Document Type

Article

Publication Date

1994

Abstract

For Professors Harris and Mooney the time has come to distinguish between work and play. Debating whether security is efficient is play. Revising Article 9 is work. Even Professor Schwartz does not argue for the abolition of Article 9; he merely reiterates the "puzzle" of secured credit and argues in his playful fashion that security might not be efficient.' Were it not for the fact that this debate might give us some insights about certain priority rules (such as those having to do with purchase money), it would be pure intellectual masturbation, a game with no purpose other than to satisfy and stimulate one's intellect. So Professors Harris and Mooney are right to deflect the question, whether security is efficient; they could have done so in fewer words than they have in their paper. To understand why the efficiency debate is irrelevant to the Article 9 revision process, consider three points. First, personal property security is probably efficient. In fact, no one has asserted otherwise, and even the most skeptical have only raised questions. I conclude it is probably efficient because I am convinced by the arguments given in this Symposium by Professors Kanda and Levmore2 and by those given elsewhere? The pervasiveness of security not only in modem industrial society but also in more primitive and ancient societies supports the argument. Never has security been required by law; always it has been chosen by debtors and creditors. Were it inefficient, why and how has it persisted for so long, in so many ways, in so many places? A second reason to dismiss the inefficiency argument as irrelevant to the Article 9 debate is that those with power to act on the argument cannot be convinced of its merit. Banks and other secured creditors hold the power in the Article 9 debate.4 Banks and other secured creditors have shown no sign that they are, or can be convinced, that secured credit is inefficient. On the contrary, they worship security with apostolic zeal. The secured creditors' argue for stronger and broader security, not for weaker and narrower security. And no one has less power in such a debate than a law professor with a counterintuitive idea. Unless these secured creditors can be convinced that it is in their interest to have Article 9 abolished, Article 9 will continue and the debates about its efficiency will be limited to academics. At most, we academics might snatch a small morsel off the table while the banks' attention is diverted; we will not be seated at the main course. There is a final reason to favor Article 9 even if it is inefficient: the state of affairs that would arise upon the abolition of Article 9 would be almost certainly less efficient, more costly, and more wasteful than the current regime. Those costs and that inefficiency outweigh any inefficiencies caused by Article 9. We need not speculate about the regime that would prevail upon the abolition of Article 9. Commercial law in the United States between 1900 and 1960 shows us that regime. It was a patchwork of security devices that varied from state to state, from creditor to creditor, and by type of collateral, transaction, or both.5 There were weird and expensive security devices such as chattel mortgages, notification of account debtors, consignment of goods, pledges, set off, and field warehouses. And do not forget the judicial collection devices such as confessions of judgments and the like. Of course, not all of these dinosaurs would rise from the grave upon the abolition of Article 9. Some are unconstitutional 6 and others could be prohibited by statute, but I would bet a small amount of money that for every weird animal killed by statute another would take its place. If I am right about this prediction, the cost of these security substitutes would grossly exceed the cost of the Article 9 security system. It is not novel to propose tolerance of an antisocial or wasteful institution because the cost of abolishing it is greater than the cost of tolerating it. It took the United States fourteen years to conclude that the cost of prohibiting the drinking of alcohol was greater than the expense of tolerating it.7 In one way or another society has come to similar conclusions at different times concerning fornication, gambling, smoking, and even taking dope.8 To concede that something is inefficient, wasteful, or otherwise antisocial is not to prove that its prohibition is wise or efficient. I cannot prove that creditors would revert to the pre-1960 arcane security devices if Article 9 were repealed. Nor can I prove that the security substitutes developed in the absence of Article 9 would cause inefficiencies exceeding the largest conceivable inefficiencies that might be caused by Article 9. Yet both seem likely. The commercial markets of the United States between 1900 and 1960 tell unequivocally that security substitutes would exist. Those markets suggest that security substitution would be pursued and used in a vigorous way by a variety of creditors. 9 For three reasons then, Professors Harris and Mooney should forget the efficiency debate. They should concentrate not on whether Article 9 should live but on what form it should take. They should do that first because security probably is efficient, and second because those who have the power over Article 9 will not listen to the naysayers even if they are right. Finally, Professors Harris and Mooney should get on with Article 9 because-even assuming that Article 9 is inefficient-the most likely regime that would grow up in its absence would itself be more costly, more wasteful, and less efficient than Article 9.


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