Henry G. Manne, one of the pathbreaking contributors to Law and Economics, died this morning.
I think I first came across his work by following up a footnote in an article in the Journal of Law and Economics in 1970-71, my year of self-directed economic study. The first thing I remember reading was his defense of insider trading. The second thing I remember reading was his article "The Market for Corporate Control" in the Journal of Political Economy. Both pushed the frontiers way out.
His defense of insider trading spawned a whole literature that doesn't appear to be over yet. The article on insider trading in The Fortune Encyclopedia of Economics (later the first edition of The Concise Encyclopedia of Economics), by David D. Haddock of Northwestern University, might never have been written had Henry not written his 1966 book, Insider Trading and the Stock Market. The same could be said about the article on insider trading, written by Stanislav Dolgopolov, in the second edition of The Concise Encyclopedia of Economics.
The requirement of management's approval for a merger generates some peculiar results. Generally speaking, managers' incentives and interests coincide with those of their shareholders in every particular except one: they have no incentive, as managers, to buy management services for the company at the lowest possible price. Even if the market for corporate control is working perfectly, so long as the cost to the corporation of the incumbent managers' inefficiency is below the cost to an outsider of taking over control, the insiders will remain secure in the positions with protected high salaries.
Henry was an academic entrepreneur par excellence. Not content to simply write books and articles that said important things, he wanted to affect the way law professors thought about economics. So, in 1971, he started "the Economics Institute for Law Professors, then a three-and-a-half week (later reduced to two weeks) intensive course in microeconomic theory taught by distinguished economists to a class of 25 law professors." [This is quoted from Manne, "An Intellectual History of the George Mason University School of Law."]
Here's how Henry, writing in 1993, assessed the significance of this move:
But the importance of the course does not lie with the few stars; rather the importance lies in the fact that there is not a major law school in the country today that does not have at least one professor who has been trained in the economic analysis relevant to law. Largely a result of this program, too, every major law school in the country offers at least a basic course in Law and Economics, and few schools would not expose their students to the work of such scholars as Calabresi, Coase and Posner. Whole fields such as corporation law, antitrust and bankruptcy, and large parts of fields such as torts, property, environmental law and contracts, are taught in many law schools heavily from a Law and Economics perspective.
Later, in 1974, he founded the Law and Economics Center at the University of Miami. In 1976, he began offering a similar program to federal judges. Hundreds of federal judges have been trained under this program. [I taught in it twice in the 1990s and twice in the first decade of this century.]
Law and economics scholar Fred McChesney did an interview with Henry here.
Often when you meet someone whose work you admire for its brashness, you are disappointed that the person is not up to the work. Not so with Henry Manne. I remember distinctly when I first met him. I had met Svetozar Pejovich and George Trivoli at the famous first Austrian conference in South Royalton, Vermont. They were driving from there to Rochester to meet Henry, where he was conducting the aforementioned Economic Institute for Law Professors. I hitched a ride, with the plan of flying from Rochester across the lake to Toronto.
I remember two things about that first meeting, both of which impressed me. First, when I met Henry, he was very warm and, when he found out I was an Armen Alchian and Harold Demsetz student, he treated me even more nicely. He seemed to care what I thought about things. Pretty heady stuff for a 23-year-old.
Second, somehow we must have got talking about my flight later that day to Toronto. Someone mentioned metal detectors and Henry launched. It wasn't a rant. It was simply a calm yet passionate attack on the requirement that we pass through them before getting on an airplane. If I recall correctly, he called the requirement "an assault on our dignity." One can only imagine what he thought of the Bush/Congress and Obama/Congress further assaults.
Why do I remember this? Wasn't it standard for liberty-oriented professors to oppose these things? Actually, no. It wasn't. Maybe they opposed them and I just missed it, but I can honestly say that I never heard a mature, thoughtful adult speak out so strongly and so passionately against this assault on our dignity. I liked him immediately.
My condolences to his wife Bobbie, his son Geoffrey, and his daughter Emily.
Don Boudreaux has captured the essence of Henry Manne's thinking better than I did. His piece is titled "Manne and Alchian."