According to Friedrich Hayek,
the English common law system
reflects a conscious decision in favor
of a limited role for government;
the French civil law system is much
more comfortable with a centralized
and activist government.
Many nations, including the United States, base their legal systems on the English common law tradition. Under this tradition, the judiciary acts as a check on both the executive and the legislative branches, limiting their ability to alter property and contract rights. Free market environmentalists view this feature of the common law as essential to the creation of sound environmental policy.
Three decades ago, Friedrich Hayek argued that there is an even broader salutary effect of the common law. According to Hayek, the English common law system reflects a conscious decision in favor of a limited role for government; the French civil law system is much more comfortable with a centralized and activist government. For Hayek, this was enough to favor the English tradition. But if we combine his reasoning on this issue with his earlier work on the use of knowledge in society (Hayek 1945), a clear implication is that the economies of common law nations should be more adaptable to change. One result will be higher levels of economic growth in common law nations.
Recent research confirms this inference: After controlling for other important factors, Paul Mahoney (2001) shows that economic growth in common law nations is at least one-third faster than in civil law countries, and that this difference is directly attributable to the forces emphasized by Hayek.
Common law systems, as found in England and her former colonies, depend heavily on the judiciary to develop law in opinions that build upon historical precedent. In contrast, civil law systems, as found in France and her former colonies, depend on the legislature, often working closely with the executive, to write the law in statutes. The judiciary’s role is largely limited to ensuring that the will of the government is enforced. Thus, common law nations have a far greater degree of judicial independence, while civil law countries have a lower level of scrutiny of executive actions.
These differences between the two systems are deeply rooted in their historical development. The landed aristocrats in England wanted a system that would provide them with strong protections for property rights and would limit the Crown’s ability to interfere in their lives. In the English common law history, judges were seen as heroes who protected the citizenry from state intrusion, as well as independent policy makers occupying a high-status office.
In the French civil law tradition, judges were viewed as obstacles in the path of the executive and its closely aligned legislature. At best, judges were (and remain) relatively low-status civil servants without independent authority to create legal rules. The differences between these systems imply that power is much more fragmented in common law nations. This fragmentation of power constrains the ability of government agents to grant preferential treatment to special interests, because it is more difficult to coordinate the actions of multiple government actors. In effect, the strong judiciary in common law nations limits the ability of the executive and the legislative branches to alter property and contract rights.
The creation of a system of secure, enforceable property rights is generally regarded by economists as one of the most important institutional prerequisites to economic growth. The recent spread of command-and-control environmental legislation, such as the Endangered Species Act, has diminished the influence of the common law. Still, the relatively high regard for property rights in traditional common law nations should be reflected in higher economic growth for this group.
In examining this issue empirically across 102 nonsocialist nations, Mahoney finds that there is a strong positive association between common law status and higher rates of real per capita GDP growth. Moreover, he traces the sources of this higher growth to certain key institutional differences. For example, using accepted criteria developed by other scholars, Mahoney finds that the quality of the judiciary (as measured by its integrity and efficiency) is markedly higher in common law nations. Similarly, he presents evidence that there is greater security of property and contract rights in common law nations.
Mahoney is then able to show that these specific attributes of common law nations have been translated into better economic performance. In particular, over the study period from 1960 to 1992, he shows that, even after controlling for other key growth-determining factors, such as initial education levels, economic growth in common law countries has been one-third faster than in civil law nations. Over the 30-plus years covered by his study, the result was that in common law nations, the standard of living–measured by real per capita income–jumped more than 20 percent compared to civil law nations. If such a pattern persisted over the span of a century, real per capita income would rise a staggering 80 percent in common law versus civil law nations.
Hayek, it seems, got it right.
Hayek, F. A. 1945. The Use of Knowledge in Society. American Economic Review 35(September): 519–30.
Mahoney, Paul G. 2001. The Common Law and Economic Growth: Hayek Might Be Right. Journal of Legal Studies 30(June): 503–25.
Daniel K. Benjamin is a PERC senior associate and professor of economics at Clemson University. His regular column, “Tangents-Where Research and Policy Meet,” investigates policy implications of recent academic research. He can be reached at: email@example.com
PERC Reports, Volume 19, Number 3, September 2001