The economics of law and the economics of law are two connected ideas with a broad scope. The methodological approach to the economics of law is to analyze law from an economics viewpoint while also introspecting on the area of economics. Realism varies from the sociological school in that, unlike the latter, it is more concerned with the scientific observation of law and its real functioning than the objectives of the law. Realists argue that judicial decisions are not made solely on the basis of abstract formal law; rather, the human component of the Judge and the lawyer has an influence on the court’s choices.

What is Realism?

The antithesis of idealism is realism. Some jurists hesitate to recognize realism as a distinct school of law, claiming that it is best described as a branch of sociological law. Law, according to realists, is a myth. Realism has evolved as a natural progression in sociological law. It has been described as a reaction to analytical jurists’ formalistic mentality. Traditional legal principles and notions are rejected in favor of a focus on what the courts actually do in obtaining a final judgment on the issue at hand. Law, according to realists, is a generalized forecast of what the courts will do.

Basic Principles of Realism:

  1. Realists believe that there can be no certainty in law since its predictability is dependent on the facts in front of the court.
  2. They oppose formal, logical, and conceptual approaches to the law since the court, in resolving the issue, makes decisions based on emotions rather than logic.
  3. They place a greater emphasis on a psychological approach to understanding law as it pertains to human behavior and the convictions of attorneys and judges.
  4. Realists deny the utility of legal language because they believe it is a covert means of hiding the law’s uncertainty.

Because realists see the law as what the courts do with a given set of facts to make a decision, they place a higher value on the case law approach of legal study.

Karl Llewellyn

Karl Llewellyn admitted that there is no such thing as a realist school; rather, it is a specific approach taken by a group of philosophers in the field of sociological jurisprudence. He saw the law as a tool for achieving a social goal, and he advocated evaluating it in terms of its real consequences rather than strict conceptual principles. According to him, the conventional viewpoint that rules determine cases and so should be researched in law books has become obsolete, and the focus of attention should instead be on the behavior and thinking of the determining Judges or the Court.

The features of Llewellyn’s realism are;

  1. Llewellyn observed that case law has a high degree of predictability that may be attributed to the general art of decision-making. He put his faith in the judiciary’s knowledge and judgment, which allows judges to meet objective standards and come up with acceptable legal answers. This ensures uniformity in the handling of cases, furthering the cause of Justice.
  2. Law, according to Llewellyn, is “what authorities do about conflicts,” and it should be judged in terms of its effects. As a result, the judicial formation of legislation is crucial.
  3. He maintained that because society develops quicker than law, there is a continual need to review how the law responds to current social issues.
  4. He could not observe harm in separating is from ought for the sake of studying the judicial process and focusing on the need to examine how the law really works in society.
  5. In line with emerging conditions, he highlighted the importance of ongoing and systematic assessment and scrutiny of legislation through the judicial process.

Jerome N. Frank

Frank was a practicing lawyer who also served as a visiting professor at Yale School of Law. In his landmark work, Law and the Modern Mind, Frank outlined his ideas on a realistic approach to jurisprudence. He debunked the idea that law is constant, consistent, definite, and invariable, claiming that judges do not produce law but rather find it. According to him, the Judge’s unique decision is law par excellence. He emphasized that legislation is made up of judgments and human convictions, likes and dislikes, and feelings. The temperament of the judge has a significant impact on the legal system. Frank emphasizes that law is more than a set of abstract principles and that it is living with uncertainty.

John Chipan Gray

According to Gray, the law is what judges proclaim, and it comprises the standards that judges of the courts established for determining the legal rights and responsibilities of individuals. For him, laws enacted by lawmakers are only lifeless words in statutes, which are given life by courts through judicial interpretation.

Scandinavian Legal Realism

A parallel wave of realism emerged in Sweden, which was pioneered by Professor Hagerstorm, in addition to the American realist movement. However, there was one significant difference between the Scandinavian realism might be defined as metaphysical skeptical; whereas American realism is ruled skeptical. All a priori concepts of natural law, abstract conceptions, and idealism are rejected by Scandinavian realists from the law since they are all merely theoretical principles with no practical utility. A perspective that law, in all its manifestations, is a social reality free of doctrinal concepts such as morality, idealism, law, and theoretical precepts such as justice, obligation, and sovereignty supports this claim.

Contribution of Realist School to Jurisprudence

Realists’ primary contribution to jurisprudence is that they approached law with a positive attitude and proved the futility of theoretical conceptions of justice and natural law. Realists, in contrast to positivists, believe that law is inherently ambiguous and indeterminable, and that certainty of law is an illusion. The realist movement aims to rationalize and modernize the law, both in terms of its administration and the material for legislative reform, by employing scientific methods and taking into consideration the facts of social reality. Realism is a fusion of positivist and sociological approaches to law. It is positivist in the sense that it studies law as it is, and sociological in the sense that it expects it to serve society’s interests.

Indian Context & Realism

Despite the fact that Indian law does not explicitly belong to the realist legal philosophy, it does not place a high value on the functional elements of the law and instead connects it to the reality of social life. Though the Indian judiciary has the freedom to interpret the law in its context and social setting, taking into account the economic, social, political, and cultural differences in the country, the Supreme Court’s power of review and doctrine of overruling its previous decisions has enabled the Supreme Court to carry out constitutional mandates through judicial interpretation and inherent powers.

The realism school’s legal philosophy has not been adopted on the subcontinent for the apparent reason that Indian social life differs from that of the United States. Recent trends in public interest litigation have greatly expanded the scope of judicial activism, but judges must develop their conclusions within the confines of the constitutional framework of the law by employing their interpretive abilities. In other words, Indian judges are unable to disregard the country’s existing legislative statutes and enactments.

Criticism of Realism

The realism approach to jurisprudence has drawn criticism from a variety of quarters. Critics claim that proponents of the Realist legal theory ignored the relevance of norms and legal principles, treating law as a collection of unrelated court decisions.

Another frequent criticism leveled at realists is that they appear to have completely ignored the part of the law that is never brought before a court. As a result, it is erroneous to believe that legislation evolves and changes solely as a result of court decisions.

The importance of the human component in court decisions has been overstated by realists. It is incorrect to assert that court decisions are the result of the judge’s personality and behavior. There are a number of additional variables that he must examine before making a decision.

Economics & Jurisprudence

By the end of the nineteenth century, economics had established itself as a progressive social science. Legal scholars and progressive economists such as Roscoe Pound criticized the US courts’ assumptions that legislation protecting workers violated a constitutional standard of substantive due process. The philosophy of the Economic School of Jurisprudence dates from the seventeenth century and reflects the connection between law and economy. The legal system and economics of a country, according to Scottish jurists, are inextricably linked. Because the idea of political economics was an important element of Adam Smith’s Jurisprudential philosophy, it was widely acknowledged. Any economic study of a situation yields better outcomes than any other theory in which analytical techniques fail.

Chicago School of Law

The Chicago school of law and economics has long been connected with legal economics. The notion that choices might be based on intuition and imprecise moral convictions or on scientific evidence is the beginning point for economic analysis of legislation. To apply economics to the legal decision-making process, the logic behind the economic study of law is very straightforward. Economic analysis of law is now considered one of the main tendencies in modern jurisprudence. The Chicago method incorporates both positive and normative legal philosophy. It asserts that law is built on the efficiency principle and that judges consider efficiency enhancement as the primary goal of the law, even if they use other terms like justice. Economic analysis of law is now considered one of the main tendencies in modern jurisprudence.

  1. It implies that individuals are rational and that they maximize their happiness in both non-market and market situations. A utility function might be used to describe their preferences. If it enhances his benefit, the “economic man” may be entirely reasonable despite breaching legal standards.
  2. The judicial system’s decision-making process should resemble that of the economical market. It implies that the law should be interpreted in terms of economic efficiency. 

Teubner’s Theory

According to Teubner, law encodes legality/illegality information, whereas economy encodes utility/non-utility information. Both systems are completely self-contained, yet some intellectual impact is conceivable during the decoding and translation of data. Sanctioning is an example of such a process of translating legal information into economic language. When such logic is circulated inside the legal system of communication, it results in some sort of “economization” of the legal system. “Doctrine of efficient breach,” according to Teubner, is an instance of such a procedure. 

Ronald Coase

The contrast between negotiating and management transactions, as emphasized by Commons, was embraced by Ronald Coase. The former related to market exchanges, while the latter referred to economic organizations such as businesses and governments that “supersede” pricing processes. In actuality, the legislation has a broad impact on transaction costs and their distribution. This is the foundation for the normative Coase theorem, which argues that judges should thoroughly consider all economic issues and their ramifications when making legal judgments. The use of Zero Transaction Costs (ZTC world) made the initial rights allocations meaningless, according to Coase. However, in the actual world, this idea does not hold true.

J. R. Commons

J.R. Commons presented one of the most influential and pioneering theories on law and economics. His property theory led to a number of generalized insights on the growth of law and economics. He defined “market” as a process that involves the flow of transactions. In this volumetric context, the pricing system was working, which was defined by the disparities between parties. This imbalance was due to the unequal distribution of economic power in society. The transactions between legal and economic superior and inferior took place within economic institutions rather than in the market. In turn, economic power affected the legal power of institutions, increasing the gap between rich and poor.

Criticism of Economic Jurisprudence

Ronald Dworkin was opposed to the acknowledgment of wealth as a fundamental value in society, as well as the reliance of other values and rights distribution on money maximization. The first distribution of rights, according to Dworkin, cannot be instrumental, i.e. based on the efficiency principle, because the argument is harmed by its circularity.

The term “property” is commonly used to refer to the object or thing that is owned, but in law, it refers to the owner’s right to that object.

Any individual has the right to possess, use, enjoy, and dispose of property which is overlooked in this approach.

Not people or objects, but functions, are considered and classified in the generation and distribution of wealth in social economics. As a result, it states that there are wealth creators and consumers, despite the fact that every man is a consumer and virtually every man is a producer to some extent. As a result, it makes no reference to laws.


A broader view of law and economics, as well as realistic assumptions, is necessary. These principles may be realized and put into practice by taking an interdisciplinary approach to the question of how law and economics can coexist. Many opponents say that realists overstated the extent to which law is “riddled” with holes, inconsistencies, and other flaws. It’s difficult to reconcile the realists’ strong assertions of ubiquitous legal “indeterminacy” with the reality that most legal matters have simple, clear-cut solutions that no lawyer or court would dispute.

This article is authored by Aathira Pillai the 4th year BLS LLB student of Dr. D. Y. Patil College of Law.



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