End of The Market, Law and Psychoanalisis

The End of the Market: A Psychoanalysis of Law and Economics
Author(s): Jeanne L. Schroeder

Source: Harvard Law Review, Vol. 112, No. 2 (Dec., 1998), pp. 483-558
Published by: The Harvard Law Review Association
Stable URL: http://www.jstor.org/stable/1342427
Accessed: 18-08-2014 23:17 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://www.jstor.org/page/info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
The Harvard Law Review Association is collaborating with JSTOR to digitize, preserve and extend access to Harvard Law
Review.
http://www.jstor.org
This content downloaded from 200.37.4.226 on Mon, 18 Aug 2014 23:17:44 UTC
All use subject to JSTOR Terms and Conditions
THE END OF THE MARKET.

A PSYCHOANALYSIS OF LAW AND ECONOMICS
Jeanne L. Schroeder
TABLE OF CONTENTS
ORPHEUSANDEURYDICE;EROSANDTHANATOS
....
PROLOGUE:
.
.
.488
I. THE DESIREOF ECONOMICS
..488
A. Introduction
B. The Erotics of the Market.492
C. The Hegelian Economics of Desire .495
D. The Lacanian Desire of Economics .499
The Three Orders of the Psyche .500
I.
2.
Castration............................................................................................................
Fantasy and Sexuality.
3.
4. Jouissance, Desire, and the Horror of the Real .509
5. The Contours of the Real.
.
.
II. THE PERFECTMARKET.
A. The Ideal of the Perfect Market.
..520
B. Perfect Competition
C. The Coase Theorem.
The Definition of Economic Costs.
I.
The Paradigms of Cost .523
2.
Theorems and Paradigms.
3.
D. Specific TransactionCosts.
Information
.532
I.
Time and Space .534
2.
3. Irrationality.........................................................................................................
Multiple Parties.54
4.
5.
Strategic Behavior.542
6. Legal Uncertainty.544
7. Differentiation....................................................................................................
III. THE PERFECTMARKETASTHEEND OFTHEACTUALMARKET ...
A. The Thanatos of Economics .548
The Desire of the Market.548
I.
2.
The Abyss.550
.
.556
B. Making the Impossible Possible
484
50I
5o6
5II
5I3
5I3
52 I
52 I
52 7
53I
537
545
548
483
THE END OF THE MARKET:

A PSYCHOANALYSIS OF LAW AND ECONOMICS
Jeanne L. Schroeder*
The perfect market is the end of all actual markets - it is their ideal form. In
normative economics, actual markets are the means of achieving the end or ideal of the
perfect market. But this means that to achieve a perfect market would result in the end
of all actual markets.
Despite the centrality of the ideal of the perfect market in the subset of law and
economics scholarship based on classical price theory, there is surprisingly little
literature on its parameters. In this Commentary, Professor Schroeder examines this
literature in order to explicate the nature of this ideal. A careful examination reveals
that the perfect market is not merely impossible to attain, it is also logically impossible.
The perfect market is a strange world without time, space, objects, subjects - or market
exchange. An empirically impossible ideal defines the actual by serving as that which
the actual should be. In contrast, a logically impossible ideal defines the actual by
serving as that which the actual is not. Accordingly, unlike an empirically impossible
ideal, the logically impossible perfect market cannot serve as an asymptote that actual
markets might approach, because the perfect market is the death of the actual market.
Professor Schroeder analyzes the ideal of the perfect market and the Coase Theorem
through a feminist theory based on the jurisprudence of G.WF. Hegel and the
psychoanalysis of Jacques Lacan. She suggests reasons for both the continuing appeal of
this deadly ideal and the lack of meaningful discussion of its contours. In Lacanian
terms, the perfect market is located in the psychic realm of the Real, while actual
markets (like law and language) are located in the realm of the Symbolic. Transaction
costs, as understood by the Coase Theorem, serve a role parallel to Lacan's notion of
castration - they are the "cut" that forever separates the actual market (the Symbolic)
from the perfect market (the Real). Ironically, then, it is only the presence of
transaction costs that enables the market to function.
The object of the law and the object of desire are one and the same,
and remain equally concealed.
GILLESDELEUZE1
ORPHEUSAND EURYDICE;EROSAND THANATOS
PROLOGUE:
Orpheus,2 the most creative of all living beings, sang so well he
charmed wild beasts; trees and rocks moved of their own accord in order to follow him. He exceeded his mother Calliope, the Muse of music, as well as divine Apollo himself. Mortality was the source of Orpheus's art - he sang in a vain attempt to fill the void left by the
~~~~~~~~--
* Professor of Law, Benjamin N. Cardozo School of Law, Yeshiva University. As always, this
Commentary could not have been written without the help and support of David Gray Carlson.
1 Gilles Deleuze, Coldness and Cruelty, in MASOCHISM 9, 85 (Jean McNeil trans., ist paperback ed. i99i) (i967).
2 There are many versions of the classical myth of Orpheus. This is my idiosyncratic synthesis from Ovid's Metamorphoses and a variety of other sources. See OVID, METAMORPHOSES
(Karl K. Hulley & Stanley T. Vandersall eds. & George Sandys trans., Univ. of Neb. Press I970).
484
I998]
THE END OF THE MARKET
485
death of his beloved Eurydice. The gods, being immortal, perfect, and
complete, have no desire and, therefore, no ability to create anything
truly new.
Orpheus desired Eurydice because he never had her: he was bridegroom and widower, but not husband. Eurydice was bitten by a snake
and died at their wedding. Orpheus poured his grief into song.
Although Orpheus had lost Eurydice once through death, he could
not accept that she was forever lost. He persisted in the impossible
fantasy that he would eventually embrace her. And so, Orpheus, still
alive, traveled to the world of the dead.
His song protected him from the horrors of hell. Charon the ferryman waived his fee. Cerberus the hellhound crouched at his feet.
The demons stopped tormenting the damned so that they could listen.
Hecate, mistress of sorcery, was herself enchanted. The implacable
Furies, witnesses to all sin from time immemorial, wept as Orpheus
described a virginal innocence they had never known.
Orpheus arrived at the throne of Persephone, paradoxically both
queen and prisoner of death. Goddess though she was, Persephone
could not escape the curse that kept her locked in the icy embrace of
Hades for two-thirds of the year. Orpheus's song gave her the power
to grant him the gift that she could not grant herself - release from
death.
Persephone promised Orpheus that his fantasy would come true.
He would have Eurydice, but not yet. Eurydice was to follow Orpheus when he left the land of the dead. Orpheus was forbidden to
turn back and look at her until he reached the land of the living.
As Orpheus began his long climb out of the pit of Tartarus, his desire was whetted by anxiety. He couldn't quite tell whether he heard
the muffled sound of her footsteps following behind him. Could that
warm breeze on the back of his neck be her breath or was it just the
receding fires of hell? He finally gave way to his desire and whirled
around to embrace his beloved. Nothing. Eurydice was twice, and
permanently, lost. But was she always already gone, or had she not
yet come? Did Persephone lie or tell the truth? Orpheus could only
speculate that Eurydice might have been there from what seemed to
be traces of her loss - the mark on the trail that could be her footprint, the fading sound that might be the echo of her farewell.
The myth of Orpheus and Eurydice reflects the concept of Eros
developed by the French psychoanalyst Jacques Lacan. I have called
Eros the Masculine form of desire3- an attempt to fill the emptiness
and alienation that is the center of human experience by fantasizing a
perfect, immediate relationship with another. According to Lacanian
3 See JEANNE L. SCHROEDER, THE VESTAL AND THE FASCES: HEGEL, LACAN, PROPERTY
AND THE FEMININE 292 (i998) [hereinafter SCHROEDER, THE VESTAL AND THE FASCES].
HARVARD LAW REVIEW
486
[Vol.
I I2:483
psychoanalysis, this fantasy or "Imaginary"dream of "femininity"(that

is, the ideal mate who can fulfill our desire for immediacy) is erected to
take the place of the "Real"concept of the "Feminine."4
The capitalized words above are technical terms of art in Lacanian
theory with meanings quite different from their colloquial usage. Lacanian terminology is not merely counterintuitive, but also intentionally (and infuriatingly) confusing and highly controversial. I shall explain these terms in more detail as they are used in context throughout
this Commentary. Suffice it to say at this point that the "Feminine"
and "Masculine" refer neither to actual women and men nor to anatomical femaleness or maleness, just as desire does not refer to the
biological mating urge. The two "sexes"are, rather, two different ways
of confronting the universal sense of loss and incompleteness experienced by all normal adults in Western society; desire is the longing to
be complete, to achieve wholeness. The Feminine position is that of
radical negativity and freedom.5
Sustaining the fantasy that we can achieve wholeness allows us to
act and create. But the moment we try to confront the reality of the
Feminine that lies beneath the fantasy of femininity, we find that there
is nothing there. This leaves us more bereft than before and more in
need of fantasy. If we give in to the Masculine desire of Eros and look
back at the lost Feminine, we lose her. We can keep her only by not
having her. This is because the Lacanian Feminine is, in fact, an aspect of "The Real" - radical negativity.6 According to Hegelian philosophy, as well as Lacanian psychoanalysis, this negativity is the heart
and soul of human freedom and subjectivity. Any attempt to give the
Feminine positive content is a Masculine fantasy7 - a vain attempt to
have and to hold that which, by definition, can be neither captured nor
tamed.
Eros always threatens to turn into its Feminine twin, Thanatos, the
death wish. Thanatos is the realization that Eros is always unsuccessful and that the only way to achieve wholeness is by regressing back to
4
5
See infrapp. 507-09.

See id.
6 The term of art "radical negativity" means negativity per se. It is not just "extreme" negano
tivity, which implies a qualitative comparison of degrees of negation. Rather, it has absolutely
2ilek:
of
positive content. In the words Slavoj
the
In short, by playing upon the somewhat worn-out Hegelian formula, we can say that
'enigma of woman' ultimately conceals the fact that there is nothing to conceal.... [The]
Hegelian reflexive reversal [is the recognition that] in this 'nothing' [is] the very negativity
very
that defines the notion of the subject.... [T]his nothingness behind the mask is the
a
absolute negativity on account of which the woman is the subject par excellence, not
limited object opposed to the force of subjectivity!
omitted)
2IZEK, THE METASTASES OF ENJOYMENT I43 (1994) (footnote and punctuation
SLAVOJ
[hereinafter 2IZEK, THE METASTASES OF ENJOYMENT].

7 See id. at I50-5I; Jacqueline Rose, IntroductionII to JACQUES LACAN AND THE ACOLE
(Juliet
2
FREUDIENNE, FEMININE SEXUALITY [hereinafter FEMININE SEXUALITY] 7, 49-50
Mitchell & Jacqueline Rose eds. & Jacqueline Rose trans., i985).
i998]
487
the time before loss. If Eros is the fantasy that one can capture the
Feminine, Thanatos is the desire to merge back into, and thereby become, the Feminine. But the Feminine is like "Eurydice twice lost."8
She is our sense that there is something that we have always already
lost and that we have not yet found. She is yesterday and tomorrow,
but never today. As Lacan said, "Woman - that is, the Feminine per
se - does not exist."9 She was and shall be, but never is.?1 To merge
with her now is to become nothing, to achieve oblivion. This is why
the desire for perfection is equivalent to the desire for death.
And so, without Orpheus even knowing it, his desire evolved from
Eros to Thanatos. He continued to mourn his fantasy image of Eurydice and to dream of joining with the Feminine until his desire was
fulfilled, but not in a way he expected. He poured his grief into songs
in memory of his lost love, and avoided all actual female contact.
One day, however, when he was wandering in the countryside, he
accidentally encountered a band of Maenads. These female worshipers of Dionysus (in his guise as god of ecstasy) expressed their devotion
in orgiastic, and often violent, revels." Their frenzy reflects what Lacan calls Feminine jouissance or enjoyment.'2 As I explain below,
8 JACQUES LACAN, THE FOUR FUNDAMENTAL CONCEPTS OF PSYCHo-ANALYSIS
25
(Jacques-Alain Miller ed. & Alan Sheridan trans., i98i) [hereinafter LACAN, THE FOUR
FUNDAMENTAL
CONCEPTS]. Lacan uses this beautiful metaphor to describe the unconscious
specifically, but it can be generalized to apply to everything in the Real, including the Feminine.
9 This is a common paraphrase, see, e.g., ELIZABETH GROSZ, JACQUES LACAN: A FEMINIST
INTRODUCTION I40 (i990); Rose, supra note 7, at 48, of Lacan's complex formulation in his twentieth seminar. See JACQUES LACAN, THE SEMINAR OF JACQUES LACAN - BOOK XX: ENCORE,
at 72-73
ON FEMININE
SEXUALITY, THE LIMITS OF LOVE AND KNOWLEDGE I972-I973,
(Jacques-Alain Miller ed. & Bruce Fink trans., i998) (I975) [hereinafter LACAN, SEMINAR XX].
Lacan's formulation of the Feminine has also been translated as "qce Woman does not exist."
Jacques Lacan, God and the Jouissance of The Woman,in FEMININE SEXUALITY, supra note 7, at
I37, I44. Lacan is not speaking about female human beings, but the radical negativity that is the
"Feminine."
10 I explore this concept of the Feminine as the past and future in my book, The Vestal and the
Fasces. See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 294-95, 3I5-I7, 32627; see also Jeanne L. Schroeder, Never Jam To-day: On the Impossibility of Takings
Jurisprudence, 84 GEO. L.J. I53I, I566-67 (i996) (discussing the moment of sublation as jam
tomorrow and jam yesterday, but never jam today) [hereinafter Schroeder, Never Jam To-day].
11 According to the legends, Maenads (also called Bacchantes or Bacchae) became so enthused
in their religious ecstasy that they would take to the hills to hunt wild animals and kill them with
their bare hands. Their most famous victim other than Orpheus was Pentheus, whose story was
told by Euripides in The Bacchae. See EURIPIDES, THE BACCHAE 60-72 (Michael Cacoyannis
trans., Penguin Books I982).
12 See infra p. 5 IO. Note that what I will generally refer to as jouissance in this Commentary
is, in fact, one aspect of the Lacanian concept more precisely called "Feminine"jouissance. Lacan
also wrote of a concept of phallic jouissance. See, e.g., LACAN, SEMINAR XX, supra note 9, at 6i I. There is no precise English equivalent for the French word jouissance used by Lacan. Literally, it refers to enjoyment or joyfulness generally. The breadth of its meaning includes the legal
right of "enjoyment" of property, but it is also a slang term for sexual orgasm. See BICE
BENEVENUTO & ROGER KENNEDY, THE WORKS OF JACQUES LACAN: AN INTRODUCTION I79
(I986). Lacan's term is not perfectly translatable because it is defined as that which is beyond the
HARVARDLAWREVIEW
488
[Vol. I I2:483
Femininejouissance is the momentaryachievementof the otherwise

impossiblefulfillmentof Thanatos - union with the Feminine in the
sense of perfect wholeness, the breakdownof the subject-objectdistinction, the achievementof the Lacanian"Real." The Maenads demanded that Orpheusjoin in their worship. When he hesitated,they
tore Orpheus limb from limb in their divine jouissance. As Lacan
predicts,the Masculinecan not survive an encounterwith the Feminine. To give way to one's desireis to lose everything.
I.
THE DESIRE OF ECONOMICS
If the world then were as it ought to be, the action of Will would be
at an end. The Will itself therefore requires that its End should not be
realized.
G.W.F HEGEL13
A. Introduction
In this Commentary,I explore from the perspectiveof Lacanian

psychoanalysisand Hegelian political philosophythe represseddesire
(that is, the internal logic) underlyingthe ideal of the perfect market
encounteredin law and economicsliterature. I show that, surprisingly,
this desireturnsout to be not Eros, but Thanatos- the death wish.
I believe that the law and economicsparadigm4 drawn from classical price theoryis in a stage of decadence;in the terminologyof Imre
Lakatos,it is a "degeneratingresearchprogram."'5My use of psychomasculine, symbolic order of language. Ellie Ragland-Sullivan points out that some feminist
theorists have misused the Lacanian concept of jouissance:
If, as Lacan taught, unconscious drives do not always wish one's good, feminist theories
that have equated jouissance with pleasure and the erotic pleasure of sexual freedom to
gender liberation, have missed the meaning of Lacan's rethinking of the links between
repetition, the death beyond the pleasure principle, and jouissance.
Ellie Ragland-Sullivan, The Sexual Masquerade: A Lacanian Theory of Sexual Difference, in
LACANAND THE SUBJECTOF LANGUAGE49, 70 (Ellie Ragland-Sullivan & Mark Bracher eds.,
Bice Benevenuto and Roger Kennedy note the difference between jouissance and "pleai99i).
sure":"Pleasure, for Lacan, is bound to desire as a defence against jouissance, and is a prohibition
against going beyond a certain limit of jouissance. Jouissance, like death, represents something
whose limits cannot be overcome." BENEVENUTO & KENNEDY, supra, at I79.
(I830)
13 G.W.F. HEGEL,LOGIC29I (William Wallace trans., Oxford Univ. Press 3d ed. I975)
[hereinafter HEGEL,THE LESSERLOGIC].
S.
14 I am using the term "paradigm"in the familiar Kuhnian sense. See generally THOMAS
as
a
ed.
IO
paradigm
(defining
REVOLUTIONS
i996)
(3d
OF SCIENTIFIC
KUHN, THE STRUCTURE
a scientific achievement "sufficiently unprecedented to attract an enduring group of adherents
away from competing modes of scientific activity" and "sufficiently open-ended to leave all sorts
of problems for the redefined group of practitioners to resolve").
15 Imre Lakatos, Falsification and the Methodology of Scientific Research Programmes, in
CRITICISM AND THE GROWTH OF KNOWLEDGE 9I, ii8
(Imre Lakatos & Alan Musgrave
eds.,
Building on Karl Popper's theory of sophisticated falsification, Lakatos argues that scienof
tists do not reject a paradigm (or "research program")based merely on empirical observation
a
"protective
the
adopting
to
by
paradigm
modify
try
they
data.
Rather,
seemingly inconsistent
belt" of auxiliary hypotheses designed to explain away the apparent anomalies. Research proI970).
i998]
489
analysis is an attempt not only to identify the flaws of the research

program that are the source of the degeneration, but also to explain
why so many scholars nevertheless continue to cling to the research
program despite its flaws.
Although I end this Commentary with some practical advice, I do
not attempt here to develop a new paradigm. As a Hegelian, I believe
that logical analysis (that is, philosophy) is important as a means of
self-understanding and as a tool for critiquing theories. It cannot,
however, dictate specific policy recommendations. To Hegel, the implications for policy can be decided only by pragmatism, not logic.16
The policy question, which can be phrased as, "If law and economics
analysis is flawed, then what do you propose as an alternative?", is inapt if it suggests that the legal scholar should engage in "business as
usual" until an alternative is proposed. This approach is a vulgar
oversimplification of Thomas Kuhn's theory of scientific paradigms,
which is reflected in the banal cliche that "it takes a theory to beat a
theory."' Even if Kuhn is correct that, as an empirical matter, a given
discipline will not reject an existing paradigm until an alternative is
developed, one can often perceive that an existing paradigm is ripe to
be replaced before one develops the revolutionary paradigm (or research program) that will replace it. Indeed, I would suggest that it is
often this dissatisfaction with the status quo that leads the creative
scholar to seek out the new alternative.
I find the current state of the strain of law and economics scholarship that adopts the perfect market ideal distressing because economics
was my first academic interest, my college "major." Although I identify myself as a radical feminist whose views on most social issues are
on the extreme "left" of American public opinion, as a Hegelian and
grams degenerate when the protective belt becomes thicker and thicker, so that the core paradigm
begins to shrink until it actually starts explaining less, in the sense that there are so many exceptions to the general rule that the research program loses empirical generality. See Jeanne L.
Schroeder, Abduction from the Seraglio: Feminist Methodologies and the Logic of Imagination, 70
TEX. L. REV. io9, i68-7I (i99i) [hereinafter Schroeder, Feminist Methodologies].
16 That is, Hegel thinks that philosophy (dialectical logic) cannot be used to formulate practical advice. The negative pregnant of this is that practical reasoning (pragmatism) is necessary for
this purpose. See G.W.F. HEGEL, ELEMENTS OF THE PHILOSOPHY OF RIGHT 2I, 23 (Allen W.
Wood ed. & H.B. Nisbet trans., Cambridge Univ. Press i99i) (i82I) [hereinafter HEGEL,
PHILOSOPHY OF RIGHT]. Hegelianism, properly understood, sails a middle course between the
pro- and anti-theory movements of contemporary legal academia. A Hegelian would agree with
the pragmatist that philosophy and logic (as Hegel defines these terms) cannot give the judge,
lawyer, legislator, or citizen determinative answers to every complex, empirical case she confronts.
At the same time, a Hegelian would agree with the moral theorists that philosophy and logic can
provide guidance regarding the definition of subjectivity, the nature of freedom, and other quandaries that are relevant to, but not necessarily determinative of, many pragmatic questions confronting the lawyer.
17 I have been at numerous academic conferences at which someone has tried to defeat a challenge to the status quo by proffering this simplistic commonplace as a supposed witticism and
dispositive critique.
[Vol.
HARVARD LAW REVIEW
490
I I2:483
Lacanian,many of my views on economicsand law are quite conservative - or more accurately,are shared by many who identify with
the "right"wing of Americanpolitics. I am a firm believerin the productive capacity of capitalistmarkets. I have arguedextensivelythat
propertyand contractperforma crucialfunctionin the developmentof
human personalityand freedom."8I believe in rights analysis and the
rule of law as the great legacies of the Enlightenment,which should
not be disparaged. As a feministlooking back at history,how could I
possiblybelieve that one cannot make value judgmentsabout different
societies? In other words, I believe that modernismhas been a vast
improvementover premodernism. But, as a postmodernist,I do not
believe that modernismrepresentsthe fulfillmentof human potential.
The Lacanian concept that human subjectivityis essentiallynegative
as revealedin such slogansfamiliarto readersof Lacan as "thesubject is split"'9and "womanis 'not-whole"'20- is not merely a depressing(and/ormisogynist)judgment regardinghuman (or feminine)
frailty. It is also an assertionof the potentialityof human creativity
and productivity.If we are not complete,if we are imperfect,then we
are capable of being more than we are now and of creating a better
world. Consequently,when I argue that legal economicanalysisis incomplete and imperfect,I am implying not that it is worthless, but
ratherthat it is capableof being so much more. A postmodernistconsiders Enlightenmentpolitical-economicphilosophy(like the classical
liberal tradition that underliesmost law and economics)to have the
same relationshipto current philosophicalknowledge as Enlightenment science(that is, Newtonianphysics)has to contemporaryphysics.
Both were importantlandmarksin the developmentof human knowledge. However,just as Newtonianphysics was eventuallysupplanted
by Einsteinian physics and quantum theory, we should not be surprised if classical liberalismshould similarly eventually give way to
more complextheoriesof humannatureand social organization. I am
not condemninglegal economicsfor what it is, but I do fault it for being complacentand not becomingmorethan it is now.
Attendinglaw school in the mid-seventies,when law and economics was still a new movement,I was shocked at how little basic economic knowledgehad at that point been absorbedby the legal academy, let alone the bar. In the two decades since my graduation,
economic analysis has had a positive impact, encouragingscholars to
18 See, e.g., SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 28, 33-34, 50-5I,
(forth266; Jeanne L. Schroeder, Pandora's Amphora: The Ambiguity of Gift, 46 UCLA L. REv.
coming
i999)
(manuscript
on file with
the Harvard
Law
School
Library)
Pandora].
19 BRUCE
FINK,
THE
LACANIAN
SUBJECT:
BETWEEN
LANGUAGE
[hereinafter
Schroeder,
AND JOUISSANCE
('995).
20 LACAN, SEMINAR XX,
44-46
Lacan's term "pas-toute" has also

supra note 9, at 72-73, 8o-8i.
note 9, at 145.
been translated as "not-all." Lacan, God and the Jouissance of The Woman, supra
i998]
49I
rethink many areas of law. This impact has been most notable in antitrust and in two of my practice fields: corporations and securities
regulation. Nevertheless, I do not believe law can be reduced to even
the most sophisticated economics. I must emphasize, therefore, that I
do not seek in this Commentary to critique the entire discipline of economics, but instead specific uses of certain economic concepts in legal
literature.
It is my judgment, based not only on my reading of recent scholarship, but also on anecdotal evidence and conversations with both academics and practitioners, that dissatisfaction with classic perfect market analysis as explicated in much of law and economics literature is
widespread in the legal community, even though a new paradigm has
not yet emerged.2' Here, I attempt to show why the ideal of the perfect market is simultaneously essential to the understanding of the
market and inadequate to the task of making concrete legal policy recommendations.
This Commentary offers two different approaches, which are designed to appeal to two very different audiences. These two discussions can be read separately, although I believe that they are closely
interrelated. In Part II, I present a primarily internal critique of the
law and economics ideal of a perfect market and explore the concepts
of the perfect market, transaction costs, and the Coase Theorem
largely on their own terms and in the language of legal economists.
The purpose of this discussion is to reveal the internal logic and implicit underlying paradoxes of these concepts so that lawyers can better
understand and use economic concepts without falling into the trap of
reliance on the impossible ideal of the perfect market. In Parts I and
III, I suggest that an understanding of these economic concepts can be
further enriched by adding an external critique drawn from Lacanian
and Hegelian analysis. I argue that Lacanian psychoanalysis can help
explain why the current paradigm is so alluring despite its degeneracy.
Moreover, Hegelian jurisprudence can give insight regarding the
proper goals of law and economics. This insight might help develop
more useful paradigms.
My discussion of Coase in Part II should be of more immediate interest to those scholars working within a traditional law and economics framework. However, I hope that the introduction to one school of
postmodern theory might convince at least some of these readers that
21 An interesting case in point is a recent symposium in which a number of scholars considered
the application of rational choice theory and other theories of how social norms affect behavior to
an economic analysis of law. See Richard A. Posner, Social Norms, Social Meaning, and the Economic Analysis of Law, 27 J. LEGAL STUD. 553 (i998). The conference organizers seem to have
concluded that this increasing interest in sociological theory does not represent a revolutionary
shift away from classical law and economic theory, but a "new,""turbulent and productive period"
of social science. Robert Ellickson, Law and Economics Discovers Social Norms, 27 J. LEGAL
STUD. 537, 539 (i998); see Posner, supra, at 564-65.
492
HARVARD LAW REVIEW
[Vol. 112:483
such theory is not merely interesting in and of itself, but potentially

useful for economic analysis. Indeed, I have found it invaluable as an
analytic tool not only in my teaching and doctrinal scholarship, but
also in the practice of finance law (although I know better than to use
Lacan's confusing, and potentially offensive, sexual terminology in
front of a judge or, indeed, a class of Corporations students). In contrast, my discussion of the relationship between Lacan and Hegel is
initially likely to interest feminist scholars and others engaged in critical theory. I hope that my discussion of the perfect market might convince at least some of these readers that classical economics is not to
be eschewed just because many of its practitioners adopt "conservative" positions that seem antithetical to critical theorists' moral, political, or philosophical intuitions. Economics is not merely a useful tool
of analysis; it is itself a worthy subject for serious philosophical and
jurisprudential examination.
B. The Erotics of the Market
The perfect market is the end of all actual markets - in the sense
that it is their ideal form. In normative economics, actual markets are
the means of achieving the end or ideal of the perfect market. But this
means that to achieve a perfect market would result in the end of all
actual market transactions. This is not merely a pun. Rather, my
statement manifests the necessary implications of the meaning of the
word "end." One acts until one achieves one's goal, upon which action
stops. We desire to achieve our ends even as we fear to end. Upon the
attainment of perfection there can be no improvement; one is frozen in
crystalline ideality.
When viewed from the perspective of Hegelian political philosophy
and Lacanian psychoanalysis, law, property, and the market economy
are revealed to be essentially erotic in the sense that they are driven by
desire under the technical (but not colloquial) definitions of that
term.22 Some law and economics scholars, most notably Judge Richard Posner, try to analyze sexuality in terms of the market.23 A
22 Although psychoanalysis has recognized Thanatos as Eros's twin at least since Freud, both
forms of desire confusingly fall within the adjective "erotic." I have explored the eroticism of law
and property in a series of law review articles. See Jeanne L. Schroeder, Chix Nix Bundle-O-Stix:
A Feminist Critique of the Disaggregation of Property, 93 MICH. L. REV. 239 (I994) [hereinafter
Schroeder, Chix]; Jeanne Lorraine Schroeder,Juno Moneta: On the Erotics of the Marketplace, 54
WASH. & LEE L. REV. 995 (I997) [hereinafter Schroeder,Juno Moneta]; Schroeder, Never Jam Today, supra note IO;Jeanne L. Schroeder, The Vestaland the Fasces: Property and the Feminine in
Law and Psychoanalysis, i6 CARDOZOL. REV. 805 (I995) [hereinafter Schroeder, Property and
the Feminine]; Jeanne Lorraine Schroeder, Virgin Territory:Margaret Radin's Imagery of Personal
Property as the Inviolate Feminine Body, 79 MINN. L. REV. 55 (I994) [hereinafter Schroeder, Virgin Territory];Schroeder, Pandora, supra note i8; Jeanne L. Schroeder, Three's a Crowd: A Feminist Critique of Calabresi and Melamed's One View of the Cathedral, 84 CORNELL L. REV. (forthcoming Jan. i999) [hereinafter Schroeder, Three'sa Crowd].
23 See RICHARD A. POSNER, SEX AND REASON I46-80 (I992).
I998]
493
Hegelian-Lacanian analysis shows why this analysis seems plausible

markets and sexuality share an essential eroticism. But these scholars are wrong in thinking that the latter can be reduced to the former.
It is not that sexuality is an economic relation. Rather, both markets
and sexuality are subsets of a more general category of eroticism.
As I shall discuss in greater detail,24from a Lacanian point of view,
eroticism is not the physical mating urge. Nor is it the need for the
physical necessities of existence.25 Desire is the longing for wholeness
that can be achieved through either recognition by others (Eros) or
merger with the universe (Thanatos). Desire can be played out only in
legal, linguistic, and other "Symbolic" relations. Hegelian analysis
suggests that the Symbolic relations that arise when desire is combined
with the mating urge (as in marriage) are more complex and less
"primitive"than those of markets (abstract right).26
To understand my thesis one needs to consider in more detail the
concepts of both desire and the perfect market. This Commentary
proceeds as follows. In the first Part, I introduce Hegel's dialectic of
what I call "the eroticism of market relations" and relate it to Lacan's
concept of the psychic realms of the Symbolic, Imaginary, and Real. I
explain that Hegel's theory is an economics of desire, as that term is
understood by Lacanian psychoanalysis, and then explore the nature of
the desire that Hegel implicitly identifies in the market. As we shall
see, desire is the response to the universal human condition that Lacan
24 See infra pp. 495-98.
25 Lacan identified two forms of longing other than desire, which correspond to the orders of
the Real and the Imaginary. In Grosz's words, the Real longing of "Need" is "the experiential
counterpart to nature. Need comes as close to instincts as is possible in human existence."
GROSZ,supra note 9, at 59. It includes, for instance, "the requirement of brute survival." Id.
The Imaginary longing of "Demand" is different from Need in that Demand is "always transitive
for it is always directed to an other." Id. at 6i. Once one reformulates a Need in terms of "give
me," it has become a Demand. Need and Demand are different from desire in that Need can be
satisfied and Demand responded to. Desire, in contrast, is unfillable in that it is a response to the
fundamental split or negativity that is the essence of subjectivity. See Schroeder, Property and the
Feminine, supra note 22, at 885-9I, 894-96.
26 I am using the term "primitive" in the Hegelian sense, meaning most abstract, simplistic,
basic, and undeveloped as a "logical" (as opposed to an empirical or temporal) matter. Consequently, Hegel should not be read as implying that markets are the first form of eroticism to develop empirically. Indeed, as is so often the case, the simple emerges only when abstracted from
the complex. It is obvious that capitalistic markets developed only recently - thousands of years
later than the family. Hegel should not be read as implying that the "primitive" or simpler form
of relations can be supplanted now that more complex relations are possible. Rather, as I argue
extensively elsewhere, see SCHROEDER,
THE VESTALANDTHE FASCES,supra note 3, at 3I9-20,
one point implicit in The Philosophy of Right is that constitutional government and the concepts
of individual rights necessary for the actualization of human freedom did not develop until the
(accurately named) "Enlightenment" because political freedom required the development of capitalistic markets as its fundamental building block. The brick, the stone, of the market is primitive, but it is absolutely necessary for the building of the just state. It can no more be supplanted
after the constitutional state is established than the foundation could be removed once the building is built.
494
HARVARD LAW REVIEW
[Vol.
I12:483
called "castration," which is experienced as loss of the Feminine into

the realm of the Real. Eros and Thanatos are the Masculine and
Feminine versions of the desire to achieve "the Feminine" and the Real
Eros is the longing to have her, Thanatos the longing to be her.
The Real stands for the dream of perfection, of perfect immediate relations beyond all alienating distinctions of time, space, and personality.
The Real, being perfect, is not mere death; it is a death that is beyond
death, Nirvana, oblivion. Castration is the cut that forever walls off
the Real from the Symbolic. The resulting gap between the Real and
the Symbolic creates desire and thereby allows freedom, subjectivity,
and the intersubjectivity of "sexual"relations to function.27 Our fantasies in the Imaginary order are the vain attempt to cross this gap.
After explaining this technical and counterintuitive meaning of desire and sexuality and how it functions in legal and economic relations,
I turn to a consideration of the ideal of the perfect market and its bane
costs. By parsing the scant literature on the ideal, I
-transaction
bring out and make explicit that which is left repressed and implicit.
In this context, I explore in detail the economic theory of Ronald
Coase and contrast it with the misinterpretation of this theory that
prevails in American law and economics literature. I show that the socalled Coase Theorem is not, as is often thought, a statement about the
conditions of a perfect market without transaction costs, but rather a
proposed radical break or "paradigm shift" in the way economists
should think about markets and costs. A true Coasean analysis of
markets has startling affinities with Hegelian and Lacanian thought.
In the final Part, I show that the ideal of the perfect market entails
immediate market relations beyond all alienating distinctions of time,
space, and personality. The ideal is where all market participants
achieve perfect indifference and all economic intercourse stops. The
perfect market is, therefore, the Real, Nirvana, oblivion. Actual markets, in contrast, exist within the Lacanian order of the Symbolic,
which includes such human creations as law, speech, and sexuality. I
suggest that Coase's concept of "transaction costs" serves the same
function in economics as castration serves in psychoanalysis. The existence of transaction costs is the cut that forever walls off the Real of
the perfect market from the Symbolic of the actual market. The resulting gap between perfect and actual markets creates desire, and
thereby allows freedom, subjectivity, and the intersubjectivity of market relations to function. The desire of the perfect market is Thanatos.
From a technical psychoanalytical perspective, the analysis of the
branch of the law and economics movement that adopts the perfect
27 Once again I must emphasize that in Lacanian terminology, sexuality is not a biological fact,
but a Symbolic relationship.
i998]
495
market ideal28 is located in the order Lacan called the "Imaginary." It

neither concerns itself with actual markets, which are located in the
order Lacan called the "Symbolic," nor directly confronts its ideal of
the perfect market, which is located in the order of the "Real." Rather,
this branch of law and economics erects a fantasy structure in a vain
attempt to bridge the impossible gap between the "Symbolic" and
"Real"orders.
C. The Hegelian Economics of Desire
I am part of a developing school of Lacanian thought that emphasizes the profound effect of Hegel's philosophy on Lacan and, correspondingly, argues that an understanding of the speculative philosophical tradition associated with Hegel can be enriched by rereading
his work through Lacan. Unlike the approach taken by many Lacanians, the point of this exercise is not to preserve and enshrine the words
of a "great man." Philosophy and psychoanalysis are not religions, and
Hegel and Lacan are not prophets. Rather, the project seeks to build
on the insights of the past to try to develop a better understanding of
human subjectivity and institutions. Although the implicit eroticism of
Hegelian thought is widely recognized, the specific connection between
the Hegelian theory of property and contract and the Lacanian theory
of sexuality is, I believe, original to me.29
According to Hegel, we seek property and engage in market transactions out of unfulfillable desire. But this desire is not, as economists
pretend, a desire for material things, utility, or wealth. To Hegel, each
abstract person (that is, the individual in the state of nature posited by
Enlightenment political philosophy) seeks to actualize his potential
freedom through recognition by others.30 Although Hegel does not use
28 This is not to suggest that all scholars who apply economic analysis to legal issues, or even
all scholars who identify themselves with the law and economics movement, adopt the perfect
market paradigm, or the goal of utility or wealth maximization.
29 Lacan, being a leftist French intellectual who held his famous annual seminars from the
mid-I95os through i98i, was influenced by the then-fashionable Marxism. He occasionally imported Marxist economic ideas (such as surplus value) into his theory by analogy. See FINK, SUpra note i9, at 96-97. To my knowledge, he did not attempt any sustained analysis of either
Marxist or classical economics. Lacan was more deeply influenced by the speculative philosophical tradition associated with Hegel. In my work I have tried to show how Lacan's theory is not
only consistent with Hegel's Phenomenology of Spirit, G.W.F. HEGEL, PHENOMENOLOGY
OF
SPIRIT(A.V. Miller trans., Oxford Univ. Press I977) (i807), and Science of Logic, G.W.F. HEGEL,
SCIENCEOF LOGIC(A.V. Miller trans., George Allen & Unwin Ltd. i969), but also with Hegel's
Philosophy of Right, see HEGEL, PHILOSOPHYOF RIGHT, supra note i6. Rereading Hegel
through Lacan enables us to develop a Lacanian psychoanalysis of capitalist markets.
30 It took Hegel many hundreds of pages to explain the function of recognition in his writings,
most notably in Philosophy of Right and Phenomenology of Spirit. I do give an account of his
argument in my book, The Vestal and the Fasces, see SCHROEDER,THE VESTALAND THE
FASCES,supra note 3, at I9-20, 278-82, and in one of my articles, see Schroeder, Pandora, supra
note i8, at 44-48. Unfortunately, it is not practical to replicate this complex argument in this
496
HARVARDLAW REVIEW
[Vol. I I2:483
the express vocabularyof eroticism,in Lacanian psychoanalysisthis

longingto understandoneselfthroughrecognitionis desire (specifically
Eros). We desire things derivativelyas a means of achievingour true
desire - the desire of the Other.3' When we repressthis derivative
aspect of our desire for objects, we treat them as substitutesfor our
true object of desire.32
Hegel agreed with classical liberal philosophythat freedom is the
essence of human nature, but thought that freedomwas merely potential in the "stateof nature"of autonomousindividuality. To Hegel,
freedom can become actualizedonly throughthe type of relationship
that Lacan would call "love."34 Hegel adopted the liberal Kantian
conceptionof freedom as radical negativity35- the total absence of
constraints. This abstract concept becomes concrete through social
relations.36By this I mean that Hegel positedthat the abstractperson
can achieve legal subjectivity37(and, therefore,more complexstages of
Commentary. I must, reluctantly, give only a most abbreviated introduction to this concept here
and aver that it is a necessary moment of Hegelian thought.
31 See JACQUES LACAN, tCRITS: A SELECTION 264 (Alan Sheridan trans., W.W. Norton & Co.
I977) [hereinafter LACAN, ftCRITS]. A full explication of Lacan's complex and paradoxical notion
of the Other (with a capital "O")is beyond the scope of this Commentary. It includes, but is not
limited to, the concept of other concrete people. See FINK, supra note i9, at I3 (listing the many
faces of Other as language, demand, desire (object a), and jouissance). See generally
BENEVENUTO& KENNEDY,supra note I2, at I73-75 (describing the Mother's relationship with
Other).
Note that the ambiguity of the phrase is intentional (and is identical in the original French).
We desire to have the Other; we desire to be desired by the Other; and our desire is formulated by
the Other and imposed upon us.
32 More specifically, our true desire is in the Real - wholeness and perfect, immediate relations with others. We cannot obtain this. Consequently, we pretend that our desire is for some
obtainable object. This substitute object serves the purpose of standing in for the cause of our
desire when, in fact, the need for the object is actually caused by our desire. See Schroeder, Chix,
supra note 22, at 247. Bruce Fink provides an unusually succinct account of the "object cause of
desire." See FINK,supra note i9, at 83-94.
33 The most primitive conception of what a person could be is self-consciousness as free will.
See HEGEL, PHILOSOPHY OF RIGHT, supra note i6, at 67-68. "[T]he will is free, so that freedom
constitutes its substance and destiny ... ." Id. at 35. Such a conception of personality is not only
totally abstract, but also radically negative. To be truly free and beyond constraints is to have no
positive characteristics at all. See id. at 37-40, 48-49.
34 Arthur Jacobson similarly recognizes that Hegel's concept of right is based on love, although Jacobson does not use the technical Lacanian definition. See Arthur J. Jacobson, Hegel's
L. REv. 877, 89I-92 (i989).
Legal Plenum, IO CARDOZO
35 See HEGEL, PHILOSOPHY OF RIGHT, supra note I6, at 37-39.
36 See, e.g., id. at 35 ("[T]hesystem of right [i.e., property, contract, law] is the realm of actualized freedom ... ."). This is one of the meanings of Hegel's (wrongly) notorious assertion that
whatht is rational is actual; and what is actual is rational." Id. at 20. I discuss the Hegelian concepts of potentiality and actuality in my book, see SCHROEDER, THE VESTAL AND THE FASCES,
supra note 3, at 32-33, 3II-I2, and in one of my articles, see Schroeder, Never Jam To-day, supra
note IO, at I559-6i.
37 The meaning of the word "subjectivity" in Hegelian philosophy and Lacanian psychoanalysis can be understood only as it is used in context. Subjectivity is one, but only one, aspect of personality. In Hegelian thought, it includes the capability to bear legal rights, which enables the
person to be recognized as a member of society and engage in such primitive interpersonal rela-
I998]
497
personality)only by being recognizedas a subject by a person whom

one in turn recognizesas a subject.38We are, therefore,driven to help
others fulfill and exceed their highest potentialin the hope that, once
they do so, they will then turn aroundand recognizeus as their equals.
Such a relationshipof mutual recognitionin which each party helps
the other become more than they were originallyis "love."39Man's
desire is "the desire of the Other"in both senses of the expression we want to have the other,but, more importantly,we want the other
to desire(recognize)us.
In our search for recognition,we create legal and other rights not
to claim them for ourselves,but in orderto bestow them on others in
order to increasetheir dignity. The regime of abstractright - property, contract,and marketrelations- is the simplest and most primitive manifestationof this dialecticof desire.40
The desire of the Hegelian (Symbolic)marketplaceis the Lacanian
concept of Eros. Eros is an attemptto achieve perfectionthrough an
immediate relation with another - the perfect complementarysoulmate who will serve as the yin to our yang.4' As the myth of Orpheus
shows us, Eros is creative, but only insofar as desire remains unfulfilled. To achieve one's desire is death; Eros always threatensto become Thanatos,the death wish.42
Hegel understandsthat the paradoxof desire is that to be true to
one's desire,one must prolongit, by at least temporarilypostponingits
tionships as contracts and markets. In Lacanian thought, it includes the capability to speak,
which enables the person to be recognized as a person of identifiable sexuality and engage in sexual relations. Unlike classical liberalism, which conceives of human beings as having certain
rights or other positive characteristics in the "state of nature," Hegelians and Lacanians posit that
the abstract person is radically negative, and the ability to bear rights and sexuality is created in
and by the social realm.
38 See Michel Rosenfeld, Hegel and the Dialectics of Contract, IO CARDOZOL. REV. ii99,
I220-2I
(I989).
"Property is ... to Hegel a moment in man's struggle for recognition." SHLOMO
AVINERI,HEGEL'STHEORYOFTHEMODERNSTATE89 (I972).
The complex reasoning leading to Hegel's conclusion is beyond the limited scope of this Commentary. It is the subject of the Introduction to Philosophy of Right. See HEGEL, PHILOSOPHY
OF RIGHT, supra note I6, at 25-65. I present an explanation of Hegel's argument in my book,
The Vestal and the Fasces, cited above in note 3, on pages Is to 53.
39 I discuss how Hegel's concept of contract relates to Lacan's concept of love in a forthcoming article. See Schroeder, Pandora, supra note i8, at 53-55.
40 Consequently, Hegel's discussion of abstract right constitutes Part I of Philosophy of Right.
See HEGEL,PHILOSOPHY
OF RIGHT,supranote I6, at 67-I32.
41 According to Lacan, "Eros is defined as the fusion that makes one from two" - an impossible goal. LACAN,SEMINARXX, supra note 9, at 66.
42 One commentator explains this in the following manner:
It seems, then, that the difference between Eros and Thanatos is that, while both seek to
return to an earlier state, the state Thanatos seeks is earlier than that sought by Eros.
Thanatos wishes to return to a state preceding life itself, one that therefore totally undoes
the organism.
JANEGALLOP,READINGLACAN98 (I985).
498
HARVARD LAW REVIEW
[Vol.
I I2:483
consummation. Indeed, it is precisely its postponement that creates

desire.
When I say that Hegel postpones the consummation of desire, I
mean that in order to ensure that both parties to the dialectic of recognition remain free and that neither party subsumes the other, Hegel insists that relationships be mediated - that the lovers be kept apart.
In the regime of abstract right, this mediator is property.43 In abstract
right, abstract persons seek subjectivity through mutual recognition
through possession, enjoyment, and exchange of external objects.44
Similarly, Lacan insists that psychic subjectivity can be achieved
only through recognition by others.45 In the symbolic relation he
called sexuality, abstract persons seek subjectivity through mutual recognition in a regime of possession, enjoyment, and exchange of a mysterious object of desire, which Lacan called the "Phallus."46 This necessity for mediation is one of the meanings of Lacan's famous slogan:
"There is no [direct and unmediated] sexual relationship."47
43 The implicit need for mediation permeates Hegel's dialectic. As already mentioned, the
dialectic of desire states that subjectivity is achieved by recognition by another subject - the
lover must be recognized as an equal by the beloved. Since this is a moment in the actualization
of freedom, each party must remain free in the Kantian sense of being the means to one's own
end, and not merely the object of the other's desire. There must, therefore, always be a moment
of independence and separation of one party from the other.
This relates to Hegel's concept of "sublation," or the reconciliation of opposites. As is well
known, Hegel's dialectic proceeds from the identification of an additional concept - the recognition that the negation of the initial concept is always necessarily implied - and followed by the
reconciliation of the contradiction between these two concepts. It is a common and fundamental
misperception to think that this reconciliation - this sublation - totally supersedes the original
concepts and their contradiction. As the German term for sublation (Aufhebung)implies, not only
the independence of the two original concepts, but also their fundamental distinction, remain as
necessary building blocks of their reconciliation. The doctrine of "the identity of identity and difference" posits that at one moment the two concepts are essentially distinct while at another moment they are revealed to be essentially identical. Consequently, sublation is not a trilateral relationship but a quadrilateral one, consisting of the thesis, the antithesis, the synthesis, and the
irreducible remainder, the hard kernel of diff6rance that resists compromise. To translate this into
Lacanian terms, the wound of castration cannot be cured, only overcome.
44 See HEGEL, PHILOSOPHY OF RIGHT, supra note I6, at 84-IO3; SCHROEDER, THE VESTAL
AND THE FASCES, supra note 3, at 37-52; Schroeder, Never Jam To-day, supra note Io, at 153544; Schroeder, Virgin Territory,supra note 22, at I33-40.
45 See, for example, Elizabeth Grosz's description of Lacan's concept of desire: "Desire is a
fundamental lack, a hole in being that can be satisfied only by one 'thing' - another's) desire.
Each self-conscious subject desires the desire of the other as its object. Its desire is to be desired
by the other, its counterpart." GROSZ,supra note 9, at 64 (iggo) (emphasis added).
46 See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 53-54.
47 LACAN,SEMINARXX, supra note 9, at 9; Ragland-Sullivan, supra note I2, at 67; see
GROSZ, supra note 9, at I37.
These ideal interrelations of subjectivity must be contrasted with many actual relations which
fail precisely because the parties try to resist the necessity of mediation, and thereby end up subordinating one party to the other. Examples include Hegel's famous lord-bondsman dialectic, see
OF SPIRIT III-i9 (A.V. Miller trans., Oxford Univ. Press
G.W.F. HEGEL, PHENOMENOLOGY
,977), and the masculine domination and feminine subordination that characterize traditional
kinship structures.
1998]
499
In other words, although Hegel and Lacan might at first blush

seem like radically different thinkers, closer examination reveals that
their theories are linked by the recognition that subjectivity is intersubjectivity mediated by objectivity.48 They also both agree that the
freedom at the center of human subjectivity is radical negativity.49
Hegel emphasized what might be called the comic side of this dialectic.50 In comedy, conflicts are resolved in a happy ending (traditionally including the marriage of two or more of the protagonists).
The Hegelian dialectic shows how the contradictions within the abstract person in the state of nature are resolved through social relations, including the market and the family. Moreover, the negativity in
the center of the human soul is optimistically seen as the absence of
constraints that makes freedom possible, and as the space that permits
growth and creativity.
In contrast, Lacan emphasized the tragic side of this dialectic. In
tragedy, conflicts prove to be irresolvable, and result in the death of
one or more of the protagonists. The negativity or "split" that lies at
the center of our psyche is seen pessimistically. If Hegel emphasizes
that relationships occur, Lacan emphasizes that these relationships are
always imperfect and mediated, desire is always postponed, and man
is in a constant state of yearning. Love is always, to some extent, unrequited - there are no perfect soulmates. We can bear this pain only
by adopting one of a number of delusions that Lacan identified with
sexual identity. The contradictions of personality cannot be permanently resolved. The dialectic of desire ultimately can be solved only
by death. Eros can be postponed only so long. Postponement eventually turns into procrastination. And so we must eventually give way to
Thanatos.5"
D. The Lacanian Desire of Economics
To understand the Lacanian dialectic of desire, Lacan's theory of
consciousness and sexuality must be considered in more detail.
48 See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at I4; Schroeder, Virgin
Territory,supra note 22, at 58.
49 See HEGEL, PHILOSOPHY OF RIGHT, supra note i6, at 37-39.
50 As I discuss elsewhere, this is not to imply that Hegel was not aware of the tragic side of the
dialectic as well. See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at II-I2;
Schroeder,Juno Moneta, supra note 22, at IOI 2-I5.
51 Lacan's emphasis on tragedy can lead to the misimpression that his theory is necessarily
hopeless and depressing - indeed that it is a pathetic, not tragic, vision of the human condition.
This conclusion misses the point that Lacan's "tragic"analysis necessarily implies Hegel's seemingly optimistic one, and vice versa. "[T]he satisfaction of the achievement of subjectivity is only
tentative and temporary in both Hegel and Lacan. It is precisely this fundamental failure of interrelationality - this essential negativity at the heart of subjectivity - which both enables desire to function and allows us the space to act freely." Schroeder, Juno Moneta, supra note 22, at
IOI5.
500
HARVARD LAW REVIEW
[Vol.
11 2:483
According to Lacan, there

i. The ThreeOrdersof the Psyche. are three orders of the psyche, which he called the Real, the Imaginary,
and the Symbolic.2 The Imaginary is the realm of imagery, fantasy,
meaning, and complementarity. The Symbolic is the cultural order of
law and language, of signification and sexuality. The Real is our intuition that there is something beyond or prior to the other two. The
Real is not the same as the natural world,53yet for many purposes the
Real functions as though it were the natural world. This is because
the Real includes our sense that there is a natural world external to
our thoughts and dreams, something more permanent than our fleeting
human lives. It is sometimes convenient to oversimplify and use the
word "Real" as though it meant the natural or anatomical. The Real,
however, also includes such concepts as death, the thing-in-itself, God
(in the sense of Geist or the Absolute), and everything else that is beyond ourselves.54
The Real is, therefore, the impossible - not just in the sense that it
is impossible for us to have direct access to the Real in our conscious
minds, but also because it necessarily includes logical paradoxes that
52 See JACQUES LACAN, THE SEMINAR OF JACQUES LACAN - BOOK I: FREUD'S PAPERS ON
TECHNIQUE 80 (Jacques-Alain Miller ed. & John Forrester & Sylvana Tomaselli trans. I988)
[hereinafter LACAN, SEMINAR I]; see also Jacqueline Rose, supra note 7, 3I (discussing the Real
and the Symbolic). See generally GROSZ, supra note 9, at 34-35, 43-47, 50, 59 (discussing the
relevance of the Real to sexuality). As is the case with virtually all of Lacan's concepts, not only
are the three orders extremely complex, but Lacan's thinking about them also developed over
time. For example, in the early seminars of the I95os, Lacan concentrated on the contrast between the Symbolic and the Imaginary, whereas his later seminars put more emphasis on the
Real. Compare, e.g., JACQUES LACAN, SEMINAR I, supra, with FREUD'S PAPERS ON TECHNIQUE
(Jacques-Alain Miller ed. & John Forrester trans., I988), and JACQUES LACAN, SEMINAR OF
JACQUES LACAN-BOOK II: THE EGO IN FREUD'S THEORY AND IN THE TECHNIQUE OF
PSYCHOANALYSIS I954-I955 (Sylvana Tomaselli trans., Cambridge Univ. Press i988) (I978). Indeed, it seems that, over time, Lacan shifted some of the functions he had originally assigned to
the Imaginary to the Real. See SLAVOJ2IEK, THE SUBLIME OBJECT OF IDEOLOGY 162 (I989).
This Commentary is not intended to be an extended examination of these ideas, but merely an
attempt to apply one aspect of Lacan's later understanding of the Real to a specific economic approach.
53 In Grosz's words: "The Real is not however the same as reality; reality is lived as and
known through imaginary and symbolic representations." GROSZ, supra note 9, at 34.
54 See LACAN, THE FOUR FUNDAMENTAL CONCEPTS, supra note 8, at 45 ("The gods belong
to the field of the real."). In the words of Stuart Schneiderman:
The gods and the dead are real because the only encounter we have with the real is based
on the canceling of our perceptual conscious, or our sense of being alive: the real is real
whether we experience it or not and regardless of how we experience it. The real is most
real when we are not there; and when we are there, the real does not adapt itself or accommodate itself to our being there. The concept of the real implies the annihilation of the
subject.
STUART SCHNEIDERMAN, JACQUES LACAN: THE DEATH OF AN INTELLECTUAL HERO 76 (i983).
As discussed in Lacan's seminar on feminine sexuality, the mystic's experience of God is feminine
jouissance. See LACAN, SEMINAR XX, supra note 9, at 76-77. Of course, this means that any
attempt to give affirmative content to the idea of God is imaginary, not in the sense that such a
God does not exist, but that our understanding of such a God is located in the imaginary order.
i998]
50I
are beyond our ordinary intuitions of what is possible.55 We experience the Real as though it were something we have lost. It functions
as though it were the "hard kernel"56of reality that was left behind
when we entered the orders of imagery and speech. This experience of
the Real as "prior"to the other orders is not literally true, however.
The Real is created simultaneously with the Imaginary and the Symbolic through the operation called "castration."57
2. Castration.- Lacan declares that the subject is split.58 He, like
Hegel, believes that subjectivity - the abilities to be a legal actor ca55 See GROSZ, supra note 9, at 34 ("The Real cannot be experienced
as such: it is capable of
representation or conceptualization only through the reconstructive or inferential work of the

imaginary and symbolic orders. Lacan himself refers to the Real as 'the lack of a lack."'). Kant's
discussion of what he identifies as the four antinomies reflects this idea. See IMMANUELKANT,
CRITIQUEOF PURE REASON255-350 (J.M.D. Meiklejohn trans., i878). Hegel and Lacan go a
step further, generalizing Kant's insight into a recognition that contradiction is inherent in all
concepts, not merely the four identified by Kant. To oversimplify, Kant thinks that one could not
resolve these antinomies because even transcendental logic could not have direct access to the
thing-in-itself (that is, the real is impossible to know). Hegel and Lacan instead argue that a fundamental split was at the heart of the thing-in-itself (that is, the real is impossibility per se). See
SLAVOJhI2EK, THE INDIVISIBLEREMAINDER:AN ESSAY ON SCHELLINGAND RELATED
see also HEGEL,THE
MATTERSiio (i996) [hereinafter hI2EK, THE INDIVISIBLEREMAINDER];
LESSER LOGIC, supra note I3, at 78.
56 Although we experience it in this way, "the Real is not a hard external kernel which resists
symbolization, but the product of a deadlock in the process of symbolization." h2EK, THE
INDIVISIBLE REMAINDER, supra note 55, at I IO.
57 By this assertion of simultaneity I mean that any system of law (signification, the Symbolic)
or imagery (meaning, the Imaginary) requires boundaries. Lacan's reasoning is similar to Godel's.
Godel proves that it is logically impossible for any mathematical system to be both complete and
closed. Any closed system must always depend on some unproven assumptions imported from
outside of the system. See generally DOUGLASR. HOFSTADTER,GODEL,ESCHER,BACH:AN
ETERNALGOLDENBRAID I5-I9 (I979) (explaining G6del's proofs); ROGERPENROSE,SHADOWS
OF THE MIND: A SEARCH FOR THE MISSING SCIENCE OF CONSCIOUSNESS 64-Ii6
(I994)
(dis-
cussing G6del's theorem). The Real is the sense that there is something on the other side of the
boundaries of the Symbolic and the Imaginary. See SLAVOJ2I2EK, TARRYINGWITH THE
NEGATIVE:KANT,HEGEL,AND THE CRITIQUEOF IDEOLOGY35-39 (I994) [hereinafter Zi2EK,
TARRYINGWITH THE NEGATIVE];Jacques-Alain Miller, Microscopia: An Introduction to the
Reading of Television, in JACQUES LACAN, TELEVISION: A CHALLENGE TO THE
at xi, xxiv (Joan Copjec ed. & Dennis Hollier, Rosalind
ESTABLISHMENT,
PSYCHOANALYTIC
Krauss & Annette Michelson trans., W.W. Norton & Co. I990) (I974). The realm of the Real is
therefore established only by the erection of these boundaries at the moment of the creation of the
Imaginary and the Symbolic. We only retroactively posit the existence of the "lost" Real by examining what seem to be clues, traces, stains left in the Symbolic by its retreat, see ZI2EK,
TARRYINGWITH THE NEGATIVE,supra, at 36-37, just as Orpheus guessed that Eurydice must
have followed him from signs that he interpreted as her footprints. Lacan calls this experience
"castration." His terminology attempts to capture the idea that we do not feel merely that we
once had the Real, but that it is now lost because someone has taken it away, or cut it apart, from
us. In fact, it is the cut of Castration that creates the Real.
58 See GROSZ,supra note 9, at I37. In his excellent work, Bruce Fink, the current translator
of Lacan's seminars into English, gives an unusually clear description of Lacan's notion of the
split subject. See FINK, supra note i9, at 45. The metaphor of the split subject inevitably suggests a positive content (subjectivity), albeit with a rupture in the center. Lacan's point (which I
believe exactly reflects Hegel's understanding of both human personality and Geist) is more extreme than this. The split is subjectivity. See id. Perhaps the expression "the split subject"
502
HARVARD LAW REVIEW
[Vol.
II2:483
capable of bearing rights and engaging in legal relations and to be a

speaking, sexed person capable of engaging in social relations - can
be created only by the social.
Classical liberal philosophy and jurisprudence are, from a Hegelian
perspective, internally inconsistent with respect to the concepts of individuality and rights.59 All liberal philosophies start with some conception of the free autonomous individual in some mythical or hypothesized state of nature. Hegel agrees with the liberal proposition
that freedom and the capacity for bearing rights are the most basic essences of human nature.60 He thinks, however, that the autonomous
individual posited by liberalism is too empty and frail a creature to
engage in legal relations. As Wesley Newcomb Hohfeld61 and Ronald
Coase62would later understand, Hegel asserted that legal rights can be
understood only as relationships between and among people. Similarly, language can be understood only in terms of society. Consequently, contrary to the claims of liberalism, the autonomous individual in the state of nature could neither speak nor bear legal rights.
The freedom that is human potential can be actualized only through
social relationships.63
Hegel argues that because the abstract person posited by liberalism
is driven to make his potential freedom actual, the person passionately
desires to enter into social relations in order to achieve first, subjectiv-
should better be written "the split=the subject." Subjectivity is precisely that part of our mind
(and of the universe) that is revealed as absence.
59 The Philosophy of Right can be read as an extended critique of liberal political theory (and
of Kantianism in particular). Hegel starts his analysis with a presupposition of human nature
"consciously modeled on Kant's categorical imperative." SCHLOMO AVINERI, HEGEL'S THEORY
OF THE MODERN STATE I37 (I972); see HEGEL, PHILOSOPHY OF RIGHT, supra note i6, at 35-39.
Hegel then shows how this abstract, negative, and universal concept of the person becomes concrete, positive, and particularized through the realms of abstract right, morality, and ethical life.
See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 3 I-34.
60 Hegel follows Kant, beginning his dialectic of personality with the most abstract concept of
self as absolutely free will - that which is an end in itself and is not the means to some other enOF RIGHT,supra note i6, at 35. Hegel explains the minimal
tity's end. See HEGEL,PHILOSOPHY
concept of the abstract person as follows:
The universality of this will which is free for itself is formal universality, i.e. the will's selfconscious (but otherwise contentless) and simple reference to itself in its individuality ... to
this extent the subject is a person ....
Personality contains in general the capacity for right and constitutes the concept and the
(itself abstract) basis of abstract and hence formal right. The commandment of right is
therefore: be a person and respect others as persons.
Id. at 67-69.
61 See WESLEY NEWCOMB HOHFELD, FUNDAMENTAL LEGAL CONCEPTIONS AS APPLIED IN
JUDICIAL REASONING AND OTHER LEGAL ESSAYS 2 7-35 (Walter William Cook ed., i9i9); see
also Schroeder, Chix, supra note 22 (offering an extended critique of Hohfeld's property jurisprudence).
63 See, e.g., HEGEL, PHILOSOPHY OF RIGHT, supra note I6, at 35.
I998]
503
ity and then, higher states of human consciousness.64 As I have already stated, one attains subjectivity when another free subject recognizes one as a subject.
The abstract person in the state of nature has only his (or, more accurately, because the person is abstract, "its")potential freedom - its
negativity. It, therefore, has no distinguishing characteristics that
would make it recognizable.65 To be recognized by other subjects and
have relationships with others, therefore, the abstract person must
form object relations (that is, take on specific recognizable characteristics). To Hegel, the regime of abstract right - property, contract, and
the capitalist market - is the most primitive form of interrelationship
from a logical perspective.66 Note that I did not say this is so from a
historical or biographical perspective - modern property rights and
capitalistic markets are relatively modern inventions.67 Although the
market is the logically simplest and most primitive form of erotic relationship, it was one of the last of these relationships to develop as a
historical matter.
64 A complete discussion of Hegel's analysis of the relationship between potentiality and actuality is beyond the scope of this Commentary. I discuss this relationship extensively in The Vestal
and the Fasces and Never Jam To-day. See SCHROEDER, THE VESTAL AND THE FASCES, supra
note 3, at 3I-34; Schroeder, Never Jam To-day, supra note io, at I559-6i.
To oversimplify, according to the dialectic, in order to be potential, abstract concepts must be manifested or actualized in concrete form. Hegel believes that the freedom in the state of nature posited by classical
liberalism can only be potential because it is too abstract. The basis (Boden) of right is the realm
of the spirit in general and its precise location and point of departure is the will; the will isfree, so
that freedom constitutes its substance and destiny (Bestimmung), and the system of right is the
realm of actualized freedom, the world of spirit produced from within itself as a second nature.
See HEGEL, PHILOSOPHY OF RIGHT, supra note i6, at I35. The truth of the proposition that
man is free, therefore, requires that Hegel show how the abstract person in the state of nature
posited by liberalism becomes sufficiently concrete in an empirical society to be able to actualize
his freedom.
65 The problem is that the concept of "absolutely free will" is empty, abstract, arbitrary, and
negative - it is, by definition, totally stripped of all distinguishing characteristics. See
SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 27.
66 Hegel's dialectic purports to be a circular form of reasoning in the sense that, theoretically,
one should be able to start from any point in analysis and derive the entire system. Nevertheless,
for practical reasons, Hegel starts each of his books with a consideration of the simplest, most
primitive conception of the topic to be analyzed. Because Philosophy of Right is a consideration
of personality and society, he starts with the Kantian construct as the bare minimum concept of
what it could mean to have personality. As Alan Ryan explains:
It seems, rather, that Hegel's aim is to start from what we might call the minimum characterisation of a person; this minimum characterization is as someone capable of distinguishing what is him from what is not or, in Hegel's terms, capable of externalising his
will. This minimal, and thus abstract, personality allows two crucial distinctions to be
made, between myself and other persons and between myself and what I can have an effect upon.
Alan Ryan, Hegel on Work, Ownership and Citizenship, in THE STATE & CIVIL SOCIETY:
STUDIES IN HEGEL'S POLITICAL PHILOSOPHY I78, i85 (Z.A. Pelczynski ed., i984).
67 Cf supra p. 493. Critics of Hegel have frequently missed this important point. For example, as I discuss in Virgin Territory,Margaret Radin misinterprets Hegel's dialectic of property as
though he were trying to describe the empirical process by which human beings become mature
adults through object relations. See Schroeder, Virgin Territory,supra note 22, at 83-85.
HARVARD LAW REVIEW
504
[Vol.
II2:483
The proposition that subjectivity can be achieved only through the

social (that is, through law and language) creates a paradox. That
which is most ourselves - our subjectivity, our freedom, our speech,
our sexuality - is simultaneously that which is not ourselves, in the
sense that it comes to us from the outside.68 As we mature and are initiated into language and law, thereby acquiring sexuality, we first experience the sense that we have lost something that we can no longer
explain in words or images. This sense that our wholeness is lost, and
that this loss has been imposed upon us by something outside of us, is
what Lacan calls "Castration."69 That is, we can achieve subjectivity
-be
a speaking person or legal actor
only through others. We feel
(incorrectly) that we must once have been whole and inviolate; we intuit that there was once an object that is now lost because "someone"
has taken it away. Lacan calls this hypothesized object, which we feel
must have been lost in Castration, the Phallus. This intentionally confusing and apparently masculinist terminology is designed to reflect
the conflations of anatomy and the psyche made in our society.70 This
terminology can be troublesome to feminists. I believe that Lacan's
insistence that there are two different sexuated positions the subject
can take with respect to the Phallus necessarily implies that the masculine metaphor of Castration used to describe the "universal"sense of
loss felt by all subjects is appropriate to the subject when he stands in
the Masculine position. I have suggested that more appropriate metaphors for wholeness and loss, when experienced in the Feminine position, might be virginity and defloration, integrity and violation.71
One of the guises of the Phallus is the Feminine. That is, the Masculine position is entirely circumscribed within the Symbolic order of
68 Some Lacanians assume that Lacan's insistence on the artificiality and external nature of
language is necessarily inconsistent with Chomskian language theory. See, e.g., ELLIE RAGLAND,
ESSAYS ON THE PLEASURES OF DEATH I93 (I995). I believe that the two theories can be more
accurately described as merely studying different aspects of language. Whether or not speech and
grammar are innate or "hard wired" in the human brain, any specific language must be learned.
69 As I shall continue to emphasize, Castration is a retroactive, fictional autobiography that
the subject writes. "That is to say: what, precisely, is symbolic castration? It is ... the sense of
the precise loss of something which the subject never possessed in the first place." SLAVOJ2I2EK,
THE PLAGUE OF FANTASIES I5 (I997) [hereinafter 2I2EK, PLAGUE OF FANTASIES].
70 This conflation is precisely Lacan's point. Despite the fact that the concept of the Phallus is
a purely abstract concept devoid of biological content, we nevertheless conflate it with anatomy.
We conflate the erotic desire for recognition with the mating urge. We associate the Phallus as
symbol of subjectivity and desire with the penis. This is a conflation; it is a fiction, but it is the
fiction that governs our lives. To say that the Phallus is the penis is, consequently, both false and
true.
71 I frequently employ such terminology in The Vestal and the Fasces, cited above in note 3.
Lacan's phallocentric terminology, which can seem to privilege the male experience over the female, is, not surprisingly, extremely controversial. For two feminist critiques of Lacan, see
JUDITH BUTLER, BODIES THAT MATTER: ON THE DISCURSIVE LIMITS OF "SEX" (I993), and
LUCE IRIGARAY, SPECULUM OF THE OTHER WOMAN (Gillian C. Gill trans., Cornell Univ. Press
i985) (I974).
i998]
505
law, language,and sexuality. Lacan describesthe formulaof the Masculine: "All are subject to the symbolic order (the Phallus)."72 The
Feminine is, in contrast, exiled at least partially into the Real. The
formula for the Feminine as the negation or denial of the Masculine
can be stated as: "Not all are subject to the symbolic order."73A full
account of the Masculineand Feminine positionsis beyond the scope
of this Commentary.It is sufficientfor currentpurposesto emphasize
that because adult subjectslocated in the regimeof the Symbolichave
a sense of loss (that is, Castration),we also feel that we must have once
been whole. The Real is conceptualizedas that which is beyond the
Symbolicand Imaginary. We feel, wrongly,that whatever once made
us whole must now be locatedin the Real. This theoreticalaccount is
reflectedin our personalhistories. Newborns do not seem to have an
awareness of the distinction between their bodies and the external
world. That is, they have little or no sense of "otherness."At some
point in the first few months of life, infants start experiencingseparation, in the sense that they become aware that they are not physically
one with the world.74 The first "other"that the baby recognizesis the
primarycaretaker- the personwho fills the role that our society calls
"mother."75This awarenessof separationis the first step in the creation of the Imaginaryand Symbolicorders(that is, the ability to envision and speak). From the fact that we were not aware of our separation from our mothers until we had entered the Imaginaryand the
Symbolic,we retroducethe false hypothesisthat we must have in fact
72
Jacques Lacan, A Love Letter (Une Lettre d'Amour) [hereinafter Lacan, Love Letter], in
FEMININE SEXUALITY, supra note 7, at I49, I50; see also 2I2EK, TARRYING WITH THE NEGATIVE, supra note 57, at 56 (discussing Lacan's view of sexuality and the symbolic order). As I
have stated elsewhere:

This position is one of desperate, chronic anxiety which Freud called castration fear. The
masculine position like the male organ seeks to be firm, but is fragile. This is because the
simple negation of the masculine position is "There is one who escapes." It can be falsified
by one counterexample.
But the Feminine is not the simple negation of the Masculine. Its formula is "Not all are
subject to the symbolic order (the Phallus)." Although logicians might argue that this is
mathematically equivalent to the simple negation of the Masculine, psychoanalytically they
are totally diverse. This is because the negation of the feminine formula is "No one ever
escapes." . . . This weakness of the claims of the symbolic order is the dread of the Masculine and the hope of the Feminine.
SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 32 7-28.
73 Lacan himself expressed this as a mathematical function, or "matheme." See Lacan, Love
Letter, supra note 72, at I49-50; see also 2I2EK, TARRYING WITH THE NEGATIVE, supra note 57,
at 56. In Fink's paraphrase, "the feminine is not altogether subject to the symbolic order." FINK,
supranote i9, at IO7.
74 Lacan calls this the "mirror stage." Jacques Lacan, The Mirror Stage as Formative of the
Function of the I as Revealed in Psychoanalytic Experience, in LACAN, fCRITS, supra note 3I, at
I-2.
The mirror stage typically begins around six months of age and lasts until around eighteen
months. See GROSZ, supra note 9, at 35.
75 In patriarchal societies such as ours, this role is played by the baby's actual biological
mother in the vast majority of cases as an empirical matter. When other individuals play this
role, society either expressly or implicitly sees them as substitutes for the child's biological mother.
506
HARVARD LAW REVIEW
[Vol. 112:483
been one with our mothers prior to that time. As a result, we feel that
the Phallus (the wholeness that was lost through Castration) must have
been unity with the ideal of the Feminine.76 In other words, the
purely neutral concepts of wholeness and loss become conflated with
anatomical sexuality, as reflected in Lacan's intentionally confusing
terminology. This conflation is why the ideal of the Feminine is sometimes known as the all-powerful Phallic Mother.77 The Feminine as
the Phallic Mother is, therefore, that which is located in the Real.
3. Fantasy and Sexuality.- Although subjectivity (which can be
created only through recognition in intersubjective relations) is created
in the Symbolic, human beings are not satisfied with the Symbolic.
The Symbolic is, by definition, not only artificial, but also incomplete.
We long for the impossible wholeness of the Real. In an attempt to
achieve that which cannot be achieved in the Symbolic, we turn to the
Imaginary. In the Imaginary we erect seemingly attainable fantasy
images to stand in as substitutes for our true object of desire.78 These
fantasy objects of desire are invented to serve retroactively as though
they were the cause of our desire. In fact, we desire because we are
not, and can never be, whole, because desire is the longing to be
whole. Because we can never become whole in the Symbolic order, we
sublimate our true desire. We try to pretend that the reason we desire
is because there is some "thing" that we want - that some attainable
"desirable" object is causing our desire. This seems comforting because each person can then say to him or herself, "If I could just possess that beautiful woman's body; have a man's organ or, lacking that,
his child; make partner; get tenure; get a job at a more prestigious law
firm; or whatever; then my desire would be fulfilled and I would finally be happy." Among other things, this leads to the conflation of
the psychic desire for recognition (Eros) with the biological urge to
mate. These fantasy identifications create sexuality and enable markets to operate.
According to Hegel, we take on object relations in property and
contract as a means of achieving our true desire - actualization of our
freedom through recognition as subjects by others.79 The market is a
76 Romanticism can be seen as the extension of this fictional autobiography to an account of
society at large. See Schroeder,Pandora, supra note i8, at 20-24.

her.
77 "The man has the illusion of having the phallus, in the sense of the potency to keep
BEYOND
The woman 'is' for him as the phallus, as his projected desire." DRUCILLA CORNELL,
LAW 38 (I991).
ACCOMMODATION:ETHICAL FEMINISM, DECONSTRUCTION, AND THE
the end-term
78 In fantasy, the object cause of desire assumes its role "only by virtue of being
of the fantasy. The object takes the place, I would say, of what the subject is - symbolically
What is it that the subject is deprived of? The phallus ... ." Jacques Lacan,
deprived of ....
(1977)
Desire and the Interpretation of Desire in Hamlet, 55/56 YALE FRENCH STUDIES II, I5
Hamlet].
Lacan,
[hereinafter
in The Vestal
79 I discuss the Hegelian concept that freedom is actualized through recognition
49-52;
at
note
29-35,
THE
3,
AND
FASCES,
supra
VESTAL
and the Fasces. See SCHROEDER, THE
i998]
507
means to the end of intersubjectivity. However, Lacan would argue

that this process can never be satisfying because our desire must always be postponed and relationships must always be mediated.80
Consequently, when we engage in actual market relations, we often
repress our true desirefor market relations and act as though we desire
the objects of market relations. We imagine that our intersubjective
relations are the means to the ends of object relations, rather than the
other way around.81
How does this abstract process of achieving subjectivity through
recognition relate to sexuality? Psychoanalytic sexuality consists of
various strategies that subjects can employ with respect to Castration.
For reasons that are beyond the scope of this Commentary, the Masculine is the position of having and exchanging the Phallus, whereas
the Feminine is that of being and enjoying the Phallus.82 These two
sexual positions are, of course, not literally true. Castration is universal. No one, Masculine or Feminine, has the Phallus and no one, Masculine or Feminine, can actually be it because it doesn't exist. Consequently, masculinity is not superior to femininity. Rather, the
Masculine position can be seen as the cowardly position of denial and
fantasy - it is the false claim or pretense that the Masculine subject
has "it"when he doesn't.83 The Masculine position corresponds to desire in the form of Eros - the fantasy that one can remain a subject in
the Symbolic order yet attain wholeness by acquiring a perfect soul
mate who will take the place of the lost Phallus. In the order of the
Imaginary, we erect fantasy substitutes to stand in the place of the actual Real object of desire (the Phallus, the Feminine, wholeness, a perfect sexual relationship).
In the Imaginary, we try to find natural (seemingly Real) analogues
to stand in the place of the Symbolic concepts of sexuality.84 In other
words, in the Imaginary, we conflate sexuality with anatomy.85 Consee also Michel Rosenfeld, Hegel and the Dialectics of Contract, Io CARDOZOL. REV. II99,
I220-
2 I (I989).
80 This
is one of the meanings of Lacan's notorious assertion that there are no sexual relations.
See supra p. 498.
81 I discuss this conflation in markets and law extensively in Schroeder, Chix, cited above in
note 22, at pages 25 2-53,
and SCHROEDER, THE VESTAL AND THE FASCES, cited above in note 3,
at pages I07-09.
82 Lacan's specific gender assignment is based on the fact that the first Other we confront in
our society is our mother (or mother substitute). See supra pp. 505-06.
See generally LACAN,
9CRITS, supra note 31, at 28I-91
(noting the importance of the Phallic mother). As Grosz explains, "[The mother] is positioned in relation to a signifier, the phallus, which places her in the
position of being rather than having (the phallus, the object of the other's desire)."
GROSZ, supra note 9, at 71.
83 See infra p. 509.
84 In other words, we search for an objet petit a to serve as the object cause of desire. See supra note 32.
85 The assertion that sexuality cannot be reduced to anatomy does not mean that anatomy is
not crucial to sexual identity. "[A]natomy is what figures in the account: 'for me "anatomy is not
508
HARVARD LAW REVIEW
[Vol.
II2:483
sequently,we look for things that anatomicmales have or can attain,

and that anatomicfemales can be, to serve as metaphorsfor the Phallus. Specifically,the Phallus is conflatedwith the male organ (hence
Lacan's terminology)and the female body. By wielding penises, and
subordinatingwomen, those who are in the Masculineposition vainly
pretend not to be Castrated. The subordinationof women has often
taken a literal form in traditionalsocieties in which women are exchangedamongmen in marriage.86It also takes a moresubtle form of
which can be tamed
the Imaginaryideal of an affirmative"femininity,"
of the Real
the
radical
negativity
a
for
as
substitute
and captured,
Feminine,which cannot.87
destiny", but that does not mean that anatomy does not figure' . . ., but it only figures (it is a
sham)." Rose, supra note 7, at 44 (quoting MOUSTAPHASAFOUAN,LA SEXUALIT9FEMININE
DANSLA DOCTRINEFREUDIENNE13I (I976)). The two sexuated positions are only generally associated with the biological sexes. As Juliet Mitchell notes:
This account of sexual desire led Lacan ... to his adamant rejection of any theory of the
difference between the sexes in terms of pre-given male or female entities which complete
and satisfy each other. Sexual difference can only be the consequence of a division; without this division it would cease to exist. But it must exist because no human being can become a subject outside the division into two sexes. One must take up a position as either a
man or a woman. Such a position is by no means identical with one's biological sexual
characteristics, nor is it a position of which one can be very confident - as the psychoanalytical experience demonstrates.
supra note 7, at i, 6. That is:
Juliet Mitchell, Introduction I to FEMININESEXUALITY,
For Lacan, men and women are only ever in language ('Men and women are signifiers
bound to the common usage of language,' ... .). All speaking beings must line themselves
up on one side or the other of this division, but anyone can cross over and inscribe themselves on the opposite side from that to which they are anatomically destined.
Rose, supra note 7, at 49.
To say that Lacan sought to destroy any lingering biological determinism in Freud's theories
while explaining how gender difference becomes mapped upon biological sexual difference, see
GROSZ,supra note 9, at 58-59; Drucilla Cornell, The Doubly-Prized World:Myth, Allegory and
the Feminine, 75 CORNELLL. REV. 644, 66o (i990), is not to imply that biological sexual difference does not exist or is not important. Lacan's point is that our experience of sexuality in our
capacity as speaking, conscious subjects can never be simply reduced to our biological sex for the
same reason that property cannot be reduced to our sensuous relationship with physical things.
Sexuality is artificial and therefore authentic to "man the artist." The sexual status quo is neither
natural nor inevitable in the sense that anatomy is destiny. Nevertheless, Lacan hypothesizes a
mechanism by which a sexual status quo - once in place - is able to reproduce itself.
86 Lacan's early work was influenced by the structuralist anthropology of Claude LeviStrauss, who contended that societies are formed through arrangements by which men of different
clans exchange women. See JUDITHBUTLER,GENDERTROUBLE:FEMINISMANDTHE SUBVERSIONOF IDENTITY38-43 (i990); GROSZ,supra note 9, at I26; Rose, supra note 7, at 46. Over
time Lacan moved further and further away from claiming that his theory was an empirical account of individual or societal development. Rather, like Hegel's, it is a speculative account that
often plays itself out in our empirical lives.
87 As I discuss in more detail elsewhere, a related contemporary fantasy image is the relational
femininity that characterizes Carol Gilligan's cultural feminism. Rather than being a different
feminine voice, Gilligan's cultural feminism is merely the same old masculine voice speaking in
THE VESTALANDTHE FASCES,supra note 3, at 70; Jeanne Lorraine
falsetto. See SCHROEDER,
Schroeder, The Eumenides: On the Founding of Law Through the Repression of the Feminine
28-29
(July 7, i998) (unpublished manuscript, on file with the Harvard Law School Library)
[hereinafter Schroeder, The Eumenides].
1998]
509
The Feminine sexuated position, in contradistinction, is the acceptance of Castration - the understanding that a loss has occurred
that cannot be cured, only mourned. The Feminine, therefore, is identified with Castration, with lack.88 She is identified with that which is
lost in the Real. The feminine position with respect to Castration corresponds to desire in the form of Thanatos. Thanatos can be thought
of as the understanding that no external object of desire can heal the
wound of Castration. Thanatos is based on the realization that
wholeness can be achieved only if one can somehow retreat back to the
pre-castrated state - to become one with the universe. To do so
would be to lose individuality and subjectivity. It would be as though
one had never been born; it would be as though one were dead.
4. Jouissance, Desire, and the Horror of the Real. - This brief explanation helps us to understand why we simultaneously desire, but
cannot bear to confront, the Real. The Masculine desire of Eros is
built on a fantasy - the lie that our desire is caused by an obtainable
Imaginary object. It is the delusion that we can remain located in the
Symbolic order without being Castrated. Because that which is lost in
Castration - the Feminine - is that which, by definition, is in the
Real, the Feminine cannot, in fact, be captured in words or images.
Any and all positive conceptions of "the feminine" must, by necessity,
be fantasy images which stand in for the Feminine.89 (I refer to such
fantasy images as "femininity.")
Similarly, in market relations we erect actual, seemingly Real objects to stand in for the object lost through Castration. Such substitutions constitute a fantasy that, if we can just obtain that desired object, then we will be complete.90 And so we act as though it were
88 Drucilla Cornell, for example, gives the following account of an infant's "primary repression" of the separateness of the mother:
Once projected into language, however, this primary identification with the mother is projected only as lack. The phallic Mother and what she represents cannot be expressed in
language ....
Thus, [feminist author Julia] Kristeva insists that the Feminine, when
"identified" as the phallic Mother, embodies the dream of an undistorted relation to the
Other which lies at the foundation of social life, but which cannot be adequately represented.
Cornell, supra note 85, at 66o-6i.
89 Jacqueline Rose explains:
As negative to the man, woman becomes a total object of fantasy (or an object of total fantasy), elevated into the place of the Other and made to stand for its truth. Since the place
of the Other is also the place of God, this is the ultimate form of mystification ....
Rose, supra note 7, at 50; see also 2I2EK, THE INDIVISIBLE REMAINDER, supra note 55, at 1586 i.
90 I explore this process at length in Schroeder, Chix, cited above in note 22. From a Lacanian
perspective, property cannot be reduced to Real concerns; we do not enter into market relations
only to meet "Needs" such as food and shelter. See RENATA SELACL, THE SPOILS OF FREEDOM:
PSYCHOANALYSISAND FEMINISM AFTER THE FALL OF SOCIALISM I24 (I994). If property were
a Real relationship (that is, if desire could be reduced to Need) markets would exist only in the
most primitive subsistence economies. As a matter of anthropological fact, markets are a late de-
510
HARVARD LAW REVIEW
[Vol. 11 2:483
really that wedding ring, big new house, fancy sports car, or whatever
that will make us happy. Because this is a fantasy, it cannot bear close
scrutiny. If we were to examine our fantasy, we would realize that we
have been chasing only a phantasm, and not our true desire. If we
were to turn around to look directly at our fantasy, as Orpheus turned
to look at Eurydice, we would lose sight of it, and the fantasy would
come to an end. We can see the Real only if "eyed awry."91 Eros can
function only insofar as we keep up pretenses.
Nevertheless, Lacan posits that when we take on the Feminine
sexuated position, we are sometimes able to glimpse the Real in an experience Lacan called Feminine jouissance - enjoyment, orgasm, ecstasy.92 Despite the name, however, "enjoyment" is not enjoyable in
the conventional sense of the word. To achieve the Real is to leave the
Symbolic and, therefore, to lose one's own personality. Jouissance is
the hope of wholeness in the sense of ecstatic union with the Feminine
as the Phallic Mother (that is, becoming one with the universe). But
when we actually confront the Real, we see that it results in the obliteration of self. Consequently, jouissance is also the gut-wrenching
horror of staring into the abyss.93 The abyss is uniquely horrifying because jouissance is also the realization that this nothingness is the very
center of our soul.
Like the Masculine desire of Eros, the Feminine desire of Thanatos
must always be postponed, but for a different reason. To achieve the
Real is to be torn limb from limb by the ecstatic Feminine personified
in the Orpheus myth as the Maenads. As with Eros, we must avoid
looking too closely at Thanatos, but for a different reason. We are
afraid to look at Eros because he is Imaginary, he is not real enough.
We are terrified to look at Thanatos because she is all too Real. The
ultimate reality is death.
And yet, we are like children at a scary movie. Although we cover
our eyes, we can never resist the guilty pleasure of peeking through
our fingers in order to confront our fears and gaze into the abyss. As
Lacanian philosopher Slavoj Zizek says, "the trouble with jouissance is
not that it is unattainable, that it always eludes our grasp, but, rather,
that one can never get rid of it."94
Pandora,
velopment and characteristic of relatively wealthy "developed"societies. See Schroeder,
supra note i8, at I5-i8.
TOJACQUESLACANTHROUGHPOP2I1EK, LOOKINGAWRY:AN INTRODUCTION
91 SLAVOJ
RICHARDII, act 2, SC.2) [hereinafWILLIAM
SHAKESPEARE,
ULARCULTURE9-12 (I992) (quoting
ter ZIZEK,LOOKINGAWRY].
92 See supra note I2.
93 See generally 2IZEK, LOOKINGAWRY,supra note 9I, at 3-48 (examining confrontations
69,
with the Real through analyses of popular culture); 2IEK, PLAGUEOF FANTASIES,supra note
at 48-54 (describing the traumatic nature of jouissance).
supra note 55, at 93.
REMAINDER,
94 ;2IEK, THE INDIVISIBLE
i998]
5"I
In a series of articles and a book, I have illustrated how these fantasy images play out in property law theory and doctrine.95 Because
we are unsatisfied with the artificiality and necessary incompleteness
of the Symbolic order of law and because we wish to attain the wholeness of the Real, in the order of the legal Imaginary we try to substitute seemingly Real (but actually Imaginary) concepts for Symbolic
ones. Because property, like sexuality, is Phallic in nature, we have a
strong tendency to use the same anatomic metaphors in both. The
Masculine position of having the Phallus is conflated with the anatomical fact that men have penises, and the Feminine position of being
the Phallus is conflated with anatomical femaleness. Correspondingly,
we have a strong tendency to describe property in terms of implicit
imagery of the male organ and the female body. When we use the
former metaphor, property is seen as that which is physically held and
shown, possessed and exchanged. Loss of property is thought of in
terms of anatomic castration in the sense of a physical taking. We
concentrate on the rights of possession and of alienation through exchange (contract), while repressing that of enjoyment. When we use
the Feminine metaphor for property, property is seen as that which
one identifies with, enters and enjoys, and protects. Loss of property is
conflated with rape, violation, pollution, and loss of self.
Similarly, I suggest that the law and economics movement, which
neither bases its policy suggestions on actual markets nor adequately
comes to grips with its own ideal of the perfect market, is located in
the Imaginary. It is the weaving of a series of fantasy images in a vain
attempt to reconcile the Symbolic with the Real.
5. The Contours of the Real. - What are the contours of the Real?
By definition, we cannot explain the Real in words (the Symbolic) or
depict it in pictures (the Imaginary). Rather, we must describe the
Real in terms of what it is not. In this section, I shall discuss only one
aspect of this highly complex and paradoxical - indeed impossibleconcept.
We, as subjects, now feel separate from other persons. We imagine
that at one time we must have been complete in ourselves and one
with the Other. The Real is the universe before the "big bang" that
created subjectivity (that is, before Castration). It is the ideal of perfect union with no mediation or alienating distinctions of any type that
could separate us from the ideal Mother.
There is, therefore, no time in the Real because time separates yesterday from today and today from tomorrow. As was the case with the
physical universe, time began only with the big bang of Castration.
The Real is, therefore, an event that is simultaneously an instant and
eternity. There can be no space in the Real because space separates
95
See SCHROEDER, THE VESTAL AND THE FASCES,supra note 3; sources cited supra note 22.
HARVARD LAW REVIEW
5I2
[Vol. I I2:483
here from there.96 There are no objects in the Real. Objects can be
understood only in terms of that which is other than - different from
subject.97 But this requires that subject and object be separated.
-a
There can be no desire in the Real. Desire is the longing for wholeness. Because the Real is that which is already perfect and whole,
there is nothing left to desire. In the Real, we are totally indifferent to
everything because nothing is different from anything else.
In other words, in the Symbolic, we are Castrated and violated. In
the Real, we are intact, yet impotent; virgin, yet sterile.
Most importantly, there is no subjectivity, no personality, no individuality in the Real.98 To be a subject, I must be recognized by others. To be recognized, I must have at least one distinguishing characteristic. But a distinguishing characteristic, by definition, distinguishes
and thereby separates me from others. This separation necessary for
subjectivity is precisely that which does not exist in the Real. Another
way of saying this is that, in order to claim to be a subject, I must understand myself as being at least minimally different from someone or
something else. This requirement of differentiation requires me to
withdraw from and expel the Other. In Lacan's terms, there are no
sexual relations in the sense that all intersubjective relations are mediated. I must put space between me and the Other. As discussed, subjectivity requires such mediated intersubjective relations. To have perfect union - to achieve the Real - I must give up all distinctions. I
must give up myself. I must lose my subjectivity.
Without individuality and without desire, speech is not only unnecessary, but it is also impossible: there is no one to speak, no one to
speak to, and nothing to speak about. As the Bible tells us: "In the beginning .... The earth was without form and void."99
We can now understand that the Real - the jouissance of
Thanatos - is not merely death (which might hold out the possibility
of an afterlife, transmigration, or rebirth), but death beyond death,
obliteration, Nirvana. We can achieve subjectivity only in the social
realm of law, in the Symbolic. To Lacan, subjectivity includes the
ability to speak and to have sexuality and consciousness. To leave the
As I discuss below, see infra pp. 5s4-ss' subjectivity is itself the birth of time and space
the conditions of possible experience. See KANT, supra note 55, at 23-32.
97 Hegel states: "What is immediately different from the free spirit is, for the latter and in itself, the external in general - a thing [Sache], something unfree, impersonal, and without rights."
note 22, at
HEGEL, PHILOSOPHY OF RIGHT, supra note i6, at 73; see also Schroeder, Chix, supra
245-46 (stating that the Hegelian idea of the object embraces all that is not within the most basic
96
idea of personality).
lies
98 Once again, Lacan's concept is extremely complex and paradoxical. Radical negativity
this
of
the
created
is
the
repression
but
by
subject
Lacanian
subject,
the
of
"split"
at the center
negativity in the Symbolic and by its reappearance in the Real - a reappearance that results in
the subject's split. See, e.g., FINK, supra note i9, at 73-74; Lacan, Hamlet, supra note 78, at 3738.
99
Genesis 1:1-2.
I998]
5I3
Symbolic and (re)enter the Real would be to lose one's subjectivity,

one 's individual personality.
Myth once again reflects psychoanalysis. The Bible tells us that
when God decided to destroy Sodom and Gomorrah, He told Lot and
his family to leave but warned them not to turn around and look back
at their homes and loved ones. Lot's wife heard the sounds of destruction behind her and gave way to her desire. In her jouissance, she
doubly turned - around and into a pillar of salt.100 When Orpheus
turned, he was driven by Eros. He sought to embrace the perfect wife
of his dreams. When he faced the image he had constructed to serve
as the object of desire, he merely lost this specific fantasy. His desire
and his subjectivity remained. When Lot's wife turned, however, she
was driven by Thanatos. She yearned to confront and return to her
origins; she wanted to go home. By fulfilling her desire, she lost not
merely her life, but also her self. She literally lost her subjectivity and
became an inanimate object. Her very name, her individuality, was
lost forever.101 All we know about her is that she had been married to
Lot. 102
II. THE PERFECT MARKET
A. The Ideal of the Perfect Market
Mainstream economics is driven by a number of closely related
ideals that I call, collectively, the "perfect market." Achieving the efficiency'03 of the perfect market is the object of the economist's desire.
100 See Genesis I9:26.
101 She was not merely lost to man, but, given the tradition that Genesis was written by Moses
under inspiration of the Holy Spirit, lost to God as well.

102 See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 292.
103 There are several standard versions of efficiency, but they all revolve around achieving a
proper allocation of resources in society. The two most common formulations of efficiency are
based on the maximization of an aggregate valued quality. Utility maximizers, as their name implies, argue that society should maximize the aggregate utility (roughly, happiness) in society. See
generally GEORGE J. STIGLER, ESSAYS IN THE HISTORY OF ECONOMICS 66-I55 (i965) (providing a brief discussion of utilitarian economics). Opponents of utilitarianism object to this criterion
on several grounds, including the facts that utility cannot be directly measured; intersubjective
utilities may be incommensurable; the potential consequences of utilitarianism might be "monstrous" as judged by our moral intuitions (for example, utilitarianism could theoretically justify
the torture of individuals if the pleasure enjoyed by the sadistic mob outweighs the pain suffered
by the victim); its potential consequences might conflict with other fundamental values (for example, because utilitarianism only protects rights contingently as the means to the end of maximum aggregate happiness, it might be used to justify the redistribution of wealth from the rich to
the poor in violation of what libertarians identify as the more natural right of property); and if the
criteria of utilitarianism are happiness and pain, then we might have to include the pleasure and
pain of all feeling beings, including sheep and rats, in our policy calculations. See, e.g., Richard
A. Posner, Utilitarianism,Economics,and LegalTheory,8 J. LEGAL STUD. I03, I I I-I 9 (I979).
The primary competing criterion for efficiency is "wealth" maximization. For the limited purposes of this Commentary, wealth can be thought of as the aggregate money value of all products
5I4
HARVARD LAW REVIEW
[Vol.
11 2:483
In this sense, the perfect market is the ideal or end to which actual
markets are the means. According to one school of law and economics,'04 efficiency would be achieved if the ideal of the perfect market
were implemented. We should, therefore, modify our legal and political institutions in order to make the actual market as nearly perfect as
we can or, if that is impossible, to replicate the results of the perfect
market as nearly as possible.105
Given the centrality of the ideal of the perfect market to mainstream economics, one would expect that there would be a substantial
economic literature delineating its characteristics. Yet there is remarkable silence among law and economics advocates on the issue. I
started this project largely because over the years I had heard numerous critics of law and economics assert that the concept of perfect
markets was surprisingly poorly worked out, considering its importance. As a student of economics, I would reply, "That's nonsense.
Every introductory economics textbook contains a discussion of the
perfect market." Indeed, I thought I remembered reading such discussions, albeit twenty-plus years ago when I was a college student.
"Show me," my interlocutors would challenge. In an attempt to prove
them wrong, I searched for such a discussion. To my surprise, the only
discussions I could find were generally sketchy and conclusory. This
Commentary contains the results of my search for a coherent analysis
of the perfect market. The surprising silence of the literature led me to
try to understand not only the underlying logic of the concept of the
perfect market so imperfectly described in the literature, but also the
reason economists and lawyers (including myself) fail to attempt such
an analysis and then repress this failure.
OFJUSTICE6o (i98i). Wealth is almost
in a society. See RICHARDA. POSNER,THE ECONOMICS
as troublesome and contradictory a concept as the perfect market. For an excellent critique of
Posner's attempt to identify a meaningful distinction between utilitarianism and wealth maximization, see Robin Grant, Note, Judge Richard Posner's Wealth Maximization Principle: Another
Form of Utilitarianism?, IO CARDOZO L. REV. 8iS, 829-4I (i989).
104 For simplicity, I sometimes refer to the scholars I critique by such terms as "law and economics scholars." I do not mean to suggest that my critique is applicable to all scholars who apply economic analysis to law or even to all scholars who identify themselves as part of the law and
economics movement. Rather, I refer only to the influential branch of law and economics that is
based on classical price theory and its ideal of the perfect market.
105 The Calabresi-Melamed trichotomy of environmental nuisance remedial regimes, for example, was developed as a tool for studying whether there were ways of lowering transaction costs,
mimicking the results that would occur absent transaction costs, or stimulating bargaining despite
the existence of transaction costs. See Guido Calabresi & A. Douglas Melamed, Property Rules,
Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. i089, i096-97
Ayres and Talley provide an alternative approach. They suggest legal rules that do not
(I972).
mimic the efficient result, but would be likely to cause parties to act in such a way that would
make the market more efficient (by, for example, incentivizing the parties to reveal information).
See Ian Ayres & Eric Talley, Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate
Coasean Trade, I04 YALE L.J. I027, I029-82 (i995); see also infra note 2I9 (discussing further
Ayres and Talley's approach).
1998)
5I5
For example, Richard Posner's standard introduction to law and

economics, Economic Analysis of Law,'06 does not define the concept
of the perfect market. Classically trained economists, such as Ronald
Coase and George Stigler, are scarcely braver.'07 Paul Samuelson and
William Nordhaus's introductory economics textbook on classic price
theory108contains only a few passing sentences about the parameters
of this founding ideal.109 In works by other scholars, if discussed at
all, selected conditions of the perfect market are alluded to in an incomplete and unsystematic way. Presumably, these authors assume
that its characteristics are generally known and, therefore, need not be
explicated.
Compare this phenomenon with William Blackstone's famous observation about property which opens his Commentaries:
There is nothing which so generally strikes the imagination, and engages
the affections of mankind, as the right of property .... And yet, there are
very few, that will give themselves the trouble to consider the original and
foundation of [property]. Pleased as we are with the possession we seem
afraid to look back ... as if fearful ....110
I suggest that this embarrassed reticence relates to the essentially

erotic nature of markets. Confronting what I have called the erotic
origins of market theory causes us to blush with the same shame we
feel when forced to consider our own erotic origins in the parental
marriage bed. In both cases, we fear to gaze into the abyss. Why?
I believe the answer lies in the psychoanalytic nature of the perfect
market. The ideal of the perfect market is located in the Real, while
actual markets are located in the intersubjective order of the "Symbolic." The perfect market is therefore the death of the actual market.
106 RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW (4th ed. I992).
107 George Stigler has probably written more extensively about the perfect market and the related concept of perfect competition than any other writer, and even he is, at best, parsimonious in
his description. He admits that the contours of the perfect market are not clear:
The minimum assumptions for a theoretical model [of the perfect market] can be stated
with precision only when the complete theory of that model is known. The complete theory of competition cannot be known because it is an open-ended theory; it is always possible that a new range of problems will be posed in this framework, and then, no matter how
well developed the theory was with respect to the earlier range of problems, it may require
extensive elaboration in respects which previously it glossed over or ignored.
George J. Stigler, Perfect Competition, Historically Contemplated, in MICROECONOMICS:
SELECTED READINGS 067, i83 (Edwin Mansfield ed., I97 I); see also David Gray Carlson, On the
Margins of Microeconomics, I4 CARDOZO L. REV. i867, i88o (I993) (recognizing that although
Stigler is aware that the perfect market is unattainable, he nonetheless defends it). Notwithstanding the problems posed by these shifting boundaries, however, Stigler has attempted a description: "A perfect market is one characterized by perfect knowledge on the part of the traders.
Or, stated differently, in a perfect market no buyer ever pays more than any seller will accept, and
no seller accepts less than any buyer will pay." GEORGE J. STIGLER, THE THEORY OF PRICE 82
(4th ed. 1987) [hereinafter STIGLER, PRICE].
108 PAUL A. SAMUELSON & WILLIAM D. NORDHAUS, ECONOMICS (I th ed. I995).
109 See id. at 3I, I48, i64, 264-70.
110 2 WILLIAM BLACKSTONE,
COMMENTARIES ON THE LAWS OF ENGLAND *2.
5i6
HARVARD LAW REVIEW
[Vol.
II2:483
The perfect market is an extraordinary world with no differentiation,

no time, no space, no desire, no exchange, no objects - no subjectivity. Consequently, we cannot bear to contemplate the ideal of the perfect market directly, even as we cannot resist our desire for it. Instead,
we erect in the "Imaginary"unthreatening fantasy images of the market that seem more satisfying than actual markets, yet less terrifying
than perfect markets. Indeed, being Real and neither Imaginary nor
Symbolic, the perfect market is not merely impossible, it is literally
unimaginable and unspeakable.
In order to continue to create, we must follow our desire. Yet we
will lose the object of desire if we try to confront the fantasies we erect
to stand in its place, as Orpheus found out when he tried to embrace
Eurydice. Moreover, if we were actually to achieve our desire, we
would lose not only our desire, but also our very existence as free subjects, as Orpheus and Lot's wife learned when they achieved
jouissance.
Consequently, for the ideal of the perfect market to function, two
things are necessary. First, its contours must be repressed and replaced with a fantasy image. Second, desire must always be postponed. The ideal of the perfect market can never be achieved because
to do so would destroy the actual market and our freedom. We dare
not give way to our desire. What I am suggesting is that scholars may
resist confronting their own ideal of the perfect market because they
unconsciously fear that if they do so, they will have to abandon their
fantasy structure. I argue that a close examination of the "perfect
market" reveals that it is not merely empirically, but also theoretically,
impossible. As such, it is not merely a poor tool for the study of actual
markets - it may also impede that study.
One might suggest that the impossibility of the perfect market is irrelevant to economic analysis. All ideals, this argument would posit,
are impossible. And yet, it would continue, this does not mean that we
should not strive to be as close to the ideal as possible. Although a
more sophisticated analysis may be of some interest, this specific simplistic analysis is inept.
First and foremost, I agree that one should not necessarily give up
an ideal one has adopted for logical, religious, or other groundssuch as freedom, justice, grace, or whatever - just because it is empirically impossible. Rather, such ideals serve as one's inspiration even
if they are not reasonable aspirations. My complaint about this strain
of law and economics is not the empirical impossibility of the ideal,
but the failure of economists to consider the implications of having a
theoretically impossible ideal. This failure can lead to the incorrect
conclusions that the goal has already been reached or is within sight,
or that one's policy recommendations will result in the achievement of
something close to the ideal, which can in turn result in complacency.
1998]
5I7
Let me clarify the nature of the impossibility of the perfect market

(and of the Lacanian Real) that lies at the heart of my critique. It is
common to compare the ideal of the perfect market to the impossible
ideals of science."' This reveals a grave misunderstanding. The Real
of the perfect market is not merely impossible to achieve as an empirical matter; it is also theoretically impossible. To understand this, it is
useful to compare the impossibility of the Real to the empirical impossibility of scientific models. For example, the laws of motion posited
by physics describe a perfectly frictionless world. This frictionless
world is probably empirically impossible to replicate perfectly. The
laws of motion are theoretically possible, however, in that they are internally consistent. We can predict how objects would behave in such
a world. We can use this idealized model to predict how objects
should behave in the actual world, in which friction exists. We can
develop empirical experiments in an attempt to falsify the hypothesis
of the laws of motion."12 That is, the laws of motion are an attempt to
give an affirmative description of actual motion in the empirical world
through abstraction and simplification.
In contrast, the Lacanian Real is not just empirically, but also theoretically, impossible. Unlike the hypothetically perfect conditions of
physics, the ideals of the Real are not an abstracted, simplified version
of the Symbolic order they explain. Rather, the Real is the negative of
the Symbolic and serves as its border, its limit. Each is defined in
terms of what the other is not. Consequently, the Symbolic concept
cannot exist in the Real ideal and vice versa - the two are mutually
inconsistent. To achieve the Real would, therefore, be to obliterate the
Symbolic.
This distinction between empirical and theoretical impossibility can
be put in another way. In the case of an empirically impossible ideal
(such as the laws of motion), the actual phenomenon that is to be explained (that is, motion) would continue to exist if the ideal could be
achieved: motion would exist in a frictionless world in which the laws
of motion operated. In contrast, as I shall discuss, if a theoretically
Notably, Posner compares economic theory to Newtonian physics. See POSNER, supra note
("Newton's law of falling bodies, for example, is unrealistic in its basic assumption
that bodies fall in a vacuum, but it is still a useful theory because it predicts with reasonable accuracy the behavior of a wide variety of falling bodies in the real world.").
112 Scientists disagree regarding the sense in which the laws of science can be said to be "true."
For example, in an interesting recent debate, frequent collaborators Roger Penrose and Stephen
Hawking come to widely different conclusions concerning the epistemological status of their
work. In the words of Hawking:
Basically [Penrose is] a Platonist believing that there's a unique world of ideas that describes a unique physical reality. I, on the other hand, am a positivist who believes that
physical theories are just mathematical models we construct, and that it is meaningless to
ask if they correspond to reality, just whether they predict observations.
Stephen Hawking, The Objections of an Unashamed Reductionist, in ROGER PENROSE, THE
LARGE, THE SMALL AND THE HUMAN MIND i69 (Malcolm Longair ed., I997).
I1I
io6, at i6-I7
5I8
HARVARD LAW REVIEW
[Vol.
I I2:483
impossible Real (such as the perfect market) could be achieved, the actual phenomena that the ideal is designed to explain (that is, actual
markets) would cease.
Lacanian theory goes further, however. The Real is defined as impossibility per se, in the sense that it is grounded in fundamental logical paradoxes that cannot be resolved. The Real is beyond our rational understanding (which is located in the Symbolic and the
Imaginary). It is a fundamental impasse that is hypothesized to lie at
the heart of not only human nature, but the structure of the universe
itself. For example, the Real of the perfect market - a concept that
by definition requires market transactions - is simultaneously the destruction of all market transactions.113
The branch of law and economics that I am critiquing in this
Commentary also attempts to use the ideal of the perfect market for a
purpose beyond that for which the ideals of science are used. Scientific models are a means of explaining and predicting actual phenomena. In this Commentary, I am not critiquing economics for developing models - such as the perfect market - for such an explanatory or
predictive purpose. However, even though engineers do make practical application of scientific models, their goal is not to make actual
phenomena more like the model, but to achieve some other goal. For
example, if an engineer were to try to reduce friction on a railroad
track, it would not be because a world without friction is her ideal, but
because she wished to build a train that will travel faster or cheaper.
There may be other circumstances in which she would actually wish to
find a way to move away from the ideal and increase friction (perhaps
to develop better brakes on the train). Moreover, I do not believe that
scientists and engineers would, as some law and economics scholars
do, try to imagine what would happen under the ideal circumstances
of their model in order to develop actual systems that would mimic the
results of such a hypothetical universe.
Those law and economics advocates who seek to formulate legal
rules that will mimic the results that would be achieved in a perfect
market must first describe the contours of the perfect market they wish
to emulate. I show, however, that this task is not merely impracticable, it is also logically impossible. To pretend to describe what would
happen in the perfect market is a fantasy in the Lacanian sense of the
term: it is an attempt to erect a seemingly attainable Imaginary substitute for the unattainable, indescribable, and unimaginable Real.
Those law and economics advocates who seek to make the actual
market more efficient run up against the logical problem of the "secThe impasse of the Real - the simultaneous existence of mutually inconsistent concepts
each
sexuated
two
The
positions require
is one way of describing Lacan's conception of sexuality.
other in that the existence of the one creates the necessity of the other, yet they cannot exist simultaneously. See Schroeder, The Eumenides, supra note 87.
113
I998]
5I9
ond best."'"14 A fundamental concept of classical economics - and one

of Coase's primary points"15- is that if one has a market with numerous imperfections, then one cannot assume a priori that the correction of any one imperfection in the market will move one any closer to
achieving the perfect market. In other words, even if one were to accept (as I do not) that the perfect market is only an asymptote, which
one approaches but never reaches, the theory of the second best states
that if one cannot remove all imperfections, then one can never predict
as a logical matter what one can do to get closer to that goal. To restate this, one cannot deduce which alternative is second best from a
hypothesized first best one."16
What one can do is to make empirical studies of the practical effects of certain changes in certain contexts under certain conditions,
and then make pragmatic, contextualized, and contingent recommendations. This is an economic corollary to Hegel's fundamental principle that whether or not philosophical logic can generate abstract, generalized principles, it cannot be used to make day to day pragmatic
decisions or to legislate specific positive law. This is not to say that
many economists have not heard Coase's call to engage in such empirical research and pragmatic reasoning. Rather, my point is that
such a pragmatic approach, while not unknown, is still relatively unusual in legal scholarship.
Let us proceed to the literature. The usual way the perfect market
is described, in good Hegelian-Lacanian fashion, is by reference to
what it is not."7 Consequently, in this Commentary, I develop a definition of the perfect market by identifying what it lacks. By defini-
114 See R.G. Lipsey & R.K. Lancaster, The General Theory of Second Best, 24 REV. ECON.
For an excellent introduction to the general theory of the second
(I956-i957).
STUD. II, II-I2
best and its implications for law and economics, see Richard S. Markovits, Second-Best Theory
and Law & Economics: An Introduction, 73 CHI.-KENT L. REV.3 (i998).
115 As far as I know, Coase does not use Lipsey and Lancaster's "second best" terminology (apparently coined in their article published four years earlier than The Problem of Social Cost), but
his proposition is consistent with their theory. See infra pp. 522-23.
116 Although there are many discussions of the theory of the second best in law reviews, they
tend to be put forth by critics, not practitioners, of standard law and economics. See, e.g., David
Gray Carlson, On the Efficiency of Secured Lending, 8o VA. L. REV. 2I79, 2I83-85 (I994); Richard S. Markovits, Monopoly and Allocative Inefficiency of First-Best-Allocatively-Efficient Tort
Law in Our Worse-than-Second-Best World:The Whys and Some Therefores, 46 CASE W. RES. L.
REV. 3I3, 3 I7-I9 (I996); Richard S. Markovits, Second-Best Theory and the Standard Analysis of
Monopoly Rent Seeking: A Generalizable Critique, a "Sociological" Account, and Some Illustrative Stories, 78 IowA L. REV. 327, 355-56 (I993); Symposium, Second-Best Theory and Law &
Economics, 73 CHI.-KENT L. REV. I (i998).
117 For example, in their classic economics textbook, Paul Samuelson and William Nordhaus
call the conditions that prevent a market from achieving perfection "market failure," defined as
"[a]n imperfection in a price system that prevents an efficient allocation of resources."
SAMUELSON & NORDHAUS, supra note io8, at 756. They state that importantat examples are
externalities and imperfect competition." Id.
520
HARVARD LAW REVIEW
[Vol.
II2:483
tion, the perfect market lacks imperfections, and economic imperfections are called "transaction costs."
B. Perfect Competition
Let me make a brief aside before turning to an analysis of transaction costs: it is often assumed that a perfect market is characterized by
perfect competition. I will not include perfect competition as a necessary component of the perfect market for a number of reasons.
First, competition is only a means to achieve the end of a perfect
market. Classical price theory posits that perfect competition will lead
to the efficient pricing necessary for a perfect market.118 It does not
follow from this argument that perfect competition is the only possible
means to this end. Coase himself argues that markets (and, therefore,
the subset of perfectly competitive markets) are only one of a variety
of institutions that a society could develop in order to reduce transaction costs; another institution is the firm."19 Which alternative is superior depends on the specific fact situation. Indeed, Stigler goes further
than Coase to suggest that "it was unfortunate that a perfect market
was made a subsidiary characteristic of competition" and that "in realistic cases a perfect market may be more likely to exist under monopoly, since complete knowledge is easier to achieve under monopoly. 120
Second, once efficiency is reached, the distinction between many

market participants and one participant - between competitive markets and monopoly - disappears. All participants lose individuality
so that no one has market power.12'
Finally, and most importantly, it is the fundamental thesis of this
Commentary that if the perfect efficiency of the perfect market were to
118 As I discuss below, a perfect market requires a specific pricing structure that makes all consumers and producers indifferent among all commodities in the marketplace. See infra p. 547.
Consequently, if one examines Samuelson and Nordhaus's definition more closely, one can see
that they see imperfect competition merely as a factor that can lead to imperfect pricing, which
& NORDHAUS, supra
will in turn lead to an inefficient allocation of resources. See SAMUELSON
note io8, at 272.
119 See R.H. COASE,THE FIRM,
THEMARKET,ANDTHELAW5-IO (i988).
120 STIGLER, supra note 103, at 262. As Stigler notes, it is wrong to think that the only efficient
markets are those with unlimited numbers of participants and perfect competition:
The merging of the concepts of competition and the market was unfortunate, for each
deserved a full and separate treatment. A market is an institution for the consummation of transactions. It performs this function efficiently when every buyer who will
pay more than the minimum realized price for any class of commodities succeeds in
buying the commodity, and every seller who will sell for less than the maximum realized price succeeds in selling the commodity. A market performs these tasks more efficiently if the commodities are well specified and if buyers and sellers are fully informed
of their properties and prices. Possibly also a perfect market allows buyers and sellers
to act on different expectations of future prices. A market may be perfect and monopolistic or imperfect and competitive.
Id. at 245.
121 See infra pp. 534, 548, 55 I-55.
I998]
52I
be achieved, all actual markets - and, therefore,all competitionwould come to an end. As Coase himself has stated:"Marketsare institutionsthat exist to facilitateexchange,that is, they exist in orderto
reducethe cost of carryingout exchangetransactions. In an economic
theory which assumes that transactioncosts are nonexistent,markets
have no functionto perform.... 1122
C. The Coase Theorem
The conceptof transactioncosts, as discussedin the law review literature,purportsto derive primarilyfrom the Coase Theorem. Ironically, however, the oft-misinterpretedCoase123 is one of the few
economistswho has come close to internalizingthe psychoanalyticand
philosophicimplicationsof the perfectmarketideal.
The Definition of Economic Costs. - It has often been noted
I.
that Coase did not expressly set forth his famous theorem in The
Problem of Social Cost,124but merely alluded to it indirectly. I would
go further. I believe that, in context, Coase's allusion to what has become known in legal literature as the Coase Theorem was only a relatively minor corollary of his larger, actual theorem.
First and foremost, Coase was not, as is usually thought, making
any claim about the contours of a hypothetical world in which transaction costs were eliminated. Coase was instead trying to develop a new
paradigm for defining and identifying economic costs in actual mar-
kets.
It is in this context that he throws out in passing what is frequently
called the "Coase Theorem": in a perfect world without transaction
costs, it does not matter how the law allocates entitlements because
people will always contract to reallocate entitlements in an economically efficient manner. But this is not, as is so frequently thought, a
hypothesis about what would happen if certain identifiable costs were
122 COASE,supra note I I 9, at 7-8. Stigler impliedly agrees. As he restates the Coase Theorem,
"under perfect competition private and social costs will be equal." GEORGEJ. STIGLER,THE
THEORYOF PRICEII3 (3d ed. i966), quoted in COASE,supra note ii9, at I58. But Stigler also
asserts that in a world of zero transaction costs, "monopolies would be induced to 'act like competitors."' COASE,supra note ii9, at I58 (quoting George J. Stigler, The Law and Economics of
Public Policy: A Plea to the Scholars, I J. LEGALSTUD. I, I2 (I972)). Consequently, as Coase
realizes, Stigler's proposition should be reduced to "with zero transaction costs, private and social
costs will be equal." Id. To put this in another way, in the perfect market all prices are set so that
all parties are price takers.
123 In a recent article, Daniel Farber argues that Coase has been misunderstood and that Coase
presented "what became known as the Coase Theorem almost as a kind of parody of reductionist
theory." Daniel A. Farber, Parody Lost/Pragmatism Regained: The Ironic History of the Coase
Theorem, 83 VA. L. REV. 397, 398 (I997). I agree. Farber alleges, however, that "despite the fact
that his message was misunderstood, the article sparked a debate that ultimately helped foster the
kind of pragmatist scholarship he actually advocated in law and economics." Id. As shall become
clear, not only do I disagree with this statement, but I also believe that Farber himself does not
fully internalize many of Coase's most important points.
124 R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. I (i960).
5 22
HARVARD LAW REVIEW
[Vol. 11 2:483
eliminated or reduced. Rather, it is an assertion that the conditions of

a perfect market are impossible.125 As Coase states, "[T]he whole discussion [of ideal worlds] is largely irrelevant for questions of economic
policy since whatever we may have in mind as our ideal world, it is
clear that we have not yet discovered how to get to it from where we
are."'126Because of the theory of the second best, it is not adequate for
economists to propose policies to reduce specific costs: if we cannot
eliminate all imperfections, we cannot predict a priori whether the
elimination of any one cost will have a positive or negative effect. As
Coase writes, "[I]n choosing between social arrangements within the
context of which individual decisions are made, we have to bear in
mind that a change in the existing system which will lead to an improvement in some decisions may well lead to a worsening of others."'127 Coase is asserting that because transaction costs always exist,
economists should concentrate on the actual world of costs, not a hypothetical perfect, costless world. 128 This requires that economics
adopt an appropriate definition of costs. In Coase's words:
A better approach would seem to be to start our analysis with a situation
approximatingthat which actually exists, to examine the effects of a proposed policy change and to attempt to decide whether the new situation
would be, in total, better or worse than the original one. In this way, conclusions for policy would have some relevanceto the actual situation.'29
To put it more strongly, Coase thinks that mainstream economists

were mystics. The economists' dream of a perfect world is a vision of
125 As I show, the perfect market is impossible by definition. Most thoughtful economists realize that there can be no perfect markets in the actual world. They argue that it nevertheless
serves as a useful ideal model that acts as a starting point for analysis. For example, the perfect
market is sometimes metaphorically described as a world without friction. See, e.g., Calabresi &
Melamed, supra note I05, at I095. As they suggest, the fact that friction cannot be eliminated
entirely in the actual world does not prevent the laws of mechanics - which posit such a frictionless world - from being "true"or useful.
As I discuss in this section, Coase disputes the policy implications that he believes economists
have drawn from this analogy. More precisely, a Coasean analysis shows that the physics (fricThe differences between the actual world
tion) metaphor is misleading. See supra pp. 5I7-I9.
and the ideal posited by the laws of physics are empirical and quantitative. An engineer can
cause an object to move in a way closer to that predicted by the laws of motion by reducing a
source of friction. This "improvement"is not merely measurable, it is predictable. Law and economics scholars make a logical error if they assume from an analogy to physics that if they minimize one transaction cost, the economy will act more like the theoretically impossible ideal of the
perfect market, because different transaction costs might counterbalance each other. For example,
as discussed below, at pages 542-43, although some think of strategic behavior as a transaction
cost, it can also be seen as an appropriate reaction to the existence of other transaction costs,
namely imperfect information and/or multiple parties. Thus, eliminating or lessening one transaction cost without simultaneously addressing others might in fact result in even more inefficient
activity. This is another way of restating the theory of the second best.
126 Coase, supra note I24, at 43.
127 Id. at 44.
129 Coase, supra note I24, at 43.
i998]
523
Heaven. There can be no Heavenly economics because in Heaven, all

our desires are always already fulfilled. Economists are wrong in assuming that they can learn about the sublunar world by studying the
celestial. In Coase's view, virtually all economics has been a failure
precisely because it has failed to get down to earth and study actual
markets characterized by actual costs and actual choices.130
To repeat this point in Lacanian terminology, the perfect market
(where all desires are fulfilled) is in the order of the Real. Actual markets are creatures of law and communication and, therefore, are located in the flawed, incomplete, artificial realm of the Symbolic. Symbolic markets function because they are walled off from the Real by a
barrier that Lacan called "Castration." Coase proposes that we think
of costs as whatever keeps actual markets from being perfect markets.
"Transaction costs" to Coase are, therefore, the analogue to the psychoanalytic concept of Castration. Despite the fact that (or, more accurately, because) Castration makes the Real and the Symbolic structurally incompatible, we are unsatisfied by the Symbolic and we desire
the Real. It is this very gap, this desire, which serves as the engine
that makes actual markets function. Nevertheless, we vainly attempt
the impossible task of bridging this gap with fantasy images generated
in the Imaginary.
Similarly, when law and economics scholars purport to deduce
something about actual markets by analyzing ideal ones, they are engaged in the Imaginary act of fantasy. This is why, despite Coase's
express language to the contrary, many law and economics advocates
persist in purporting to study the "world of zero transaction costs, to
which the Coase Theorem [supposedly] applies" even though it is "remote from the real world." 131 In a stinging reproach to this branch of
the law and economics movement, Coase suggests: "The reason for this
movement of economists into neighboring fields is certainly not that
we have solved the problems of the economic system; it would perhaps
be more plausible to argue that economists are looking for fields in
which they can have some success."'132
2. The Paradigms of Cost. - In The Problem of Social Cost, Coase
was critiquing the Pigouvian tax. In context, however, it is clear that
130 I do not doubt that Coase's complaint was an exaggeration even at the time it was written.
I would note, however, that whether or not economists in academia, government, and business are
doing more of the type of empirical work Coase suggested they do, it is my judgment that the vast
majority of legal academics who invoke economic theory continue to rely on the type of speculative armchair arguments Coase criticizes.
131 COASE, supra note i I 9, at I 5.
132 Ronald H. Coase, Economics and Contiguous Disciplines, 7 J. LEGAL STUD. 20I, 203
(I978). I suggest (as Robert Ellickson has pointed out before me, see infra note 262) that one reason some law and economics scholars misinterpret Coase may be that Coase himself does not always have the fortitude to heed his own warning and postpone his desire. He frequently falls off
the wagon, enters the Imaginary, and tries to describe the unknowable perfect market.
524
HARVARD LAW REVIEW
[Vol.
I I2:483
Coase intended this tax as but one example of the dominant paradigm
of costs.
Pigou analyzed pollution and other "externalities"as the failure of
producers to internalize all costs of production, a failure which results
in misallocation of resources. He proposed that the government could
force producers to internalize costs by taxing them in an amount equal
to the costs otherwise imposed on third parties.133
Coase thought that Pigou's reasoning was faulty because Pigou,
like most economists, had unwittingly adopted an implicit natural law
view of costs and causation. This view conflates the legal status quo
with economic reality. Pigou's implicit assumption that a person who
suffered the change in the status quo also incurred an economic cost
led to the unwarranted conclusion that the party who made the change
in the status quo caused an economic loss.'34
For example, if one were to start from the assumption that a consumer has a property right in the clean water in the well on her property, then, if the neighboring producer were to pour pollutants into the
aquifer, the producer would be interfering with the consumer's property rights. In effect, the Pigouvian position implicitly (though probably unconsciously) assumes from the fact that the consumer suffered a
legal harm (interference with a property right) that society thereby incurred an economic cost. Moreover, this position implicitly assumes
that because the producer interfered with the consumer's right as a
matter of law, the producer was the sole cause of an economic loss experienced by the consumer.
Coase, in contrast, rejects the existing paradigm of costs with its
implicit natural law jurisprudence. Coase's paradigm can be seen as a
radical positivist view of law with an implicit Hohfeldian turn.
Hohfeld is the most eloquent exponent of the position that all legal
rights can be understood only in terms of relationships between and
among legal subjects.135 Similarly, Coase thinks that costs can be unSee Coase, supra note I24, at i.
In Coase's words:
The traditional approach has tended to obscure the nature of the choice that has to be
made. The question is commonly thought of as one in which A inflicts harm on B and
what has to be decided is: how should we restrain A? But this is wrong. We are dealing
with a problem of reciprocal nature.
Id. at 2. He continues: "Judges have to decide on legal liability but this should not confuse
economists about the nature of the economic problem involved." Id. at I3. Further, he suggests:
"[M]any of the factors on which [a legal] decision turns are, to an economist, irrelevant. Because
of this, situations which are, from an economic point of view, identical, will be treated quite differently by the courts." Id. at I5.
For simplicity, I am assuming a two-party transaction in a two-party world. Although I have
elsewhere sharply criticized this approach, see Schroeder, Three'sa Crowd, supra note 22, I believe
that it is sufficient for the very limited purpose of introducing the Coasean analysis, which is implicitly binary.
135 See generally HOHFELD, supra note 6i (arguing for a categorical system of legal rights). As
I have written extensively elsewhere, see Schroeder, Chix, supra note 22 (comparing Hohfeld's
133
134
i998]
derstood only relationally -
525
or, in his language, that costs are always
reciprocal.136
From a legal viewpoint, I can suffer a legally cognizable loss only if
there is a change in the status quo - that is, interference with a preexisting legal right or imposition of a new legal obligation.'37 But according to Coase, because all rights and obligations are interrelational,
both parties are always the but-for causes of all losses. That is, when
a producer pours pollutants into a consumer's water supply, the consumer's assertion of the right to drink clean water is as much a but-for
cause of any "loss" by the consumer as is the producer's pollution of
the water.138 A legal decision in favor of the consumer is precisely a
decision about how we will assign legal (or Symbolic) causality, not
natural (or Real) causality.139 Consequently, Coase himself eschews the
term "externalities"because it begs the question, presupposing the soconcept of the intersubjectivity of legal relationships to similar concepts in Blackstone's Commentaries), this idea is hardly unique to Hohfeld. Nevertheless, he so convincingly illustrated it in his
magisterial theory of jural correlatives and opposites that the recognition of the relational nature
of legal rights is justifiably tied to his name.
136 Both Coase's proponents and opponents have misinterpreted Coase's insistence on the reciprocity of costs as asserting that all economic entitlements are equal and mirror images of one
another. See Schroeder, Three's a Crowd, supra note 22. For example, Calabresi and Melamed's
famous property-liability-inalienability trichotomy of pollution remedies concludes, from a
Coasean analysis, that in my hypothetical there is a single legal entitlement (the right to use the
water either by keeping it clean or polluting it), which can be allocated to either the producer or
the consumer. See Calabresi & Melamed, supra note I05, at i089-92.
In contrast, Richard Epstein, a libertarian, objects to Coasean analysis precisely because he thinks Coase equates the
polluter's idiosyncratic desire to produce widgets with the consumer's legitimate (natural law)
right of property in her land (and water). See Richard A. Epstein, A Clear View of The Cathedral:
The Dominance of Property Rules, io6 YALE L.J. 209I, 2 I03-05 (I997).
137 For simplicity, in this Commentary, I am not using the term "right" in the narrow
Hohfeldian sense. Rather, for lack of a more convenient term, I am using it as a catchall for any
or all of the four Hohfeldian desirables. I am using the term "obligation"as a catchall for any or
all of the four Hohfeldian undesirables.
138 For example, Coase asserts:
The answer seems fairly clear. The smoke nuisance was caused both by the man who built
the wall and by the man who lit the fires. Given the fires, there would have been no
smoke nuisance without the wall; given the wall, there would have been no smoke nuisance without the fires. Eliminate the wall or the fires and the smoke nuisance would disappear.
Coase, supra note I24, at I3. Coase does not use the specific example of water pollution, and instead draws his illustration from a number of English common law cases. I explicate the
Coasean-inspired water pollution example in Three's a Crowd. See Schroeder, Three's a Crowd,
supra note 2 2.
139 Even some of Coase's admirers miss this point. For example, Farber states that whereas
Pigou thinks that "cost allocations should track physical causation," Coase thinks that we should
"design institutions that will maximize the overall well-being of society." Farber, supra note 123,
at 420. But, as we have seen, Coase denies precisely the naturalness of Pigou's causation assumptions. That is, although Pigou (as well as Farber) assumes that the Pigouvian notion of causality
follows nature, Coase's analysis reveals that, in fact, Pigou's concept of cause does not follow
physicality, but legal rules - causality is not Real, but Symbolic. From a physical viewpoint, the
consumer who wants to drink water is every bit as much of a but-for cause of the harm caused
when water is polluted as is the producer of widgets.
HARVARD LAW REVIEW
5 26
[Vol.
12:483
lution to the economic problem that should be explored - that is, because it assumes a specific causal relationship and allocation of entitlements and liabilities. Coase prefers instead the more neutral term,
"harmful effects."''40
Thus, under the traditional paradigm, economists uncritically (and,
no doubt, unconsciously) imported a definition of costs from law.
Economics, however, should adopt its own paradigm of costs. Economics, according to Coase, is concerned with the goal of efficiency in
the sense of maximizing the value of production as measured by the
market. 4' Law, in contradistinction, may have other goals. Indeed,
Coase suggests that welfare economics itself may appropriately consider other criteria, which Coase refers to generally as "aesthetics and
morals."''42 If the law tries to assign rights and obligations in accordance with the goals of law (whatever they may be), there is no reason
to think that legal costs and causality (which are dependent on the legal status quo) will be identical to economic costs and causality.143
Economists must, therefore, develop their own concept of costs and
causality which serves economic goals."44 In Lacanian terms, the fact
that law and markets are both located in the Symbolic does not mean
that they are the same. Legal losses, therefore, are not necessarily the
same as economic costs.
Consequently, Coase chided his fellow economists for ignoring the
significance of legal rules. Like true believers in natural law, economists implicitly assumed the existence of a pre-given law without realizing that laws are freely chosen by society. In the actual world in
which we live, Coase argued, the choice of legal rules which assign legal entitlements is not merely significant, it can be outcome determinative, because it is costly to change the initial allocation of rights.145 It
140 COASE,supra note ii9, at 26-2 7; see Stewart Schwab, Coase Defends Coase: Why Lawyers
Listen and Economists Do Not, 87 MICH.L. REV. 1171, II84-85 nf.37 (1989).
141 See Coase, supra note I24, at 43.
142 Id.
143 In Coase's words:
The reasoning employed by the courts in determining legal rights will often seem strange
to an economist because many of the factors on which the decision turns are, to an economist, irrelevant. Because of this, situations which are, from an economic point of view,
identical will be treated quite differently by the courts. The economic problem in all cases
of harmful effects is how to maximise the value of production.... But it has to be remembered that the immediate question faced by the courts is not what shall be done by whom
but who has the legal right to do what.
Id. at 15.
law)
144 Interestingly, Stigler seems to believe that lawyers agree that the goal of economics (like
should be justice, while economists no longer purport to know what society's goals should be. See
Stigler, supra note I22, at 2. I find Stigler's contention ironic, because I have always thought that
one reason law and economics seems so attractive is precisely because many law professors find
the goals of our own discipline to be controversial and assume that economics can provide greater
certainty.
145 Coase writes:
i998]
527
is at this juncture of the argument that Coase throws out the statement
which would later be known as the Coase Theorem:
It is always possible to modify by transactionson the market the initial legal delimitation of rights. And, of course, if such market transactions are
costless, such a rearrangementof rights will always take place if it would
lead to an increase in the value of production.'46
Only in a perfect world, where there are no costs to changing legal entitlements, is the initial allocation of legal entitlements irrelevant. As
Coase enthusiast Calabresi puts it: "[I]f one assumes rationality, no
transaction costs, and no legal impediments to bargaining, all misallocations of resources would be fully cured in the market by bargains."'47
3. Theorems and Paradigms. - Many law and economics scholars

try to deny the tautologous nature of Coase's definition of transaction
costs.'48 Daniel Farber goes so far as to assert that Coase would not
have received a Nobel Prize for suggesting a mere truism.149 Consequently, he argues that the term "transaction costs" should be interpreted as "measurable costs of entering into transactions."'150 Of
course, as Coase offers no statistical or experimental evidence to support any statement about any specific "measurable cost," Farber is
In these conditions [that is, when transaction costs exist] the initial delimitation of legal
rights does have an effect on the efficiency with which the economic system operates. One
arrangement of rights may bring about a greater value of production than any other. But
unless this is the arrangement of rights established by the legal system, the costs of reaching the same result by altering and combining rights through the market may be so great
that this optimal arrangement of rights, and the greater value of production which it
would bring, may never be achieved.
Coase, supra note I24, at i6.
146 Id. at I .
147 Guido Calabresi, Transaction Costs, Resource Allocation and Liability Rules A Comment,
iI J.L. & EcoN. 67, 68 (i968).
148 For example, Daniel Farber states that "[t]he best interpretation of Coase, then, would seem
to be that a 'transaction cost' is something more than a label for failure to reach a bargain." Farber, supra note I23, at 405. Farber critiques this as an "abstract definition," and rejects an "unbounded ('anything that prevents a bargain')" definition of transaction costs. Id.
Robert Cooter tries to make the following distinction between a tautology and a theorem:
A tautology is true by virtue of the definition of words. A theorem is true by virtue of its
deduction from the assumptions of a theory. Tautologies are based upon linguistic conventions and theorems are based upon theoretical assumptions. The power of Coase's Theorem is explained by the fact that it is treated as if it were an economic theorem, that is, a
proposition deduced from standard economic assumptions.
Robert Cooter, The Cost of Coase, ii J. LEGALSTUD. I, I4 (i982). From this Cooter draws the
non sequitur that in order to treat the Coasean observation as a "theorem"one must read it as an
empirical prediction - that is, as the hypothesis that under certain identifiable empirical conditions legal rules can be shown to be irrelevant to efficiency. See id. at I4-I5. We should therefore
be able to test this hypothesis through falsification by identifying a test case in which these conditions exist and then determining whether or not the legal rules made a difference.
149 "On the tautologous interpretation, Coase's theory of the firm would reduce to: 'Market
transactions are used to structure production except when they aren't.' This is hardly the stuff of
which Nobel prizes are made." Farber, supra note I23, at 405.
150 Id.
528
HARVARD LAW RE VIEW
[Vol.
I I 2:483
suggesting, in effect, that the Nobel Committee awards prizes for unsupported empirical claims - surely a surprising view of scientific inquiry.
Perhaps the distinction I am making between "theorem"and "theory" can be made more clear by considering the definitions given in
the Oxford English Dictionary.'5' A theorem is defined as "[a] universal or general proposition or statement, not self-evident ... but demonstrable by argument (in the strict sense, by necessary reasoning); 'a
demonstrable theoretical judgment."1"52 In contrast, a theory is "[a]
scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena; a hypothesis that has been
confirmed or established by observation or experiment, and is propounded or accepted as accounting for the known facts; a statement of
what are held to be the general laws, principles, or causes of something
known or observed."'53 I argue that within these definitions the Coase
Theorem is a theorem, but not a theory. In other words, it is a logical
proposition, which can be shown to be necessarily true based on a
given set of definitions,154rather than an explanation to be established
empirically by reference to observation, experiment, knowledge or
other reference to facts.155 Under these definitions, all scientific theorems - as opposed to theories - are tautologies, in the sense that they
are necessarily true given the acceptance of both definitions and assumptions. In contrast, theories are hypotheses that need to be empirically tested. To say that theorems are tautologous is not, however,
to imply that they are empty.156
151 i8 THE OXFORD ENGLISH DICTIONARY (2d ed. i989). These terms each have a number of
different meanings. I am limiting myself to those that are directly relevant to my discussion.
152 Id. at 90I (emphasis added).
153 Id. at 902 (emphasis added). There are also broader definitions of "theory,"such as "a set of
theorems forming a connected system." Id. This does not affect my primary point that a theorem
should be thought of as a proposition that is logically, as opposed to empirically, true.
154 Consequently, in mathematics and physics, the term "theorem"refers to "a proposition embodying merely something to be proved," id. at 900, such as Fermat's Last Theorem. It is true
that mathematicians claim that Fermat's Last Theorem has recently been proven. But this does
not mean that someone found empirical evidence supporting this purely abstract proposition.
Rather, it means that a mathematician has shown how this theorem necessarily follows from the
laws of mathematics.
155 For example, in the passage quoted in note I48, Cooter offers a definition of a theorem
similar to mine (that is, a statement that is logically true), but then incorrectly assumes that theorems are falsifiable, which implies that they are established empirically, rather than logically. See
Cooter, supra note I48, at I4.
An extreme example of the mistreatment of the Coase Theorem as what I would call a "theory" is the attempt of Elizabeth Hoffman and Matthew Spitzer to "test" the theorem through
laboratory experiments. See Elizabeth Hoffman & Matthew L. Spitzer, Experimental Law and
Economics:An Introduction,85 COLUM. L. REV. 99i, I009-23 (i985); Elizabeth Hoffman & Matthew L. Spitzer, The Coase Theorem:Some Experimental Tests, 25 J.L. & ECON. 73 (i982).
156 Philosophers of science have long recognized that one can study the object world only from
a specific subjective perspective. For example, it is impossible to perceive the object world as a
whole. One must consciously choose what to look at and how to organize it. Consequently, even
I9981
529
This notion of theorems is similar to Kuhn's concept of a paradigm,157in that neither is itself empirically tested. Rather, both can be
used to generate a set of subsidiary hypotheses or theories that might
be tested.'58 Coase proposed a paradigm shift: a revolutionary new
way of defining the problem of the economics of costs. Arguably, it is
precisely this tautologous nature of Coase's theorem that deserved a
Nobel Prize.'59
Coase has famously claimed that his theories are rarely followed by
his fellow economists. Schwab suggests that the reason Coase is followed more by law professors than by economists is that lawyers are
used to examining and questioning the legal status quo. "Economists,
on the other hand, are more apt to take the initial distribution of rights
or entitlements as given and examine how parties will trade or respond
to them. 160
This, of course, is precisely Coase's critique. Most economists, who
tend to act like normal scientists, fail to grasp that Coase is engaging
Karl Popper, the arch-defender of the possibility of "objective" scientific knowledge, insisted that
all scientific investigation begins with an inevitable and necessarily subjective, irrational moment.
See KARL R. POPPER, THE LOGIC OF SCIENTIFIC DISCOVERY 31-32 (Karl R. Popper trans., 2d
ed. i968). To Popper, scientific objectivity is, more accurately, intersubjectivity - the consensus
of a self-selected elite community of scientists reached after the application of an agreed-on methodology. See id. at 44-48; see also Schroeder, Feminist Methodologies, supra note I5, at i6I-64
(discussing Popper's recognition of the necessarily subjective aspect of the scientific method, and
of the intersubjective nature of objectivity). Thomas Kuhn called Popper's concepts of perspectivity and intersubjectivity "paradigms." See KUHN, supra note I4, at 43-5 I.
157 See supra notes I4-15.
158 The falsification of any specific subsidiary hypothesis does not in and of itself necessarily
disprove the overarching theorem. Kuhn argues that one accepts or rejects a paradigm not because it is logically or empirically proven (which is impossible), but for "good reasons" - such as
"accuracy,scope, simplicity, fruitfulness, and the like." Thomas S. Kuhn, Reflections on My Critics, in CRITICISM AND THE GROWTH OF KNOWLEDGE, supra note IS, at 23I, 26i. Although
Popper considered himself an opponent of Kuhn, Kuhn himself believed that he was merely
bringing Popper's theory of "sophisticated" falsification to its logical conclusion. See id. at I4647. According to Lakatos's reading of Popper, the sophisticated scientist does not reject a
hypothesis merely because he observes seemingly inconsistent empirical evidence. Rather, he first
tries to develop alternate explanations or auxiliary hypotheses to account for the apparent
anomaly. See Lakatos, supra note I5, at ii9; Schroeder, Feminist Methodologies, supra note IS,
at I68-69.
159 Consequently, some of Coase's most enthusiastic supporters, such as Calabresi in his early
writings, admit that the Coase Theorem is a truism. "Far from being surprising, this statement is
tautological, at least if one accepts any of the various classic definitions of misallocation."
Calabresi, supra note I47, at 68.
Nevertheless, mostot discussions of the Coase Theorem do not treat it as an empty tautology;
rather, it is taken to suggest a definite approach to policy and legislation - use the law to lubricate private bargaining." Cooter, supra note I48, at I4.
Of course, this discussion of whether the Coase Theorem was deserving of the Nobel Prize is
not merely moot (he did win the prize, after all), it might also be inapt. The Nobel Committee
did not purport to bestow the prize on Coase for the Coase Theorem alone. Rather, it was
awarded for his entire body of work including, most importantly, his theory of the firm.
160 Schwab, supra note I40, at I i9i.
530
HARVARD LAW REVIEW
[Vol.
I I 2:483
in revolutionary science.'6' Unfortunately, despite Schwab's claims to

the contrary, most law and economics scholars have been similarly uncritical of the existing economic paradigm.'62
According to the new Coasean paradigm, economic costs should be
defined as "anything that prevents an economically efficient result."''63
This definition, in turn, allows us to identify an important subcategory
of economic costs that would eventually be named "transaction costs."
Transaction costs are whatever prevents a transaction that would have
resulted in an efficient reallocation of resources. This new paradigm
enabled economists and lawyers to recognize that things that impede
efficient transactions are just as much economic costs as, for instance,
costs of production, and are just as much in need of study. One unfortunate result of the identification of transaction costs, however, seems
to be that legal economists have become obsessed with transaction
costs to the exclusion of economic costs generally. Coase's startling insight allowed economists and legal scholars to identify a wide variety
of things as costs which were heretofore invisible - such as time,
asymmetric information, etc. Coase's point, however, is not that these
"transaction costs" are unique, but that they are just like any other
costs.
161 Indeed, Farber, Cooter, and the like shrink from the radicalism of Coase's proposal and try
to render him familiar to the safe and comfortable world of normal science. They would have
Coase merely propose a theory, or hypothesis, about the effects of a limited number of identifiable
actual costs without which markets would be perfect. Consequently, Farber is correct that Coase
thought that transaction costs are measurable. See Farber, supra note I23, at 405. He is wrong,
however, in assuming that this means that Coase was trying at this stage to identify definitively
those costs which do in fact hinder efficient bargains, let alone in proposing that we could ever
replicate in the actual world the ideal conditions of the Coase Theorem.
Robert Ellickson cleverly suggests why law and economics scholars who cite Coase persist in
studying cloud-cuckoo lands without transaction costs. "Transaction costs themselves ... help
explain why there has been little empirical work on transaction costs." Robert C. Ellickson, The
Casefor Coase and Against "Coaseanism",99 YALE L.J. 6ii, 6I3 (i989).
162 Although certain of his self-professed followers disagree, Coase does not conclude from his
theorem that society should seek to reduce transaction costs so that more misallocations of resources would be remedied and the economy would be made more efficient. Coase suggests that
we do not yet know enough about actual economic institutions to know in which cases the elimination or reduction of any one transaction cost would result in a net increase or decrease in efficiency. Nor does he suggest that society should reallocate entitlements in such a way as to mimic
the efficient allocation that would hypothetically result if transaction costs were eliminated. As
Calabresi suggests, "The resource allocation aim is to approximate, both closely and cheaply, the
result the market would bring about if bargaining actually were costless." Calabresi, supra note
I47, at 69. Rather, Coase suggests that because transaction costs can never be eliminated, the efficiency effect of changes in the legal regime is unknowable. "The answers to all these questions
[i.e., whether laissez faire or government intervention is to be preferred in an imperfect world] are
shrouded in mystery and every man is free to draw whatever conclusions he likes." Coase, supra
note 124, at 43. Consequently, economists have nothing to recommend to lawyers about allocations of legal rights because "problems of welfare economics must ultimately dissolve into a study
of aesthetics and morals." Id.
163 In Stigler's words, "Costs are the obstacles that cause us to fulfill less than our full desires
STIGLER, PRICE, supra note I07, at i iI.
....
1998]
531
D. Specific TransactionCosts
What are some examples of transaction costs? Undoubtedly, they
are infinite in number. Their serial elimination is, therefore, an infinite
progress that can never be completed, keeping us forever in the realm
of the Symbolic and outside the realm of the Real. I do not purport to
speculate about what transaction costs might be. Rather, in the following sections, I discuss some of the examples of transaction costs
that are most frequently identified in law and economics literature. I
take each of these costs to its logical extreme to demonstrate the paradoxes that would occur if they actually could be eliminated. Each
identified transaction cost possesses the peculiar property of generating
the perfect market by its own singular elimination. This property suggests there is but one abstract concept of the transaction cost, which
can be actualized in any number of concrete manifestations. In the
discussion that follows, I show that this single transaction cost is the
existence of mediation - that which makes perfect, immediate relations impossible. Transaction costs are, therefore, Castration in the
sense that they are the barrier that separates the Symbolic of actual
markets from the Real of perfect markets.164
164 Let me quickly dispose of a point that is beyond the limited scope of this Commentary before I continue to my major point. A transaction cost is something that stands in the way of the
completion of a transaction. Time, space, and even individuality itself would be included in this
litany. This conception of transaction costs can lead to logical paradoxes; it is conceivable that
something that would be a transaction cost in market transactions - for instance, time - is also
necessary for the enjoyment of the desired "good"to be acquired in the transaction. For example,
if one wishes to acquire more leisure, then one needs time in order to buy, and enjoy, the desired
object or activity (that is, one's activities with one's children - as reflected in the idiom "spending time" with one's family). When one uses the idiom "I wish I could buy more time," one's desire for "time" is, in fact, derivative in the sense that one only desires time as a means to some
other desired end. One does not desire time for its own sake. Human beings are finite creatures
located within time. No one can ever acquire more or less than twenty-four hours in every day
(although, one may make certain choices that affect one's life expectancy). Rather, one desires the
time necessary to engage in a desired activity. The commonly heard lament "I wish I had time for
myself" is similarly not an expression of the desire for the complex metaphysical concept of time.
It is shorthand for the desire to have the opportunity to choose to engage in pleasurable, voluntary
activities rather than the unpleasant dictates of one's job, family, or other responsibilities.
I believe that this interesting paradox has not received much scholarly attention because, like
us all, economists tend to resort to what I call the physical or "masculine"metaphor for property.
Using this metaphor encourages the tendency to concentrate on possession and alienation through
exchange - the two psychoanalytically masculine elements of property - and to repress enjoyment (that is, use), the feminine element. This metaphor also implicitly presumes that the archetypical object of property is a tangible thing, which is possessed by seeing it and holding it in
one's hand, and which is exchanged through surrender of immediate physical custody. Other
types of property interests in other types of objects are analyzed through analogies to this archetype. For example, if the archetypical sales contract is for the acquisition of a custodial interest in
a widget, then time seems only like a cost - it is the lag between the formation of the desire to
possess a widget and the satisfaction of that desire through market exchange. If one concentrates,
however, on enjoyment (or on other intangible concepts), then the status of time is more ambiguous because time is a cost insofar as it postpones satisfaction, but enjoyment itself requires time.
Moreover, the relationship of time and enjoyment is an extremely difficult issue to address psy-
HAR VARD LA W RE VIE W
532
[Vol.
I I 2:483
Information. - Most scholars recognize that "the concept of

'perfect' information - meaning free, complete, instantaneous, and
universally available - [is] one of the defining features of the perfect
market."''65 Indeed, one can argue that most of the specific examples
of empirical "transaction costs" identified by Coase in The Problem of
Social Cost can be seen as subsets of the more general category of information costs.166
i.
choanalytically because at the moment of true enjoyment (jouissance) one merges with one's experience and, therefore, loses one's individuality and - as the word "ecstasy" indicates - "stands
outside" of time. I discuss related analytical problems caused by the masculine metaphor for
property extensively in The Vestal and the Fasces, Chix, and Three's a Crowd. See SCHROEDER,
THE VESTALANDTHE FASCES,supra note 3, at I07-228; Schroeder, Chix, supra note 22; Schroeder, Three'sa Crowd, supra note 22.
A related question is whether one can formulate a hypothetical universe in which time, space,
and individuality are eliminated from market transactions, yet retained in other aspects of society.
I do not discuss this question here for several reasons. First, this Commentary is limited to a consideration of markets, and does not address all aspects of society. Second, from a Hegelian viewpoint, as we have seen, the creation of the concrete individual and the actualization of freedom
require the development of subjectivity, and subjectivity is created through market relations. To
remove time, space, etc., from the market prevents the development of subjectivity which, in turn,
stands in the way of the actualization of freedom. Third, extreme law and economics scholars,
such as Posner, argue that market analysis can properly be applied to all human relations. Consequently, to remove time, space, etc., from the market is arguably to remove them from everywhere in society.
These interesting questions are beyond the scope of this Commentary. I believe, however, that
the exegesis of the literature on transaction costs that follows may aid in such an analysis in the
future.
165 James Boyle, A Theory of Law and Information: Copyright, Spleens, Blackmail, and Insider
Trading, 8o CAL.L. REV. I4I3, I443 (I992). Boyle calls the fact that the concept of perfect information in an ideal market is a tool invented for analysis of actual markets which are characterized, by definition, by imperfect information, a "basic theoretical aporia" of economic analysis.
Id. According to Stigler: "A perfect market is one characterized by perfect knowledge on the part
of the traders." STIGLER,PRICE,supra note 107, at 82. Ellickson believes that information costs
are the "broadest"category of transaction costs. See Ellickson, supra note i6i, at 615. Ayres and
Talley agree that privateae information is a particularly pernicious form of transaction cost" and
therefore propose legal structures that they believe would encourage parties to reveal information.
Ayres & Talley, supra note 105, at I030.
166 First, Coase mentions a market participant's need to identify other market participants. See
Coase, supra note I24, at I5. Second, the participant must inform others of her desire to deal and
id.
of her proposed terms - a matter of ensuring that others have the necessary information. See
an
Third, monitoring the performance of the contract, another cost identified by Coase, is also
the
of
one
that
attest
can
I
contract
a
lawyer,
as
id.
Fourth,
See
activity.
information-gathering
inforprimary reasons for another of Coase's costs, drawing up a written contract, also relates to
mation. See id. Parties negotiate extensive contracts partly in order to establish that both parties
understand the implications of the deal and have a true meeting of minds.
This last point is one that is frequently passed over in academic literature. For example, Elto
lickson recognizes that bargaining represents a form of information investigation, but he seems
Ellickson,
See
information.
that
generates
in
behavior
bargaining
strategic
think that it is only
forsupra note i6i, at 615-06. This is true, but it is only one aspect of the dynamics of contract
mation.
Ellickson identifies other types of information costs in addition to those specifically mentioned
need
by Coase. For example, if property is to be transferred in the proposed bargain, the parties
information about specifications, quality, and title. See id. at 6W6. If services or future obligations
as
are anticipated, the parties need information about their respective skills and trustworthiness,
998]
533
In order to develop a Coasean definition of perfect information, one

must keep in mind the definition of transaction costs. In a perfect
market, information is not merely perfect; it must also be complete and
symmetrical. 167 Each participant in the market must have perfect information not merely "about the market generally" but also about
"each party's position within it."1'68 That is, everyone must not only
know what everyone else knows but what everyone else is thinking as
well. 169
Viewed in this context, it becomes apparent that each party must
have perfect information not only about her own preferences, but also
about the preferences of every other market participant, in order to
preclude various forms of strategic behavior and moral hazard which
might otherwise impede an efficient bargain.170 As Herbert Hovenkamp has accurately stated, however, bluffing and similar "strategic
behavior [is] inconsistent with the assumption of perfect informa-
well as information about the legal regime that will govern the contract. Ellickson provides a
useful list of typical information costs. See id. at 6I5. With a little thought the reader can easily
add to this list.
167 That is, information asymmetries are defined as a transaction cost. See Ian Ayres & Eric
Talley, Distinguishing Between Consensual and Nonconsensual Advantages of Liability Rules, I05
YALEL.J. 235, 237 (I995); Eric Talley, Liability-Based Fee-Shifting Rules and Settlement Mechanisms Under Incomplete Information, 7I CHI.-KENT L. REV. 46I, 464 (I995); Elizabeth Warren,
Bankruptcy Policymaking in an Imperfect World,92 MICH.L. REV. 336, 379 (I993).
168 Warren, supra note i67, at 379.
169 Edith Stokey and Richard Zeckhauser state that the condition that "information in the
market must be fully shared" is the first of "the most crucial of the ideal conditions that guarantee
the efficiency of competitive markets." EDITH STOKEY& RICHARDZECKHAUSER,
A PRIMER
FOR POLICYANALYSIS
293 (0978). They describe this requirement as follows:
For the price system to perform its signaling function perfectly, information must be costlessly shared among all individuals, including information on the prices charged by various
suppliers. Uncertainties will of course remain. No one predicts the weather with complete
accuracy; no one knows for sure what technologies will be relied on in the next century.
But there can be no asymmetries in the availability of whatever information exists....
Obviously, perfection is rarely achieved. The critical issue will be how consequential the
asymmetries in information are.
The unhindered flow of information is essential to the market system to ensure that all
participants are trading the same goods.... In short, the free flow of information and the
ability of people to use it is essential if the trading of commodities on competitive markets
is to lead to an efficient outcome.
Id. at 298. As Cooter notes: "Perfect information requires not only the declaration of intentions, it
also requires the certification of their truthfulness. Certifying an intention is an act which destroys a player's freedom." Cooter, supra note I48, at 20 (citation omitted).
170 For example, as Cooter assumes that Coaseans posit:
The transaction costs of bargaining refer to the cost of communicating among the parties
(including the value of time used up in sending messages), making side payments (the cost
of the transaction, not the value of what is exchanged), and the cost of excluding people
from sharing in the benefits exchanged by the parties. In the case of contingent commodities, the cost of obtaining information on the actions of the players is also treated as a
transaction cost, so the inefficiencies from moral hazard and adverse selection are swept
under the blanket of transaction costs.
Cooter, supra note I48, at i6.
534
HARVARD LAW RE VIEW
[Vol.
11 2:483
tion."''1 That is, in the perfect market there is no room for strategy.
Thus, game theory is inapplicable in the perfect market.172 I shall return to the issue of strategic behavioral73
But I have not yet fully captured the Coasean ideal. As both Stigler and Calabresi have stated,174 the true Coasean definition of transaction costs is not the narrow one usually encountered in law and economics literature, but includes literally anything that keeps us from
our desire, including the fact that impossible desired events - such as
manna raining from heaven - do not occur. Our inability to predict
future events, such as the weather, natural disasters, the development
of new technologies or, most importantly, the day of our death, are
therefore information failures and transaction costs. The perfect market can only exist either if the future is perfectly predictable, or if there
is no future because there is no time.
As I discuss below,175such perfect information about ourselves and
others, and about the future and the past, breaks down all distinctions
among persons and eliminates the possibility of unforeseen acts. It is,
therefore, the destruction of subjectivity and freedom - the Real.
Time and Space. - One of the most surprising aspects of
2.
Coasean analysis is the identification of time and space as transaction
costs. These are rarely expressly discussed, but they are implicit in all
discussions of imperfection.176 I discuss them only briefly at this point
171 Herbert Hovenkamp, Marginal Utility and the Coase Theorem, 75 CORNELLL. REV. 783,
790 (I990).
172 As Cooter states: "The obstacles to cooperation are portrayed as the cost of communicating,
the time spent negotiating, the cost of enforcing agreements, etc. These obstacles can all be described as transaction costs of bargaining." Cooter, supra note I48, at I7. Game theory is designed to predict behavior when individuals face incomplete information and opportunities for
strategic behavior - as in actual markets. Consequently, game theory may be more consistent
with Coase's project than traditional price theory economics.
Few writers fully grasp the radical nature of the Coasean concept of
For example, Cooter tries to establish that the possibility
communication.
perfect information and
of strategic behavior disproves the Coase Theorem because it can prevent efficient bargains, despite the absence of transaction costs:
The error in the bargaining version of the Coase Theorem is to suppose that the obstacle to
cooperation is the cost of communicating, rather than the strategic nature of the situation.
Bargainers remain uncertain about what their opponents will do, not because it costs too
much to broadcast one's intentions, but because strategy requires that true intentions be
disguised.
Cooter, supra note 148, at 23.
175 See infra pp. 550-I.
176 Ellickson, for example, correctly notes that one important category of transaction costs is
what he calls "get-together costs," which are defined as "the burdens of arranging physical and
electronic connections among transacting parties. They include the costs of establishing lines of
communication, setting up meetings, and transporting parties and goods." Ellickson, supra note
i6i, at 6,5. But he does not follow through on this analysis, and fails to recognize the implication
that distance itself is a transaction cost. I should not be harsh on Ellickson, however, because a
complete explanation of the contours of zero-transaction costs would be inconsistent with his as-
i9981
535
because they relate more precisely to the unacknowledged necessary

but impossible implications of the perfect market ideal.
From an economic standpoint, one of the most important costs is
time itself. "[T]ime spent" is a "major factor"'77in price differentiation, which is, by definition, a market imperfection. The first thing
one learns in any finance course is the "time value of money" and the
corresponding "money value of time." A dollar tomorrow is worth less
than a dollar today. All delays in time must, therefore, be compensated. We call this the "discount rate" or "interest." Further, time is
one of the major costs of dealing with numerous people. It is more
time consuming to negotiate with many people than it is to negotiate
with one. Indeed, even identifying the people with whom one must
negotiate is time consuming.
Consequently, according to classical price theory, in the perfect
market all actions happen "instantaneously and simultaneously."'78
"Goods are instantly produced, distributed, and consumed.... [S]ales
do not occur sequentially.''79 In addition, "time is frozen in the form
of a rate of production.... Although a rate is supposed to subsume a
time, it effectively banishes it by sublating it into a fixed quantity."'80
These assumptions are required in order for the requirement of no
price dispersion (or no dispersion in the marginal utility to price ratio)
to apply. That is, time is a cost which must be included in the price of
a commodity.18'
To put this another way, markets exist in order to fulfill human desires, whether defined in terms of wealth, utility, or otherwise. Although capitalism may have allowed us to increase the amount of
many good things in the world, the one thing we will never be able to
change is time. "The welfare of people cannot be improved in a utopia
in which everyone's needs are fully satisfied, but the constant flow of
time makes such a utopia impossible."1182 The existence of time makes
it impossible to fulfill our desires. Both its limitations and its passage
make it impossible for to us have everything we want at the same
time. This is reflected in the hoary cliche, "you can't have your cake
sertion that Coase's point is that such an ideal world is impossible and should not be the focus of
economic analysis.
177 MICHAGISSER& PETERS. BARTH,BASICECONOMICS
4I (I970).
178 Carlson, supra note I07, at I893.
179 Id. at i892.
180 Id. at i893.
181 Stigler makes this argument. In the former Soviet Union, prices of basic commodities like
bread and meat were kept nominally low. As a result, excess demand occurred at the official
prices. Consequently, in order to buy these products, people were required to stand in long
queues or to pay higher prices in the black market. It is intuitively obvious that the real cost to
consumers cannot be reduced to the nominal price. Rather, "the cost of a good is its price plus the
value of the time spent in the queue." STIGLER,PRICE,supra note I07, at I03.
182 Gary S. Becker, Nobel Lecture: The Economic Way of Looking at Behavior, IOI J. OF POL.
ECON. 385, 386 (I993).
HARVARD LAW RE VIEW
536
[Vol.
I I2:483
and eat it too." As soon as we consume the object of desire, it is gone

and we desire it again. One can only continue to have one's cake after
it has been eaten in utopia, Heaven, Nirvana - the Real. Since the
Real is unity before and beyond all distinctions, there is no time in the
Real. When one is situated in the Symbolic, the fulfillment of desire,
like the Lacanian feminine, is always in the past or the future. One
can only fulfill one's desire by collapsing yesterday and tomorrow into
today.
Coase understood the temporal implications of perfect market assumptions. He noted that a "consequence of the assumption of zero
transaction costs, not usually noticed, is that, when there are no costs
of making transactions, it costs nothing to speed them up, so that eternity can be experienced in a split second."'183 Indeed, as Schwab
points out, "Coase's argument does not work in world with a time dimension."184
It follows from the fact that there is no time in the perfect market
that there can also be no space and no movement - or that if there is
space, movement is instantaneous. In the words of Frank Knight, the
perfect market assumes "complete absence of physical obstacles to the
making, execution, and changing of plans at will; that is, there must be
'perfect mobility' in all economic adjustments, no cost involved in
movements or changes."'185In the perfect market, all differences in geography must be done away with because distance not only entails
transportation costs, but also necessarily results in differentiation
among different producers and their products.186
Following Immanuel Kant,'87 the abolition of time and space from
the market is, once again, the abolition of human subjectivity, as well
as objectivity, from the market. The consumer merges with the commodity and the producer in the perfect market. No concept can be
distinguished from any other.188
183 COASE, supra note I I 9, at I 5.
184 Schwab, supra note 140, at i i8o. Schwab is correct that the existence of time can prevent
the efficient reallocation of resources but, in my reading, is incorrect in concluding that Coase's
argument "does not work" if there is time. In my reading, Coase is arguing that the initial allocation of resources is important because we can never eliminate all transaction costs. Consequently,
the existence of time as a transaction cost is completely consistent with Coase's argument.
185 FRANK H. KNIGHT, RISK, UNCERTAINTY AND PROFIT 77 (I92 I).
186 See GISSER & BARTH, supra note I77, at 40.
188 Once again, as discussed in note 164, I am not attempting to address the related, but distinct, question whether one can hypothesize a universe in which time and space are eliminated in
all market transactions as the perfect market demands and yet retain a concept of time and space
for the purposes of enjoying the results of market transactions. My intuition is that one cannot,
but I am still in the process of working this out. I tentatively suspect that this will prove to be yet
another example of the paradox Lacan identifies as the sexual impasse - the two sexes (like the
Symbolic and the Real) logically require each other, but are impossible to reconcile. The masculine position of possessing and exchanging the object of desire wishes to eliminate time, but is always trapped in time (that is, the Symbolic order). The Feminine position of being/enjoying the
998]
537
3. Irrationality. - A perfect market requires that all participants

be economically rational. Irrationality in market transactions is, therefore, a market imperfection, or transaction cost.189 One should not
caricature the rationality requirement as the simplistic proposition that
people act like the radically autonomous individuals of classical liberalism who care about nothing but their own narrow self-interest.190
Indeed, many proponents of classical economics claim that their concept of economic rationality assumes only "that individuals maximize
welfare as they conceive it, whether they be selfish, altruistic, loyal,
spiteful, or masochistic." This expansive concept of "self-interest"is so
highly stylized that it can encompass any conceivable behavior and,
therefore, is arguably of little (or no) predictive value, let alone normative purchase. Economic rationality is, therefore, not necessarily characterized by selfishness narrowly defined, but rather by the ability to
know what one wants and how to get it. Economically rational persons "are supposed to 'know what they want' and to seek it 'intelligently.' . . . They are supposed to know absolutely the consequence of
their acts when they are performed, and to perform them in the light
of the consequences."'191
object of desire needs time, but is always standing outside of time (exiled from the Symbolic order
in the Real).
189 I believe that one of the biggest obstacles to coherent discussions about economic rationality
is unfortunate terminology. Some common uses of "rationality"have strong positive connotations,
such as sanity. Others have arguably negative ones (depending on one's theoretical position), such
as "rigidly and coldly logical," or "resistant to intuition, spirituality and other non-logical sources
of knowledge."
Moreover, I believe that despite claims to the contrary, the term "rationality"is often used inconsistently by economists. On the one hand, some law and economics scholars, such as Posner,
claim to use rationality descriptively, to denote that people in the aggregate tend to act with
enough regularity so that law and economics can serve as a reasonably predictive model of behavior. See, e.g., POSNER, supra note io6, at i6; RICHARD A. POSNER, OVERCOMING LAW i5-I7
(I995).
In contrast, I believe that Coase's paradigm of transaction costs necessarily leads to an implicit
normative, rather than descriptive, definition of rationality. For Coase, "rationality"must be defined as whatever behavior market participants need to manifest in order to achieve the goal of
economic efficiency. Of course, by describing this as a normative definition I do not wish to imply
that Coase believes that people should always act in this way in all circumstances. Coase recognized that society may rightfully have other goals besides economic ones.
190 See Becker, supra note i82, at 386. Utility maximization arguably does not need such a narrow definition of rationality. We can posit that individuals have a "preference"for altruistic behavior, egalitarian income, or wealth distribution. See POSNER, supra note i89, at i6. Although
economic rationality within the utilitarian framework requires that man maximize his "selfinterest," self-interest is not necessarily synonymous with selfishness. See POSNER, supra note
io6, at 3-4. Similarly, in the words of Gary Becker, economics "does not assume that individuals
are motivated solely by selfishness or material gain. [Economics] is a method of analysis, not an
assumption about particular motivations." Becker, supra note i82, at 385. In other words, if
helping others makes one happy, one can maximize one's utility by acting unselfishly. Of course,
if watching other people suffer makes one happy, one can maximize one's utility by acting sadistically.
191 KNIGHT, supra note I 85, at 77.
538
HARVARD LAW REVIEW
[Vol. I I2:483
Stigler explains the three characteristics of an economically rational

person: "i. His tastes are consistent, 2. His cost calculations are correct, 3. He makes those decisions that maximize utility."'192 Consistency does not require that the participant have any principled criteria
for making choices.193 In this limited sense, economics believes that
there is no accounting for tastes. Consistency merely means preferences are well-ordered and transitive - if one prefers A to B and B to
C, then one will also prefer A over C.194 Critics of classical economics
question the empirical accuracy of this assumption.'95
192 STIGLER, PRICE, supra note I07, at 52.
My husband reports that he was once chided by a high school guidance counselor for not
taking a job aptitude test seriously on the grounds that his preferences did not meet her criteria
for consistency. Apparently when asked whether he would rather go to a baseball game or the
ballet, he chose baseball, but when asked whether he would rather go to a football game or the
opera he chose the opera. She was convinced that one must either prefer sports or classical music
and refused to accept the fact that my husband is a baseball fanatic who hates all other sports,
and an aficionado of most forms of classical music who just happens to be lukewarm toward ballet.
194 See STIGLER,PRICE,supra note I07, at 52.
195 First, Arrow's voting paradox shows that transitivity may not characterize group preferences. See KENNETH J. ARROW, SOCIAL CHOICE AND INDIVIDUAL VALUES 2-3 (2d ed. i963).
Second, even at the individual level, transitivity may not describe how people actually behave.
Third, and most importantly, transitivity assumes that people know what their preferences are
and that these preferences remain stable, at least in the short run. Economists believe that "behavior is forward-looking, and it is also assumed to be consistent over time." Becker, supra note
i82, at 386. The psychoanalytic theory of the unconscious, however, challenges the presumption
that people know their preferences or that they always act in their own self interest. People engaged in fashion, advertisement, and public relations base their professions on the hope that tastes
are relatively malleable.
Amartya Sen has discussed many problems with the economic theories of rational behavior,
choice, and revealed preferences. See AMARTYA SEN, CHOICE, WELFARE AND MEASUREMENT
(i982). For example, should economists consider it "rational"to include sympathy or antipathy or
commitment towards others in market decisionmaking? Should we deem it rational for one to
choose X over Y despite one's preference for Y over X because one believes that choosing X will
The answer might depend on
bestow a benefit or detriment on others? See id. at 7-8, 9I-92.
whether one is a wealth maximizer or a utility maximizer. For the latter, the subjective pleasure
in giving pleasure and pain to others has the same status as any other pleasure. However, this
expansive definition of utility comes close to defining all human activities as "rational." See infra
note i99. Another question is how the rationality requirement can reconcile a taste for variety
with the requirement for consistency. After all, we probably do not want to argue that if one prefers steak to fish, then it is irrational ever to choose to have fish for dinner. See SEN, supra, at 3.
Indeed, as Sen suggests, it is not even clear whether the economic rationality requirement is an
assumed axiom or a falsifiable hypothesis. "If today you were to poll economists of different
schools, you would almost certainly find the coexistence of beliefs (i) that the rational behaviour
theory is unfalsifiable, (ii) that it is falsifiable and so far unfalsified, and (ii) [sic] that it is falsifiable and indeed patently false." Id. at 9i.
In a seminal article, Stigler and Becker argue that despite the influence of fashion, advertising,
and the like, "tastes neither change capriciously nor differ importantly between people." George
J. Stigler & Gary S. Becker, De Gustibus Non Est Disputandum, 67 AM. ECON. REV. 76, 76
They propose that people's tastes are stable with respect to basic commodities, as opposed
(I977).
to specific objects. Such commodities include social status and style. According to this theory,
people are perfectly rational when they buy a new wardrobe every year and rely on professionals
(such as fashion editors) for information about the latest style. See id. at 83-89. Stigler and
193
998]
539
The combination of the rationality requirement with the perfect information requirement means that in a perfect market there is no
"false consciousness." In the perfect market, one can never say that a
participant should prefer A over B, or that she would if she only knew
better, because the perfect information requirement means that she always already knows her preferences and their consequences.
In Stigler's words, the requirement of correct cost calculations is
equivalent to a stipulation that consumers can do "proper arithmetic,"
and "is so obvious as to be vulgar."'196 Stigler notes, however, that despite this, it is a well known empirical fact that people are poor at
comparing costs that are not monetarized.197
Stigler's final requirement of "utility maximization" merely proposes that when given the choice of two "market baskets," the consumer will choose the one he prefers.198 People will choose to act in
such a way that is calculated to produce what they believe would be
good results, and to avoid actions which they believe would produce
bad results. Once again, there are reasons to doubt the empirical validity of this assumption. We observe people (including ourselves) doing stupid and self-destructive things all the time.199
Becker also argue that investments in human capital may alter one's taste (i.e., everyone starts
with the same inherent taste in classical music, but one's ability to enjoy classical music can be
Furthermore, following custom and
enhanced by exposure and education). See id. at 77-8i.
habit rather than one's personal inclination may be a rational decision to save the costs of investigation by relying on the collective experience of society. See id. at 8i-83. Arguably, the standard
of rationality hypothesized by Stigler and Becker is at such a high level of generality that it is of
questionable use.
Posner takes a different approach. He does not try to show that behavior that falls within the
colloquial understanding of irrationality is, in fact, rational. Posner must use this approach, because he is not a utilitarian who includes all measures of pleasure and pain in his calculus of rationality, but a wealth maximizer. He asserts that whether or not individuals are occasionally irrational from time to time, people in the aggregate are rational consistently enough to justify the
use of the rationality assumption when making predictions about the economy as a whole. See
POSNER,supra note i89, at i6-I7. One might challenge Posner's empirical assertion, however, as
unproven or intuitively unlikely.
196 STIGLER, PRICE, supra note I07, at 53.
197 Stigler cites a classic example of people who make weekly deposits in a non-interest-bearing
"Christmas Club" rather than buying an interest-bearing investment. See id. at 53-54. Explaining this example away by reference to individual "preferences"(i.e., the investor just has a "taste"
for Christmas Clubs) essentially does away with the rationality requirement by turning it into a
truism. See id. at 54.
198 Given a specific budget, the consumer will choose the market basket that lies on the highest
utility curve. See id. at 55. Obviously, this same concept can easily be translated into wealth
maximization criteria - given two alternatives, the consumer will choose the one that yields the
greater wealth or profit.
199 To explain this type of behavior in terms of economic rationality once again reduces utilitarianism to a truism. By definition, when the fool rushes in where angels fear to tread, it is because the fool has calculated, based on his own idiosyncratic utilities and whatever information is
available to him at the time, that the immediate pleasure he will experience by engaging in foolish
behavior will outweigh the discounted expected future pain of the consequences. This decision
can remain "rational"even if, after the fact, he recalculates and decides that the pain he is now
feeling outweighs the past pleasure. This hindsight is reflected in the common rueful statement
540
HARVARD LAW REVIEW
[Vol.
II2:483
Because rationality is required for the perfect market, irrationality

is a market imperfection, or a Coasean transaction cost, by definition.
Coleman argues that the Coase Theorem should be seen as a definition
of rational action.200 "To act rationally, then, is to promote allocative
efficiency [by, in the cases discussed by Coase,] ... put[ting] resources
to their profit-maximizing use."'201
In other words, the rationality requirement is equivalent to extending the perfect information requirement to include perfect knowledge of one's own psyche. There is, therefore, no unconscious and no
repressed desire in the perfect market. As we shall see, according to
psychoanalytic theory, the lack of an unconscious also means that there
"it seemed like a good idea at the time." Of course, critics argue that utilitarianism is a useless
philosophy precisely because it logically always dissolves into truism.
A few years on the bench has turned law and economics supporter Richard Posner into a selfproclaimed pragmatist. See POSNER,supra note i89, at I-29. He currently argues that rationality is pragmatism. See id. at i6. The rational or pragmatic person bases his decisions on the costs
to be incurred and the benefits to be reaped from alternative causes of action (which, of course, is
Stigler's definition of costs as foregone opportunities) and does not accept the sunk costs fallacy.
See id. Rational persons "respond to incentives - that if a person's surroundings change in such
a way that he could increase his satisfactions by altering his behavior, he will do so." POSNER,
supra note io6, at 4.
200 See Jules L. Coleman, Efficiency, Exchange, and Auction: Philosophic Aspects of the EconomicApproachto Law,68 CAL.L. REV. 22I, 225 (i98o).
201 Id. Paul Samuelson is one of the most forceful doubters of the empirical validity of the
Coase Theorem. I suggest, however, that Samuelson's disagreement with Coase might result from
an implicit but unrecognized difference in their respective definitions of rationality. Samuelson
believes that Coase has shown the conditions under which market participants could or might
reach an efficient bargain, but Coase has failed to show that they must do so. "Saying that there
is room for an efficient, cost-saving bargain does not mean that a deal will always be struck - as
the history of war, labor-management disputes, and the theory of games amply demonstrate."
& NORDHAUS,supra note io8, at 353. Samuelson bases his argument on empirical
SAMUELSON
observations that sometimes "one or both [market participants] is unwilling to discuss the possibility of making a mutually favorable movement for fear that the discussion may imperil the existing tolerable status quo." Id. at 25i. But this unwillingness means that the parties are acting
either irrationally or with imperfect knowledge (not understanding that the contract will benefit
them). Since these characteristics keep an efficient bargain from coming about, they are transaction costs by definition.
The disagreement between Samuelson and Coase might be explained by making explicit the
implicit and unacknowledged difference in the concepts of rationality adopted by wealth and
utility maximizers. Coase believes that the goal of economics is wealth maximization. See
COASE,supra note ii9, at I59 (providing Coase's response to Samuelson's critique); see supra p.
526. Samuelson, however, implicitly defines rationality in terms of utilitarian values. If the
pleasure of stubbornness or antipathy outweighs the anticipated bargaining gains, the rational
utility maximizer would choose stubbornness, although this choice would be irrational from a
wealth maximization perspective. Likewise, if the anticipated pain of bargaining outweighs the
expected pleasure of success, the rational utility maximizer will refuse the bargain that a rational
wealth maximizer would accept.
In other words, the Coase Theorem requires that one adopt a definition of rationality that
matches one's definition of efficiency. The problem with Samuelson's critique, therefore, is that
he applies a utilitarian definition of rationality, whereas Coase applies a wealth maximization
definition of efficiency. Samuelson is correct in arguing that acting in accordance with a utilitarian definition of rationality will not necessarily lead to wealth maximization, but incorrect in
thinking that the Coase Theorem posits this connection.
i998]
54I
is no consciousness or subjectivity either.202 Perfect rationality is the

Lacanian Real.203
4. Multiple Parties. - Another commonly identified category of
transaction costs relates to the existence of multiple parties who are affected by, and/or must be participants in, an economic transaction.204
Although the problem resulting from the existence of multiple persons
affected by a transaction is frequently placed in a special subset of
costs called "externalities," Coase himself rejects this characterization.205
Externalities - also called social costs or "neighborhood effects"are effects of economic behavior "upon people who were not parties to
an agreement."206 But Coase (like Hohfeld) argues that all legal rights
can be understood only in terms of other persons. Similarly, according
to Coase, all economic activity affects others. Consequently, as we
have seen, Coase thinks that it is pernicious to try to identify only
some costs as supra-relational (that is, externalities).207
The issue whether one party's economic behavior affects one, two,
or a large number of other persons is equivalent to that of how many
people must become parties to a transaction. Many commentators
emphasize that the costs of contracting increase with the number of
persons affected.208
Some of the costs associated with multiple parties are a subset of
the more general category of information costs. For example, as I have
discussed, identifying counterparties is an information cost that in202 See infra pp. 550-54.
In Lacanian terminology, economics assumes that the market participant is an "ego." The
ego exists in the Imaginary. See FINK, supra note i9, at 84. The ego, however, is only one part of
the psyche.
204 See, e.g., Ayres & Talley, supra note IO, at I029.
205 He states, "I never used the word 'externality' in 'The Problem of Social Cost' but spoke of
'harmful effects' without specifying whether decision-makers took them into account or not."
COASE,supra note I I 9, at 2 7.
206 STIGLER, PRICE,supra note I07, at 324. Coase states that the usual definition of an externality is "the effect of one person's decision on someone who is not a party to that decision."
COASE,supra note ii9, at 24.
In their classic textbook, Samuelson and Nordhaus formulate the definition slightly differently,
as "activities that affect others for better or worse, without those others paying or being compensated for the activity. Externalities exist when private costs or benefits do not equal social costs or
benefits." SAMUELSON & NORDHAUS, supra note io8, at 75i. This definition excludes external
effects that have been internalized (by payment or compensation), whereas the definitions suggested by Stigler and Coase do consider these to be externalities, albeit internalized ones. Nothing
in this Commentary depends on the difference between these two definitions, because according
to the Coase Theorem, if transaction costs were eliminated, then social costs would equal private
costs. See supra note I22. In other words, there would be no externalities according to Samuelson and Nordhaus's definition, or all externalities would be internalized, according to Stigler's.
203
207 See supra pp. 525-26.
208 "Decision costs are likely to be nontrivial ... when a transacting party is either a nonhierarchical group of two or more persons who must coordinate together or a hierarchical organization
with a multi-person decisionmaking structure." Ellickson, supra note i6i, at 6I5.
HARVARD LAW REVIEW
542
[Vol.
I I2:483
creases with the number of parties. It also presumably takes more

time to negotiate x separate contracts with x parties than it does to negotiate one contract with one party. But not all costs associated with
multiple parties are additive in nature, nor are they all information
costs. The large size of a class alone can present new opportunities for
strategic behavior. Coordination difficulties and collective action
problems enable individuals to become "holdouts"209 and "freeriders."210
In the perfect market, all actors act as one.211 The breakdown of

distinctions among persons and the achievement of immediate relationships are, once again, the destruction of subjectivity and the
achievement of the Real.
Robert Cooter has suggested that the
5. Strategic Behavior. possibility of strategic behavior disproves the Coase Theorem.212 This
is incorrect. Insofar as strategic behavior prevents efficient bargaining,
it falls within Coase's definition of transaction costs. The substantial
literature generated by Calabresi and Melamed's property-liabilityinalienability analysis of environmental nuisances treats strategic behavior accordingly.213 A better analysis, however, might be that strategic behavior should not be considered a separate category of transaction costs but should instead be recognized as the unfortunate result of,
or reaction to, other types of transaction costs we have already discussed.
209 See, e.g., A. MITCHELL POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS I8-20
in
(i989); James E. Krier & Stewart J. Schwab, Property Rules and Liability Rules: The Cathedral
(I
AnotherLight,70 N.Y.U.L. REV.440, 450 995).
(I985);
210 See, e.g., ALLEN BUCHANAN, ETHICS, EFFICIENCY, AND THE MARKET 22-23
Schwab,
&
Krier
at
note
&
I107;
I05,
Calabresi
supra
at
Melamed,
67;
note
supra
I47,
Calabresi,
supranote 209, at 450.
This is one area in which the law has in fact developed some devices that enable many parties to act "as one." Corporations and other forms of business organization are ways for many
investors to pool their economic resources. Indeed, in the law's treatment of a corporation as a
separate legal person, it literally collapses the separate shareholders into one personality for certain limited purposes. Coase's theory of the firm posits that a business organization serves as an
alternative to the transaction for the purpose of reducing market costs (for example, the coordination costs of dealing with multiple parties). Another example of legal coordination is class action
litigation, in which the claims of several litigants are represented by one characteristic class representative.
Both of these devices encompass at least a partial repression of the individuality and subjectivity of the many participants. In a public corporation, individual shareholders cannot usually
interfere with management, but must rely on their elected representatives. Similarly, class members cannot generally manage the litigation, but must rely on the class representative. In both
cases, the effective ability of the small participant to express her subjectivity is, with some exceptions, limited to her opportunity for exit (the ability to sell her stock, or opt out of a class). Other
forms of cooperative organization (such as partnerships and closed corporations) give more voice
or subjectivity to the participants, although at the expense of more coordination costs.
212 See Cooter, supra note 148, at I7-18.
213 See, e.g., Ayres & Talley, supra note I05, at 1029; Calabresi, supra note I47, at 67; Krier &
211
Schwab, supra note 209, at 448 n3o0.
998]
543
There are two basic categories of "strategic behavior." One relates

to imperfect, asymmetric information.214 Another relates to market
position, which is created by the existence of multiple parties. Examples of strategic behavior that result from informational failures include bluffing, underbidding, and threatening to leave the bargaining
table. Participants engage in these strategies to hide their own valuations, to force the other participants to reveal their valuations, or both.
Such strategies can be used only in those situations in which the parties have imperfect information.
In a world of imperfect information, these types of strategies are
economically rational. They are irrational, however, in a world of perfect information.215 For example, it would not make any sense to try
to bluff in a world in which other parties always have perfect information about your desires, because such strategies would always be futile.
To undertake such a necessarily futile strategy would also violate the
rationality requirement.
Other forms of strategic behavior, such as "holding out" and "freeriding," can only be partially solved by perfect information. A holdout
might still be able to use her strategic position to "extort" value even
under conditions of perfect information, because of the coordination
problems associated with the existence of multiple parties. Consequently, holding out and free-riding are dependent on coordination and
collective action problems stemming from the existence of multiple
parties.2 16
This suggests that strategic behavior would be eliminated if we

could create the condition of perfect information and eliminate the
practical effect of multiplicity by making many act as one, as discussed
above.217 Accordingly, some of the literature dealing with strategic
behavior implicitly seeks to limit individuality and differentiation by
fashioning devices intended to coerce market participants into certain
transactions or to incentivize them not to exercise their freedom but to
enter into efficient reallocations of resources.218 This repression of in214
See Ayres & Talley, supra note I05, at I03o; Talley, supra note i67, at 464.
See Hovenkamp, supra note I7I, at 790.
216 See Ayres & Talley, supra note I05, at I029.
217 See supra note 2 II.
218 This analysis concentrates on formulating legal regimes that would lessen opportunities for
holding out and free riding. Although some of these devices concentrate on the informational aspects of strategic problems, others involve ways to either eliminate the existence of holdout and
free-rider opportunities or to incentivize, coerce, or force holdouts and free-riders to enter into
bargains. As such, these proposals seek to limit either the differentiation among participants or
the subjective freedom of the participants in the market to act in their self-interest. See, e.g.,
Schroeder, Three's a Crowd, supra note 22. An example of a method that would reduce (but not
eliminate) the ability to act individually is the class action lawsuit. In addition, liability rules limit
autonomy because the original owner of an "entitlement" is entitled neither to retain her property
nor to receive her subjective valuation when it is taken from her. The takings power of the state
215
544
HARVARD LAW REVIEW
[Vol.
I I2:483
dividualism is characteristic of the Lacanian Real. This is because, as

we have seen, there can be no distinctions between and among persons
in the Real.
6. Legal Uncertainty. - In the perfect market, the law must be
perfectly clear and justice must be immediate. According to Coase, the
initial allocation of rights is irrelevant only if market participants can
effectively contract for efficient reallocation. In order to contract, the
parties must have information about their relative rights and obligations so that they know what they are contracting for.219 In a perfect
market, therefore, their knowledge of the law must be perfect. This
means not only that legal rights must be clear and unambiguous, but
also that everyone in the market must know not only her own rights
and obligations, but also the relative rights and obligations of all other
market participants.220 But even this is not enough. Each party must
be able to monitor and police each other perfectly in order to enforce
her legal rights.221 Further, in order for contracts to take place, there
must be a perfect enforcement mechanism. Moreover, there must be
no restraints on alienation or other legal impediments to free contract.
Part of the issue of enforcement is informational - one needs to
know what his bargain is and whether the other party is living up to
is an even more extreme example of a legal rule that prevents such individualistic behavior as
holding out.
Ayres and Talley's "Solomonic"division of property rights is designed to reduce the incentives
for strategic bargaining by forcing the participants to reveal their preferences. See Ayres & Talley,
supra note I05, at I029-30.
219 At first blush, Ayres and Talley's suggestion that certain allocations of entitlements should
be "Solomonic"(uncertain or otherwise divided between claimants) would seem to be an exception
On further examination, however, this proves not to be the case.
to this view. See id. at I029.
The certainty of legal rights would seem to be part and parcel of the requirement of perfect information in the perfect market. However, although I criticize Ayres and Talley on other grounds
elsewhere, see Schroeder, Three's a Crowd, supra note 22, at 37, they are to be congratulated for
avoiding one trap of the perfect market ideal addressed in their article. Ayres and Talley do not
purport to deal with the perfect world but with a world in which there are information problems.
Specifically, because parties are unaware of what others are thinking, strategic behavior is possible. Ayres and Talley also confront the problem of the "second best." When there are many market imperfections, one has no way of knowing whether she will come closer to the ideal situation
by curing only one problem. Consequently, solving one informational problem - legal certainty
will not necessarily get us to the goal of efficiency when others still exist. Ayres and Talley
suggest that under some circumstances, legal uncertainty might increase the total amount of useful
information generally available to the market.
Ayres and Talley do fall into the second trap of the perfect market ideal, however, in that they
purport to know enough about this impossible ideal to attempt to propose legal rules that could
mimic it.
220 See Warren, supra note i67, at 379. Coase does not include legal certainty in his enumeration of specific transaction costs. However, he states: "Of course, if market transactions were costless, all that matters (questions of equity apart) is that the rights of the various parties should be
well-defined and the results of legal actions easy to forecast." Coase, supra note I24, at i9. In my
reformulation of Coase's definition of transaction costs, ill-defined legal rights and hard-toforecast legal results would be considered transaction costs insofar as they would impede efficient
market transactions.
221 See Warren, supra note i67, at 379.
i998]
545
her end of the bargain. This requires the parties to have a perfect
meeting of minds. This in turn requires either that the contract contemplate every conceivable future contingency or that the parties have
perfect foreknowledge of the actual conditions that will arise under the
contract in the future.
Perfect enforcement also requires perfect government - either I
must be able to punish a breach instantaneously once I know it exists,
or the threat of punishment must be so certain that there will never be
a breach. I would not contract to pay my full valuation for a commodity unless I could be assured of immediately enforceable contract
and property rights. Any uncertainty in enforcement or any delay in
the enforcement mechanism will cause me to reduce my bid price by
some amount. Immediate and perfect enforcement is also required for
involuntary transactions, such as government takings and taxation. As
we have discussed, the possibility of holdouts and free-riders also demands enforcement of entitlement allocations against involuntary parties.
Most importantly, the requirement of perfect clarity of legal rights
means that the legal system must be closed and complete. A rule for
every conceivable fact situation must always already exist. There can
never be any question of statutory interpretation.222 Every market
participant must know the result of every future litigation even before
the complaint is filed. The requirement that legal rights be perfectly
clear is inconsistent with our dynamic and open-ended common law
jurisprudence, in which law is constantly being made.223 More importantly, the legal certainty requirement would necessitate perfect knowledge of the future. Finally, it is not enough that enforcement of legal
rights be swift; it must be instantaneous as well. Consequently, the requirement of a perfect legal system can be seen as a restatement of the
proposition that time must be eliminated in the perfect market.
Of course, this closed, timeless world of perfect information and
perfect constraint is yet another example of the Lacanian Real. The
Real is the timeless, dead order of perfect harmony: there is no differentiation and no movement.
7. Differentiation. - The market is perfect if it results in efficiency as defined in terms of some preferred allocation of resources.224
222 As I discuss elsewhere, from a Lacanian perspective, such interpretation is the
"masculine"
Imaginary conception of law - a necessary moment in the process of judging. See Schroeder,
The Eumenides, supra note 87, at I9-20.
223 This is equally the case with Hegel's open-ended, ever-expanding jurisprudence of right.
See SCHROEDER, THE VESTAL AND THE FASCES, supra note 3, at 22I-25, 3i6-I7; Arthur J.
Jacobson, Hegel's Legal Plenum, in HEGEL AND LEGAL THEORY II4-i8 (Drucilla Cornell, Michel Rosenfeld & David Gray Carlson eds., ig9i).
224 The most common tests of efficiency are Pareto superiority or optimality, and Kaldor-Hicks
optimality, which are applied to either utility or wealth maximization. See, e.g., Coleman, supra
note 200 (summarizing the standards of efficiency usually applied in law and economics litera-
546
HARVARD LAW REVIEW
[Vol.
I I2:483
This means that when the perfect market is achieved, there is no way
to make society better off (whether measured in wealth or utility),
given the existing limitations of productive capacity. All parties must
be indifferent between their current allocation of resources and any
other possible allocation, given scarcity.225 If society would be made
better off, or if total societal production could be increased by another
allocation of resources, then the market is not yet perfect because additional trades should occur. To put it another way, according to Stigler,
all costs can be defined as opportunity costs - the existence of an alit would prefer an alteraternative.226 If society is not indifferent-if
is not yet perfect bethen
market
the
of
resources
tive allocation
reduced.
be
costs
that
could
cause there are still net positive
Some analysts believe that this means that in the perfect market all
commodities must be homogeneous and perfectly divisible.227 The
ture). Because nothing in this Commentary depends on the difference among the various standards of efficiency, and because most of the Coasean literature I discuss adopts some variation of
the Pareto standard, I shall refer to that standard for the sake of convenience. Richard Posner is
probably the most prominent proponent of the Kaldor-Hicks efficiency standard, the Pareto standard's primary rival. See POSNER,supra note io6, at I3-i6.
Some critics have suggested that the Coasean standard of maximization and Pareto analysis
are, in fact, mutually inconsistent. See, e.g., George Fletcher, Law and Economics (unpublished
manuscript), quoted in Coleman, supra note 200, at 227. Posner argues that only the KaldorHicks standard is compatible with wealth maximization. See POSNER,supra note io6, at I3-i6;
Richard A. Posner, The Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication, 8 HOFSTRAL. REV. 487, 489-9I, 495-96 (ig8o). These debates, although interesting,
are beyond the scope of this Commentary.
Yet another debate in which I will not join is whether the Coase theorem requires invariance
(that is, a unique solution to an economic problem) or permits multiple possible efficient outcomes. See, e.g., Cooter, supra note I48, at I5; Hovenkamp, supra note I7I, at 785.
225 In his most recent work, Calabresi suggests that he might go even further. Based on his
reading of Coase and on an insight similar to Stigler's point that costs are anything that might
keep us from fulfilling our desires, see infra pp. 548-50, he asserts that the true cost-free perfect
market cannot coexist with scarcity. That is, from a Coasean-Stigleresque point of view, the fact
that manna does not rain from heaven is as much a cost as the fact that a widget costs one dollar
to produce, or that the production of widgets necessarily pollutes the water of the consumer who
lives next door to the widget factory. See Guido Calabresi, The Pointlessness of Pareto: Carrying
The truly perfectmarket,therefore,is the
CoaseFurther,I00 YALEL.J. I2II, I2i8-ig (i99i).
one beyond all limitations. Finally, Calabresi has internalized Coase's argument regarding why
the ideal of a perfect market may not merely be useless, but also pernicious, as a guide for policy
recommendations.
226 Stigler is referring to costs generally, rather than transaction costs specifically. As I discuss
elsewhere in this Commentary, the implication of the Coase Theorem is that transaction costs are
just like any other type of cost. See supra p. 530 and infra pp. 548-50. In Stigler's view, "[t]he
basic concept of cost is therefore something different: the cost of any productive service in producing A is the maximum amount it could produce elsewhere. The foregone alternative is the
cost." STIGLER,PRICE,supra note I07, at II 2.
227 Stigler posits that product homogeneity is a condition of a perfect market:
If the product is not homogeneous, it is meaningless to speak of large numbers. Hence, if
every unit is essentially unique (as in the market for domestic servants), there cannot be
large numbers. Yet, if the various units are highly substitutable for one another, the market can easily approach competition.
547
i998]
question then becomes whether a lack of differentiation is a cause or

effect of a perfect market.
Stigler suggests that it is a cause, because "even minor differences
...
might lead some people to pay a slightly higher price for one
seller's product than for another's product."228 This price differentiation is inconsistent with a perfect market and must be phased out
through trade. Others stress that literal homogeneity is not a requirement of the market. Indeed, this would seem necessarily to be the
case.
One cannot posit a market
a system of exchange
unless
there are at least two different things to exchange. I will come back to
this.
Samuelson insists that functional identity is a result, not a condition, of the perfect market. He argues that in a perfectly competitive
market, trade continues until the marginal consumer is indifferent
among all commodities in the market: at the market price ratio, each
commodity is a perfect substitute for any other.229 This concept of indifference (perfect substitutability) is an explanation of how real products can be made to fit the criteria of homogeneity and perfect divisibility.230
Id. at 82-83. As discussed above, see supra p. 520, Stigler does not believe that a perfect market
must be perfectly competitive, but rather suggests that perfect competition may be one means of
achieving a perfect market.
228 STIGLER, PRICE, supra note I07, at 83; see also GISSER & BARTH, supra note I77, at 39-40.
229 See SAMUELSON
& NORDHAUS,supra note io8, at 87. Under such conditions, the ratio of
marginal utility to price is the same for all commodities. The substitutability of commodities at
various price combinations given a total expenditure can be graphically plotted as an "indifference curve." In an efficient market, the purchases by each consumer are controlled by the intersection of her budget curve and her highest indifference curve. See id. at go.
230 If a consumer prefers one commodity over another at any given price, then she can always
be made happier (or wealthier) if she trades the one she likes less for the one she likes more. If
she can be made happier (or wealthier), the market is not yet at its most efficient point. Edith
Stokey and Richard Zeckhauser explain this concept as follows:
Decisions may thus be simplified by focusing on the marginal rate of substitution (MRS),
the rate at which an individual is willing to substitute one good or one attribute for another - and the marginal rate of transformation (MRT), the rate at which an individual is
able to substitute that good or attribute for the other. If these two rates are unequal, then
the individual can make a substitution that will move him to a position that he prefers.
Moreover, if he is an efficient maximizer of his own satisfaction, he will do so.
STOKEY & ZECKHAUSER, supra note i69, at 294.
It is not merely the case that consumers will be indifferent between commodities: at the proper
price, producers will be as well. This is illustrated by the basic economic law that sets price at the
intersection of the supply and demand curves. If producers prefer one unit of input over another
at a given market price, they could produce more efficiently if they changed their production ratio. Consequently, if commodities are perfectly priced (as they would be if there were perfect
competition) the market "will bring the marginal rate of transformation of producers into equality
with the marginal rate of substitution of consumers. As long as the MRT differs from the MRS,
producers and consumers have every incentive to change their behavior." Id. at 303. Stokey and
Zeckhauser, explaining classical price theory, assert that a perfectly competitive market will bring
this about. As Stigler reminds us, perfection does not necessarily require competition. Stokey and
Zeckhauser are in fact describing the result, or definition, of a perfect market. See supra p. 520.
[Vol. 112:483
HARVARD LAW REVIEW
548
As Stigler notes, all transaction costs can be thought of as opportunity costs.231 In the perfect market, there can be no transaction costs,
no foregone preferred opportunities, no better alternative, no differentiation.
Moreover, it is not enough that there be no distinctions among objects in the perfect market, that is, a "perfect"pricing structure. There
can also be no distinctions among subjects. The requirement of perfect homogeneity and lack of differentiation means that all market participants are not only indifferent, but impotent. All are passive price
takers. As we have seen, the existence of differences among market
participants can lead to strategic behavior. This means that in the perfect market, either all differentiations that permit strategic behavior
are eliminated, or the subjective freedom of participants to engage in
such behavior is restrained. The former solution requires uniformity
of persons and the latter, conformity of behavior.
As a result, there can be neither subjectivity nor freedom in the
perfect market. Subjectivity is created by recognition and therefore
requires distinction. In the perfect market, either everyone is, or is
forced to act, the same.
III.
THE PERFECT MARKET AS THE END

OF THE ACTUAL MARKET
Costs are the obstacles that cause us to fulfill less than our full deszres ....
GEORGEJ. STIGLER232
A. The Thanatos of Economics

The Desire of the Market. - In his more recent work, Calabresi
internalizes the inherent radicalism of the Coase Theorem in the following way. First, he suggests that one should not distinguish transaction costs from other costs because the former are just a subset of the
latter. Second, the revolutionary Coasean paradigm defines costs
(transaction or otherwise) as what I have called mediation - anything
and everything that stands in the way of perfect, immediate relations.
According to Calabresi:
The essenceof Coase'sinsightis that transactioncosts are no different
i.
from any other costs.
As such, to put the matter in technical language,
they may at any given moment help define the Pareto possibility frontier,
that series of social states that representthe best we can do at the moment
without making someone worse off. But so does the fact that we do not
have an engine that runs with less friction or that manna does not rain
However, one can hypothesize institutions other than competitive markets that might generate the
same result.
231 See supra p. 546.
232 STIGLER, PRICE, supra note I07, at iii.
1998]
549
fromheaven. Thus, the existenceof transactionscosts no morekeeps us

fromreachinga frontierthatis, in fact,currentlyavailableto us thandoes
the fact that today a given degreeof frictionis a realityof life and that
mannadoesnot at the momentrainfromheaven. All of thesedo the same
thing. Theydefinewhatis andwhatis not currentlyfeasible.233
To paraphrase Calabresi's point, Coase's new paradigm of economic costs has enabled economists to identify, and thereby study, an
important subset of costs that theretofore had received inadequate attention - namely, transaction costs. Until Coase, it was not evident
that certain things such as time and lack of information should be
analyzed as costs. But this identification of transaction costs as costs
has ironically led to the opposite result of that intended by Coase.
Law and economics scholars seem to have become so preoccupied with
transaction costs that they have forgotten the more basic point that
they are like any other type of costs.234 Transaction costs may prevent
transactions that would lead to desirable reallocations of resources, but
(as stated by Stigler in the quote at the head of this section) costs generally are whatever keeps us from our desires, however defined. The
fact that transactions are expensive may keep us from fulfilling our desires (by impeding desirable transfers), but then so do the expenses of
manufacturing, lack of funding, and, in Calabresi's terms, the fact that
manna no longer rains from Heaven. Desires are fulfilled only in the
Real. Costs are whatever keeps us from the Real. Consequently, the
distinction between transaction costs and other costs may be a distinction without a meaningful difference in economic analysis. Like any
other form of costs, transaction costs might be subject to reduction, but
not elimination. As Coase himself stated:
Indeed, one of my aims in [The Problem of Social Cost] was to show that
such "harmfuleffects"could be treated like any other factor of production,
that it was sometimes desirable to eliminate them and sometimes not, and
that it was unnecessaryto use a concept such as "externality"in the analysis in order to obtain the correctresult.235
233
Calabresi,supranote 2 2 5, at I 2 i8-i9.
My criticism of the fixation on transaction costs found in much law and economics literature
is the opposite of Pierre Schlag's. Schlag states:
Indeed, the claim that the market-based formula can yield efficient legal regimes is predicated on the assumption that the concept of transaction costs is at once theoretically intelligble ....
To be theoretically intelligible, the category of transaction costs must be distinguishable, at least in theory, from other kinds of cost categories - such as, for instance,
the category of production factor costs.
Pierre Schlag, The Problem of Transaction Costs, 62 S. CAL. L. REV. i66i, i664 (I989). I believe
that the problem is not that one cannot develop an operational definition of transaction costs that
is distinguishable from production costs, but that this distinction serves no meaningful analytic
purpose.
235 COASE,supra note ii9, at 27. Although Coase speaks of externalities specifically, under my
reading of The Problem of Social Cost, this argument should be generalized to transaction costs.
As we have seen, see supra pp. 524-27, Coase objected to the traditional distinction between external and internal costs because it implied a legal definition of costs rather than an economic one.
234
550
HARVARD LAW RE VIEW
[Vol. I I 2:483
In other words, if law and economics scholars are going to hypothesize

an impossible "perfect market," why stop with the elimination of
transaction costs? Why not go all the way to describing Paradise?
If markets exist as a means to fulfill desire, then markets are erotic.
The inefficiencies of the economy can be cured if each subject can
immediately obtain his desired object through exchange. This desire
of law and economics, at first blush, seems to reflect Eros - the Masculine pretense that the hole of Castration could be healed if the subject could just acquire (through exchange) the Feminine - in the sense
of the lost object of desire as perfect soulmate - with whom he could
have a perfect, immediate relationship. This desire can be maintained
only in the Imaginary order through fantasy. Without fantasy, Eros
always turns into Thanatos - the desire to dissolve back into the
Real.
If the Masculine were ever to achieve his Eros by obtaining an
immediate relationship with the Feminine, he would lose the separation of Castration that creates and maintains his subjectivity. He
would enter the Real. The desire to achieve the perfect market is,
therefore, Thanatos.
Consequently, the Masculine position of mainstream economics can
be maintained only by erecting a protective fantasy structure in the
Imaginary. Those law and economics scholars who purport to discuss
hypothetical markets in which transaction costs (but not all costs) are
supposedly eliminated do not confront the logical implications of their
stated assumptions. A Coasean analysis reveals that this is a phantasm and compels us to confront the Symbolic nature of actual markets and eschew the impossible end of achieving the Real of the perfect
market.236
Because costs are what keep us from fulfilling our desire by walling
off the Symbolic of actual markets from the Real of perfect markets,
transaction costs are a form of Castration. Only in Heaven, where individual souls are granted their desire of Nirvana, where the soul casts
off all individuality and desire, can we meet the requirements of a perfect market. The perfect market, the resolution of Castration, is the
Real.
2. The Abyss. - Let us now dare to gaze into the abyss of the perfect market that we would create if we could eliminate transaction
costs; let us confront the Real we desire to achieve by curing Castration. It turns out that each seemingly distinct transaction cost is
merely a different aspect of a single category of cost. This cost is the
mediation and separation that permit the creation of subjectivity. CasHe then proposed a new legal paradigm of costs for which the external-internal distinction is irrelevant. "Transactioncosts" are merely a subset of this new class of costs.
236 Despite his denials, Coase, like all other human beings, is driven by desire for the Real. See
infra p. 556.
i998]
55I
tration creates the space, the radical negativity, that enables freedom
to function. This radical freedom is, in Hegelian-Lacanian theory, the
Feminine. By trying to identify and eliminate transaction costs, therefore, we are like Orpheus and Lot's wife - we seek to capture the
moment of feminine jouissance. As their stories show, the fundamental human condition is ironic. Paradoxically, according to Lacan, it is
Castration that creates the Feminine - it is only the realization that
we are not whole, that all relationships are mediated and that we are
constrained by the Symbolic order that enables humans to create the
ideal of perfection, wholeness, immediate relationship, and absolute
freedom. The moment we achieve our desire and join with the Feminine, we destroy ourselves. If we were to capture the Feminine moment by eliminating transaction costs (understood as the mediation
that allows desire) and achieve the immediate relation of the perfect
market, we would destroy not only actual markets, but also our subjectivity and freedom. To be true to our desire is to postpone it. To
give way to our desire is to end it. If the perfect market is the end
(ideal) of actual markets, then the perfect market must be the end
(death) of actual markets.
In the perfect market, there is no distinction among subjects. Information is not merely perfect, but also complete - "free, complete,
instantaneous, and universally available."237 If the ability to use strategic behavior impedes reallocations, then strategic behavior is a transaction cost that by definition cannot exist in the perfect market. Consequently, there can be no secrets in the perfect market; there can be
no differences in position. Each individual has perfect understanding
not only of her own thoughts, dreams, desires, and intentions, but also
of those of every other person in the market. It is as though there
were only one mind, one individual, in the universe. As Cooter points
out, the type of disclosure and certification of intent required by the
perfect market destroys a player's freedom.238 Without individuality,
freedom, and the unconscious, there is no subjectivity. There is no
reason to speak because everything has already been said. But more
importantly, there is no one left to speak.
Intersubjective relations require a fundamental separation from,
and even ignorance of, the Other. According to both Hegel and Lacan,
the intersubjective recognition that creates subjectivity always requires
a mediating object of desire.239 In the words of Slavoj Zizek:
[W]e can recognizethe other, acknowledgehim as person, only in so far as,
in a radical sense, he remains unknown to us - recognition implies the
absence of cognition. A neighbour totally transparentand disclosed is no
more a "person",we no longer relate to him as to another person:intersub237
238
239
Boyle, supra note I65, at I443.

See Cooter, supra note I48, at 20.
See supra pp. 5o6-07, 5I2.
HARVARD LAW REVIEW
55 2
[Vol. I I2:483
jectivity is founded upon the fact that the other is phenomenologicallyexperienced as an "unknownquantity",as a bottomless abyss which we can
never fathom.240
But it is precisely this separation and ignorance that cannot exist in

the perfect market. Consequently, no one can recognize anyone else as
a person in the perfect market. If, as Hegel and Lacan insist, subjectivity and interrelationship require mutual recognition, there can be no
individual subjectivity in the perfect market.
The perfect market is perfectly unfree. Because all legal rights
must be clear and unambiguous, there is no room for the creation of
legal rights. Because every member of the market polices and monitors every other member, the market is perfectly coercive. All information is public. Consequently, not only the public-private distinction essential to classical liberalism, but also the private individuality
necessary for differentiation among, and recognition by, other persons
disappears. If everyone has perfect information about everyone else,
then there can be no surprises in the perfect market. In the perfect
market, all participants are perfectly rational. Each participant must
singlemindedly seek her own self-interest, however she conceives it.
She must use any and all means to achieve her ends and therefore
come to her end. In order not to give ground with respect to her desire, she must eventually stop procrastinating, give way to her desire,
and achieve jouissance. Thus, all action must be preordained. Similarly, the rigid definition of rationality adopted by the Coase Theorem
requires that human behavior be as "rigorously deterministic as a multiplication table."'24' Without freedom, there can be no individuality,
no subjectivity.
In the perfect market, there can be no distinctions among objects.
Product differentiation is an imperfection by definition.242 At the efficient price, all objects are perfect substitutes for all other objects. The
fact that there are no differentiated mediating objects for persons to
use to individuate themselves implies that there can be no subjectivity
in the perfect market.
240 SLAVOJ2I2EK, FOR THEY KNOWNOT WHATTHEY Do: ENJOYMENTAS A POLITICAL
FACTOR Ig98-9 (199I).
241 George J. Stigler, Two Notes on the Coase Theorem, 99 YALE L.J. 63i, 63I (i989). As is
usually the case when the perfect market and zero transaction costs are discussed, Stigler is
speaking in the negative. He is asserting that one of the reasons Coasean bargains are not
reached is that human behavior is not deterministic. He continues:
There are people who do not care for wealth, more who do not reason well, and vastly
more who are incompletely informed. These people will not necessarily achieve optimal
agreements, and especially is this true in new circumstances. We do not believe that such
people govern important markets: Others who love wealth, reason precisely, and buy information in optimal quantities will call the tune.
Id. In other words, despite the failure of many or most individuals to meet the strict definition of
economic rationality, large markets operate as though their participants were fairly rational.
242 See GISSER & BARTH, supra note I 77, at 4.I
1998]
553
In a perfect market, there are no transactions, no movement, no

market intercourse. According to Coasean analysis, the initial legal regime is irrelevant only if all misallocations (that is, inefficient allocations) of entitlements can be costlessly corrected. In other words, mistakes must be corrected instantaneously. Consequently, in the perfect
market, there are no actual market transactions, because all resources
will have always already flowed to the highest valuing user. Moreover,
actual markets depend on information being imperfect - "costly, partial, and deliberately restricted in its availability."243 If, by definition,
all entitlements have always already flowed to the highest valuing user
in the perfect market, then the exchange price of all entitlements
equals the use value to all users. The economic theory of marginalism
holds that, in the perfect market, exchange will continue until all subjects become perfectly indifferent to all objects. There is, therefore, no
desire. Without desire, there is no exchange.
Once the perfect market is achieved, all markets stop. This was
one of Coase's insights. Markets exist only as a means of eliminating
transaction costs.244 When transaction costs are eliminated, markets
are also necessarily eliminated.245 "In such a world the institutions
which make up the economic system have neither substance nor purpose. 11246
Moreover, from a Hegelian viewpoint, the elimination of markets
results in the destruction of the legal subjectivity that is necessary for
the actualization of our freedom in the modern liberal representative
democratic state. As I have written extensively elsewhere, and briefly
described above,247 according to Hegelian philosophy, personality is
created through erotic interrelationships of mutual recognition by
means of the exchange of a mediating object. The most basic of such
erotic interrelationships is that of the abstract right - property, contract, and the market. These cannot exist without differentiation,
separation, and mediation - without transaction costs. Personality is
created through desire, but in the perfect market, all desires are always
already fulfilled. Once again, Coase intuited this result:
I showed in "The Nature of the Firm" that, in the absence of transaction
costs, there is no economic basis for the existence of the firm.... [I]t does
not matter what the law is.... In such a world the institutions which
make up the economic system have neither substance nor purpose.... [I]f
transaction costs are zero, "the assumption of private property rights can
be dropped
..248
243
Boyle, supra note I65, at I443.

See supra p. 5 20.
245 See supra p. 5 2 I.
246 COASE,supra note i i9, at I4.
247 See supra PP. 495-97.
248 COASE, supra note Ii9, at I4 (quoting STEVEN N.S. CHEUNG, WILL CHINA Go
'CAPITALIST'? 37 (Hobart Paper No. 94, 2d ed. i986)). As stated by Stokey and Zeckhauser, once
244
554
HARVARD LAW RE VIEW
[Vol.
11 2:483
Finally, in the perfect market there is no time or space: the universe

collapses back to the primordial unity that existed before the big bang.
Kant teaches us that this fact means that once the perfect market is
achieved, there can be no thought, no consciousness. According to
Kant's science of the transcendental aesthetic, the most basic mental
function underlying thought is sensuous intuition.249 The two pure
forms of sensuous intuitions are space and time.250 Space is not a conception that we derive from experience.251 Nor is time an empirical
conception.252 Rather, space and time are a priori intuitions that conscious beings need to presuppose in order to understand external objects (space),253change, and motion (time).254 As Kant notes, "[s]pace
does not represent any property of objects as things in themselves."255
Similarly, time does not "subsist[] of itself, or . .. inhere[] in things as
an objective determination ....
Time is ...
merely a subjective condi-
tion of our (human) intuition ... and in itself, independently of the

mind or subject, is nothing."256In other words, time and space are the
ways humans organize their understanding of the world. They are the
"two sources of knowledge" that "make synthetical propositions a priori possible."257They are the conditions[] of our sensibility."258
It follows from the propositions that sensible intuition is the most
basic element of thought and that time and space are the pure forms of
sensible intuition, that to do away with time and space is equivalent to
doing away with the possibility of thought. This finding is, of course,
Lacan's conclusion. The Real - the elimination of all distinctions inPareto optimality is achieved, all parties are perfectly indifferent between all commodities so that
thereof
"[njo profitable trades between producers, between consumers, or between combinations
will be possible." STOKEY & ZECKHAUSER, supra note i69, at 296.
249 Kant states:
In whatsoever mode, or by whatsoever means, our knowledge may relate to objects ...
[and] the only manner in which it immediately relates to them is, by means of an intuition.... But an intuition can take place only in so far as the object is given to us.... The
capacity for receiving representations (receptivity) through the mode in which we are affected by objects, is called sensibility. By means of sensibility, therefore, objects are given
to us, and it alone furnishes us with intuitions; by the understanding they are thought, and
from it arise conceptions. But all thought must directly, or indirectly, by means of certain
signs, relate ultimately to intuitions; consequently, with us, to sensibility, because in no
other way can an object be given to us.
KANT, supra note 55, at 2 I.
250 See id. at 23.
251 See id.
252 See id. at 28.
253 See id. at 23-24 ("For,in order that certain sensations may relate to something without me
al... [and] that I may represent them ... in separate places, the representation of space must
ready exist as a foundation.").
254 See id. at 29 ("[I]ftimel were not an intuition (internal) a priori, no conception, of whatever
kind, could render comprehensible the possibility of change . . .
255 Id. at 2 5-2 6.
256 Id. at 30-3
257 Id. at 33.
258 Id.
i998]
555
cluding time and space - is the destruction of subjectivity and consciousness.

And so, just as Lacan theorized that subjectivity is created through
Castration, subjectivity also requires the existence of transaction costs.
Subjectivity requires that desire be repressed, that the psyche be divided between the conscious and subconscious - conditions inconsistent with the requirements of perfect information and economic rationality.
Subjectivity requires distinction and separation conditions inconsistent with the requirements of indifference. Subjectivity requires time and space.
Consequently, the perfect market is not merely the destruction of
actual markets. It is the destruction of freedom, subjectivity, and consciousness. There is no exchange in the perfect market not merely because there is nothing left to exchange, but also because no one exists
who can exchange.
The perfect market is pure, immediate relationship where all distinctions of time and space, and between subject and subject, subject
and object, and desire and fulfillment, are merged and obliterated. It
is therefore Real, not Imaginary or Symbolic. It is not merely impossible; it is by definition unimaginable and unspeakable.259
Thus, we cannot bear to confront the perfect market or describe it
in law and language. And yet, paradoxically, law and economics
scholars cannot escape this fixation. They are driven by this desire.
Coase, perhaps intuiting that it is fantasy that drives Eros, warns us
not to look too closely at the model. He declares that "[i]t would not
seem worthwhile to spend much time investigating the properties of
such a world."260 He is particularly upset because his fame lies almost
entirely on his formulation of the Coase Theorem, a "world of zero
transaction costs ... remote from the real world."'26' Economists are
seduced by the beauty of the perfect market.262
259 Richard Epstein has also noted that a perfect market would destroy our concept of time. In
a critique of the perfect market assumptions underlying the Calabresi and Melamed analysis of
environmental nuisances, he notes, "It is an open question, however, whether one can even understand what a world of zero transaction costs means, given the violence it does to our ordinary understanding of the importance of time." Epstein, supra note I36, at 2092. Ironically, Epstein is
repeating Coase's point.
260 COASE, supra note I i9, at I 5.
261 Id.
262 But although Coase tells others to lash themselves to the mast, he himself cannot resist the
siren's call. He does not let any real or imagined challenge to his theorem go unanswered. Thus,
he does precisely what he warns others not to do - he fantasizes about the Feminine perfection
of the Real. See, e.g., id. at I59-63; R.H. Coase, The Coase Theorem and the Empty Core: A
Comment, 24 J.L. & ECON. i83, i83 (i98i). Ellickson makes a similar point:
Coase himself may deserve a bit of blame for the interminable analysis of the zerotransaction-costs world. Although his writings often emphasize the value of studying real
situations, he has published but one major empirical study .... Coase's recent essay, Notes
on the Problem of Social Cost, for the most part is a response to others' critiques of his
HARVARD LAW REVIEW
556
[VOl.II2:483
This lapse is, perhaps, inevitable. It is precisely the feeling of Castration that makes us imagine and desire the perfect wholeness of the
Real. Similarly, the recognition of the concept of transaction costs
causes us to speculate about and desire the perfect market.
B. Making the Impossible Possible
[T]he postmodernist subject must learn the artifice of surviving the
experience of a radical Limit, of circulating around the lethal abyss
without being swallowed up by it ....
Is not Lacan's entire theoretical
edifice torn between these two options: between the ethics of desire/Law, of maintaining the gap, and the lethal/suicidal immersion in
the Thing?
SLAVOJ Z1ZEK263
We have seen that despite the obsession with the perfect market,
few other than Coase have been able fully to internalize the logical
implications of its assumptions. They cannot bear to gaze into the
Real. To achieve the perfect market is jouissance, the transgression of
the market, law, and language. To achieve the perfect market would
be to regress back to the state before the birth of subjectivity. The
perfect market is death.
David Gray Carlson has come to a similar conclusion by deconstructing price theory. Markets require imperfection. The perfect
market, therefore:
spells the death of price theory qua theory, a death foretold in the etymology of the word "economy,"derived as it is from oikos (household),which
is akin to oikesis (tomb). The real economy in microeconomics,then, is an
economy of death....
a tomb, incidentally, that is memorialized on the
back of every dollar bill turned out by the United States Treasury Department.264
Carlson sees price theory as logocentric - a philosophy of presence

"whose will to power works to exclude the trace of its origin in
death."265 But Carlson's analysis, based on Derridean philosophy, is
only partial.
We do not exclude the trace merely because it stands for death.
Lacanian psychoanalysis reveals that the perfect market is not merely
analysis of the dynamics of a world without transaction costs. He devotes less space to exploring the implications of the fact that transaction costs exist.
Ellickson, supra note i6i, at 6I3-I4 n.i8 (citations omitted).
For example, as discussed above, in Coase's colloquy with Samuelson, rather than taking the
opportunity to show the similarities between his and Samuelson's conclusions (that there are
many significant barriers to efficient bargains in the real world) he defended his version of what
would happen in a world without transaction costs. See COASE, supra note I i9, at I59-63.
263 IZEK,PLAGUEOF FANTASIES,
supra note 69, at 239 (alteration in original).
264 Carlson, supra note I07, at i874-75 (citations omitted).
265 Id. at i875.
I998]
557
the death of economics, it is its desire - its Thanatos. It is only desire

that makes us human, enables us to love and to create, and that drives
the economy on. Consequently, we repress the object of desire and
postpone the moment of consummation of our desire in jouissance not
because we desire but just so we may desire. Psychoanalysis teaches us
that repression does not exclude the object it expels. It preserves it.
What is repressed in the Symbolic always returns in the Real.266 By
repressing the perfect market, we make it serve as the object of desire.267
Lacanian psychoanalysis holds that the entire Symbolic order, including language, law, and the market, is a fiction - a human creation. Being a fiction, it only works if the fiction is maintained.268 If
we give in to the Masculine desire of Eros and confront the fantasy
image we have made, we will destroy the fantasy. If we give in to the
Feminine desire of Thanatos, we confront death face to face. And the
only way to achieve the Feminine desire of Thanatos is by dying.
Consequently, in order for desire to function, it must be prohibited.
Prohibition, however, is alchemy. The Real, and the Feminine, are
the impossible. Indeed, they do not exist. Once we forbid them, however, we create the sense of their possibility.269 Why forbid what can't
be done? What had been mourned as the always already lost is now
anticipated as the not yet found. We live our lives not merely in the
hope but in the confidence that the Real, the Feminine, radical freedom, and perfect immediate sexual relationships can yet be attained.
In this way, we make our own freedom.270
Similarly, it is necessary in order for the market economy to function that it be a means to an end. The means will end if and when it
achieves its ends. Accordingly, if we dream the ideal end of the perfect
market, we must repress and postpone the end of that dream. We
must never give ground relative to our desire, but we are lost as soon
as we give way to our desire.
What does my analysis mean for law and economics? Although the
Real (the perfect market) might be an ideal necessary to the function of
the Symbolic (the actual market), the Symbolic, by definition, can
never be the same as the Real. Moreover, because the perfect market,
266 See JACQUES LACAN, THE SEMINAR OF JACQUES LACAN - BOOK III: THE PSYCHOSES
I955-I956, at 86 (Jacques-Alain Miller ed. & Russell Grigg trans., W.W. Norton & Co. I993)
(i98i).
267 We must prohibit our impossible desire in order to make it possible. That is, in contradiction with the platitudes of pop psychology, repression is not a negative force imposed on us by
society that destroys our desire and impedes our enjoyment. Repression is an affirmative choice
we accept in order to create our desire and enable us to achieve enjoyment (jouissance).
268 See Schroeder, The Eumenides, supra note 87, at i8-i9.
269 See ZIZEK, TARRYING WITH THE NEGATIVE, supra note 57, at iI6.
270 Consequently, the injunction of the superego is not, as is usually thought, "Don't Enjoy."
Rather, it is "Enjoy! (but not now)." See LACAN, SEMINAR XX, supra note 9, at 7.
558
HARVARD LAW RE VIEW
[Vol.
I I 2:483
the Symbolic (the actual market), the Symbolic, by definition, can

never be the same as the Real. Moreover, because the perfect market,
being Real, literally cannot be described in the Symbolic or pictured in
the Imaginary, attempts to develop models based on what would happen in a hypothetical perfect market can only be fantasies in the technical sense of the term (that is, Imaginary substitutes for one's true desire). Insofar as law and economics scholars wish to formulate policy
recommendations for actual Symbolic markets, they should heed
Coase's call not to give way to their desire for the Real and not to
formulate Imaginary substitutions for this ideal.
Transaction costs can no more be eliminated than any other costs;
they are the limits of our mortality. The Real is impossible to achieve.
The theory of the second best tells us that one will not necessarily get
any closer to the ideal by eliminating or reducing any one transaction
cost. Castration cannot be cured bit by bit. Moreover, the Real cannot be captured in the Symbolic of language or the Imaginary of picture thinking. The Real is not merely impossible to achieve as a practical matter. It is logically impossible in the sense that it is the order of
intractable paradoxes. The perfect market is an unimaginable and unspeakable world of the living dead without time, space, or subjectivity.
Any attempt to create legal rules that mimic the perfect market are
doomed because we can never know the true contours of the ideal to
be mimicked. Attempts by law and economics scholars to describe
what would occur if transaction costs could be eliminated can only be
fantasies in the technical sense of that term. They are not descriptions
of the Real of the perfect market but comforting Imaginary substitutes
erected to stand in its place.
What we can do, as Coase pleads, is study actual costs and actual
behavior in actual markets on their own terms.272 Even if one continues to retain the impossible ideal of the perfect market as an explanatory or predictive model of economic activity, when legal economists
attempt to make policy recommendations we must set realistic goals
based on contingent, empirical judgments regarding the relative efficiency of possible actual market choices.
272 There may be a good pragmatic reason legal scholars may wish to concentrate their studies
more on transaction costs than on other forms of economic costs - practical expertise. As we
have seen, transaction costs tend to involve the process of contract formation. Lawyers, who
study and engage in this process, may, therefore, be expected to have a comparative advantage in
studying transaction costs. In contrast, experts in other fields (such as economics, engineering,
computer science, or labor relations) may have a comparative advantage in studying other types
of economic costs.

End of The Market, Law and Psychoanalisis

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

End of The Market, Law and Psychoanalisis

Загружено:

Авторское право:

Доступные форматы

The End of the Market: A Psychoanalysis of Law and Economics

Author(s): Jeanne L. Schroeder

THE END OF THE MARKET.

THE END OF THE MARKET:

THE END OF THE MARKET

HARVARD LAW REVIEW

psychoanalysis, this fantasy or "Imaginary"dream of "femininity"(that

See infrapp. 507-09.

[hereinafter 2IZEK, THE METASTASES OF ENJOYMENT].

THE END OF THE MARKET

Femininejouissance is the momentaryachievementof the otherwise

THE DESIRE OF ECONOMICS

In this Commentary,I explore from the perspectiveof Lacanian

(Imre Lakatos & Alan Musgrave

THE END OF THE MARKET

analysis is an attempt not only to identify the flaws of the research

HARVARD LAW REVIEW

Lacan's term "pas-toute" has also

THE END OF THE MARKET

HARVARD LAW REVIEW

such theory is not merely interesting in and of itself, but potentially

THE END OF THE MARKET

Hegelian-Lacanian analysis shows why this analysis seems plausible

HARVARD LAW REVIEW

called "castration," which is experienced as loss of the Feminine into

THE END OF THE MARKET

market ideal28 is located in the order Lacan called the "Imaginary." It

the express vocabularyof eroticism,in Lacanian psychoanalysisthis

THE END OF THE MARKET

personality)only by being recognizedas a subject by a person whom

HARVARD LAW REVIEW

consummation. Indeed, it is precisely its postponement that creates

THE END OF THE MARKET

In other words, although Hegel and Lacan might at first blush

HARVARD LAW REVIEW

According to Lacan, there

THE END OF THE MARKET

representation or conceptualization only through the reconstructive or inferential work of the

HARVARD LAW REVIEW

capable of bearing rights and engaging in legal relations and to be a

THE END OF THE MARKET

HARVARD LAW REVIEW

The proposition that subjectivity can be achieved only through the

a speaking person or legal actor

only through others. We feel

THE END OF THE MARKET

have stated elsewhere:

HARVARD LAW REVIEW

society at large. See Schroeder,Pandora, supra note i8, at 20-24.

THE END OF THE MARKET

means to the end of intersubjectivity. However, Lacan would argue

HARVARD LAW REVIEW

sequently,we look for things that anatomicmales have or can attain,

THE END OF THE MARKET

HARVARD LAW REVIEW

THE END OF THE MARKET

HARVARD LAW REVIEW

THE END OF THE MARKET

Symbolic and (re)enter the Real would be to lose one's subjectivity,

under inspiration of the Holy Spirit, lost to God as well.

HARVARD LAW REVIEW

THE END OF THE MARKET

For example, Richard Posner's standard introduction to law and