A quarter century after the publication of his acclaimed Enterprise and American Law, 1836–1937 (1991), Herbert Hovenkamp has produced a sequel that extends that earlier work. Both works explore “intellectual ideas behind legal movements” (5). Hovenkamp maintains that legal theory reflects concepts of political economy. He posits a model of classical political economy that was superseded after 1890 by marginalism, a radically different economic theory that identified value as a function not of the past accumulation of capital but as an anticipation of future profits and costs. Marginalism diverted economic thought from backward-looking assumptions such as the wage fund theory, toward planning based on expectations of future performance. These economic concepts found their way into legal thinking within a generation, influencing, if not determining, fundamental changes in legal theory.

Classical political economy, originating with Adam Smith, exalted free markets as the surest way to increase national wealth. The market functioned as the only reliable pricing mechanism for both goods and labor. Classical economists deplored regulatory interference with the natural, benevolent workings of the market. In the United States, the modern business corporation, as well as the sibling doctrines of substantive due process and liberty of contract, instantiated classicism in legal institutions and culture.

Classicism was challenged first by Benthamite utilitarianism and then by marginalism. “Value depends entirely on utility,” wrote W. Stanley Jevons, one of the first marginalist economists. Marginalists such as Alfred Marshall assumed that economic relationships were formed by rational actors pursuing their self-interest. Marginalism at first favored legislative intervention to correct the problems of monopolies and other distortions of the market. The marginalist revolution transformed classical political economy into what Hovenkamp calls “neoclassicism,” a concept that he never satisfactorily defines or identifies definitively. It was an outlook sympathetic to limited wealth redistribution, welfare transfers, wage regulation, labor organization, and administrative regulation.

As classical political economy furnished the background assumptions of classical legal thought, so did neoclassicism successively shape progressive thought, legal realism, and the New Deal. Neoclassicism redirected lawyers’ thinking to planning and risk management, two characteristics of the legal order that emerged after the Great War. Lawyers saw market failure as a given, and turned first to legislative, and then to administrative, remedies to deal with its consequences. Concerns over private coercion voiced by Robert Hale and Morris Cohen reflected skepticism about the salutary workings of the common law and unrestrained capitalism. Early marginalists advocated social policies that resulted in redistribution of wealth and reduction of inequality. Lawyers influenced by them, such as the realists, became enthusiasts for planning and political intervention in managing the economy.

Neoclassical political economy thus shaped public law and the common law areas of contract, property, and tort after 1920. Legal academics and judges came to see law less as a means of compensating for past injuries, and more as a way of managing risk and forestalling future wrongs. Oliver Wendell Holmes's external and objective standards for liability reflected marginalist influences. Deterrence became the goal of both tort and criminal law. Tort law moved from an exclusive concern for redress of individual injury to penalizing conduct likely to cause foreseeable harm, leaving behind medieval concepts of proximate or efficient cause in favor of modern notions of probability and foreseeability. The logical end of such developments was Learned Hand's pseudomathematical approach to liability in United States v. Carroll Towing Co. (1947), a triumph of marginalism in law. Judges evaluated commercial contracts to reward rational, forward-looking business practices. They recognized the frequent inequality of bargaining power between parties and externalities produced by contractual relationships. Property law created implied warranties of habitability in residential leases. Nuisance law, based on a balancing of utilities, enabled courts to accommodate competing land uses in increasingly planned and regulated urban spaces. The first Restatements—especially Contracts (1932), Property (1936), and Torts (1938)—confirmed the impact of marginalism on law.

In public law, classicism's dominance had produced legal doctrines that embodied the free-market, antiregulatory preferences of classical legal thought: substantive due process, liberty of contract, dual federalism, vested rights, and hostility to “class legislation” and special-interest capture. Individualism prevailed in economic regulation. Courts of the classical era were unrelentingly hostile to collective action pursued by organized labor, but endorsed communitarian regulation of morals (Sabbath observance, liquor, lotteries, sexual behavior, even blasphemy). Judges tolerated protective legislation only if it safeguarded health, safety, or morals. They insisted on retaining for themselves the ultimate power to decide whether regulation met these criteria.

After 1937, marginalist-influenced assumptions swept such classical priorities aside. The state intervened to redistribute wealth, correct market failure, manage risk, stimulate employment, encourage competition, boost consumer demand, break up monopolies, and deter other concentrations of anticompetitive economic behavior. For a generation, national supremacy in economic matters displaced state regulation.

In a brief Epilogue, Hovenkamp reflects on the demise of the New Deal regime, battered as it was by public-choice theory, neutral principles, legal process institutionalism, critiques of rent-seeking and regulatory capture, skepticism toward the legislative process, deregulation, and a rehabilitated faith in the efficacy of private markets, but it will take another sequel to do justice to these developments.