The discussion in Section V not only served to illustrate the argument but also
afforded a glimpse at the legal approach to the problem of harmful effects. The
cases considered were all English but a similar selection of American cases could
easily be made and the character of the reasoning would have been the same.
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. But as we have seen, the
situation is quite different when market transactions are so costly as to make
it difficult to change the arrangement of rights established by the law. In
such cases, the courts directly influence economic activity. It would therefore
seem desirable that the courts should understand the economic consequences
of their decisions and should, insofar as this is possible without creating too
much uncertainty about the legal position itself, take these consequences into
account when making their decisions. Even when it is possible to change the
legal delimitation of rights through market transactions, it is obviously desirable
to reduce the need for such transactions and thus reduce the employment of
resources in carrying them out.
A thorough examination of the presuppositions of the courts in trying
such cases would be of great interest but I have not been able to attempt
it. Nevertheless it is clear from a cursory study that the courts have often
recognized the economic implications of their decisions and are aware (as many
economists are not) of the reciprocal nature of the problem. Furthermore,
from time to time, they take these economic implications into account, along
with other factors, in arriving at their decisions. The American writers on this
subject refer to the question in a more explicit fashion than do the British.
Thus, to quote Prosser on Torts, a person may
make use of his own property or … conduct his own affairs at the
expense of some harm to his neighbours. He may operate a factory
whose noise and smoke cause some discomfort to others, so long as
he keeps within reasonable bounds. It is only when his conduct is
unreasonable,in the light of its utilitliy and the harm which results
[italics added], that it becomes a Nuisance …. As it was said in an
ancient case in regard to candle-making in a town,“Le utility del chose
excusera le noisomeness del stink.”
The world must have factories, smelters, oil refineries, noisy ma-
chinery and blasting, even at the expense of some inconvenience to
those in the vicinity and the plaintiff may be required to accept some
not unreasonable discomfort for the general good.
The standard British writers do not state as explicitly as this that a
comparison between the utility and harm produced is an element in deciding
whether a harmful effect should be considered a Nuisance . But similar views, if
less strongly expressed, are to be found. The doctrine that the harmful effect
must be substantial before the court will act is, no doubt, in part a reflection of
the fact that there will almost always be some gain to offset the harm. And in
the reports of individual cases, it is clear that the judges have had in mind what
would be lost as well as what would be gained in deciding whether to grant an
injunction or award damages. Thus, in refusing to prevent the destruction of
a prospect by a new building, the judge stated:
I know no general rule of Common law , which … says, that building so
as to stop another’s prospect is a nuisance. Was that the case, there
could be no great towns; and I must grant injunctions to all the new
buildings in this town …
The problem which we face in dealing with actions which have harmful
effects is not simply one of restraining those responsible for them. What has
to be decided is whether the gain from preventing the harm is greater than
the loss which would be suffered elsewhere as a result of stopping the action
which produces the harm. In a world in which there are costs of rearranging the
rights established by the legal system, the courts, in cases relating to nuisance,
are, in effect, making a decision on the economic problem and determining how
resources are to be employed. It was argued that the courts are conscious of
this and that they often make, although not always in a very explicit fashion, a
comparison between what would be gained and what lost by preventing actions
which have harmful effects. But the delimitation of rights is also the result
of statutory enactments. Here we also find evidence of an appreciation of the
reciprocal nature of the problem. While statutory enactments add to the list
of nuisances, action is also taken to legalize what would otherwise be nuisances
under the Common law . The kind of situation which economists are prone to
consider as requiring corrective government action is, in fact, often the result
of government action. Such action is not necessarily unwise. But there is a real
danger that extensive government intervention in the economic system may
lead to the protection of those responsible for harmful effects being carried too
far.
VIII. PIGOU’S TREATMENT IN “THE ECONOMICS OF WELFARE”
The fountainhead for the modern economic analysis of the problem discussed
in this article is Pigou’s Economics of Welfare and, in particular, that section
of Part II which deals with divergences between social and private net products
which come about because
one person A, in the course of rendering some service, for which pay-
ment is made, to a second person B, incidentally also renders services
or disservices to other persons (not producers of like services), or such
a sort that payment cannot be exacted from the benefited parties or
compensation enforced on behalf of the injured parties.
Pigou tells us that his aim in Part II of The Economics of Welfare is
to ascertain how far the free play of self-interest, acting under the
existing legal system, tends to distribute the country ‘s resources in
the way most favorable to the production of a large national dividend,
and how far it is feasible for State action to improve upon ‘natural’
tendencies.
To judge from the first part of this statement, Pigou’s purpose is to dis-
cover whether any improvements could be made in the existing arrangements
which determine the use of resources. Since Pigou’s conclusion is that improve-
ments could be made, one might have expected him to continue by saying that
he proposed to set out the changes required to bring them about. Instead,
Pigou adds a phrase which contrasts “natural” tendencies with State action,
which seems in some sense to equate the present arrangements with -natural-
tendencies and to imply that what is required to bring about these improve-
ments is State action (if feasible). That this is more or less Pigou’s position is
evident from Chapter 1 of Part II. Pigou starts by referring to -optimistic fol-
lowers of the classical economists who have argued that the value of production
would be maximised if the government refrained from any interference in the
economic system and the economic arrangements were those which came about
“naturally.” Pigou goes on to say that if self-interest does promote economic
welfare, it is because human institutions have been devised to make it so. (This
part of Pigou’s argument, which he develops with the aid of a quotation from
Carman, seems to me to be essentially correct.) Pigou concludes:
But even in the most advanced States there are failures and imper-
fections …. there are many obstacles that prevent a community’s
resources from being distributed … in the most efficient way. The
study of these constitutes our present problem …. its purpose is es-
sentially practical. It seeks to bring into clearer light some of the ways
in which it now is, or eventually may become, feasible for governments
to control the play of economic forces in such wise as to promote the
economic welfare, and through that, the total welfare, of their citizens
as a whole.
Conclusion
Notes
See Also
References and Further Reading
About the Author/s and Reviewer/s
Author: international
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