The study of Law without the knowledge of other related social sciences I. E. , Political theory, Sociology and Economics, etc, is incomplete. In any law curriculum the study of Economics and Law and their interaction is increasingly found necessary. As Law influence Economics, Economics also influence Law. As a matter of fact Economics forms the basis of the study of Law. Economics reflects the socio-economic ethos of the country in particular and world in general. It becomes out of date and misleading if the Economic ethos change.
But it was proved to be wrong by Dalton. The organization, industrial structure and performance have changed in the thirty years. E. G. : policy goals, policy instrument, Economic institutions. Economics derives its aims and objectives from the study of man and must derive at least a large part of its methodology from a study of Nature. Legal Economics is a vital part in understanding the international dimension of Law and Economics, I. E. , how modern Economics can be used to illuminate a number of legal problems.
It is not sufficiently realized that the economic analysis can aid our understanding of the Law ND how economic factors limit and shape the operation of crime control and legal systems. Economic considerations have varied and widespread effects on the costs and benefits that prospective offenders may expect from crime, on decisions to litigate or to settle out to court, on the significance of legal costs the practical problems of legal administration and the provision of legal services.
Law and legal policy help to determine the behavior of the economy. There are extensive legal constraints on the allocation and the distribution of resources and on labor and housing markets. The social functions of Law are broadly classified into three: (1) Encouraging good behavior and discouraging bad behavior. (2) Facilitating the people to transactions among themselves in organized legal system. (3) Distributing and re-distributing goods and services to the people. Law normally enters the scene in two guises; as public law, and as private law.
The range extent of state intervention depends on the socio-economic ethos of each country. Western countries for a long time believed in laissez fairer position, I. E. State interference in the economy will lead to misapplication of resources, economic inefficiency and a net wealth loss. Areas of law such as contact, tort and consumer protection legislations have obvious effects on financial dealings. In this changing scenario, there is need for guidance on the economic policy Relation between Economics and Law By Crappier questions.
Policy making courts need a behavioral theory of predict responses to change in Law and to evaluate these responses systematically according to normative standard. Ours is a market-oriented economy based on private enterprise. This implies two conditions- first, that all property can be privately owned and second, that people are economically free, I. E. Subject to obedience to the law, they are free to use their time and means as they like. This is however, subject to the laws and regulations made by the society for the general good, otherwise it will lead to social cost.
The classical economists, such as Adam Smith and his followers Marshall, Richard, Martyrs, etc, believed that in a market economy perfect competition operates and through price mechanism (invisible hand) supply and demand of goods and services will reach equilibrium. Therefore, any interference in the market mechanism by the State will lead to economic waste and result in the economic inefficiency. Perfect competition operates only if the following conditions are satisfied: (1) Too many buyers and sellers,.
They are price-takers and not price-givers; (2) Full knowledge of the products transacted in the market; (3) Homogeneity of products (product differentiation is not possible); and (4) Nil or negligible transaction costs. However, due to rapid economic development after the Industrial Revolution, the conditions mentioned above did not operate resulting in World Depression and complete collapse of the market system (in sass’s). In these circumstances, J. M. Keynes, a well known economist propounded a new theory.
He said the invisible hand relied upon by classical economists had developed arthritis and the visible hand of the Government was needed to correct the malady. He, therefore, advocated limited State intervention to correct the defects in the market mechanism so that the market operations can be revived and equilibrium achieved. He had faith in the market oriented economy. Later it was realized by the welfare and the third world economists that limited State intervention will not work and full intervention is accessory for the following reasons: (1) Steady increase in the divergence between private goods and social goods, I. . , economic development results in rapid industrialization which in turn increases the tempo of arbitration. (2) Rise of monopolies lead to distortion of the price system in the market economy through manipulation of supply of products and selling standard products, etc. (4) Steady increase in the divergence between private cost and social cost. Therefore, the introduction of a number of laws to protect environmental pollution (air, water and sound) has become necessary.
The second feature of the market economy is the protection of property. Possession and ownership of property has been Justified in economic theory because it is productive and contributes to economic growth. Property rights are one of the incentives for efficient resource use. If there are no property rights, only common rights, then economic behavior takes a new form. Due to technological revolution and growth, the intangible, aspects of property surfaced and they had to be protected for economic development.
Therefore, the definition of property has been widened to include not only physical property but also the intellectual property (I. . Goodwill, patents, copyright, etc). This wider definition of the property is attractive to economists and predates modern work on Demand Theory which in fact focuses on the characteristics of a ‘goods’ rather than the ‘goods’ it. The third feature of the market economy is contract. Under the classical concepts, contract between the two parties are binding and no third party can interfere.
This, of course is subject to the exceptions provided in the Contract Act (I. E. Contact by minors, lunatics, idiots, etc. Contracts obtained by fraud, coercion, undue influence are all void contacts). In India the sanctity of contract has been given go-by. The Supreme Court in many cases held that court can interfere in the contractual relations. For e. G. , Justice Hydraulically held that: “Social Justice is not based on contractual relations and is not to be enforced on the principles of contract of service.
It is something outside these principles, and is invoked to do Justice without a contract to back it. ” The right to personal security under the welfare State has been given more social interpretation which includes: (1) the right of the worker to be protected against the risk of sickness, unemployment ND old age, (2) his right to be protected by social insurance, and (3) His right to enjoy the necessary services of Government loosely called ‘Social Services’.
Another area in contract law which made inroads in the concept of ‘sanctity of contract’ is consumer protection law inasmuch as changed role in freedom of contact four reasons for the use of consumer protection laws: (1) The doctrine of ‘caveat emptor’ does not make sense in the modern world since information is asymmetrically distributed. (2) The free market system does not lead to optional use of resources. 3) The value Judgment implicit in the “devil take the hindmost” attitude to the parting of money from a fool is now much less widely held.