Law and Economic Order

Summary of 

Law and Economic Order: A Theory of Requisite Economy

A Review of Peter Gibson Friesen's Synthesis of Organization Science and Economics

Introduction

Peter Gibson Friesen's "Law and Economic Order: A Theory of Requisite Economy" represents a bold interdisciplinary effort to bridge organizational science, economics, law, and philosophy. Drawing heavily from Elliott Jaques' work on Requisite Organization, Friesen extends these principles beyond the corporate realm into broader economic and social structures. The book attempts nothing less than creating a comprehensive theoretical framework explaining the evolution of human economic systems and offering guidance for their future development.

Friesen is uniquely positioned for this ambitious project. Trained in philosophy at Williams College, he studied with Elliott Jaques at USC and developed some of the first logical descriptors for cognitive development using information processing models. After earning his J.D. from UC Hastings, he built a distinguished legal career while continuing to develop organizational theory. This book represents his synthesis of decades of thinking at the intersection of organization, law, and economics.

Main Themes

The central thesis of "Law and Economic Order" is that human economic systems evolve through distinct stages, each with characteristic organizational forms and value systems. Friesen categorizes these stages as:

1. Wild Economy: Pre-agricultural hunter-gatherer societies with egalitarian, self-organizing structures embedded in language and shared values

2. Control Economy: Agriculturally-based hierarchical societies where power is centralized to protect accumulated resources

3. Behavioral Economy: Modern market economies with legal frameworks designed to channel behavior toward productive outcomes

4. Requisite Economy: An emerging form integrating the best aspects of previous systems with organizational science principles

Friesen argues that these economic forms reflect different ways of organizing human collaboration, and that each transition involves a shift in consciousness and values. The book's theoretical foundation rests on the idea that organization is not merely a technical arrangement but reflects the information processing capacity of human consciousness.

Key Insights by Chapter

Chapter 1: Demand and Supply

Friesen begins with a biblical story of the prophet Elisha miraculously providing oil to a widow to pay her debts, using this as a metaphor to explore tensions between economic realities and ethical imperatives. This framing immediately signals that Friesen views economics not as value-neutral but as deeply tied to social values.

The chapter establishes a crucial distinction: while traditional economics focuses on descriptive aspects of economic behavior (how things are), law concerns itself with prescriptive aspects (how things ought to be). Friesen argues this division has created artificial barriers between disciplines that should be more integrated.

Through historical examples, Friesen shows how command economies (which dominated most of human history) and market economies differ in their approaches to this prescription-description divide. Command economies subordinate description to prescription—forcing reality to conform to central plans—while market economies attempt to align prescription with description by creating rules that work with human behavioral tendencies.

Key insight: The apparent victory of market-based economies over command economies in the 20th century wasn't simply about efficiency or freedom, but about finding a more effective balance between prescriptive legal frameworks and descriptive economic realities.

Chapter 2: The Basis of Organization

Here Friesen introduces the scientific foundation of his theory—Jaques' discovery of consistent patterns in organizational stratification that mirror human cognitive development. Through empirical research, Jaques found that effective organizations naturally stratify into distinct levels, with each level corresponding to specific time horizons of work and responsibility.

Friesen extends this analysis by connecting these organizational patterns to fundamental information processing capabilities of the human mind. He presents a logical model showing how cognitive capacity increases in distinct stages through the integration of processing skills:

1. Declarative Processing: Simple distinction between options

2. Cumulative Processing: Remembering and accumulating knowledge

3. Serial Processing: Anticipating sequential implications

4. Parallel Processing: Managing multiple interdependent variables simultaneously

These processing modes correspond directly to organizational levels in workplace hierarchies. What makes this significant is that these patterns appear consistently across cultures, industries, and historical periods, suggesting they reflect something fundamental about human cognitive organization.

Key insight: The structure of effective organizations isn't arbitrary but reflects inherent patterns in human cognitive development. Understanding these patterns allows us to design more effective social and economic systems.

Chapter 3: Wild Economy

This chapter examines the economic organization of pre-agricultural societies, not merely as historical curiosities but as revealing the foundation of human social organization. Friesen argues that language itself evolved as an organizing technology that enabled cooperation through shared values and meaning.

In "wild economies," social organization emerged spontaneously through language, without formal governmental structures. These societies exhibited remarkable features:

• Egalitarian distribution of resources

• Universal participation in economic decisions

• Strong emphasis on individual autonomy within collective frameworks

• Self-limiting size (typically around 150 individuals)

• Decision-making through consensus rather than command

Friesen makes the provocative claim that these societies weren't "primitive" in their ethical reasoning but demonstrated sophisticated integration of individual and collective values. Drawing on Wittgenstein's "private language argument," he suggests that language itself embodies social obligations—it can't exist without shared meaning and therefore creates a natural basis for law.

Key insight: The human mind evolved within language-based cooperative systems that naturally integrated individual autonomy with collective obligation. Modern economic systems often disrupt this natural integration.

Chapter 4: Control Economy

The emergence of agricultural civilizations created new organizational challenges that language alone couldn't manage. As populations grew and resource accumulation became possible, societies needed more formal structures to coordinate activity and protect accumulated wealth.

Friesen argues that the Bronze Age transition to hierarchical societies wasn't primarily driven by agricultural technology but by population pressures that forced groups to live in proximity despite divergent value systems. This created a need for more formalized control systems—what he calls "control economies."

Key features of control economies include:

• Centralized authority (kingship)

• Military organization as the dominant social model

• Stratified social classes

• Externalization of deity (from internal ethical principle to external authority)

• Economic surplus directed primarily to military purposes

• Property as extension of sovereign will rather than ethical right

Control economies solved coordination problems but at enormous cost to human potential. By subordinating economic activity to control imperatives, they systematically suppressed the creative capabilities of most population members, limiting innovation and self-organization.

Key insight: Control economies represent an adaptation to coordination problems arising from population density, but they sacrifice the motivational efficiency of self-organization for the sake of control, resulting in exploitation and stagnation.

Chapter 5: Behavioral Economy

The emergence of modern market economies represents a partial liberation from control-based systems. Friesen terms these "behavioral economies" because they focus on channeling behavior through incentives rather than controlling it through command.

The key innovation of behavioral economies is the separation of government from direct economic control while maintaining its role in establishing rules. This creates a system where:

• Markets allocate resources based on distributed information

• Government establishes and enforces rules of fair competition

• Creative risk is rewarded while destructive risk is penalized

• Individual liberty is protected through constitutional frameworks

Friesen emphasizes that behavioral economies don't eliminate organization but reorganize it—placing government in a meta-organizing role rather than directly organizing production. The system works by aligning individual incentives with socially beneficial outcomes.

However, he notes significant vulnerabilities in this system, particularly the tendency for successful market participants to accumulate resources they can use to undermine the very legal frameworks that enabled fair markets. Without vigilance, behavioral economies tend to regress toward control economies as powerful economic actors capture governmental functions.

Key insight: Behavioral economies succeed by channeling self-interest toward productive outcomes through well-designed legal frameworks, but these frameworks require constant protection from capture by concentrated economic power.

Chapter 6: Requisite Economy

Building on the strengths of behavioral economies while addressing their weaknesses, Friesen proposes a "requisite economy" grounded in organizational science. This approach recognizes that both control and behavioral economies fail to fully understand organizational dynamics.

A requisite economy would maintain the market framework of behavioral economies but would consciously design legal and institutional structures based on scientific understanding of human organizational capacity. Key features include:

• Legal frameworks designed around natural organizational strata

• Regulatory systems matched to the cognitive complexity of market activities

• Constitutional structures that incorporate understanding of information processing limits

• Economic policies that recognize both creative and destructive risk

• Institutions designed to protect the integrity of consensus-generating processes

Friesen argues that this approach would enable more effective management of complex systems like international trade, financial markets, and environmental resources by aligning institutional structures with human cognitive capabilities.

Key insight: By designing economic systems based on scientific understanding of human organizational capacity, we can create more stable, productive, and equitable societies that avoid both the rigidity of control economies and the vulnerability to capture seen in behavioral economies.

Chapter 7: Regression and Progression

The final chapter examines contemporary challenges to economic evolution, particularly the tension between national legal frameworks and international market forces. Friesen warns that globalization has created conditions where financial power can circumvent legal accountability, threatening regression to control-based structures.

He analyzes specific cases—like the Citizens United Supreme Court decision—that illustrate how deterioration of consensus-generating processes can undermine the foundations of behavioral economies. Without appropriate safeguards, concentrated economic power inevitably undermines the legal frameworks necessary for fair competition.

However, Friesen remains cautiously optimistic about the potential for conscious evolution toward requisite economic structures. He suggests practical applications of organizational science in areas like:

• Judicial independence and the rule of law

• International security arrangements

• Energy and water infrastructure

• Financial system regulation

Key insight: The evolution of economic systems isn't inevitable but requires conscious application of organizational understanding to protect the conditions for continued progress and avoid regression to more primitive forms.

Critical Analysis

Friesen's work represents a significant theoretical contribution, integrating diverse disciplines into a coherent framework for understanding economic evolution. Several aspects deserve particular attention:

Theoretical Innovation: By connecting Jaques' organizational discoveries to broader economic patterns, Friesen creates a fresh perspective on economic development that challenges both traditional capitalist and socialist narratives. His emphasis on organization as the fundamental economic variable offers a powerful alternative to standard economic frameworks.

Ethical Integration: Unlike conventional economics, which often claims value-neutrality, Friesen explicitly incorporates ethical considerations. His argument that values are inseparable from economic organization provides a framework for addressing normative questions without abandoning analytical rigor.

Information Processing Model: The book's foundation in cognitive information processing creates a scientifically grounded basis for understanding organizational phenomena. This distinguishes it from both ideologically driven approaches and overly abstract economic theories.

Practical Applications: While highly theoretical, the framework offers practical insights for addressing pressing issues like financial system stability, environmental management, and international coordination. The requisite approach suggests specific interventions to improve organizational effectiveness.

Limitations: The book's dense philosophical language and abstract concepts may limit its accessibility to practitioners. Additionally, while Friesen draws on empirical research, the theory would benefit from more extensive empirical testing against economic data.

Conclusion

"Law and Economic Order" offers corporate executives and organization design consultants a profound reframing of economic questions. Rather than viewing economics as merely about resource allocation, it presents economic systems as manifestations of our capacity to organize collective action.

For executives, the book provides a framework for understanding how organizational effectiveness transcends technical arrangements to include alignment with human cognitive capabilities. It explains why some organizational forms consistently outperform others and why structural misalignments so frequently undermine performance.

For consultants, Friesen's integration of organizational science with economic theory creates a powerful diagnostic tool for analyzing institutional effectiveness. The requisite framework allows for more sophisticated assessment of organizational challenges by connecting them to fundamental patterns of human information processing.

Perhaps most importantly, the book challenges both business leaders and consultants to consider the ethical dimensions of their work not as external constraints but as integral to effective organization. By reconnecting economics to its foundations in human value systems, Friesen offers a path toward more sustainable, equitable, and productive organizational forms.

While demanding careful reading, "Law and Economic Order" rewards the effort with insights that transcend conventional business thinking and address the most fundamental questions of how we organize ourselves to create value in complex societies.