“Every American’s basic civil liberties are critically endangered by this hysterical, politically inspired drive to demean our financial markets and convict or at least disgrace targeted individuals. That the principal defendant has been a disruptive and unsettling innovator in the usually staid financial world makes it all the more important to be vigilant about possible abuse of fair procedures…

…We hardly need a regime of civil liberties to protect passive, unventuresome members of the community. Tough business competitors should get at least the same legal fairness we normally give Klansmen or crack dealers…… Our judges are regularly asked to decide complex issues of antitrust law without any sophistication as to what competitive markets are all about; intellectual property cases without any grounding in the nature of property rights or the significance of private contract. They are asked to resolve arcane contract damage issues without knowing the difference between accounting revenues and economic profits. Market economics is claimed by its opponents to represent one extreme of the ideological spectrum. Thus, if a firm funds judicial education in market economics, that firm must be engaged in the ex-parte brainwashing of judges. Why is it that the colleges and law schools have failed so miserably to build a fundamental understanding of how our economy functions? And why, in particular, are some people apparently interested in keeping judges in the dark about economics?……. Now I realize (I should have known) he (Milton Friedman) was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property—in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals’ private investments into assets affected with a public interest. And once these corporate behemoths are “affected with a public interest,” they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state.”, Excerpts from dean emeritus of George Mason School of Law, Henry G. Manne’s Historical WSJ OpEds, “A Champion of Law Informed by Economics”, Wall Street Journal

Opinion

A Champion of Law Informed by Economics

‘Tough business competitors should get at least the same legal fairness we normally give Klansmen or crack dealers.’

Editor’s note: Henry G. Manne, dean emeritus of the George Mason School of Law, died Saturday at age 86. The author of “Insider Trading and the Stock Market” (1966) and a pioneer in the field of law and economics was a frequent Journal contributor. Some samples:

From “For Milken, Verdict First, Trial Later,” Feb. 3, 1990:

The government wants $1.8 billion in RICO forfeitures from [Michael] Milken and his co-defendants. The government claims that Mr. Milken’s alleged securities infractions were RICO violations, which made Drexel part of a RICO “enterprise,” which means he must forfeit all his Drexel compensation. Kafka, hell; anyone for Torquemada?

George Mason University Law School

Every American’s basic civil liberties are critically endangered by this hysterical, politically inspired drive to demean our financial markets and convict or at least disgrace targeted individuals. That the principal defendant has been a disruptive and unsettling innovator in the usually staid financial world makes it all the more important to be vigilant about possible abuse of fair procedures. We hardly need a regime of civil liberties to protect passive, unventuresome members of the community. Tough business competitors should get at least the same legal fairness we normally give Klansmen or crack dealers.

From an Aug. 24, 1999, letter to the editor regarding an article titled “How Koch Industries Tries to Influence Judicial System”:

Our judges are regularly asked to decide complex issues of antitrust law without any sophistication as to what competitive markets are all about; intellectual property cases without any grounding in the nature of property rights or the significance of private contract. They are asked to resolve arcane contract damage issues without knowing the difference between accounting revenues and economic profits.

Market economics is claimed by its opponents to represent one extreme of the ideological spectrum. Thus, if a firm funds judicial education in market economics, that firm must be engaged in the ex-parte brainwashing of judges.

Why is it that the colleges and law schools have failed so miserably to build a fundamental understanding of how our economy functions? And why, in particular, are some people apparently interested in keeping judges in the dark about economics?

From “Bring Back the Hostile Takeover,” June 26, 2002:

Since Enron, there has been an outbreak of regulatory fever in Washington: A tide of “solutions” has sluiced from the pens of journalists and the mouths of politicians. Apparently forgotten is how Enron and other recent scandals were the direct result of regulatory and judicial efforts to stem abuses in the takeover arena 20 and more years ago. They still haven’t learned just how high the cost of interfering with salutary market forces can be.

Among current proposed guardians of executive morality are auditors, lawyers, analysts, financial intermediaries, independent directors, and government officials. But no proposal involving these actors addresses the real problem. New scandals will continue until we bring back the most powerful market mechanism for displacing bad managers: hostile takeovers.

From “Options? Nah, Try Insider Trading,” Aug. 2, 2002:

Currently, the SEC sees its job as regulating the entire market for information. This is madness. It starts at the supply side with accounting rules that began life as managerial tools and tries to make them into a valuation scheme. It finishes on the demand side by restricting insider trading, which merely shifts the identity of the people who may trade first on undisclosed information.

If insider trading were legal and used to replace or supplement stock options, there would be no “tragedies” of employees being left high and dry with options way out of the money. There would be no loss of reward when an innovation merely resulted in a reduction of an expected loss. There would be no unearned gain because a company’s stock appreciated in line with a market or industry rise. And there would be no peculiar problems of accounting since such trading would be entirely extraneous to the company’s accounts.

From “Regulation ‘In Terrorem,’ ” Nov. 22, 2004:

Since [New York Attorney General Eliot] Spitzer wins his cases in the media, where business is now all but defenseless, the best hope is for the American business community to develop its own public voice. The free-market scholarship needed for this purpose is available, though it is rarely availed of in these fights. Too often the corporate defenders conclude, out of ignorance to be sure, that the opposition really has the better case.

But make no mistake: Eliot Spitzer represents, wittingly or not, an attack on the entire corporate free-enterprise system. Clearly we need new or invigorated institutions to defend industries and companies publicly when they come under unwarranted or disproportionate attack. Responsible leaders of the business community should make it a high priority to develop these capabilities before more harm is done.

From “ Milton Friedman Was Right,” Nov. 26, 2006:

Now I realize (I should have known) he was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property—in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals’ private investments into assets affected with a public interest. And once these corporate behemoths are “affected with a public interest,” they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state. This attitude is reflected not merely by corporate activists, but by many “modern” corporate managers.

From “The ‘Corporate Democracy’ Oxymoron,” Jan. 2, 2007:

They’re back! Every 20 or 30 years shareholder democracy ideas come back in vogue, and their time seems to have arrived again—with a vengeance. . . .

There is absolutely nothing new in any of this discussion. The real world has not changed in any significant way, and our knowledge of corporate governance has not been revolutionized by some intellectual breakthrough. Furthermore, the provenance of the “corporate democracy” oxymoron has long been understood. The idea results from the inappropriate conflation of political ideals with market institutions. Its persistence can only be attributed to the intelligentsia’s far greater comfort and familiarity with political models and events than with knowledge and appreciation of how markets function.

Posted on January 20, 2015, in Postings. Bookmark the permalink. Leave a comment.

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