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Cleveland-Marshall College of Law Legal Studies Research Paper Series


Austrian School economics, Rule of Law, Weber, Hayek, rules and institutions, power, Kondratiev Waves, crony capitalism, role of government, relationship between economic forms and the Rule of Law, public and private institutions, legal rules, customary rules, institutional scale


There is a symbiotic relationship between a society’s form of economic activity and the Rule of Law institutions that support, facilitate, and limit that activity. Economic activity and Rule of Law institutions interact in a dynamic relation that creates, allocates, denies, and adapts power among competing entities. The core fact is that of transformation of the nature of power and the identities of those who control it. Nothing in such a system remains static and, unlike other systems, it is the natural effect of the system to reward its participants for creative contributions that sustain and advance its dynamism. The Rule of Law in the Western democracies represents the collection of deeper cultural values within which the dynamic activity takes place and operates as a facilitator, governor and definer of the economic activity by which power is distributed and social goods created and shared. Joseph Schumpeter once explained: “The capitalist process not only destroys its own institutional framework but it also creates the conditions for another. Destruction may not be the right word after all. Perhaps I should have spoken of transformation.” This point is raised because it seems quite obvious that we are at a point of transformation and that, while we can understand that fact without question, we still have no clear idea about the full nature, scale, elements, timing, costs, benefits or consequences of that transformation. It is much like Nikolai Kondratiev observed in accordance with his description of “Kondratiev Waves” that periodically affect the form and structure of an economic system. A key aspect of Kondratiev’s “Wave” concept is that the system does not simply change in degree as a linear phenomenon but shifts “in kind” and takes on new characteristics while discarding some of those associated with its previous form. Although there are challenges to the existence of the periodic “waves” in terms of their specific timing there is no real dispute that capitalist societies undergo periodic fundamental transformations. Technological developments in communication and automation are currently driving such a fundamental transformation. Moreover, despite that this wave of development arguably began in the mid-1990s, the end state is still mostly conjectural. Given what we are saying about the close connection between economic activity and the Rule of Law, we assert that it is difficult to understand either sub-system in isolation from the other. It is also inevitable that the Rule of Law element, while creating a framework within which economic activity occurs, is largely controlled and caused by the economic factors that are supported by the system generated by strong Rule of Law institutions. We are fully committed to the Western version of the Rule of Law and consider the form that economic activity takes in Western democracies as a vital “cause-and-effect” element of that system. In this brief analysis we will explore these considerations and provide some context and support for the assertion. At the beginning we want to make plain that this exercise is not empirical or evidential. It is not perfectly rational or demonstrable through use of pure logic or Reason. Nor do we want to conceal or deny that in some ways the insights or claims offered are not partial, presumptive, based on principles that cannot be proven, hypocritical, or representative of ideals rather than “truths”.

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