Chapter 1
Law as a Foundation for Business
Learning Objectives
The purpose of this chapter is to introduce the students to the subject of law and to some
classifications of its subject matter. In addition, it is designed to instill in them respect for
the role of the “rule of law” in the society and that the judicial system is the most important
stabilizing force in society. It should create an awareness that law is a foundation for the
private market and “property” as a legal concept underpins that market and contributes to
the maximum wealth of nations through productivity. This chapter also describes stare
decisis, basic sources of the American law, and sanctions that can be imposed when the law
is not followed.
References
Bethell, Tom, The Noblest Triumph (1999).
Bernstein, William J., The First of Plenty. McGraw-Hill (2004).
Driegel, Blandine, The State and the Rule of Law. Princeton U. Press (1995).
Friedman, Lawrence M., American Law, 2d ed. Norton (1998).
Harnett, Bertram, Law, Lawyers and Laymen: Making Sense of the American Legal
System. San Diego: Harcourt Brace Jovanovich (1984).
Helpman, Elhanan, The Mystery of Economic Growth. Belknap Press (2004).
Holmes, The Common Law. Little, Brown and Company (1922).
Kelman, M., A Guide to Critical Legal Studies. Harvard (1988).
Pound, An Introduction to the Philosophy of Law. Yale University Press (1922).
Reed, O. Lee, “Law, the Rule of Law, and Property,” American Business Law Journal,
Vol. 38 (2001).
Reed, O. Lee, “Nationbuilding 101: Reductionism in Property, Liberty, and Corporate
Governance,” 36 Vanderbilt Journal of Transitional Law 673 (2003).
, The Spirit of the Common Law. Marshall Jones Co. (1921).
Teaching Outline
I. Introduction
A. Why Law and Regulations Are Fundamental Foundations for Business (LO 1-1)
Emphasize:
That by studying the legal and regulatory environment of business, students will
gain an understanding of basic legal vocabulary and gain the ability to identify
problematic situations that could result in liability.
That because of the positive role lawyers can play, they are increasingly being
asked to join corporate boards.
Sidebar 1.1 titled ‘JPMorgan Chase & Co.’s Massive Legal Liability.’
II. Law, the Rule of Law, and Property
A. Law
Emphasize:
The simple definition of law. It can be elaborated by observing that law is a rule-
based, state-enforced formal ordering system with moral elements.
That adequate law and legal institutes promote the certainty and trust necessary
for complex, long-term business arrangements. In an economic sense, they lower
the costs of transacting business.
Additional Matters for Discussion:
Discuss that law formalizes values and traditions and that law is more needed in a
large, heterogeneous modern nation than in a smaller, homogeneous nation.
Compare the U.S. and Japan.
It is not too early in this chapter to ask students whether or not lack of law and
strict regulation facilitated the economic crash and recession that began in 2008.
, Ask students to comment on how mistrust of law and lawmakers precipitated the
“Occupy Wall Street” and other “Occupy…” movements that arose in 2011.
B. The Rule of Law
Emphasize:
That under a rule of law, laws are generally and equally applicable.
That lack of the rule of law internationally has produced hundreds of calls for it in
the last several years by business and political leaders. Get students to search for
rule-of-law references in computer databases.
That the complete rule of law is an ideal rather than a fact in even the most
democratic societies.
Additional Matters for Discussion:
Get students to discuss why the managing director of J.P. Morgan and Co. called the
rule of law “a cornerstone of free trade.”
Ask students why the rule of law tends to produce rules that benefit everyone.
Answer: Because laws apply generally and equally to everyone, the only way
lawmakers can benefit themselves is by benefitting everyone. This answer is
theoretical, of course. Lawmakers are often benefited individually for making laws
that favor special interests.
Ask students to imagine how society would be with no laws. What if the governor
of one’s state announced that tomorrow would be no law day and that nothing
would be penalized or enforced, no police would be present and no penalties
would result from anyone’s actions. What would the students do? One is likely to
find that after a few fleeting and whimsical thoughts, they would agree that they
would primarily act to protect their real and personal property.
C. Property (LO 1-2)
Emphasize:
The two meanings of property.
That property is not the resource or thing itself. It is a right (or series of rights).
That the property right gives a major incentive to develop resources.
That the exclusionary right of property provides a basis for the private market and
modern business.
, Additional Matters for Discussion:
Ask students to discuss the incentive to grow and prosper and the incentive to
innovate and progress under a system with a right to private property ownership
and a communist system where private ownership of property is greatly
diminished for most. Would they even be in school if accumulation of property
rights were not attainable?
D. Property in its Broadest Sense
Emphasize:
How in its broadest sense “property” is the central concept of Western legal
systems.
How property can be thought of as the hub of a wheel and the various legal topics
studied in the text as spokes of the wheel. Law and the rule of law provide the
unifying rim of the wheel. (Refer to Figure 1.1)
That for Madison and other constitutional framers, property protected not only
physical resources like land but also human rights like freedom of speech, freedom
of religion, and freedom from unreasonable intrusion by the government.
Additional Matters for Discussion:
Ask students to discuss the statement: “Bill Gates and your professor have equal
property.” The point is to examine the confusion between “resources” and
“property.” Arguably, although Bill Gates and the student may have vastly different
amounts of resources, he and the student has exactly the same right to these
respective resources, thus the same “property.”
In Federalist Paper 10, Madison wrote: “Property… in its particular application
means that ‘domination which one man claims and exercises over the external
things of the world, in exclusion of every other individual.’ In its larger and juster
meaning, it embraces everything to which a man may attach a value and have a
right; and which leaves to everyone else a like advantage. In the former sense, a
man’s land, or merchandise, or money is called his property. In the latter sense, a
man has property in his opinions and the free communication of them. He has a
property of peculiar value in his religious opinions, and in the profession and
practice dictated by them. He has property very dear to him in the safety and
liberty of his person. He has an equal property in the free use of his faculties and
free choice of the objects on which to employ them. In a word, as a man is said to
have a right to his property, he may be equally said to have a property in his
rights.”
Law as a Foundation for Business
Learning Objectives
The purpose of this chapter is to introduce the students to the subject of law and to some
classifications of its subject matter. In addition, it is designed to instill in them respect for
the role of the “rule of law” in the society and that the judicial system is the most important
stabilizing force in society. It should create an awareness that law is a foundation for the
private market and “property” as a legal concept underpins that market and contributes to
the maximum wealth of nations through productivity. This chapter also describes stare
decisis, basic sources of the American law, and sanctions that can be imposed when the law
is not followed.
References
Bethell, Tom, The Noblest Triumph (1999).
Bernstein, William J., The First of Plenty. McGraw-Hill (2004).
Driegel, Blandine, The State and the Rule of Law. Princeton U. Press (1995).
Friedman, Lawrence M., American Law, 2d ed. Norton (1998).
Harnett, Bertram, Law, Lawyers and Laymen: Making Sense of the American Legal
System. San Diego: Harcourt Brace Jovanovich (1984).
Helpman, Elhanan, The Mystery of Economic Growth. Belknap Press (2004).
Holmes, The Common Law. Little, Brown and Company (1922).
Kelman, M., A Guide to Critical Legal Studies. Harvard (1988).
Pound, An Introduction to the Philosophy of Law. Yale University Press (1922).
Reed, O. Lee, “Law, the Rule of Law, and Property,” American Business Law Journal,
Vol. 38 (2001).
Reed, O. Lee, “Nationbuilding 101: Reductionism in Property, Liberty, and Corporate
Governance,” 36 Vanderbilt Journal of Transitional Law 673 (2003).
, The Spirit of the Common Law. Marshall Jones Co. (1921).
Teaching Outline
I. Introduction
A. Why Law and Regulations Are Fundamental Foundations for Business (LO 1-1)
Emphasize:
That by studying the legal and regulatory environment of business, students will
gain an understanding of basic legal vocabulary and gain the ability to identify
problematic situations that could result in liability.
That because of the positive role lawyers can play, they are increasingly being
asked to join corporate boards.
Sidebar 1.1 titled ‘JPMorgan Chase & Co.’s Massive Legal Liability.’
II. Law, the Rule of Law, and Property
A. Law
Emphasize:
The simple definition of law. It can be elaborated by observing that law is a rule-
based, state-enforced formal ordering system with moral elements.
That adequate law and legal institutes promote the certainty and trust necessary
for complex, long-term business arrangements. In an economic sense, they lower
the costs of transacting business.
Additional Matters for Discussion:
Discuss that law formalizes values and traditions and that law is more needed in a
large, heterogeneous modern nation than in a smaller, homogeneous nation.
Compare the U.S. and Japan.
It is not too early in this chapter to ask students whether or not lack of law and
strict regulation facilitated the economic crash and recession that began in 2008.
, Ask students to comment on how mistrust of law and lawmakers precipitated the
“Occupy Wall Street” and other “Occupy…” movements that arose in 2011.
B. The Rule of Law
Emphasize:
That under a rule of law, laws are generally and equally applicable.
That lack of the rule of law internationally has produced hundreds of calls for it in
the last several years by business and political leaders. Get students to search for
rule-of-law references in computer databases.
That the complete rule of law is an ideal rather than a fact in even the most
democratic societies.
Additional Matters for Discussion:
Get students to discuss why the managing director of J.P. Morgan and Co. called the
rule of law “a cornerstone of free trade.”
Ask students why the rule of law tends to produce rules that benefit everyone.
Answer: Because laws apply generally and equally to everyone, the only way
lawmakers can benefit themselves is by benefitting everyone. This answer is
theoretical, of course. Lawmakers are often benefited individually for making laws
that favor special interests.
Ask students to imagine how society would be with no laws. What if the governor
of one’s state announced that tomorrow would be no law day and that nothing
would be penalized or enforced, no police would be present and no penalties
would result from anyone’s actions. What would the students do? One is likely to
find that after a few fleeting and whimsical thoughts, they would agree that they
would primarily act to protect their real and personal property.
C. Property (LO 1-2)
Emphasize:
The two meanings of property.
That property is not the resource or thing itself. It is a right (or series of rights).
That the property right gives a major incentive to develop resources.
That the exclusionary right of property provides a basis for the private market and
modern business.
, Additional Matters for Discussion:
Ask students to discuss the incentive to grow and prosper and the incentive to
innovate and progress under a system with a right to private property ownership
and a communist system where private ownership of property is greatly
diminished for most. Would they even be in school if accumulation of property
rights were not attainable?
D. Property in its Broadest Sense
Emphasize:
How in its broadest sense “property” is the central concept of Western legal
systems.
How property can be thought of as the hub of a wheel and the various legal topics
studied in the text as spokes of the wheel. Law and the rule of law provide the
unifying rim of the wheel. (Refer to Figure 1.1)
That for Madison and other constitutional framers, property protected not only
physical resources like land but also human rights like freedom of speech, freedom
of religion, and freedom from unreasonable intrusion by the government.
Additional Matters for Discussion:
Ask students to discuss the statement: “Bill Gates and your professor have equal
property.” The point is to examine the confusion between “resources” and
“property.” Arguably, although Bill Gates and the student may have vastly different
amounts of resources, he and the student has exactly the same right to these
respective resources, thus the same “property.”
In Federalist Paper 10, Madison wrote: “Property… in its particular application
means that ‘domination which one man claims and exercises over the external
things of the world, in exclusion of every other individual.’ In its larger and juster
meaning, it embraces everything to which a man may attach a value and have a
right; and which leaves to everyone else a like advantage. In the former sense, a
man’s land, or merchandise, or money is called his property. In the latter sense, a
man has property in his opinions and the free communication of them. He has a
property of peculiar value in his religious opinions, and in the profession and
practice dictated by them. He has property very dear to him in the safety and
liberty of his person. He has an equal property in the free use of his faculties and
free choice of the objects on which to employ them. In a word, as a man is said to
have a right to his property, he may be equally said to have a property in his
rights.”
