The Enforcement of Contracts and Property Rights: Constitutive versus Epiphenomenal Conceptions of Law

By what means are property rights sustained and contracts enforced? The purpose of this paper is to consider the role and ontological status of law and legal systems in modern, complex socio-economic systems. Are such laws mere reflections of other socio-economic relationships between individuals or social classes, or is law itself a part of the underlying socio-economic reality? This enquiry raises general questions concerning the relationship between legal and economic institutions, and the relationship between markets and the state in particular. Sections 2 and 3 of this paper address, respectively, Marxism and a doctrine that I broadly describe as ‘individualism’. It is argued that Marxism treats law as an expression (or epiphenomenon) of underlying (and inadequately defined) social relations. Individualism treats law as a mere formalization of spontaneous outcomes of individual interactions. Hence, in different ways, both Marxists and individualists have typically favoured the idea that law is an epiphenomenon. In contrast, it is argued in Section 4 that legal relations are partly constitutive of reality. Section 5 considers some general aspects of institutions, among which legal institutions are included. This prepares the ground for the discussion in Section 6, of different types of mechanism of institutional emergence and rule enforcement. It is argued that individualists have given too much relative emphasis to spontaneously emerging institutions and many legal institutions are not of this type. Many legal institutions, including contracts and property rights, cannot be generally enforced in a complex society without ‘third party’ institutional intervention, such as by the state. This argument is extended to support Karl Polanyi’s proposition that markets cannot function properly without some state intervention.