• The federal courts have jurisdiction in diversity-of-citizenship cases, but what law should they apply? The case does not arise under the Constitution or under federal statutes. It arises under the common law.

  • Therefore, it seems that a federal court should, like any court, be able to interpret the common law as it sees fit.

• The first statute on the organization of the federal courts, the Judiciary Act of 1789, established the rule that in “trials at common law” the federal court should apply the “laws” of the several states.

• The federal courts interpreted the Judiciary Act to mean that they should apply the law of state in which they sit.

  • If there was a state statute on the point, the federal court applied the statute, but this left a vast repository of cases to be resolved under the common law.

• The Supreme Court recognized in Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), that indeed federal courts were allowed to develop the common law as they saw fit.

Liberalism

• The classical liberal ideal holds that individuals are free to engage in private transactions as they see fit.

• The state cannot control their decisions on the grounds that they are immoral or inefficient or contrary to the public good.

• The idea of private law—as it is found in the great private codes of the Continent—expresses a liberal principle.

• The state should not influence the shape of these transactions except, in principle, to enforce the private choices of the parties.

• This liberal ideal was important in the development of both the common law and the civilian tradition.

• The central ideas in liberal legal thought are private rights (that individuals may assert against other private parties as well as against the government) and the importance of individual freedom.

• Immanuel Kant defined the concept of Right (Law) as that set of rules that enables the fullest expression of freedom compatible with an equal freedom in others.

Feudalism

• Feudalism restricts human freedom by tying individuals to their duties of loyalty and fealty to their feudal lords.

• Feudalism is historically the most significant alternative to liberalism.

• In feudal systems, individuals are born into their stations in life, and they bear obligations based on their status.

• For Karl Marx, the history of economic relations moved ineluctably from feudalism to capitalism (liberalism), and then—not so necessarily, it turns out—to socialism.

Paternalism

• The state, presenting the dominant opinions of society, often thinks that it knows better than private individuals what is good for them.

• The state requires drivers and passengers to wear seat belts, motorcyclists to wear helmets, and individuals to pay premiums for medical insurance and retirement programs. These are all paternalistic programs that violate strict liberal principles based on freedom and personal choice.

Efficiency and Public Welfare

• The major challenge to liberal principles of individual freedom and personal rights lies in claims of the public good.

• Many people think that it is appropriate to override claims of individual freedom if the public good is thereby served. Thus taxes are imposed to serve the public, restrictions are placed on the use of property to promote the welfare of all, and private rights are sometimes overridden to further the economy as a whole. This is the conflict between efficiency and liberalism.

• Aristotle distinguished in the Nicomachean Ethics between distributive and corrective justice.

• Distributive justice addresses the distribution of the basic goods of society. Aristotle coined the famous maxim “To each according to his due.”

  • Marx reformulated the proper principle of distribution as “From each according to his ability, to each according to his need”.

• Corrective justice addresses the correction of individual instances of wrongdoing.

  • The basic idea of corrective justice is that a wrong has occurred to somebody and that the law should correct this wrong and return the parties to the status quo ante.

• By enforcing contracts, prohibiting encroachment on property, and requiring the payment of compensation for harm done, the law enforces principles of corrective justice.

• Liberal legal theory is committed to the idea that private law should enforce the principle of corrective justice and only the principle of corrective justice. The corollary is that distributive justice should not play a part in the private law of property, contracts, and torts.