes, between means and ends, and between law and politics. Just as resultoriented economic policy was regarded as a non-neutral interference with the natural operations of the market, so too was orthodox legal thought stridently committed to avoiding political scrutiny of outcomes. The law of contracts, the legal paradigm of voluntary market relations, was, as we have seen, especially resistant to any attempts to judge the fairness of contracts by their results.6
The appearance of pragmatism in American philosophy around the turn of the century represents a challenge to the prevailing process-oriented conception of justice that had dominated late-nineteenth-century American thought.' This turn to consequentialism in social thought is an important expression of the gradual disintegration of the belief in neutral processes, especially a neutral market economy, as the legitimate distributor of just rewards. As American society grew more unequal and as the spectacular increase in corporate concentration undermined the belief in the naturalness of a decentralized, competitive market economy, social critics focused their attack on the assumptions behind an entirely processoriented view of social justice.
Pound's picture of a glaring disparity between the law in books and the law in action was one expression of this turn to consequentialism.8 It criticized a process of mechanical legal reasoning that was oblivious to the way law actually worked out in society. Thus, even before Realism had been proclaimed as a movement, the basic consequentialist critique of orthodox legal doctrine emphasized how unrealistic it was, because it had lost touch with the way things actually were.
The Realists of the 19ios and 1930s pursued their attack on the legitimacy of the market with a degree of insight, brilliance, and social passion that has never been equalled since. First, they emphasized that the market was not natural, but rather a social construct. And just at the moment that economic science had begun to reorganize its postulates to explain how a cartelized economy was not incompatible with axioms developed under a competitive and decentralized market regime-in other words, just as economists were attempting to reimpose an apologetic mode of natural equilibrium on the system-the Great Depression encouraged still further elaboration of the view that, far from being neutral and natural, markets were social constructs that could be judged only by their social consequences.9
If late-nineteenth-century social thought had insisted that the results of the market process were, by definition, legitimate, the critics sought to turn the tables and show that the premises that lay behind the organization of the market were themselves entirely debatable social choices that could not be justified in scientific terms. Here the great institutional economists10-Veblen, Ely, Commons-had left an anti-naturalist legacy that economic science has never managed to destroy." Within Realism, their most influential heir was Robert Lee Hale of Columbia, both an economist and a lawyer. 12
Hale's pathbreaking "Coercion and Distribution in a Supposedly NonCoercive State" (1923) is the model for several Realist critiques of the premises of legal and economic orthodoxy.13 First, it is one of the earliest rigorous criticisms of the orthodox ideal of voluntariness in market exchange. Since all market transactions are affected by the prior distribution of property and entitlements, Hale argued, the market was in fact an organized form of coercion of the weak by the strong. The decision to "withhold"-not to buy in the market or not to employ labor-was simply another form of assertion of economic power.
So far, Hale was elaborating themes concerning the unequal distribution of market power that had grown in volume since the founding of the American Economic Association in 1885 during the first phase of cartelization of the economy. Hale, however, understood that, for reformist lawyers, the most important task was to undermine the ideology of voluntariness that had formed the legiti mating background of American private law, especially the law of contracts. He realized the moral significance of emphasizing the coercive aspect of markets, something that perhaps economists simply took for granted.
Because Hale's article was such a seminal work, we need to pause to understand its intellectual significance. Hale's basic goal was to attack the prevailing vision of the market as a system of free and voluntary exchange, and thereby to undermine the claim that the law should simply reflect the results arrived at in a neutral market. Instead, he wished to show that the market itself was a social creation, a creature of law, government, and prevailing conceptions of legitimate exchange. Many of Hale's arguments were more generally directed at these legitimating conceptions, especially the alliance between natural rights theory, formalism, and conservatism.
Hale sought to break down the bright-line distinction between voluntariness and coercion. He thus needed to portray the market as an interlocking system of power relations, not as some abstract voluntary meeting of minds or convergence of wills. His two central images are of the laborer who does not voluntarily choose to work, but rather is coerced into working for fear of starvation, and the factory owner whose "coercive power is weakened by the fact that both his customers and his laborers have the power to make matters more or less unpleasant for himthe customers through their law-given power to withhold access to their cash, the laborers through their actual power (neither created nor destroyed by the law) to withhold their services." 14
"There is, however, a natural reluctance" to use the term "coercion," Hale wrote, as if he were a scientist unconcerned with its ordinary normative significance. "But were it once recognized that nearly all incomes are the result of private coercion, some with the help of the state,
some without it, it would then be plain that to admit the coercive nature of the process would not be to condemn it."" Nevertheless, because "popular thought undoubtedly does require special justification for any conduct . . . which is labelled `coercive,' " Hale sought to show that there was no privileged category of economic relations that could be regarded as purely voluntary. 16 There was no state of nature prior to law.
Here Hale deployed one of the most important intellectual strategies that Realism would borrow from Holmes-the characterization of differences of kind as differences of degree. In particular, he sought to show that since all market relations involved varying degrees of coercion, there could never be a state of nature in which a purely voluntary system of exchange existed. John Dawson would later refine this strand of Hale's argument in his important article on economic duress. 17 Late-nineteenth-century Classical Legal Thought, Dawson wrote, involved "a basic contradiction in the concepts of `freedom' which were . . . at work. `8
On the one hand, doctrines of undue influence were attempting to "free" the individual by regulating the pressures that restricted individual choice; on the other hand, theories of economic individualism aimed at an entirely different kind of freedom, a freedom of the "market" from external regulation. It was not yet fully recognized that the freedom of the "market" was essentially a freedom of individ uals and groups to coerce one another, with the power to coerce reinforced by agencies of the state itself. Even though the larger implications of this idea were by no means understood, one simple and quite obvious deduction had already been made-that is, that if the "market" was to be free, any form of external regulation was objectionable. Regulation by court-enforced rules of private law seemed just as unwise and dangerous as regulation by statute or administrative action. From this point of view, where urgent need or special disadvantage compelled agreement to the terms proposed, these circumstances must be disregarded since they differed only in degree from the basic conditions which governed the exchange of goods and services throughout society. 19
In depicting all market relations as inherently coercive, Hale realized that "the undoubtedly coercive character of the pressure exerted by the property-owner is disguised" by state-of-nature thinking.20 Indeed, state-of-nature reasoning lay at the foundation of all Classical legal categorization and classification, as Holmes's Lochner reference to "Mr. Herbert Spencer's Social Statics" was intended to convey.21 Hale in addition drew on Hohfeld's system of legal correlatives, which also denied any privileged status to natural rights starting points, in order to discredit assumptions of a privileged realm of voluntary market relations. Two of the most prominent background assumptions that supported ideas of such a natural realm were the dubious distinctions between acts and omissions and between a public and a private sphere. These legal distinctions were among the important intellectual divisions that disguised the all-pervasive nature of coercion in the market.
Hale's most original insight was the view that the market was the actual creator of property and entitlements rather than just being a neutral institution that reflected pre-existing Lockean property. The legal rules governing the market determined whether, for example, news was property, or whether employers have the power to fire workers, or whether economic coercion was legitimate-more like competition-or illegitimate-more like theft or duress.22
Since this idea was such a prominent part of the Realist de-legitimation of the market, we should pause for a moment and see where it came from. First, in law, the general attack began with the criticism of the Lochner court and the full realization of the incestuous relationship between orthodox legal thought and economic conceptions of a self-executing market economy. From that moment, critical legal thought sought to undermine both the claims of the market to be neutral and natural and of law to be simply a passive reflection or facilitator of a neutral market.
Simultaneously, the attack on the labor injunction seems to have influenced Hohfeld to deconstruct property conceptions and led Walter Wheeler Cook to apply the Hohfeldian system to the Supreme Court's conceptions of labor rela- tions.23 Cook's conclusion was that one could not logically derive the labor injunction from any general character of entrepreneurial property. Property was a bundle of often conflicting rights.
At the same time, Holmes and Brandeis were developing the view in the Supreme Court that, in Holmes's words, property was a "creation of law."24 What formerly had been constitutionally treated as a taking, they tended to recategorize as regulation under the police power not requiring compensation.25
But the most important specific influence on Hale's views, as we saw in Chapter 5, were the arguments over rate making that began around 1920. There could have been no better case study of the social creation of property than these disputes over the constitutionality of rates set by regulatory commissions. We have already seen how Hale, among others, developed the view that the Supreme Court's analysis of how to determine value for rate-making purposes was circular. Indeed, the underlying premise of Hale's critique of the orthodox theory of value was that value was not an essence to be discovered but rather depended on the social purposes for which the concept was to be used. 26
The rate-making cases enabled Hale to see that there was no real rate of return independent of value and no market value independent of prior legal norms. Just as the law created value in the rate cases, so too every market regime created property and entitlements, depending on its prior rules for regulating coercion. 27 Once it was understood that there could be no such thing as a completely voluntary market, there could also be no completely neutral market because, one way or the other, there needed to be rules on how to regulate (or not regulate) coercion.
That Hale's insight was shaped by the rate regulation controversy was no accident. Throughout American history, there had been a contest between a powerful Lockean ideology that insisted on the pre-political character of property and the existence of social facts that regularly demonstrated otherwise.28 In the immediate post-revolutionary period, land grants and the regulation of inheritance were clear examples of the social creation of property. Later, franchises for roads, canals, and railroads underlined their political origins. Finally, until the naturalization of the corporation after igoo, the corporate charter stood as the most forceful reminder that law creates property.29
Yet, so powerful has been the yearning to find a natural and pre-political realm free from the threats of social choice that the Lockean vision of property has regularly reasserted its evocative power, never more so than in late-nineteenthcentury orthodox legal thought. So when Hale challenged the neutrality of the market, he was not only insisting on the politically contingent character of all definitions of property, he was also questioning two prominent premises of Classical Legal Thought: the act-omission distinction 30 and the distinction between public and private spheres of action.
The Critique of Orthodox Legal Reasoning
The effort of late-nineteenth-century orthodox legal thinkers to create an autonomous system of legal doctrine was the most important expression of their desire to separate sharply law from politics. We have seen how they constructed a system of legal architecture whose very generality, abstraction, and systematization appeared to them to be the perfect expression of law as science. Above all, they sought to represent legal reasoning as fundamentally different from political or moral reasoning and professional reasoning as radically different from that of laypersons. If political reasoning was subjective, legal reasoning was objective; if the one was discretionary and a matter of opinion, the other was non-discretionary and not subject to the whims of the judge. The ideal-no one supposed it was the complete reality-was, in Holmes's critical words, to represent legal reasoning as capable of attaining the "certainty which makes [it] seem like mathematics."31 Late-nineteenth-century legal thought has often been called formalistic because of its aspiration to be able to render one right answer to any legal question. In attacking deductive legal reasoning, Legal Realists made more original an
d lasting contributions to legal thought than in any other area. Yet the Realist critique of orthodox legal reasoning has often been understood too narrowly as simply an attack on a formalism that includes only deductive legal reasoning. In fact, like any powerful system of understanding, late-nineteenth-century conceptions of legal reasoning were rooted in much more complicated and multi-faceted systems of meaning.
Categorical Thinking -
Perhaps the most fundamental architectural idea of legal orthodoxy was embodied in its faith in the coherence and integrity of bright-line boundaries.32 Whether we look to direct-indirect tests involving causation or the reach of the commerce clause or, instead, to the way in which legal thinkers believed they could distinguish a tax from a taking or regulation from confiscation, we see what is really the most distinctive element of formalism.33 In all areas of thought, earlytwentieth-century thinkers challenged the naturalism and essentialism of existing social practices, as well as the categories that legitimated them. 34 Everywhere there developed a critique that sought to transform differences of kind into differences of degree and to see the world not as a series of mutually exclusive black-white bright-line boundaries requiring intellectual on-off switches but rather as a series of continua involving shades of gray requiring line drawing.
Perhaps it is the fate of the first generation of basically secular intellectualsif that is the way we can think of the late-nineteenth-century American legal orthodox-that they cushion the terrors of unbelief by constructing a system of categories sufficiently rigid to alleviate their fear that only the threat of the hereafter can keep people from turning into beasts.3' There seems to be an important relationship between the psychological inspiration for religious fundamentalism and similar underlying sources of legal fundamentalism. For the recently irreligious person, profession, or nation, does the secure rigidity of secularized categories substitute for those earlier stern substantive prescriptions grounded in religious truths?