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Valparaiso Univ. Law School

Monday, August 19, 2013

Revisiting the Contracts Scholarship of Stewart Macaulay, Post I: Jay Feinman, Ambition & Humility


This is the first in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay.  More about the online symposium can be found here.  More information about this week's guest bloggers can be found here

Jay Feinman is Distinguished Professor of Law at Rutgers School of Law‒Camden. 

My contribution to Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical is a chapter entitled “Ambition and Humility in Contract Law.” The chapter focuses on several of Macaulay’s articles in the 1960s in which he presented an organization of the fundamental policies underlying contract law, the structures through which contract law acts, and some policies of the legal system that influence the fundamental and structural policies. The organization encapsulates in a remarkable 2x2 matrix the essential issues of contract law.

Here is the matrix, which separates the substantive policies that contract law serves (market and other-than-market goals) from the ways in which the legal system can realize those goals (through rules or case-by-case adjudication). (As Macaulay recognizes, the elements of the matrix are actually ends of continua rather than discrete categories.)


Market goals

Other-than-market goals

Generalizing approach (‘rules’)

market-functioning policy

social (or economic) planning policy

Particularizing approach (‘case-by-case’)

transactional policy

relief-of-hardship policy

 Macaulay’s organization clearly and powerfully expresses the underpinnings and operations of the field.  For mainstream scholars, the identification of policies and approaches provides a framework that clarifies analysis in legislation, adjudication, and scholarship. But the matrix also contains the seeds of a critique that demonstrated that contract law is at best badly confused and at worst incoherent and largely ineffective. In that way, Macaulay’s work contributed to critical legal studies’ account of private law through its influence on Duncan Kennedy’s monumental “Form and Substance In Private Law Adjudication,” 89 Harv. L. Rev. 1685 (1976) and other works.

Cropped Cover (1)Consider just one instance of the way in which the organization reveals these problems, in the relationship between market and other-than-market goals.

For contract law, the market is the primary social institution, so market goals predominate.  Macaulay’s framing of market-promoting goals as primary and market-correcting goals as secondary correctly states the customary objectives of contract law as ambition tempered with humility.  But that framing makes apparent why contract law needs to temper its ambition of serving the market with a large dose of humility.

First, the conflicting market and non-market goals need to be balanced, and the measures for doing so are controversial.  The case law and literature offer a variety of mechanisms for carrying out this balancing.  Courts employ different tropes including avoidance by doctrinal formalism, casual policy analysis, and ad hoc paternalism.  The Restatement Second frequently lists factors to be balanced without specifying the techniques of balancing.  Economic analysis aims for efficient results, variously defined and sought.  In his later reflections on the systematic presentation of contract law policies, Macaulay recognized the inadequacy of these efforts and the difficulty, perhaps impossibility of this balancing process.  There he entitles the matrix “The Contradictions of Contract Law” and comments that contract law “inconsistently rests on policies that both promote the market and those that attempt to blunt it.”  Macaulay, “Klein and the Contradictions of Corporate Law, 2 Berkeley Bus.  L. J.  119  (2005).

Second, the hierarchy and separation between market and non-market goals needs to be established in practice.  Consider the choice between a rule-oriented market functioning policy and a case-by-case transactional policy.  One of the substantive contract policies Macaulay identifies is self-reliance.  In the conception of the market as private, individual, and self-actuating, self-reliance is crucial.  Macaulay writes of promoting self-reliance by encouraging or requiring parties to look out for themselves, in a world in which the law will rigidly enforce apparent bargains they have made, through a market-functioning or transactional policy.

But implicit in this construction is the illogic of simply promoting the market by promoting self-reliance through a body of contract law that rewards initiative and punishes dependence.  Instead, the law can further self-reliance in either of two opposite ways—by creating a minimal body of contract law that puts parties at risk or an aggressively interventionist body of law that provides parties with security.  A body of contract that provides relief from one’s ill-informed or ill-fated promises encourages self-reliant action by assuring that the consequences of action will not be too severe.  The risk of intervention or non-intervention in this way protects all economic actors, as all are potentially subject to bad decisions or bad luck, although the weak probably more so than the strong.

Stewart Macaulay
Therefore, a combination of the transactional policy and the relief of hardship policy—determining the enforceability of contracts, or not, on a case-by-case basis—may maximize social welfare; whether the social welfare so produced is greater or lesser than that generated by the rule-based market functioning policy ameliorated with social or economic planning policy is an empirical question for which no theoretical answer exists.

Third, as the theoretical conflict about self-reliance illustrates, it is problematic even to attempt to define market and non-market goals as separate.  Inherent in the separation is the conception that market goals involve the facilitation of private activity, a process that is distinct from the imposition of public values such as redressing inequality.  Private activity is fundamentally individual, whereas public goals are collective.  Courts in private law cases are primarily a forum for the adjudication of private disputes; legislatures are the arena in which public goals are primarily enunciated.  And so on.

But these dichotomies are exaggerated.  There is no institution of the market separate from and preexisting non-market activity, just as there is no private law not constituted by public values.  The exchange of goods may be a private activity, but the exchange of goods that the law has made the subject of property and which exchange is enforceable by law is an essentially public activity.  Law constitutes the market for reasons of the public good, so supporting the market through contract law is only another way of advancing the public good, and not a particularly distinct way at that.

Because the market is not distinctively private, the hierarchy of market goals and the need for self-reliance in the service of those goals are not evident.  The justification for contract law and its rules must rest elsewhere than on a claim that the market is distinctive and distinctively important.  And that is a claim that is assumed but seldom justified in the case law or literature.  Part of the power of Macaulay’s organization is the way in which it makes clear the great defects of contract law’s ambition.

[Posted, on Jay Feinman's behalf, by JT]

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