Law and Long-Term Economic Change: A Eurasian Perspective

Law and Long-Term Economic Change Law and Long-Term Economic Change A Eurasian Perspective Edited by Debin Ma and Ja...

Author: Debin Ma | Jan van Zanden (editors)

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Law and Long-Term Economic Change

Law and Long-Term Economic Change A Eurasian Perspective

Edited by Debin Ma and Jan Luiten van Zanden

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Stanford Economics and Finance An Imprint of Stanford University Press Stanford, California

Stanford University Press Stanford, California ©2011 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press. Printed in the United States of America on acid-free, archival-quality paper Library of Congress Cataloging-in-Publication Data Law and long-term economic change : a Eurasian perspective / edited by Debin Ma and Jan Luiten van Zanden. pages cm Includes bibliographical references and index. ISBN 978-0-8047-7273-0 (cloth : alk. paper) 1. Law and economic development—History. 2. Law—Economic aspects— Asia—History. 3. Law—Economic aspects—Europe—History. I. Ma, Debin, editor of compilation. II. Zanden, J. L. van, (Jan Luiten van), editor of compilation. K3820.L399 2011 330.95—dc22 2010050154 Typeset by Westchester Book Group in 10/12 Sabon

Contents

List of Figures, vii List of Tables, ix Contributors, xi

1. Law and Long-Term Economic Change: An Editorial Introduction, 1 Debin Ma and Jan Luiten van Zanden 2. The Evolution of Law: Political Foundations of Private Law in Medieval Europe and Japan, 19 John O. Haley 3. Law and Economy in Traditional China: A “Legal Origin” Perspective on the Great Divergence, 46 Debin Ma 4. Property Rights, Land, and Law in Imperial China, 68 Mio Kishimoto 5. Contracts, Property, and Litigation: Intermediation and Adjudication in the Huizhou Region (Anhui) in Sixteenth-Century China, 91 Harriet T. Zurndorfer 6. Law and Economic Change in India, 1600–1900, 115 Tirthankar Roy 7. Land and Law in Colonial India, 138 Anand V. Swamy

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Contents

8. The Political Economy of Law and Economic Development in Islamic History, 158 Metin M. Cotgel 9. Islamic Legal Institutions of Contracts and Courts: A Comparative Perspective, 178 Toru Miura 10. Bankruptcy Laws: East versus West, 198 Jérôme Sgard 11. Debt Litigation in Medieval Holland, 1200–1350, 221 Jessica Dijkman 12. The Resolution of Commercial Conflicts in Bruges, Antwerp, and Amsterdam (1250–1650), 244 Oscar Gelderblom 13. The Portuguese Judicial System in the Nineteenth Century: Rules, Risks, and Judges, 277 Jaime Reis 14. The Evolution of Self- and State Regulation of the London Stock Exchange, 1688–1878, 300 Larry Neal 15. British Legal Institutions and Transaction Costs in the Early Transport Revolution, 323 Dan Bogart Index, 343

Figures

4.1. Decennial indices of rice and land prices in China (1700–1710 = 100), 81 12.1. The consular jurisdictions of foreign merchant communities in Bruges, 1250–1650, 251 12.2. Consular jurisdictions granted to foreign merchant communities in Antwerp, 1250–1650, 255 12.3 The probability that an individual Flemish merchant appeared before the Court of Holland to settle a commercial dispute in any year between 1580 and 1632 (five-year moving average), 264 15.1. Jury-promoter stage game, 329 15.2. Range of parameters over which projects are initiated, 331 15.3. Distribution of prices per acre awarded by the Dun jury, 333

Tables

13.1. Low-risk loans: Criteria for their selection, 286 13.2. High-risk loans: Personal vs. institutional factors, 288 15.1. Distribution of investment costs and toll income per mile for a sample of projects, 335 15.2. Simulation of internal rates of return for river navigation projects, 336 15.3. Toll income per mile on river navigations (net of collections costs), 338 15.4. Investment by river navigations, 1600–1750, 338

Contributors

Dan Bogart is an economic historian whose research is on infrastructure development and property rights He is an associate professor in the Department of Economics at the University of California, Irvine. His publications deal with the evolution of property rights in Britain, the effects of transport improvements on British economic development, network externalities, and the causes and consequences of state ownership in railways. He is currently writing a book on the role of political and legal change in Britain’s early transport development Metin M. Cotgel is Professor of Economics at the University of Connecticut, Storrs. His research interests include the political economy of religion, particularly the nature and consequences of the legitimization relationship between the rulers and legal-religious scholars in Islamic history. He is also interested in the economic history of the Ottoman Empire, including the systems of taxation and law enforcement. His recent work includes articles in the Journal of Comparative Economics (2009), Journal of Economic Behavior and Organization (2009), and Public Finance Review (2009). He is also maintaining a Web site on the “Economic History of the Ottoman Empire” (ottoman.uconn.edu). Personal Web site: cosgel.uconn .edu. Jessica Dijkman is a postdoctoral researcher in economic history at Utrecht University (the Netherlands), where she also received her PhD in 2010. Her PhD research focused on commodity market institutions in medieval Holland. Her current research compares the organization of crafts in early medieval Iraq, high medieval Italy, and the late medieval Low Countries. Oscar Gelderblom is an economic historian whose main research interest is the history of Europe before the Industrial Revolution. He is an associate

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Contributors

professor at the Department of History of Utrecht University (the Netherlands). His publications deal with financial markets, the organization of foreign trade, entrepreneurship, collective action, migration, and political economy. His current work is on the evolution of financial markets in the Low Countries before 1800. John O. Haley is currently (as of August 2010) Professor of Law at the Vanderbilt Law School and the William R. Orthwein Distinguished Professor of Law Emeritus of the Washington University in St. Louis School of Law. He is also Affiliate Professor of Law at the University of Washington School of Law. He is a widely published comparative law scholar whose primary field of expertise is Japanese law. Among his most recent publications are Antitrust in Germany and Japan: The First Fifty Years, 1947– 1998 (Seattle: University of Washington Press, 2001) and The Spirit of Japanese Law (Athens: University of Georgia Press, 1998; paperback ed. 2006). Mio Kishimoto is Professor of the Department of Comparative History at Ochanomizu University, Tokyo. Her major field of research is the socioeconomic history of early modern China. She is the author of “The Ch’ing Dynasty and the East Asian World,” Acta Asiatica, no. 88 ( January 2005); and “Social Turbulence and Local Autonomy: Japanese Historians Interpret Chinese Social Groupings,” Modern China, vol. 30, no. 1 ( June 2009). Debin Ma is a faculty member of the Economic History Department of the London School of Economics and an Adjunct Professor (special term appointment) at the Shanghai University of Finance and Economics. His research focuses on the long-run economic growth of China and East Asia in a comparative and global perspective, and he has published extensively in prominent academic outlets on topics ranging from comparative modernization of China and Japan and living standards in early modern Europe and East Asia to the political and legal history of traditional China and East Asia. He has worked, taught, and lectured extensively in China, Japan, the United States, and Europe for the past decade. Toru Miura is Professor at the Department of Comparative History at Ochanomizu University, Japan. He is a specialist on Islamic social history and has published widely on this topic. He is the coeditor of Islamic Urban Studies (London: Kegan Paul International, 1994) and Slave Elites in the Middle East and Africa (London: Keagan Paul International, 2000). Larry Neal is Emeritus Professor of Economics at the University of Illinois at Urbana-Champaign, Research Associate of the National Bureau

Contributors

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of Economic Research, and Visiting Professor at the London School of Economics. Specializing in financial history and European economies, he is author of The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (Cambridge: Cambridge University Press, 1990). His recent publications include The Economics of Europe and the European Union (2008) and The Origins and Development of Financial Markets and Institutions (co-edited with Jeremy Atack, 2009) both by Cambridge University Press. Jaime Reis is a Senior Research Fellow at the Instituto de Ciências Sociais of the University of Lisbon. He holds a DPhil in History from the University of Oxford and has taught at the Universities of Vanderbilt, Leicester, Glasgow, and Nova de Lisboa and the European University Institute (Florence). He is a former president of the European Historical Economics Society and currently an editor of the European Review of Economic History. He is a member of the Lisbon Academy of Sciences and has published on the history of money and banking, human capital, labor, agriculture, and institutions, both in Europe and in Latin America. His latest publication is (with Stefano Battilossi) Financial Systems and the State in Europe and the United States: Historical Perspectives on Regulation in the Nineteenth and Twentieth Centuries (London: Ashgate, 2010). Tirthankar Roy is on the faculty of the London School of Economics and a historian of South Asia. He is the author of The Economic History of India, 1857–1947 (Oxford University Press) and Traditional Industry in the Economy of Colonial India (Cambridge University Press). His current work addresses issues in the economic history of eighteenth-century India, including state formation, institutional change, and standards of living. Jérôme Sgard holds a PhD in Economics from University of Paris-X-Nanterre and is currently a senior research fellow at Sciences Po (Centre d’Etudes et de Recherches Internationales) and an associate professor at the University of Paris-Dauphine. His early research work dealt with economic and institutional reforms in transition and emerging economies, and he is the author of L’Economie de la Panique (2002), a book on the Asian and Russian financial crisis. His more recent works focus on the long-term history of economic institutions, namely, commercial law and jurisdictions, with a specific interest in bankruptcy procedures. Anand V. Swamy is Professor of Economics at Williams College in Williamstown, Massachusetts. His research focuses on institutional issues in colonial India. Recent publications include “Only Twice as Much: A Rule for

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Contributors

Regulating Lenders” ( joint with Mandar Oak) in Economic Development and Cultural Change, and “Contracts, Hold-Up and Exports: Textiles and Opium in Colonial India” ( joint with Rachel Kranton) in the American Economic Review. Jan Luiten van Zanden is Professor of Global Economic History at Utrecht University (and president of the International Economic History Association). He has published widely about long-term economic change in Western Europe and Asia (in particular, Indonesia). Among his recent books are The Long Road to the Industrial Revolution: The European Economy in a Global Perspective (2009) and, with Daan Marks, From Asian Drama to Growth Miracle: The Indonesian Economy, 1800–2010(to be published in 2011). Harriet T. Zurndorfer is Senior Research Scholar at the Faculty of Humanities, Leiden University, where she has taught since 1978. She is the author of Change and Continuity in Chinese Local History: The Development of Huizhou Prefecture, 800–1800 (1989) and China Bibliography: A Guide to Reference Works about China in the Past and Present (1995); and editor of the compilation Chinese Women in the Imperial Past (1999). From 1991 to 2000 she was the editor-in-chief of the Journal of the Economic and Social History of the Orient; she is also founder and editor of the journal Nan Nü: Men, Women and Gender in China, published since 1999.

Law and Long-Term Economic Change

chapter one

Law and Long-Term Economic Change An Editorial Introduction Debin Ma and Jan Luiten van Zanden

; “legal origin”: a global perspective Property rights and contract enforcement lie at the heart of sustainable economic growth. During the past decade, our understanding of the historical evolution of various institutional mechanisms to cope with this issue has been greatly enhanced by the voluminous research under the broad category of new institutional economics. The research demonstrates that these mechanisms, whether informally organized through repeated interaction of economic agents or formally institutionalized in a statebacked legal system, were central to the securing of property rights and contract enforcement (see, for example, North, 1981; Acemoglu et al., 2001, 2005; and Greif, 2006). The importance of formal law and legal institution to economic growth has long been noted. The unique features of legal formalism and rule of law embedded in Western law—as argued by Max Weber—have laid the foundation of Western capitalism (Trubek, 1972). The role of law in economic growth resurfaced in recent scholarship on economic growth as exemplified by the highly influential debates on law and finance (La Porta et al., 1998, 1999) and legal origins (Glaeser and Schleifer, 2002). Yet curiously, in this new law and growth literature, the old Weberian interest in legal traditions around the world had largely been forsaken for a much narrower focus on Western European legal regimes only, namely, common versus civil laws. The widely popular exercise of cross-country growth regressions— cross-country intended to cover most, if not all, the countries—reduces the

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Debin Ma and Jan Luiten van Zanden

world legal regimes to the dummy variable of common versus civil law as casual variable to explain differential national growth rates. Even adding in the finer subdivisions of civil law regimes—that is, the Scandinavian, Germanic, French, and Spanish legal traditions—this literature could not make up for the neglect of other vastly important non-Western legal traditions, such as Hindu, Islamic, Confucian, and other systems that had been the focus of intellectual attention of scholars like Weber who, at his time, possessed neither the means to trot the globe nor the tools to run two or four million regressions.1 Can one justify the reduction of our global legal traditions to two European legal origins due to the spread of European colonialism? Not quite: the Western victory in the “legal” battle is far from over. NonWestern legal traditions continue to form the mainstream of the legal systems in a large part of the developing world today; the operation of Islamic law in many Middle Eastern countries is a case in point. Even for those that have nominally adopted Western legal regimes, indigenous legal traditions are still predominant often under the garb of Western legal lexicon. More important, there is other scholarship on the so-called order beyond or without law that emphasizes the importance of informal norms and rules as a means of supporting exchange and contract enforcement under conditions of economic agents’ repeated interaction given a longterm horizon (Greif, 2006). Thus, by simplifying the whole world into two European legal regimes, we misspecify our model by attributing either too much credit or too much blame for the economic success and failures of the developing world in the non-West. While we give due credit and full recognition to the importance of measurement and quantification, the strict adherence to this methodology as sometimes pursed in the “New Economic History” of the 1960s and 1970s and the recent craze in development economics with econometrically identifiable “exogeneity” (or one-way causality) or randomized experiments could contribute to an overtly short-term and restrictive view of long-term economic change. More important, this short-term orientation led to the neglect of long-term evolutionary dynamics with multiple-feedback loops between culture and religion, on the one hand, and economic development, on the other— where institutions, including the legal system, serve as one of the key linking concepts.2 Interestingly, this current narrow focus is in sharp contrast to the older intellectual tradition on law and economic change as represented by scholars, such as Max Weber, who argued that the unique features of Western legal institutions, that is, legal formalism and the rule of law, laid the foundation of Western capitalism. Weber’s intellectual interest in legal regimes was far more global than in the current “legal origin” literature,

Editorial Introduction

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and his writings included extensive discussions on Islamic, Hindu, Chinese and other non-Western legal traditions. The broad-sweeping Weberian thesis on non-Western legal tradition has long been hotly contested and often criticized as Eurocentric by revisionist scholarship of comparative law and area studies. While vastly improving our knowledge on nonWestern legal traditions, much of this revisionist research did not directly engage the large and fundamental question of law and long-term economic growth as raised by Weber and others.3 This disconnect in these strands of literature leaves a large lacuna in our knowledge of institutions and economic growth, with serious intellectual and practical implications. The exclusively European focus leads to continued neglect of important non-Western legal traditions still prevailing in a large part of the developing world today. It leads to simplistic views that undermine our understanding of the complex and difficult process of mutual interaction and transplantation of different legal traditions and that grossly underestimate the importance of indigenous legal traditions even in those countries that have officially adopted Western legal regime and lexicon. Indeed, as pointed out by Gareth Austin’s (2009) insightful critique, the highly influential Acemoglu et al. thesis (and to some extent the Engerman and Sokoloff hypothesis) has largely neglected the importance of indigenous non-European institutional endowments under Western colonialism. By “compressing history” and singling out the role of natural resource endowments and disease environments, these authors inadvertently exaggerated the predatory capacity of European settlers, as though the colonized territory had been an institutional vacuum where indigenous agents were simply passive recipients of an alien tradition. This compression of history, as Austin has pointed out, carried large implications for our understanding of the historical roots of poverty as well as of postcolonial developmental problems.4 The fourteen chapters included in this volume bring together the works of some of the most dynamic scholars in the fields of economic history, area studies, and comparative law to explore how legal regimes have evolved over time across major civilizations throughout Eurasia. Although diverse in discipline and at times with differing viewpoints, these chapters collectively explore some common major themes concerning the fundamental question of the nature and evolution of different legal regimes and their impact on long-term economic growth: How do different legal traditions originate and evolve? How are different legal institutions structured, and what is their connection with the state or organized religion? How arbitrary or rule-bound is the legal system in a comparative framework? How do different legal traditions define and impact property rights and ownership? How do courts functions, and

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how are contracts enforced? And finally, is legal tradition relevant to the “Great Divergence” debate?

culture, ideology, and legal regimes: an analytic framework Part of our attempt to revive Weber’s vision is in line with the “new institutional economics” paradigm, through our incorporation of institutions, such as legal systems, social-political structures, and the longterm evolution of broad cultural and religious values into the analysis. Increasingly with the role of the state or bottom-up institutional evolution identified as the “source” of new “rules of the game,” questions on the ultimate or meta-causes of the sources of these rules and institutions cannot be avoided. The chapters in this volume show that there are important differences in the ways in which societies resolve their conflicts through their respective legal regimes and that these differences should be placed in the wider cultural or even religious background of the societies involved. The conclusion that we draw from the different chapters is that culture matters in that it defines to a large extent the range of ideas that are open to or at the disposal of a given society or civilization. Most (advanced) societies have at their disposal a very broad range of ideas originating in their respective religious and philosophical traditions. European society, for example, could draw on different Judeo-Christian, Greek, and Roman traditions (not to mention Celtic, Germanic, Slav, and other non-Mediterranean influences). Chinese society has Confucian, Daoist, and Buddhist traditions, which all developed different schools and conflicting interpretations of what the “tradition” was all about. And to some extent these traditions overlapped, and societies shared the same ideas and concepts (for example, Buddhism in India, China, and Japan; Greek and Jewish traditions in Islam and Christendom; and Roman legal traditions in Byzantium and Western Europe). What is important for understanding the genesis and development of institutions—including the legal system— is the ways in which these broad traditions impacted on the actual formation of rules. We argue here that the state, or sociopolitical power structures in general, acted as a kind of filter in selecting those ideas compatible with their interests, while suppressing alternative ones. So the first thing that matters is the range of ideas that is on offer—here the history of a specific culture comes in—but the second and perhaps


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even more fundamental element in explaining institutional variation (and variety) is the selection mechanism or process that occurs at the sociopolitical level. A few examples serve to illustrate how this might work in practice. In an illuminating essay, Bettine Birge (2003) has documented the changing legal and institutional position of women between the Song and the Ming (and in fact the Qing) dynasties. She demonstrates that under the Song the position of women was relatively strong, because there was a certain degree of ideological plurality, and common law and actual government practices often protected the rights of women—as heiresses to property when they were widowed, for example. Already under the Song, the Daoxue reform movement insisted on reforming the family system to make it more consistent with Confucian ideas, but it was the Mongol conquest, and the need for the Mongols to stabilize their regime, that lead to an official acceptance and formal institutionalization of these (neo-)Confucian ideas in the new regime. This tendency for the state to identify itself more strongly with Confucian ideas continued with the ascendancy of Ming imperial power, ultimately leading to a certain narrowing of the ideological and institutional focus, driven by the desires of the state to impose law and order, which not only undermined the independence of women (as Birge, 2006, demonstrates) but had consequences for much broader processes of institutional change. We can take a comparable example from European history. As was the case with Song China, medieval Western Europe could draw on a very broad range of ideas and traditions for shaping its institutions. One dimension of this plurality concerns the degree of hierarchy that was considered right and whether the king was subject to the law. According to Roman public law, as formalized in the Justinian code, the emperor alone had power to make statutes and to interpret them; he was therefore not subject to them (although others had argued that “it was worthy of the emperor to profess himself to be bound by statutes”; Johnstone, 1997). At the family level, a similar degree of hierarchy was maintained in Roman law; the father was the single ruler of the household. In medieval Europe these traditions were simply in direct conflict with societal practices, and were therefore ignored (in spite of the rediscovery of Roman law in the eleventh century). As part of the European legal revolution of the eleventh and twelfth centuries, as described by Harold Berman, Western Europe developed new traditions and subjected the kings to the rule of the law and limited the authority of the father to canon law (Berman, 1983). The canon law, for example, developed the doctrine that marriage should be based on consensus, thereby seriously limiting the power of the head of the household

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over this crucial decision (De Moor and Van Zanden, 2010). At the same time, this power structure, characterized by “constraints on power,” gave rise to the private law tradition of “a reliance on adjudication of disputes” (Haley, in Chapter 2 of this volume). However, the gradual strengthening of the position of monarchs in the late medieval and early modern periods created a demand for an ideological repositioning of the king. Social philosophers such as Bodin began to use the concepts and ideas of Roman law to develop “absolutist” ideas about the role and power of the king, who was now, again, placed above the law. At the same time, the Reformation and the Counter-Reformation resulted in a revision of family law in a more authoritarian direction. In the early modern period, the two traditions—inspired by “authoritarian” Roman law and “democratic” medieval law—were an important source of dynamic change of the institutional and sociopolitical development of the region. This again demonstrates that the selection process was driven by political or societal interests—but at the same time, countertraditions continued to exist that drew on alternative cultural and religious ideas. We can demonstrate our analytical paradigm through a simple threelayer framework, where the first layer—cultural traditions or values (note the plural forms here)—were filtered or selected through the second layer—the social and political structures—to translate into the third layer—the institutional rules, such as the legal regimes. We want to emphasize that, in this highly simplified scheme, as much as culture matters or rules it does not operate in a deterministic one-way street—far from it. Our examples and the chapters in this volume show that institutional practices may feed back into the range of ideas available in a given society. Institutional development—and economic growth—may give rise to the growth of new practices and concepts that enrich the first layer of the scheme. At the same time, the selection process that occurs at the middle or second level could also result in certain traditions becoming obsolete, or in ideas losing their practical relevance or appeal in a given environment, and sometimes leading to a kind of petrifaction of the ideological framework of societies or civilizations. Conversely, the importing of new ideas—via trade, missionaries, or diplomats—will often enrich the range of ideas available but will also challenge prevailing sociopolitical structures. Below we turn to a chapter-by-chapter introduction of how this mechanism has operated over time across Eurasia. Although the order of the chapters in this volume follows an East-West geographic direction, the following discussion is arranged by themes.


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chapter introduction Law’s Evolution Contributions by John Haley (Chapter 2), Debin Ma (Chapter 3), Tirthankar Roy (Chapter 6), Metin Cotgel (Chapter 8), and Jérôme Sgard (Chapter 10) directly address the evolution of law in Europe and Japan, China, India, and the Ottomans, respectively. John Haley traces the historical process that led to the rise of one of the specific features of the Western legal tradition, the emphasis on private law and the reliance on adjudication disputes—a tradition, he argues, that has its roots in medieval social-political structures. This chapter traces a parallel historical process of fragmented power structures in Japan that partly accounted for the emergence of a similar Japanese legal tradition of adjudication as the primary means of formal law enforcement. Haley, however, points out that in comparison with Western legal tradition, there is a distinct absence of a conceptual system of law or legal rights that could enable recognition of substantive rules and analogous principles of private or public laws. Nonetheless, Haley views this historical background of political fragmentation and reliance on adjudication as having laid the foundation for the successful reception of European private law during the late nineteenth century. In Chapter 3 Ma offers a critical review of recent revisionist literature on Chinese legal tradition and argues that some subtle but fundamental differences between the Western and Chinese legal traditions, often neglected in the revisionist literature, are crucial for understanding the economic divergence in the modern era. Ma focuses on the comparative status of legal professionals or communities as a historical outcome of important differences in underlying political structures between China and England. In England, the power to make and interpret legal rules became increasingly embedded in the hands of independent professionals that also subjected kings to the rule of law in the common law tradition by the early modern era. In China, despite the elaborate legal codification and mandatory legal reviews to ensure consistency in legal rulings and decisions within the administrative hierarchy, the power of rule-making and legal interpretation remained in firm control of the highly centralized bureaucratic state, and hence law remained as an instrument of political and social control by the emperor or the imperial power hierarchy. Ma shows that the contrasts in legal regimes as revealed through the differential patterns of legal professions and jurisprudence in China and Western Europe directly impact the nature of these societies’

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property rights, contract enforcement, and ultimately their long-term growth trajectories. The theme of social and political groups that have the power—and the privilege—to translate cultural values and ideas into legal practice also comes through in Metin Cotgel’s chapter on the specific role played by the legal-religious community and its interaction with state and society in the Islamic world. From the early development of these societies onward, a specialized, cohesive group of interpreters of Islamic law and religion emerged, which held a key position in these societies because of their power of interpretation and adjudication of law. Traditionally they had long played the important role of granting legitimacy to the rulers in the Islamic world. But the Ottomans added distinct elements to their relation with the legal community by raising its status in the populace while at the same time bringing it under their control by claiming the right to appoint chief judges and chief jurisconsult so as to manage the entire legal hierarchy. It is the interaction between this group and the ruler—who has to adopt certain new ideas or techniques—that determines what will happen. The convergence and divergence of interests among these agents led to the adoption or nonadoption of certain innovations. This helps explain why these particular innovations (as with the banning of the printing press) were not accepted by the Ottoman Empire (for example), whereas others did not meet this kind of resistance. However, as the Ottoman emperor was not seen as being subject to the law, in the cases Cotgel sketches it was mainly the eagerness of the sovereign to introduce a certain innovation, or not, that determined the outcome of the innovation process. Turning to South Asia, in Chapter 6 Roy describes a legal regime operating in a political regime in sharp contrast to that of politically centralized China. Consistent with its highly decentralized political structure, as described by Roy the precolonial India legal system is essentially community bound with some signal characteristics. In the sphere of canon law, the state did not make laws but upheld them with the hierarchy of state courts reflecting the political order rather than the contents of law or the nature of offense. In civil matters outside the sphere of canon law, communities (castes, guilds, and so forth) both made and administered laws, but with weak, informal, or highly differentiated procedures and rules. This makes a fascinating historical background for the arrival of the so-called colonial law, which is also a central focus of Roy’s contribution. He distinguishes two influential interpretations of this process. The first, which is linked to the “legal origins” approach, maintains that British India basically inherited a common law system—an interpretation Roy calls the transmission theory. He contrasts this with the fact that colonial


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administrators initially—to keep the costs of administration down and maintain peace and order—were strongly inclined to preserve indigenous law. This, however, required the codification of the indigenous laws, which he terms as translation theory. He then analyzes the limitations of these two approaches and concludes that, in terms of procedures, “transmission took precedence over translation” but that in terms of contents, “the translation imperative dominated the transmission one in framing actual laws.” The power of new legal ideas, as stressed in a number of contributions, is best illustrated by Jérôme Sgard (Chapter 10), who sets out to explain the emergence of a unique Western European legal rule, that is, bankruptcy law, and its absence—or its quite different character—in other parts of the world. He points out that bankruptcy was a medieval European invention that spread from the cities of northern Italy to the rest of the subcontinent. More important, by revealing the significance of the political commitment to private exchange and collective action by citizens as embedded in the political structure of city republics, Sgard traces the birth and development of bankruptcy law in northern Italian city-states to its institutional and political economy origins. By discussing similar legal devices directed at the same problem—the Japanese debtor law developed under the Tokugawa, the Roman cession, and Islamic law (which was probably built on Roman tradition)—this chapter also contributes toward a global history of “bankruptcy law.” Property Rights and Ownership In Chapter 4 Mio Kishimoto examines the evolution of the concept of ownership and property rights in land in traditional China, drawing to a large extent on the works of generations of Japanese scholarship in this field. Kishimoto begins with a nuanced discussion of the meaning of “ownership” and “property rights” in the specific Chinese context. Differences with legal traditions from the West were already in evidence when considering the “owner” who owned the land: such a person was not considered an autonomous individual “but was regarded as a link in a hierarchy of human relationships.” This ownership pattern as structured in human networks, such as a family, lineage, or state, served to limit the power of individuals—even of the father as the undisputed head of the family—to dispose of family property. Kishimoto’s analysis of the Chinese ownership pattern is relevant for understanding the complex development of property rights in land from the Song to the Qing as discussed in her chapter. While the state allowed people to transact freely in land, the “property rights” they transacted were not absolute or not “one and undivided” (as they

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were in Roman law), instead characterized by a number of layers of sometimes overlapping claims. This has, as Kishimoto shows through several historical examples of customary rules in land transactions, important implications for the degrees of freedom a person had in dealing with the properties of the family and for the way in which land transactions and their prices were assessed. Kishimoto’s exposition on Chinese patterns of ownership and property rights is cast in a much wider comparative context in Chapter 9, by Toru Miura, on Islamic law. Surprisingly, ownership patterns in Islamic law, as argued by Miura, were highly individualistic and marked by the absence of the European concept of legal person and incorporation. Indeed, “all subjects involved in the legal matters are individuals, including females and minors.” Miura partly attributes the absence of “legal person and incorporation” in Islamic law to the fact that the “purely” individualistic nature of property law in Muslim society is inconsistent with the “collectivistic” nature of the corporation, in which a group of individuals pool their resources. The question of why the concept of “corporation”— an important legal concept that played a large role in Western European society from the eleventh and twelfth centuries onward—was not accepted or developed in Islamic legal thinking is also discussed in Chapter 8, by Cotgel. There, applying his political economy perspective, he attributes this “failure” to adopt this institutional innovation to the fears of both the sovereign and the legal community that an organized group could undermine their powers and legitimacy, respectively. Nonetheless, it needs to be stressed here that both Kishimoto and Miura argue that these “deviations” from the European definition of property rights and ownership harbor great interpretative flexibility to support fairly lively market exchange of goods and properties both in China and the Islamic world in the early modern era. The contribution by Swamy (Chapter 7) analyzes the evolution of policies by the Indian colonial state toward property rights in land. Initially, the fiscal imperative predominated: it tried to identify the “owners” of land who could be in charge of collecting the land tax within the existing institutional framework—this fitted into a liberal view on the colony, in which clear property rights would bring about economic development. Indian realities were more complex, however, and the zamindars, the elite identified as the owners of the (new) property rights, did not play the progressive role they were supposed to. This led to the development of alternative institutional schemes, supported by the growth of the colonial bureaucracy, which was increasingly able to intervene “at lower tiers of agrarian structure.” After the mutiny of 1857, colonial perceptions of what was required changed fundamentally, and the protection of the rights of the peasantry


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increasingly became the focus of administrative concerns. This chapter, like Chapter 6, demonstrates the considerable experimentation with “social engineering” in a colonial setting where sharply differing legal traditions clashed. Courts, Litigation, and Enforcement Chapter 9 also discusses in detail the nature of legal decisions and their enforcement in Islamic court: were judges in many ways mediators in civil cases (as much of the literature on Chinese legal practices suggests) and could they impose their assessment on the parties involved? He argues that in fact “the qadi in Islamic Law was expected to act as a mere chairperson rather than a judge to sentence with his own discretion.” Legal decisions relied on the oral testimonials of witnesses. As trials were often performed openly in the presence of all parties, social reputation and community pressure remained as important, if not totally effective, mechanisms both to mitigate the sometimes widely alleged false testimonials and to help ensure subsequent compliance with legal decisions by the parties involved. Chapter 9 also touches on another important feature of Islamic law, namely, the superiority of witnesses over written documentation as a source of evidence, a sharp contrast with the tradition in Western Europe, where already at an early stage written evidence was preferred over memory.5 In Chapter 5 Harriet Zurndorfer examines similar issues related to the nature of legal decisions and the use of evidence and court procedures in China. Zurndorfer portrays a lively and active litigation culture from the Song dynasty and accelerating through the Ming dynasty, during China’s “second commercial revolution” (1450–1550). Her case study on Huizhou prefecture shows that the rapidly growing number of legal disputes, particularly those involving increasingly complex land rights, had overrun administrative legal systems and led to the increasing involvement of informal and community or village level in arbitration and dispute settlement. As stressed already by Ma and Kishimoto in their contributions on China, Zurndorfer points to the mediation nature of dispute resolution, a procedure highly differentiated from the prominent role of “adjudication” in European legal regimes. Courts figure centrally in Chapters 11 and 12, by Jessica Dijkman and Oscar Gelderblom, on the Dutch and Flemish legal systems, respectively. Dijkman asks whether the strong performance of the Dutch economy after 1350 can be explained by analyzing the specific institutional and legal framework that emerged there in the period between 1200 and 1350. As a relative latecomer in Western Europe, Dutch cities developed these

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new legal rules and practices largely through transmission from the more advanced parts of Western Europe, in particular from southern Netherlands. For example, the charter of liberties of Dutch cities was often derived from the Den Bosch charter. Although not itself original, the Dutch legal system proved innovative in selecting better performing institutions elsewhere. The only exception may have been the strong position of local courts in the legal system of the county, which was not found in Flanders or England and may have had positive effects on economic development. Gelderblom presents a broad survey of different ways in which commercial conflicts in long-distance trade were resolved in northwestern Europe between 1250 and 1650. He first makes the point that merchants usually tried to avoid taking recourse to the formal legal system, to courts in particular. But different kinds of courts—linked to fairs, local, consular, and finally national—did play a role in contract enforcement. As the needs of merchants changed, the role played by different courts changed as well: fair courts dwindled with the decline of annual fairs, for example. Increasingly local courts took over the function of specialized consular courts, which previously had catered for the needs of alien merchants in, for example, Bruges or Antwerp. Gelderblom explains this process as the result of a growing convergence of business practices, creating “a more comprehensive set of contracting rules shared by the merchant community at large.” The evolution of Dutch and Flemish legal regimes as studied by Dijkman and Gelderblom show developments common to other nonWestern legal regimes as well as crucial distinctions. Dijkman reveals the important role of autonomous urban governments not only in the setting of rules and procedures but also in the enforcement of legal decisions, with the accompanying process whereby gradual “rationalization” of factfinding procedures was taking place in trial procedures. With due emphasis on the enduring importance of what he calls “amicable settlement,” Gelderblom demonstrates that even the procedures for arbitration—a process usually viewed as the least formalized—were increasingly formalized, with arbiters often drawn from legal professionals and arbiters’ decisions made legally binding. In Chapter 13, Jaime Reis presents an innovative statistical method to address the quality of legal courts in nineteenth-century Portugal. On the basis of the notion that “the price of credit can be a meaningful proxy for institutional quality,” he uses data on interest rates on mortgages to assess the efficiency of the Portuguese judicial system in the nineteenth century and “confirms the existence there of a low level of protection for creditor rights,” resulting in relatively high interest rates on mortgages. Reis follows his statistical analysis with a historical nar-


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rative to shed light on the poor performance of the Portuguese courts of law. His narrative emphasizes that the root cause lies not so much in the design of law or the architecture of legal institutions but rather in the political configuration of the regime, a parliamentary monarchy that allowed political influence to override the autonomy of both the court and legal professionals.

Law, Finance, and Public Infrastructure: The Case of England The final two chapters (14 and 15), by Larry Neal and Dan Bogart, respectively, examine the linkage between legal regimes and the evolution of the London Stock Exchange and the building of public infrastructure in England, the motherland of the first Industrial Revolution. Neal directly addresses the point made in the “legal origins” literature that the success of the London Stock Exchange was linked to the British common law system and the self-regulation of that institution. He demonstrates the importance of the self-regulating London Stock Exchange as an institutional safeguard against opportunistic and dishonest trading practises by its members. However, he stresses that formal regulation or the threat of state regulation was also beneficial in protecting some important financial innovations as pursued by the more adventurous and aggressive members of the Exchange. Indeed, he argues that “the relationship between formal regulation and informal regulation of the London Stock Exchange over time was therefore much more complex than simply reflecting a common law society governed by central government.” It was “the beneficial interplay between formal and informal regulation” that was key to its long-term success. Bogart focuses on the linkage between British legal institutions and infrastructure development in early modern Britain. He examines the era following the Glorious Revolution of 1688–1689 that saw a shift in the use of juries in legal trials to recommend compensation for land acquired for road, river, canal, and railway projects. Overall his findings suggest that juries redistributed profits from river navigation promoters to landowners and in the process discouraged projects at the margin of profitability. However, these conclusions need to be qualified because juries had other beneficial effects as they awarded compensation quickly, and jury decisions were final, avoiding prolonged negotiations, a contrast to prerevolutionary France, where infrastructure projects could be delayed for decades because courts were slow and indecisive. Bogart further argues that his analysis of juries should also be placed in the broader legal

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and political context of the post–Glorious Revolution era, where the procedures for changing property rights were consensual in the sense that affected individuals or groups had a voice in the process and generally came out as well or better off than before. Hence, jury redistribution provides an important illustration of how the “losers” gain from changes in property rights in an era when Britain was undergoing rapid economic transformation. conclusion We hope that this edited volume will serve as a building block toward a renewed understanding and interpretation on the complex and interactive relationship between law and economic growth and perhaps contribute to the revival of the kind of global vision and broad themes raised already by Max Weber about a century ago, if it will not have all his answers. While diverse in period, regions, and even viewpoints explored, there is a unifying theme in this edited volume that collectively presents insightful lessons to shed light on the so-called “Great Divergence” debate, sometimes alternatively called the “Rise of the West” thesis. Viewed through the three-layer interactive framework involving cultural values, sociopolitical structures, and legal rules and procedures, indeed one can argue that legal traditions in various parts of the world drew on very different cultural concepts about family, property, authority, religion, and property rights, which were filtered or converted by different power structures and social groups into operational legal rules and procedures that ultimately had long-lasting (intended or unintended) consequences on the long-term economic trajectories for different civilizations. Features of the Western legal tradition, which go back to at least the medieval era, do stand out as notable exceptions: the fundamental corporate characteristics of Western sociopolitical structures founded on self-governing, interest-based, and often territorially defined non-kinship organization has allowed a process of bottom-up, organic institutional formation. In this regard, we agree with Avner Greif that the unique evolutionary trajectory of Western institutions can be understood not as a result of “spontaneous order” but as the product of intentional and coordinated efforts by many individual agents or organizations, often with coercive abilities (Greif, 2006, p. 389). The historical rise of a distinctive legal order in the West characterized by private law with coercive enforcement capacity, the reliance of “adjudication” in the hands of autonomous legal professionals, the triumph of internal legal logic over political and religious expedience, and ultimately the triumph of the rule of


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law represent the most visible and concrete illustration of this evolutionary process. However, the above conjecture on the “Great Divergence” should in no way obscure another fundamental theme as demonstrated by the rich details throughout all the chapters: the fundamental commonalities or convergent elements of our diverse legal traditions and regimes across Eurasia. Indeed, despite the enormous variety of legal ideas and concepts associated with their underlying cultural values or religious and ideological ideas, our volume reveals often the sometimes surprisingly common coping mechanisms to resolve similar disputes in the form of legal instruments, court procedures, and, more important, legal decisions that often reflected a shared underlying sense of fairness and justice. This is well captured by Roy when citing Moreland (1920) on the practices of Indian trading communities and their legal system: “Like other such systems, it was substantially fair to every one who knew ‘the rules of the game’.” This basic shared value of fairness and justice by all the societies is probably what all legal systems aimed at, and it helped promote a degree of uniformity across the huge variety of cultures and religions to keep things together, allowing trade to take place from Europe to India and China long before the modern era. By arguing for a case of global legal traditions rather than a European legal tradition, our volume is much more than a simplistic tale of European exceptionalism. Indeed, on a tautological level, each civilization or legal regime had unique or exceptional elements if viewed from a different perspective. We believe cultural and historical differences do exist and that these matter for long-term economic change, but we hope this volume helps contribute a view toward a richer and subtler perspective on global legal traditions that goes beyond the often simplistic and reductionist dichotomies of individualism versus collectivism, formal versus informal, rational versus irrational, or even West versus non-West. And precisely because the evolution of legal rules and regimes operated through varying layers of cultural values and political and social structures often with multiple feedbacks with a long time span, we believe that a historical, region-focused, and global comparative scholarship remain invaluable and irreplaceable. ac know ledg ments Many of the contributions to this volume originated at a conference organized by the two editors on the theme of law and economic development, held in Utrecht, The Netherlands on September 21–23, 2007 (conference

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Web site at http://www.iisg.nl/hpw/conference.php). The aims of the conference were twofold: to introduce the complex reality of the historical interactions between law, social norms, and institutions into the current law and finance literature and to introduce (again) the subject of law and its many ramifications into the growing discipline of global economic history. It was part of a series of conferences on global economic history organized by the Utrecht research group in economic and social history, in cooperation with the Global Economic History Network (GEHN) set up by Patrick O’Brien at the London School of Economics. Most of the chapters in this current edited volume are the revised versions of conference papers presented at this conference. Respecting global norms of fairness, we also want to thank the following for their active participation: Vincent Bignon, William Clarence-Smith, Tine De Moor, John Drobak, Timur Kuran, Ghislaine Lydon, Masaki Nakabayashi, Patrick O’Brien, Tetsuji Okazaki, Maarten Prak, Bas Van Bavel, and Oliver Volckart. We want to thank Erika Kuijpers for her help in organizing the conference, which was funded by the Spinoza premium from the NWO (Netherlands Organization for Scientific Research). We also want to mention Larry Epstein, who contributed to the preparatory stage of our conference but whose untimely death prevented his participation in the conference. Our special thanks go to Margo Beth Crouppen at Stanford University Press for encouragement and suggestions at various stages of publication; to the two anonymous referees for their valuable comments on a draft of the volume; and to Avner Greif for initiating this publication endeavor with Stanford University Press. Our thanks also go to Phyllis Mitzman, who copyedited the entire manuscript. Notes 1. Similarly, law in the so-called standard literature of law and economics championed by the Chicago school (Ronald Coase, Richard Posner, and Gary Becker) often takes for granted the European legal traditions as the default and rarely engages with non-Western legal traditions (see Parisi and Rowley, 2005). 2. The changing scope of economics and economic history in particular has been analyzed by Drukker (2006). 3. For critical legal revisionism, see Menski (2006) and the special discussion articles published in the Journal of Asian Studies on the theme of Chinese and Indian legal system as contained in Ocko and Gilmartin (2009). 4. See Acemouglou et al., 2001, 2005; Sokoloff and Engerman, 2000; and Levine, 2005, for the resource endowment view. 5. At the 2007 conference Ghislaine Lydon presented a paper focused on this topic but not included in the present volume; see Lydon, 2007.


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References Acemoglu, D., S. Johnson, and J. A. Robinson. (2001). “The colonial origins of comparative development: An empirical investigation.” American Economic Review 91 (5): 1369–1401. ———. (2005). “Institutions as the Fundamental Cause of Long-Run Growth.” In Handbook of Economic Growth, Vol. 1A, ed. Philippe Aghion and Stephen Durlauf. Amsterdam: North Holland, Elsevier. Austin, G. (2009). “The ‘reversal of fortune’ thesis and the compression of history: Perspectives from African and comparative economic history.” Journal of International Development 20 (8): 996–1027. Berman, Harold J. (1983). Law and Revolution: The Formation of the Western Legal Tradition. Cambridge, MA: Harvard University Press. Birge, Bettine. (2006). “Women and Confucianism from Song to Ming: The Institutionalization of Patrilineality.” In The Song-Yuan-Ming Transition in Chinese History, ed. Paul Jakov Smith and Richard von Glahn, 212–241. Cambridge, MA: Harvard University Press. De Moor, Tine, and Jan Luiten van Zanden. (2010). “Girlpower: The European Marriage Pattern (EMP) and Labour Markets in the North Sea Region in the Late Medieval and Early Modern Period.” Economic History Review 63 (1): 1–33. Drukker, J. W. (2006). The Revolution That Bit Its Own Tail: How Economic History Changed Our Ideas on Economic Growth. Piscataway, NJ: Transaction Publishers. Glaeser, Edward, and Andrei Shleifer. (2002). “Legal Origins.” Quarterly Journal of Economics 117: 1193–1230. Greif, Avner. (2006). Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Cambridge: Cambridge University Press. Johnstone, David. (1997). “The General Influence of Roman Institutions of State and Public Law.” In The Civilian Tradition and Scots Law: Aberdeen Quincentenary Essays, ed. D. L. Carey Miller and R. Zimmermann, Berlin: Duncker & Humblot, 87–101. La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny. (1998). “Law and Finance.” Journal of Political Economy 106: 1131–1150. ———. (1999). “The Quality of Government.” Journal of Law, Economics & Organization 15 (1): 222–279. Levine, Ross. (2005). “Law, Endowments, and Property Rights.” Journal of Economic Perspectives 19 (3): 61–88. Lydon, Ghislaine (2007). “A ‘Paper Economy of Faith’ without Faith in Paper: A Contribution to Understanding ‘the Roots of Islamic Institutional Stagnation.’ ” Paper presented at the “Law and Economic Development,” Utrecht, the Netherlands, September 21–23, 2007. Menski, Werner. (2006). Comparative Law in a Global Context: The Legal Systems of Asia and Africa. 2nd ed. New York: Cambridge University Press. North, D. C. (1981). Structure and Change in Economic History. New York: Norton.

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Ocko, J., and D. Gilmartin. (2009). “State, Sovereignty, and the People: A Comparison of the ‘Rule of Law’ in China and India.” Journal of Asian Studies 68 (1): 55–133. Parisi, F., and C. K. Rowley. (2005). The Origins of Law and Economics: Essays by the Founding Fathers. Cheltenham, UK: Edward Elgar. Sokoloff, K., and S. Engerman. (2000). “Institutions, Factor Endowments, and Paths of Development in the New World.” Journal of Economic Perspectives 14 (3): 217–232. Trubek, David. (1972). “Max Weber on Law and the Rise of Capitalism.” Wisconsin Law Review 720 (3): 720–753.

chapter two

The Evolution of Law Political Foundations of Private Law in Medieval Europe and Japan John O. Haley

; introduction Law in the Western legal tradition is commonly defined in terms of private law. This now global emphasis is argued here to have been determined in large part by the limits of power of the political regimes that emerged during the millennium following the collapse of the Western Roman Empire. Constraints on the control of rulers over human and material resources and their initial capacity to coerce precluded their political and legal evolution to the sort of advanced public law order achieved by the rulers of imperial China by the third century b.c. The constraints on power in Western Europe’s medieval kingdoms produced instead a reliance on adjudication of disputes both to buttress authority and to maintain order. The pervasive reliance on adjudication as a primary means for law enforcement helps to explain the ready reception of Roman private law via the Corpus Juris Civilis as the formative feature of the continental ius commune. Contemporaneous Japanese experience suggests that the European pattern was not exceptional in its separate evolutionary trajectory. Japan replicated fundamental conditions evident in Western Europe. The result was a comparable reliance on adjudication. Thus adjudicatory institutions and nearly all of the basic features of a private law order became a pervasive means of law enforcement. The exceptionalism of West European law rests on the conceptual constructs of private law and natural

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law introduced in the twelfth and thirteenth centuries. They subsequently fused a uniquely Western notion of law as a system of private and universally applicable rights. Absent in Japan was any conceptual system of law or legal rights that could enable recognition of substantive rules and principles of private or public law analogous to those in the Corpus Juris Civilis. Nor did East Asian understandings of law include a nexus with the prevailing moral order comparable to that of natural law. Moreover, despite the introduction and spread of both Buddhist and Confucian precepts, Japan lacked any generally shared belief in universal values or moral order. Nevertheless, the foundations were well established for the successful reception of European private law at the end of the nineteenth century. By the turn of the twentieth century, Western law had become globally paramount. Western legal conceptions and processes had become universally accepted. Hand in glove with prevailing conceptions of statehood, the definition of law as predominantly a system of private law, also uniquely Western in emphasis if not origin, was evidenced in the centrality of civil (private law) codes on the Continent and common (private) law in Great Britain. The processes of legal transplantation varied, but colonization by West European states and the imposition of national legal institutions was the most common pattern. Extending throughout the Americas and the Philippine Islands, the sixteenth-century Spanish colonial empire was the first, the most expansive, and the most enduring one. Institutions based on English common law as well as French, Dutch, and German civil law similarly spread along with colonization. By the end of the nineteenth century, with the exception of former colonies and the lands under Ottoman or imperial Russian rule, only a handful of countries, nearly all in northeast Asia, remained independent states. All, however, ultimately succumbed to Western institutional dominance and within a generation had reformed traditional political and legal institutions and structures along Western European patterns. Of these, Japan stands out as having accomplished the first and most successful transplantation of nineteenth-century Western law. The primary aim here is to offer an explanation of the unique development and primacy of private law in Western Europe and Japan’s success in replicating the European experience. The conclusion offered is that by the twelfth and thirteenth centuries, Western Europe and Japan had satisfied the fundamental political preconditions for adjudication as a primary means of law enforcement and legal order by rulers. The threshold question of why this matters, especially in the context of a discussion of the relationship of law and long-term economic change, requires at least a tentative answer at the outset.

Foundations of Private Law in Medieval Europe and Japan

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Those who advocate the “new institutional economics” argue that economic growth is linked directly to private law (North 1990; North 2005; De Soto 2000). They posit that legal protection of property rights and enforcement of contracts underlie economic exchange and growth. Transactional security, with assurance that future gains in wealth are protected by the law of contract and property, produces the confidence necessary for investment in wealth-generating enterprises. Similarly, anticipation that consensual undertakings will be legally enforced [delete comma] encourages expanded exchange and transactions with strangers. Thus, the argument proceeds, economic activity tends to flourish in stable political orders in which private law systems function. To some extent the argument is circular in that private law orders are uniquely Western European and thus the nexus between private law and Western European economic growth may be more coincidental than causal. Add Japan to the analysis, however, and the argument becomes even more persuasive. It also, however, becomes more nuanced. Japan, as argued here, did indeed develop quite early what may be described as an embryonic private law order involving routine adjudication of claims by private parties, particularly proprietary entitlements to agricultural produce as well as commercial claims. Equally significant in the case of Japan—and imperial China—were extralegal, auxiliary, if not substituted, protections, for both proprietary claims and consensual arrangements through cooperative private ordering with mechanisms for including erstwhile strangers (Okazaki 2005). Nonetheless, fuller exploration of the nexus between private law and economic growth goes well beyond our more modest aim here. Definitions, Premises, and Argument The analysis offered here is grounded on a particular definition of law as two separate but interrelated elements—norms and sanctions—made and enforced through formal processes articulated and applied by those who exercise political authority or power or both. The argument also rests on the following set of premises related to the evolution of political systems: The first is that political systems evolve over time along trajectories that originate in simple communities held together by kinship. As these communities become increasingly complex and stratified, chieftainships and ruling elites emerge. The prevailing trajectory ends, at least in the present, with centralized bureaucratic systems administered by salaried officials who act, at least in theory, as agents for those who hold the authority to rule. A second premise is that acquisition of resources (revenue) is a necessary condition for regimes to move along this posited trajectory. How, whether, and to what extent political systems advance toward a

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centralized bureaucratic regime depends on the capacity of rulers (from chiefs to emperors) to control material and human resources and to coerce. The capacity to do both is a prerequisite to do either. Warfare, submission, and plunder thus predominate the history of statecraft across time and around the globe. The third and final premise is that the nature of wealthgenerating resources defines the requirements for effective rule and the features of the political systems that emerge. The most advanced bureaucratic polities in ancient times—Egypt and Qin China—along with their later Mesoamerican parallel, Inca Peru, shared several basic characteristics. In each instance, aided by geography, warrior rulers established effective control over agricultural production, the principal source of wealth, with subordinated labor. The rulers were thus able to create both a dependent military and civil bureaucracy that in turn enabled them to ward off both external and internal rivals and to perpetuate their capacity to govern. Without direct control over wealth-producing sources, the rulers of these ancient empires, like those in the early Mesopotamian and later Mediterranean empires, would have had to negotiate with smaller polities for alliance or tribute in return for security and protection. In turn, their capacity to field warriors to provide security and protection would also have diminished. Moreover, as commerce became an increasing source of wealth, rulers in all ages have been forced either to find coercive mechanisms for their appropriation or at least administrative measures for indirect control— licensing comes quickly to mind—or to accept the consequent diffusion of power. In the process, the evolutionary trajectories of political regimes diverge. Law and Modes of Enforcement What then of law and law enforcement? To state the argument simply, patterns of law and law enforcement tend to evolve along trajectories in tandem with political systems. In simple, relatively homogeneous, and equalitarian societies, those with some authority to rule (legitimacy) tend not to have either independent control over resources or capacity to coerce. They exhibit accordingly a communitarian bias, with custom and consensus as the common sources of norms, and those with greater authority function as mediators, often with community participation. As rulers emerge and increase their control over resources and the capacity to coerce, they are also able to introduce new legal rules and to use more coercive means to enforce them. Thus, legal rules that advantage those who govern and coercive means of enforcement under their control characterize advanced political systems and legal orders. In the process, however, a familiar layering of law-enforcing modes occurs. Within relatively autono-


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mous, homogeneous, and equalitarian subcommunities, as in Japan,1 preexisting patterns may remain. Consensus and community sanctions prevail. Within such communities, especially those characterized by self-governing elites, as in early Athens and republican Rome, loss of reputation may function as the primary sanction. For those fully subordinated and subject to coercive control, however, command and coercion become the norm. Both patterns exist in all societies. Neither, however, is deemed “legal” unless used or directed by those who govern. Along with various forms of extralegal private ordering, preexisting modes of formal law enforcement— adjudication included—also may remain. Yet with the posited evolution of political authority and power, they too lose their primacy and become increasingly marginal as the legal order becomes increasingly regulatory and coercive. Adjudication What place, then, do adjudication and private law have in this scheme? Adjudication, it should be noted, functions as both a law-making and law-enforcing process. Unlike mediation in which the outcome requires at least nominal consent by all parties, in adjudication a third party determines the outcome. Yet it is initiated and essentially controlled by plaintiffs whose claims are recognized as factually and legally valid or denied. In contrast to private arbitration, adjudication (as in a lawsuit) is a lawmaking process in that the adjudicator, whether ruler or agent, must apply the appropriate legal rule to the factual context of the case. In the process, the adjudicator recognizes the legal effect of selected norms or rules, potentially formulating new ones. Adjudication thus enables those who rule to make law on a flexible, case-by-case basis with a limited cadre of adjudicating officials. The entitlement of vindicated claimants to legally approved remedies is its law-enforcing function. The adjudicator’s decision may be enforced by those who govern, by allowing the claimant to exercise some form of selfhelp or possibly by informal community sanctions. In comparison to other modes of law enforcement, such as direct administrative oversight, adjudication is more flexible, less direct, and less costly. Because claimants initiate the process, no policing is necessary. Because they bear the costs, adjudication may in practice actually produce revenue. Private prosecution of crimes exemplifies the use of adjudication even in criminal cases. Nor must those who govern necessarily resort to coercive means for enforcement if some form of self-help or community sanction provides a substitute. Neither substitute guarantees effective enforcement. If successful claimants have to rely on some form of self-help, they must themselves muster

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the means, including coercion. If redress depends on community sanctions, then the efficacy of the legal rules being enforced depends on both community acceptance of the norms recognized in the judgment as well as the defendant’s deference to community approval. Moreover, because adjudication requires someone to initiate the process, inexorably enforced most effectively are rules that benefit the community or the most powerful, not necessarily those who rule or, for that matter, the weak. Thus, given a choice, rulers are less likely to use adjudication either to make or to enforce legal rules that serve their primary interests—which for enlightened rulers may well be the “common good” or the “public welfare.” If given the choice, they are more likely to opt for means of law enforcement they fully control. They are thus more apt to choose a regulatory public law system backed by punishments for infractions of their commands. The use of adjudication as a principal means of maintaining order and for making and enforcing legal rules is therefore in itself an exceptional phenomenon. Few rulers across time and cultures, for example, have relied on adjudication and private law to enforce their claims for revenue. Its prevalence in any polity can best be explained by the constraints on authority and power that restrict ruler choice and thus prevent or retard the development of, at least from the ruler’s perspective, a more desirable and effective public law system.

limits of power and private law: the western eu ro pe an experience Four distinct factors define the institutional borders and political orders of Western Europe. All of these factors combined during the formative period of Western European institutional evolution (a.d.500–1200) to constrain both the authority and the power of those who ruled. The result was to arrest the development of political institutions, redirecting the evolution of European polities away from a linear trajectory toward bureaucratic public law regimes epitomized by imperial China. The first factor was geography: Western Europe has ready access to the sea, with all but one transcontinental river, the Danube, flowing northward, and none directly into the Mediterranean, a coastal plain stretching from the Pyrenees to the Urals, an interior terrain marked by mountains, hills, and valleys, and a temperate climate favored southward tribal migrations and coastal invasion, small cohesive settlements in interior regions, local cereal agriculture and husbandry, and centers for trade and commerce at the mouths of the major rivers. The Rhine, the Elbe, and the


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Oder facilitated transport and communication from interior regions to the North Sea and the Baltic, with the Danube similarly connecting interior southeastern settlements with the Black Sea and the eastern Mediterranean. No single political regime has ever been able to control all four of these continental thoroughfares. Nor has any ever controlled all access to the sea. The great tribal migrations and invasions of the third through sixth centuries also contributed. Ultimately prevented by the population and overall military superiority of the eastern empire from settling in the rich and well populated lands of the eastern Mediterranean, Burgundians, Goths, Vandals, Jutes, Angles, Saxons, and Huns successively migrated, fled, or simply invaded eastward into regions long settled by the Franks, Alamani, and other Germanic tribes, and then, for some, across the Rhine and into the heart of the western empire, pushing others such as the Celts even further to the periphery. During this period Romans fully retreated from the more remote, sparsely populated areas of their western empire. They were gradually assimilated in more populated regions. The process was reversed in the most populous areas at the core of Roman rule. On the Italian and Iberian peninsulas and in southern France, the tribal peoples and their leaders acquired the language and habits—including law—of those whose lands they now ruled. Within this diversity, however, one constant, unifying feature remained. No feature of early Western European history rivals the formative influence of the Roman Catholic Church. The church inherited the administrative structure and language of the empire. By adopting Latin, the church provided a common written language for all of Western Europe and ensured access to the written legacies of Rome, including law. Until the thirteenth-century Castilian Siete Partidas of Alfonso X (1221–1284), all written laws were in Latin, and thus by default the customary norms and legal rules of the Germanic tribes and other non-Romans had to be expressed in the legal terminology of Roman law. This process alone ensured Roman legal influence. The church also hosted the centers of literacy and learning. Outside of the areas with the largest residual population of literate Romans, the church’s missionaries and priests provided political rulers with literate officials and their primary access to written communication. The teachings propagated by the church also had their own legal influence. Much of the “customary law” that found expression in the laws of the early kings and even more of the community norms in early medieval Europe reflected biblical law as interpreted and taught by the clergy. Old Testament proscriptions had more immediate and greater currency than any distant memory of past Roman law or practice could

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invoke. Widely accepted and enforced by the church, secular rulers, and community consensus, they were absorbed into a shared religious and legal culture of the diverse people throughout the continent (the British Isles included). Two fundamental aspects of the church’s influence need to be stressed. The first is that the church exemplified a regime with authority but without coercive power. Not coincidentally, as argued above, such regimes tend to rely on adjudication of disputes brought by claimants as a primary means for the enforcement and recognition of legal rules. Ecclesiastical courts throughout the church’s domain played a foundational role in their emphasis on adjudication and private law. The availability of a supranational, regional system of courts also enabled the spread and vitality of a conceptual system of natural rights that developed in the wake of the reformulation of natural law theory within the church via theologians such as Gratian and Aquinas (Tuck 1979). A second contribution of the church was its competitive role. The church functioned in all meaningful respects as a political competitor for allegiance and resources with all of the emerging political regimes in Western Europe. Until the papal revolution at the end of the eleventh century, the demarcation of authority or jurisdiction between the church and secular political authorities was ambivalent and contested. The church functioned nonetheless as a territorial ruler in some locales and claimed throughout Western Europe overriding authority. It asserted jurisdiction over certain matters (ratione materiae) of core importance to secular rulers, such as ecclesiastical jurisdiction over marriage and divorce. Its claim of jurisdiction “by reason of persons” (ratione personarum) additionally provided at least a theoretical degree of protection against secular political authorities for various categories of persons, such as clergy and their households and also students and “travelers,” particularly merchants and sailors. To the extent that Europe’s disparate communities recognized such claims, the church constrained both the authority and power of secular rulers within territories they otherwise controlled. The church’s omnipresence also restricted secular control over significant sources of wealth and wealth-creating activities. Between the fifth and eighth centuries, the church, its monastic orders, abbeys, and bishoprics had increased and grown to become among Western Europe’s largest and most productive landholders. The church thus imposed significant structural as well as ideological constraints on all of the early political regimes in Western Europe. To geography, the great tribal migrations, and the church, a fourth factor must be added: incessant warfare. Wars against rivals and raiders shaped each of the political regimes that emerged. The dependency of rulers on musters of able-bodied men to fight characterized the forma-


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tive era of Western European political evolution. When faced with imminent threats to personal or community safety, as in England during the successive waves of invasion by Angles, Saxons, Vikings, and Danes, a ruler might perhaps successfully persuade villagers to organize to provide for their collective security. But absent such collective threats, the recruitment and training of an army of free farmers was not easily accomplished. In most instances, localized and personal insecurity led to acts of commendation and other submissions to those with the capacity to protect. In the process, erstwhile free farmers became a subordinated class, and local castellans gained power and authority at their king’s expense. In any case, wars had to be fought off-season, after planting and before harvest. To create an effective, well-trained military force, nonfarming recruits had to be found. Without sufficient resources to create professional armies, European rulers bargained for men. Promise of booty was a time-honored means. Medieval Europe, however, had few lootworthy centers of wealth comparable to those of the eastern Mediterranean. The alternative was land. In Spain the monarchs of the early Reconquista created both a large hidalgo class of caballeros by offering horses and land to those willing to defend the expanding frontiers as well as a landholding peasantry needed for the infantry. Lacking land, the merchant-dominated towns and cities of medieval Europe could negotiate terms guaranteeing greater autonomy in return for cash and conscripts. Failing other options, rulers were often left with no choice but to form alliances with those who by similar means had assembled an effective band of warriors, thereby creating potential future rivals. This reality also contributed to the evolution of law and legal institutions in Western Europe. Law and the Early Kingdoms At the dawn of the sixth century, three significant political orders had emerged in Western Europe. Each—Visigothic Spain, Ostrogothic Italy, and the Frankish kingdom—presaged the formation of future nationstates. Each, however, was short-lived. As the invaders and their descendants settled and established kingdoms, they may seem to have represented a step backward on an evolutionary trajectory as relatively undeveloped polities displaced the more advanced centralized administrative system of imperial Rome. Each, however, also evidenced law’s evolutionary progression. As in the ancient civilizations of Mesopotamia and in Mesoamerica (Kramer 1981; Offner 1983), their “barbarian” rulers had emerged from essentially consensual, communitarian systems based on

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custom and consensus, with chiefs acting more as responsive mediators, into institutional legal orders in which they—always successful warriors— became supreme lawgivers and judges. What differed were the church and the legacy of Roman law. Across Western Europe the warrior rulers acquired at least some of the trappings of the vanished empire. In need of authority as well as extensions of power, rulers sought sources for both. With the conversion of entire tribes, the church provided one source of legitimacy and law another. Throughout the region kings emerged as justice-dispensing adjudicators deciding cases with communal custom mixed in varying degrees with biblical models and vestiges of Roman law as integral elements of governance. As described by Julia Smith: “All the kingdoms that emerged on the Continent in the fifth century relied directly on these inherited techniques of ruling. By appropriating traditional mechanisms of government for their own use, fifth-and sixth century warrior kings asserted legitimacy, collected revenue, made law, and proclaimed their power” (Smith 2005, 29).2 Law, like language, reflected the predominant Roman influence. Principles and practices of Roman law rapidly pervaded these kingdoms. In Italy under Theodoric Roman legal institutions simply continued to be recognized. The Visigothic kings of Spain were the first to legislate based on Roman models. The earliest Visigothic law book was the Codex Euricianus (c. 476), followed in 506 by the Lex Romana Visigothorum (or simply the Brevarium Alarici ), ostensibly based on the Theodosian Code. The legislation with the longest lasting influence was the Liber Judiciorum, or Fuero Juzgo (also known as the Libro de las Leyes or Lex Barbara Visigothorum), promulgated over four reigns during the seventh century. The Fuero Juzgo continued to be applied with modification in Castile and later all of Spain and its empire into the nineteenth century. All were in Latin. Clovis (466–511), the first king of the Franks, was also a lawgiver. The Pactus Legis Salicae is generally believed to have been compiled during his reign. As a collection of royal decrees and legal procedures applicable in the Frankish region between the Loire and the Rhine, in its content, except for language (also Latin), the Roman influence is much less apparent. Increasingly unable to maintain control within territory previously acquired and ruled, none of these first kingdoms endured. Fratricidal wars and invasions on all sides during the eighth and ninth centuries produced even greater political fragmentation and diversity. Only the church remained as a source of unity. Under Pope Gregory I (c. 540–604), its missionary and political role expanded to create an even more significant competitor for political authority as well as resources.


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The Making of the First States Charles Martel’s victory in the Battle of Tours (732) ushered in Carolingian rule of a reunited Frankish kingdom that under his grandson Charlemagne (742–814) grew into an empire, which at its height in 800 stretched from the Pyrenees to the Elbe and the North Sea to Rome. The Carolingian era is especially significant for two developments. Charlemagne was a prolific lawmaker. His edicts or capitularies numbered in the hundreds. No Western European monarch had ever before promulgated so much formal legislation. His legislation (in Latin) exemplifies the transformation in Europe of private law delicts (torts) into public law crimes, with compensatory sanctions recast as fines and punishments. Seventh- and eighth-century Alamanic laws (Lex Alamannorum) as well as Bavarian laws (Lex Baiuvaiorum), for example, typically provided for a specified amount in compensation to be paid as wergeld to those harmed by specified wrongs. The Carolingian capitularies similarly identified specific wrongs but replaced compensatory sanctions with fines to be paid to those who ruled. Without a system of public prosecution, their enforcement remained, as in civil suits, under the control of private claimants, but especially where royal and community interest diverged, Carolingian adjudicators were confronted with at least some policing and prosecutorial functions. Charlemagne also created Western Europe’s most advanced, post-Roman administrative system of officials with territorial jurisdiction subject to royal direction. At the highest level were the counts, who, pledging fidelity, were dispatched to major cities to dispense justice and administer designated “counties” on behalf of the crown. Another set of officials, missi, were sent on a more ad hoc basis with specific tasks, including fiscal matters and oversight. In the end, the effort failed. Within a generation, the crown’s agents successfully claimed their offices as proprietary entitlements, thereby ensuring their independence and, for some, rivalry with their royal principals. The result in France and Germany and other Carolingian domains was the rise of “privatized” seigniorial governance. While the Carolingian empire disintegrated on the Continent, the process of consolidation advanced in the islands to the north. By the end of the ninth century, England was a consolidated realm, with an administrative structure that fostered royal authority and institutions of local governance, as well as adjudication. Alfred the Great, King of Wessex (c. 849– 899), defeated the Vikings (Danes) and united warring Angles and Saxons under the Wessex-based rule as an Anglo-Saxon kingdom. For purposes of maintaining continuous manned defenses, Alfred divided his primary fighting force into two substituting units and created fortified burhs (or boroughs). He is commonly, albeit erroneously, given credit for the

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reorganization of the kingdom administratively into shires, hundreds, and tithings. The shire, a territorial unit, encompassed several hundreds. Each hundred in turn comprised ten groups, or a tithing, ten households collectively responsible for the conduct of each member. The military and fiscal aims of these reforms were transparent. The hundreds were responsible for the military conscription and collection of taxes. They also served as the primary courts. The administration of justice thereby became a decentralized community responsibility. Alfred is also credited for promulgating the Deeming, or Book of Dooms (Book of Laws). Like other kings before and since, Alfred and his successors used law and adjudication as a means of unification. The Norman conquerors of the eleventh century thus inherited and readily adapted an administrative structure with a royal officer, the sheriff, in each shire responsible for the militia and taxation. And there was also a plethora of courts—of the church, the shire, the hundreds, the manor, as well as the king. The institutional foundations for the extension of royal justice through the king’s courts under Henry II in the twelfth century had been well laid two centuries before. Spain, too, differed from its continental neighbors. It was, as noted, the first medieval kingdom to emerge in the wake of Roman disintegration as an integrated state under the Visigoths. The kingdom ended with the Muslim conquest in a.d. 711 and the establishment of the Umayyad Province of al-Andalus. The making of medieval (Catholic) Spain thus begins with the Reconquista, the seven-century-long recovery of the peninsula from its Muslim rulers by the separate Catholic polities that formed after the Umayyad conquest. The recovery process came to an end only in 1492, when a united Spanish force under the joint rule of Queen Isabella I of Castile (1451–1504) and Ferdinand II of Aragon (1452–1516) overwhelmed Granada, the surviving Islamic polity on the peninsula. The military successes of the Spanish kingdoms enabled them to control and redistribute both land and tribute from the polities into which the caliphate had fragmented. In initial phases, the Castilian kings redistributed conquered land and granted tax immunities to those equipped with horses who served as cavalrymen along the frontiers. One consequence was the creation of commoner-knights (caballeros-villanos) and a growing class of small peasant landholders. Thus, initially Castile did not experience the centripetal fragmentation of French royal authority and power. Only in the later stages of the Reconquista did royal grants to court favorites of conquered land in Extremadura and Andalucía, complete with subordinated Muslim laborers, become common. Previously irrigated agricultural lands were converted into large pastoral estates whose owners formed the Honrado Concejo de la Mesta, the politically


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influential association of sheep owners. Neither the kings of Castile nor those of Aragon developed uniform systems for local administration. Instead, as the Reconquista progressed, towns and cities individually negotiated terms for their submission. The terms included special rights and privileges, and local laws, or fueros, bound Spain’s royal rulers into the modern era. Aragon was especially notable for the autonomy of allied and conquered regions. In the east, Barcelona remained a separate polity and Valencia became an autonomous kingdom. The Spanish experience also illustrates an equally significant contribution to the primacy of private law in Western Europe. Roman law lacked well-developed concepts of public law, particularly the entitlement of those who ruled to revenues through public taxation. Property rights provided a ready substitute. Rewarded to victorious warrior kings and loyal allies who could muster the most effective warrior forces were proprietary rights to wealth-producing land. The rulers of the early kingdoms generally derived their most significant revenues from rents collected from their personal proprietary estates. Law as a system of enforceable private rights and corresponding legal duties enabled those who governed to collect rents and enforce contracts against those they governed. In Spain the consequence was to enserf peasant landholders in the north and enable an influential sheep-raising nobility in the south (Freedman 1991). Similar experiences of legal subordination occurred throughout Europe. Counts and castellans whose control over productive land allowed direct supervision of agricultural labor enabled a new system of subordination of agricultural labor to develop. Such local manorial rule was made possible, however, by recognition of both cultivator proprietary interest in the land on the one hand and allegiance to overlords above them on the other. For the peasant cultivators and herdsmen, the limited recognition of proprietorship and possession that they gained cost a concomitant degree of freedom as constraints on their mobility were imposed. A different pattern took place along the northern coasts of Europe and in northern Italy. Here small urban polities governed by their mercantile and land-wealthy elites, reminiscent of the Athenian polis and Roman civitas, appeared. They soon became centers of adjudication and arbitration and, in Italy, the birthplace of the legal profession. Control over the mouths of rivers with access to the sea enabled the growth of relatively autonomous city-states, generally ruled by merchant oligarchies, which, largely free of external political control, were able to develop into thriving commercial and banking centers. Without the means for expansive administrative regulation, few if any political regimes could subject merchant communities to their control. Hence, throughout Western Europe, merchants were able to establish largely autonomous means of private ordering. Until

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the eighteenth century, European lex mercatoria consisted largely of rules and practices established and enforced by merchants themselves (until absorbed into the legal machinery of the nation-states of the modern era) and was Western Europe’s most extensive and influential system of private ordering. By the dawn of the twelfth century, a complex array of diverse, competing systems of autonomy and control characterized all of Western Europe. From commercially interconnected urban centers to isolated, largely selfsufficient agricultural communities, from consolidated or consolidating kingdoms to seigneurial domains that rivaled their royal overlords, a remarkable variety of political orders had emerged. The church had concomitantly completed the papal revolution that consolidated its autonomy and control over directly governed territories as well as the clergy and other institutions and persons subject to its supervised protection. Also by this time, adjudication of private claims and complaints had become the prevailing mode of both civil and criminal law enforcement throughout Western Europe. From ecclesiastical courts and royal courts to local assemblies and merchant guilds, at all levels of medieval European society third-party adjudication by officials and clergy had become the principal means for maintaining order and enforcing legal rules. Under the prevailing political circumstances, as a system for maintaining order, formal adjudication by those seeking to maintain or expand their political authority had compelling advantages. First, it empowered rulers by reinforcing their authority as adjudicators to find facts, identify and apply the appropriate rule, and thereby determine the outcome of submitted disputes. Their superior status over the parties was also acknowledged by virtue of either prior mutual consent, as in arbitration, or some sort of officially recognized authority. Most important, adjudication required fewer resources than other forms of law enforcement. Lacking sufficient resources or a constabulary or overseeing officialdom, medieval kings and other rulers had little choice but to rely on a few designated officials as adjudicators, who thereby maintained a sense of lawful order and also expressed and enhanced their political authority. At this time, young men began to gather in the Italian centers of trade and communication to be taught by prominent scholars. Thus the first institutions to be called universities took form. By the late eleventh and twelfth centuries, law joined medicine and theology as the principal subjects of instruction. The (re)discovery of the Corpus Juris Civilis and their subsequent use as texts for legal learning in Bologna by Irnerius (c. 1050–1125) ushered in a new age. The reception of Roman private law in the West had begun. Missing in most accounts are explanations for its remarkable influence. In fact, the foundations were well established.


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Because adjudication is a process through which persons with a cognizable claim have access to its recognition and enforcement, some core conception of enforceable claims against others—some conception of “rights” and correlative “duties” or their equivalent—is notionally necessary. In other words, the legal rules enforced through adjudication become by definition private law rules. New theological theories of natural law coupled with private law conceptions intensified the fusion of law and morality and notions of universally applicable legal rights. No wonder, then, that the discovery of fragments of a six-century-old set of books that restated and explained the conceptual formulations of classical Roman private law could have produced an intellectual transformation and set into motion the creation of the ius commune of continental Europe and the foundational features of the Western legal tradition. As a consequence, conceptual constructs of private law as well as notions of universal rights were a millennium later to become embedded institutions around the globe. japa nese parallels Early and medieval Japan might seem to have little in common with Western Europe. Geographically Japan comprises a narrow fifteen-hundred mile archipelago of volcanic islands characterized by a mountainous terrain; multiple, short, fast-flowing rivers; little arable land; and only a half dozen sizable lowland river plains. Until the industrial transformation of the late nineteenth and early twentieth century, rice remained the primary source of wealth. Moreover, unlike grain production and husbandry, wetpaddy rice cultivation requires a sustained cooperative endeavor to construct and maintain irrigation networks as well as to plant and harvest. As a consequence, across time and cultures, cooperative behavior and community autonomy become salient attributes of rice-producing areas.3 Conventional views of Japanese political institutions and law tend correctly to emphasize Japan’s indebtedness to the Chinese imperial tradition. Until the mid-nineteenth century and Japan’s reception of Western law, China’s advanced administrative state provided the conceptual framework within which both native political and legal institutions evolved. Thus, the notion of an administrative state and law as essentially a set of administrative and penal regulations dominated all juridical thought. Yet Japan never fully replicated the Chinese imperial state, nor was its closest approximation from the seventh through the twelfth centuries either complete or enduring. Peripheral centers of power remained. Tax-exempt estates proliferated. Official stipends converted into proprietary claims to revenue. Disorder ensued, and as in Western Europe, warrior rulers filled

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the vacuum. For lack of more effective options, the Japanese, like their European counterparts, relied increasingly on adjudication, initially over claims to land and rice but later to include a vital system of commercial litigation, to maintain order as well as to enhance their authority. This emphasis on adjudication continued into the nineteenth century. In the process Japan replicated many if not most of the features of a private law system, including the development of legally recognized commercial instruments as well as a complex institutional system for adjudication. The consequences were multifaceted. One was the development of a formal legal order that included what we can describe as an incidental system of judicial precedents and private law rules within an essentially administrative order. Above all, the combination of the authority of legal rules and their consensus-creating capacity coupled with the strength of informal social mechanisms for behavioral control enabled Japan to maintain and to continue to enjoy a robust legal system despite the lack of a conceptual system of legal rights. Origins By the fifth century, the foundational features of social and political organization had formed. An indigenous people had assimilated with newcomers from the Asian mainland. Uniquely isolated, the archipelago would not experience thereafter any future sizable migration of peoples from the Asian mainland nor, until the mid-twentieth century, conquest or even invasion by outsiders. Rice cultivation and metallurgy had spread throughout the archipelago. Self-governing, wet-paddy rice-producing communities, the sato or, as later denominated, the mura, had become the prevailing and most enduring form of social organization. Many, clustered or otherwise interconnected, were being continuously replicated as a result of an ongoing process of land reclamation. Custom and customary processes prevailed. Stratification of political and social authority had also advanced. Law as related to institutional processes for maintaining order and allocating resources commenced as governing hierarchies developed, especially in those areas closest to mainland influences and settlers. Cognate relationships and accepted-claims religious authority were common sources for legitimacy. The most advanced of the known communities appear to have been highly collectivized. The capacity within the sato for coercion depended primarily on collective community action, with mediation the prevailing means to resolve social conflict and maintain order. Evidence of defensive fortifications suggests, however, widespread armed conflict among rival communities. By the fourth century, armed conflict seems to have lessened, but larger units comprising


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multiple villages had formed as uji, with greater stratification and the emergence of chieftains, as evidenced by the large burial mounds (kofun) for which the period is known. The uji were generally believed to have been also organized on the basis of cognate (often fictional) kinship ties, but subordinated artisan communities (be) had also appeared. Unlike Western Europe, slavery was not then or ever a significant source of labor. Between the seventh and ninth centuries, Japan underwent an institutional and cultural transformation. Ultimately establishing an imperial capital at Kyoto (794–1869), successive centralizing rulers borrowed language, religion, and fundamental institutions and conceptions of governance and law from imperial China, already institutionally the world’s most advanced centralized empire. This era of Japanese history is commonly referred to as the ritsuryo period by virtue of the legal institutions that were adapted and imposed—a system of criminal proscriptions (ritsu) and administrative regulation (ryo) based on imperial Chinese law, particularly the Tang Code. At the end of the seventh century, the rulers of the new sinofied imperium asserted state ownership of all cultivated land with household registration and reallotment of landholding as well as reorganization of communities, usually two or three sato (designated as ri), into administratively defined units of fifty families (go). Cultivators who were allocated land were subject to both payments to the state in kind (rice) and labor, including military service. However, the new regime also distinguished “private land,” with entitlement to personal possession and production from unallocated “public land,” possessed by agents of the state. State coinage was also initiated, laying the foundations for a monetarized economy. With payment of taxes principally in rice but also in other produce and products, notably silk, a commodity barter trade began to develop along with the concomitant proliferation of attendant practices and institutions. Included, despite attempted proscription, were private loans in money or rice. At the local level these reforms were short-lived. The centralizing rulers in the capital failed to implement an examination system for qualification for appointment as an imperial official, among the most critical features of the imperial Chinese model.4 Kinship and clan status were the determining criteria for imperial appointment. Powerful local chiefs or their kin were appointed to imperial offices (shiki), receiving stipends from the produce (rice) of allotted land. The practice left more or less intact the basic features of local and regional governance. Other means of co-option also existed. Despite legal prohibition, intermarriage of officials and immigrant nobles with local elites was common. Traditional forms of social organization and landholding patterns and local control

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thus revived. Under patronage of noble houses and Buddhist or Shinto institutions in the capital, newly reclaimed and adjacent land also became increasingly subject to commendation as tax-exempt estates (shoen), comprising disparate hamlets and villages largely cultivating newly reclaimed land, now organized into administrative units designated as myo. The new estate holders received tax-exempt entitlements to revenue from land cultivated by both existing holders as well as paid laborers, many of whom had possessory entitlement to adjacent land. Equally significant was the transformation of official stipends into transferable proprietary claims as shiki to a portion of the produce of particular parcels of rice-producing land. By the twelfth century, the imperial Office of Records (Kirokujo) was functioning as a judicial agency adjudicating competing shiki claims (Kiley 1982). Abandonment of a paid professional military was accomplished, with a conscripted peasant army under central control accelerating the disintegration of centralized risturyo governance. By the end of the tenth century, small independent warrior units employed by provincial governors and shoen managers to maintain internal order and protect against external encroachment had replaced the imperial conscript army. Within a relatively short time, warriors had seized or otherwise acquired both direct control of reclaimed land as well as proprietary shiki entitlements to produce, particularly in the frontier regions of the northeast, where they and reclamation projects were most numerous. Centralized warrior rule effectively commenced by the middle of the twelfth century, with the domination of the imperial government by warriors of western Japan. Their military defeat by warriors from the east left the eastern warrior leader Minamoto Yoritomo (1147–1199) Japan’s de facto ruler. Yoritomo established his headquarters in the eastern city of Kamakura. Under his rule, known as the bakufu, or “tent government,” and that of his immediate successors, Kamakura replaced Kyoto as Japan’s administrative capital. Designated Seii Taishogun (or simply shogun) by the emperor in 1192, Yoritomo gained authority to appoint warriors to official positions in each province as constables (shugo) and stewards ( jito) to serve alongside imperial governors, who continued to be appointed by the imperial authorities in Kyoto. Thus the Kamakura warriors monopolized an administrative structure that paralleled and ultimately overwhelmed but did not entirely displace, the imperial system. By the mid-fourteenth century, the Kamakura bakufu itself succumbed to the same centrifugal forces that eroded the imperial ritsuryo system. After a brief and futile attempt to reestablish imperial power in 1333, the Ashikaga warrior house gained control. Ensconced in the Muromachi section of the capital as shoguns, during the two centuries that followed


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they presided over the final collapse of central rule. As in Carolingian France, local control over resources at the periphery drained power from the center. Under Kamakura rule neither shugo constables nor jito stewards received a stipend that might have made the holders dependent on the bakufu. Instead, the holders of both offices had to extract from local sources the means for their support. The incentives created by such dependency fostered the development of a new group of local warriors—the so-called shugo daimyo—with direct control over resources, who would eventually challenge the authority and power of those who ruled first from Kamakura and later from Muromachi. By the mid-fifteenth century, the deterioration of effective rule from the center accelerated as warfare among competing shugo warlords broke out. In a series of battles commonly referred to as the Onin wars—fought mainly near the capital in Kyoto between 1467 and 1493—an entirely new set of warlords emerged. The victors had no claim to imperial-delegated or subdelegated authority as either shogun or shugo constables. They held territory and controlled resources solely by virtue of their military success. Known as Warring States warlords (sengoku daimyo), they proceeded during the next century to consolidate their gains, creating contiguous domains from previously territorially fragmented shoen estates that they or their predecessors had managed. This new class of warlords also initiated policies designed to avoid the errors of past centralized warriors as well as imperial rule within the various territories they now effectively governed. One by one the sengoku daimyo initiated reforms that would have lasting national significance. First and foremost, they began to take stock of the resources under their territorial control, with cadastral surveys identifying plot by plot the tillers of agricultural land and its yield. Closely related, they also required personal registration of all inhabitants. Neither of these measures was novel. Both had antecedents in the sinofied reforms of the seventh century. They also began to build castles at sites of strategic importance that were to serve as their respective personal residences and headquarters. A related set of reforms was even more momentous. They ordered their warrior retainers out of the villages, compelling them to reside in the environs of often newly built castles. In return the warrior retainers were to receive monetary stipends based on their previously acquired claims to the product of the lands over which they had oversight and control. They now constituted a pool of administrative officials to serve their ruling overlords. These local transformations in governance that commenced at the end of the fifteenth century were replicated and consolidated nationally over the course of the sixteenth century under the three successive “unifiers”:

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Oda Nobunaga (1534–1582), Toyotomi Hideyoshi (1536–1598), and finally Tokugawa Ieyasu (1543–1616). By 1600 a national cadastral survey had been completed. Also completed was the exit from the village of warriors, who provided a pool of administrators for their warrior lords. Castle towns were transformed into urban centers. Although Japan remained divided into hundreds of large and small warrior-ruled domains (han), all overlords now paid homage to the Tokugawa shogun. Added was the formal stratification of Japanese society—again along an adapted sinofied model—into a hierarchy of social and legal status, with warrior administrators at the apex, followed by cultivators, artisans, merchants, and “non-persons” (hinin) at the bottom. On a national level these reforms had lasting influence. One was to reinforce village autonomy and mechanisms for self-governance within a political equilibrium that lasted for two and a half centuries. Peace, order, and the elimination of local extractions also fostered commerce and a national market, producing new sources of wealth throughout Japan. Adjudication Under the Kamakura bakufu, adjudication became the primary means of maintaining order and control. The process generally required outside complaint or accusation and remained dependent on the petitioners’ initiative and direction. The warrior adjudicators in Kamakura and those acting under imperial authority in Kyoto functioned as neutral arbiters. Without the means for direct supervision and control or the resources necessary for direct policing and coercion, adjudication was the only alternative as a means of control over a warrior class with increasingly independent sources of wealth that still buttressed bakufu authority. Yet by giving those subject to warrior rule some voice in the principal means for maintaining order and positioning those who ruled as neutral arbiters applying precedent, custom, and reason (dori) as the primary source of legal rules, bakufu officials helped to legitimize their rule. “The system was effective,” Mass concludes, “because the Bakufu served as arbitrator, not as prosecutor, within an exclusively accusatorial process. Kamakura thus remained outside and above the suits it sought to resolve, and in the process insulated itself from undue partisanship and criticism” (Mass 1979, 15). Disputes classified as shomusata were tried in both Kamakura and bakufu offices in Kyoto. What would today be classified as criminal actions involving rebellion, theft, brigandry, homicide, rape, violent assaults, and similar conduct were tried by special bakufu offices in either Kamakura or Kyoto under shomusata procedures. The third category of miscel-


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laneous cases, referred to as zatsumusata, encompassed various claims to property other than land, arising from interest-bearing loans, bills of exchange, mortgages, and sales. At least by the fourteenth century, these suits were being tried in Kamakura before the monchiijo under direct control of the bakufu. Under the bakufu, a system of regular, predictable procedures based on both edict and practice emerged. The sources of decisional rules and principles included recognized customary practice, administrative precedent, as well as proscriptions legislated by both imperial and bakufu authorities. Resort to dori, or “reason,” or, more accurately, the prevailing consensus of the warrior community, was common. Documentary evidence of official appointment or investiture as well as commercial and other contractual instruments relating to debts, land, and distributions of property nevertheless determined the outcome of the vast majority of cases. Thus the Kamakura and imperial magistrates developed in effect a form of precedent based on what might best be called “notarial” law. Adjudication as a primary means for social control developed even more fully under Tokugawa rule (1600–1867). The consequence was a system of rules and practices that constituted private law in all but name. Tokugawa edicts recognized two types of adjudication—one labeled “inquisitorial,” the other “adversarial” (in translation)—differentiated by the subject matter of the complaint and the extent to which the matter in dispute related to the interests of the Tokugawa overlords. Japanese adjudicatory procedure further differentiated “adversarial” suits into four categories: those related to land and water (ronsho), “main suits” (honkuji), “monetary suits” (kanekuji), and mutual affairs (nakama-goto). Unquestionably influenced by imperial Chinese law, these classifications and the differential treatment each received reflected a similar decision to allow official discretion and claimant voice in cases involving matters deemed insignificant to the interests of the rulers. As in China, the outcome of disputes left to the initiative of claimants was considered to be of so little concern to the ruling authorities that they could receive official attention but could and indeed should be settled quickly, preferably by some mutually acceptable compromise. Unlike in China, these suits, particularly commercial “monetary” suits, became increasingly common fare with predictable outcomes. With the frequency of like claims, a system of precedents developed. In the words of John H. Wigmore, “From the 1600s onward, the highly organized judiciary system began to develop by judicial precedent a body of native law and practice, which can only be compared with the English independent development after the 1400s” (Wigmore 1928, 504).

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law’s contrasting domains Similarities between Western European and Japanese development of adjudicatory processes in the enforcement of law do not negate their equally significant disparities in the role and understandings of law. For Western Europe, the emphasis on private law, the development of local means of adjudication, not to mention the influence of the church ensured an expansive domain for law and legal rules. We know little about the resolution of local neighborhood disputes, but we can imagine that at least from the thirteenth century onward, many if not most were increasingly resolved in the shadow of the legal rules that were recognized and applied in local courts by local secular or ecclesiastical adjudicators influenced by if not trained in Roman private law. In the process, law’s domain expanded, crowding out alternative norms of community ordering. For the vast majority of Japanese living in semiautonomous villages or towns, law remained the regulatory rules of distant rulers. When they conflicted with community self-interest, collective measures to ensure avoidance or evasion—masked by ostensible compliance—became the dominant pattern.5 Village autonomy thus produced an embedded pattern of private ordering that functioned outside of the law. In this sense, law did not penetrate the village. As in imperial China, law in Japan functioned within a much more limited domain. A second contrast is also significant. In Japan, unlike in Europe and imperial China, the notion of universally applicable transcendental norms, whether conceived as natural law (Europe) or as a separate moral order (China), did not take hold. Historically Japanese culture did not include a shared belief in universal values nor a dichotomy between “good” and “evil.” Despite the influence of universalistic modes of thought advanced in Buddhism and neo-Confucianism, the particularistic, albeit collective, community values remained primary. As expressed by Robert Bellah, “It is the particular system or collectivity of which one is a member which counts, whether it be family, han or Japan as a whole. Commitment to these tends to take precedence over universalistic commitments, such as commitment to truth and justice” (Bellah 1957, 13). Making similar observations, S. N. Eisenstadt sees Japan as a “de-Axializing” culture in which the universalistic and transcendental orientations are muted, segregated, and bracketed out (Eisenstadt 1996). As a result, no conception could have taken root in Japan of universally applicable legal rules or principles, especially ones against which the legitimacy or “legality” of those imposed by rulers could be challenged. In its place an emphasis on community consensus and the legitimacy of those who governed as benevolent rulers main-


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taining the common “public” welfare were the overriding social and political values. The consequence was that Japan would in the end be able to adopt European law as perceived prevailing international norms of the community to which it aspired to join and yet retain a highly developed propensity for cooperative, extralegal private ordering. Today Japan evidences fundamental features of continuity, including institutional patterns; highly competitive, closely knit communities—public and private— constantly seeking ways to maintain their autonomy from external control; and, above all else, an overriding communitarian orientation. However, Japan shares with Western Europe, whatever the differences, a common legacy resulting from shared institutional experience in which adjudication developed as the primary means of maintaining order.

Notes The paper on which this chapter is based was the first of several that have subsequently been expanded and developed for a book in progress, tentatively entitled Rivers, Revenue, and Rice: Law’s Political Evolutions. The project builds on ideas first articulated in John O. Haley, Authority Without Power: Law and the Japanese Paradox (Oxford: Oxford University Press, 1991). 1. Compare, for example, Veyne (1987) with Lebra (1976), pages 163 and 78– 79, respectively. 2. See also Heather (1998, 194–195). 3. See O’Connor (1995, 968–996); Bray (1986, 170–182). On similar characteristics in the Muslim rural peasant communities that persisted for four centuries in the post-Reconquista kingdom of Valencia, see Glick (1970); also noted in Ostrom (1990, 69–71). On the contrasts in family formation in the antebellum slave communities in a rice-producing region of South Carolina and a tobaccoproducing region of Virginia, see Pargas (2008, 316–345). On contemporary Senegal, see Linares (1981, 557–595). 4. In China, by the twelfth century almost all adult males were eligible to sit for the examination, and a majority of all officials were selected from the pool of the successful. See Chaffee (1985). 5. See Henderson (1975). For the importance of these collective measures in Japan, see also the discussion in Chapters 3 and 9 of this book, by Debin Ma and Toru Miura, respectively.

References Alvarez de Morales, Antonio. 1982. Historia de las Instituciones Españolas: Siglos XVIII–XIX. Caracas and Madrid: Editoriales de Derecho Reunidas.

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Asakura, Kan’ichi. 1911. “Notes on Village Government in Japan.” Journal of the American Oriental Society. 31:151–216. ———. 1925. The Documents of Iriki. Westport, CT: Greenwood Press. Barnes, Gina L. 2007. State Formation in Japan: Emergence of a 4th-Century Ruling Elite. New York: Routledge. Bellah, Robert N. 1957. Tokugawa Religion. Boston: Beacon Press. Bellomo, Manlio. 1995. The Common Legal Past of Europe, 1000–1800. Translated by Lydia G. Cochrane. Washington, DC: Catholic University of America Press. Berman, Harold J. 1983. Law and Revolution: The Formation of the Western Legal Tradition. Cambridge, MA: Harvard University Press. Bloch, Marc. 1978. Feudal Society. Translated by L. A. Manyon. Chicago: University of Chicago Press. Bray, Francesca. 1986. The Rice Economies: Technology and Development in Asian Societies. Oxford: Basil Blackwell. Burns, Robert Ignatius. 1975. Medieval Colonialism: Postcrusade Exploitation of Islamic Valencia. Princeton, NJ: Princeton University Press. Cameron, Euan, ed. 1999. Early Modern Europe. Oxford: Oxford University Press. Carneiro, Robert L. 1970. “A Theory of the Origin of the State.” Science. 169: 733–738. Carr, Raymond, ed. 2000. Spain: A History. Oxford: Oxford University Press. Chaffee, John W. 1985. The Thorny Gates of Learning in Sung China. Cambridge: Cambridge University Press. Cheyette, Frederic. 1977. “The Origins of European Villages and the First European Expansion.” Journal of Economic History. 37:182–206. Claessen, Henry J. M., and Peter Skalník, eds. 1978. The Early State. The Hague: Mouton. Davies, Wendy, and Paul Fouracere, eds. 1986. Settlement of Disputes in Early Medieval Europe. Cambridge: Cambridge University Press. De Soto, Hernando. 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books. Doubleday, Simon R. 2001. The Lara Family: Crown and Nobility in Medieval Spain. Cambridge, MA: Harvard University Press. Earle, Timothy. 1991. Chiefdoms: Power, Economy, and Ideology. Cambridge: Cambridge University Press. Eisenstadt, Samuel N. 1996. Japanese Civilization. Chicago: University of Chicago Press. Finer, Samuel E. 1998. The History of Government, vol. 1, Ancient Monarchies and Empires. Oxford: Oxford University Press. Fischer Drew, Katherine. 1972. The Burgundian Code. Philadelphia: University of Pennsylvania Press. ———. 1973. The Lombard Laws. Philadelphia: University of Pennsylvania Press. Font Rius, Jose Ma. 1949. Instituciones Medievales Españolas. Madrid: Talleres Graficos Montaña.


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Freedman, Paul H. 1991. The Origins of Peasant Servitude in Medieval Catalonia. Cambridge: Cambridge University Press. Frohlich, Judith. 2003. “Land Administration in Medieval Japan: Ito no sho in Chikuzen Province, 1131–1336.” History. 88:289. Glick, Thomas F. 1970. Irrigation and Society in Medieval Valencia. Cambridge, MA: Harvard University Press. Grendler, Paul F. 2004. “The Universities of the Renaissance and Reformation.” Renaissance Quarterly. 57:1–42. Guterman, Simeon L. 1972. From Personal to Territorial Law. Metuchen, NJ: Scarecrow Press. Haley, John O. 1991. Authority Without Power: Law and the Japanese Paradox. Oxford: Oxford University Press. Hall, John W. 1966. Government and Local Power in Japan: 500–1700. Princeton, NJ: Princeton University Press. Hall, John W., and Jeffrey P. Mass, eds. 1974. Medieval Japan: Essays in Institutional History. Stanford, CA: Stanford University Press. Hall, John W., et al., eds. 1993/1995. The Cambridge History of Japan, vols. 1–3. Cambridge: Cambridge University Press. Harding, Alan. 2002. Medieval Law and the Foundations of the State. Oxford: Oxford University Press. Heather, Peter. 1998. The Goths. London: Blackwell Publishers. Henderson, Dan Fenno. 1975. Village “Contracts” in Tokugawa Japan. Seattle: University of Washington Press. Kiley, Cornelius J. 1982. “The Imperial Court as a Legal Authority in the Kamakura Age.” In Court and Bakufu in Japan: Essays in Kamakura History, ed. Jeffrey P. Mass, 29–44. New Haven, CT: Yale University Press. Kramer, Samuel N. 1981. History Begins at Sumer. Philadelphia: University of Pennsylvania Press. Lebra, T. S. 1976. Japanese Patterns of Behavior. Honolulu: University Press of Hawaii. Linares, Olga F. 1981. “Tidal Swamp to Inland Valley: On the Social Organization of Wet Rice Cultivation among the Diola of Senegal.” Journal of the International African Institute. 51:557–595. Mass, Jeffrey P. 1976a. The Kamakura Bakufu: A Study in Documents. Stanford, CA: Stanford University Press. ———, ed. 1976b. The Origins of Japan’s Medieval World. Stanford, CA: Stanford University Press. ———. 1979. The Development of Kamakura Rule, 1180–1250. Stanford, CA: Stanford University Press. North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance Cambridge: Cambridge University Press. ———. 2005. Understanding the Process of Economic Change. Princeton, NJ: Princeton University Press. O’Callaghan, Joseph F. 1993. The Learned King: The Reign of Alfonso X of Castile. Philadelphia: University of Pennsylvania Press.

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———. 1998. Alfonso X, the Cortes, and Government in Medieval Spain. Aldershot, UK: Ashgate. O’Connor, Richard A. 1995. “Agricultural Change and Ethnic Succession in Southeast Asian States: A Case for Regional Anthropology.” Journal of Asian Studies. 54:968–996. Odegaard, Charles E. 1972. Vassi and Fideles in the Carolingian Empire. New York: Octagon Books. Offner, Jerome A. 1983. Law and Politics in Aztec Texcoco. Cambridge: Cambridge University Press. Okazaki, Tetsuji. 2005. “The Role of the Merchant Coalition in Pre-modern Japanese Economic Development: An Historical Institutional Approach.” Explorations in Economic History. 42:184–201. Ostrom, Elinor. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press. Pargas, Damian A. 2008. “Boundaries and Opportunities: Comparing Slave Family Formation in the Antebellum South.” Journal of Family History. 33:316–345. Piggott, Joan R. 1997. The Emergence of Japanese Kingship. Stanford, CA: Stanford University Press. Poly, Jean-Pierre, and Eric Bournazel. 1991. The Feudal Transformation. Translated by Caroline Higgitt. New York: Holmes & Meier. Reynolds, Susan. 2002. Kingdoms and Communities in Western Europe, 900–1300. Oxford: Oxford University Press. Richter, Michael. 1994. The Formation of the Medieval West. New York: St. Martin’s Press. Rivers, Theodore J. 1977. Laws of the Alamans and Bavarians. Philadelphia: University of Pennsylvania Press. Robinson, Olivia F., Thomas D. Fergus, and William M. Gordon. 1985. An Introduction to European Legal History. Abingdon, UK: Professional Books Limited. Sánchez-Albornoz, Claudio. 1976. Viejos y Nuevos Estudios sobre las Instituciones Medievales Españolas. Madrid: Espasa-Calpe. Sanders, William, Henry Wright, and Robert MacAdams. 1984. On the Evolution of Complex Societies. Malibu, CA: Undema Publications. Service, Elman R. 1971. Primitive Social Organization: An Evolutionary Perspective. New York: Random House. ———. 1975. Origins of the State and Civilization: The Process of Cultural Evolution. New York: Norton. Shaw, Ian, ed. 2000. The Oxford History of Ancient Egypt. Oxford: Oxford University Press. Smith, Julia M. H. 2005. Europe after Rome: A New Cultural History, 500–1000. Oxford: Oxford University Press. Southall, Aidan. 1988. “The Segmentary State in Africa and Asia.” Comparative Studies in Society and History. 30:52–82. Steenstrup, Carl. 1991. A History of Law in Japan Until 1868. Leiden: E. J. Brill. Tuck, Richard. 1979. Natural Rights Theories: The Origin and Development. Cambridge: Cambridge University Press.


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Upham, Steadman. 1990. The Evolution of Political Systems: Sociopolitics in SmallScale Sedentary Societies. Cambridge: Cambridge University Press. Veyne, Paul, ed. 1987. A History of Private Life, vol. 1, From Pagan Rome to Byzantium. Cambridge, MA: Harvard University Press. Waley, Daniel. 1988. The Italian City-Republics. London: Longman. Warren, Wilfred L. 1983. Henry II. Berkeley: University of California Press. Weber, Max. 1978. Economy and Society. Translated by Guenther Roth and Claus Wittich. Berkeley: University of California Press. Webster, David. 1975. “Warfare and the Evolution of the State: A Reconsideration.” American Antiquity. 40:464–470. Wigmore, John Henry. 1928. Panorama of the World’s Legal Systems. St. Paul: West Publishing. Wormald, Patrick. 1999. The Making of English Law: King Alfred to the Twelfth Century, 2 vols. Oxford: Blackwell.

chapter three

Law and Economy in Traditional China A “Legal Origin” Perspective on the Great Divergence Debin Ma

; Western law, with its unique features of legal formalism and rule of law, as argued by Max Weber, has laid the foundation of Western capitalism and the eventual predominance of the West (Trubeck 1972). Crucial to the Western legal system is Weber’s distinction between formal and substantive justice. Under formal justice, legal adjudication and the process for all individual legal disputes are bound by a set of general and wellspecified rules and procedures. Conversely, substantive justice aims for optimal realization of maximum justice and equity in each individual case, often with due consideration to comprehensive factors, whether legal, moral, political, or other. Formal justice tends to produce legal outcomes that are predictable and calculable, even though such outcomes may often clash with the substantive postulates of religious, ethical, or political expediency in any individual case. Weber believed that formal justice is unique to the European legal system, with its highly differentiated, specialized, and autonomous professional legal class, independent of political authority. Legal rules were consciously fashioned, and rule making was relatively free of direct interference from religious influences and other sources of traditional values. Formal justice reduces the dependence of the individual upon the grace and power of the authorities, thus often making it repugnant to authoritarian powers and demagogues. Above all, the rule of law born out of the Western legal tradition supplied what

Law and Economy in Traditional China

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Weber described as calculability and predictability, elements essential for explaining the rise of Western capitalism and its absence in other civilizations.1 The emphasis on a formal judicial system received new inspiration from the recent research in new institutional economics on the importance of informal institutions or relationships and community-based mechanisms to enforce property rights and contracts. As Greif and others argued, while informal mechanisms probably functioned well or even better than a formal legal system (which is expensive to set up) when the extent of exchange and the scale of operations remain small and local, it was when the scale, extent, and frequency of exchange began to stretch across distances and time that the cost and risks tended to grow exponentially (Greif 2006). An independent formal legal system with replicable standards and enforceable rules is a powerful aid in the large scale of impersonal exchange and complex commercial and industrial organizations that characterize modern capitalism. The Weberian synthesis permeated the thinking of generations of sinologists on the Chinese legal tradition. Edwin O. Reischauer and John King Fairbank remarked: The concept of law is one of the glories of Western civilization, but in Chinese, attitude toward all laws has been a despised term for more than two thousand years. This is because the legalist concept of law fell far short of the Roman. Whereas Western law has been conceived of as a human embodiment of some higher order of God or nature, the law of the legalists (in China) represented only the ruler’s fiat. China developed little or no civil law to protect the citizen; law remained largely administrative and penal, something the people attempted to avoid as much as possible. Whereas Westerners have felt it safer to be ruled by impersonal laws rather than by personally fallible judges, the Chinese, presumably following Mencius in his estimate of human nature, have felt it safer to be ruled by ethically-minded administrators rather than by impersonal and, in their estimate, purely arbitrary laws. (1960, p. 84)

These sentiments on the relative “backwardness” of Chinese legal tradition have entered into summary form in a recent book by Chinese legal scholar Zhang Zhongqiu. He sees the Chinese legal tradition as originating in tribal wars, dominated by public law and official legal codes, which were collectivist, moralistic, singular, and closed, founded on rule by man and the ideal of no litigation. In contrast, Western law originated in clan conflicts, dominated by private law and legal jurisprudence, which was individualistic, religious, pluralistic, and open, founded on the rule of law and justice (Zhang 2006). These broad-brush characterizations, while useful to a certain extent, border on stereotypes about legal cultures

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that have become the target of criticism from recent revisionist scholarship. Contrary to the traditional Weberian synthesis, these recent works on Chinese legal tradition have argued that the Qing imperial legal system, long regarded as the epitome of arbitrary justice, was in fact far more rule-bound and predicable in its upholding of private property rights and enforcement of private contracts than previously recognized (see Philip Huang 1996; Zelin, Ocko, and Gardella 2004). This is also in line with another separate but influential argument advanced by Kenneth Pomeranz in his influential book, Great Divergence, which views property rights or the freedom to contract in traditional China as no less secure or flexible than in Western Europe. The in turn implies that the roots of economic divergence between China and Western Europe in the modern era need to be sought in areas other than ideological and institutional factors.2 This chapter offers a critical review of recent literature on Chinese legal tradition and argues that while recent revisionist literature makes significant contributions to a lively and timely reexamination of the traditional Chinese legal system, it overlooks some subtle but fundamental differences between the Western and Chinese legal traditions that are crucial to the origin of economic divergence in the modern era. By bringing legal regimes into the Great Divergence debate, this chapter broadens the existing European-focused “legal origin” literature to the wider Eurasian context. In particular, it makes a focused comparison of the contrasting patterns of the historical development of the legal professions and jurisprudence as seen between the Chinese legal tradition disciplinary mode of administrative justice and the English common law tradition. It argues that the increasing control of an independent legal profession over the making and interpretation of legal rules in early modern England represented a historical process of internal legal logic and reasoning triumphing over political or other expediencies, which continued to dominate the priorities of a state-centered legal system in traditional China. This contrast is reflective of the much larger differences in the long-term evolution of political power structures between Western Europe and China. They decisively shaped the origin and design of their legal regimes, which ultimately structure their respective regimes of property rights and contract enforcement, as well as their long-term growth trajectories. The rest of the chapter is divided into three main sections. The first section reviews the major feature and related debate on the nature of the traditional Chinese legal system. The second section offers a comparative analysis of legal traditions between China and Western Europe, in particular England. The third section provides a preliminary analysis on the link between political institutions and legal regimes in China and Europe.


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law and the legal system in traditional china: issues and debates We start our review of the Chinese legal tradition with Thomas Stephens’s useful classification of the traditional Chinese legal regime as “disciplinary” versus the West’s “adjudicative” or “legal” emphasis. A disciplinary legal regime is akin to a military tribunal system whose overriding interest is the sanctioning of deviant behavior to ensure group solidarity and social order (Stephens 1992, p. 6). We can trace this disciplinary element in traditional Chinese law to etymology. The Chinese word for law, fa (法), also means “punishment” (刑) (Liang 2002, p. 36; Su 2000, p. 6). In fact, premodern Chinese legal documents do not distinguish between punishment and military conquest (兵刑不分), in contrast to the Latin etymology of law ( jus), which specifically denotes rights (Liang 2002, p. 37–38). In traditional Chinese law (as in Roman law), the emperor is the source of all law. The traditional Chinese legal apparatus had been an integral part of the administrative system, with the bureaucracy within the hierarchy—from the county level to the emperor—acting as the arbiter in criminal cases. The Chinese penal code was very elaborate and systematic. The compilation of China’s first comprehensive legal code dated from 629 in the Tang dynasty (revised and completed in 737), only a hundred years after the Justinian code (drafted in 529 and promulgated in 533). Indeed, the early codification of formal Chinese legal codes had its parallel in Roman law, where codification also followed the centralization of royal and imperial Roman power (Malmendier 2009). In the Qing legal system, almost all the court rulings on criminal cases were required to cite specific official penal codes and statutes as support. Reflecting the highly centralized and hierarchical structure of Chinese bureaucracy, all legal decisions on criminal cases would—irrespective of whether there were appeals—need mandatory review through the administrative hierarchy, with capital punishment personally examined by the emperor himself (Shiga et al. 1998, p. 9). In principle, bureaucrats were agents of the imperial government and hence would face punishment if their rulings were found to be mistaken after review. Despite the elaborateness and sophistication of this legal system, in the end it was a bureaucratic code designed for the purpose of social control for officials to mete out punishments proportionate to the criminal violations perpetrated. The official legal codes were structurally organized along the six ministerial divisions under the imperial bureaucracy: government, revenue, ceremony, justice, military, and works (Liang 1996, pp.128–129). “More than half of the provisions of the Qing code, as

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pointed out by William Jones, are devoted to the regulation of ‘the official activities of government officials’ ” (cited in Ocko and Gilmartin 2009, p. 60). If the emperor made decisions and rulings outside the purview of existing legal statutes or contravened existing codes, these decisions became new laws or substatutes, “Tiaoli” (条例), to be used as a legal basis for future cases (Shiga et al. 1998, p. 12). In fact, as emphasized by Shiga, Terada, and others, as the formal legal codes changed little over the dynasties, the emperor’s legal decisions on individual cases formed the single most important dynamic changes in China’s formal legal system (Shiga et al. 1998, pp. 120–121; Terada 2007; Su 2000, chapter 9). It is a mistake, however, to think that such a legal system would be at the arbitrary whim of the rulers, despite the fact there were no legal or constitutional constraints on imperial power (apart from informal ones such as the much talked about “mandate of heaven”). As Jones (2004) has pointed out, since no single person could run an empire as vast as China, the most effective way for the emperor to control his bureaucratic agents was by enacting relatively standard and stable rules. An emperor could override the bureaucracy, but he could not do it very often if he wanted to retain his system of government. This logic laid the foundation for a certain degree of consistency and transparency within the legal system (see Jones 2004, p. 49; Ocko and Gilmartin 2009, p. 61). The fundamentally penal nature of Chinese legal code renders it less amenable to dispute resolution of a commercial and civil nature, which led to the long-held view that there was a complete absence of Chinese civil and commercial law. New research, however, reveals that the county magistrates, the lowest level bureaucrats, handled and ruled on a vast number of civil and commercial disputes that did not entail any corporal punishment. Was there then an implicit or a functional civil and commercial law in traditional China?3 Shiga argues that these county-level trials were something more akin to a process of “didactic conciliation,” a term he borrowed from studies by Western scholars on the Tokugawa legal system in Japan. The decisions of the magistrates were not legal “adjudications,” as in the Western legal order. The magistrate’s ruling was effective, and a legal case was considered to have been resolved or terminated only to the extent that both litigants consented to the settlement and made no further attempts at appeals. Although not common, Shiga points to cases where a legal dispute dragged on indefinitely when one of the litigating parties reneged—sometimes repeatedly—and thus refused to fulfill his or her original commitment to the settlement. Thus, this kind of ruling lacked the kind of binding and terminal force that legal adjudication has in the modern sense.4


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Shiga was also interested in the legal basis of magistrate’s rulings and found that although they invoked general ethical, social, or legal norms, they rarely relied on or cited any specific codes, customs, or precedents. In accordance with its intermediation characteristics, the magistrate’s ruling showed less concern for the adoption of a reasonably uniform and consistent standard than for the resolution of each individual case, with full consideration for its own merits. Shiga makes the generalization that the magistrates often resorted to a combination of “situation, reason, and law” (情，理，法) as tools of persuasion or threat where it became necessary (see Shiga et al. 1998; Shiga 1996, 2002). This can best be illustrated by a specific case used by Shiga: A widow of over 70 years old, Mrs. Gao, living in the nineteenth century in Shandong Province, pawned land to her junior uncle and his two sons at 45,000 cash. Later, Mrs. Gao wanted her cousins to buy and take over the land by paying an additional 50,000 cash. The cousins refused, and the disputes were taken to the court. The magistrate started his ruling by declaring that blood relations are far more important than money matters, and that the old widow needs to be looked after by her extended family. As there is a local custom that usually sets the pawning price of land at half the sale value of the land, the widow should ask for an additional 45,000 cash rather than 50,000 from the cousins. The magistrate further advised that the uncle and his two sons could share in their payment to the widow. The dispute seemed to be resolved, with both parties agreeing to the magistrate’s settlement (Shiga et al. 1998, p. 56). The specific case clearly shows that the magistrate’s ruling went far beyond narrow legal spheres. In fact, he was much more interested in influencing the outcome of the case—rather than the rules—by bringing about what he viewed as a socially ethical and harmonious outcome at the expense of the original terms of the agreement. His ruling relied on the power of persuasion more than a legal basis. Shiga’s particular interest in this case comes from the fact that this was one of the few that specifically cited a local custom. But clearly, as Shiga points out, the customs cited here were nowhere implied as the legal basis of his ruling or as a binding social rule. In fact, Shiga points to other cases where local customs were simply ignored or even condemned (Shiga et al. 1998, pp. 57–59). Clearly, legal rulings on civil cases by the magistrate’s court often served multiple objectives, which sometimes included redistribution. Indeed, as stated by one of China’s legendary iconoclastic late-Ming bureaucrats, Hairei (海瑞): “When in doubt during a litigation, my ruling would rather err on the side of the poor than the rich, on the side of the weak than the powerful.”5 This has led scholars to question the fundamental meaning of

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courts and contracts in traditional China. Instead of defending the terms of the contract, Terada argues, the magistrate’s court more often served as a forum to renegotiate a new settlement to accommodate the changed conditions. A “contract” in traditional China was merely a written proof of a mutual agreement that may or may not have binding power in the future (Terada 2004a, p. 95). Others echoed that “regardless of subject matter, contracts and ‘documents of understanding’ were more social than legal in nature because they were rooted in and protected by the social relationship of the parties”; or alternatively, “the surest guarantee of one’s rights seems to have been their acknowledgement by the local community” (by Myron Cohn and Ann Osborne, respectively, as cited in Ocko and Gilmartin 2009, p. 74). Ironically, the importance of social relationships behind the contracts partly explains the motivation for litigation at the magistrate’s court. People filed complaints to enforce a contract and settle a debt, but also, by having a case accepted for hearing or getting a favorable ruling, they maneuvered the balance of power in favor of the litigants in the social networks, a process more aptly termed “liti-negotiation” (Ocko and Gilmartin 2009, p. 71). This largely Weberian reinterpretation of the traditional Chinese legal system is not without challenge. On the basis of Qing archival legal cases of civil disputes, Philip Huang has concluded that the rulings of magistrates were far from arbitrary, rooted instead in formal legal codes, and that these seemed legally binding for most cases. As pointed out in a series of rebuttals by Shiga and Terada, however, Huang’s somewhat contentious finding hinges on the very specific methodology he adopted. Although there was no evidence to show that the original rulings by the magistrates cited any legal statues or local customs as their legal basis, Huang matched the contents of the ruling with what he deemed was relevant in the formal Qing legal penal code (Shiga 1996; Terada 1995). Although there is much to be desired about Huang’s methodology of inserting legal codes ex post facto to back up legal rulings made by magistrates several centuries earlier, the idea that magistrates ruled by some general moral and legal concepts and principles embedded in formal codes does merit attention.6 In fact, when Huang’s criticism of Shiga is framed in this way, it actually brings him closer to Shiga’s original position, in which the latter explicitly stated that the magistrate’s ruling appealed to a wide set of moral and ethical values, most of which could be embedded in formal penal codes. If so, are the legal traditions indeed as divergent as Weber may have made out to be? After all, Western legal rules were also partly formed through the codification of local customs and norms, which may well have reflected general ethical and moral values. In particular, the English common law system exemplifies such a


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process of law finding and law making based on the incorporation of principles embedded in customs and norms.

convergent or divergent legal traditions: legal professions in china and en gland To appreciate the often subtle yet fundamental differences between the Chinese and Western legal traditions, let us start with Harold Berman’s characterization of the fundamental features of the Western legal tradition traceable to the papal revolution of the Middle Ages that marked the beginning of the separation of church and state: • There is a sharp distinction between legal institutions and other types of institutions. Custom, in the sense of habitual patterns of behavior, is distinguished from customary law, in the sense of customary norms of behavior that are legally binding. • The administration of legal institutions is entrusted to a special corps of people, who engage in legal activities on a professional basis. • Legal professionals are trained in a discrete body of higher learning identified as legal learning, with its own professional literature and in its own professional schools. • There is a separate legal science or a meta-law. Law includes not only legal institutions, legal commands, legal decisions, and the like but also what legal scholars say about them. • Law has a capacity to grow, and the growth of law has an internal logic. • The historicity of law is linked with the concept of its supremacy over the political authorities. The rulers (or the lawmakers) are bound by it. (Berman 1983, pp. 7–8) While Berman’s characterization is structured within Western legal tradition, the somewhat peculiar historical development of the English common law regime makes it more interesting to compare with the Chinese legal system. Unlike the continental civil law regime, which is often premised on abstract principles and logical deduction, the case-based method of reasoning in English common law seemed, at first sight, to share a common feature with Chinese magistrates’ reasoning based on the “situation, reason, and law” of each civil case. Indeed, the casuistic nature of English common law led to Max Weber’s famous criticism of its being “irrational,” which itself is paradoxical to the whole Weberian thesis, given

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that England was the pioneering nation of modern capitalism (Honghai Li 2003, pp. 352–357). Yet behind this seemingly shared “irrationality” of the two legal traditions lay a sharp distinction. As noted by Maitland, what allowed the English case-law system to develop independently from the continental civil law regime was not just the Parliament or the jury system—as the former was widespread in Europe and the latter originated in France— but the rise of a professional legal guild of lawyers and judges organized under the system of inns of court and chancery and their related training methods based on the study of legal case reports (cited in Honghai Li 2003, p. 20). Originating in the medieval era, the inns of court grew from a training institution to become the equivalent of a law school, which by the Tudor period would be known as the third University of England (outside Cambridge and Oxford; Baker 2002, p. 161). The power of the professional legal body would have come to naught had it not been that the accreditations from the inns of court became the exclusive way to enter the legal profession of lawyers and judges in the common law court and even to obtain royal judiciary appointments. The gradual control by independently trained professionals of the power to interpret the law also sowed the seeds of judiciary independence from political or state control. By the seventeenth century, the supreme ruler of the land, King James I, was famously admonished by his own royal chief justice, Edward Coke, that the power of adjudicating legal cases did not lie in his hands but in those of professionally trained judges guided by the laws and customs of England (Berman 1983, p. 464; Jones 2004, pp. 46–47). Legal professionals also became prominent in parliamentarian representation and other important political posts, allowing their influence to extend far beyond the legal sphere and bringing a legal mindset conducive to political changes that eventually saw the rise of an English constitutional tradition rooted in the rule of law. Throughout the often bloody and violent political wrangling of the seventeenth century, the legal community sided with the parliamentarians to control the jurisdiction of the king’s prerogative courts and eventually secure the independence of the English judiciary and the triumph of the common law courts after the Glorious Revolution of 1688 (Berman 1983, pp. 214–215; Baker 2002, pp. 166–168; Chen 2007, chapter 6). The triumph of legal and professional reasoning over the expedience of political logic and vested interests was essential for an autonomous legal community to emerge as a safeguard to consistency and predictability in legal outcomes derived from the case-law methods, even before the establishment of the strict doctrine of binding precedents by the nineteenth century (Duxbury 2008, chapter 2). The autonomy of the legal profession


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also touched off a dynamic process in which judges and lawyers, through reasoning based on legal logic such as the extension of “legal fictions,” gradually transformed what had started out as a mere set of royal civil remedies to a body of legal rules covering wide-ranging commercial and civil disputes (Berman 2003, chapter 9). Hence the growth of common law took on its own logic and course through a bottom-up process of law finding and law making. This historical context possibly provides the missing link to resolving the so-called Weberian paradox of the English legal system and sheds new light on his enigmatic comment: “while not rational this (common) law was calculable, and it made extensive contractual autonomy possible” (Weber 1951, p. 102). The evolution of the Chinese legal system presents a sharp contrast to the professionalization in England over time. Not only did the entire legal system continue to be part of the administrative organ of the state, but also, as Shiga aptly puts it, all parties involved in dispute resolution in traditional China, ranging from magistrates and third-party witnesses to guarantors and contracting parties, remained distinctively “laymen” (Shiga 2002, chapters 4 and 5). The in-depth research by Chiu Pengsheng (2004) offers a vivid portrayal of a magistrate’s court in action in Ming and Qing China. The court session was open to the public and often thronged with various onlookers, sometimes unrelated to any parties of the litigation. With an official qualification based on his success in a state examination system inculcated in Confucian classics and appointed under a three-year country-wide rotating system of bureaucratic posting, the magistrate was often ill prepared in both legal expertise and local knowledge of the county he was serving. As a magistrate could face demotion or even physical punishment if his legal decisions were reviewed and determined to be mistaken by the upper-level administrative hierarchy, or if the discontented litigants appealed to his superior (an extremely costly process) against his rulings, the effectiveness of his rulings to satisfy the review from above became important.7 As a result, most magistrates came to rely heavily on the legal assistance of the so-called “mu-you” (幕友), the private legal secretaries hired at their “personal” expense. These legal secretaries were not allowed to be physically present at the court and thus operated behind the scenes, basing their advice entirely on written documentation. The magistrates’ dependence on their personal legal secretaries also led to the rise of a profession equivalent to what would have been lawyers in the West, the so-called litigation masters or pettifoggers (讼师), who used their legal expertise to assist the litigating parties in legal proceedings. As their legal assistance tended to encourage legal suits that clearly clashed with the state objective of social stability, litigation master as a profession had long been stigmatized with

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various pejorative labels, was branded as illegal, and was subject to penal punishment. The memoir of Wang Zhuhui, an eminent legal secretary with a long and successful career serving various magistrates in the late eighteenth century, related with pride how he handled these litigation pettifoggers after catching them: they would be physically tied to a column in the magistrate’s court and put on public display to witness the litigation they helped instigate; they would then be caned and made to repent in public the next day before finally being released. Indeed, a secret guidebook for the professional litigation masters specifically advised them not to turn up at the court to avoid being picked out from among the crowd (see Chiu 2004 pp. 55–56). With the official ban, litigation pettifogging flourished as an underground profession that engaged in drafting legal suits as well as conniving with court runners or clerks to influence legal outcomes. The operation of an informal legal profession either underground or behind the façade of a government bureaucrat in the magistrate’s courtroom forms a sharp contrast to the trend toward formal institutionalization of an increasingly autonomous legal profession in England in the early modern era. legal regimes and po liti cal regimes The origin of this divergence in legal traditions can be traced at least partly to the historical divergence in political structures between a centralized empire in China and political fragmentation and independent competing power groups within each polity in Western Europe.8 The peculiar political structure that had fragmented the Western European political landscape since the medieval era not only made possible a regime of interstate competition but also created autonomous space within a single polity for independent corporate bodies that embodied commercial or propertied interests. As argued by Greif (2008), the existence of elites with administrative powers in Europe constituted an essential precondition for the rise of constitutionalism. In England, the ability of parliamentarians to mobilize administrative and military counterweights against the king allowed the growth of independent corporate bodies such as the legal community. In this regard, the precocious rise of a unitary political rule in imperial China offers a mirror case study. While early elaboration and “rationalization” of a bureaucratic law served the aim of political control and social stability, the political dominance of a unitary imperial rule rested on the elimination of any independent contending elites and was supported by a highly centralized bureaucratic machine, both of which limited the rise of


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autonomous civil bodies.9 A formal and autonomous legal profession constitutes a potential threat to the imperial monopoly by contesting for the power to make and interpret the rules. Indeed, throughout the Qing dynasty, the emperors controlled the power to directly review legal cases submitted through the Ministry of Justice, especially those involving capital punishment or against high-level officials, sometimes affirming but other times overturning rulings made by ministry officials. Wang Zhiqian’s study reveals hardly any case in which ministry officials contested the emperors’ opinions on individual cases in the Qing period, let alone their legitimacy for final judicial review, as justice Edward Coke famously did to King James I in England (Wang Zhiqian 2009, pp. 204–205). In fact, as vividly revealed in Zheng Qin’s quote, the official letter from the Ministry of Justice in response to the Qianlong emperor’s request to amend a legal decision in 1746 was one of immediate compliance accompanied by admissions of grave guilt and remorse and a humble plea for imperial forgiveness for their grave error (2003, p. 76). Ultimately, this imperial monopoly over the interpretation of legal and administrative rules gives the emperor the power to rule as dictated by the political needs of imperial governance. Indeed, as the traditional Chinese saying yindi zhiyi yinshi zhiyi (因地制宜因时制宜) goes, legal enforcement should be adjusted to suit the time and place: laws could be implemented more harshly in times of lax discipline and more leniently in times of stability (Terada 2007, p. 82). The extent of this discretionary power over enforcement was allocated through the bureaucratic hierarchy in descending order, with the emperor sitting at the top. This is consistent with what Ch’u T’ung-tsu’s classic study described as the hierarchical nature of the Chinese law, in that not only did the senior members in the society (whether defined by bureaucratic or patrilineal status) receive lesser punishments for the same crime than the junior ones, but also the operating rules and procedures followed by officials at the lowerlevel courts or administrative levels could not touch officials (or gentry with academic degrees) who ranked higher in the hierarchy. The power of discretion represents a peculiar form of de jure total power in the sense that not only could the rulers choose when and where to exercise it but also that, given the resource constraint of a traditional empire, they might opt not to use it in areas where no direct state interest was at stake. Indeed, the state’s long-standing policies on civil and commercial disputes discouraged formal litigation and encouraged self-resolution. In many cases the state found it expedient to “farm out” coercive violence or disciplinary duties to nonofficial elites as a means of social control with the condition that the state could exercise control over these groups or communities through a system of collective responsibility.10 Meanwhile, the de

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jure total power gave the rulers a free hand to intervene where they saw fit in almost any aspect of Chinese society, public or private, criminal or civil. This led to a lack of distinction between legal and extralegal, or what Liang Ziping termed the “ethicalization of law” and “legalization of ethics” (Liang 2002, chapters 10 and 11). Clearly, the overriding interest of this statedominated legal system was in the ex post outcome, not the ex ante rules. Again, this de jure total power did not necessarily mean that that rulers had no respect for consistency and regularity of rule, which continued to remain the most effective way for the emperor to solve his agency problem in a vast empire. Indeed, as brilliantly demonstrated by Zheng Qin, when the somewhat paranoid but wily Yongzheng emperor (1722–1735) was bent on eliminating one of his powerful high-ranking officials, he followed all the proper legal procedures to “allow” the Ministry of Justice to slap that official with the death penalty, being accused of having violated a shocking ninety-five Qing criminal statutes, when in fact the gist of his offenses may have been that he simply was getting too arrogant and irreverent. Zheng points to numerous other historical examples of legal procedures and rules being manipulated for political purposes (2003, pp.77–81). Hence, self-imposed respect for rules and procedures from the top down is a far cry from the rule of law that was institutionalized from the bottom up. In England and large parts of Western Europe, the legal systems had also reflected the interests of the ruling elites and their vested power structure in the early modern era. But a crucial difference is that the ruling elites there usually consisted of a coalition in the form of corporate groups such as cities and guilds and, above all, Parliament, which maintained a relatively independent existence from the royal or political power structure. As property and wealth defined the membership status of the political and corporate elites, they gained an independent existence in and direct access to the formal political structure through the institution of political representation, a uniquely Western institution medieval in origin. Hence the clarification and defense of property rights became a defining feature in the evolution of the Western legal system. Accompanied by the rise of an autonomous professional legal class, this political structure made possible the emergence of the rule of law, first for the propertied elites and later to other economic and social classes (North, Wallis, and Weingast 2009, chapters 3 and 5). In China, however, the route to power went in the opposite direction: property emanated from political power; properties or property rights were secondary or derivative to the social and political status of individual members within the power hierarchy. We can find this phenomenon in historical tales of once penniless civil service examination candidates who, by virtue of having obtained degrees after years of failure, found them-


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selves quickly swarmed by the men of their village, with the poor offering themselves as domestic servants, the rich transferring part of their land deeds, and the money lenders offering interest-free loans—all in the hope of gaining favor and protection once the civil servant was in office (Ping-ti Ho 1962, pp. 43–44). Of course, most of the capital and wealth may have been created and accumulated outside officialdom. But the massive investment of Chinese merchant lineage in their offspring’s preparation for China’s civil service examination or their purchase of official titles, as well as the concentration of wealth in the distinctively bureaucratic class of Chinese gentry, were all testimony to the predominance of political status or posts over property ownership.11 This is what led to what Deng Jianpeng termed the fundamental dilemma of property rights in China: the weakness of formal legal protection led property owners to seek custody under political power, yet property thus generated through political power was fundamentally extralegal (Deng 2006, p. 69). The dilemma of formal property rights could explain the wide gulf often observed between formal legal rules and private customs in early modern China. Deng Jianpeng, for example, pointed to the clear expressions of private property rights in various forms often found in the tens of thousands of private land sale contracts in traditional China. But there were few attempts at any systematic institutionalization or codification of these rights in the state legal system, whose overriding interest in private land transactions remained in the securing of land taxes.12 The other illuminating example is the case of copyright in traditional China. Contrary to the contemporary image that there was no concept of intellectual property rights, Deng argued that the early invention and diffusion of printing led to rising demand and repeated attempts by publishers to assert and defend their property rights to printed editions, yet none of these attempts received any clear backing from the state or institutionalization in the formal legal system. Meanwhile, the state’s own heavy-handed regulation of publication and copyright was largely motivated by political censorship or the protection of state-sponsored publication of Confucian classics (Deng 2006, chapter 3). The gap between state laws and private customs in China in fact led Jerome Bourgon (2002) to question the translation of the Chinese word xiguan (习惯) as “custom,” which was not really the exact equivalent. “Custom” in the West was not only a sociological phenomenon but also a judicial artifact that was asserted by witnesses or appreciated by the jury, often with a clear territorial delimitation. In contrast, “custom” in China, according to Shiga and Bourgon, identifies only loose, largely unwritten social practices that had no territorial delineation. They did not harden into law. Similarly, Shiga and others also questioned the

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appropriateness of translating the term lu-xue (律学) as “jurisprudence” (Zhang Zhongqiu, chapter 6; Shiga et al. 1998, pp. 13–15). In fact, Shiga pointed out that the etymology of the word lu (律) refers to musical notes, which implies that the Chinese lu-xue is all about finding the appropriate scale of punishments for crimes according to official codes (Shiga et al. 1998, p. 16). Legal literature did blossom in the form of technical guidebooks for the litigation master profession or for legal secretaries and bureaucrats, but often in private or even illegal circulation. There were also numerous well-known private compilations of legal cases tried and ruled on in the court (see Zheng 2003, pp. 497–498; see also Chapters 4 and 5 in this volume). Indeed, as pointed out by Zheng Qin, the published compilation of legal cases often led to the use of “rulings by analogy” (类比) by officials in their legal trial in order to achieve some form of consistency in their legal decisions. Furthermore, the fact that most of the so-called substatutes supplementing the formal Qing legal codes were derived from the judgment of actual legal cases led to the argument for an embryonic form of Chinese case law. However, as emphatically pointed out by Su Yegong, the legal validity of these substatutes rested solely in the power of the Chinese emperors, as contrasted with the English common law regime, where binding precedents were sent through professional judges (2000, pp. 205–217). Likewise, the practice of ruling by analogy among bureaucrats was often discouraged for fear that officials might deviate too far from the formal codes or imperial instructions (Zheng 2003, pp. 501–502). Therefore, we need to distinguish a legal regime that has the capacity to transform disparate customs and norms into generalizable and positive legal rules or precedents (as in the West) from one that entrusted and embedded similar moral and ethical principles in the hearts and minds of individual bureaucrats or mediators (as in the case of traditional China). Because internalized and intuitive reasoning did not enter into a sphere of public knowledge that was subject to debate, reflection, analysis, or synthesis, traditional China did not have one of the most important dynamic elements that Berman (1983) has emphasized exists in European law: its historicity, or its capacity to grow with its own internal logic; or, as embedded in the common law regime, the institutional capacity of law making and law finding from the bottom up. In this sense, the formal institutionalization of an independent and autonomous legal profession and legal education marks an important step toward the rise of an impartial third-party enforcement mechanism that distinguished the rule of law from the rule of man, a point that could be lost in the type of ex-post “matching exercise” engaged in by recent Chinese legal revisionist scholarship.


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conclusion Our debate on the Great Divergence should integrate the divergent traditions in legal traditions and institutions between China and the West in the early modern period. The rise of an independent legal profession in England and Western Europe and its absence in traditional China were merely reflective of two contrasting political structures at opposing ends of the Eurasian continent that possibly bear greater explanatory power on their long-term economic divergences in the early modern era. To the extent that those institutional and epistemological elements that underpinned the legal revolution in the eleventh and twelfth centuries—the separation of church and state, the emergence of an independent territorial jurisdiction, the pursuit of transcendental, objective, and rectifiable standards—were also relevant for the rise of a scientific revolution in early modern Europe, as argued by Toby Huff (2003), it is also important to take seriously the link between legal institutions and the origins of the Industrial Revolution. It is easy to underestimate the dynamic implication of the growth of public knowledge in the form of jurisprudence often associated with a formal and independent legal regime. Indeed, others have argued that the logic of legal growth through the derivation of transcendental rules from the study of practical legal cases and private customs based on juridical reasoning in many ways paralleled some methodological features that underpinned the early modern scientific revolution. Just as the growth of an autonomous scientific community in the form of incorporated universities or independent associations had been essential to the rise of the scientific revolution, the rise and growth of an independent legal community, from the apprenticeship-based training legal guild to the higher institution of university law school, also underpinned the basis of European legal revolutions.13 In this context, Joel Mokyr’s (2002) recent resurrection of the role of the scientific revolution and industrial enlightenment in the Industrial Revolution in England is very relevant. The significance of the Industrial Revolution lies in its cumulative and sustainable effect on growth, which is distinguished from earlier growth spurts that petered out. What changed in eighteenth-century Europe is what he termed an expanded epistemic base resulting from the foundation of the scientific revolution and industrial enlightenment. Key to this argument is the idea that knowledge has the characteristics of a public good and acts as a fixed input that can generate scale economies. And through a feedback loop between what Mokyr terms prescriptive and propositional knowledge, knowledge

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itself generates a learning process that creates new knowledge (Mokyr 2002). While much has already been written in the areas of science and technology, future research should explore the mechanism that ties together the role of political institutions, legal regimes, and jurisprudence (as public knowledge) to long-term economic growth.14 This thesis may also be very relevant for explaining the long-term economic and institutional trajectories in traditional China. The process of social and collective learning—a process that may be the key to cumulative long-term institutional change—would either falter or be curtailed if legal knowledge or legal and intellectual communities were driven underground as in traditional China. The resultant outcome of long-term stagnation in the development of political ideology and legal jurisprudence might well explain the recurrent phases of violent rebellions and revolutions throughout Chinese history that led to the rise of new regimes or dynasties that were often mere modified replicas of the old order that the rebellion had come to replace. Notes 1. See Weber (1978), vol. 2, p. 812; and Trubek (1972), p. 721. 2. For a summary of the California school, see Ma (2004). See Pomeranz (2004) on the flexibility of traditional Chinese factor markets. 3. For the extent average people used the county-level civil trial system, see Susumu Fuma’s article in Shiga et al. (1998) and also Huang (1996). 4. For an illustration of this kind of ruling in action, see Terada’s meticulous reproduction of a land dispute in a magistrate’s court of late nineteenth-century Qing Taiwan based on forty-one archival documents. It shows that the various rulings by different magistrates on this case became intertwined with the intervention of heads of lineage households and the repeated appeals and maneuvering by the plaintiffs and defendants, including the use of private violence. It only came to an amicable end when both parties agreed to the proposed resolution a year and a half later (Terada 2004b). Another more extreme case is recorded in a recent study of the commercial disputes in the highly commercialized Huizhou region of Anhui Province in the Ming and Qing periods. According to Han Xouyao, a serious protracted land dispute between two large lineages in the area broke out and lasted across generations for 128 years (from 1423 to 1551). There were numerous trials and rulings by the county and prefecture courts and incidences of violent conflicts. In spite of the official ruling from the prefecture court, the disputes ended only with the drafting of a “truce” agreement signed by the two lineages and witnessed by middle men and the village elder (2004, pp. 93–117).


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5. Cited in Li Qin (2005, p. 47). The redistributive impulse of legal ruling is well reflected in the magistrates’ mindset on the local customs of land sales as studied by Mio Kishimoto (2003; see also Chapter 4 in this volume). In many regions, sellers of land often requested post-sale compensation from their buyers, especially after the rise in land prices after sales. This practice led to widespread abuse, with sellers requesting compensation at amounts and durations far beyond the customary rule or the original terms of the agreement. Resorting to excuses of sickness, old age, hunger, bad harvest, and sometimes blatant extortion, some sellers turned this compensation request into an annual event (often around the Chinese New Year). In fact, as summarized by Kishimoto, there was a systematic tendency for magistrates’ rulings to lean toward requesting the relatively wealthy land buyers to compensate the poor in spite of the original agreement. 6. Zelin’s argument of strong property rights and contract enforcement is also based on the fact that Qing’s formal criminal code contains statutes relevant for civil and commercial matters. See Zelin 2004, pp. 19–23. 7. See Ocko (1988) for the appeals procedure. For the very high cost of litigation at a magistrate’s court, see Deng Jianpeng 2006, chapter 2. 8. Shiga attributed the nonadjudicative legal regime in traditional China to the absence of an “adversary” culture in traditional China, unlike in ancient Greece. See Shiga 2002, p. 368. This cultural explanation seems difficult to reconcile with the motto held by victory-driven litigation masters in Ming and Qing China: “to win one hundred legal suits out of one hundred” (Chiu 2003). 9. For a narrative on the political structure in traditional China and the nonalignment of the imperial rulers and property class, see Ma 2010 and also Deng 2006. 10. Shiga, for example, documented in detail the sanctioning of the power of capital punishment to lineage leaders over their own members, subject to official review (2002, chapter 2). For the power of corporal punishment in villages and guilds, see Han 2004, chapter 2; and Weber 1951, chapter 4. 11. See Chang Chung-li (1955) on the enormous wealth accumulated by Chinese gentry bureaucrats. For the widespread practice of buying official titles by wealthy families, see Deng 2006, pp. 68–69. Zhang Haiyin’s (2009, pp. 237–238) study of merchant manuals also records the pervasive fear of bureaucrats among merchants in Qing China. 12. See Deng 2006, chapter 1, for various examples of how property rights in land were often identified with the payment of state land taxes. Bourgon 2006 makes similar points. For an illustration of the nature of property rights in land, see Kishimoto’s careful illustration in Chapter 4 of this volume. 13. See Berman (2003, pp. 265–269) for an argument on the methodological link between legal jurisprudence and scientific thought in the seventeenth century. Toby Huff (2003) is a major proponent of the link between legal institutions and the scientific revolution in the West. 14. For a narrative on the feedback loop that runs from the ideas of John Locke, the French Enlightenment thinkers, and the American federalists, to the political events of the Glorious Revolution, American independence, and the French Revolution, see Berman 2003, pp. 13–16.

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Reischauer, Edwin O., and Fairbank, John King. (1960). East Asia: The Great Tradition. Boston: Houghton Mifflin. Shiga, Shuzo. (1996). “Shindai no Minji Saiban ni Tsuite” [On Civil Adjudication in Qing]. Chugoku Shakai to Bunka, vol. 12: 226–232. ———. (2002). Shindai Chugoku no Hou to Saiban [Law and Adjudication in Qing China] (2nd ed.). Tokyo: Soubunsha. Shiga, Shuzo, Terada, Hiroaki, Kishimoto, Mio, and Fuma, Susumu. (1998). Ming Qing shiqi de minshi shenpan yu minjian qiyue [Civil Trials and Civil Contracts in Ming and Qing China], edited by Wang Yaxin and Liang Zhiping. Beijing: Law Press. Stephens, Thomas. (1992). Order and Discipline in China: The Shanghai Mixed Court, 1911–27. Seattle: University of Washington Press. Su, Yegong. (2000). Ming Qing LvDian yu Tianli [Ming Qing Legal Codes and Statures]. Beijing: China Law University Press. Terada, Hiroaki. (1995). “Shindai Minji Shihouron ni Okeru ‘Zaihan’ tou ‘Choutei’ ” [“Adjudication” and “Conciliation” in Qing Civil Justice—a Response to Philip Huang’s recent works]. Chugoku Shigaku, vol. 5: 177–213. ———. (2004a). “Goui to Keiyaku” [Agreement and Contract], chapter 4 in T. Miura, M. Kishimoto, and T. Sekimoto (eds.), Hikaushi no Ajia: Shoyu, Keiyaku, Shijyou, Kousei [Asia in Comparative Perspective: Ownership, Contracts, Markets, Fairness and Justice]. Tokyo: University of Tokyo Press. ———. (2004b). “Zhongguo Qingdai de mingshi susong yu ‘fazhi gouzhu’—yi danxin dangan de yige anli wei suzai” [Civil Litigation in Qing China and the Construction of Law: A Case Study from Danxin Archives]. Private Law Review, vol. 3, no. 2: 304–326. ———. (2007). “Hi ruuru deki na hou touiu consenputo—shindai chugouko sozai o ni shit e conseppto” [The Non-Rule Based Law—the Case of Qing Chinese Law]. Hougaku Ronshou, vol. 160, no. 3.4: 51–91. Trubek, David. (1972). “Max Weber on Law and the Rise of Capitalism.” Wisconsin Law Review, vol. 720, no. 3. Wang, Zhiqiang (2009). “Shilun Qingdai de Huangquan yu Xingshi Shifa” (An Analysis on Qing Imperial Power and Criminal Justice), in Xu, H.X., Kojima, Y., Tao, D. M., and Wu, Z. (eds.), Dongya de Wangquan yu Zhengzhi Shixiang. East Asian Imperial Power and Political Thought. Shanghai: Fudan University Press, pp. 190–206. Weber, Max. (1951). The Religion of China, Confucianism, and Taoism. Glencoe, IL: Free Press. ———. (1978). Economy and Society, vols. 1–2. Berkeley: University of California Press. Zelin, M., Ocko, J., and Gardella, R. (eds.). (2004). Contract and Property in Early Modern China. Stanford, CA: Stanford University Press. Zhang, Haiyin. (2009). “Ming Qing Shangye Sixiang Fazuan jiqi Zhuanxing Kunjing” [The Development and Transitional Difficulties of Commercial Thought in Ming and Qing China]. Paper presented at Fudan University, Shanghai.


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Zhang, Zhongqiu. (2006). Zhongxi falv wenhua bijiao yanjiu [A Comparative Research on Legal Culture in China and the West]. Beijing: China Law University Press. Zheng, Qin. (2003). Qingdai falv zhidu yanjiu [A Study on Qing Legal System]. Beijing: Beijing Law University Press.

chapter four

Property Rights, Land, and Law in Imperial China Mio Kishimoto

; Property rights, contract enforcement, and mechanisms for dispute resolution lie at the heart of long-term economic change. The aim of this chapter is to present an outline of secular trends in land markets, land conflicts, and land legislation from the Song (960–1279) to the Qing (1644–1911) dynasties. After a general discussion of the concept of the landowner in imperial China, I focus on the problems of redemption and zhaotie (the additional price of land paid by the purchaser to the seller), which were the most common causes of land disputes during this period. After the equal-field system collapsed in the mid-Tang period, land could be sold and purchased almost freely by people, with little governmental interference. This apparent free trade of land, however, is not the same as property rights in the Western sense. How, then, should we understand the characteristics of property rights peculiar to China after the Song dynasty? To begin with, I will briefly survey how Japanese scholars have discussed landownership in late imperial China. The free market in land frequently led to conflicts over land sales, especially when the struggle for land intensified and prices were on the rise. Poor sellers would often file lawsuits demanding redemption or zhaotie from rich purchasers. Local officials were forced to deal with a number of land dispute cases, which, although trivial, were not easy to judge. New laws were formulated to cope with these conflicts. Did these efforts by Chinese officials bring more “Western” notions of land ownership to Chinese society? In the second part, I will show how the attitude of officials

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in judging lawsuits concerning land sales changed from the Song to the Qing and explain why this change occurred in the socioeconomic trends of this period. In the third part, I will answer, as far as possible, the questions raised by the editors of this volume: how should we consider the mutual influences between the long-run economic trends and the evolution of laws in non-Western civilizations such as China in a comparative perspective?

concepts of land own ership in late imperial china We begin with a brief survey of the notions of land ownership in late imperial China (for a more detailed explanation, see Terada 1989, 1997). People in late imperial China usually used the following words when talking about types of contemporary ownership: (1) “You (have, own)” was a very common description of ownership. For example, “I have (you) a piece of land inherited from my ancestors,” or “the land owned (you) by people.” (2) The character “ye” or “chanye” meant properties, which might be exploited to gain profit such as land or houses. There used to be phrases such as “sell it to Mr. so-and-so making it his property (ye)” in land contracts from the Song to the Qing period. (3) The character “zhu” (master or owner) was also often used: for example, “yezhu” (owner of property), “tianzhu” (landowner), and “yi-tian liang-zhu” (two masters to a field). (4) More briefly, personal ownership could be expressed by a postposition such as “de”—for example, “wo fuqinde tian” (my father’s land). It should be noted that Chinese people had scarcely developed well-defined legal concepts of ownership in the way that Muslim and European jurists had. Nonetheless, such everyday expressions as those above were considered sufficient for Chinese people to maintain civil order. After the Song period, “owners” of land (not to mention other commodities) could freely use, profit from, and dispose of their properties. While some officials suggested restricting free trade in land to check the increase of landless peasants, successive dynasties adopted laissez-faire policies concerning private trade. According to Kaino Michitaka, one of the leading scholars of legal sociology in mid-twentieth-century Japan, Chinese traditional land ownership was “a right that was abstract, individual, real, unrestricted, absolute and elastic,” “which apparently resembled the concept of property rights in modern codes” (Kaino 1943). As Kaino states, ownership in

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traditional China was characterized by its “free” feature.1 More detailed analyses, however, revealed other aspects of Chinese traditional ownership. It was the ironic combination of a modern appearance with nonmodern features of Chinese traditional ownership that attracted Kaino’s attention sixty years ago, and it has continued to fascinate several scholars of Chinese legal history in postwar Japan. First, let us examine who was the owner in such land tenure arrangements. Who could make decisions about the use, exploitation for profit, and disposition of properties? The debate about the ownership of family property was linked to this question. In a patriarchal family, which was the most basic type of Chinese family, was family property owned solely by the father as a patriarch, or was it collectively owned by family members? According to Shiga Shuzo, “arguing in terms of legal ascription, family property was obviously owned by the father,” while Shiga also draws our attention to the fact that even the father could not violate the rule of equal division of family property among his sons. What prevented him from freely dividing family property among his children if he was the owner? This situation is apparently contradictory, but Shiga explains it through the principle of fu-zi yi-ti (father and sons are one flesh, or fatherson identification). According to this principle, the father and sons are not distinct individuals but, ideally speaking, one person. Consequently, there must exist no conflict of interest between a father and his sons. “The personas of the sons are subsumed in their father, so that the father appears as the sole proprietor of family property, and his ownership is never restricted by the existence of his sons. At the same time, the persona of the father is extended to his sons, so that family property must continue to belong to his sons after his death” (Shiga 1967, pp. 208–215). In this situation, a “person” as a holder of the right to property is not a discrete individual but part of a perpetual existence continuing forever from ancestors to descendants. As the existing ascendant in the lineal hierarchy, the father represents this perpetual existence in the family. It is a matter of course that he should decide everything regarding family property, whose possessor is, in theory, the entire perpetual existence that includes him. At the same time, the father cannot arbitrarily dispose of family property against the will of this perpetual lineage, because his person is subsumed under the past ancestors, just as the persons of his sons are subsumed under him. Another example of the discussion concerning who owned the land is as follows. It is well known that the notion of Wang-tu wang-min (king’s land, king’s people / all land and all people are owned by the sovereign), which appeared in The Book of Songs compiled during the Age of Warring States (403–221 b.c.), persisted throughout the imperial period.


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Land could be traded relatively freely in late imperial China, however. In a practical sense, people could “own” land. This seems to indicate that the notion of state ownership of land had already become an empty theory. The following is a summary of how Chinese intellectuals explained this seemingly contradictory situation. According to the conventional discourse of intellectuals in imperial China, neither trade in land nor trafficking in humans was known in ancient times because wise kings in those days allotted a portion of land to each household (the so-called well-field system) to enable everyone to enjoy a peaceful life. “However, after the ‘well-field’ system was abandoned, people could no longer have a constant occupation. While the rich became as powerful as kings and nobles, the poor had no option but to sell not only their land but also their own selves and their children” (Zhang Lüxiang 1968, p. 374), Watanabe Shin’ichiro pointed out that the wellfield system was one example of the notion of fen-tian (division of arable land) prevalent in ancient China. He believed the word fen-tian meant small-scale fields held by taxpaying peasants, whose holdings presupposed the entire land controlled by the sovereign as the original situation (Watanabe 1986, p. 111). With the disappearance of these allotment systems, land was “divided” by the sovereign and gradually began to be traded among peasants; after hundreds of years, as a matter of course people freely owned and disposed of their lands. This myth about the formation of private ownership suggested that the land, which was traded freely, was originally the sovereign’s own. Because private ownership developed from the sovereign’s ownership, it would lose its logical basis without this notion of “king’s land” as its origin. The notion of “king’s land, king’s people” not only provided a logical basis for people’s property rights but also gave moral grounds for criticism against the predicament of the period brought about by the excessive development of private ownership. The expanding gap between the rich and the poor goes against the ancient ideal of equal allotment of fields to the people, which was the actual origin of contemporary ownership. This paradox caused concerned intellectuals to advocate reforms that would bring about a return to antiquity. Though these reformist ideas were seldom realized, the notion of “king’s land, king’s people” maintained its vigor throughout the imperial period so long as people perceived the evil effects of private ownership (Kishimoto 1986). These brief remarks on the patriarchal authority and the idea of “king’s land, king’s people” suggest that a “person” as an owner of land in imperial China was not necessarily an independent individual who “had property in his own person,” which John Locke assumed as the starting point of his argument. Rather, a “person” in China was regarded

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as a link in a hierarchy of human relationships, which covered everything under heaven. A patriarch subsumed the personality of his children, while his personality was also subsumed by his past ancestors. A landowner, who could control his land at will, was simultaneously one of the people ideally owned by the sovereign. A person who owned property was, in turn, owned by others.2 This situation could be regarded as a characteristic of Asiatic society, which did not embrace the notion of the independent individual. It should be noted, however, that this vertical network of human relationships in China was open. Neither a person nor a group could exclusively own something, because such a person or group was, in turn, owned by others. The Chinese patriarch, who was obliged to obey external authorities, was by no means an absolute master of his family and servants. Even an emperor must be criticized if he “mistakes everyone under Heaven for his private property, and falsely regards his revenue as a profit made from it” (Huang Zongxi, 2005, pp. 3–4). It is perhaps because of the open character of human relations in China that historians have often emphasized the laxness of the Chinese rural community and the looseness of state control, although they admitted the strength of Confucian moral ethics. The second idea to be discussed concerns exactly what they owned. Did Chinese people believe that they owned, for example, land per se, or was it something else? Terada Hiroaki tried to answer this question through a detailed analysis of the custom of “two masters to a field,” which was fairly widespread in Ming-Qing China. Under this custom, a tenant who had topsoil ownership could freely sell it to others or divide among his heirs, so that he was regarded as a different proprietor than the subsoil owner. According to Terada, it was not the land as substance but the land as a unit of profit making that was the object of a transaction in MingQing society. The land as a unit of profit making was called ye. “Two masters to a field” describes a situation where two units (ye) of profit making (i.e., the tenant’s revenue was from cultivating, and the landlord’s was from rent) were formed on a single plot of land and were traded independently. Qing people did not feel it unusual to have multiple yes on the same land, because ye was not a concept implying exclusiveness or absoluteness (Terada 1983). Though there were many regions without the “two masters to a field” system in the Ming-Qing period, it does not mean that landownership was exclusive and absolute in those areas but indicates that the tenant’s right to cultivate had not been regarded as valuable enough to be traded as an independent unit. The concept of ye reflects the same notion of ownership as the “king’s land” theory. When people began to trade their land after the well-field


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system was abolished, what they sold was not the land per se (because the land was owned by the sovereign in theory) but their right to cultivate and profit from the land. A person who could legitimately cultivate a plot of land allowed another person to cultivate it on his behalf at some price; this process is the same as the formation of the custom of “two masters to a field.” At first sight the “two masters to a field” custom seems to be similar to multiple ownership in the feudal regime of medieval Europe, especially since multiple rights were accumulated for the same land. The multiple ownership of feudal society, which incorporated a hereditary system, was regarded as an obstacle to free trade. It should be noted, on the contrary, that Chinese multiple ownership was a product of the free economic activity of people. When Japanese scholars researched the landownership patterns in Taiwan under the Qing a hundred years ago, they pointed out that “there were (found) various kinds of relationships in civil matters because people can freely make contracts of any kind” (Rinji Taiwan Kyukan Chosa kai 1910–1911, vol. 1, p. 159). As the notion of exclusive landownership was absent, people could sell any right to profit making on a piece of land as an independent disposable unit. The land market of late imperial China was very vigorous, and the government permitted this situation so long as the free land market did not cause serious problems. As vertical human relations infinitely expanded, each individual was greatly or weakly restrained by the others; this was the arena where Chinese people competed for wealth and power. Order in this arena was maintained through the efforts of both the people themselves as well as the government, which “would adjust human relations from a comprehensive point of view” (Shiga 1984, p. 284). The government after the Song, unlike that of the Tang, did not prohibit free trade in land. When land disputes occurred, officials in late imperial China would pass judgments with a view to sustaining and protecting the legitimate ownership of land. Nevertheless, it is safe to say that officials placed more emphasis on the adjustment of human relations as a whole than on the realization of individual property rights. In the sense that the whole society’s welfare was placed above individual rights, there were no differences between the Tang and the post-Tang period. The difference was in the way chosen to achieve this goal. While the Tang officials thought that active intervention by the government (e.g., the land distribution policy) was necessary for people’s welfare, officials after the Song found a laissez-faire policy a more effective and easier way to achieve social stability and prosperity.3

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land markets and land laws in late imperial china Land Laws in the Late Tang and Early Song Periods The early Tang government enforced the equal-field system, under which land would be distributed by the government to each household depending on the number of male members in the household. When a man grew old or died, the allotted land had to be returned to the government to be re-allotted to another person. People were prohibited from selling and buying land freely under this system. After the equal-field system collapsed in the mid-Tang period, the government did not intervene in land sales. Nonintervention did not necessarily imply positive protection of property rights, but the Tang government was forced to make laws about land ownership to cope with the increasing conflicts and lawsuits over land sales. We can find a few edicts concerning sales of land issued in the late Tang period. The first one issued in a.d. 822 provided for the following: “in cases of conflicts over adjoining and interlacing lands and sites, if the concerned parties did not appeal to a court at that time, and after a long time filed a lawsuit with doubtful deeds, then the court should not accept the cases that occurred twenty or more years ago.”4 Another edict of 824 also contained regulations forbidding local courts to “accept cases in which debts of thirty or more years are disputed and there only exist deeds, but no guarantees and evidence.”5 It should be noted that these edicts attempted to prevent the increase of lawsuits by setting time limits for the acceptance of cases. We can refer to them as a “time limit” type of law. Why did the Tang government issue these laws in succession? The tax reform of 780 (imposing a twice-a-year land tax system), in which tax was collected in copper cash, caused a violent deflation that continued for almost forty years. During this period, prices of grains and silk fabrics fell to one-fourth or one-fifth of previous years (Peng Xinwei 1965, p. 344; Chuan Hansheng 1976, pp. 143–208). Though the data on land prices from this period are not available, the land market must have been hard hit by this deflation. To resist intensifying the deflation, the government allowed people to pay tax in real goods after 820. After that the price of commodities began to rise, and consequently, the land market became active again. We should note that the laws on land and debt conflicts were issued in this period of economic revival. The expanding demand for land must have caused land conflicts, and the government was forced to deal with the increasing number of lawsuits.


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These laws enacted by the Tang government did not distinguish conditional sales from outright sales. Conditional sales and outright sales were two important categories in land trading in late imperial China. When poor peasants were forced to sell their lands, they often chose conditional sales, in which sellers could redeem the land after a certain period (usually three or five years) at the same price at which they had sold it. Though the land prices in conditional sales were cheaper than those of outright sales, most poor people preferred conditional sales so that they could avoid losing their land forever. In fact, a majority of the land disputes in late imperial China were caused because of the confusion between conditional sales and outright sales. Sometimes litigants would consciously cheat over these categories, but the distinction between the two categories in itself was not necessarily very clear in the minds of common people. In the edict issued in 962, a few years after the founding of the Song dynasty, the emperor reaffirmed the late Tang regulations, ordering that “whoever delivered his land or house to others as an object of conditional sale or mortgage can be allowed to redeem it without regard to the period since the original sale or mortgage was done on condition that the original deed exists, the persons concerned or their sons or successors are alive, and there is clear evidence,” but that “if there is no reliable deed, and thirty and more years have passed since the original sale or mortgage, then the land or house should not be returned to the former owner, and should be left to the present cultivator’s disposition.”6 The main purpose of these edicts was to restrict lawsuits that could not be solved and to reduce false accusations. In this sense, emperors and officials in the late Tang and early Song seem to have been willing to protect people’s property rights, although the concept of property rights was never referred to in these edicts in a positive, explicit way. Land Laws Quoted in the Qingming-ji Here I examine how the judges applied these laws when they adjudicated land disputes at court.7 The best historical material for showing the circumstances of trials in local courts in the Song is certainly the Minggong Shupan Qingming-ji (Collection of Enlightened Judgments by Celebrated Judges), with a preface dated 1261.8 The Qingming-ji is a casebook of texts of actual decisions taken by famous officials in the Southern Song period (1127–1279). This book includes twenty-five cases concerning conditional sales or mortgages. In the great majority of these cases (twenty-four out of twenty-five), the accusers were the original owners (i.e., the sellers of the land or house) or their party (e.g., descendants or relatives of the sellers), and the

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judges in most cases (twenty-one out of twenty-four) did not allow the accusers to redeem the land or house on the grounds that the original sales were not conditional sales but outright sales or that too long a time had elapsed since the original sale, and no witnesses were available. As some Japanese scholars have already pointed out,9 there were striking differences between the attitude of the Song judges in the Qingming-ji and that of Qing officials, who appear in casebooks in the Qing. In the Qing period, local officials seldom quoted laws when judging civil matters, and even when they did, the legal codes cited in their judgment were limited to statutes and substatutes included in the Qing code. Unlike the Qing, Song judges cited various kinds of laws, such as edicts, ordinances, regulations, and specifications. There existed a volume of laws concerning civil matters in the Song, and these were often cited by judges in local courts. It appears that Song officials were more legal minded in civil cases than their counterparts from the Qing. Among the twenty-five cases concerning the conditional sale or mortgage of land, fifteen judgments include citations of the sentence of laws by the judges, while in another four cases, the judges made reference to the content of laws, although they did not cite them. Summing up, in three-quarters of these cases, the judges made reference to the concrete content of laws.10 This high proportion of judgments with citations is striking if seen from the perspective of Ming-Qing historians. The most frequently cited was the time limit type of law, which limited the period of accepting land disputes usually to twenty years, in the event that the deed was unclear and the investor or the owner was dead (hereafter, the “twenty-year law”). The time limit type of law that can be traced back to the late Tang period was still valid in the Southern Song.11 Some Chinese historians regard this type of law as prescriptive.12 Let us examine exactly how the judges used the twenty-year law, since the fact that they cited a law does not necessarily mean that they judged strictly according to it. First, we must note that the judges did not always agree on the interpretation of the twenty-year law. The most crucial problem was the relationship among the three conditions included in the law, namely, (1) the clarity of deeds, (2) the period since the original transaction, and (3) the existence of the people concerned (buyer, seller, and witnesses). Should the case be accepted if only one of the conditions was satisfied? There was a potential contradiction between the time limit principle and the clear evidence principle.13 This obscurity of the text might be considered a crucial defect in the law, but most celebrated judges in the Song do not seem to have been too bothered by this problem, for they did not necessarily judge solely according to the law. In most cases concerning conditional sales, the falseness of


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the accusers was so obvious that the judges actually did not need to rely on the twenty-year law to judge the case. Of course there were some difficult cases. For example, in one case a widow sued her brother-in-law to claim repossession of the house, which she had sold previously; the period of acceptance had expired slightly earlier, and the defendant submitted the “red deed” (deed with an official stamp) that proved that the original sale was an outright sale. Even though according to the law the case should not be accepted, the judge accepted it and, “taking into account human emotions,” decided that the poor widow should be allowed to repossess the house if she could prove that she had been living with her grandson in the house right from the day when the original trade was completed.14 In this case, the judge did not ignore the law, but the twenty-year law was only one factor in his overall judgment, which took both law as well as human feelings into consideration. In this sense, we cannot presume the judges in the Qingming-ji were legalists who made their judgments by relying exclusively on laws.15 Nevertheless, the judges of this period regarded it as necessary to support his judgment by citing the law. Why did they see the need for this? Some Japanese historians have pointed to the socioeconomic background of the lawsuits included in the Qingming-ji. For example, Aoki Atsushi pointed out the regional variation in Song legal culture. He believed a certain type of legalism was characteristic of newly developing frontier areas such as Jiangxi, where disputes concerning landownership intensified with the population growth at that time. He also found a meaningful relationship between the judges’ attitude to law and their birthplaces. He points out that a few judges native to Jiangxi “made frequent and detailed citations from laws when passing judgment” and suggests that this tendency might have been related to the legal culture peculiar to Jiangxi. In addition to the regional variety, economic trends resulting from monetary factors may also have been important. Most of the lawsuits related to conditional sales in the Qingming-ji were filed during the first half of the thirteenth century. The first half of the thirteenth century was a period of inflation caused by the excessive issue of paper money (Chuan Hansheng 1972, pp. 325–354). In one case in Qingming-ji in which the plaintiff filed a lawsuit in 1238 claiming repossession of the land he had sold in 1206, the judge pointed out: “the land price has doubled now (around 1243), and the price of paper money has fallen.”16 This increase in land prices must have been one of the motives of the plaintiffs for claiming the repossession of the land they had sold before inflation. It was quite natural that lawsuits on conditional sales of land occurred frequently and that these cases were not easy to settle because neither of the litigants would give

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way. The twenty-year law was one of the effective tools for judges to cope with the increase in lawsuits on conditional sales and to support their judgments with state power to win the litigants’ submissions. Land Laws After the Yuan Period During the Yuan dynasty (1271–1368), prices of commodities rose because a large quantity of paper money was issued. The rise in the price of lands caused land disputes, as clearly pointed out by some regulations included in the Yuan-dianzhang. In 1297, an official from Jiangxi province reported that “prices of commodities are climbing rapidly, and prices of houses have risen several-fold, so that the gambling spirit in people is stirred up, and this causes the increase in lawsuits.” To cope with these trends, this official suggested that “the government should recognize the buyers as legitimate owners so as to restrain the gambling mindset of evil people.”17 The fundamental policy of the Yuan dynasty on land disputes was, as suggested in the above quotation, to protect the present owner with a view to reducing the lawsuits caused by the “gambling spirit” of the people. In 1299, the Yuan government ordered that cases concerning the transactions of land during the Song period should not be accepted.18 In a 1311 edict, too, the emperor stated that the cases concerning transactions of land and houses before 1308 should not be accepted, except for those already brought to the court or those with clear deeds.19 There is no evidence, however, to show how these laws were used in actual lawsuits. After the foundation of the Ming dynasty in 1368, the Ming government compiled the Ming code, a comprehensive legal code that combined various fields of law and arranged them in a systematic order. Two important statutes were included in the Ming code: the statutes on the “fraudulent selling of another’s land or house” and the “conditional sales of land and house.” The former provided for the punishment of those who fraudulently sold, exchanged, or pretended ownership; encroached upon or forcibly occupied another’s land or house; or forged prices or ownership deeds. The latter statute prescribed punishment for those who conditionally sold or purchased land or a house and did not pay the required tax and stipulated punishment against those who double-mortgaged land or a house and who as pledgee refused to allow repossession of the pledged land when the term came due.20 It seems that the time limit type of law, which was prevalent in the Song and Yuan periods, disappeared during the first half of the Ming. This type of law was not revived until the late fifteenth century, as a rapid rise in the price of land caused an increase in lawsuits on land sales. The


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new law was issued in 1468 and, through a revision, was included as a substatute in the Ming code.21 The new law provided for the following: In the cases concerning household effects and lands, if the sale or household division in question was done five or more years before, or, even if within five years, in case there exists clear deed that proves sale or division, then the present owner should be allowed to keep his property as before. Re-division or repossession should not be allowed. The complaints are to be rejected and the documents to be retained.

This new law (hereafter, the “five-year law”), however, was not so frequently referred to by Ming officials as the twenty-year law had been by Song judges. It may be partly because the period of acceptance of the new law was much shorter than twenty years. The contradiction between the time limit principle and the clear evidence principle became evident because the period of five years was too short to obscure the real circumstances of the original trade.22 Then how did the judges after the late Ming adjudicate the cases concerning land sales? Land Conflicts and Local Adjudication After the Late Ming Period As mentioned above, we can find striking differences between the Song officials’ attitude in dealing with land conflicts and those of their counterparts in the Qing. First, let us examine how Qing officials adjudicated cases concerning conditional sales. An official named Wang Chao’en in his memorial of 1728 criticized the officials at that time as follows: When a seller of land or a house sees these estates being improved by the buyer after the sale, he gets envious and often claims redemption or additional payment (zhaotie) saying that the original price was too cheap. There is a practice called “one additional payment and two supplement payments” in which sellers force buyers to pay money in addition to the original prices. If a buyer refuses, the seller files a suit saying that he was robbed of his land. These abuses are common throughout south-eastern provinces, but most serious in Jiangsu and Zhejiang. When local officials question litigants at the court, they always order the middlemen of the original sale to settle the disputes through compromise, saying that “this is the usual practice of local people,” or citing the proverb “buyers should give way.” Actually, this manner of local officials is very different from the right method of justice based on valid ground, thus causing an increase in lawsuits and spread of abuses.23

Wang Chao’en’s criticism was not an exaggeration. In fact, one of the distinct characteristics of the Qing local officials’ judgments in land dispute cases was to settle the dispute by ordering the rich buyer to pay

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some money to the poor seller as additional payment, even though the original sale was proved to be an outright sale and the buyer was legally faultless. We can actually find the proverb “buyers should give way” in some of the judgments by local officials at that time.24 This way of judging by Qing officials was criticized by Wang and dated back to the late Ming period. The practice of zhaotie began to prevail in southeast China during the late sixteenth century, when the land market in this area showed signs of revival after the long rural depression in that century.25 Zhaotie originally meant the payment by the buyer to the seller, when they agreed to change the original conditional sale to an outright sale. Because the prices in conditional sales were usually cheaper than those in outright sales, and the seller in the conditional sale had the right to redeem the land, it was reasonable for the buyer to pay the sum corresponding to the difference between the price paid at the original conditional sale and the current price that should be paid in the outright sale of the land to the seller.26 The zhaotie practice that began in the late Ming was different from that described above. In the new zhaotie practice, a seller would claim additional payments against the buyer even though the land had previously been sold through outright sale. There was no reason for the seller to claim the additional payment, except that he was poor and the buyer was rich. The zhaotie in this sense can be regarded as alms that were given by the rich buyer to the poor seller through human relations that were established by the sale of land. In the beginning, the move to request zhaotie showed features of popular unrest. Frightened landowners and officials severely criticized the zhaotie movement as a terrible phenomenon. Requesting zhaotie, however, gradually took root in several areas of China as a permissible practice from the late sixteenth to eighteenth centuries, when the price of land was consistently rising, except during a few decades in the latter half of the seventeenth century (see Figure 4.1). In each locality, a certain standard for the sum, frequency, and method of additional payment was developed. The author of a local gazetteer of Jiading county (Jiangsu) wrote around 1670 that “it is a common practice to request an additional payment when the original price was cheap, and to claim repossession if the original sale was not long ago.”27 The zhaotie practice consistently caused land disputes; however, at the same time, it was regarded as an inevitable practice that worked as a buffer to reduce tension between the rich and the poor. It is understandable that Qing officials favored this practice as a means of softening their judgments. I am not arguing that they had to respect local customs such as zhaotie nor that they had a tendency to

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Property Rights in Imperial China Land prices in Huizhou Prefecture Rice prices in the whole of China

300

200

100

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1700

1750

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Figure 4.1 Decennial indices of rice and land prices in China (1700–1710 = 100) Source: Kishimoto 1997, p. 28.

obscure right and wrong. Of course, they could judge in a strict way, without showing paternalistic considerations to the poor. In addition, it was their usual manner to clearly announce who was right and who was wrong. Nevertheless, they also tried to make their judgments more acceptable to the litigants and perhaps to the audience at the trial by, for example, ordering the rich buyer to give a small sum of money as a token of his generosity. Such kinds of judgment might have been seen as natural by people who were accustomed to the zhaotie practice.28 As the zhaotie type of judgment increased, the time limit type of law gradually disappeared from officials’ judgments. Though the five-year law was taken over in the Qing code from the Ming code as a substatute of the “conditional sale of land and house,” few actual judgments referred to this law in the Qing period. In the mid-eighteenth century, two new laws on conditional sale were issued in 1730 and 1753, respectively,29 and took the place of the five-year law. The aim of the new laws was to distinguish conditional sale and outright sale by making people write the category of sale clearly on the deeds. The time limit principle was referred to in the 1753 law as a temporary remedy but no longer as the main content of the law.30

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Compared with their predecessors in the Song, the Qing local officials rarely cited or referred to laws in dealing with civil matters but preferred a zhaotie type of judgment, which was not strictly based on laws. Why did this change occur? Were the Qing local officials less rule-bound than the celebrated judges in the Song? Perhaps one reason for this difference was that local practices such as zhaotie had not developed into a mature form in the Song period. After the late Ming, with the continuous growth and activity of land markets, new practices were developed and were gradually recognized by local people as a common behavior pattern. It might have been natural for Qing officials to take these new practices into consideration to make it easier for local people to accept their judgments. In the absence of commonly recognized practices that they could use in their judgment, the Song officials had to rely on state laws to support their judgments, despite the apparent contradictions inherent in these laws between the time limit and the clear evidence principles. So the apparent legalism of the Song judges might have been more a reflection of the immature development of a recognizable common pattern in Song local society. economic growth and legal culture We saw in the first section that Chinese intellectuals regarded the ancient situation of “king’s land, king’s people” as the logical starting point for the development of de facto private ownership since the end of the Warring States period. There were frequent debates on state policy limiting large-scale landholding. Some scholars argued for the limitation in order to save landless peasants, while others criticized it, saying that the limitation would bring about a serious disturbance in the society. It should be noted that the focus of their discussion was not individual rights but the welfare of society. The point was which policy would be more effective to realize peace and harmony in society: intervention or laissez-faire? It is safe to say that private ownership was rarely restricted by the governments in late imperial China, but that has little relevance to the notion of the inviolable right asserted against society. Rather, private ownership in the late imperial period evolved as an optimal way of maintaining social order, just as local practices such as zhaotie and the “two masters to a land” custom were tolerated so long as they did not cause serious social problems. The attitudes of the Song and the Qing judges discussed in the second section can also be easily understood within this framework.


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How should we then evaluate this type of ownership’s influence on long-term economic change in China? First, the weak concept of absolute ownership as expressed in local practices such as the “two masters to a land” custom and zhaotie do not necessarily hinder economic efficiency. We should note that absentee landlords constituted a considerable number of landowners after the Song period. The right of absentee landlords would be less important for economic growth than that of actual peasant cultivators. Under the “two masters to a land” custom, a tenant could dispose of his topsoil right at will, without consulting the landowner. The landowner could not change the tenants at his will. While sometimes causing conflicts and lawsuits about property rights, this custom also strengthened the cultivators’ right to land and promoted tenants’ incentives to improve the land. What about the practice of zhaotie? It is difficult to estimate its link to economic growth. Certainly, the landowners’ rights may well have been less stable under this practice, but once this practice was accepted, the potential landowner losses would become more predictable; it also allowed them to adjust their investment behavior accordingly. Zhaotie served the function of paying back a part of the profit caused by the increase in land prices to the original owners. If the increase in land prices was based on the present landowner’s efforts at land improvement, zhaotie would be inefficient from the economic point of view. But if the rise in land prices was caused by factors beyond the control of the present landowner, such as the development of irrigation near the land in question, then it is not clear that the present landowner should be the sole beneficiary of the profit. Second, let us deal with the notion of the state (or king’s) ownership of land in a broader perspective. Modern European economists often attribute the economic stagnation of Asian empires to state ownership of land, which they view as preventing free and active trade among individuals. According to recent studies, however, the notion of state ownership of land was not necessarily a barrier to free economic activity. Chinese people could freely dispose of their ye, just as farmers of the Islamic world could sell their tasarruf at will. Under the principle of state ownership of land, however, ye and tasarruf did not mean absolute ownership but were kinds of usufruct and could function as de facto property rights. We have examples of such a notion of the state (or king’s) ownership in several areas, East and West, modern and premodern. These examples show that state ownership of land should not be considered simply as a residue of ancient despotism but should be understood in relation to the

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land problems faced by the rulers and intellectuals of the day. In other words, their references to the notion of state ownership generally implied criticism of the current situation of land administration. In the Chinese case, state ownership was often demonstrated as a basis of policies to restrict the power of landlords and to secure the life of the poor. “Why can landlords annex so vast an expanse of land, which is the sovereign’s own, and enjoy an extravagant life on its profit?” This kind of criticism was familiar to Chinese people throughout the imperial period. The notion of state ownership, therefore, survived so long as the evil of private landownership was perceived. As Mizoguchi Yuzo has demonstrated, this tradition of criticism of private ownership might be regarded as one of the intellectual sources of modern land reform, such as Sun Wen’s Principle of People’s Livelihood and the land revolution of the Communist Party (Mizoguchi 1989, pp. 12–20). Apart from these social welfare-oriented arguments, the notion of state ownership was also used by Chinese rulers in the policies of confiscation or compulsory purchase of land to strengthen state control of land and tax revenue. Such policies usually became the target of criticism, however. It is interesting that Confucian literati did not hesitate in such cases to argue for the people’s ownership of land and to criticize the rulers’ greed. It may be safely said that ownership was not regarded as a person’s inviolable right but as a kind of rhetoric to promote general welfare (Kishimoto 1986). It should be noted that state ownership of land was often advocated during the formation of modern nation-states, especially outside of Europe. Such countries had to promote top-down modernization to survive in a Eurocentric world system. Muhammad Ali’s policies of “land nationalization” were intended to prohibit cultivators from disposing of or moving away from their land to increase tax revenue (Kato 1993, pp. 119–129, 137–163). After his controlling policies proved ineffective, private ownership of agricultural land was introduced by the Egyptian government; this process was not the simple abolition of state ownership but was intricately intertwined with the traditional notion of the a state’s right to dispose of its land (Kato 1993, pp. 113–225). Islamoglu demonstrates that the Ottoman Land Code of 1858 should not simply be regarded as a reassertion of state ownership of land or the development of individual ownership rights. He believes instead that the code “signified the separation of the ownership claim from the former revenue and use claims, thus establishing it as the singular and absolute claim over land, only to be restrained by the taxation claim of the state. Viewed from this perspective, the status of miri (state land) can be said to have been inseparable from a legal-administrative formation of private or individual ownership rights” (Islamoglu 2000, p. 27).


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The Ottoman and Qing empires both tried to simplify land tenure, but the Ottoman effort was far more closely connected with the centralization of power than that of the Qing (Islamoglu 2001; Macauley 2001). It is worth noting that the Confucian notion of king’s land was emphasized by the government in early Meiji Japan as well as in the Korean Empire established after the Sino-Japanese war of 1894–1895 (Suzuki 1990; Kim 2000). The notion that the ruler was the only owner of the land was also used by European colonialists. Raja Brook’s attempt in the latter half of the nineteenth century to establish state ownership over Sarawak was only one example of similar efforts exerted by European colonial governments in the archipelago of Southeast Asia. The rationale behind such efforts was the finding of European Oriental studies that there was no private ownership in Asian despotic regimes (Ishikawa 2004). Thus the notion of traditional state ownership could promote both modern state formation and colonization. There were also various types of arguments advocating state (or public) ownership of land in modern Europe. Some argued for the socialization of land as part of anticapitalist reform to attain social welfare, while others demonstrated the economic rationality of state ownership of land in light of agricultural capitalists who intended to restrict landowners’ control of land (Barry 1965; Shiina 1978). The premises and functions of these modern arguments of state ownership of land were not so different from more traditional types. In premodern empires, too, the notion of state ownership functioned as a versatile device to cope with the problems of the day, including an expanding gap between the rich and the poor, landowners’ arbitrary control of tenants, and a decrease in state revenues through the decentralization of power. It was not merely the irrational residue of Oriental despotism. State ownership should not be too readily regarded as the key to modernization or the obstacle to modernization, making it a teleological scenario of history. While it is true that such seemingly premodern or antimodern notions, such as that of state (king’s) ownership, could be used in various ways, including those promoting modern economic development, the major question about the relationship between different legal traditions and the emergence of a “Great Divergence” is entirely a different matter. While it is tempting to argue that the Chinese type of ownership may also have had the potential to generate modern economic growth, the proof of such a counterfactual thesis would have been difficult, as the Industrial Revolution in Western Europe fundamentally changed the world around it. We cannot repeat such developments to prove the potential of the Chinese type of ownership to generate modern economic growth by itself. Thus, regarding the relationship between Chinese legal culture and the possibility of

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modern economic growth, I follow Max Weber’s point that the pragmatic wisdom that underpinned Chinese legal culture may not itself hold the key to the unique breakthrough of modern economic growth.

Notes This chapter is largely based on parts of my recent work: Kishimoto 2003 and 2006. I would like to thank the organizers and participants of the workshop on Law and Economic Development in Historical Perspective held in Utrecht on September 20–22, 2007, for their kind help and criticism. 1. Actually, Kaino’s main argument was not that Chinese landownership was “modern” but that Chinese landownership was, in spite of its apparently modern characteristics, not supported by an internal legal consciousness rooted in integrated community. According to Kaino, it was this lack of genossenschaftlich (social) spirit that prevented China from developing into a modern society. See Kaino (1943). 2. Jonathan Ocko points out that “transactors in China understood themselves to be part of a multilateral web of relationships rather than as parties in a simple bilateral transaction” (Ocko 2004). I agree with his argument. 3. Some scholars would find in this situation a similarity to the free trade in land in the modern Western world, whereas other historians might emphasize the difference between the Chinese way of thinking and Western legal discourse. The debate between Philip Huang and Shiga Shuzo surveyed in Debin Ma’s chapter in this volume is one example of such conflicts of opinions (see Chapter 3). I regard this conflict as generated from the difference in their standpoints rather than their fact findings per se. Huang is criticizing the Eurocentric view that emphasizes the peculiarity (and backwardness) of Asian societies, while Shiga is criticizing the other type of Eurocentric view that believes in the universality of a European way of thinking. 4. Song Xingtong, juan 13, “Dianmai Zhidang lunjing wuye.” 5. Ibid., juan 26, “Shouji Caiwu zhe feiyong.” 6. Ibid., juan 13, “Dianmai Zhidang lunjing wuye.” 7. In late imperial China, it was administrative officials who worked as judges of local courts. In this chapter I use the words “judge” and “official” together, but there is no difference between the two. 8. For a bibliographical description of the Qingming-ji, see Chapter 5 in this volume. 9. Aoki 1999; and Sadate 1993. Also see Shiga Shuzo’s notion cited in Aoki 1999, p. 19. 10. According to Liu Hsinchun’s research, judges quoted laws in 53 percent of 200 cases concerning civil matters (literally “matters on household, marriage and corvee”; Liu 2005, p. 378). If we do research on all the cases included in the Qingming-ji, the proportion of judgments with citations may be much lower. See Aoki 2006, p. 39.


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11. As comprehensive studies on civil laws quoted in the Qingming-ji, see Niida 1933 and Xu Daolin 1970. 12. Zhao Xiaogeng calls it “negative prescription,” and Liu Chunping, Zheng Ding, and Chai Rong use the words “time limit of suit.” See Zhao 2001; Liu 1994; Zheng and Chai 2002. 13. For a more detailed analysis of this problem, see Aoki 2006, pp. 14–18. 14. Qingming-ji, p. 164, Wu Ge’s judgment. 15. On this point, there is a conflict of opinions among Japanese scholars. For example, Sadate Haruhito argues that “human feeling” was not so important in the judgment in the Qingming-ji. See Sadate 1993. 16. Qingming-ji, p. 315, Wu Ge’s judgment. 17. Yuan Dianzhang, juan 19, “Duonian zhaiyuan nan ling huishu.” 18. Ibid., juan 19, “Guobo ershiyi-nian yiqian dianmai tiantu.” 19. Ibid., juan 20, “Zhuba yinchao tongqian shi Zhongtong-chao.” 20. For the translation and explanation of these statutes, see Huang 1994, pp. 145–149. 21. For the trends of land prices in the Ming period and the process of developing this law, see Kishimoto 1997, chapter 6; and Kishimoto 1996, respectively. 22. An example of contending interpretations of this law is found in the dispute between Hai Rui and his political opponents. Hai Rui, famous as one of the most righteous officials in the late Ming, used to allow poor peasants to redeem their land from powerful landowners based on the “clear evidence” principle, but his opponents impeached him on a charge of breaching the time limit principle. See Kishimoto 1996. 23. Gongzhongdang Yongzheng-chao Zouzhe, vol. 9, p. 803. 24. For a more detailed analysis of this problem, see Kishimoto 1996. 25. For the fluctuations of land markets in the Ming period and the beginning of the zhaotie practice, see Kishimoto 1997, chapter 6; and Kishimoto 2006, respectively. There is a considerable volume of studies on zhaotie. Here I shall give three examples in English: Macauley 1998, Huang 2001, and Feng 2004. 26. The case Debin Ma illustrates in Chapter 3 of this volume is a good example of this type of zhaotie. 27. Jiading Xian-zhi (1673), juan 4, Fengsu. 28. Thomas Buoye notices that some mid-Qing officials gave the zhaotie type of judgment in repossession disputes to cushion for sellers the blow of losing the land permanently. At the same time, he points out that this innovative or accommodating method could hardly prevent the disputes from ending in violence (Buoye 2004, pp. 104–113). It seems that Buoye is somewhat exaggerating the violent character of the mid-Qing period, perhaps because his argument is mainly based on the homicide case records. In casebooks of ordinary local officials, we can find many repossession cases that seem to have been settled peacefully through zhaotie judgments. For further discussion on this point, see Kishimoto 1996. 29. The third and seventh substatutes of the statute “Conditional sale of land and house.” 30. I agree with Terada (1987) in his interpretation of this law.

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References Aoki Atsushi. 1999. “Kensho no Chiiki-teki Imeji.” Shakai Keizai Shigaku, vol. 65, no. 3. ———. 2003. “Sung Legal Culture: An Analysis of the Application of Laws by Judges in the Ch’ing-Ming Chi.” Acta Asiatica, no. 84. ———. 2006. “Kaihatsu, Chika, Minji-teki hoki.” Machikane-yama Ronso, no. 40. Barry, E. Eldon. 1965. Nationalisation in British Politics: The Historical Background. London: J. Cope. Buoye, Thomas. 2004. “Litigation, Legitimacy, and Lethal Violence: Why County Courts Failed to Prevent Violent Disputes over Property in Eighteenth-Century China.” In Madeleine Zelin et al., eds., Contract and Property in Early Modern China. Stanford, CA: Stanford University Press. Chuan Hansheng. 1972. Zhongguo Jingji-shi Luncong, 2 vols. Hong Kong: Hsin-ya Yanchiu-suo. ———. 1976. Zhongguo Jingji-shi Yanjiu, 3 vols. Hong Kong: Hsin-ya Yanjiu-suo. Da-Yuan Shengzheng Guochao Dianzhang. 1976. Kyoto: Chubun shuppan-sha. Feng Shaoting. 2004. “Supplemental Payment in Urban Property Contracts in Mid to Late Qing Shanghai.” In Madeleine Zelin et al., eds., Contract and Property in Early Modern China. Stanford, CA: Stanford University Press. Gongzhongdang Yongzheng-chao Zouzhe. 1979–1980. Taipei: Gugong Bowuyuan. Huang Changchien, ed. 1979. Mingdai Lüli Huibian, 2 vols. Academia Sinica, Institute of History and Philology. Huang, P. C. C. 1994. “Codified Law and Magisterial Adjudication in the Qing.” In Kathryn Bernhardt and Philip C. C. Huang, eds., Civil Law in Qing and Republican China. Stanford, CA: Stanford University Press. ———. 1996. Civil Justice in China: Representation and Practice in the Qing. Stanford, CA: Stanford University Press. ———. 2001. Code, Custom, and Legal Practice in China. Stanford, CA: Stanford University Press. Huang Zongxi. 2005. Ming-yi Daifang-lu. In Huang Zongxi Quanji, vol. 1. Zhejiang Guji chuban-she. Ishikawa Noboru. 2004. “Kokka ga Shoyu wo Sengen suru toki: Tonan Ajia Toshobu Shakai ni okeru Ryoyu.” In Miura Toru et al., eds., Hikaku-shi no Ajia: Shoyu, Keiyaku, Shijo, Kosei. Tokyo: University of Tokyo Press. Islamoglu, Huri. 2000. “Property as a Contested Domain: A Reevaluation of the Ottoman Land Code of 1858.” In R. Owen, ed., New Perspectives on Property and Land in the Middle East. Cambridge, MA: Harvard University Press. ———. 2001. “Modernities Compared: State Transformations and Constitutions of Property in the Qing and Ottoman Empires.” Journal of Early Modern History, vol. 5, no. 4. Jiading Xian-zhi. 1673. Jing Junjian. 1994. “Legislation Related to the Civil Economy in the Qing Dynasty.” In Kathryn Bernhardt and Philip C. C. Huang, eds., Civil Law in Qing and Republican China. Stanford, CA: Stanford University Press.


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Kaino Michitaka. 1943. “Shina tochi-ho kanko josetsu.” In Kaino, Horitsu Shakaigaku no Shomondai. Tokyo: Nihon-hyoron-sha. Kato Hiroshi. 1993. Shiteki Tochi Shoyuken to Ejiputo Shakai. Tokyo: Sobun-sha. Kim Jaeho. 2000. “Koshitsu Zaisei to ’Sozei Kokka’ no Seiritsu.” Shakai-keizai Shigaku, vol. 66, no. 2. Kishimoto Mio. 1986. “‘Sokaku’ no Tochi-shoyu ron.” Chugoku—Shakai to Bunka, no. 1. ———. 1996. “Min-Shin jidai ni okeru Soka-Kaishoku mondai.” Chugoku— Shakai to Bunka, no.12. ———. 1997. Shindai Chugoku no Bukka to Keizai-hendo. Tokyo: Kenbun shuppan. ———. 2003. “Selling Land, Selling People: The Concept of Ownership in Comparative Perspective.” Annals of Japan Association for Middle East Studies, vol. 19, no. 1. ———. 2006. “Tochi-shijo to Soka-Kaishoku mondai.” In Oshima Ritsuko, ed., So-Shin-dai no Ho to Chiiki shakai. Tokyo: Toyo Bunko. Liu Chunping. 1994. “Nan-Song Tianzhai Jiaoyi-fa Chutan.” Qiushi Xuekan, no. 6. Liu Hsinchun. 2005. Mingjing Gaoxuan－Nan Song Xianya de Yusong. Taipei: Wunan Tushu chuban. Locke, John. 1970. Two Treatises of Civil Government. London: Everyman’s Library. Macauley, Melissa. 1998. Social Power and Legal Culture: Litigation Masters in Late Imperial China. Stanford, CA: Stanford University Press. ———. 2001. “A World Made Simple: Law and Property in the Ottoman and Qing Empires.” Journal of Early Modern History, vol. 5, no. 4. Mizoguchi Yuzo. 1989. Hoho to shite no Chugoku. Tokyo: University of Tokyo Press. Niida Noboru. 1933. “Seimei-shu Kokon-mon no Kenkyu.” Toho Gakuho (Tokyo), no. 4. ———. 1980. Chugoku Hosei-shi Kenkyu: Ho to kanshu, Ho to Dotoku, rev. ed. Tokyo: University of Tokyo Press. Ocko, Jonathan. 2004. “The Missing Metaphor: Applying Western Legal Scholarship to the Study of Contract and Property in Early Modern China.” In Madeleine Zelin et al., eds., Contract and Property in Early Modern China. Stanford, CA: Stanford University Press. Peng Xinwei. 1965. Zhongguo Huobi-shi, 3rd ed. Shanghai: Shanghai renmin chuban-she. Rinji Taiwan Kyukan chosa kai. 1910–1911. Taiwan Shiho, 13 vols. Tokyo: Rinji Taiwan Kyukan chosa kai. Sadate Haruhito. 1993. “Seimei-shu no Ho-I to Ninjo.” In Umehara Kaoru, ed., Chugoku Kinsei no Hosei to Shakai. Kyoto: Kyoto Daigaku Jinbun kagaku kenkyu-jo. Shiga Shuzo. 1967. Chugoku Kazoku-ho no Genri. Tokyo: Sobun-sha. ———. 1984. Shindai Chugoku no Ho to Saiban. Tokyo: Sobun-sha. Shiina Shigeaki, ed. 1978. Tochi Koyu no Shiteki Kenkyu. Tokyo: Ochanomizu shobo).

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Song Xingtong. 1974. Taipei: Wenhai chuban-she. Suzuki Masayuki. 1990. “Koshitsu Zaisan ko.” Atarashii Rekishigaku no tame ni, nos. 200, 201. Terada Hiroaki. 1983. “Denmen-dentei Kanko no Hoteki Seikaku: Gainen-teki Kento o Chushin ni shite.” Toyo Bunka Kenkyujo Kiyo, no. 93. ———. 1987. “Shindai-chuki no Ten-kisei ni mieru Kigen no Imi ni tsuite.” In Shimada Masao Hakushi Shoju-kinen-ronshu Henshu Iinkai [Editorial Committee for Collected Essays to Celebrate Dr. Shimada Masao’s Longevity], Toyo-ho-shi no Tankyu. Tokyo: Kyuko shoin. ———. 1989. “Chugoku Kinsei ni okeru Shizen no Ryoyu.” In Shibata Michio et al., eds., Shiriizu Sekai-shi e no Toi 1: Rekishi ni okeru Shizen. Tokyo: Iwanami Shoten. ———. 1997. “Kenri to Enyoku: Shindai Chosho sekai no Zentai-zo.” Ho-gaku, vol. 61, no. 5. Watanabe Shin’ichiro. 1986. Chugoku Kodai Shakai-ron. Tokyo: Aoki shoten. ———. 1994. Chugoku Kodai Kokka no Shiso Kozo. Tokyo: Azekura shobo. Wu Tan. 1992. Da-Qing Lüli tong-kao jiao-zhu, edited by Ma Jianshi and Yang Yuzhang. Beijing: Zhongguo Zhengfa Daxue chuban-she. Xu Daolin. 1970. “Song-lü Yi-wen ji-zhu.” Dongfang Zazhi, new series, vol. 4, no.3. Zhang Lüxiang. 1968. Yangyuan xiansheng quanji. Taipei: Zhongguo Wenxian chuban-she. Zhao Xiaogeng. 2001. “Liang Song Falü zhong de Tianzhai Xigu.” Faxue Yanjiu, no. 2. Zheng Ding and Chai Rong. 2002. “Liang Song Tudi Jiaoyi zhong de Ruogan Falü Wenti,” Jianghai Xuekan, no. 6 Zhongguo Shehui Kexueyuan Lishi-yanjiu-suo Song-Liao-Jin-Yuan-shi Yanjiushi, ed. 1987. Minggong Shupan Qingming-ji, 2 vols. Beijing: Zhonghua shuju.

chapter five

Contracts, Property, and Litigation Intermediation and Adjudication in the Huizhou Region (Anhui) in Sixteenth-Century China Harriet T. Zurndorfer Ideas and ideologies shape the subjective mental constructs that individuals use to interpret the world around them and make choices. —Douglass C. North, Institutions, Institutional Change, and Economic Performance

; introduction: chinese law and economic development As the editors of this volume on law and economic development have stressed in their introduction, the enforcement of contracts and property rights lies at the heart of sustainable economic growth. For China there is now a growing body of evidence that demonstrates the effective use of both written contracts and litigation to facilitate property transactions since ancient times (Zhang Chuanxi; Scogin). This documentation forms part of China’s extensive record of legal and institutional history, which only recently has attracted due attention by modern scholars.1 The study of codes, statutes, and other compendia of administrative law, as well as the more detailed commentaries, precedents, cases, and handbooks that frequently illustrate the actual working of the law in concrete terms as it

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touched everyday life, including regulations governing ownership and contract, reveals the complexity of economic development during the imperial era but as yet has not seen substantial scholarly investigation. In this chapter we will examine the efficacy of the Chinese legal system with respect to the buying and selling of landed property and the concepts of intermediation and adjudication in cases of disputation. Our goal is twofold: first, to convey how the intricacies of judicial administration were integral to the economic and social life of late imperial China; and second, to demonstrate that although essential and frequent contracts entered commercial exchange, they did not presage a major economic turn. Our chronological focus here is the Ming dynastic era (1368–1644), when China experienced an economic boom, fueled by an influx of silver from Japan and the New World, as well as an explosion of cheap commercial printing that gave the semi-illiterate populace easy access to colloquial and rhymed versions of litigation manuals (Hansen). Popular general knowledge of the law and its role in society was also transmitted through oral and performance traditions: the gong’an (公案, or court case) genre in short stories and drama conveyed the ambience of courtroom proceedings and the triumph of legal justice (St. André). At the other end of the social scale, the elite at this time could acquire more intimate knowledge of the law through published “judgments” (yanyu: 谳语) or court opinions (shenyu: 審语) by local officials based on their personal experiences. The Ming inherited from the preceding dynastic era institutions, procedures, and problems, which both facilitated and thwarted the complexities of litigation. Ever since the Song dynasty (960–1279), when the first legal casebook, the Minggong shupan qingming ji (名公书判清明集, or Luminous collection of judgments by illustrious figures; hereafter, Qingming ji), was compiled and printed by Zhan Yanfu (詹琰夫) in 1261, officials and others had available a systematized compilation of cases that explicated the use of statutory rules and moral norms. Each case decision, usually written in the first person by the concerned district magistrate (the lowest rank of imperial representative), demonstrated that official’s technical knowledge of the legal code and administrative processes (Furth:9–10).2 The Qingming ji collection recorded thousands of instances of people of all social classes from all over southern China (Guangdong, Fujian, Jiangsu, Jiangxi, Zhejiang) who fought and defended contracts not only over land and goods but also about household affairs, educational matters, and human relationships (betrothal, marriage, and divorce) (McKnight and Liu).3 Contracts (hewen: 和文) specified transactions about the purchase, sale, or rental of a house, a plot of land, a draft animal, a slave, a concubine, or even a child; people drew up

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contracts every time they pawned a possession, hired a maid, adopted a child, announced an engagement, secured a divorce, or purchased a pig or a horse (Hansen:1). In general, a contract featured the date, names of the participants, specification of boundaries (in land contracts), price indications, offer and acceptance, penalty for reneging, the private nature of the agreement, the signatures or marks of the participants, including witnesses, and (often) agreements for sharing ceremonial wine.4 The Qingming ji’s judicial vignettes convey the problems of a commercialized economy that engendered insecurity and the resulting fierce competition for resources, especially agricultural land. With regard to land disputes, people went to court over widely diverse amounts of property— anywhere from several Chinese feet to more than fifty sixth-acres, plots worth from seven strings to 50,000. The solution to these problems, as this digest makes clear, involved continuous negotiation between litigants and local government, mediated through various groups of people, including the district magistrate, his assistants, village officers, and not least the local gentry elite who represented the power and prestige within the local community. The economic base of the gentry originated in their diversified investments in land, commerce, and moneylending, while their status, initially gained by success in the examination system and officeholding, was heightened through local networking. Marriage and friendship with members of other local elite families reinforced the position of the gentry in their home regions and helped boost their “symbolic capital” earned through support of liturgical and local welfare projects, such as building temples and schools or maintaining bridges and dikes (cf. von Glahn). The centrality of the gentry’s position in the community only strengthened as the general level of the population expanded and both urban and rural regions became more densely inhabited.5 Because neither the Song government nor its successor, the Mongol Yuan dynasty (1279–1368), increased the numbers of magistrates to accommodate these demographic changes, juridical administration became overburdened and ever more dependent on the local gentry who could exercise the advantages of their authority and influence to settle disputes and to oversee the general management of the local society. The population increase also meant that the common people’s access to resources became more problematic, which in turn unleashed their “litigiousness” (haosong: 好讼) to an even greater extent. Evidence of this latter phenomenon was the growing popularity in the twelfth and thirteenth centuries of the litigation master (songshi: 讼師), who provided “lawyerly” services but had no official authority (Fuma:80). The songshi’s role in local judicial administration was fragile. On the one

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hand, records show he could advocate for the local community on issues related to the official abuse of power, even to the unfair or corrupt imposition of taxes, surcharges, and fees or to an official inability to adjudicate cases in a timely fashion. On the other hand, the litigation master was also known to play off one group against the other and thereby stir conflicts between local groups and undermine the social order. The judges writing in the Qingming ji objected to the growing presence of such an individual whose “sole means of livelihood was helping others draw up plaints and suits” (Guo Dongxu). Such vilification was countered in the contemporary popular media—for example, folk operas, which conveyed a much more positive image: the litigation master who stood up for the socially marginalized and the economically disadvantaged at a time when magistrates faced increasing backlogs of disputed contracts and bureaucratic excesses inhibiting local government efficiency. The songshi became an enduring feature of Chinese legal justice until the end of the imperial era (cf. Macauley). This overstrained legal system should have been alleviated when the first Ming emperor set in motion a series of reforms aiming to end an ethos that had made litigation a relatively easy option. Ming Taizu (r. 1368–1398) sought a full-scale reconstruction of China after the long period of foreign domination and civil wars that had gripped the country from the tenth through fourteenth centuries. To accomplish this goal, he enacted a series of laws and policies he believed would set in motion the moral renovation of the Chinese people. He created administrative institutions below the county level known as lijia (里甲, or village community system) and laoren (老人, the village elder system). The lijia system grouped together 110 households, under the authority of a lizhang (里长: tax captain, chosen from among the ten richest households), who paid their land taxes jointly to the capital, thus bypassing the magistrate (Chang; Tsurumi). This emperor expected that the land registers he had also mandated would be acceptable evidence of land ownership. Villagers were required to avoid the magistrate’s court by taking their disputes to village elders (generally speaking, any male over fifty years of age), thereby keeping their “disputatiousness” confined to their hamlets or urban neighborhoods. In addition, Ming Taizu issued another directive shortly before he died, the Jiaomin bangwen (教民榜文: placard of instructions to the people), in which he assigned wide powers to the lizhang and the elders for arbitrating disputes, maintaining local order, arresting felons, and other authority. The placard required each village and each li to assign to an elder the tasks of proclaiming the officially sponsored moral exhortations and of promoting mutual assistance in agricultural and ceremonial practices. Clearly, what this emperor had in mind was “the Daoist model


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of a little elite of virtuous elders supervising self-sufficient villages and forwarding modest taxes to a minimalist state” (Brook 1998b:19; cf. Zurndorfer 2002). The decline of these two systems began almost immediately after Ming Taizu’s death.6 The key factor in the breakdown of the emperor’s bucolic idyll was the revitalized commercial agriculture that had been ravaged during the civil wars of the Yuan-Ming transition period. The emperor’s effective restoration of agricultural production “propelled the economy toward the production of surplus that had to be traded” (Brook 1998a:580). Because his regime did not regulate merchants, there was no institutional obstacle preventing traders from making use of the extensive state transport system he had also refurbished during his reign to convey this surplus. By the end of the fifteenth century, the effects of the Ming government’s surrender to the forces of the marketplace became evident. As Timothy Brook writes about the Ming “Spring century” (1450–1550), the ideal of a self-sufficient rural community was fast fading, and central government officials saw the value of commuting some grain tax levies into silver (Brook 1998b:88). Local gentry, too, began to tap into the wealth of the commercial economy as urban consumers; in the Lower Yangzi’s richest cities, they began to enjoy the good life as buyers of select furniture, high-quality silks, rare antiquities, and finely printed books. The sixteenth century also saw the intensification of commercial textile production (in particular, of cotton cloth manufacture), the development of maritime trade, the use of silver (imported from the New World) for the assessment and payment of taxes and goods, increased cash cropping (especially along coastal regions), and finally, “the meshing of agricultural, commercial, and industrial activities” in the Lower Yangzi region (see Li Bozhong 2003:377–445). These were all factors contributing to what a number of historians call China’s second commercial revolution.7 No doubt such commercialization impacted economic development and a wide social strata of people, but questions remain about Taizu’s reforms: did they affect rural life (if at all), and in particular, did they influence how contracts and their disputes were settled? And after the lijia and laoren systems faded away, what institutions were available to resolve conflicts? Given the centrality of commerce by the sixteenth century, it would be useful to know more about how contractual relations with respect to land and labor evolved. How important was the contractual agreement for landlords and their tenants? To answer these queries we now turn to the history of one region rich in evidence and famed for its commercial agriculture as well as the wealth of its native merchants, Huizhou (徽州) prefecture.8

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huizhou prefecture and property disputation during the ming dynasty Huizhou prefecture, located in the southeast corner of Anhui Province, is approximately 360 kilometers southwest of present-day Shanghai.9 First populated during the late Tang–early Song era, this region, with its myriad sheltering mountains, attracted settlers fleeing depredations and revolts elsewhere. Although land for growing grain or other foodstuffs was limited there to narrow valley plains and upland basins, the topography and soil conditions were ideal for tea production and forestry. The local economy thrived on the sale of tea, timber, and timber products (tung oil, ink, lacquer, paper), and by the Song dynasty, Huizhou had achieved a reputation as a center of commercial agriculture. Local traders and merchants exported these goods along the abundant river ways that linked the prefecture to Hangzhou on the coast and inland commercial centers, such as the well-known porcelain-making center Jingdezhen (Jiangxi). These merchants operated within extended family or lineage networks, with bases in their home towns or villages, and in the guild halls of the towns in which they traded. By the Ming era, the most successful Huizhou merchants dominated commerce in tea and timber and the salt trade; they set up pawnshops in many cities and forged unrivaled commercial alliances, except for those held by bankers from Shanxi Province (Terada; Ma). They were known to travel great distances but always considered Huizhou their home region and returned there for New Year festivities and other important ritual celebrations. The lineage organization, a collectivity of families (with the same surname) acknowledging group cohesion through their male members, was central to Huizhou merchants’ operations. Not only did this extended family association provide credit, capital, and commercial intelligence to their members (Fujii), it was also the central reference point of their identity. Many Huizhou lineages claimed long pedigrees, tracing their ancestry from the time of their southward migration. They maintained their solidarity by keeping their settlements in the locale limited to only a few villages,10 and by regularly meeting together to engage in prescribed Confucian rituals. They also periodically issued genealogies. Genealogies would generate consciousness of common identity and prestige, and merchants associated themselves with the degree and officeholding members of their lineages. Successful merchants channeled the wealth they earned in commerce into financing lineage institutions: they provided funds for schools and teachers, travel expenses for candidates taking the exams,


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and cash prizes for the successful; they built temples in honor of illustrious ancestors and helped needy members with weddings and funerals; and not least they contributed their profits toward the purchase and maintenance of their lineage’s corporate estates. By the sixteenth century, merchant assimilation into the scholarly elite strata of their lineages was no longer exceptional—the sons and grandsons of mercantile families sat the examination system, held office, patronized the arts, and married their sons and daughters into prestigious Huizhou scholarofficial families. At that time the heads of lineages along with their wealthy and degree-holding relatives formed the core of Huizhou’s local gentry elite.11 The bulk of Huizhou lineage membership, however, was comprised of peasants who may or may not have had their own land. Surviving tenancy and rent agreements indicate that land ownership in Huizhou was somewhat more dispersed than in other parts of the Lower Yangzi region but that at least 70 percent of the peasants had access to some land, whether as owners or tenants (Zhang Youyi:4–18). The land that these peasants worked was “fragmented” and “narrow”: often they could only work on sections of tea plantations or cultivate segments of woodlands to sell the products thereof. The mountainous terrain inhibited a systematic accumulation of land by individual families, and peasants were thus forced to diversify their farming, from maintaining paddy land (tian: 田) to harvesting tea, depending on the time of year (Zurndorfer 1989:121– 124; 144–145). As elsewhere, Huizhou farmers verified their transactions with contracts. These agreements were drawn and sometimes ratified with the coveted government red stamp legitimizing the conditions set forth in the document and the entitlement of the participant(s) to challenge the other party in case of reneging.12 However, these contracts should be regarded as statements of a “just” claim between an owner and other individuals in reference to a given property, or the products thereof, rather than legal deeds that promise enforcement by authorities acting in the name of the law (cf. Farnsworth:580–581). Moreover, as Kishimoto points out in her essay in this volume (see Chapter 4), the trade in land and related matters, even under conditions of government authorization, was not the paradigm of landed property that underlay European, American, or Islamic notions of rights and privileged entitlement. Instead, for Ming China, contracts and litigation should be seen as integral to a broader set of social dimensions between ruler and ruled, superior and inferior, landlord and tenant, employer and laborer, which transcended the nexus of commercial exchange.

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For Huizhou, lawsuits between persons of different status were common. The writings of local authorities confirm the disputatiousness of the inhabitants as well as the state’s view of human relations in these conflicts. In an essay written in 1488 to advise the newly appointed local magistrate to Huizhou, the famous local literatus Cheng Minzheng (程敏政; 1445– 1499; who was then serving in the capital) apologized to him for the people’s penchant for “easily resorting to lawsuits”: Though legal disputes are numerous in Huizhou, the reasons for these disputes are indeed of only three categories: over land, over graveyards, and over adoption. . . . These disputes could span the tenure of several local officials, or last many years. It looks that people there are really disputatious. However, these are indeed excusable. Lands are the properties inherited from ancestors, grave-yards concern the ancestors’ resting place, and adoptions relate closely with lineage principles. Although the involvement of selfish interests is undeniable, it also out of the imperative of the situation and principles. (Huangdun wenji, 篁墩文集, 27:12a–13b)

Ten years later, when Cheng was back in Huizhou, he again wrote to his successor with a similar apology: as for local people “resorting to legal disputes for trivial issues . . . they may engage in argument for years, even at the cost of bankruptcy. In this sense, it is hard to govern indeed” (Ibid.). Such reports also imply that litigation remained a problem in the fifteenth century, while other documentation points to the resolution of disputes at this time by lizhang and laoren, just as Ming Taizu had tried to impose. In a masterly study of forty-three cases spanning the years from 1401 to 1518, the modern Japanese scholar Nakajima Gakusho (中島樂章) found that in every instance either lizhang or laoren took an active role one way or another in solving conflicts pertaining to such matters as the double sale of mountains, claims to fell trees, access to creeks and other small waterways, inheritance rights over particular fields, entitlement to grave land, and other disputes.13 These cases originated in two of Huizhou’s six counties, Qimen (祁門) and Xiuning (休宁), and involved various feuding lineages. There were also instances of litigation between persons within the same lineage whereby the relatives of one branch challenged those of another. One of the most notorious of these cases was the long-running quarrel between members of the Xie (谢) kin group in Qimen, who for decades, and well into the sixteenth century, litigated over access to particular landholdings that had proved commercially profitable (Quan Renrong). Intralineage disputes were particularly stressful, since the economic power and social prestige of a particular lineage was dependent on the solidarity of its members.


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Nakajima’s book, Mindai goson no funso to chitsujo: Kishu monjo o shiryo to shite (明代鄉村の紛爭と秩序:徽州文書を史料として: Disputes and order in Ming rural society: An analysis based on Huizhou documents), is the most thorough and innovative analysis of litigation and related matters for Huizhou in the Ming. Nakajima found that despite the decline of the lijia and laoren institutions elsewhere, in Huizhou many contract disagreements were settled by lizhang and laoren until the early sixteenth century. In some instances, village elders did confer with the magistrate, lineage heads, and other influential persons, but in the main the laoren were able to solve disputes without their intervention (Nakajima:113–148). Conflicts over mountain land boundaries or graveyard land ownership would often go first to the attention of the magistrate, but he would order the laoren to investigate the disputed site. On the basis of his report, the magistrate gave instructions to the village elders to define the boundary or reexamine the original deeds and thereby settle the litigation. Nakajima argues that those who worked under the magistrate (prefect, clerks, and runners) rarely visited the rural locations themselves, and this official supervised dispute resolution through the exchange of documents with the laoren. Nakajima’s research also indicates that litigation in Huizhou took on new dimensions in the sixteenth century. At that time, laoren as mediators appeared less frequently in the documentation, while the lizhang, who were most closely related to powerful local lineages, assumed more influence in the settlement of local quarrels, both in the investigation and in the mediation of these matters. They were assisted by two other kinds of local community organizations, baojia (保甲: mutual security association) and xiangyue (鄉約: village covenant association), which aimed at maintaining local safety and endorsing practices of moral exhortation, respectively.14 These alliances, which were organized pretty much on the same lines as the lijia but brought lineages of various surnames together, represented the interests of both concerned officials and local influential people. They had become dismayed at the deterioration of local defense coordination and the movement of financial capital away from rural investment into market towns and city-based activities (such as the salt trade and the acquisition of pawnshops) (Nakajima 214–233; see also Zurndorfer 1989:208–210). The covenant association was required to meet on a regular basis and recite the Ming founder’s Placard of Instructions under the watchful eyes of officials and the local elite, who together shared an interest in achieving social harmony in Huizhou.

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contracts, landholding, and “servile” tenants in sixteenth- century huizhou By the mid-sixteenth century, Huizhou experienced a general decrease in the land-per-person ratio because of increasing population levels (see Zurndorfer 1989:170–171), which threatened a smaller margin of rural productivity to provide for the prestige of the lineages and the general material well-being of common rural inhabitants. Not unexpectedly, there was a rise in the number of litigated contracts—these disputes were handled by a combination of lineage organization representatives and in some instances by songshi. Nakajima finds that from the 1550s Huizhou society in general had become more fluid and unstable (Nakajima:234–265). Evidence of this volatility may be viewed in the series of verbal clashes and lawsuits the Wu (吴) lineage of Mingzhou (茗州, in Xiuning) enacted against a neighboring kin group of the Zhu (朱) lineage.15 The Wus claimed that the Zhus had forcefully encroached on the tomb where an ancestor of the Wu surname group had been buried. The dispute escalated into violence, causing injuries on both sides. Finally, local mediation (and without recourse to the magistrate) settled the dispute, which in the long term strengthened the lineage bonds between Wu members (Nakajima:180–213). During the Ming “summer” (the latter half of the sixteenth century), as economic competition propelled producers and traders into a “frantic press” (Brook 1998b:3), the terms and conditions of contracts were transformed in several ways. First, as Kenneth Pomeranz observes, land contracts in sixteenth-century China tended to be more detailed and explicit about what was expected of both parties under various scenarios, which he interprets as evidence of people trying to avoid litigation or private adjudication (Pomeranz:111). He points out that there was also a “certain faith” that in the case of disagreement(s), the community (as opposed to the state) would enforce the terms of the contract (Pomeranz:112). Confirmation of Pomeranz’s remarks with regard to Huizhou may be found in the (Huizhou) Jixi County local gazetteer’s discussion of the people’s habits during the Ming dynasty, “when there was great interest in the law as well as a preference for mediation of disputes outside formal government institutions.”16 Second, there was now a trend toward more complicated purchase and sale arrangements. Contracts could contain clauses making a formal distinction between sale and conditional sale, which, not unexpectedly, led to many disputes in practice (Bian Li). Bian Li’s study of a large number of Huizhou civil law cases cites several instances of an owner of land “fraudulently” selling his land conditionally to different people. This illegal practice should not be con-


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fused with the valid routine of “live sales” (huomai: 活卖), also known as dian (典), whereby the seller received less than the full market value of the land from the buyer but retained the right to refund the purchase price and regain the land within a certain period of time (which could be anytime between three and twenty-five years). Since many of the sellers would stay on as tenants, it would seem this procedure was a way for a working farmer to gain extra cash without losing all his worldly wealth. Given the dominant presence of lineages in the Huizhou community, it is not surprising that in many cases the buyers in dian exchanges were other (and wealthier) lineage members. This explains why, when looking at the extant account books of local lineages, transactions conducted “within the family” can frequently be seen. For example, the land sale contracts listed in the Chengshi zhichanbu (程氏置产簿: Register of the Cheng lineage’s production and purchases), the (Xiuning) Cheng lineage’s account book (extending from 1446 to 1644) included only exchanges between all those surnamed Cheng living in Xiuning County (Zurndorfer 1989:143). Another example of the same phenomenon is the Hong (洪) lineage’s contract books, in which 61 percent of the transactions was between lineage members, 3 percent was repurchased by the original owners, and 8 percent was bought by neighbors, the remainder being unknown (Ye:161–163). Selling land only to others within one’s lineage, whenever possible, implied not only lineage solidarity but also considerable economic disparity among members of a given lineage. A third way that contracts reflected the economic pressures of the late Ming changing land market was the institution of multiple landownership, which regularized the practice of dual possession: the entitlement to cultivation and the claim of ownership to a particular piece of land were clearly separated (Li and Jiang:289–290). Contracts assigned the holder of the subsoil the right to be officially recognized as the legal owner of the land, and hence responsible for tax payments, and designated the owner of the topsoil the right to pay rent (usually in cash) to the subsoil possessor. Topsoil holders were encouraged to invest their time and efforts in improving the land and thereby earn even more extra income to profit from their property. In Huizhou the purchase of subsoil rights must have been attractive for lineages boasting significant numbers of officials because they were exempt from taxation. In the best scenario, the money subsoil owners gained from those in possession of the topsoil rights would be rechanneled into the lineage’s charitable activities and, in the worst, into the personal pockets of pleasure-loving city-living gentry members in residence elsewhere. Although there is evidence that in some cases those selling the rights to land did not give notice to kin members

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of these transactions, other data such as the above mentioned account books or genealogies suggesting otherwise, that is, that lineage property would have automatically and exclusively been sold or mortgaged to lineage members (Li and Jiang: 344–345).17 That land in Huizhou was becoming increasingly difficult to obtain either by purchase or by payment of a rental fee during the sixteenth century may account for the growing number of “servile” tenants in the locale. This group is also evidence of the increasing differences between those with wealth and those in poverty in late Ming Huizhou. The extant documentation distinguishes free tenants who had commoner status (like their landlords) and “servile” tenants (dianpu: 佃仆), who were categorized as “mean” people.18 Dianpu had an intermediate status, between that of commoners and household slaves.19 They were recruited from non-kin by individual and corporate landlords and were prohibited from marrying ordinary people and participating in the examination system, but it is not clear whether all dianpu inherited their status. However, “servile” tenants, unlike free tenants, could not just sever the relationship with their landlord (Hansson:144; Wiens:238–239, 241–248). They worked for the landlord for a minor share of the production—in many cases, one-third—and were also expected to perform other duties (e.g., recreational services during weddings, funerals, and festivals, repairing and constructing houses, paving roads, building stages for operatic performances during festivals, and carrying sedan chairs). In some cases, the services demanded from servile tenants were demeaning and “spiritually polluting”—they were required to handle corpses, protect graves, and assume abject positions in lineage rituals (Ye Xian’en:249–268; 329– 346). For his part the landlord provided dianpu with productive land, housing, and a burial place for their families. From the rich collection of extant Huizhou documents, we know that dianpu entered this status by contract and that they did so because they were extremely poor and needed burial land or because they had no other means to acquire a wife (see Ebrey 1981:143–144 for sample contracts). A severe shortage of good farming land in Huizhou meant that lineages rivaled one another to acquire property, and tenants competed to obtain contracts for working on that land. The relations between the landlord and his dianpu were paternalistic, so any violation of the contractual terms was known as “unfilial.” These servile tenants were supposed to behave according to Confucian kinship principles (en: 恩 [kindness]; xiao: 孝 [filial piety]; zhong: 忠 [loyalty]; and yi: 义 [dutifulness]) and to recognize the absolute ruling authority of the lineage head and other esteemed elders. But the family head and senior lineage members also had obligations toward their inferiors: they were expected to show


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benevolence, forbearance, conciliation, toleration, and patience. If there was crop failure or famine and sometimes as a reward for a servile tenant’s extra labor, the rent could be reduced or exempted. In sum, both ritual and the ethos of collective welfare were seen as key instruments in preventing conflict between lineage members and servile tenants. The first generation of China scholars who researched Huizhou’s servile tenants stressed this group’s inferior social standing but tried to go beyond conventional Marxist-Maoist interpretations that cast all tenants as victims of rapacious gentry landlords. Ye Xian’en in his pathbreaking 1983 study, Ming Qing Huizhou nongcun shehui yu dianpuzhi (明清徽州农村社会与佃仆制: Huizhou’s rural society and servile tenant system in the Ming Qing period), showed that neither Huizhou gentry nor merchants were eager for land acquisition for private use because of the relatively low returns on land investment compared with commerce and because of the restrictions against the sale of lineage properties to outsiders (Ye Xian’en:43–53). Ye’s work probes the complexities of landlord-dianpu relations and finds some occurrences of servile tenants cultivating the land of a master (or one of their masters) where the contract did not include any obligations other than paying rent. Moreover, from statistics he compiled based on the activities of one particular lineage, he argued that in some cases the incomes of those who worked as tenants and servile tenants on the same piece of land were not very different (Ye Xian’en:314–315). Both Ye and another well-known scholar of Ming rural relations, Fu Yiling (傅衣淩), discuss instances where servile tenants, like free tenants, had property rights to a particular field, which they might sublease, sell, mortgage, or bequeath to another party in lieu of cash compensation for their labor (Ye Xian’en:256; Fu Yiling:10–11). Conversely, both scholars also found significant a series of written contracts from 1557 to 1604 involving three generations of a family of tenants from Huizhou’s Qimen County that demonstrates how this group became progressively more subservient to their master: their landlord put increasing pressure on them to perform extra services (Ye Xian’en:234–235; Fu Yiling:14–15). The competitive and overpopulated circumstances in late Ming Huizhou also gave cause for the dianpu to litigate their contracts with their masters. Nakajima’s examination of some fifty-two contract disputes involving dianpu for the period 1487 to 1645 yields some interesting results. Only fifteen cases were brought to the magistrate, while the other thirty-seven were settled by various mediators, including those landlords named in the contracts. Also remarkable is that in some of these disputes, dianpu were in conflict with their overseers because of the extra income they had earned through commerce. Seizing new economic opportunities,

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they planted other commercial crops on the land allotted to them and sold them for a profit. In other instances, some of those dianpu who accompanied their masters to markets outside Huizhou found ways to make money on their own initiative and thereafter tried to break the contact with their lords (Nakajima:266–295). Nakajima’s analysis allows us to contemplate how the general instability of the late Ming affected Huizhou society. With the majority of dianpu not being able to access the burgeoning new commercial opportunities, they felt the need to challenge and litigate the terms of their contracts. Ultimately, they resorted to violence and insurrection, which culminated in a major peasant rebellion throughout Huizhou during the time of the Ming-Qing transition (1644–1646) (Nakajima:296–321; see also Zurndorfer 1989:195–218). intermediation and adjudication Here we have stressed the crucial role of the lizhang in the resolution of contract disputes. From the evidence it would seem that the influence of the official representative of Ming political authority, that is, the local magistrate in Huizhou administration and social regulation, steadily declined during the Ming period (Nakajima:322–365). Nevertheless, the specter of government interest was still there because people nonetheless desired the official government red-stamped contract as proof of the legitimacy of their economic and social transactions. Moreover, those who interceded in contractual conflicts were obliged to know something about the law in order to fulfil their responsibility as negotiator and to achieve a satisfactory resolution. This situation leads us to wonder about the extent the settlement of local lawsuits depended on some kind of standard set of norms or criteria. Modern historians who researched the multiplicity of legal practices at a local level have underscored how frequently “court opinions” intersected with local customs in the arbitration of contractual claims and obligations. Both Ma and Kishimoto in their chapters in this book stress the impact of the lack of codification in Chinese law on a local level with regard to this matter (see Chapters 3 and 4). The majority of modern scholars they cite— Liang Zhiping, Shiga Shuzo, Philip Huang, and Terada Hiroaki—have argued that there was no independent and professional judicial system during the Qing and that Qing judges emphasized reconciliation between the feuding parties instead of pursuing adjudication. Aside from focusing on legal practices during the Qing dynasty, these studies also share another commonality: they assume that the Western dichotomy of mediation and adjudication is also relevant to the exercise of understanding justice in imperial


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China. In other words, they view legal culture as either/or: legal practice was either mediatory or adjuratory. But those modern legal scholars who have studied Ming law see this judicial regime as much more holistic. According to the authors of a recent study of late Ming casebooks: It was normal and desirable for judicial officials to reason on the basis of particular circumstances and the moral sentiments of human relationships as well as legal rules. They did not distinguish between “mediatory” and “adjudicatory” activities, but endeavored to make judgments by considering and balancing various elements. . . . The bifurcation of “a formal system guided mainly by adjudication and an informal system guided by compromise” did not exist in the Ming. Ming adjudication, instead, combined both formal and informal, statutory and mediating functions. (Jiang and Wu:52)

Unlike Qing judicial administrators, who were known to cite a previous case decision as a precedent to settle legal disputes (Edwards:182), the authors of late Ming casebooks never referred to earlier rulings in their judgments (Jiang and Wu:53). Ming casebooks of “court opinions” were personally authored summaries of judgments in cases that had come before a local court. The casebooks reveal that Ming legal practice was based on two sources: statutory rules derived from the Great Ming Code (Da Ming lü: 大明律) published in its final form in 1397, which was adjusted over the next two hundred years to fit changing circumstances with the addition of supplementary regulations (li 例);20 and moral norms of “principle” and “sentiment” evaluated in the context of circumstance (Jiang and Wu:53). In their analysis of one casebook, Mao Yilu’s 毛一鹭( jinshi 1604), titled Court Opinions from Songjiang (Yunjian yanlue: 云间谳略), Jiang Yonglin and Wu Yanhong show how this compilation represents Mao’s effort in litigating cases to balance the ideal of harmony and the reality of conflict, that is, balancing written rules with the more general principle of fairness and the particularities of the specific circumstances.21 Two modern authors refer to an instance from this casebook that demonstrates this sense of equilibrium. In chapter 4 of his collection, Mao recorded the case of a Shanghai native named Cai who sold some land. His former adopted son, named Xu, who had already returned to his own family and thus had nothing to do with the Cai family, redeemed the land with five liang of silver. However, Cai’s nephew, who had been newly adopted to replace Xu, did not want to see the land fall into Xu’s hands. So he falsely accused Xu of seizing tax grain. Xu argued that as Cai’s former relative, it was not against “sentiment and principle” (qingli: 情理) for him to redeem Cai’s abandoned property. Official Mao saw the

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matter differently. He concluded that both Xu, who redeemed his former adoptive father’s land, and Cai’s newly adopted son, who falsely accused Xu, acted out of greed. He ruled that Xu must return the land to Cai’s newly adopted son but that he was entitled to a refund and would not need to perform any labor service based on the land. Jiang and Wu view this case as illustrative of the balance between written rule and sentiment. Xu was not punished for violating the human relationship of kinship: redeeming sold land was not prohibited by law. Conversely, even though he was the victim of false accusation, he was also guilty of undermining social harmony (Jiang and Wu:43–44). Court Opinions from Songjiang is one of six known late Ming casebooks based on the authors’ experiences as officials in a variety of local regions, including such commercialized areas as Ningbo (Zhejiang), Guangzhou, Xunxian (Beizhili [near Beijing]), Xinghua (Fujian), Suzhou, and Songjiang, and published between 1620 and 1640. The writers of these works endeavored to guide other officials in legal practices but also intended their compilations to function as textbooks for moral and disciplinary education. What made these casebook collections so useful for anyone charged with conflict resolution was their specific nature—each case was a unique event, and each published decision demonstrated how both formal law and abstract principles of equity and fairness might be applied to individual situations (Jiang and Wu:32). Legal casebooks, such as those for medical or religious-philosophical specialists, flourished as print culture in the late Ming intensified and books circulated ever more widely. While there is no known example of a casebook for litigation in Huizhou, it is not unreasonable to assume, given the extensive network affiliations of the Huizhou elite both within and outside the local community, that the lizhang there were acquainted with the legal culture that engendered these compilations. It is also highly likely that the lizhang in their treatment of contractual disputes would have known the formal statutes of the Ming Code and its supplements as part of the “core set of books” that most scholar-literati would own (Brook, 1998b:131). As supervisors of covenant assemblies, they would have had to lead the recitation of moral exhortations that reinforced the Confucian kinship principles and obligations mentioned earlier and that upheld their superior social status in the local community. The lizhang was the keeper of both social order and social harmony, and thus in his role as judge or adjudicator, he was bound to seek solutions that would ensure these goals were met. That so many individuals (men and women, young and old, rich and poor), as the Huizhou documentation informs us, chose to challenge others to seek entitlement, implies that they had faith in how the lizhang would deal with their cases. For the lizhang, his function was to demonstrate both his comprehension of Ming law and


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his capacity for fair-mindedness. In this way, he could overcome the tensions, problems, and potential crises that a rapidly changing economy had imposed on the society that he served. In Huizhou, as elsewhere in Ming China, there were no sharp divisions between personal morality and the political values of the state. Everyone shared the same ethical discourse and relied on a common set of standards. implications Huizhou was not the only region in China where lawsuits were rife during the Ming dynasty. Not only do the casebooks indicate the extent to which litigation over property claims was a regular matter in court proceedings, but also local gazetteers and court records of the central government in Beijing chronicle the frequency and intensity of the people’s preference for legal action. In an illuminating analysis of a particularly complicated court case about grave land in Nanchang (南昌) (Jiangxi Province) that eventually arrived on the desk of the Hongzhi emperor (r. 1488–1506) in 1499, Timothy Brook has shown how the Nanchang people’s reputation for fractiousness reached an extreme (Brook 2005:1– 8). Brook considers the case not as unusual because of the emperor’s involvement but rather as indicative of the fluidity of Ming state-society relations. Eschewing the conventional trope that posits the Ming emperor as the embodiment of Chinese authoritarianism, Brook extends the landscape of power to the realm of society and employs the concept “society-making,” first posited by the modern legal theorist Roberto Unger, to his synopsis of the Nanchang case.22 By “society-making,” Brook means “the process by which people interact with each other through structured networks and make the conditions of their social existence on the basis of the resources available to them by virtue of their social position” (cited in Brook 2005:8–9). He emphasizes that it is society (and thus not the state) that forms these processes, which depend on the practices current with everyday life. Brook’s intention is not to marginalize the state’s effectiveness but to stress how the “society-making” effects of such factors as kinship collectivities (as in Huizhou) and the “economy-making” factors of production and trade interact with the polity. To be sure, state administration extended very far, to the most basic residential unit in Ming China, that is, the village— the Placard of Instructions to the People was meant to be read there—and held a monopoly on the validity of contracts with its red stamp. But the state also reserved enough space for those persons dissatisfied with the inequalities of property and intense economic competition to voice their

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discontent and to seek redress of their claims (Fang 1117–1121). Thus, from a broad perspective, we may conclude that neither the society of Huizhou nor Nanchang was exceptional in its capacity to engage in litigation at a time when rapid commercial change and rigid social hierarchy exaggerated the tensions inherit in the structure of Ming state-society relations. Nevertheless, neither these conflicts nor the structure within which they were articulated evolved to be a “historic turn” in the foundations of Chinese legal culture: instead, both the actors and the institutions they addressed should be seen as part of a widespread social web, reinforced by the tangled complexity of a stratified society, that could afford the possibilities of exchange and negotiation but not the transformation of social relations unleashed by market forces that evolved in other societies.

Notes 1. The failure of modern comparative law scholars to engage in Chinese legal history is assessed in the provocative study “Legal Orientalism” (Ruskola). For an analysis of China specialists’ inattention to the role of law in Chinese civilization, see Alford. 2. The magistrate had the ultimate responsibility over local government, with all its fiscal, policing, and juridical components (Watt). Because of the “law of avoidance,” the magistrate was never a native of the region where he served, usually for a three-year term. 3. McKnight and Liu’s translation of the Qingming ji encompasses about 40 percent of the cases included in the collection. The original text had been lost for many centuries before a copy was discovered in Japan in the 1980s. 4. Despite the profusion of extant contracts from the imperial era, the relative lack of attention by China scholars to these documents means that it will take some time before an analysis on the authoritative scale of Atiyah, or the broad and definitive studies by Frederic William Maitland and Marc Bloch on laws and contracts in medieval Europe, will ever appear. 5. China’s population by 1100 reached 100 million (Ebrey 1996:141). In 1120, the southern port city of Quanzhou in Fujian province probably had as many as 500,000 residents (cf. So). 6. Traditional Chinese historiography has appraised the first Ming emperor as both a malicious despot and an effective architect of state and society. But in Western writing the emperor’s second image never really materialized because of the influence of both Montesquieu and Georg Hegel. Hegel conceived of China as a realm in which only the emperor had full individuality and every other person was his slave. The modern historian Karl Wittfogel recycled this impression into the trope of “Oriental despotism” at the time of the Cold War (see Brook 2005:5, 8). Recent revisionist work, building on earlier published studies from the 1970s and 1980s of how the


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Ming government worked in practice, has emphasized the “shaky foundations” of Ming Taizu’s regime and exposed his legacy to the tensions between the authority of central government and the power of local society. See Zurndorfer 2007a. 7. China’s first commercial revolution occurred during the Northern Song (960– 1126). Expansive agricultural and industrial production (including the manufacture of silk, lacquer, and ceramics on a large scale), intensified interregional exchange supported by an extensive network of canals and waterways, overseas trade, growth of cities, and not least the minting of coins and the use of silver in the collection of taxes, which were all factors in this important economic transformation. 8. It is estimated that there are some 200,000 Huizhou documents now in the possession of various research institutes, universities, libraries, and museums in Beijing, Nanjing, Tianjin, and Huizhou. These records consist not only of land and labor contracts but also rent books, official tax registers, account books, and judicial administrative papers and date from the fourteenth to the twentieth centuries. My 1989 book was the first major publication in English to utilize a portion of these records for a comprehensive study of the Huizhou region. For an introduction to the sources for Huizhou study, see Nakajima:3–65; also, see McDermott 1985 for a brief synopsis in English. 9. For a comparative study of another region, albeit located on China’s littoral, that featured similar characteristics to Huizhou, see Zurndorfer 1992. 10. Local gazetteer records suggest that single lineage villages dominated the Huizhou countryside. See Huizhou fuzhi (1699) 1.78b. 11. A recent study by Guo Qitao argues that Huizhou lineages were “gentrified mercantile lineages.” See also Zurndorfer 2007b. 12. Contracts registered with the government received a red stamp on condition of payment of a fee for this service. There also existed unstamped (white) contracts between two parties, which some magistrates would admit as evidence in litigation. Social historians consider this red stamp on contracts a means for the government to gain revenue. 13. The cases are reproduced in the important compilation Huizhou qiannian qiyue wenshu (A thousand years of Huizhou contract agreements). See the References at the end of this chapter for further details. 14. McDermott 1999:317–329 posits that Huizhou local elites enforced village covenant rituals that exhibited devotion to the emperor as a way of reinforcing their own hold on local society. 15. The Wu lineage genealogy Mingzhou Wushi jiaji (茗州吳氏家記: Familial records of the Wu lineage of Mingzhou), chapter 10, records the escalation of this conflict from verbal confrontations to legal petitions. 16. Jixi xianzhi (績溪縣志; 1755), juan 1 fengsu (風俗). 17. The assertion by Li and Jiang that 30 out of the 157 Huizhou land contracts they found did not have any notice confirming that kin had not been consulted beforehand does not disprove the fact that lineages had a monopoly on the acquisition of property and sale of their own land. 18. Other people categorized as “mean,” or jianmin (賤民), included government runners, prostitutes, actors, musicians, and slave servants. Because these

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people served or entertained others, their labor was considered nonproductive. “Mean people” were not emancipated until 1727, when the Yongzheng emperor (reigned 1722–1736) decreed their release from discriminatory statutes. See Hansson:163–170. 19. The category of “servile tenants” should not be confused with bondservants (nupu: 奴仆), who were also classified as “mean” but were in terms of duties a heterogeneous group of people. Bondservants could serve as household servants or as field hands, but they also could own property, supervise free tenants, and even in some cases, take control over their master’s property. See Zurndorfer 1989:200–2004. The well-known late Ming literatus Gu Yanwu (顾炎武; 1613– 1682) wrote in his compilation, Rizhi lu jishi (日知录集释: Record of knowledge gained day by day, with commentaries; 13:29a) “(some times) the bondservants act like a master and the master acts like a bondservant.” 20. For a translation of this Code, see Jiang 2004. For a general discussion of the formal features of Ming law, see Langlois. 21. Court Opinions from Songjiang was published during the 1610s or early 1620s and contains 183 law cases, involving disputes over land ownership, debt, commerce, marriage, and bondservants as well as homicide, robbery, and salt smuggling. 22. See Unger:151–152.

References Printed Huizhou Contracts Anhui Sheng Bowuguan, ed. 1988–1990. Ming Qing Huizhou shehui jingji ziliao congbian (Collected materials concerning economy and society from Huizhou during the Ming and Qing dynasties). 2 volumes. (Beijing: Xinhua shudian jingxiao). Zhongguo shehui kexue yuan (Lishi yanjiu suo), comp. 1991. Huizhou qiannian qiyue wenshu: Song, Yuan, Ming bian (A thousand years of Huizhou contract agreements from the Song, Yuan, and Ming dynasties) (Shijiazhuang shi: Huashan wenyi chubanshe). Zhongguo shehui kexue yuan (Lishi yanjiu suo), comp. 1993. Huizhou qiannian qiyue wenshu: Qing, Minguo bian (A thousand years of Huizhou contract agreements from the Qing and Republican eras) (Shijiazhuang shi: Huashan wenyi chuban she).

Other References Alford, William. 1997. “Law, Law, What Law? Why Western Scholars of Chinese History and Society Have Not Had More to Say About Its Law,” Modern China 23.4:398–419.


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Atiyah, Patrick. 1979. The Rise and Fall of Freedom of Contract (Oxford: Oxford University Press). Bian Li. 2000. “Mingdai Huizhou de minshi jiufen you minshi susong” (Civil disputes and litigation of Huizhou prefecture during the Ming), Lishi yanjiu 1:94–105. Brook, Timothy. 1998a. “Communications and Commerce,” in Denis Twitchett and Frederick Mote, eds., The Cambridge History of China, vol. 8, part 2: The Ming Dynasty 1368–1644 (Cambridge: Cambridge University Press), 579–707. ———. 1998b. The Confusions of Pleasure: Commerce and Culture in Ming China (Berkeley: University of California Press). ———. 2005. The Chinese State in Ming Society (London: Routledge). Chang, George Jer-lang. 1978. “The Village Elder System of the Ming Dynasty,” Ming Studies 7:53–62. Cheng Mincheng. (1445–1499) [1983]. Huangdun wenji (Collected works) [Siku quanshu 1252–1253 ed.] (Taipei: Taiwan shangwuyin shuguan). Ebrey, Patricia, ed. 1981. Chinese Civilization and Society: A Sourcebook (New York: Free Press). ———. 1996. Cambridge Illustrated History of China (Cambridge: Cambridge University Press). Edwards, R. Randle. 2003. “The Role of Case Precedent in the Qing Judicial Process as Reflected in Appellate Readings,” in E. Stephen Hsu, ed., Understanding China’s Legal System: Essays in Honor of Jerome A. Cohen (New York: New York University Press), 180–209. Fang Qiang. 2009. “Hot Potatoes: Chinese Complaint Systems from Early Times to the Late Qing (1899), Journal of Asian Studies 68.4:1105–1135. Farnsworth, E. Allan. 1969. “The Past of Promise: A Historical Introduction to Contract,” Columbia Law Review 69.4:576–607. Fu Yiling. 1961. Ming Qing nongcun shehui jingji (Rural society and economy in the Ming Qing period) (Beijing: Sanlian). Fujii Hiroshi. 1953. “Shin’an shonin no kenkyu (san)” (A study of the Xin’an merchants; part 3), Toyo gakuho 36.3:65–118. Fuma Susumu. 2007. “Litigation Masters and the Litigation System of Ming and Qing China,” International Journal of Asian Studies 4.1:79–111. Furth, Charlotte. 2007. “Introduction: Thinking with Cases,” in Charlotte Furth, Judith Zeitlin, and Ping-chen Hsiung, eds., Thinking with Cases: Specialist Knowledge in Chinese Cultural History (Honolulu: University of Hawai’i Press), 1–27. Guo Dongxu. 1990. “Songdai zhi songxue” (The study of suing in the Song dynasty), in Qi Xia, ed., Songshi yanjiu luncong (Collected essays in Song studies) (Baoding: Hebei daxue chubanshe), 133–147. Guo Qitao. 2005. Ritual Opera and Mercantile Lineage: The Confucian Transformation of Popular Culture in Late Imperial Huizhou (Stanford, CA: Stanford University Press). Hansen, Valerie. 1995. Negotiating Daily Life in Traditional China: How Ordinary People Used Contracts, 600–1400 (New Haven, CT: Yale University Press).

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Hansson, Anders. 1996. Chinese Outcasts: Discrimination and Emancipation in Late Imperial China (Leiden: E. J. Brill). Huang, Philip C. C. 1993. “Between Informal Mediation and Formal Adjudication: The Third Realm of Qing Civil Justice,” Modern China 19.3:251–298. ———. 1996. Civil Justice in China: Representation and Practice in the Qing (Stanford, CA: Stanford University Press). Jiang Yonglin. 2004. The Great Ming Code (Seattle: University of Washington Press). Jiang Yonglin and Wu Yanhong. 2007. “Satisfying Both Sentiment and Law: Fairness-Centered Judicial Reasoning as Seen in Late Ming Casebooks,” in Charlotte Furth, Judith Zeitlin, and Ping-chen Hsiung, eds., Thinking with Cases: Specialist Knowledge in Chinese Cultural History (Seattle: University of Washington Press), 31–61. Langlois, John. 1998. “Ming Law,” in Denis Twitchett and Frederick Mote, eds., The Cambridge History of China, vol. 8: The Ming Dynasty, 1368–1644, Part 2 (Cambridge: Cambridge University Press), 172–213. Li Bozhong. 2003. Duo shijiao kan Jiangnan jingjishi (1250–1850) (An economic history of Jiangnan according to multiple perspectives [1250–1850]) (Beijing: Sanlian shudian). Li Wenzhi and Jiang Taixin. 2005. Zhongguo dizhu zhi jingji lun (Discussion of China’s landlord economy) (Beijing: Zhongguo shehui kexue chubanshe). Liang Zhiping. 1996. Qingdai xiguan fa: Shehui yu guofa (Qing dynasty customary law: Society and state) (Beijing: Zhongguo Zhengfa daxue chubanshe). Ma, Debin. 2004. “Growth, Institutions and Knowledge: A Review and Reflection on the Historiography of 18th–20th Century China,” Australian Economic History Review 44.3:259–277. Macauley, Melissa. 1998. Social Power and Legal Culture: Litigation Masters in Late Imperial China (Stanford, CA: Stanford University Press). McDermott, Joseph P. 1985. “The Huichou Sources—A Key to the Social and Economic History of Late Imperial China,” Ajia bunka kenkyu 15:49–66. ———. 1999. “Emperor, Elites, and Commoners: The Community Pact Ritual of the Late Ming,” in J. McDermott, ed., State and Court Ritual in China (Cambridge: Cambridge University Press), 299–351. McKnight, Brian E., and James T. C. Liu. 1999. The Enlightened Judgments: Chíng-ming chi: The Sung Dynasty Collection (Albany: State University of New York Press). Nakajima Gakuho. 2002. Mindai goson no funso to chitsujo: Kishu monjo o shiryo to shite (Disputes and order in Ming China: An analysis based on Huizhou documents) (Tokyo: Kyuko shoin). North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press). Pomeranz, Kenneth. 2008. “Land Markets in Late Imperial and Republican China,” Continuity and Change 23.1:101–150. Quan Renrong. 2000. “Cong Qimen xian ‘Xieshi fenzheng’: Kan Mingmo Huizhou de tudi zhangliang yu lijia zhi” (Considering the disputes of the Xie


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lineage of Qimen County: From the perspective of land measurement and the “lijia” system in late Ming Huizhou), Lishi yanjiu 1:86–93. Ruskola, Teemu. 2002–2003. “Legal Orientalism,” Michigan Law Review 101:179–234. Scogin, Hugh T. 1990. “Between Heaven and Man: Contract and the State in Han Dynasty China,” Southern California Law Review 63.5:1325–1404. Shiga Shuzo. 1981. “Shindai sosho seido ni okeru minjiteki hogen no gaikatsuteki kento” (A general survey of the sources of law concerning civil cases in the judicial system of Qing China), Toyoshi Kenkyu 40.1:74–102. So, Billy. 2001. Prosperity, Region, and Institutions in Maritime China: The South Fukien Pattern, 968–1368 (Cambridge, MA: Harvard University Asia Center). St. André, James. 2007. “Reading Court Cases from the Song and the Ming: Fact and Fiction, Law and Literature,” in Robert Hegel and Katherine Carlitz, eds., Writing and Law in Late Imperial China: Crime, Conflict, and Judgment (Seattle: University of Washington Press), 189–214. Terada Takanobu. 1972. Sansei shonin no kenkyu (Merchants of Shanxi) (Kyoto: Toyoshi kenkyu sokan). Tsurumi Naohiro. 1984. “Rural Control in the Ming Dynasty” (trans. by T. Brook), in Linda Grove and Christian Daniels, eds., State and Society in China: Japanese Perspectives on Ming-Qing Social and Economic History (Tokyo: University of Tokyo Press), 245–277. Unger, Roberto. 1987. Social Theory: Its Situation and Its Task, vol. 1: Politics (Cambridge: Cambridge University Press). Von Glahn, Richard. 1993. “Community and Welfare: Chu Hsi’s Community Granary in Theory and Practice,” in Robert Hymes and Conrad Shirokauer, eds., Ordering the World: Approaches to State and Society in Sung Dynasty China (Berkeley: University of California Press), 221–254. Watt, John. 1972. The District Magistrate in Late Imperial China (New York: Columbia University Press). Wiens, Mi Chu. 1990. “Kinship Extended: The Tenant/Servants of Hui-chou,” in Kwang-ching Liu, ed., Orthodoxy in Late Imperial China (Berkeley: University of California Press), 231–254. Ye Xian’en. 1983. Ming Qing Huizhou nongcun shehui yu dianpuzhi (Huizhou’s rural society and servile tenant system in the Ming-Qing period) (Hefei: Anhui renmin chubanshe). Zhang Chuanxi, ed. 1995. Zhongguo lidai qiyue huibian gaoshi (Selected annotated contracts from China) (Beijing: Beijing daxue chubanshe). Zhang Youyi. 1984. Ming Qing Huizhou tudi guanxi yanjiu (Studies on Huizhou land relationships in the Ming and Qing periods) (Beijing: Zhongguo shehui kexue chubanshe). Zurndorfer, Harriet T. 1989. Change and Continuity in Chinese Local History: The Development of Hui-chou Prefecture, 800 to 1800 (Leiden: E. J. Brill). ———. 1992. “Learning, Lineages, and Locality in Late Imperial China: A Comparative Study of Education in Huichow (Anhwei) and Foochow (Fukien),

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1600–1800,” Journal of the Economic and Social History of the Orient 35.2:109– 144, 35.3:209–238. ———. 2002. “Old and New Visions of Ming Society and Culture,” T’oung Pao 88:151–169. ———. 2007a. Review of Community Schools and the State in Ming China, in American Historical Review, 112.2:477–8. ———. 2007b. Review of Ritual Opera and Mercantile Lineage, in Harvard Journal of Asiatic Studies 67.1:229–237.

chapter six

Law and Economic Change in India, 1600–1900 Tirthankar Roy

; The link between law and long-term patterns of economic change in India is an underresearched subject. Further, while different perspectives on the evolution of property rights and commercial law in the last two centuries exist, they disagree on the character of the evolution. Broadly, two perspectives can be identified. The institutional approach to “the rise of the West” suggests that one of the factors that led to early modern Europe forging ahead of the rest of the world was laws that reduced transaction costs. Such a proposition should lead us to investigate the structure of economic laws in the contemporary non-European world. Recently, a body of writings has speculated on the motivation of European colonists to institute European-style institutions in the present-day developing world and in those regions that Angus Maddison called “offshoots.” One group of writers considers that the harsh climate of the tropics weakened the colonists’ resolve to develop those regions (Acemoglu, Johnson, and Robinson, 2001). Another suggests that inherited ideologies and resource endowments shaped colonial institutional strategies (Engerman and Sokoloff, 1997). Yet another position considers that growth outcomes depended on the content of the European legal system that was transferred to the colonized zones.1 The contrast between common law and civil code or statutory law receives particular emphasis in this last area of scholarship. A civil code is based on concepts and principles rather than judicial opinion; common law traditions form from cases and judicial opinion. Common laws, therefore, consist of norms established by past judgments and also allow judges

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discretion to set new norms. The prospect that common law judges, when faced with alternatives, could employ the benchmark of economic efficiency in making a choice leads to an inference that common law is efficiency enhancing.2 It needs stressing that a regard for procedures, or, to use the more common English phrase, the “due process of law,” is necessary for norms to be treated as law. In the recent economic history usage of the distinction between common law and civil code, British India, which inherited a common law system, was better off than, say, Francophone Africa. All three positions can be subsumed under the label transmission theory of law and divergence. In those regions of South and Southeast Asia where imperialism had a longer and deeper presence than in the rest of the world, we encounter another perspective on colonial law. Historians usually believe that the local society and civilization shaped colonial choices to a significant extent. Indeed, historians of Indian law do not ascribe to European law such a central place as would the transmission theory. They stress another process instead, which was to accommodate and integrate the pluralistic legal order of the indigenous societies. Early colonial legislators made a serious effort to preserve indigenous law and avoid transplants.3 This process involved an attempt to understand, reconstruct, and preserve indigenous law, customs, codes, and usages, albeit often through a European vocabulary of rights and justice. This desire cannot be understood with reference to a propensity to institute a common law regime on India. More directly, it stemmed from a desire to secure legitimacy of a foreigner-ruled state with reference to India’s own principles of statecraft and to secure the cooperation of the local collectives by this means. I call this view a translation theory of legal evolution because the project involved translating indigenous custom and law. In common with the transmission theory, the translation theory, too, contains a hint that colonial law was less than a perfect product, and in some views, it was a failed experiment. Criticism of colonial law has a very old history. As early as 1711, a merchant drily observed that in the East India Company courts of Madras town, “for much Money, they have little Law, with a great deal of Formality” (Lockyer, 1711: 6). In the early nineteenth century, press, vernacular literature, and even administrative perception took a rather dim view of colonial law then in existence in India. Courts and lawyers were unaffordable, served the rich and hurt the poor, and were sites where perjury won the day—dark views such as these were expressed not only by the poor or the Indian clients of the new regime but also by rich European capitalists.4 A century later the Gandhian nationalists revived the critique. Jurists in India have expressed a more positive assessment of colonial law. But few historians share that sentiment. Where does the negative perception come from?

Law and Change in India, 1600–1900

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Historians of Indian law stress, with what might seem tiresome persistence, that the translation project misread Indian society. The project involved, to use a phrase coined by Eric Hobsbawm, “invention of tradition.” There were three levels at which mistranslation occurred. Codes of conduct were read as laws. Breaking a code had been a sin before; it now became a crime. Scholars of Sanskrit literature, who were the translators for the colonial regime, were regarded as jurists. And codes aimed at securing a stable relationship between the community and the individual were recast into contracts between the state and the individual. If Daron Acemoglu, Rafael La Porta, and others reckon that good laws were lost in the process of transmission from Europe, historians of India suggest that good laws were lost in translation. I consider both perspectives limitedly useful in understanding modern Indian economic history. The idea that British India was fortunate in receiving the English legal tradition overlooks the two centuries of bitter criticism that colonial law encountered. The proposition that economic effects can be read from “legal origins” is not convincing in the Indian case. For colonial Indian legislation cannot be classified in one of the two boxes that the legal origin thesis works with. Despite being engineered by the British, colonial Indian law was not common law. It followed codes that had been written out centuries before in Sanskrit, Arabic, and Persian. Conversely, the relevance of mistranslation for comparative development depends on an interpretation of the new regime in economic historical terms. This task is awaited. Historians of law and society in colonial India have not shown much interest in economics. This brief tour of the historiography leads us to three sets of questions, which I address in this chapter. How were property rights and commercial laws framed and enforced in precolonial India? What was that precolonial legal tradition that the transmission theorists overlook and the translation theorists believe was misread? The second area of questioning concerns the colonial transition: How important were transmission and translation in the evolution of modern economic law in India? The third concerns the effect of the evolution: What inferences can we draw from this narrative on the economic growth consequences of colonial law?

the seventeenth century: a community- bound legal regime Historians of medieval India disagree on the nature of the precolonial states, the point of debate concerning the degree of centralization of

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power at the imperial core.5 The conventional view, first stated by European travelers in Mughal India, was that the imperial court concentrated economic power and political authority. Merchants and producers in this system were a cog in the gigantic wheel of imperial land taxation and if not exactly oppressed were not very vital either. The Aligarh school of historiography is the sophisticated modern representative of that idea. Such a perspective would imply that property rights in land were subject to the ultimate authority and control by the state and agents of the state, and property rights in capital were not secure from extortion. This view is being rethought. Instrumental in the rethinking has been interpretations of polities that ruled Southern India. “Ideologies of shared sovereignty and the recognition of domains of autonomy,” using David Washbrook’s (2004: 512) words, have become mainstream constructs in the historiography of the early modern state. And these ideologies stand in sharp distinction to the European notion of the sovereign state, which colonialism introduced in eighteenth-century India. Burton Stein (1985) used Aidan Southall’s concept of a “segmentary state” to argue that sectarian groupings formed of caste and religion played a bigger role than did the imperial state behind the formation of institutions in South India between the ninth and the twelfth centuries. The concept of a decentralized polity was later found to be a useful construct for medieval Deccan, Maratha states, and for Northern India itself.6 Earlier Gough (1979) interpreted the Chola state in South India as a kingdom that allowed communities to retain substantial social and economic autonomy. Another closely related notion is suzerainty, wherein taxpayers enjoy some domestic autonomy in exchange of a promise to pay taxes, as opposed to sovereignty. Suzerainty was applied in the context of the Ottoman imperial state and was found useful by Southall (1988) to describe the Chola and Rajput lineage states. The principle of leaving lineages alone was common between those examples from Africa and South Asia in which the term segmentary state was used. The view of the precolonial polity constituted of weak states or vulnerable states supported by powerful local corporate groups, such as merchants, landlords, and territorial chieftains, appears also in a historiography of Northern India after Mughal decline, according to which these groups were seen to consolidate their hold in commerce and politics during the eighteenth century (Bayly, 1983). The idea that local communities in India made and administered civil law dates back to the nineteenth century. The community exists in these earlier notions of India—identified mainly with the writings of Karl Marx and Henry Maine—as rooted in the village, changeless, and passive with respect to the state. The more recent conceptions of the state project a pic-


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ture of contract and symbiosis between states and powerful corporate groups. It was a dynamic relationship based on mutual dependence and constant negotiation. The king would not be able to function without the ritual sanction of the Brahmans, the services of the merchants in moving taxed grain, the services of the local chieftains during battles, or the services of the artisans, shopkeepers, and entertainers in making the imperial city an attractive place. The consensual element made the system far more fluid than either Marx or Maine considered was the case. Common between such notions of a decentralized state is the principle that the king did not legislate. The legislative process was decentralized, property and contractual laws being the prerogative of the merchant caste, artisan community, territorial chiefs, and “little kings,” to use a phrase popularized by Bernard Cohn (1960). On this point about law, there is convergence between the Aligarh school; interpretations of medieval South India; the proponents of segmentary state, lineages, suzerainty; and, indeed, the classical writers on Indian society, including Marx and Maine. Groups could move up or become more diverse or do new things. But as long as groups remained useful to the state, their right to create insular communities with their own civil laws was respected by the state. These two features—respecting the autonomy of the group and the concrete expression of such respect in the form of juridical autonomy— characterized the Indo-Islamic states. There is little disagreement among authorities on medieval North India on the point that “the Mughal state was not a legislating state.” In the words of one representative of the Aligarh school, “No historian had ever laid claim that Mughal polity was in these aspects the equal of the European post-Reformation state” (Athar Ali, 1993). Many components of the theory and practice of statecraft underwent changes and refinements since the consolidation of Islamic empires in Northern India. Yet one component that changed slowly, if at all, was the principle of disengagement vis-à-vis the civil affairs of the nonbelievers, in effect withdrawing the protection of state law and state courts from the non-Muslim groups in the matter of settling property and personal and contractual disputes. In one view, the religious foundation of medieval law accounted for the juridical autonomy of the community.7 This was a “sectarian” legal regime, by which I mean a system that defined jurisdiction of state laws by community rather than territoriality. Layers of customary law coexisted, each community or ethnic group using one of these systems of common law, and statutes existed for only some or even only one of these layers. In the Mughal institution of law, civil and administrative law (and a great deal of criminal law as well) was framed according to canon law if the disputants were Muslims and administered according to

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community-bound customary law if the disputants were non-Muslims.8 The state did not see itself as a lawmaker for everyone but rather as an agent in upholding the canons for the believers. Kingship demanded, foremost, seeing “that the dignity of Islam and the Islamic Law is upheld in his dominions.”9 The state’s engagement with justice being thus mediated by religion, it implied a withdrawal of official justice from populations belonging in realms outside Islam. In another view, the autonomy of community can be read as a pragmatic political step. Few regimes ruling in this deeply diverse society had ever tried a serious policy of cultural engineering. In theory, a formally religious state ruling a populace that followed different faiths, spoke many tongues, and followed different customs could either convert everyone at the point of the sword and bring all under a single law or offer social, cultural, and juridical autonomy to skilled communities, against a voluntary, committed, and therefore reliable supply of craft skills, commercial skills, and skills in battle. Historians of medieval India suggest that the stability and legitimacy of Indo-Islamic rule in Northern India and the rather limited extent of Islamization of society was owed to the pursuit of the second strategy of building consent.10 Who exactly represented the legislative unit in such a decentralized system? Maine considered the unit to be the village community. The idea of an unchanging administrative core in the village simplifies both the political position and the process of historical change. And yet later scholarship has not strayed far from Maine. Cohn, a precursor to the 1980s revisionism on state formation, focused on the power of the local landed lineages with which both the precolonial and the early colonial states negotiated terms of taxation. These “little kingdoms,” in his view, were “the basic jural unit of upper India in the eighteenth and nineteenth centuries” (Cohn, 1959: 80). In colonial documentation on land rights of the eighteenth century and early nineteenth century, we get a concrete picture of who these people really were. The notion of an “original settler” of land was often connected with the lineages that possessed the more secure form of property right on land than those enjoyed by groups identified as migrants or recent migrants. The former were also militarily more powerful and more insular in social interaction and vested property rights in lineage, kin, clan, or family. That being said, an interpretation of the “jural unit” that is too focused on landed magnates is an incomplete one. Personal law or mercantile law cannot be easily fitted into a conception dominated by the village, land taxes, and land rights. A more flexible conception would be that the law-making units were endogamous guilds. The advantage of that idea is that it can bring the landed lineage and the merchant or artisan guild into one notion of ju-


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ridical autonomy. In the case of India, endogamous social groups also had strong professional identity. Indeed, these are the two essential and usually conjoined meanings of the word “caste” relevant to the economic historian. The right to legislation in the Mughal state was given over to communities such as these, namely, professions built around kinship and intermarrying families. Communities were the “jural units” in charge of property, succession, and contract. This feature explains why, outside ecclesiastical matters, both Hindu and Muslim law was preoccupied with personal relationships. A large part of these laws dealt with the relationship between sexes and persons linked by blood or by marriage. The core of the Hanafi jurisprudence as documented in the Indian context was marriage and divorce, slavery until the mid-nineteenth century, gifts including wakf or religious endowments, inheritance (including wills), titles of ownership of property (a great part of which consisted of shoofa, the legal title of one partner in joint property in relation to other partners, established specifically with respect to lands, houses, and orchards), evidence and procedure, and, to a small extent, debt recovery. Breach of contract and tort were weakly developed concepts, except in reference to marriage.11 The reason for foregrounding the personal against synthetic relationships, such as in mercantile contracts, was that virtuous conduct rather than fairness or equality was the value that these legal systems sought to protect. These systems evolved by textual interpretation rather than as a response to client needs and constraints. This large and somewhat diverse body of laws could and did evolve. But historians seem to agree that the jurists and the judges by and large did not see it their duty to make and perfect laws. They were interpreters of laws to a degree but in a manner that could be claimed to be consistent with scriptural guidelines. The community-bound legal regime had three signal characteristics. First, in the sphere of canon law, the state did not make laws but upheld them. In other words, justice was an executive duty. The hierarchy of state courts, in turn, reflected the political order rather than the contents of law or the nature of the offense. Second, in civil matters falling outside canon law, communities both made laws and administered them. In other words, outside the sphere of canon law, the concept of legal procedures was weak, informal, decentralized, and differentiated. And third, whether statute law or community law, the institution did not rely heavily on written statutes, cases, written court procedures, records, lawyers, and an independent community of jurists or what Weber called “the aristocracy of legal literati” (1978: 855). These three features will now be discussed in turn. There was substantial convergence of the executive and the judicial. The emperor symbolized this convergence, which was an expression of

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the particular jurisprudence that made the king the supreme protector of the canon. That said, the jurisprudence also admitted that the king was not above the law, and thus a tension between the courts and the judiciary was indeed present. There were episodes illustrating this tension, such as a case in which the fourteenth-century Turkic sultan Muhammad Bin Tughlaq had fought as plaintiff in a local court and lost, only to rearrest the defendant on a fabricated charge. The reach of the state courts was more or less confined to the major towns. Equally, the existence of courts of justice in the towns was an inducement for the relatively wealthy Muslims to settle in the town. The administration of justice was arranged in a “concentric organization” of courts (Jain, 1970: 82). Courts were arranged in a hierarchy. The hierarchy did not match a hierarchy of offense, nor did it correspond to a regulated appeals system. Rather it followed the rank of the officer presiding. By this principle, the highest order of court was the imperial one. Below the imperial court, the provincial governors and other officers of comparable rank held courts. Below the governors’ courts were the courts of religious law. These were presided over by the qazis and were found in most large district towns. While there were no formal limitations to the jurisdiction of each of these levels, it was generally taken for granted that cases of a routine nature would first be tried in courts of lower order. The imperial courts usually handled serious offenses of a political nature. Punishments for rebellions, acts against the state, or misdemeanors with respect to superiors were delivered according to the wishes of the emperor or his agent, broadly constrained by certain established precedents and conventions.12 Any client could approach any one of these levels, but the three levels cost very different amounts of money. The emperor himself was known to select and settle at random cases brought to him by ordinary people crowding outside the palace gate on fixed days of the week. A filtering process worked outside the gate, and it was prohibitively expensive for an ordinary person to approach the palace walls from where petitions were taken to the emperor. Disengagement touched both law and the administration of justice. Cases in villages were supposedly settled by caste courts and village panchayats. For crimes committed in larger villages, a qazi was often appointed. And yet, even as the qazi conducted investigations, the communal court was authorized to proceed on its own and take appropriate actions. There is little information on the “village assemblies” to which the task of framing and implementing civil laws among non-Muslims was entrusted. Whether the lack of information was a reflection of an extreme degree of decentralization or of the rarity of disputes remains open to speculation. There is a mention in one scholarly work of trade


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disputes being settled by trade guilds, but far too little is known about the precise mechanisms by which trade disputes were settled.13 Case laws did have some agency in this context, but the individuals who ran this system did not and could not take precedence set by other individuals too seriously. There was apparently an explicit understanding that judgments not in conformity with scriptural direction or the ulema’s opinion would be valid only in the specific case. In other words, while the legislative philosophy did allow the judges some scope to refer to “equity, justice and good conscience,” to quote a familiar refrain in early colonial law codes, judgments had little chance of becoming common law. For the same reason, historians of Mughal law believe that documentation was deemed unnecessary and therefore weak in the court proceedings and that “judgment is delivered only verbally and is not recorded in writing” (Ahmad, 1941; Akbar, 1948: 13). European travelers to India in the seventeenth century commented on the absence of written statutes. Indeed, the first major attempt at codification of law was undertaken not before the late seventeenth century by the last of the great Mughals, Aurangzeb or Alamgir, in the shape of Futawa Alamgiri. Yet the European view was based on a misreading of the situation with regard to law. If the objective of the state-instituted justice was to uphold Koranic law in its wider interpretations and applications, the Indian courts could simply rely on the jurisprudence of the Arab world (Jung, 1926). All that the courts needed was the service of jurists who could form a bridge between the world of theory and Indian practice. Jurists of foreign origin therefore formed a valuable component of the Mughal courtly culture. Consistent with the sectarian character of laws, professional lawyers and judges had a marginal presence in this system. Nothing like a mandarin system could possibly develop within a rule by scripture. Lawyers were absent from the rural courts and remained rare in the state courts. The counterparts of lawyers that we do hear about either represented clients who could not plead their own case for social reasons, such as wealthy women, or negotiated terms of transaction between parties. Thus European traders seeking trading privileges often employed vakils to argue their case with the state agents.14 Vakil is the Hindustani word today for a lawyer. During Aurangzeb’s reign, a systematic attempt was made to appoint vakils in local courts to carry through state business and also to represent the poor. The scale of this professionalization of law was probably very limited. Consistent with this picture, in private commerce laws existed largely as community norms and community courts and rules of elders, also known as panchayats. What was the precise constitution of commercial

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laws practiced by the merchant communities? Historians offer little guidance on this question. William Moreland proposed that trading communities functioned according to rules of law, but these rules were framed and implemented by the communities themselves. “Like other such systems, it was substantially fair to every one who knew ‘the rules of the game’ ” (Moreland, 1920: 249). But Moreland had nothing more to say on what these laws and principles of justice really were. One clue to the question is the speculation that the caste panchayat was not a common law court in the modern sense. Bernard Cohn’s interpretation of the village panchayats in the Benares region could well be true of the merchant panchayat as well. These courts did not decide cases based on facts and fairness. They were means instead of finding a negotiated and mutually acceptable settlement of disputes (Cohn, 1961). Continuity of profession along with cohesion of the community was of paramount importance. The shared interests of the disputants rather than the point of the disputes were given more importance. Therefore, specific laws were not necessary. Laws that were too specific might even be a hindrance to negotiation and compromise. There was another feature of the governance system that was informal and might explain the rarity of serious community-breaking disputes. Beyond pecuniary gains from staying together, there was also an ideology of righteousness that governed the conduct of the merchant with respect to members of the same community. Moreland is again insightful. He believed that merchant enterprise in the seventeenth century was characterized by two features, the absence of commercial law as statutes and the presence of commercial law as “conventional morality.” Later scholarship shows that the family firm was more than a firm. It was also “a constellation of relationships through which honour was acquired” (Bayly, 1983: 377). Patronage and charity, marriage alliances, and principal-agent relations were separated by invisible boundaries. Charity was perhaps the most public form in which this moral code was expressed. Leading merchant families supplied subsistence, cheap credit, and jobs to poorer relations. A great deal of organized charity was done by the temples, which were established by the leading merchants. We need not presume that the world ruled by panchayats and elders was either a democratic or a happy one. The overriding desire to keep the group together could suppress private enterprise and ambitions. There is plenty of evidence suggesting that the elders could and did arm-twist the juniors. That these latent conflicts had merely been suppressed rather than resolved became apparent in the eighteenth century, when the city courts set up by the East India Company had to deal with a veritable flood of Indian merchant family disputes by means of English law.


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the eigh teenth century: the codification project The first royal charter to the East India Company sanctioning it legislative powers with respect to its own dependents was granted by Charles II in 1661 and soon found a field of practical usage in the island of Bombay, acquired in 1669. This privilege was renewed from time to time. From the eighteenth century, Company administrators felt that neither Hindu nor Islamic law supplied a lex loci, both being essentially religious laws. By default, English common law became the lex loci in the Company territories. The Royal Charter of 1726 expressly sanctioned this principle. The charter also allowed three courts to be established in the three major residencies of the Company. These so-called Mayor’s Courts tried cases involving European residents, so that in principle English common law applied to the English alone, except where two parties consented to subject themselves to English law. The Royal Charters became progressively more detailed from then on, and the 1774 one not only allowed Supreme Courts to be established but also empowered these courts to deal with cases of violation of contracts. The said Section 13 of this charter introduced the term contract in Indian statutes in an explicitly commercial context. From the late eighteenth century, the East India Company state in Bengal and Madras tried to divest the erstwhile “little kings” and chieftains from the political and military powers they had enjoyed or acquired during the collapse of imperial states and to strengthen proprietary rights by codifying a universal law defining alienable ownership of landed property (on the origins of the Permanent Settlement in Bengal, which first expressed this idea, see Chapter 7, by Anand Swamy, in the present volume). It was expected that this dual intervention would reduce political control over the use of land and thus reduce a dissipation of land revenue and increase the economic incentive to improve land and thus increase the volume of revenue. In one interpretation, the new “rule of property” tried to remodel Bengal in the image of landed society in England, without regard to indigenous tradition (Guha, 1963). Later research shows how the new regime, while strengthening rights in abstract, also embedded these rights within an interpretation of Hindu and Muslim religious codes. Although a window of English common law had been opened in the Mayor’s and Supreme Courts in territories under the direct administration of the Company, as the Company’s territorial authority expanded, it was the indigenous codes that were expected to supply the guidelines for legislation, leading to a drive to define, codify, and preserve indigenous common law. The most significant outputs of this tradition were essayed

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by William Jones, Henry Colebrooke, Thomas Strange, W. H. Macnaghten, and Indian Sanskritists, the most famous of them being Jagannath Tarkapanchanan. Some of these commentators, such as Macnaghten, were judges in the Company’s Sudder Dewanny Adawlut, or the chief civil court of Calcutta in the early nineteenth century. These digests based on scriptures were expected to be used by judges in modern courts. The conservative bias in the framing of laws has been interpreted in a variety of ways. One group of authors has seen here a desire to persist with Indian statecraft and instruments of rule, in part because of the colonists’ reliance on indigenous collaborators and informants (O’Hanlon and Washbrook, 1991). Others have seen in the colonists’ “appropriation of [Indian] tradition” a “nexus between knowledge and power” (BhattacharyaPanda, 2008: 3). One contributor attributes legalizing tradition in the sphere of property to an “anxiety of distance” between a small ruling class of alien origin and a vast and diverse mass over which it ruled (Wilson, 2007). Another sees in the project an attempt by Company officers to “disguise their presence” from their subjects (Kugle, 2001). While there was conservatism in the realm of law, significant reforms were introduced in procedures.15 There was to be one due process for the entire population, even as the law itself could vary. The courts system was overhauled in the first half of the nineteenth century. A hierarchical system was established in place of a segmented one, and appeals and evidence procedures were formalized. The early nineteenth century saw significant advances in the direction of creating a uniform code of procedures. The first major statutes or “regulations” of the Company removed some of the sharp edges of the old penal law. The regulations allowed a larger space for contracts, debt recovery, and provisions related to property, especially property of the expatriates.16 The most visible change, however, occurred in the manner of conducting cases. The characters that peopled the nineteenth-century courtroom, such as the jury, the lawyers, the subsidiary judges, record keepers, and the expert authorities; the means of evidence that they used; even the pedestals on which the judges sat, with the defendant confined in a well, feeling small and vulnerable, were all fundamentally new features and products of these regulations.

the nineteenth century: costs and conflicts Historians seem to be in broad agreement with many contemporary administrators that this hybrid system did not work as well as expected.


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But the grounds for critique have tended to shift. Creating a legal regime on the basis of religious texts was a seemingly impossible project. Administration of community law by a judiciary that would try to integrate diverse conventions into one harmonized whole carried enormous information costs. The codification job was a never-ending one. The costs of translation and interpretation of tradition were very large, given that the old Sanskrit or Persian law books were often ambiguous and did not necessarily represent actual usage. Whereas the Mughal system of justice was based on a dualistic distinction between believers and nonbelievers, a core state law that was coded and peripheral community laws that were left uncoded, the British system involved in principle giving equal weight to all authentic claims to custom and therefore writing down everything. But the communities did not just consist of Hindus and Muslims; there were also Sikhs, Christians, Portuguese, Parsis, Armenians, Buddhists, and countless others besides. The Muslims and Hindus themselves were not homogenous communities, and the divisions within them were reflected in a highly diverse and often contradictory jurisprudence. Adherence to custom required assuming that Hindu custom applied to all Hindus. These requirements were either anomalous or impossible to meet. Through millennia, cross-caste and cross-religious alliances and occupational diversification had led to a huge proliferation of castes and communities. Each one of these groups, when under a literate leadership, was determined in the new regime to establish its own juridical protectorate with reference to one shastric text or another. The project diverted the attention of the early nineteenth-century judges from efficiency, fairness, and equity to consistency between texts, norms, and judgments. The dependence of the system upon cultural intermediaries was a recipe for opportunism. A nineteenth-century case judgment distinguished three types of authority on Hindu law: the Pandits, the texts, and the European scholars on Hindu texts. The Pandits and textual authority were frequently unhelpful, because of irreconcilable conflicts between texts, some of which were separated by hundreds of years, and the fact that each Pandit was schooled in a particular scholastic tradition and was trained to disagree with other Pandits. And yet it was not just the “natives” or the lower-court officials who participated in a game of misinformation. European judges were notorious for settling cases based on whim when faced with an impenetrable point of religious law. If Hindu law sources were thus often found unreliable, a similar problem arose with Islamic law. Futawa Alamgiri was not the document the British used very much in the nineteenth century as a model in deciding on customary law applicable to Muslims. The text used in practice was

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the substantially recreated al-Hedaya of Charles Hamilton. There were two problems with the Futawa. It was simply too large and had remained untranslated for this reason until the nineteenth century. Second, the Futawa was a compendium of Hanafi interpretations of laws. By the early nineteenth century, an extensive region of Northern India, Awadh, had emerged a strong state with institutions of its own. The rulers of this state followed the Imamite or Shia interpretations. The two institutions were similar in broad structure but differed on important points of detail. The codification project had to include both traditions. Baillie’s annotated translation of the Futawa Alamgiri, for example, necessitated a voluminous supplement on the Imamea code. A second type of distortion arose from the fact that community customs were by definition aimed at preserving the rights of the collective over capital assets, whereas the new economy and Western conceptions of rights frequently demanded assertion of the rights of the individual over that of the collective. Transactions in the land market remained very limited despite stronger definition of private property rights owing to this entanglement of private and collective rights. Other fields where the conflict played out in a particularly transparent way in the nineteenth century were the rights of Hindu widows over the property of their deceased husbands, a claim routinely challenged by the “joint family” of the husband, and the rights of Hindu widows to adopt a son, again an escape route from the collective rights and vehemently challenged by the extended family.17 A third distortion produced by the new regime involved the failure of community and custom to provide guidance for commercial law. Property rights could in theory draw on shastric guidance about family codes. But where was there a commercial law book? Sanskritists such as Colebrooke attempted a code on contract law based on extant texts and recognized areas of compatibility and overlap between Indian texts on the subject of sale and debt contracts and European usage. Yet these hybrid projects did not prove a very effective aid in the courtroom. Only very broad maxims could be derived from the Hindu texts, and the judges rarely used these guidelines.18 Tradition was a nonexistent guide to settling business disputes between members of different communities, indeed even between members of the same community. The community system of dispute settlement, as a result of this lack, became particularly disputatious when joined with globalization. For example, eighteenth-century transactions in cotton textiles, silk, opium, and other traded commodities involved frequent disputes over contract.19 A substantial number of the cases tried in the Mayor’s Courts involved Indian merchants seeking a settlement outside community law. In Indo-European trade, attempts to protect capitalist


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interests usually involved striking deals with the Indian headman of a producing or trading community, leaving the enforcement of the contract to the social authority that the headman commanded over those who recognized him as a leader-cum-negotiator. These informal means persisted in the early nineteenth century, when some of the older trades declined and new spheres of large-scale transaction emerged, namely, indentured labor migration from India to the plantation colonies and the indigo business in Bengal. At the same time, the headman model seemed to fail repeatedly in securing contractor interests. For monitoring costs had increased with the scale of these businesses, and in the case of Bengal, the Permanent Settlement had already fragmented rural society and weakened traditional forms of authority (see Chapter 7). In common with nineteenth-century English and colonial practice, the default option was to deal with breach of contract by means of existing criminal laws. Regulations had been passed in 1819, 1830, 1859, and 1860 making breach of contract in the labor market and crop sale criminal offenses. The advantage of criminal law was that it delivered speedy justice through the magistrates’ courts. The disadvantage was that it rarely delivered justice. Inference of criminal intent was unjust when breach of contract happened because of a poor harvest suffered by a contractbound peasant or sickness suffered by an indentured worker. The magistrates’ courts were costly. The disputants needed to employ lawyers, bribe officers, hire witnesses, and pay for stamp tax. Without any one of these steps, the disputant in criminal cases had little chance of even having a fair hearing. That such ad hoc measures failed to secure stable contracts was demonstrated in the mid-nineteenth century in the indigo business in Bengal. Contracts signed by peasants to cultivate and deliver indigo to European planters were broken en masse in the 1859–1860 season, an episode that became known as the blue mutiny. The move was a spontaneous reaction of the Bengali peasant to a contract that was incomplete because it did not adjust to unforeseen changes in relative price between alternative crops. On the other hand, the planters were dissatisfied with a law that punished the defaulter with a short prison term but made no provision for performance of the contract. Influential legal experts, principally the law advisor to the government of India, Henry Maine, drew from this episode the lesson that a universal contract law had become necessary (Roy, 2011). When the Contract Act (1872) was drawn up, the state “freely availed itself of its supreme power to define what shall henceforth be the law of the land in regard to a large part of the civil rights of the population of India which do not affect religious usages or institutions” (Rattigan,

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1901). In other words, a deliberate departure was made from any reference to Indian custom. Other spheres where this radical principle was extended were trusts, transfer of property, promissory notes, evidence, wills and probates, and specific relief, all of which were codified in one major thrust between 1870 and 1890 and all of which drew upon English rather than Indian precedence. conclusion I now return to the three questions with which the chapter began: How were property rights and commercial laws framed and enforced in precolonial India? I suggest that kings in precolonial India were expected to respect the juridical autonomy of communities. India was perhaps not exceptional on this point. All states, whether European or Indian, built upon alliances. However, the relevant groups that became points of lawmaking in India were not organizations such as the church or the guild but clusters of families that followed hereditary occupations. Community law was driven by the goal of preserving allegiances toward family, kin, and lineage and to keep jointly worked assets together. Impartible inheritance of property was an important principle. Communities enjoyed autonomy to frame laws and practice these in their own courts of law. How important were transmission and translation in the evolution of colonial law? With the precolonial heritage behind it, colonial Indian law evolved in two directions simultaneously. When framing procedures, the British did not follow Indian precedence; transmission took precedence over translation. Colonial law clearly followed English precedence in its attempt to create a single rule-bound judicial process, streamline and validate procedure, and uphold the authority of the new courts of justice over all others. A strong referee ruled over many players. When framing the laws, in contrast, colonial law came close to being a civil code. It privileged quasi-religious texts. The translation imperative dominated transmission in this part of the enterprise. What inferences can we draw from this narrative on the economic growth consequences of colonial law? The main argument of the chapter is that this dual project—transmission in procedures and translation in laws—slowed down the judicial process and made it expensive in time and money. Given the diversity of the society, there was not one but many legal codes; each community or constituent claimed its own code. Rather like a soccer game where the referee must call in an expert whenever there


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is a foul to decide whether according to the caste of the player the act was an offense, the colonial court moved at a grinding pace. It was fraught with moral hazard. It encouraged participants to commit certain kinds of offenses and encouraged referees to show off their knowledge of tradition. Before the nineteenth century, the Indo-European difference in legal regime mattered little, as India’s success in becoming a world commercial power would suggest. The two worlds were not obviously unequal on the point of security of property rights. Like all commercial societies, the Indian one too relied on collective and social capital to frame and implement laws. A divergence did emerge in the nineteenth century, when the scope of private enterprise in industry and international trade was growing on an unprecedented scale. The attempt by the Indian state to preserve the community, family, and kin in legislation was a retrograde move from the perspective of economic efficiency. Privileging collective rights on assets with reference to Indian codes weakened incentives to develop the productive power of assets and distorted factor markets. The move did not make property more insecure but made its ownership much more disputatious. None who has seen the present-day Indian judiciary at work from a close distance would share the belief of the transmission theorist that English legal conventions were efficiently transferred onto the former English colonies. Colonial law was a monstrously inefficient hybrid. The colonial courtroom created scope for far too many conflicts between private and collective rights. If we compare the complex of case laws in 2000 with that in 1850, it would seem that private rights have won the battle, but not without great economic and social cost. How did a change happen? The system responded to these problems in two ways, by adopting the common law principle of elevating judge-made and court-established norms into law and by legislation overriding codes. Admission of impartible inheritance of property, for example, opened a floodgate of claims to distinctive customs and also led to conflicts between individual and collective interests. In commercial law, the rule of moral codes upheld by caste elders was incompatible with the demands of impersonal exchange in a globalizing economy. In the second half of the nineteenth century, legal evolution adapted to these anomalies. In property rights disputes, case judgments tended to uphold individual rights over collective rights, even as legislation sometimes attempted to specify custom in greater detail. In the sphere of exchange, nineteenth-century legislation disassociated itself from Indian codes and looked westward. In other words, an Anglo-Indian, transmission-translation, common-law–civil-code hybrid

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tended to converge, if clumsily, toward a common law through the nineteenth and twentieth centuries.

Notes I wish to thank the referees of the Stanford University Press, and Santhi Hejeebu, for comments and suggestions that led to many improvements on a draft of this chapter. Discussions with Debin Ma and Anand Swamy and feedback received from participants in seminars at Utrecht University, Cambridge University (Centre of South Asian Studies), York University (Department of Economics), and the University of Warwick (Department of History) have been helpful. The chapter partly draws on Roy (2010), which contains a fuller discussion of sources, citations, and debates. 1. La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1999). For a useful survey, see Levine (2005), and for a critique, Berkowitz, Pistor, Richard (2003). The common law and civil code contrast has antecedents, in the writings of Max Weber and Friedrich von Hayek, for example. On Weber’s rather negative view of common law, see Getzler (1996). 2. Posner (1975). For a shorter statement, see Posner (1979). 3. Cohn (1959, 1960, 1961); Bhattacharya-Panda (2008); Menski (2003); Stokes (1973); Washbrook (1981); Robb (1988); Otter (2001); Iliopoulou (2001); Wilson (2007); Bhattacharya (1997); Kugle (2001); Saumarez Smith (1996); Benton (1999); Anderson (1993); Bell (2006); Chakravarty-Kaul (1996); Gilmartin (2003); Dirks (1986). For a fuller discussion, see the next section. For a discussion of the evolution of colonial law in Africa, see the introduction to a symposium, Roberts and Woger (1997). 4. The powerful indigo planter of Bengal, for example, believed that civil courts were “a sham and a farce” where enforcement of indigo contracts was concerned. For the citation, see J. Hills, planter, to the Private Secretary of the Governor General, British Parliamentary Papers (1861: 57). 5. See Athar Ali (1993). The rethinking on the Aligarh view of the Mughal state as a grand unitary system is discussed in the introduction, Alam and Subrahmanyam, eds. (1998). 6. Southall (1988); Stein (1985); Perlin (1985); Wink (1986). For fuller citation, see Athar Ali (1993). 7. The best general description of Mughal law and justice by a historian is Sarkar (1920), who offers this view. 8. Ahmad (1941) distinguishes four kinds of law: the canon law or Muslim personal law; the common law or the Islamic law of crimes, tort, and nuisance; regulations; and local custom. The second kind of law applied to Muslims and non-Muslims alike, with some distinctions. With offenses against codes of righteous conduct, such as adultery or drunkenness, Muslims could be punished more severely than Hindus.


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9. Al-Mawardi, jurist, cited in Akbar (1948: 1). 10. For a discussion, see Asher and Talbot (2006: 48–49). 11. Contract remains an almost nonexistent subject in the most widely used commentary on Indo-Islamic law in the present times, Fyzee (2008). 12. One historian argues that the governors administered justice mainly according to common law, whereas the qazi was entrusted with the task of enforcing the canon law and dealt with cases that could be in principle settled with reference to the sharia (see Sarkar, 1952: 92). Other historians of Mughal justice, however, dispute this view and believe that the distinction between the middle tier and the lower one was not associated with the kind of laws enforced (Jain, 1970: 79–81). 13. Jain (1970: 83). The administrative decentralization was not a complete one, for the governors and qazis did on occasion have to hear cases of a civil nature that involved non-Muslim disputants, and they decided on the basis of precedence or common law. The actual common law cases thus heard in higher courts usually involved property disputes among the Hindu political elite. By and large, the state judiciary kept a conscious distance from customary law, especially Hindu law, and the farther away one went from the district towns, the more decisive became the barrier between state institutions and dispensation of justice. 14. Calkins (1968–1969). In the seventeenth and early eighteenth centuries, the English, Dutch, and the Portuguese companies routinely appointed as broker, vakil, or agent the person known to be the head of the merchant community. The principle was extended to the artisans in the late eighteenth century. The term vakil meant “representative,” a position that clearly commanded more respect and power than that of agent. See also White (1991). 15. Cohn (1959) suggested that the British intervened more thoroughly in the courts and procedures because they felt that procedural law had been missing or undeveloped in India and that this might pose a threat to the expatriate businesses operating in the interior of the country. 16. A noticeable point of difference, for example, was in maritime laws. The innovations in this regard were confined not only to laws but extended to new institutions such as the Small Causes Courts and Insolvent Courts, both designed to deal with cases of debt and commercial contracts. 17. In colonial practice of Hindu property law, the form of collective that received the strongest and clearest recognition was the joint family. The definition and compass of the joint family varied from one region to another. In one standard definition, the joint family included the lineal male descendants of a real ancestor, who usually shared in the property held in common. 18. For a concrete example of the difficulties English courts faced when one party was a non-Christian, see the 1744 case of Omychand v. Barker described in Good (2005). 19. Gupta (2009); Kranton and Swamy (2008). See also Torri (1998), on the unstable relationship between Company officers and Indian brokers.

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References Acemoglu, D., S. Johnson, and J. A. Robinson (2001), “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review, 91(5), 1369–1401. Ahmad, M. B. (1941), The Administration of Justice in Medieval India, Aligarh: Aligarh Historical Research Institute. Akbar, M. (1948), The Administration of Justice by the Mughals, Lahore: Muhammad Ashraf. Alam, M., and S. Subrahmanyam, eds. (1998), The Mughal State, 1526–1750, Delhi: Oxford University Press. Anderson, M. R. (1993), “Islamic Law and the Colonial Encounter in British India,” in David Arnold and Peter Robb, eds., Institutions and Ideologies: A SOAS South Asia Reader, London: Curzon Press, 165–185. Asher, C. B., and C. Talbot (2006), India Before Europe, Cambridge: Cambridge University Press. Athar Ali, M. (1993), “The Mughal Polity—A Critique of Revisionist Approaches,” Modern Asian Studies, 27(4), 699–710. Bayly, C. A. (1983), Rulers, Townsmen and Bazaars: North Indian Society in the Age of British Expansion, 1770–1870, Delhi: Oxford University Press. Bell, D.S. (2006), “Historiographical Reviews: Empire and International Relations in Victorian Political Thought,” Historical Journal, 49(1), 281–298. Benton, L. (1999), “Colonial Law and Cultural Difference: Jurisdictional Politics and the Formation of the Colonial State,” Comparative Studies in Society and History, 41(3), 563–588. Berkowitz, D., K. Pistor, and J.-F. Richard (2003), “The Transplant Effect,” American Journal of Comparative Law, 51(1), 163–203. Bhattacharya, N. (1997), “Remaking Custom: The Discourse and Practice of Colonial Codification,” in R. Champakalkshmi and S. Gopal, eds., Tradition, Dissent and Ideology: Essays in Honour of Romila Thapar, Delhi: Oxford University Press. Bhattacharya-Panda, N. (2008), Appropriation and Invention of Tradition: The East India Company and Hindu Law in Early Colonial Bengal, Delhi: Oxford University Press. British Parliamentary Papers (1861), East India (Indigo Commission), Papers Relating to Indigo Cultivation in Bengal, London. Calkins, P. B. (1968–1969), “A Note on Lawyers in Muslim India,” Law & Society Review, 3(2/3), 403–406. Chakravarty-Kaul, M. (1996), Common Lands and Customary Law. Institutional Change in North India over the Past Two Centuries, Delhi: Oxford University Press. Cohn, B. S. (1959), “Some Notes on Law and Change in North India,” Economic Development and Cultural Change, 8(1), 79–93. ———. (1960), “The Initial British Impact on India: A Case Study of the Benares Region,” Journal of Asian Studies, 19(4), 418–431.


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———. (1961), “From Indian Status to British Contract,” Journal of Economic History, 21(4), 613–628. Dirks, N. B. (1986), “From Little King to Landlord: Property, Law and the Gift Under the Madras Permanent Settlement,” Comparative Studies in Society and History, 28(2), 307–333. Engerman, S. L., and K. L. Sokoloff (1997), “Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies,” in Stephen Haber, ed., How Latin America Fell Behind, Stanford, CA: Stanford University Press, 260–304. Fyzee, A. A. A. (2008), Outlines of Muhammadan Law, Delhi: Oxford University Press. Getzler, J. (1996), “Theories of Property and Economic Development,” Journal of Interdisciplinary History, 26(4), 639–669. Gilmartin, D. (2003), “Cattle, Crime and Colonialism: Property as Negotiation in North India,” Indian Economic and Social History Review, 40(1), 33–56. Good, R. (2005), “Admissibility of Testimony from Non-Christian Indians in the Colonial Municipal Courts of Upper Canada/Canada West,” Windsor Yearbook of Access to Justice, 23(1), 55–94. Gough, K. (1979), “Dravidian Kinship and Modes of Production,” Contributions to Indian Sociology, 13(2), 264–292. Guha, R. (1963), A Rule of Property for Bengal: An Essay on the Idea of Permanent Settlement, Paris: Mouton. Gupta, B. (2009), “Competition and Control in the Market for Textiles: Indian Weavers and the English East India Company in the Eighteenth Century,” in Giorgio Riello and Tirthankar Roy, eds., How India Clothed the World: The World of South Asian Textiles, 1500–1850, Leiden: Brill, 281–308. Iliopoulou, D. (2001), “The Uncertainty of Private Property: Indigenous Versus Colonial Law in the Restructuring of Social Relations in British India,” Dialectical Anthropology, 26(1), 65–88. Jain, B. S. (1970), Administration of Justice in Seventeenth Century India, Delhi: Metropolitan Book. Jung, A. M. U. I. S. (1926), A Dissertation on the Administration of Justice of Muslim Law Preceded by an Introduction to the Muslim Conception of the State, Allahabad: Allahabad Law Journal Press. Kranton, R. E., and A. V. Swamy (2008), “Contracts, Hold-up, and Exports: Textiles and Opium in Colonial India,” American Economic Review, 98(5), 967–989. Kugle, S. A. (2001), “Framed, Blamed and Renamed: The Recasting of Islamic Jurisprudence in Colonial South Asia,” Modern Asian Studies, 35(2), 257–313. La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny (1999), “The Quality of Government,” Journal of Law, Economics & Organization, 15(1), 222–279. Levine, R. (2005), “Law, Endowments, and Property Rights,” Working Paper 11502, National Bureau of Economic Research, Cambridge, MA. Lockyer, C. (1711), An Account of the Trade in India, London: Samuel Crouch.

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Menski, W. (2003), Hindu Law, Delhi: Oxford University Press. Moreland, W. H. (1920), India at the Death of Akbar: An Economic Study, London: Macmillan. O’Hanlon, R., and D. Washbrook (1991), “Histories in Transition: Approaches to the Study of Colonialism and Culture in India,” History Workshop, 32(1), 110–127. Otter, S. D. (2001), “Rewriting the Utilitarian Market: Colonial Law and Custom in Mid-Nineteenth-Century British India,” The European Legacy, 6(2), 177–188. Perlin, F. (1985), “State Formation Reconsidered: Part Two,” Modern Asian Studies, 19(3), 415–480. Posner, R. (1975, 1992), Economic Analysis of Law, Boston: Little, Brown. ———. (1979), “Some Uses and Abuses of Economics in Law,” University of Chicago Law Review, 46(2), 281–306. Rattigan, W. H. (1901), “Influence of English Law and Legislation upon the Native Laws of India,” Journal of the Society of Comparative Legislation, new series, 3(1), 46–65. Robb, P. (1988), “Law and Agrarian Society in India: The Case of Bihar and the Nineteenth Century Tenancy Debate,” Modern Asian Studies, 22(2), 319–354. Roberts, R., and W. Woger (1997), “Law, Colonialism and Conflicts over Property in Sub-Saharan Africa,” African Economic History, 25, 1–7. Roy, T. (2010), Company of Kinsmen: Enterprise and Community in South Asian History, 1700–1940, Delhi: Oxford University Press. Roy, T. (2011), “Indigo and Law in Colonial India,” Economic History Review, 64(51), 60–75. Sarkar, J. (1920), Mughal Administration, Patna: Patna University. Saumarez Smith, R. (1996), Rule by Records: Land Registration and Village Custom in Early British Punjab, Delhi: Oxford University Press Southall, A. (1988), “The Segmentary State in Africa and Asia,” Comparative Studies in Society and History, 30(1), 52–82. Stein, B. (1985), “State Formation and Economy Reconsidered: Part I,” Modern Asian Studies, 19(3), 387–413. Stokes, E. (1973), “The First Century of British Colonial Rule in India: Social Revolution or Social Stagnation?” Past and Present, 58, 136–160. Torri, M. (1998), “Mughal Nobles, Indian Merchants and the Beginning of British Conquest in Western India: The Case of Surat, 1756–1759,” Modern Asian Studies, 32(2), 257–315. Washbrook, D. (1981), “Law, State and Agrarian Society in Colonial India,” Modern Asian Studies, 15(3), 649–721. ——— (2004), “South India 1770–1840: The Colonial Transition,” Modern Asian Studies, 38(3), 479–516. Weber, Max (1978), Economy and Society, vol. 2. Berkeley: University of California Press. White, D. L. (1991), “From Crisis to Community Definition: The Dynamics of Eighteenth-Century Parsi Philanthropy,” Modern Asian Studies, 25(2), 303–320.


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Wilson, J. (2007), “Anxieties of Distance: Codification in Early Colonial Bengal,” Modern Intellectual History, 4(1), 7–23. Wink, A. (1986), Land and Sovereignty in India: Agrarian Society and Politics Under the Eighteenth-Century Maratha Svarajya, Cambridge: Cambridge University Press.

chapter seven

Land and Law in Colonial India Anand V. Swamy

; introduction A key objective of this volume (see Chapter 1) is to examine actual processes of legal evolution, going beyond a formal or nominal identification of “legal origins.” A second goal is to consider the impact of the legal arrangements on economic growth. This chapter considers both the first issue, which has been well researched, and the second, on which there is less clarity in the context of land law in colonial India. The East India Company’s conquest of various territories in India immediately brought one issue to the fore: how would land taxes, the principal source of governmental revenue, be collected? But taxation was not a thing unto itself; it was inextricably linked with “ownership” and indeed with the entire structure of land rights. For this reason, among others, the Company also created and adapted legal systems that would adjudicate the disputes that inevitably followed in the wake of its landrights interventions. These institutional changes were, in the language of Roy (Chapter 6), one part “transmission” (of European institutions and ideas), one part “translation” (of Indian texts, norms, and social arrangements), and one part the influence of administrative and political exigencies. The legal and land tenure arrangements chosen also affected credit markets: to the extent land ownership is secure and transferable, it can be used as collateral or seized in lieu of repayment of debts or other contractual obligations. Land, law, and credit in colonial India generated a huge (and ongoing) discussion: debates preceding policy choices, later commentary within the colonial administration, “nationalist” criticisms from the late nineteenth century onward, and current re-

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search linking present-day economic outcomes to colonial-era choices. Here I provide an overview of this literature, focusing on the period 1765–1900. In the interest of brevity and coherence, I focus on two regions, Bengal, which was conquered in 1757–1764, and the Bombay Deccan, which was annexed in 1818, though I will make references to other regions as well. From the very beginning, Company rule in India generated an extraordinary amount of documentation. Policy discussions characterized the nature of precolonial regimes and land tenure systems, invoked the theories of contemporary economists and philosophers in Europe, and might even use surveys to gather information. Much of the discussion was conducted in terms that would be familiar to contemporary economists: secure property rights and contract enforcement—and, more generally, good governance—would promote investment, trade, and economic growth. The Company would (it was argued) provide this essential support for economic development far better than the despotic and mutually hostile regimes that had preceded it. However, the intellectual sophistication of the discussion notwithstanding, the Company (and later the Crown) continually struggled with three related problems: (i) a lack of understanding of existing institutional arrangements, (ii) limited administrative capacity, and (iii) especially after the “Mutiny” of 1857, concerns over political stability. Decision-making was also complicated by the fact that there were three key players: the administration in India, the Court of Directors in London, and the British government’s “Board of Control,” whose relative influence varied over time. Given the complex and evolving interplay of these factors, it is difficult to classify the policy choices made by the colonial administration. At the risk of oversimplification, however, we can identify three broad phases. The first, which is closely identified with the Permanent Settlement in Bengal, was overwhelmingly concerned with one task: tax collection. The second, which we illustrate with the experience of the “mature” Raiyatwari system in the Bombay Deccan and tenant protection in Bengal, reflected the increasing administrative capacity of the colonial state and its ability to intervene more extensively at lower levels of the agrarian structure. In the third phase, after the rebellion of 1857, political concerns repeatedly came to the fore: the state was willing to abandon cherished notions of political economy and curb market transactions, thereby altering some of the rights granted earlier. The next three sections of this chapter sequentially describe these phases. In the last two sections, I comment on the relationship between land law and the eventually poor performance of colonial India’s agrarian economy and then conclude.

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the fiscal imperative Bengal came under direct rule of the East India Company in 1765. After operating as a trading concern, acknowledging the authority of the Nawab of Bengal and the Mughal emperor in Delhi, the East India Company took an important step toward political power by winning the famous Battle of Plassey in 1757. After installing a series of client rulers, the Company took formal authority in 1765, becoming the Diwan of Bengal, thereby acquiring the right to collect land taxes. The Company’s initial intention was to operate with a low profile and not emphasize its newfound political power. It therefore tried to preserve, to the extent possible, preexisting institutional forms. But this was problematic: the real locus of power had shifted, and existing arrangements could not operate as before. The Company was therefore increasingly drawn into creating a new administrative infrastructure that reflected its de facto power. The collection of land taxes was the most critical task. But taxation was, at least in the mind of Company administrators, inextricably linked with ownership, so that issue had to be addressed as well. A complementary task was the creation of a judicial system that would, among other things, protect the rights of owners and punish defaulters. The key event in this process, a landmark in Indian history, was the proclamation of the “Permanent Settlement” of 1793. The Permanent Settlement The administrative challenge for the East India Company was not trivial. The area to be governed was vast, and its own European staff was miniscule in comparison. Therefore, in all its activities, whether in administration or trade, the Company was dependent on local intermediaries. Intermediaries were also critical because of their knowledge of the local environment. For tax collection natural intermediaries were “zamindars,” who had collected revenues for the Nawabs of Bengal. The zamindars were a diverse group. Some who had enormous estates, military capacity, and judicial and administrative responsibilities might well be called “feudatory chiefs” (Bose 1993, p. 70). Others operated on a much smaller scale and might fit the more conventional definition of “landlord.” The zamindars were, however, only the first tier in the agrarian hierarchy. The land on which they collected taxes might well be in the hands of “jotedars,” who had secure occupancy rights to their land, at customary rents (Sinha 1962, pp. 18, 27). Jotedars could be quite powerful at the village level and might have tenants of their own (Ray 1979, pp. 6–7). In


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short, the agrarian hierarchy was complex, with several possible intermediaries between the zamindar and the actual tiller of the soil. Initially, the Company followed the common practice of weak regimes and resorted to revenue farming, wherein short-term rights to tax collection were sold to the highest bidder. Economic theory suggests that this can create adverse outcomes of two kinds. First, the revenue farmer will try to extract as much surplus as he can during his lease, ignoring the long run. Second, the revenue farmer is subject to auction theory’s “Winner’s Curse” (overestimating the value of the asset) and will often default. Both these outcomes came to pass in Bengal, with complaints that revenue farmers were coercing peasants. The Company was under severe pressure to improve its administration; its actions were under especially close scrutiny from London because Bengal was hit by a devastating famine in 1770, in which a third of the population may have died. In this environment, Philip Francis, member of the Calcutta Council and critic of revenue farming, proposed that zamindars be given clear private property rights in land. His proposal, however, had a feature that may appear odd to present-day economists and did so even to some contemporaries: the land tax owed by the owner should be fixed in perpetuity. This, Francis argued, gave the owner the best incentives to invest in his property, since he would keep all the gains. This proposal was initially rejected, in 1776. In 1786, with the Company still facing accusations of poor governance, a new Governor-General, Charles Cornwallis, was sent to Calcutta. Cornwallis set about cleaning house and eventually endorsed a plan similar to that of Francis. In 1789 ten-year agreements were made with zamindars, but in the famous Proclamation of 1793 it was declared that “at the expiration of the term of settlement no alteration will be made in the assessment which they have respectively engaged to pay, but they and their heirs and lawful successors will be allowed to hold their estates at such assessment for ever” (Guha 1963, p. 11). If the zamindar failed to pay his tax, his property would “invariably” be sold. As mentioned above, the Permanent Settlement was discussed and formulated via appeals to contemporary economic theory. Given the structure of incentives in the Permanent Settlement, Cornwallis argued, zamindars would turn into “economical landlords and prudent trustees of the public interest” (Guha, 1963, pp. 172–173). We are, however, more persuaded by Robb’s (1997, p. 66) view that the primary appeal of the arrangement was its simplicity; the Permanent Settlement was, he writes, “to an extent just another quasi-feudal response of a weak state . . . which depended on inherited institutions and was still fearful of the competence and probity of its own direct employees.”1

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If the property rights of the zamindar were to be secure, they had to be protected, even from the state. Under the Permanent Settlement the practice of the “Collector” (the Company official in charge of land revenues at the district level) also having judicial authority in the event of disputes was eliminated. A hierarchical system of courts was set up: “native commissioners,” who were (geographically) closest to the villages, could hear suits for small sums. Each district had a civil court, called the Diwani Adalat, and at the apex of the system was the Sadar Diwani Adalat. An important feature of Cornwallis’s reforms was that Indians were excluded from higher levels of the judiciary, on the grounds that they were more corruptible.2 Cornwallis also took other (successful) steps to reduce corruption in the Company’s bureaucracy, including raising salaries. The “Bengal System,” associated with Cornwallis’s enormous personal credibility, became the reigning model of Company governance in India. But it was soon challenged. A Competing Vision: The Raiyatwari System Because the Company was perennially cash-strapped, and the Permanent Settlement’s taxes were fixed in perpetuity, they were set at a very high level (Islam 1979, p. 25). Defaults by zamindars were common in the early years, and facing severe pressure from zamindars, peasants deserted in some regions (Chowdhury-Zilly 1982, chapter 5). Far from becoming progressive capitalist farmers, many zamindars simply rented their lands to others, who in turn sublet it, creating a chain of intermediaries between the zamindar and the final cultivator, a phenomenon historians have called “sub-infeudation.”3 The Permanent Settlement was also criticized for leaving tenants unprotected from rent increases and eviction, at the mercy of zamindars. It did not take long for a competing administrative model to emerge.4 As the Company gained control of various parts of South India, some Company officials resisted the imposition of the zamindari system. The figure most closely associated with the alternative model, “Raiyatwari,” is Thomas Munro, originally a military officer, who moved into an administrative position in the 1790s. Munro viewed the land rights and the judicial system associated with the Permanent Settlement as inconsistent with prevailing institutions and norms in India. For Munro, ideally the title and the tax assignment would be with the cultivator himself, not with an intermediary like the zamindar. He also objected to the exclusion of Indians from the upper levels of the judiciary and favored an active role for them. Finally, Munro rejected Cornwallis’s separation of the judge and


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the (revenue) collector and advocated a central role for the collector in district administration. In a broad sense Munro had the same objectives as Cornwallis: tax revenues were still critical because the Company was still at war, and short-term financial concerns were paramount. Also, like Cornwallis, he too was concerned with the long-term growth implications of his system. But governance in Cornwallis’s system was by an impersonal set of rules that could potentially transform Indian society. In Munro’s vision, Indian institutions would be effective under the wise and active guidance of the Company’s officials. Munro’s views were opposed by the “Bengal School” in Company officialdom. As in the case of the Permanent Settlement, competing arguments relied on economic theory as well as alternative understandings of preexisting arrangements (Stokes 1959; Stein 1989). After initial setbacks, Munro’s ideas gained acceptance, in part due to alliances he built during a long interlude in England. He was able to eventually implement Raiyatwari in Madras, where he became governor in 1820. The system was also eventually adopted in Bombay, as discussed below. The Raiyatwari-Zamindari distinction is a central organizing idea in Indian agrarian history. The sheer diversity of preexisting arrangements and the political need to compromise with existing landed interests, however, meant that in practice both systems could deviate from the norm. In particular, in the raiyatwari areas the government’s agreement could be with a member of the village elite holding a substantial amount of land (cultivated by tenants) rather than with a cultivator. A category of largescale landholding known as inam (reward or gift), which was charged low tax rates, was also recognized by the Company administration. Therefore, intermediaries between the cultivator and the state continued to be important (Mukherjee and Frykenberg 1969). The phenomenon of land transfer, which I discuss below, also meant that landownership could be very unequal (and tenancy important) even in the raiyatwari areas. Similarly, though Munro had been critical of judicial arrangements in Bengal, and the judiciary in Madras and Bombay gave a larger role to Indians, its suitability to Indian conditions also came to be questioned. consolidation The Company’s bureaucracy was slowly professionalized after Cornwallis’s reforms. Its European officials were better paid, trained, and selected (Misra 1977). Over the course of the nineteenth century, procedures for supervision of lower-tier employees also slowly improved (Robb 1997). As Company rule was consolidated, its greater administrative capacity

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was reflected in both zamindari and raiyatwari regions by the willingness to legislate and intervene at lower tiers of the agrarian structure. Zamindar-Tenant Relations in Bengal The Permanent Settlement left a great deal of unfinished business, to put it mildly. While zamindars had been proclaimed “owners” of sometimes enormous tracts of land, many other parties had customary rights, ranging from powerful village-level landholders, known as jotedars, to the actual cultivator, who might well be a sharecropper. Even with regard to their immediate tenants, there were three major issues to be settled: (i) What level of coercion could the landlord use on tenants? (ii) How much freedom did he have to raise rents? and (iii) Under what conditions could he evict a tenant? Initially, the Company swung back and forth between the rights of tenants and landlords. By the second half of the nineteenth century, however, a more confident colonial regime intervened in favor of tenants. The Proclamation of 1793 paid lip service to tenant security and protection from arbitrary rent increases. The Company did not have the administrative capacity to intervene at that level of detail, and in any case tax collection was the priority. But zamindars could pay taxes only if they extracted rents from tenants. Corporal punishment and jailing of defaulting tenants was common in precolonial Bengal (McLane 1977, p. 24). In the regulations of 1793, the Company took away these rights (Islam 1979, p. 15). But zamindars complained that while the courts were strict with them, they were being disempowered vis-à-vis their tenants and were struggling to collect rents. In response, in 1795, and especially in the notorious Regulation VII of 1799, the pendulum swung toward the zamindars: the key concession was the freedom to use physical coercion on their own account, without the permission of a court. Further complaints, this time from the tenants, led them to receive, in Regulation V of 1812, some protection from asset seizure by the zamindar, but other provisions had a loophole that facilitated tenant eviction.5 Thus, up to the early nineteenth century, the colonial state primarily regulated zamindar-tenant relations to attain its fiscal objectives, with a pro-zamindar bias. Meanwhile, the problem of sub-infeudation was growing. To deal with their problems in revenue collection, zamindars sometimes used a middleman, who, in turn, was given a perpetual lease and a fixed rent, thereby “subcontracting a Permanent Settlement” (Bose 1993, p.71). In 1819 legal status was given to these middlemen, known as patnidars. Further subletting to darpatnidars also occurred.


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As population and cultivated area grew, it became easier for the administration to collect the fixed taxes assigned in 1793. Zamindars made liberal use of their coercive powers, and tenant protection, which had been discussed all along, eventually came to the forefront because of fears of agrarian unrest and the evident failure of the Permanent Settlement to promote agricultural growth. This led to the passing of the Bengal Rent Act of 1859. In the 1859 act, criteria were laid down for the identification of “occupancy tenants” who would, in principle, have security of tenure and protection from arbitrary rent increases. Occupancy rights, which were permanent and inheritable, were given when the tenant had occupied the same piece of land for twelve years. Rent increases had to be justified on the grounds that the prevailing rate was lower than that paid by similar properties close by or because the value of the produce had increased for reasons other than the exertions of the tenant. The act also took away the zamindar’s right to “compel the attendance of their tenant,” the 1799 clause that had permitted coercion by the zamindar. The 1859 act set the stage for conflict between occupancy tenant and zamindar. One easy way for the zamindar to defeat its purpose was to switch the tenant from plot to plot (Rothermund 1978, p. 99), so he could not show occupation for twelve years and thereby acquire occupancy rights. Zamindars were also charging illegal cesses (abwabs) and manipulating measurement standards. Things came to a head in a revolt in the district of Pabna in Central Bengal, in 1873 (Sen Gupta 1970). A well-organized Agrarian League was formed, and rents were withheld. Zamindars were also challenged in court. Eventually the Bengal Tenancy Act of 1885 was passed. The Act of 1885 limited rental increases to 12.5 percent, with no further increases allowed for fifteen years (Rothermund 1978, p. 104). But perhaps the most important clause was one that gave a tenant an occupancy right if he had held land anywhere in the village for twelve years. This was done to counter the practice of tenant switching mentioned above (Finucane and Rampini 1886, p. 44). This legislation strengthened the position of substantial landholders in the village vis-à-vis the zamindar, but the status of the lowest tier of the agrarian hierarchy was not altered. Contemporary critics of the Bengal Tenancy Act (Rothermund 1978, p. 105) pointed out that the occupancy tenant did not have to be an actual cultivator; he could have sublet the land to a sharecropper, for instance, who received little protection from the law. It was difficult to make progress on this front in the early twentieth century. As Indians began to play a role in provincial governance, zamindars continued to be influential, and occupancy tenants became

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more powerful, but the actual cultivator did not have much support (Rothermund 1978, p. 110).6 Raiyatwari in the Bombay Deccan After a series of conflicts with the major western Indian power, the Marathas, the British finally took control of the Bombay Deccan in 1818. Again, a key issue was the collection of land taxes. In the Marathas’ system, a powerful official, the mamlatdar, was responsible for collection of land taxes and also had judicial and police functions (Kumar 1968, pp. 14–15). The mamlatdar negotiated the land tax with the head of the village. The norm was for the tax to be assigned to the village as a whole, with its allocation across families to be decided internally. The system was in some disarray when the Company took over; the last Maratha ruler, Baji Rao II, had resorted to revenue farming, which had led to very high rates of taxation. Discussion about policy under Company rule did not, of course, begin with a blank slate. Mountstuart Elphinstone, the first governor of Bombay, was a close associate of Munro, influenced by his ideas, and favored Raiyatwari. The Raiyatwari arrangement by its very nature was more administration- intensive than zamindari, because an agreement had to be made with each cultivator. Munro was aware of this problem and in 1817 was willing to concede that the government’s survey would simply assign a tax to each cultivator, considering all his fields together (Stein 1989, p. 206). But by the middle of the nineteenth century, the state was willing to take on more. In Bombay the famous “Joint Report” issued by H. E. Goldsmid, G. Wingate, and D. Davidson in 1847, which laid down the basic methodology for revenue surveys, was much more ambitious. The unit to be taxed was a single “field,” which was defined as the amount of land that could be cultivated by a pair of bullocks (Government of Bombay 1882, p. 5). Three types of soil were identified, but their value depended on the depth, and overall there were nine rates of taxation. The classifier also had to record, when present, seven potential “deteriorating influences,” including such features as “want of cohesion among the constituent particles of the soil” (pp. 15–16). The colonial state was now no distant entity; its reach extended to the minutiae of land quality. Thus by the middle of the nineteenth century, we see evidence of a more interventionist state. These interventions were, however, consistent with the original conceptions of the two land tenure systems. Indeed, tenant protection in Bengal had been discussed before, and a bill to this effect had been formulated (though not accepted) as early as 1827. The growing capacity of the state was, however, soon to be put to a different use.


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retreat Over the nineteenth century, Indian agriculture was increasingly commercialized. Crops such as cotton, indigo, and opium were grown for sale in distant markets, and the area under cultivation increased. This process was supported by the expansion of credit markets: changes in the legal system gave even nonresident lenders the confidence that loans could be recovered, and the clarification of land rights meant that land could be seized in the event of default, though this could still be a costly process. Commercialization had the potential to raise incomes: wages would rise in a labor-abundant economy selling a labor-intensive product (McAlpin 1980). But the downside was that commodity markets were volatile, and peasants, especially those in debt, could suffer severely in downturns. Some Indian historians have also argued that peasants were forced to cultivate commercial crops at unremunerative rates, as in the case (for instance) of indigo. It is also likely that the legal arrangements introduced under colonial rule were relatively inaccessible to poorer sections of agrarian society. For instance, while a dispute between peasant and moneylender might have previously involved oral arguments in the village council (Panchayat), the moneylender might now be able to invoke documentary evidence in a district court. The greater formalism and cost associated with dispute resolution would likely leave the peasant at a disadvantage. In this environment, in the second half of the nineteenth century, a controversy emerged regarding the “problem” of land transfer from traditional landowners to noncultivating traders/moneylenders. Fears that this would cause political unrest were heightened by the rebellion of 1857. There was, as always, long and vigorous debate within the administration on the merits of alternative ways of addressing this problem. In some ways, however, the doubts about colonial policy expressed in this instance were more fundamental. In the controversy around the Permanent Settlement (say) the debate had centered on who should be given the ownership right and whether the tax should be fixed in perpetuity. In the discussion of land transfer, the question was more basic: was the creation of alienable ownership rights in land, whose transfer was supported by a system of civil courts, a good idea? The very idea of “transmission” of European institutions was being questioned in a fundamental way. Eventually the official response took two forms: intervention in the legal system and direct restrictions on land transfer (Rothermund 1978). I discuss an example of each below.

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Land Transfer and Courts In the Bombay Deccan, after an initial period of high land taxation, there was some moderation mid-century onward, and the agrarian economy expanded: population, cultivated area, and commercial agriculture grew. This growth was supported by the expansion of credit with the arrival of immigrant traders/lenders (Marwaris and Gujaratis) from further north. Present-day historiography is quite clear that land transfer as such was not a colonial-era innovation (Guha 1985, p. 9). But there is little doubt that the use of land as collateral and its transfer to fulfill debt obligations were facilitated by institutional changes in the colonial period. One reason for this, as mentioned above, was the systematic creation of a documented individual property right in land. But critics also aimed their fire at the legal system, arguing that it undermined hitherto harmonious relations between moneylender and peasant. As Kumar (1968), Coats (1823), and Steele (1868) describe it, in the precolonial Deccan, a lender who was owed money by a peasant would have to take his case to the village panchayat, a group of landed village elders. The panchayat’s decisions regarding the case would likely not take the form of a simple enforcement of the agreement because its sympathies would be aligned more with the borrower who was from their own community than a trader/lender who might even be an immigrant to the region. Also, the panchayat itself would not necessarily enforce its decision. The lender was authorized to use private enforcement methods to collect his money.7 This likely limited the geographic area in which the lender operated. In the colonial period the lender now had another recourse: he could take his case to an extra-village authority, a civil court. It is plausible that, compared with the panchayat, the court strengthened the hand of the lender. The possible ex-ante advantage of this is apparent: capital would move more freely, presumably to more productive uses, once loan recovery was simplified. Ex-post, of course, outcomes might be worse for the defaulting borrower than they would under panchayat/ private enforcement. Lenders used these courts extensively, which appear to have operated fairly harshly against debtors, even passing ex-parte decrees. From as early as 1852, British officials worried that the peasants were not sophisticated enough to handle their new credit opportunities. They were borrowing too much and were being taken advantage of by unscrupulous lenders.8 When the Civil War in the 1860s stopped supply of cotton from the United States, the region experienced a boom in cotton production and further increase in borrowing. When the boom ended,


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indebted peasants found lenders unwilling to extend further credit. Kranton and Swamy (1999) suggest that increased competition in the credit market was partly responsible for this—lenders were no longer willing to rescue borrowers with whom their relationship was likely short-term. In 1875 there was widespread unrest in two districts, Poona and Ahmednagar, where peasants attacked moneylenders and destroyed the bonds that were proof of their indebtedness. Historians differ in their assessment of the scale of the Deccan Riots and the actual extent of land transfer in the Bombay Deccan in this period: while Kumar (1965, 1968) suggests that the Deccan Riots were a symptom of substantial loss of land by the peasantry, Charlesworth (1972, 1985) and Catanach (1970) are much more skeptical.9 But British officialdom took the incident very seriously indeed and instituted the Deccan Riots Commission (DRC), which produced its famous report of 1876, widely used by historians. The DRC accepted the view put forth by many officials that existing legal arrangements worked to the detriment of the peasantry. Many of its recommendations were adopted in the Deccan Agriculturists’ Relief Act of 1879 (DARA). DARA introduced checks and balances into the operation of the civil courts when it came to peasants’ debts and, especially, transfer of land for debt repayment. Judges could examine the entire history of transactions, reduce interest rates, and allow repayment in instalments (Catanach 1970, p. 24). Land transfers would be discouraged and land could no longer be seized for debt repayment unless it had been explicitly pledged as collateral. DARA also resurrected a credit rule known as damdupat, which can be traced back to early texts in Hindu law and seems to have been implemented in the precolonial Deccan. Damdupat, which bears a resemblance to credit rules from other legal traditions, such as Alterum Tantum in Roman law, is a ceiling on interest accumulation: a lender can never sue a borrower for more than twice the outstanding principal, irrespective of how much time has elapsed and how much interest has accumulated. Oak and Swamy (2010) suggest that the law’s likely effect was to encourage lenders to practice due diligence and lend only to those who were likely to be able to pay in a timely fashion. Damdupat is still on the law books in this region (Gandhi 2003). Direct Restrictions on Land Transfer A similar controversy arose in the Punjab, with the additional twist that, in western Punjab moneylenders tended to be of Hindu trading castes and the peasants were Muslim.10 A particularly alarmist view on

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the problem of land alienation was presented by Septimus Thorburn (1885, p. 1; see also note 8), a British official whose 1885 book, Mussulmans and Money-Lenders in the Punjab, laid out its central thesis in its first two sentences: The Punjab is an agricultural province, and land of peasant proprietors, a large and annually increasing proportion of whom are sinking into the position of serfs to the money-lenders. The gradual transfer of ownership of the soil from its natural lords—the cultivators—to astute but uninfluential Hindu traders and bankers, is directly due to a system of law and administration created by ourselves, which, unless remedied in time, must eventually imperil the stability of our hold on the country.

Another consideration was that Punjab was an important recruitment area for the army, especially since Sikh soldiers had remained loyal during the Mutiny of 1857. Thorburn’s proposals (and his career) went through various vicissitudes, but the administration eventually came around to the view that land transfer was a potential political problem. The Punjab Land Alienation Act was passed in 1900, which restricted the transfer of land from “agricultural” to “non-agricultural” tribes. To implement this legislation, a list of agricultural tribes was drawn up. Islam (1995) has argued that the act did not quite achieve its objectives, partly because members of nonagricultural tribes engaged in benami transactions wherein they acquired control of the land via a nominal transfer to a member of an agricultural tribe. Still it appears to have had an impact: Bhattacharya (1985) reports that, over time, the wealthier sections of the peasantry displaced the professional moneylender in the rural credit market. Thus, by 1900, colonial agrarian policy had come a long way from its beginnings in the Permanent Settlement. Cornwallis had expected land to change hands, and he wanted urban capital to purchase and develop agricultural land. The Punjab Land Alienation Act aimed to exclude urban capital. At the height of its power, the colonial state was more fearful of market forces than at its insecure beginning.

the impact on growth It is fair to say that, in the aggregate, agricultural growth in colonial India was disappointing. There is some controversy over the nineteenth century (Morris et al. 1969), when there was an expansion in cultivated area and commercialization of agriculture. In the first half of the twentieth century, however, output barely kept pace with population. To what extent are land rights regimes implicated in this failure?


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The zamindari system has generally received bad press. Some historians have argued that the British expectation that the zamindar would be an entrepreneurial “improving landlord” was fundamentally misplaced. For the zamindar, land was an aspect of a broader political project in which legitimacy was maintained by, among other things, symbolic allegiance to dharma and distribution of largesse (Price 1983). In a broadly similar vein, Neale (1969) argues that the British failed to see that “Land is to Rule” and suggests that “Homo politicus was miscast as homo economicus.”11 Others (Washbrook 1981; Chatterjee 1984) see more potential for capitalist agriculture but believe the colonial state’s defensive moves, such as tenant protection, undermined the possibility of capitalist development by weakening the property rights of the owner. More recently, economists using statistical methods (Banerjee and Iyer 2005; Kapur and Kim 2006) have shown that zamindari regions have done worse than raiyatwari regions. Two explanations for this are internal to the agrarian structure: incentive problems because of distance (sometimes literal, as in absentee landlords) between owner and cultivator and social tensions in a highly unequal setting.12 A third reason requires us to consider state policy more broadly. State investment in zamindari regions in (say) irrigation might have increased output but may not have resulted in more tax revenue, either because the tax was fixed in perpetuity (Permanent Settlement) or because the zamindars had the ability to resist tax increases. In the raiyatwari regions, however, taxes could be raised, so the state did invest. This last observation clarifies the difficulties associated with identifying the impact of land rights regimes: they were accompanied by other changes, including other interventions by the state. For instance, high taxes likely hurt agricultural growth in the (raiyatwari) Bombay Deccan in the first half of the nineteenth century, as they did in Bengal in the early phase of the Permanent Settlement. The acceleration in population growth across colonial India after 1921 likely reduced per capita food availability. Conversely, when successful irrigation schemes were implemented, as in the Canal Colonies of Punjab in the late nineteenth and early twentieth centuries, agricultural output grew significantly. conclusion The ambiguities referenced above notwithstanding, it can be fairly said of the colonial land rights regime that, on the whole, it did a poor job of protecting the actual cultivator. This is surely true of the zamindari areas, but, as mentioned before, even in raiyatwari regions the cultivator might have been the insecure tenant of a large landlord. The Raj was aware of

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this but was much too weak and politically fearful to “go to bat” for the small cultivator. By the end of colonial rule, intermediate landed interests, such as the occupancy tenants, had gained power and wealth in the countryside and in legislatures, where Indian political opinion was now represented. The state had little incentive to take them on. The difficulties of protecting the actual cultivator, often a sharecropper, are vividly described by Chatterjee (1984) and Bandyopadhyay (2001). British officials in Bengal were acutely aware of the insecure position of sharecroppers and, consistent with their views, in 1923 a committee appointed by the Bengal Legislative Council proposed an expansion of the definition of the term “tenant” to include some categories of sharecroppers, thereby enhancing their rights. There were massive protests by landowners, with allusions to the spread of “Bolshevik ideas” (Chatterjee 1984, p. 2), and sharecroppers were evicted on a large scale in anticipation of the new legislation. The administration retreated in the face of these protests. Landowner strength in the legislature also helped in undermining sharecropper protection in amendments to the Bengal Tenancy Act in 1928. I should note though, in fairness, that effective land reform has been quite difficult, even in independent India.13 Large landowners have often evaded legislation by hiding the extent of ownership, tenant switching, and other stratagems. Indeed, Besley and Burgess’s (2000) study of the huge corpus of land reforms in independent India finds a small impact on poverty, and tenant protection, which has the clearest benefit in terms of reducing poverty, actually reduced growth. The problem of land transfer also has echoes in the present day. In 2003 the state of Uttaranchal (now Uttarakhand) passed legislation aimed at preventing nonresidents of the state from acquiring agricultural land. Again capital is being kept out of agriculture. More generally, agriculture is the weak link in India’s recent growth spurt, and Maoist movements have emerged in a swath of the country’s eastern districts. In hindsight, the limitations of a comparatively weak colonial state should be no surprise, whatever its legal inheritance. This chapter thus echoes the theme invoked throughout this volume: legal evolution in colonial India was a complex political process marked by varying phases of fiscal, administrative, and ideological constraints of a British colonial regime. Understanding these changing constraints gives us a richer story of the actual process of property rights formation and dispute resolution on the ground, going beyond the broad-brush descriptions of the “legal origins” literature.


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Notes 1. As Roy (Chapter 6) points out, the “transmission” of European institutions was easier proposed than done. 2. Legal innovations, such as those associated with land, were extremely fraught. Precolonial legal arrangements varied across time and place, and there were multiple sources of judicial authority (Cohn 1961; and Roy, Chapter 6). But despite all the variation, historians generally agree: they were not impersonal— over and above the content of the dispute, the identities of the participants mattered. Judicial arenas were more arenas for arbitration and negotiated settlements than for the mechanical application of law. In contrast, the system introduced under Cornwallis was rule-bound as reflected, for instance, in the provision that the property of zamindars who defaulted on revenue payments would “invariably” be sold. The courts were heavily used, to the point where British officials came to characterize Indians as “litigious.” At times courts thwarted the intentions of the executive. They also became sites of contestation along class lines. 3. Eventually sub-infeudation could take on bizarre proportions. A study of Bakarganj district (Raychaudhury 1969, p. 167) mentions that by the early twentieth century there could be as many as twenty intermediaries between cultivator and proprietor and that 162 terms were used to describe various forms of tenure and subtenure. 4. The description in this paragraph and the next relies on Stein (1989). 5. See Kranton and Swamy (2008) for a more detailed account of this back-and-forth. 6. Chatterjee (1984, p. 82) provides a detailed account of the conflicts within the legislature regarding a tenancy bill debated in 1928. The Statesman, a prominent newspaper, correctly anticipated that “the real representatives of those who cultivate the land are very few in the Council and it will be difficult for them to gain much.” The 1928 amendment to the Tenancy Act allowed occupancy tenants to sell their right, but the zamindars had to be given the right of preemption and a fee of 20 percent. These concessions to the landlord were withdrawn in 1937. 7. One method, used in political protest even today, was known as dharna, wherein a servant of the lender would squat outside the borrower’s home, publicly shaming him. Dharna took various forms, but reports from the Deccan suggest that the borrower paid the costs of feeding his tormentor. Other forms of physical punishment also seem to have been tolerated. 8. See comments by George Wingate, one of the architects of Bombay’s land revenue system, quoted by the Deccan Riots Commission (1876, pp. 31, 45). Three decades later a Punjab official, Septimus Thorburn (1885, p. 57), provided an extreme statement of this view: “In the eyes of the law the two were equal. In sober truth, the peasant was in money-matters a crass and hardly-intelligible simpleton; the moneylender, a sharp and unscrupulous business-man, whose sole study was self-interest.”

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9. Indeed Charlesworth’s earlier (1972) and more provocative piece, “The Myth of the Deccan Riots of 1875,” referred (p. 416) to these events as “minor grain riots.” 10. For a similar nexus of economic and religious tensions in early twentieth century Bengal, see Chatterjee (1984, chap. 11). 11. Price (1983) provides a fascinating description of a later nineteenth-century zamindar in the Madras presidency, whose norms and behavior were those of a benevolent aristocrat, rather than an efficient businessman. Among these norms was the notion that a raja (ruler) did not need to know mathematics. 12. Indeed, Banerjee and Iyer (2005) suggest that these tensions have persisted even after the zamindari system was abolished, leading to insufficient provision of public goods. 13. There are honorable exceptions such as Operation Barga in West Bengal, after which sharecroppers finally received de jure and de facto protection (Banerjee et al. 2002). This required more than just legal changes, though: political commitment and mobilization by left parties were critical.

References Bandyopadhyay, D. 2001. “Tebhaga Movement in Bengal: A Retrospect,” Economic and Political Weekly, October 13, 3901–3907. Banerjee, Abhijit V., Paul J. Gertler, and Maitreesh Ghatak. 2002. “Empowerment and Efficiency: Tenancy Reform in West Bengal,” Journal of Political Economy 110, 2: 239–280. Banerjee, Abhijit V., and Lakshmi Iyer. 2005. “History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India,” American Economic Review 95: 1190–1213. Basu, K. 1997. Analytical Development Economics: The Less Developed Economy Revisited. Cambridge, MA: MIT Press. Besley, Timothy, and Robin Burgess. 2000. “Land Reform, Poverty Reduction and Growth: Evidence from India,” Quarterly Journal of Economics, May, 389–430. Bhaduri, Amit. 1973. “A Study in Agricultural Backwardness Under SemiFeudalism,” Economic Journal 83, 329: 120–137. Bhattacharya, N. 1985. “Lenders and Debtors in the Punjab Countryside, 1880– 1940,” Studies in History, 1: 305–342. Bose, Sugata. 1993. Peasant Labour and Colonial Capital: Rural Bengal Since 1770. Cambridge: Cambridge University Press. Catanach, I. J. 1970. Rural Credit in Western India, 1875–1930: Rural Credit and the Cooperative Movement in the Bombay Presidency. Berkeley: University of California Press. Charlesworth, Neil. 1972. “The Myth of the Deccan Riots of 1875,” Modern Asian Studies, 6, 4: 401–421.


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———. 1985. Peasants and Imperial Rule: Agriculture and Agrarian Society in the Bombay Presidency, 1850–1935. Cambridge: Cambridge University Press. Chatterjee, Partha. 1984. Bengal 1920–47: The Land Question. Calcutta: K. P. Bagchi. Chowdhury-Zilly, A. N. 1982. The Vagrant Peasant: Agrarian Distress and Desertion in Bengal, 1770 to 1830. Wiesbaden: Franz Steiner Verlag. Coats, T. W. 1823. “An Account of the Present State of the Township of Lony: An Illustration of the Institutions, Resources and c. of the Marrata Cultivators,” Transactions of the Literary Society of Bombay, 3:183–220. Cohn, Bernard. S. 1961. “From Indian Status to British Contract,” Journal of Economic History, 21, 4: 613–628. Deccan Riots Commission. 1876. Report of the Committee on the Riots in Poona and Ahmednagar, 1875. Bombay: Government Central Press. Finucane, M., and R. F. Rampini. 1886. The Bengal Tenancy Act: Being Act VIII of 1885, with Notes and Annotations, Judicial Rulings, and the Rules Made by the Local Government and the High Court, Under the Act, for the Guidance of Revenue Officers and the Civil Courts. Calcutta: Thacker, Spink. Gandhi, B. M. 2003. Hindu Law. Lucknow: Eastern Book Company. Government of Bombay. 1882. The Survey and Settlement Manual, Being a Compilation of All Acts, Rules, Discussions in the Legislative Council and Official Correspondence Relating to the System of Revenue Survey and Assessment and Its Administration in the Bombay Presidency. Bombay: Government Central Press. Guha, Ranajit. 1963. A Rule for Property in Bengal: An Essay on the Idea of the Permanent Settlement. Paris: Moulton. Guha, Sumit. 1985. The Agrarian Economy of the Bombay Deccan, 1818–1941. Delhi: Oxford University Press. Hatekar, Narendra. 1996. “Information and Incentives: Pringle’s Ricardian Experiment in the Nineteenth Century Deccan Countryside,” Indian Economics and Social History Review, 33: 437–457. Islam, Mukhafurul M. 1995. “The Punjab Land Alienation Act and the Professional Moneylenders,” Modern Asian Studies, 29, 2: 271–291. Islam, Sirajul. 1979. The Permanent Settlement in Bengal: A Study of Its Operation, 1790–1819. Dacca: Bangla Academy. Kapur, S., and S. Kim. 2006. “British Colonial Institutions and Economic Development in India,” NBER Working Paper 12613. Kranton, Rachel E., and Anand V. Swamy. 1999. “The Hazards of Piecemeal Reform: British Civil Courts and the Credit Market in Colonial India,” Journal of Development Economics, 58: 1–25. ———. 2008. “Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India,” American Economic Review 98, 3: 967–989. Kumar, Ravindar. 1965. “The Deccan Riots of 1875,” Journal of Asian Studies, 24: 613–633. ———. 1968. Western India in the Nineteenth Century. London: Routledge and Kegan Paul.

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Marshall, Peter J. 1987. The New Cambridge Economic History of India, vol. 2. Cambridge: Cambridge University Press. McAlpin, M. B. 1980. “The Impact of Trade on Agricultural Development: Bombay Presidency, 1855–1920,” Explorations in Economic History, 17: 26–47. McLane, J. R. 1977. “Revenue Farming and the Zamindari System in EighteenthCentury Bengal,” in R. E. Frykenberg, ed., Land Tenure and Peasant in South Asia. New Delhi: Orient Longman. Misra, B. B. 1977. The Bureaucracy in India: An Historical Analysis of Development up to 1947. Delhi: Oxford University Press. Mitra, D. B. 1978. The Cotton Weavers of Bengal, 1757–1833. Calcutta: Firma Mukhopadyay. Morris, M. D., B. Chandra, T. Matsui, and T. Raychaudhuri. 1969. Indian Economy in the Nineteenth Century: A Symposium. Delhi: Indian Economic and Social History Association. Mukherjee, N., and R. E. Frykenberg. 1969. “The Ryotwari System and Social Organization in the Madras Presidency,” in R. E. Frykenberg, ed., Land Control and Social Structure in Indian History. 1979 reprint, Delhi: Manohar. Neale, W. 1969. “Land Is to Rule,” in R. E. Frykenberg, ed., Land Control and Social Structure in Indian History. 1979 reprint, Delhi: Manohar. Oak, M., and A. Swamy. 2010. “Only Twice as Much: A Rule for Regulating Lenders,” Economic Development and Cultural Change, 58, 4: 775–803. Price, Pamela. 1983. “Warrior Caste ‘Raja’ and Gentleman ‘Zamindar’: One Person’s Experience in the Late Nineteenth Century,” Modern Asian Studies, 17, 4: 563–590. Ray, Ratnalekha. 1979. Change in Bengal Agrarian Society, c. 1760–1870. New Delhi: Manohar. Raychaudhuri, T. 1969. “Permanent Settlement in Operation, Bakarganj District, East Bengal,” in R. E. Frykenberg, ed., Land Control and Social Structure in Indian History. 1979 reprint, Delhi: Manohar. Robb, Peter. 1997. Ancient Rights and Future Comfort: Bihar, the Bengal Tenancy Act of 1885 and British Rule in India. Richmond, UK: Curzon Press. Rothermund, D. 1978. Government, Landlord, and Peasant in India. Wiesbaden: Franz Steiner Verlag. Sen, A. 1982. “Agrarian Structure and Tenancy Laws in Bengal, 1850–1900,” in A. Sen, P. Chatterjee, and S. Mukherji, eds., Perspectives in Social Sciences, vol. 2: Three Studies on the Agrarian Structure in Bengal, 1850–1947. Delhi: Oxford University Press. Sen Gupta, K. K. 1970. “The Agrarian League of Pabna, 1873,” Indian Economic and Social History Review, 7: 253–268. ———. 1971. “Agrarian Disturbances in 19th-Century Bengal,” Indian Economic and Social History Review, 8: 192–212. ———. 1974. “Bengali Intelligentsia and the Politics of Rent, 1873–1885,” Social Scientist, 3, 2: 27–34. Sinha, N. K. 1962. The Economic History of Bengal: From Plassey to the Permanent Settlement, vol. 2. Calcutta: Firma K. L. Mukhopadhyay.


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Stein, B. 1989. Thomas Munro: The Origins of the Colonial State and His Vision of Empire. New York: Oxford University Press. Steele, A. 1868. Law and Custom of Hindoo Castes Within the Dekhun Provinces Subject to the Presidency of Bombay. London: W. H. Allen. Stokes, Eric. 1959. The English Utilitarians and India. Oxford: Oxford University Press. 1982 reprint, Oxford: Oxford University Press. Thorburn, S. S. 1885. Mussulmans and Money-Lenders in the Punjab. 1983 reprint, Delhi: Mittal Publications. Washbrook, D. A. 1981. “Law, State and Agrarian Society in Colonial India,” Modern Asian Studies, 15, 3: 649–721.

chapter eight

The Political Economy of Law and Economic Development in Islamic History Metin M. Co T gel

; There appear to be two seemingly contradictory images of law and economic change in the Islamic world. There is, on the one hand, the image of Islamic societies as being rigid and incapable of adapting to a changing environment, legal rigidities creating major obstacles to economic development. The Ottomans banned mass printing in Ottoman Turkish (in Arabic characters) until the eighteenth century, almost three centuries after the invention of moveable type. The Ottoman Engineering School similarly did not introduce modern developments in physics, chemistry, and other natural sciences into its curriculum until the nineteenth century, and the legal system did not recognize some fundamental organizational developments such as the concept of a corporation. These examples support the image of an extremely conservative Islamic world, missing out or receiving with significant delay the benefits of various scientific, technological, and institutional developments that other parts of the world realized in long-term economic growth and higher standards of living. The opposite image of Islamic societies as flexible, quick to adapt to change, and conducive to economic development also exists. While some schools did not teach modern natural sciences, others did. Though slow to adopt the printing press in the fifteenth century, Muslims had previously been very quick to adopt paper, a Chinese invention of comparable magnitude to the printing press in the history of communications technology. They similarly appropriated the bulk of Greek science and philosophy

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during the eighth and ninth centuries, and they were at the forefront of scholarly, scientific, and technological developments in the same period. The law was vibrant, changing as necessary to facilitate production and exchange throughout the fast growing Islamic world. Several centuries later Islamic law was still flexible in some areas, as can be seen in the quick adaptation of the Ottoman tax law to regional and temporal differences. Examples of openness and innovation can be found not just in its early history but more recently in modern societies, such as in adopting advancements in digital, optical, construction, and transportation technologies in the late twentieth and early twenty-first centuries. The image of economic change in the Islamic world appears to have a brighter, more flexible side. Traditional literature has had a fundamental difficulty in explaining law and economic development in the Islamic world in its entirety, uunable to develop a framework that can bring these seemingly contradictory images into a coherent whole. Researchers have often focused on either stagnation or change as being the more representative image that needs explanation, rarely looking to explain why both images coexisted. Those considering stagnation as the more representative and problematic image have typically attributed it to a fixed characteristic of Islamic societies, such as traditionalism or religious conservatism.1 Those considering change as the more representative image, conversely, have similarly focused on such characteristics as pragmatism and flexibility for explanation, painting a more optimistic picture of the law’s relationship to economic development.2 Although some writers tried to resolve the contradiction between the two images, their attempts have typically been in the form of identifying an intrinsic quality of an institution or technology, such as its usefulness or religious compatibility, which has diminished over time or failed to match varying circumstances.3 Recent studies have found it useful to adopt a political economy approach to examine the relationship between law and economic change in Islamic history (Cotgel, Miceli, and Ahmed, 2009; Cotgel, Miceli, and Rubin, 2009). This approach views the law as the outcome of the strategic interaction among rulers, general public, and organized groups powerful enough to affect the outcome. Each party is primarily interested in maximizing its own welfare, using its influence over the law to increase its share at the expense of others. Even dictatorial rulers may have a limited influence on the outcome because of their need to draw power and legitimacy from organized groups and the possibility that these groups may revolt against the ruler if their interests are sufficiently threatened. The flexibility of the law and the ability of the society to adopt new developments thus depend on the effect of these developments on their interests and on the ability of organized groups to legitimize or revolt against the ruler.

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Using a political economy approach, I will focus on the relationship between the ruler and the legal-religious community to explain the nuanced flexibility of Islamic law. This community has been an influential group in Islamic societies because of its power in the interpretation and adjudication of the law and its ability to confer legitimacy on the rulers (Cotgel, Miceli, and Ahmed, 2009). The rulers have often called upon it to issue opinions on the “legality” of new developments, jointly shaping the society’s decision on how to respond to new scientific, technological, and institutional developments. Studying economic change in the context of the legal community’s strategic interaction with the rulers and the citizenry, I will explain how change or stagnation has emerged as the outcome of this interaction, rather than from a fixed characteristic of Islamic societies or an intrinsic quality of a new development. When the ruler, legal community, and citizenry faced a new development, the loss or benefit they could expect from it depended on not just their own actions but also on the reactions of others and on their ability to manipulate these reactions. Identifying the basic factors that determined whether a society was likely to accept or reject a new development, I apply this framework to Islamic history by discussing why some of these developments resulted in change while others were ignored or rejected. Although my focus is on the legal-religious community’s role in the adoption of technology in Islamic history, the framework developed here can be extended to analyze or compare with other societies. Means of legitimization naturally varied over time and place. Organized groups could have vastly different abilities and comparative advantages across societies to legitimize the rulers, which as a result meant that a new technology could affect legitimacy differently in different societies. Whereas a new technology could diminish the ability of a dominant organized group to provide legitimacy in one society, it could have little effect on legitimizing relationships somewhere else, making the former society more likely to repress the technology. Cotgel, Miceli, and Rubin (2010) have studied the political economy of the differential adoption of technology in such a comparative setting. This approach is related to the recent literature on how economic or political interests could affect social outcomes. Powerful groups with vested economic interests may naturally oppose change to protect their advantages, and those in political power may similarly oppose change for fear that it may erode their incumbency advantage and political power. Focusing on the latter effect, Acemoglu and Robinson (2006) have shown how political leaders, fearing replacement, have blocked economic development in history and how as a result England, Germany, Russia, and Austria-Hungary have displayed different patterns of industrialization.


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This chapter differs from these studies in its stress not just on the economic or political advantages of powerful groups but on their ability to legitimize the ruler. It also differs from a considerable body of literature that has explained reactions to new developments by religious and cultural factors, a view particularly common among Eurocentric approaches and in the generalist literature.4 Rather than make questionable generalizations about Muslim societies and cultures, I will rely on standard economic assumptions about the motivations of the rulers, organized groups, and the general public. the po liti cal economy of change A society’s reaction to new developments in science, technology, and institutions can be examined from a variety of perspectives. In traditional analyses of government, rulers were considered as benevolent protectors of their subjects, choosing a reaction that could best serve the interests of the general public. If other parties could influence the decision, they did so as defenders of the faith, protectors of cultural values, or representatives bound by traditions and social institutions. This type of approach emphasized the unity of values and beliefs, rather than the heterogeneity between groups or their conflicts of interests. Recent political economy models, by contrast, have viewed all parties affecting the decision as being interested in maximizing their own welfare, often at the expense of the rest of the society (Acemoglu and Robinson, 2006; Cotgel, Miceli, and Rubin, 2009; Weingast and Wittman, 2006). Reactions to new developments reflected not necessarily a unified social, cultural, or religious concern but an equilibrium of the strategic interaction of interested parties. To capture the basic legitimization relationship in a society, consider the following simplified framework of interaction between the ruler and other parties. Suppose the society consists of a ruler, an organized group whose role is to support (legitimize) the ruler, and the citizenry. The citizenry produces a surplus, part of which can be extracted by the ruler for his own consumption. The objective of the ruler is to maximize his consumption. The organized group, such as the nobility or the legal or military authority, has a choice between supporting the ruler or inciting a revolt against him. If it chooses to legitimize the ruler, the ruler can extract a surplus from the citizenry in the form of tax payments. The group’s support raises the size of the surplus by making the citizenry view the ruler as legitimate and pay taxes without resistance. In return, the ruler shares his surplus with the group to elicit its support. Alternatively, rather than support the ruler, the group could choose to incite a revolt against

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him. If the revolt succeeds, the group obtains the surplus, but if it fails, the ruler gets the surplus and the group gets nothing.5 The ruler’s desire to adopt a new idea, technology, or institution depends on how it changes the size of the surplus available to him, the ability of the group to legitimize the ruler, and the probability of a successful revolt. A development that can raise the size of the ruler’s surplus, for example, would be adopted without much delay. In the same vein, the ruler would be eager to adopt a new development that can increase the ability of a group to confer legitimacy because it would increase his net revenue. But if instead a development is likely to increase the probability of a successful revolt, he would oppose it. Depending on how a new development was likely to affect the ruler’s surplus, his legitimacy, and the probability of revolt, we can use this framework to explain why Islamic societies accepted some developments but rejected others. the legal community The group whose relationship to the ruler will be the focus of this chapter is the legal-religious community. This community performed an essential function in mediating the ruler’s relationship with the rest of the society and in formulating the society’s reaction to new developments. In Islamic societies the legal community consisted of individuals trained in Islamic law serving primarily as teachers (mudarris) educating the Muslim community, as judges (qadi ) resolving legal disputes, or as jurisconsults (mufti ) offering legal opinions.6 Members of this community performed numerous religious, social, and administrative functions, ranging from teaching the Qur’an to collecting taxes. Most important for the analysis of a society’s reaction to new developments was its function of legitimizing the ruler and providing legal goods and services, including issuing rulings on the overall legality or the precise manner of application of new ideas, technologies, and institutions. For the purpose of examining the legal community’s influence on the reaction to new developments, we can treat it as monolithic—that is, as having a single, well-defined objective function. Rather than explore divisions and coordination problems within this community, we can focus on its role in the ruler’s relationship with the rest of the society. This is a reasonable simplification that can be justified by some of the well-known characteristics of the community in Islamic societies and the mechanisms that coordinated their interests against the ruler. True, there were numerous divisions within the legal community owing to differences among schools (madhhab) in Islamic law, regional variations in social character-


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istics and legal precedents, and differences even among those performing different types of functions in the community. The interests of these groups could conflict, creating potential for prisoners’ dilemma type problems in their interaction with other organized groups. They could even disagree on what should be the role and scope of government or what constraints should be imposed on the ruler, leading to coordination problems if the ruler could exploit these differences for a divide and conquer strategy.7 The legal community did not face a significant coordination problem in influencing social outcomes. It was able to gradually establish a sense of corporate identity and develop mechanisms for commitment. As Islamic law developed, members were typically trained in schools (madrasah) that served as an entry restriction, and they were initiated through a personal relationship between student and teacher, a process that greatly fostered the sense of a corporate identity. Expectation of religiosity also helped to ensure commitment. More important from an economic perspective, the community’s interaction involved mechanisms that ensured cooperation and unified action. For example, members of the community interacted with each other repeatedly (rather than in one-shot situations), reputation was important, they were typically organized in a hierarchical manner, and self-selection set aside those skeptical of any interaction with the government. Although there were conflicts that occasionally troubled the community, for the most part it could be viewed as being monolithic with respect to its relationship with the ruler. The legal community was a powerful element in Islamic societies. The source of this power could be institutional, as when a constitution might spell out its role in offering (possibly binding) opinions, or it might derive from more informal sources. Its members possessed highly specialized skills and knowledge that was difficult for the rulers or other members of the society to obtain easily. It acquired power primarily from its monopoly in interpreting the law, particularly as it pertained to the prophet’s tradition.8 The demand for its services could be high and very inelastic, allowing the community to acquire tremendous power simply by controlling the provision of these services. The power of the legal community and its ability to legitimize the ruler grew gradually over time. In the early decades of Islam, there was no organized legal community consisting of specialized legal experts. Other essential components of a complete legal system were not yet fully developed either. A positive legal doctrine was not fully elaborated, and doctrinal legal schools or a science of legal methodology and interpretation had not yet fully emerged (Hallaq, 2005). The rulers made the law and set the precedent, leaving legal interpretation and dispute resolution primarily to laymen, who served as proto-qadis, the earliest quasi-judges of the Islamic

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legal system (Hallaq, 2005, chapter 2; Crone and Hinds, 1986, chapter 4). Without an established legal system and formal training or authority, the legal community was not in a position to confer legitimacy or incite a revolt against the ruler. The community was gradually established during the eighth and ninth centuries, a period of higher specialization in legal knowledge and greater institutionalization of the legal system. As part of a division of labor that took place between the ruler and the legal community, the legal community took over the provision of legal and religious services and acquired a monopoly in interpreting and applying the law. A key component of the transformation was the increasing importance of the tradition of Prophet Muhammad, guarded and monopolized by the legal community (Ghazzal, 2005; Hallaq, 2005). Owing to its power and expertise, the community was in a good position during this period to confer legitimacy on the rulers. As Hallaq (2005, p. 152) has observed, “the government was in dire need of legitimization, which it found in the circles of the legal profession.” They could sometimes legitimize the ruler directly by serving as trustworthy and authoritative tax collectors and at other times indirectly by justifying the public benefits of the state and promoting the virtues of obedience to the ruler. Although various political conflicts erupted during this period, relatively few of them were centered on the basic question of legitimacy, as the legal community helped legitimize the ruler and reduce resistance to taxes. By the time the Ottoman state was established in the fourteenth century, the basic ingredients of a full-fledged Islamic legal system had already been completed, and the status of the legal community was already fully established. While fully benefiting from this inherited basis for legitimacy, the Ottomans added distinct elements to their relationship with the legal community by raising its status in the eyes of the populace and bringing it under their control. They restricted entry to the legal community, allowed it to control the educational system, gave official status to the Hanafi School, and initiated a systematic codification and standardization of the secular law that applied to administrative matters such as taxation. They also introduced various institutional changes, such as acquiring the right to appoint the chief judges and the chief jurisconsult, which gave them the ability to manage the entire hierarchy. The legal community could confer legitimacy simply by administering justice in the courtroom, delivering sermons in mosques, and providing knowledge in schools, all as representatives of a legitimate ruler. To ensure the continuity of this support, the Ottomans had to be careful to adopt quickly those developments that could raise the community’s ability to legitimize the ruler and to delay or forbid other developments that could raise the probability of a successful revolt.9


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stagnation and change in islamic history Using the framework developed above, we can now analyze the reactions to new ideas, technologies, and institutions in Islamic history. Three general cases were possible. The ruler could be eager to adopt a new development as quickly as possible; he could be indifferent toward its adoption; or he could oppose it strongly and ban or delay its adoption. Focusing on the role of the legal community, we analyze each possibility in detail, identify the reasons that caused the reaction, and use examples for illustration. Eagerness to Adopt New Ideas, Technologies, Institutions The rulers were sometimes eager to adopt a new development quickly. Recall from the discussion above that this could be the case if they expected a new idea, technology, or institution to raise the size of the surplus available to them, increase the legal community’s ability to legitimize the ruler, and lower the probability of a successful revolt. If they expected the benefits to be large in one of these respects, they could adopt a new development eagerly so long as there was no significant cost associated with it in other respects. Eagerness was the typical attitude toward new developments in military technology. Gunpowder weapons, for example, were quickly adopted in the Islamic world, as can be seen from recent research on the Ottomans (Ágoston, 2005). Realizing the advantages of gunpowder weapons, they integrated them into their army as swiftly as possible. They not only kept pace with developments in gunpowder, firearms, and cannons but displayed ingenious organizational skills by pioneering the establishment of a permanent standing army (the Janissaries) specialized in the use of these weapons well before the European powers. They showed such remarkable success in assimilating gunpowder technology in their army and navy that by the mid-fifteenth century they achieved a clear logistical and firepower superiority over their European and Asian adversaries. The Ottomans were generally eager to accept a new military technology because they expected it to raise the revenue available to them without significant adverse consequences to their basis for legitimacy or the probability of a successful revolt against their rule. A new military technology could raise the size of the surplus available to the Ottomans by expanding their revenue base through conquests and tributes or helping them protect existing revenues from being confiscated by adversaries equipped with the new technology. Advances in military technology had little effect on the legitimization relationship between the ruler and the legal community, and

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their adoption faced no objections from the legal community. Although new weapons could raise the ability of military authorities to legitimize the ruler, the legal community used a different type of mechanism, namely, oral indoctrination rather than military force to confer legitimacy, which was unlikely to be affected by changes in military technology.10 These changes had a similarly negligible effect on the probability of a successful revolt because of various measures the Ottomans took to maintain their monopoly in organized violence. They controlled rural banditry by striking bargains with their leaders and incorporated bandits into the system by recruiting them as irregular soldiers (Barkey, 1994). They also implemented a system of periodic rotation of offices through which government officials were rotated on a more or less regular schedule and were prevented from forming potential alliances with rebellious movements (Barkey, 1996). Because advances in military technology could raise the size of the surplus available to them without having a significant effect on the legitimization relationship between the rulers and the legal community or on the probability of revolt, the rulers accepted them eagerly. The Ottomans were also quick to adopt new methods of taxation and tax collection. Upon conquering a new region, they readily adopted some of the basic elements of the prevailing tax customs, rather than impose a rigid system throughout the empire (Cotgel, 2005). The result was an extremely flexible tax system, the code varying greatly between regions. The names and rate structures of personal taxes, for example, varied significantly. Under the conventional system observed in Asia Minor, personal taxes were based on adult males, and the tax rate varied by marital status and land ownership. The subjects in Hungary, in contrast, paid personal taxes as a gate (kapı) tax, for which the unit of taxation was the household, rather than adult males, and the tax amount did not change according to marital status or land ownership. Moreover, personal taxes were not even fully implemented in all areas (though non-Muslim subjects throughout the empire paid a poll tax called cizye). In Jerusalem and surrounding districts, the Ottomans did not introduce the çift tax or any other form of personal tax systematically levied on individuals or households. The system was also flexible to change over time, as can be seen in methods of tax collection. Whereas early in the empire’s history the government relied on salaried commissioners and on cavalrymen (sipahis) who received tax grants in exchange for military service, the importance of tax farming grew during the sixteenth and seventeenth centuries, consistent with parallel developments observed in Europe and other parts of the world (Cotgel and Miceli, 2009). The legal community played a significant role in adopting these changes as part of its responsibility to draft the tax code of the empire


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and perform its function of legitimizing the ruler. Soon after the conquest of a new region, members of the legal community went to work in drafting its code, basing it on the basic structure of Ottoman taxation and the prevailing local rules and policies (Cotgel, 2004). They revised the code over time as circumstances changed. The Ottoman rulers were eager to adopt changes to the tax code and methods of tax collection, because a flexible tax code could raise the size of the surplus available to them, advance the ability of the legal community to confer legitimacy, and reduce the probability of a successful revolt. If the tax burden was high in a newly conquered area, the Ottomans were better off maintaining high revenues by adopting the prevailing tax system than changing it, as long as the system was efficient. But in some areas they inherited inefficient tax systems, such as the labor dues in the Balkans, which they quickly converted to cash payments to eliminate adverse consequences for agricultural production. The other beneficial effect of a flexible tax code was to raise the ability of the legal community to legitimize the ruler. As argued, their power and income emanated from their monopoly on interpreting the law, which was likely to grow stronger under a flexible tax system that allowed them to discriminate the rates among regions. By maintaining a flexible code that minimized resistance and ensured implementation, they legitimized the ruler and lowered the cost of tax collection. While raising the ruler’s surplus or legitimacy, these changes could also reduce the probability of a successful revolt. Labor dues were not only inefficient but also despised by the peasants, and eliminating them reduced the likelihood of rebellion against Ottoman rule. Alternatively, it was sometimes safer to preserve those taxes that were familiar and acceptable to the local population than to impose a rigid structure from the center. Adapting to local and temporal conditions quickly allowed the Ottoman tax system to benefit the ruler in revenue, legitimacy, and minimizing the likelihood of revolt. More recently, some rulers have shown similar eagerness toward the institutional innovations proposed by the modern movement called Islamic economics. Muslim rulers, particularly in societies where religion has continued to exert a strong influence on the law, have been quick to adopt some of the new interpretations of Islamic law, such as innovative interpretations of the ban on interest that facilitated capital markets through “Islamic banking.” They have also been eagerly involved in the administration of zakat, one of the five pillars of Islam, by promoting the religious principle as a civilian obligation, accepting its interpretation as a public tax rather than a private payment, and even expanding the obligation to corporations. The rulers adopted some of the elements of Islamic economics eagerly because these elements raised their revenue, improved legitimacy, and

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reduced the probability of revolt. Their revenue rose because Islamic banking increased taxable activity, and state involvement in zakat collection raised tax revenues. The religious basis for these ideas also advanced the power of the legal community and its ability to legitimize the ruler. To the extent that these developments helped alleviate dissent and poverty without changing the total tax burden, they lowered the likelihood of a successful revolt. Muslim societies have also been eager to adopt or lead some of the technological and institutional advances in recent history. In addition to adopting most of the advances in digital, optical, and transportation technologies in the late twentieth and early twenty-first centuries, they founded modern public and private educational institutions and led the world in introducing some of the novel economic institutions and organizational innovations, such as the Organization of Petroleum Exporting Countries in the Middle East and microfinance in Bangladesh, overseeing one of the largest urban development projects in the world in recent history in Dubai. Many of these advances have been accepted eagerly because of their parallel implications for the surplus available to rulers, legitimacy, and reducing the likelihood of revolt. The Ruler’s Indifference Toward New Developments The rulers were sometimes indifferent to a new scientific, technological, or institutional development because it did not affect them significantly. Two scenarios could lead to the net effect of a development on the ruler being negligible. First, the cost or benefit of a development on the ruler’s surplus, his legitimacy, or the probability of revolt might be too small to catch his attention or to provoke great enthusiasm or opposition. The introduction of various consumption goods invented elsewhere, such as eyeglasses and clocks, was often greeted with indifference, and consequently they were adopted by default. Similarly, although Muslim rulers suppressed the printing press in the fifteenth century, they were previously indifferent to the adoption of paper, a Chinese invention. Muslim scholars and scientists appropriated the bulk of Greek science and philosophy during the eighth and ninth centuries and ultimately achieved great accomplishments in such disciplines as medicine, optics, astronomy, and mathematics, all without opposition from the rulers.11 Although these were great scholarly and scientific accomplishments, the cost and benefit to the ruler’s surplus, his legitimacy, and probability of revolt was often negligible, and there was no major reason for them to occupy the ruler’s attention extensively. The ruler typically did not show great enthusiasm (regarding their effect on


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his concerns) toward this type of development; nor did he oppose them vehemently. Another scenario leading to indifference was when a new development could provide substantial benefits to one of the ruler’s concerns (surplus, legitimacy, or revolt) but was also accompanied by a similarly substantial cost to another concern. If, for example, a new technology was expected to raise the ruler’s surplus significantly but only at the cost of raising the likelihood of revolt by a comparable magnitude, the rulers would react to this technology with indifference. Despite expecting substantial benefits, they would be in no rush to adopt it quickly; nor would they have a great need to reject or delay its adoption, because the net effect would be negligible. Other concerns would determine the outcome. A development that was adopted despite its high cost was the Islamic institution of charitable foundations known as the waqf (Kuran, 2001). Under a system of private provision of public goods, waqfs produced many of the public and semipublic goods and services demanded by the earlier Islamic societies before this responsibility was taken over by modern governments. They supported mosques, schools, hospitals, and numerous other social services, each established as an unincorporated trust under Islamic law and financed by the earnings of an immovable property turned into an endowment. Endowing a property as waqf made it exempt from taxation and gave it substantial immunity from expropriation. The legal basis for this system was incorporated into Islamic law around the middle of the eighth century, and it was eventually adopted by all successive Islamic societies. Although the rulers stood to lose tax revenues from the endowment of property as waqfs, they adopted the system because it raised the ability of the legal community to confer legitimacy and lowered the likelihood of a successful revolt. Waqfs provided much of the financial support for the legal community. By funding the education and remuneration of its members and maintaining the institutions and infrastructure of its activities, they raised the community‘s stature and its ability to confer legitimacy. They also lowered the likelihood of revolt against the ruler by offering numerous services that enhanced material security, raised the citizen’s welfare, and reduced popular discontent. Many services, such as those offered by orphanages, shelters, and soup kitchens, were directed toward the poor and the disadvantaged, meeting their basic needs and eliminating their motivation to initiate or participate in a revolt. Despite suffering a substantial loss from the waqf system in tax revenue, the rulers adopted it because the benefits were also substantial.12

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Strong Opposition to New Developments While some developments were eagerly accepted and others faced lukewarm reception, still others were rejected outright. The preceding discussion has shown that just because a new development was likely to reduce the surplus available to the ruler did not mean it would be rejected. Despite causing a significant loss in surplus, it could still be adopted if the loss was offset by benefits in legitimacy and/or the likelihood of revolt. But if the ruler suffered a loss not just in surplus but also in legitimacy and likelihood of revolt, or if the loss in one of these areas was substantially greater than benefits in others, he could reject a new development immediately. Some of the new developments in science, technology, and institutions were rejected or delayed significantly because the net loss would have been too large. A good example of this was the immediate opposition and significant delay in the adoption of the printing press. Within decades after the appearance of Gutenberg’s first book published by moveable type in Germany, the Ottoman sultan is said to have issued an edict that banned printing in Arabic characters (which was used to write Turkish as well) in 1485 (Savage-Smith, 2003, p. 656). Despite clear awareness of the new printing technology and successful reproduction of it within Ottoman lands by religious minorities, the process of accepting the printing press was extremely slow. Even after the rulers started to relax the ban in 1726, they continued to regulate the operation closely by granting permission only to selected individuals, prohibiting publication on religious subjects, and appointing a committee of scholars to review and proofread contents for accuracy.13 It was not until well into the nineteenth century that rulers became eager, and there was widespread use of mass printing technologies. The lithographic press was adopted within a few decades after its invention, and a press was established to print an official newspaper (Kut, 1991, p. 802). The rulers were unenthusiastic about the printing press from its invention until the nineteenth century because they expected it might undermine the ability of religious authorities to confer legitimacy and might increase the likelihood of a successful revolt against their reign, even though it could raise the size of the surplus available to them. Judging solely by its effect on economic activities (indirectly on tax revenues) in Europe, perhaps Muslim rulers would have been better off adopting the printing press immediately. But the effect would have been less in the Islamic world than in Europe. Just because the printing press had revolutionized intellectual and economic developments in early modern Europe (Eisenstein, 1979; Baten and van Zanden, 2008) did not mean it would have had the same influence in the Ottoman Empire because wages and literacy


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rates were significantly lower in the Ottoman Empire than in Western Europe (Özmucur and Pamuk, 2002; Quataert, 2000, p. 167). Moreover, if adopted, the printing press would have undermined the ability of religious authorities to confer legitimacy. In early modern Muslim societies, the legal-religious authorities had a monopoly on providing legitimacy through indoctrination because the transmission of knowledge depended on oral technology, and the authorities had a vast comparative advantage in this type of transmission.14 The introduction of the printing press would have altered this ability by changing the technology of transmitting knowledge and diminishing the comparative advantage of religious authorities. The general public could obtain knowledge directly from books or from literate individuals not necessarily affiliated with religious authorities. In addition, the rulers feared mass printing because it may have promoted successful revolt. Mass printing could be a very effective weapon in inciting rebellion, as was the case in the American Revolution and the Protestant Reformation.15 Although the printing press could have raised the surplus available to the rulers by a margin, Muslim rulers still chose to ban it because it would have jeopardized their legitimacy and increased the likelihood of a successful revolt. The same can be said about the significant delay in the adoption of the legal concept of the corporation. Although some Western legal systems recognized the concept as early as the twelfth century, the Islamic world waited until the twentieth century, relying instead on persons and small partnerships as the dominant form of organization (Kuran, 2005). Perhaps the rulers should have rushed to adopt the corporate form of business because it could have raised the surplus available to them by facilitating greater capital accumulation and greater production and incomes. Muslim rulers were familiar with the general concept of a corporation, as they selectively recognized ad hoc corporate public bodies such as guilds and tax farmers because they promoted more efficient tax collection. But they did not extend the same recognition to the corporate form of business organization. Although the corporation could have increased the size of the surplus available to rulers, they did not adopt it because of its possible effects on legitimacy and revolt. The corporation could have jeopardized the ruler’s legitimacy by opening the door to the rise of groups rivaling the legal community that would be outside of his control. Members of the legal community retained a monopoly on the interpretation of legal and religious texts as individuals with legal training. Their monopoly could be threatened if recognition of the abstract concept of a corporation led to the rise of incorporated offices or organizations with significant powers. The corporation could also raise the likelihood of a successful revolt if it

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allowed rebellious classes of individuals to organize under corporate autonomy and gather financial support for their activities. Even though the rulers could have benefited from the corporation’s effect on economic welfare, they did not recognize the concept because it could have undermined the ability of the legal community to confer legitimacy and increased the risk of revolt. Muslim rulers have opposed numerous other developments with similar implications for surplus, legitimacy, and revolt. Some well-known examples for this are democratic institutions, new theories of the universe that challenged the status of rulers or the legal community, new technologies that made it easier for fringe groups to organize, and legal developments that gave women greater rights in patrimonial empires with maledominated legal communities. Labeling such developments as “Western” or “foreign,” the rulers and legal communities have opposed them, not necessarily because of religious or cultural concerns but because of threats to their interests. conclusion Islamic societies have shown a mixed reaction to new developments in science, technology, and institutions. While some of these developments have been adopted swiftly, others have been rejected outright or delayed significantly. To provide a comprehensive explanation of these outcomes, I have adopted a political economy approach and focused on the legal community’s relationship with the ruler and the citizenry.16 When the rulers expected new developments to raise the revenue available to them while having a positive effect on legitimacy or revolt, they adopted them eagerly. When the adoption of a new development would have cost the rulers greatly in surplus, legitimacy, and likelihood of revolt, however, they rejected it if the cost was too high to be offset by benefits. Muslim rulers thus banned the printing press and delayed the adoption of the legal concept of the corporation, because these developments could undermine the ability of religious authorities to confer legitimacy and increase the likelihood of a successful revolt. The static framework of the political economy approach adopted here helps to explain the variety of reactions observed in the Islamic world, but it also raises questions about how these reactions varied over time and in other parts of the world. Why was a new development that was suppressed in one part of the Islamic world easily accepted in others, and why were some of the initially suppressed developments eventually adopted? For example, while the Ottomans banned the printing press in the


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fifteenth century, most European states allowed it without much delay; and although the Ottomans continued the ban for a long time, they eventually did allow it. To explain these variations, we need to expand our view to incorporate other agents (such as the military or the nobility) who could also legitimize rulers. Adopting a more dynamic framework, we can then identify how broader macroeconomic and institutional factors determined substitutability among these agents and how rulers reacted differently to new developments over time and across societies as a result of variations in substitutability.17

Notes I wish to acknowledge useful comments and suggestions received from Debin Ma, Tom Miceli, Jared Rubin, Jan Luiten van Zanden, and participants at the Law and Economic Development conference in Utrecht, the Netherlands, in September 2007. 1. See, for example, Jones (1987, chapter 9), Landes (1969, pp. 28–30), and Lewis (1982). Studies of economic change in the modern period have also emphasized stagnation in ideas, technologies, and institutions as the ordinary state of affairs during this period. See, for example, Coulson (1964), Genç (2000), and I˙nalcık (1973, chapter 18). 2. For example, Hassan and Hill (1990), Iqbal (2002), and I˙hsanoglu (2003). 3. Similarly, some of the recent studies of institutional change in the Islamic world have focused on the long-term trend from peak to stagnation. See, for example, Goldstone (1987), Huff (2003), and Kuran (2004). 4. See, for example, Cipolla (1966), Jones (1987, chapter 9), Goldschmidt (2002, chapter 9), and Lewis (1982, chapter 9). 5. For details, see Cotgel, Miceli, and Rubin (2009). 6. For the functions and historical evolution of the legal community, see Ghazzal (2005), Gilliot (1999), Hallaq (2005), Lambton (1981), Lapidus (1984), Masud, Messick, and Powers (1996), Zaman (2002), and Zubaida (2003). See also Toru Miura’s contribution to this volume (Chapter 9) for the legal community’s role in courts and contracts in a comparative perspective. 7. This is the same type of problem Weingast (2005) and Hardin (2006) have identified in the enforcement of constitutional provisions, where the government’s ability to exploit disagreements among citizens can create a coordination problem and a dilemma in policing the government. 8. For the strength of legal community in Islamic history, see Humphreys (1991, chapter 8), Ghazzal (2005), and Zaman (2002). 9. For recent studies of the Ottoman legal system, see Gerber (1994), Imber (2002, chapter 6), Vikør (2005), and Zilfi (1988). 10. See Cotgel, Miceli, and Rubin (2009) for the effect of new military technology on the ability of military authorities to confer legitimacy. This effect is omitted here to maintain our focus on the legal community.

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11. See also Goldstone (1987, p. 130), Hassan and Hill (1990), Hogendijk and Sabro (2003), Iqbal (2002), and Mokyr and American Council of Learned Societies (1990, pp. 34–35). 12. For detailed analyses of the waqf system, see Gibb and Bowen (1957, vol. 1, part 2, chapters 10 and 12), Huff (2003, chapters 4 and 6), Kuran (2001), and Schacht (1970). 13. See Atiyeh (1995, pp. 284–285) for an English translation of the 1726 royal order. 14. For the importance of the oral tradition in Muslim courts, see Lydon (2009) and Chapter 9 in this volume. 15. Mass printing could be effective even in societies with low levels of literacy, as was seen in the use of broadsides and caricatures by Protestants in antipapist propaganda in the sixteenth century (Eisenstein, 1979, p. 304). 16. For the roles of other organized groups, such as the nobility or the military, see Cotgel, Miceli, and Rubin (2010). 17. For attempt in this direction, see Cotgel, Miceli, and Rubin (2009, 2010).

References Acemoglu, Daron, and James A. Robinson. 2006. “Economic Backwardness in Political Perspective,” American Political Science Review 100 (1): 115–131. Ágoston, Gábor. 2005. Guns for the Sultan: Military Power and the Weapons Industry in the Ottoman Empire. Cambridge Studies in Islamic Civilisation. Cambridge: Cambridge University Press. Atiyeh, George N. 1995. The Book in the Islamic World: The Written Word and Communication in the Middle East. Albany: State University of New York. Barkey, Karen. 1994. Bandits and Bureaucrats: The Ottoman Route to State Centralization. The Wilder House Series in Politics, History, and Culture. Ithaca, NY: Cornell University Press. ———. 1996. “In Different Times: Scheduling and Social Control in the Ottoman Empire, 1550 to 1650,” Comparative Studies in Society & History 38 (3): 460. Baten, Joerg, and Jan Luiten van Zanden. 2008. “Book Production and the Onset of Modern Economic Growth,” Journal of Economic Growth 13 (3): 217–235. Cipolla, Carlo M. 1966. Guns, Sails and Empires; Technological Innovation and the Early Phases of European Expansion, 1400–1700. Pantheon Studies in Social History. [Guns and Sails in the Early Phase of European Expansion, 1400–1700]. 1st American ed. New York: Pantheon Books. Cotgel, Metin M. 2004. “Ottoman Tax Registers” (tahrir defterleri), Historical Methods 37 (2): 87–100. ———. 2005. “Efficiency and Continuity in Public Finance: The Ottoman System of Taxation,” International Journal of Middle East Studies 37 (4): 567–586. Cotgel, Metin M., Thomas Miceli, and Rasha Ahmed. 2009. “Law, State Power, and Taxation in Islamic History,” Journal of Economic Behavior and Organization 71 (3): 704–717.


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Cotgel, Metin M., Thomas J. Miceli, and Jared Rubin. 2009. The Political Economy of Mass Printing: Legitimacy, Revolt and Technological Change in the Ottoman Empire. University of Connecticut, Department of Economics, Working papers: 2009–12. ———. 2010. Political Legitimacy and Technology Adoption. University of Connecticut, Department of Economics, Working papers: 2010–02. Coulson, Noel J. 1964. A History of Islamic Law. Islamic Surveys. Vol. 2. Edinburgh: University Press. Crone, Patricia, and Martin Hinds. 1986. God’s Caliph: Religious Authority in the First Centuries of Islam. University of Cambridge Oriental Publications. Vol. 37. Cambridge: Cambridge University Press. Eisenstein, Elizabeth L. 1979. The Printing Press as an Agent of Change: Communications and Cultural Transformations in Early Modern Europe. Cambridge: Cambridge University Press. Genç, Mehmet. 2000. Osmanlı imparatorlugunda devlet ve ekonomi. Kültür serisi. Istanbul: Otüken. Gerber, Haim. 1994. State, Society, and Law in Islam: Ottoman Law in Comparative Perspective. Albany: State University of New York Press. Ghazzal, Zouhair. 2005. “The ‘Ulama’: Status and Function,” in A Companion to the History of the Middle East, ed. Youssef M. Choueiri, 71–86. Malden, MA: Blackwell. Gibb, H. A. R., and Harold Bowen. 1957. Islamic Society and the West: A Study of the Impact of Western Civilization on Moslem Culture in the Near East. London: Oxford University Press. Gilliot, Claude. 1999. “ ‘Ulama,” in The Encyclopaedia of Islam. New ed., vol. 10, 801–805. Leiden: Brill. Goldschmidt, Arthur. 2002. A Concise History of the Middle East. 7th ed. Boulder, CO: Westview Press. Goldstone, Jack A. 1987. “Cultural Orthodoxy, Risk, and Innovation: The Divergence of East and West in the Early Modern World,” Sociological Theory 5 (2): 119–135. Hallaq, Wael B. 2005. “The Origins and Evolution of Islamic Law,” Themes in Islamic Law. Vol. 1. Cambridge: Cambridge University Press. Hardin, Russell. 2006. “Constitutionalism,” in The Oxford Handbook of Political Economy, ed. Barry R. Weingast and Donald A. Wittman, 289–311. Oxford: Oxford University Press. Hasan, Ahmad Yusuf, and Donald Routledge Hill. 1992. Islamic Technology: An Illustrated History. 1st paperback ed. Cambridge: Cambridge University Press. Hogendijk, J. P., and A. I. Sabra. 2003. The Enterprise of Science in Islam: New Perspectives. Dibner Institute for the History of Science and Technology. Cambridge, MA: MIT Press. Huff, Toby E. 2003. The Rise of Early Modern Science: Islam, China, and the West. 2nd ed. Cambridge: Cambridge University Press. Humphreys, R. Stephen. 1991. Islamic History: A Framework for Inquiry. Rev. ed. London: I. B. Tauris.

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I˙hsanoglu, Ekmeleddin. 2003. Science, Technology, and Learning in the Ottoman Empire: Western Influence, Local Institutions, and the Transfer of Knowledge. Variorum collected studies series. Vol. 773. Burlington, VT: Ashgate. Imber, Colin. 2002. The Ottoman Empire, 1300–1650: The Structure of Power. New York: Palgrave. I˙nalcık, Halil. 1973. The Ottoman Empire: The Classical Age, 1300–1600. History of Civilization. London: Weidenfeld and Nicolson. Iqbal, Muz.affar. 2002. Islam and Science. Ashgate Science and Religion Series. Aldershot, UK: Ashgate. Jones, E. L. 1987. The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia. 2nd ed. Cambridge: Cambridge University Press. Kuran, Timur. 2001. “The Provision of Public Goods Under Islamic Law: Origins, Impact, and Limitations of the waqf system,” Law & Society Review 35 (4): 841–897. ———. 2004. “Why the Middle East Is Economically Underdeveloped: Historical Mechanisms of Institutional Stagnation,” Journal of Economic Perspectives 18 (3) (Summer): 71–90. ———. 2005. “The Absence of the Corporation in Islamic Law: Origins and Persistence,” American Journal of Comparative Law 53: 785–834. Kut, Günay Alpay. 1991. “Matba’a. 2. in Turkey,” in The Encyclopaedia of Islam. New ed., vol. 6, 799–803. Leiden: Brill. Lambton, Ann K. S. 1981. State and Government in Medieval Islam: An Introduction to the Study of Islamic Political Theory: The Jurists. London Oriental series. Vol. 36. Oxford: Oxford University Press. Landes, David S. 1969. The Unbound Prometheus. Cambridge: Cambridge University Press. Lapidus, Ira M. 1984. Muslim Cities in the Later Middle Ages. Student ed. Cambridge: Cambridge University Press. Lewis, Bernard. 1982. The Muslim Discovery of Europe. 1st ed. New York: W. W. Norton. Lydon, Ghislaine. 2009. “A Paper Economy of Faith Without Faith in Paper: A Reflection on Islamic Institutional History,” Journal of Economic Behavior and Organization 71 (3): 647–659. Masud, Muhammad Khalid, Brinkley Morris Messick, and David Stephan Powers. 1996. Islamic Legal Interpretation: Muftis and Their Fatwas. Harvard Studies in Islamic Law. Cambridge, MA: Harvard University Press. Mokyr, Joel, and American Council of Learned Societies. 1990. The Lever of Riches. New York: Oxford University Press. Nasr, Seyyed Hossein. 1995. “Oral Transmission and the Book in Islamic Education,” in The Book in the Islamic World: The Written Word and Communication in the Middle East, ed. George N. Atiyeh, 57–70. Albany: State University of New York Press. Özmucur, Süleyman, and Sevket Pamuk. 2002. “Real Wages and Standards of Living in the Ottoman Empire, 1489–1914,” Journal of Economic History 62 (2): 293–321.


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Quataert, Donald. 2000. The Ottoman Empire, 1700–1922. Cambridge: Cambridge University Press. Savage-Smith, Emilie. 2003. “Islam,” in The Cambridge History of Science, vol. 4, Eighteenth-Century Science, ed. Roy Porter. Cambridge: Cambridge University Press. Schacht, Joseph. 1970. “Law and Justice,” in The Cambridge History of Islam, ed. P. M. Holt, Ann K. S. Lambton, and Bernard Lewis. Cambridge: Cambridge University Press. Vikør, Knut S. 2005. Between God and the Sultan: A History of Islamic Law. Oxford: Oxford University Press. Weingast, Barry R. 2005. “The Constitutional Dilemma of Economic Liberty,” Journal of Economic Perspectives 19 (3) (Summer): 89–108. Weingast, Barry R., and Donald A. Wittman. 2006. The Oxford Handbook of Political Economy. The Oxford Handbooks of Political Science. Oxford: Oxford University Press. Zaman, Muhammad Qasim. 2002. The Ulama in Contemporary Islam: Custodians of Change. Princeton Studies in Muslim Politics. Princeton, NJ: Princeton University Press. Zilfi, Madeline C. 1988. The Politics of Piety: The Ottoman Ulema in the Postclassical Age (1600–1800). Studies in Middle Eastern History. Vol. 8. Minneapolis: Bibliotheca Islamica. Zubaida, Sami. 2003. Law and Power in the Islamic World. Library of Modern Middle East Studies. London: I. B. Tauris.

chapter nine

Islamic Legal Institutions of Contracts and Courts A Comparative Perspective Toru Miura

; Contemporary contract theory posits a model of the economic man who tries to maximize his rational self-interest by enforcing contracts using formal contract law. Contract law improves economic efficiency by enabling people to convert games with inefficient solutions into games with efficient ones and securing optimal commitment to performing as stipulated.1 A fundamental premise of a contract is its implicit coercive power: the stronger the coercion, the greater certainty that self-interest can be achieved, and the greater likelihood that the conditions of the contract would be observed. The enforcement of a contract requires an outside institution, usually in the form of law courts and state. If enforcement costs are high, however, it could lead to high transaction costs that could impede the realization of maximum self-interest, both present and future, which would lead to a dilemma. Hence, contracts and courts are at the core of economic institutions that have supported economic exchange and division of labor throughout human history. The regulation of contracts in Islamic law is ambiguous, however, even though an explicit verse in the Qur’an commands Muslims to write a contract: “When you loan for a definite time, record it in writing. . . . You should ask two witnesses among you. . . . It will be a certification and most appropriate lest you would entertain doubts” (2:282). This regulation to have a written document is interpreted as a recommendation by Muslim legal scholars. While a written document is supplementary

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certification in a trial, and testimony by witnesses or an oath by the defendant takes first place, it had been customary to write down a contract certified by two witnesses, as provided in many legal manuals (shurut) for entering into contracts.2 In the Ottoman period since the fifteenth century, the shari‘a courts in major cities authorized and registered contracts concluded by residents; such contracts can also be observed in many of the registers remaining in Arab countries, such as Egypt, Syria, and Algeria, as well as in Turkey and the countries of the Balkan Peninsula. Based on the evidence of these registered contracts in the shari‘a courts, this chapter seeks to address several issues related to contracts and courts in Islamic legal institutions. First, the Arabic term for contract (‘aqd) means to “tie up,” like the Chinese and Japanese term qi/kei (契). What is “tied up” in a contract are social units in each society. Second, in the principles of Islamic law, the contract is bilateral, constituting an offer and acceptance by both parties; it need not be legally certified by witnesses and registered at the court.3 Nevertheless, some types of contracts were customarily registered at the courts, with testimony by witnesses. This raises the question of how or if contracts were enforced in Islamic courts. By examining the actual operation of the court, we can also discover the social concept of contract in a larger context. Third, where appropriate, I will compare the Islamic legal institutions of contracts and courts with Europe and East Asia. I conclude this chapter with some thoughts on the relation between Islamic legal institutions and long-term economic development.4 own ership and contracts in islamic law: a comparative perspective Shari‘a court registers contain many types of documents, most of which record civil transactions such as sales, leases, loans, inheritances, marriages, and divorces. These lead to few actual lawsuits and do not involve criminal cases. As civil and commercial transactions, they record the contracts agreed by the parties and certified by various witnesses under the authority of the court judge (qadi) or his deputy (na’ib). Data from contracts registered at the Salihiyya court5 of Damascus in the eighteenth and nineteenth centuries show that although the composition of content and form of registration differ from court to court, they have the following common features: (1) all subjects involved in the legal matters are individuals, including females and minors; (2) all rights to ownership and contracts have to be certified by testimony of a third party in order to have a legal claim in the court; (3) for a contract to be valid it must accommodate both the individual will and the

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public interest (maslaha) of society. I will discuss these points from a comparative perspective. As is well known, in Islamic law ownership is accorded to an individual, not to any corporation or family, for Islamic law does not recognize the concept of a corporation or judicial person.6 It is commonplace that the relatives of the deceased divide an inheritance, including immovable properties, with the shares regulated by Islamic law. Individual ownership is strictly protected and usually transacted for economic activities. In contrast, in Europe corporations and companies can be owners just like an individual person. The medieval partnership of commenda and the institution of compagne developed into the modern corporation or company, which can accumulate capital in its ownership. In the Islamic Middle East, to combine the capital and labor of different persons required a partnership contract (sharika) rather than a company. Partnership contracts range from small contracts between a master and his workers to large ones for investment in the shipping trade. The partnership is valid for a limited time, with its account settled at the end of that period. Management decisions are not made by persons in specific positions, such as a president or director, but by independent partners. It has been long thought that the definition of a company as a judicial person promoted the development of capitalism in Europe, while the lack of this concept in the Islamic Middle East hampered such development, although regional and interregional commerce had prospered in the medieval Islamic world more than in Europe.7 Ownership in Chinese society lies midway between the two poles of Europe and the Islamic Middle East. The principle of inheritance is similar to that of Islamic law: it is divided among certain relatives (male descendants), and properties are owned and subject to transaction by individuals.8 Moreover, the definitions of an individual differ among modern Europe, the Islamic Middle East, and China. The basic socioeconomic unit in premodern China was the household, consisting of a family living together and holding property in common: “a situation in which people who have common blood and spirit as one body.” Thus, even if the household properties are divided among the descendants, the household body is not divided, for “there is principally only one spirit in one living body; one member can represent the whole body of family and he need not consider the will of other members as long as his representation is full and right.”9 Terada explains that the spiritual unity of the villagers, called qi-xin（齐心）, was forged by their leader’s recitation of village law and a joint chorus of the other members, which was analogous to the unity of a household family. This is in contrast to modern Europe, where the corporation is composed of two layers, with individual persons at the bottom, unified by


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the judicial person at the top. In China a group or family is perceived as analogous to a single unity of spirit and body. Islamic law, however, does not allow any group to take on a judicial character. Why does Islamic law not recognize ownership by a group or corporation? Yanagihashi, a scholar of Islamic legal history, points out that in Islamic law each partner in a partnership contract relies on individual initiative and mutual trust by individual members. Partnership is in principle an agreement to trust one another, which tends to discourage a development in which the partnership becomes an independent legal person. In the registers there are many cases of females or minors entrusting an agent with their rights in the shari‘a court. The procedure required a trust agreement between the former and the agent that defined the rights of the agent, with certification by witnesses. These reservations on trust are important in understanding the Islamic legal restriction against the legal fiction of a judicial person. How can a group make a decision? A corporation in modern Europe must establish a decision-making organization, such as a stockholders’ meetings or a board of directors. In the Islamic Middle East, household families had been the basic socioeconomic units. While Sufi brotherhoods and craft corporations did exist, the properties of a family principally belonged to individual members, and those of Sufi brotherhoods were kept as waqf endowments (charitable foundations), managed by individual superintendents. While these three societies had a common basis in the individual, they ended up as very different collectives: the association of individuals in modern Europe, harmonization of individuals and the group in premodern China, and the chain of individuals in the Islamic Middle East. Contracts in Islamic law are concluded with extreme formality, often following detailed manuals (shurut) laid out by legal scholars, with conditions and procedures for valid as well as invalid contracts for various types of transaction (sale, lease, etc.). These guidelines became the prototype of contracts having a standardized format, requiring the contracting parties only to fill out proper details for transaction (such as names of parties and object of sales) in the designated blank spaces. All contracts had to be certified by the testimony of witnesses, even though the judge authorized the contract with his signature. Note that this testimony is highly formal, as the witnesses need not necessarily have knowledge and information of the transaction concerned, as long as their righteousness (‘adala) is ensured by the judge (qadi).10 The contract was deemed valid so long as this formality was satisfied, even if the content of the testimony seemed to be false. As will be discussed below, false testimony is often found in historical sources, which reveals the shortcomings of this

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extreme formalism of Islamic courts. In the shari‘a court registers, we often see the names of local notables who attended the courts.11 This suggests that the prestige of notables may provide some personal guarantee to partly overcome the shortcoming of an extremely formalized process of witness testimony. Like the Islamic Middle East, notaries (notarius) in medieval Italy wrote the deed (instrumentum) and recorded it in a register (inmbreviatura), which could be used as legal documentation and by lawyers in the litigation. Before the thirteenth century, records of business transaction occupied a prominent position in notary records. Thereafter, with these records largely kept in private business accounts, the notary registers were concerned only with transactions of immovable properties, marriages, and inheritances and issued the deed if required. The notaries were paid civil professionals who organized their own guild just like other merchants and artisans and were often appointed by the city authority (commune) and given public fidelity by authority of the pope or the emperor to make their certificates public.12 The professional witness (shahid, ‘udul) in the Islamic Middle East had to be appointed by a judge after an investigation of his righteousness, but his testimony and certification were his personal conduct. Despite close similarities, the notaries in the Islamic Middle East differed from Italian notaries, who were increasingly replaced by state officials in the early modern period when the Italian city-state tried to establish a centralized administration. Conversely, in premodern China, there were agents called zhongren（中人）, who were not really formal notaries who certified or testified to the transaction but private brokers with substantial knowledge about the trade to broker the deal and act as a personal guarantor. In Qing China, land sale contracts were written and certified by an agent (witness) and required registration of the administrative office with an official seal to take responsibility for payment of taxes. As the Qing state’s interest in land transaction was limited to tax collection, official registration of a transaction in immovable properties was far from complete.13 In fact, a sales contract in China was concluded in a format where the parties concerned give promises to be submitted to the state. So the terms of a contract in Qing China were stated in the style of a declaration using the first person. In contrast, contracts registered at the shari‘a court treated the parties in objective terms, using the third person (as in medieval Italy). The shari‘a court registers listed the parties and other attendants in writing, recording their names and roles in the transaction but not the signatures of the parties, except for the judge and notaries.14 As Terada points out, there is no state or public institution in Ming-Qing China that differentiated a legal contract from mutual promises among the parties.15


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contract registration: objectives and strategies Most written contracts registered at the shari‘a court were transfers of immovable properties (sales, lease, waqf donation), inheritance, and marriage, whereas transactions of movable properties were rarely registered. They were supposed to be done by oral contracts,16 with simultaneous payment and transfer of goods. In Islamic law, reciprocity (bilateral) and simultaneity of a transaction are necessary conditions of exchange, which is finalized at the completion of a sale contract. Delayed payment and sale on credit are not recommended.17 The Qur’an states, following the command of a written contract, “Except in case of direct transaction among you. There is no harm even if you do not record it. And you should ask a witness when you sell” (2:282). The Hadith (Traditions of the Prophet Muhammad) requires equal exchange on the spot and prohibits raising the price by auction, buying on credit, and reselling without payment.18 The legal scholars urged the conclusion of the transaction on the spot and did not oblige traders to write a contract testified to by two witnesses in such a case, that is, the transaction of movable properties.19 Conversely, transactions of immovable properties, such as sales and leases, were usually (but not in all cases) registered at the shari‘a court. For immovable property, leases of waqf property (land, shops, and houses) were usually registered, while leases of private property were not registered in the Salihiyya court of Damascus in the eighteenth and nineteenth centuries.20 Registration was costly and required the attendance of two witnesses and others to certify the contract and reward for notaries, scribes, and other court officials; thus, the number of registrations seemed to decrease in times of economic hardship.21 “Rural people were often deterred from using the shari‘a court by the physical distance, the fees required of litigants and fear of possible retribution.”22 A second question is whether the registered contract reflected real transaction conditions. As far as the Salihiyya court registers are concerned, we observe fictitious litigation and loans with usury hidden in sales. There is the view that contracting parties were making use of the Islamic legal rules to pursue their own interest.23 The shari‘a court records did not directly reflect actual conditions but instead were formal embodiments of actual existing interests consistent with legal regulations24 This shows why people choose to register. Most registrations in the Salihiyya court are for sale and lease of immovable property, inheritance, and the management of minors’ shares in inheritance. The record shows a rather contradictory picture of people’s

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motives and behavior. We see various cases of registrations that showed a process of asking witnesses and paying registration fees that actually involved a very small sum for the sale or inheritance. Conversely, we see some lease contracts for orchards or shops showing rents in much larger amounts, in as much as thousands of piastres, that were not registered, although they were found in other account reports.25 How are we to interpret this? One possibility might be that people were apt to register the contract at less than the actual amount, but the statistical data such as sales prices of houses and amounts of inheritance show that there was no great increase in price. The more likely scenario was that the purpose of registration was not necessarily based on short-term cost-benefit calculation but rather was intended to prevent conflict between the parties or their descendants in the future. If not registered, the buyer or inheritor could not demand the transfer of the immovable properties. In addition to the above, the conditions of ownership in the Islamic Middle East were very complex. First, in Islamic law, ownership consists of two levels: ownership (‘ayn) of the thing itself (raqaba) and usufruct (manfa‘a) of the thing, and these are separately sold, leased, given, and inherited. As for immovable properties, it was quite common for the user of land, a house, or shop (owner of its usufruct) to be different from its owner. If the two kinds of owners were different persons, any change in ownership was supposed to be registered to avoid future conflict between the owner of the immovable property and the owner of its usufruct. The second condition relates to Islamic property law when the inheritance divided among the relatives according to their shares. When an heir sells part of his or her share, or the share is divided among his or her relatives, small portions such as 1/64 or 1/128 are often transacted in the court registers. The actual condition of ownership is that one substantial property (for example, a shop) has two kinds of ownership (ownership of the thing itself and usufruct), with each owned by different persons in different shares. As transfer of ownership affects the relations among the owners, registration at the court certified their right and acted to prevent future conflict with other owners. A third condition is related to the close construction of Arab-Islamic cities, where houses and other structures were densely built along narrow streets and cul-de-sacs. The walls surrounding each lot were borders of ownership as well as physical space. Parts of a house could be sold or leased, as can be seen in the court registers. In such dense habitation, sale or lease of a house can affect daily life in the neighborhood. Islamic law recognizes the right of preemption (shuf‘a, to be a priority buyer) by the owner of an adjoining lot to any sale located in the cul-de-


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sac as a means to preserve communal life.26 Sales of houses in the Salihiyya court represent 60 percent of total sales in the eighteenth century and 45 percent in the nineteenth century, which reveals a high mobility in house ownership. Thus registration in the shari‘a court met the needs of the parties, neighboring inhabitants, and the state. In spite of a huge volume of written contracts registered at the shari‘a courts, the written and registered contracts were limited to the transaction of immovable properties and familial affairs, which had a widespread, long-term effect, not only on the parties concerned but also on their descendants and neighborhood. In fact, most lawsuits in the Salihiyya court were between one party and the descendants of another after his death.27 So the motivation for registering was obviously to prevent future conflict, by confirming particular rights.

contract enforcement and dispute resolution What compels parties to fulfill their contracts? In other words, what was the punishment in case of a failure to comply with the terms, and how were disputes resolved? Historically, the power to enforce contracts consisted of enforcement through coercive power, irrespective of the will of the parties (adjudication); and reconciliation based on full consent of all the parties (mediation). The Islamic Middle East had two kinds of courts, the shari‘a court directed by the qadi ( judge, legal expert) and the mazalim court under the jurisdiction of the governor. The former treated mainly civil matters (civil contracts and civil suits) but lacked coercive power of execution. Taking debt cases, for example, although Islamic law stipulates that the debtor should be held in prison until the debt is paid, actual enforcement was weak. Under the qadi judge, executors called rasul or naqib could confiscate the defendant’s private property to compensate the creditor, but they charged fees for that. The court registers of the Salihiyya court in the nineteenth century show that for lawsuits exclusively concerning civil matters such as sale and lease (27 percent), inheritance (24 percent), and debt (37 percent), the trial proceeded along strictly formal rules, with the sentence decided by testimony from two witnesses or by the oath of the defendant if the plaintiff failed to bring the testimony of two witnesses. The judge acted as a mere chairperson for the trial, usually with no discretionary power to examine or conduct his own investigation. The testimony of

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witnesses decided about 80 percent of all cases.28 This is also confirmed by Bogaç A. Ergene’s recent study of Çankırı and Kastamonu courts in Anatolia in the seventeenth and eighteenth centuries.29 Among lawsuits in the Kastamonu court, the top three were the same as in the Salihiyya court: debt (23 percent), inheritance (20 percent), and sale and lease of property (17 percent), though a small portion of criminal matters such as theft, murder, and rape were also found. The largest number of judgments there were decided by testimony (about 50 percent), followed by oath (about 15 percent). The paramount power of testimony and oath suggests the possibility of collusion of witnesses, which could be orchestrated by the plaintiff to win the suit. Indeed, there were many examples of false testimonies. A British consul report in 1880 said that “in every town there is some café or bath at which false witnesses are always to be found, ready to give any evidence on payment.”30 Indeed, there were such professional false witnesses colluding with a qadi judge in the Mamluk period (1250–1517). There was the case of a false witness and plaintiff under ‘Abd al-‘Aziz, qadi of Damascus. The qadi called a wealthy man to his court that the plaintiff claimed he owed one thousand dinars. When the defendant was surprised and denied the debt claim, the plaintiff brought in witnesses and asked the qadi for a judgment. In response, the qadi recommended they settle by reconciliation (sulh), with the defendant having to agree to pay half of the alleged amount. A great deal of money was taken from the people in such a fraudulent manner.31 False testimony was common among professional witnesses (notaries). In a short verse, al-Subki (a leading ulama, d. 1370) depicts the profession of notary (shahid) in the Mamluk period: “When the notaries got angry, they used to scatter their false testimonies like their spears. They are sultans whose judgment only relates to the deeds, private properties and houses.”32 These are not exaggerations. Fraudulent lawsuits increased to the extent that the Mamluk Sultan had to declare in 1508 that no citizen should bring a case without just right (haqq) to deprive someone else of something.33 The court was no longer a place for relieving the weak or poor but instead became a place for the strong and wealthy to take the property of the weak. A famous historian, Ibn Khaldun (d. 1406), gave advice to merchants in his book of Muqaddima that they had better create a written document testified by witnesses to protect themselves in case of nonfulfillment or denial of a contract. He advised further that “one who feared to bring a case to the court, had hesitation to contradict, and held no proper authority at the court was not recommended to engage in the business, for he might lose money and became the prey of merchants.”34


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The injustice of the testimonial system seems to stem from, ironically, the supreme formality of testimony in Islamic law. The testimony of two witnesses is required for registering a contract, and professional notaries are indispensable for helping register the contract at court for the parties according to legal manual. In the end, the judges became mere figureheads in that they only approved what the notaries testified, so long as the necessary conditions were met. This raises the question of the objectivity of the shari‘a court, which depended heavily on oral testimony and oath, treating written documents as supplementary evidence. This was remedied in two ways. First, we should note here that trials were performed openly in the presence of the parties, their agents, witnesses and other attesters, local notables, and court officials. A clearly false statement in such circumstances, whether testimony or oath, could result in a damaged reputation even if the case is won. A British consul’s report comments that this public aspect of the trial helped sustain justice: I was often led to reflect in Syria, that one of the best protections against injustice is, after all, to be found in the publicity of the proceedings in the different tribunals, and I am persuaded that publicity, with a very imperfect code, and with rude legislation, and even with corrupt judges, is more likely to serve the ends of justice than a more equitable system of laws administered in secret by judges of the ordinary character. I often went into the courts of Syria, and listened to the witnesses, and to the observation of the spectators and auditors. Their presence is a great check on mis-decisions. Any succession of unjust decrees would not pass without such animadversion as would inevitably reach and alarm the judge. It is not always easy to know how public opinion does find its way to high places. . . . It escapes by a thousand outlets, and reaches those whom it is. . . . It has, indeed, a thousand forms of expression, intelligible to those on whom it acts. A look, a gesture, a motion of the lips, are often sufficient for its communication; it is not always necessary that there should be an intention to give expression to it.35

The second remedy was mediation outside the court. In the Mamluk and Ottoman periods the people often asked influential persons (of the military, administrative, or legal elites) for conciliation and arbitration (shafa‘a). Some were widely known for their mediation ability, and their houses were crowded with claimants. These mediators were sometimes judges, but some were lower officials such as college professors and notaries.36 For example, it was reported of Ahmad al-Marini that “he was excellent in shari‘a and intelligence, and the people visited him to ask conciliation with amir (military chiefs) and the powerful, or to ask a necessary judgment. His word was accepted by the influential who believe in him owing to his asceticism.”37 Common characteristics of mediators

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were their legal knowledge, fairness, and good insights into actual conditions and that they did not fear the powerful. The high frequency of mediation reveals that as the enforcement power of a shari‘a court was weak, people expected a substantial solution by mediation; second, as the judgment at a shari‘a court was easily predicable because of its formal nature, people would ask for mediation to get a more agreeable settlement for both sides. A mazalim court was presided over by governors (caliph, sultan, and amir) who presided over unjust affairs (mazalim) by administrators and others where qadis and muhtasibs (moral inspectors) had no jurisdictional power. These particular courts were given authority to adopt a broader interpretation of Islamic law, with investigative power as well as the use of witnesses and evidence. Because of their executive power, the mazalim courts seemed to deal mostly with criminal, administrative, and political cases, while the qadi courts mainly registered civil contracts among ordinary people. In the Mamluk period, sultans and provincial governors held a mazalim court every week, announcing that anyone with complaints of unjust treatment come to the Supreme gate.38 In fact, so numerous were the increasing claims brought to the sultan, as described in 1472, that they eventually included a trivial complaint about the sale of radish. In the same year, the mobs from the Cairene quarter appealed a petition on the unjust conduct of their quarter’s inspector. But when the sultan demanded evidence, they replied instead “here is our cash” as a bribe. The mobs were then beaten and dispersed.39 The sultan’s mazalim court was so heavily attended that he had to restrict petitions to only those who had been presented before a qadi.40 Prominent amirs also held similar mazalim courts at their houses. The qadi and mazalim courts did not differ in the way they treated petitions, so long as they were accepted and settled. Often the mazalim courts were preferred when unjust judgments by bribes and false testimony prevailed at the qadi courts. But subordinates of the mazalim courts often extorted substantial fees and inflicted harsh punishment. They were also ordered to close as unjust administration during emergencies such as an epidemic.41 Various petitions and lawsuits such as conflicts about waqf property and divorce were also brought to the provincial governors of Damascus.42 In the Ottoman period, sultans and provincial governors received petitions from subjects at the regular meetings, and the decisions were returned to be registered in the local courts.43 Unfortunately, it is difficult for us to determine how petitions and suits were settled at the mazalim courts as no records remain.


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concluding remarks from a comparative perspective Max Weber explained the nature of qadi justice (Kadijustiz) as substantive, based on the merits of each individual case, with full consideration for personal and other extralegal circumstances.44 He posited this model as a polar contrast to the legal system of the modern West, characterized by formal procedure and doctrinal consistency. Criticism of the Islamic law court as arbitrary, unsystematic, and corrupt has been known since the nineteenth century, in the colonial period in the Islamic world, in places such as Syria and Turkey, Algeria, and British Malaya. There were also calls for legal reforms among the European governments.45 At the time these views may have influenced Weber, whose categorization of Islamic legal courts influenced Western scholarship. The qadi in Islamic law, however, was expected to act as a chairperson rather than as a judge who passes judgment according to his own discretion. The court itself was a forum for providing fair mediation among the parties. Weber’s characterization of qadi justice was misdirected in this instance and should be qualified in other instances. In Islamic law, court registration is a tool to defend a person’s rights but not an absolute authority such as testimony, oath, and conciliation by the prominent, which may be more decisive than written or objective evidence in the event of a legal dispute. Nevertheless, we should not characterize the procedure of Islamic law courts as completely arbitrary or lacking in objectivity. Instead, the bargaining process among those in attendance at court allowed concerned parties to find a common ground for agreement and a starting point for a future relationship. Significantly, both testimony and reconciliation are part of a system in which the parties concerned confer a casting vote on a third party (witness or mediator) who takes the role of providing an objective decision. This system is somewhat akin to Tokugawa Japan. The term O’oka sabaki, named after the famous magistrate of Edo, O’oka Tadasuke (1677–1751), means a fair judgment that considers the individual conditions of the parties, like the qadi justice described by Max Weber.46 Similarly, Qing Chinese civil justice is characterized as “didactic conciliation,” which aimed to help the parties concerned reach an agreement under the authority and insight of the county magistrate, by means of investigation, persuasion, and threat of punishment. It is a very different model than the Western type of adjudication with its systematic application of universal law and principles.47 In Qing China, there existed neither adjudication nor substantial civil law to provide a single guide for

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court judgment. Instead, the judgment was rooted in the so-called qingli, common ethical and emotional norms. It is believed that this type of judgment provided fuller justice and consideration for the merits of individual cases and thus was more acceptable to all parties concerned. Agreement or consensus is ultimately needed, even though an agreement may be temporary and not necessarily binding on future relations among the parties.48 Unlike the Japanese, Chinese, and European judicial systems, however, the universal law of shari‘a serves as absolute law. Even though shari‘a law is equivalent neither to natural law nor to statute law (codified law), it is, on the one hand, absolute and eternal as divine law and, on the other hand, serves as positive law developed by legal scholars’ rational discussion and interpretation of the Qur’an and Hadith. The interpretations of the legal texts are indeed legal regulations that Muslims should follow, but adherence to formality is so valued and strictly observed that their general application to individual cases is often avoided.49 At both the contracting and trial stages, the final outcome of civil affairs was usually predictable if given the formal procedure according to Islamic law. In reality, however, it was usually up to a third party such as a witness or mediator to cast the vote to reconcile the interests between the parties. It is paradoxical that this extreme formality of the Islamic judicial system has led to arbitrary mediation by a third party.50 Thus there are two difficulties with the contract in its aim and process: one is to bring together (“bind”) different individuals, each of whom is acting with free will; and the second is to take into account the situation over time, the past, present, and future. A variety of devices has been used for the bond: the universality of law in Europe, a third party in the formalistic law of the Islamic Middle East, and complete agreement in China. Just as a contract is a means to “bind” various individuals, this taxonomy is not intended to divide and polarize Euro-America and Asia but rather to identify the differences in the “binding” devices and to find a common ground toward a system where differing cultural backgrounds in an increasingly globalized world can be accommodated. I conclude with a discussion on the relationship between Islamic legal institutions and long-term economic change. As already stressed in this book, legal formality forms the basic conditions that propelled the rise of modern capitalism in Europe. But the contrast between Western and Islamic legal tradition reveals a set of paradoxes. Indeed, Islamic legal institutions have strict legal formality and ensure individual ownership and transactions, all of which are suited to market development. The Islamic


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world, especially the Middle East, indeed prospered from medieval to early modern times but failed to achieve capitalism spontaneously. I would suggest that this is the heart of the paradox: strict adherence to legal formality in procedure often led to the avoidance of legal rules and extensive mediations, both within and outside the shari‘a court; the highly individualistic nature of transactions and contracts led to the absence of the concept of the judicial person who could accumulate capital in a family or a company, along with the absence of the territorial-based Western style polity that regulated “national economies” beyond mere interest in tax revenue collection.51 With the ongoing heated debate on how to build and manage an “Islamic” financial system suited to both Islamic legal theory and global capitalism among scholars, entrepreneurs, and politicians, we should look beyond Weber’s polarized characterization of formal/arbitrary for Western/Islamic legal traditions to include other axes in the debate.52

Notes This chapter is a revised version of two previous papers (Miura, 2003; and Miura, 2004), focusing on the features of contracts and courts in Islamic legal institution from a comparative perspective. Diacritical marks for the transliteration of Arabic words are omitted. I want to thank the editors for inviting me to contribute to this volume. 1. Cooter and Ulen, 1995; 1997, 170, 172. 2. The texts of shurut are published in works such as Wakin, 1972. 3. Encyclopaedia of Islam (new edition), ‘aqd; Schacht, 1964, 144–145; Ibn Qudama, 4:3–4. 4. I have been studying shari‘a court records in the Salihiyya court of Damascus in the eighteenth and nineteenth centuries and have already published two papers in English (Miura, 2001 and 2002). Recently, there have been many studies on the purpose and role of shari‘a courts. See Iris Agmon and Ido Shahar, “Theme Issue: Shifting Perspectives in the Study of Shari‘a Courts: Methodologies and Paradigms,” Islamic Law and Society, 15, 2008. 5. The Salihiyya court was one of the five local courts in Ottoman Damascus, located in the Salihiyya quarter in the northern suburbs of Damascus. Damascus had a main court and a special court for inheritance in addition to these local courts. 6. Schacht, 1964, 125, 155. 7. cf. Udovitch, 1970; Abu-Lughod, 1989. 8. Terada, 1983. 9. Terada, 1999. The quotation is from p. 435.

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10. Wakin, 1972, 43, 50, 65–67; Tyan, 1945, 71; Ibn Qudama, 12:124. 11. Miura, 2001, 128–133. 12. Tokuhashi, 2000. 13. Terada, 1989. 14. Interestingly, the contracts registered at the shari‘a courts in the Muslim Xingjiang district under the Qing dynasty were written in the Chagatai Turkish language in the first person, even though they were issued with the seals of Islamic qadis. See Hori, 2001. In eighteenth-century Khiva, contract documents in the Chagatai Turkish language were found in which the parties’ dialogues were recorded using the first person. We can find many shari‘a court documents written in the Ottoman Turkish language using the first person in a form of dialogue. The nineteenth-century Persian documents of sales used the third person (Werner, 2003). 15. Terada, 2004, 92–96. Furthermore, in the shari‘a court, both testimony and oath are stated in the name of God. A similar expression of “by the name of God” was used in the register of Italian notaries. In contrast, such invoking of God was less of a factor in China. 16. Reilly, 2001, 73. In nineteenth-century Palestine/Nablus, the contracting parties did use verbal, or written contracts to bind the parties for the limited period of the sale, according to their specific needs (Doumani, 1995, 90). 17. Schacht, 1964, 152–153; Ibn Qudama, 4:2–4. 18. al-Bukhari, The part of sale. Exchange on the spot; al-Bukhari, 2: 690–691 (Chaps. 42–45, Hadith 2001–2006), 698–699 (Chap. 54, Hadith 2027). Prohibitions against raising the price by auction: ibid., 701 (Chap. 60, Hadith 2035). Buying on credit: ibid., 674–675 (Chap. 8, Hadith 1955), 710 (Chap. 79, Hadith 2069). Reselling without payment: ibid., 696 (Chap. 51, Hadith 2019), 698 (Chap. 54, Hadith 2026). 19. Ibn Qudama, 4:47. 20. Miura, 2002, 113; 122–4. 21. Miura, 2002, 125. 22. Reilly, 2002, 16. 23. Miura, 2001, 134–137; 2002, 120–122. 24. Similar views are shown in Ze’evi, 1998, 37–38; Agmon, 1996, 132; Ergene, 2003, 141. 25. The above-mentioned leases of garden or shop at high rent are supposedly those of capital assets of private ownership, which were properly valued. See Miura, 2002, 124–125. 26. Yanagihashi, 1986. 27. Half the lawsuits in the nineteenth century were on debt (total thirty cases), and half of the lawsuits were on the possession of immovable property (total fourteen cases). 28. Miura, 2002, 138–139. 29. Ergene, 2003, 59, 64–65. 30. “Report on the Administration of Justice in Anatolia,” Great Britain, House of Commons, Parliamentary Papers, 1880 (2712), 82: 934.


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31. al-Safadi, 8: 524; Ibn al-Ansari, 1:304. 32. al-Subki, 88–89. 33. Ibn Iyas, 4:134. 34. Ibn Khaldun, 2:928–929. 35. Bowring, 1840, 104. 36. Miura, 2001, 131–132. 37. al-Gahzzi, 2:117. 38. Ibn Iyas, 4:134 (in 1508); ibid., 4:320 (in 1513). 39. Ibn al-Sayrafi, 391, 367. 40. Ibid., 400–401. 41. Ibn Iyas, 4:302, 312 (in 1513). 42. When a wife demanded a divorce from her husband and the couple had had no sexual intercourse since their marriage, the governor approved her request by obtaining a substantial fee, 120 dinars. See Ibn Tulun, 1:134. 43. Cf. Jennings, 1999; Ergene, 2003. 44. Max Weber, Wirtschaft und Gesellschaft, Kapitel IX. Soziologie der Herrschaft. 45. Cf. Peletz, 2002, 25–59; Christelow, 1985. 46. “O’oka sabaki” has been very popular through the medium of folk literature and drama from the Edo period until now, but this is a creative fiction not relevant to his real work. Its charm is to lead to or approve a false statement intentionally in order to relieve the accused parties from strict punishment, not to change the existing law or its interpretation (see Ishii, 1986). Professor John Haley stresses the development of adjudicatory institutions and private law systems from medieval to modern Japan in his chapter of this book (see Chapter 2). However, it is still controversial whether the judgment of the medieval Kamakura government should be called adjudication, for it needed agreement of the parties, lacked enforcement power, and could be asked to be judged again. Professor Nitta suggests there was strong incredibility in legal formalities until modern Japan, which is shown in the anticipation of substantial justice, such as O’oka sabaki (see Nitta, 2000). 47. Shiga, 1984; 2009. 48. Terada, 2004, 92–96. Noel J. Coulson states that the reluctance of the Muslim jurists to hold a contracting party to his promise in the face of changed circumstances may generate from their belief that future circumstances are neither predictable nor controllable but lie entirely in the hands of the Almighty (Coulson, 1984, 81–82). If so, whether a promise or a contract, it shows a present agreement among the parties that cannot bind their future absolutely. 49. Yanagihashi, 1995. 50. Kato Hiroshi concludes his study on conflict and a lawsuit in an Egyptian village in the late nineteenth century, pointing out a mediation system by introducing a third party between the disputing parties (Kato, 1997, 234–235). Lawrence Rosen made note of the mediation process and the role of the Islamic court and discussed these as they related to the culture of Islamic law, while finding similarities to the Anglo-American common law system (cf. Rosen, 2000).

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51. Miura, 1995. 52. A new diagram of two axes such as adjudication/mediation and govern mental/voluntary is proposed in Shiga’s recent article (Shiga, 2009, 202).

References Arabic Sources al-Bukhari. Sahih al-Bukhari. 5 vols. Damascus, 1993. al-Ghazzi. Kawakib al-sa’ira bi-a‘yan al-mi’a al-’ashira. 3 vols. Beirut, 1979 (repr.). Ibn al-Ansari. Nuzha al-khatir wa bahja al-nazir. 2 vols., Damascus, 1991. Ibn Iyas. Bada’i‘ al-zuhur fi waqa’i‘ al-duhur. Muhammad Mustafa, ed. 5 vols. Cairo and Wiesbaden. Ibn Khaldun. Muqaddimat Ibn Khaldun. ‘Ali ‘Abd al-Wahid Wafi, ed. 3 vols. Cairo, n.d. Ibn Qudama. Muwaffaq al-Din and Shams al-Din Ibn Qudama. al-Mughni, wa yalihu al-Sharh al-Kabir. 12 vols. & index. Beirut, 1983. Ibn al-Sayrafi. Inba’ al-hasr bi-abna’ al-‘asr. Hasan Habashi, ed. Cairo, 1970. Ibn Tulun. Mufakahat al-khillan fi Hawadith al-zaman. Muhammad Mustafa, ed. 2 vols. Cairo, 1962–1964. Law Court Registers of Damascus, Sijillat al-Mahakim al-Shar‘iyya Dimashq, Markaz al-Watha’iq al-Ta’rikhiyya bi-Dimashq [LCRD]. al-Safadi. Kitab al-wafi bil-wafayat. Vol. 8. Stuttgart, 1991. al-Subki. Mu‘id a-ni‘am wa mubid al-niqam. David W. Myhrman, ed. London, 1908. Wakin, Jeanette A. The Function of Documents in Islamic Law: The Chapters on Sales from Tahawi’s Kitab al-Shurut al-Kabir. New York, 1972.

Secondary Works Abu-Lughod, Janet. Before European Hegemony: The World System, a.d. 1250– 1350. Oxford: Oxford University Press, 1989. Andaya, Barbara Watson. “Orality, Contracts, Kinship and the Market in PreColonial Island Southeast Asia.” In Toru Miura, ed., Ownership, Contracts and Markets in China, Southeast Asia and the Middle East: The Potentials of Comparative Study. IAS Proceedings Series, no. 3. Tokyo, 2001. Agmon, Iris. “Muslim Women in Court According to the Sijill of Late Ottoman Jaffa and Haifa: Some Methodological Notes.” In Amira El Azhary Sonbol, ed., Women, the Family, and Divorce Laws in Islamic History. Syracuse: Syracuse University Press, 1996. Bowring, John. Report on the Commercial Statistics of Syria. London, 1840. Christélow, Allan. Muslim Law Courts and the French Colonial State in Algeria. Princeton, NJ: Princeton University Press, 1985.


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Cooter, Robert D., and Thomas S. Ulen. Law and Economics. Boston: AddisonWesley, 1st ed. 1995, 2nd ed. 1997. Coulson, Noel J. Commercial Law in the Gulf States: The Islamic Legal Tradition. London: Graham & Trotman, 1984. Doumani, Beshara. “Rediscovering Palestine: Merchants and Peasants,” in Jabal Nablus, 1700–1900. Berkeley: University of California Press, 1995. Ergene, Bogaç A. Local Court, Provincial Society and Justice in the Ottoman Empire: Legal Practice and Dispute Resolution in Çankırı and Kastamoune (1652–1744). Leiden: Brill, 2003. Hori, Sunao. “Kaikyo no shakai keizai monjo ni tsuite: Chagatai go monjo no shokai wo chusin tosite” (Socioeconomic documents on Eastern Turkistan under the Qing rule: Introduction of Chagatai documents). Seinan Ajia Kenkyu (Bulletin of the Society for Western and Southern Asiatic Studies, Kyoto University) 54, 2001 (in Japanese). Ishii, Shiro, “Uso no koyo to O’oka Sabaki” (Effect of Falsehood in O’oka Sabaki), in Nihon jin no kokka seikatsu (State and life of Japanese). Tokyo: University of Tokyo Press, 1986. Jennings, Ronald C. Studies on Ottoman Social History in the Sixteenth and Seventeenth Centuries: Women, Zimmis and Sharia Courts in Kayseri, Cyprus and Trabzon. Istanbul: ISIS Press, 1999. Kato, Hiroshi. Abu Sineta mura shubun: Saiban monjo karamita Ejiputo no murashakai (The scandal in the village of Abu Sineta: Egyptian rural society in judicial records). Tokyo: Sobunsha, 1997 (in Japanese). ———. “A Historical Study of the Market Society: Reflected in the Waqf in Muslim Societies.” Annals of Japan Association for Middle East Studies, 20/1, 2004/9. Masud, Muhammad Khalid, Rudolph Peters, and David S. Powers, eds. Dispensing Justice in Islam: Qadis and Their Judgments. Leiden: Brill, 2006. Miura, Toru. “Court Contracts and Agreements Among Parties in the Islamic Middle East.” Annals of Japan Association for Middle East Studies, 19/1, 2003/9. ———. “Formality and Reality in Shari‘a Court Records: Socio-Economic Relations in the Salihiyya Quarter of Nineteenth Century Damascus.” The Memoir of the Toyo Bunko 59, 2002. ———. “Personal Networks Surrounding the Salihiyya Court in 19th-Century Damascus.” Études sur les villes arabes du Proche-Orient, XVIe–XIXe siècle. Damas: IFEAD, 2001. ———. “Shijo shakai to isramu: Isuramu shi wo minaosu” (Market society and Islamic institutions: Reexamination of Islamic history). Isramu sekai no kaidoku (Analytical reading of the Islamic world). Tokyo: Ochanomizu Shobo, 1995 (in Japanese). ———. “Tojisha no sekai to houtei no sekai: Isuramu ho ni okeru keiyaku” (Contracts and court in Islamic law). Hikakushi no Ajia (Asia in comparative perspectives: Ownership, contracts, markets, fairness and justice). Tokyo: University of Tokyo Press, 2004 (in Japanese).

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Nitta, Ichiro. “Nihon chusei no funso shori no kozu” (Disputes resolution in medieval Japan). Funso to sosho no bunka shi (Conflict and litigation in cultural context). Tokyo: Aoki Shoten, 2000 (in Japanese). Peletz, Michael G. Islamic Modern: Religious Courts and Cultural Politics in Malaysia. Princeton, NJ: Princeton University Press, 2002. Reilly, James. “Local and Regional Economics of Ottoman Syria During the Eighteenth and Nineteenth Centuries.” In Toru Miura, ed., Ownership, Contracts and Markets in China, Southeast Asia and the Middle East: The Potentials of Comparative Study. IAS Proceedings Series, no. 3. Tokyo, 2001. ———. A Small Town in Syria: Ottoman Hama in the Eighteenth and Nineteenth Centuries. Bern: Peter Lang, 2002. Rosen, Lawrence. The Justice of Islam. Oxford: Oxford University Press, 2000. Schacht, Joseph. An Introduction to Islamic Law. Oxford: Clarendon Press, 1964. Shiga, Shuzo. Shindai Chugoku no ho to saiban (The law and the courts in Qing China). Tokyo: Sobunsha, 1984 (in Japanese). ———. Zoku Shindai Chugoku no ho to saiban (Sequel to the law and the courts in Qing China). Tokyo: Sobunsha, 2009 (in Japanese). Terada, Hiroaki. “Denmen-dentei kanko no hoteki seikaku: Gainen-teki bunseki wo chushin tosite” (The legal characteristics of the tianmian tiandi custom: A conceptual analysis). Toyo Bunka Kenkyujo Kiyo, 93, 1983 (in Japanese). ———. “Goui to keiyaku: Chugoku kinsei ni okeru ‘keiyaku’ wo tegakarini” (Agreements and contracts: Focusing on the contracts in early modern China). Hikakushi no Ajia (Asia in comparative perspectives: Ownership, contracts, markets, fairness and justice). Tokyo: University of Tokyo Press, 2004 (in Japanese). ———. “Goui to saishin (qixin) no aida” (In between Goui and Saishin). Minshin jidai no kihon mondai (Basic problems in the Ming and Qing periods). Tokyo: Kyuko Shoin, 1999 (in Japanese). Tokuhashi, Yo. “Chusei itaria ni okeru toshino chitujo to koshonin” (The order of cities and notaries in medieval Italy). Funso to sosho no bunkashi (Cultural history of conflicts and disputes). Tokyo: Aoki Shoten, 2000 (in Japanese). Tyan, Emile. Le notariat et le régime de la preuve par écrit dans la pratique du droit musuman. Beirut: L’Ecole Française de Droit de Beyrouth, 1945. Udovitch, Abraham. Partnership and Profit in Medieval Islam. Princeton, NJ: Princeton University Press, 1970. Weber, Max. Wirtschaft und Gesellschaft. Tübingen, 1972. Werner, Christoph. “Formal Aspects of Qajar Deeds of Sale.” In Kondo Nobuaki, ed., Persian Documents: Social History of Iran and Turan in the Fifteenth– Nineteenth Centuries. London: Routledge Curzon, 2003. Yanagihashi, Hiroyuki. “Hikakuho jo no Isuramu” (Islamic law in comparative perspective). In Takeshita Masataka, ed., Isuramu no shiko kairo (A way of thinking in Islam). Tokyo: Eiko Kyoiku Bunka Kenkyusho, 1995 (in Japanese).


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———. “Isuramu ho ni okeru senbaiken” (The right of pre-emption in Islamic law). Oriento 29/1, 1986 (in Japanese). ———. Isuramu zaisanho no seiritsu to hennyo (Formation and transformation of Islamic property law). Tokyo: Sobunsha, 1998 (in Japanese). Ze’evi, Dror. “The Use of Ottoman Shari‘a Court Records as a Source for Middle Eastern Social History: A Reappraisal.” Islamic Law and Society, 5, 1998.

chapter ten

Bankruptcy Laws East versus West Jérôme Sgard

; introduction Economic history and the economics of development offer an almost endless collection of social mechanisms designed to support contractual exchange. They are generally analyzed in the neo-institutional language of transaction costs, asymmetric information, commitment devices, and moral hazard. Among these mechanisms, however, some address the initial ex ante structure of contracts. Negotiations then raise mostly private, decentralized problems with often limited or no publicity, although a more or less extended set of social norms or formal regulations may constrain the discretion of the parties. Other mechanisms are remedies that are relied upon ex post after a dispute or a failure to respect commitments has occurred. Typically, they call for the intervention of a third party, which will support renegotiation, adjudicate conflicts, offer guarantees of enforcement, or sanction wayward behavior (legal or illegal). These ex post rules may then be characterized as informal if they are managed by individual mediators, community elders, private networks, or thugs, for instance. But modern states, characterized by the rule of law and monopoly over legitimate violence, most often provide the thirdparty institutions of last resort, typically in the form of a court. Relying upon them is even mandatory in many instances, as when public order is considered at risk. For these reasons, the judicial intervention in, and public regulation of, private disputes has been a major dimension of the longterm development of modern liberal polities and economies, however

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fluid and sometimes oppressive their interaction may have been. Putting all the coercive powers of modern states beyond the security of persons and the enforcement of contracts, while expecting that the sovereign would not abuse them, is a constitutional challenge if not a gamble. Still today, at least in many developing countries, the resilience of the “informal sector” reflects a failure to extend the rule of law to a large segment of the population—often a majority. In such a setting, property and contractual rights will not be efficiently protected, while executive forces may actually infringe on the basic rights of citizens. The alternative is then to rely upon local private orders offered, for instance, by “stationary bandits” à la Hobsbawm, with obvious costs of their own in terms of social violence or limited market access.1 From this perspective, bankruptcy laws probably provide the best example of a dispute settlement institution—hence an ex post instrument— that is established at the most judicialized end of this spectrum, where the authority of the state may closely govern individual behaviors. Two defining moments in the typical procedure underline this latter point. First, cases should be opened by a judgment that suspends the normal course of contractual interaction and shifts both debtors and creditors to an alternate, collective rule, supervised by the court. Second, the judge will often have to confirm the qualified majority vote of creditors once they have settled between liquidation and some continuation arrangement. At both moments, if the judge fails to intervene or if the law does not give him such power, then collective action problems may overwhelm agents: competing individual action against the debtor may deliver a worst case outcome, or minority creditors may hold out collective decisions. Over centuries and across countries, majority rule and judicial confirmation explain why bankruptcy laws have always revolved around the core vertical axis whereby the sovereign enforces, protects, and regulates private rights— though by intervening in them. A remarkable consequence of this pattern is that it is not very difficult to decide whether an institution is or is not a bankruptcy. A Brazilian, Polish, or American lawmaker who may be discussing contemporary bankruptcy reform would have no difficulty whatsoever understanding the (translated) 1262 Sienese statute, the 1673 French Ordonnance sur le Commerce or, again, the 1898 American federal statute. What differentiates these texts is primarily how the parties interact within the institution: the rules of deliberation and decision, the constitutional guarantees they receive, the entry barriers they are confronted with, or the discretion that is left to the judge. Here is where the critical evolutions took place, as state and market agents evolved together and progressively institutionalized competition and market sanction.

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The next section of this chapter provides a short summary of the history of this institution. Section 3 assesses how economies with or without a bankruptcy rule may schematically compare; as intermediate cases I briefly compare Roman, Islamic, and traditional Japanese debtor law. On this basis, the fourth section discusses further the constitutional dilemma raised by the critical encounter between private wealth and market exchange, on the one hand, and public intervention and majority rule, on the other. It is then hypothesized that the emergence of full-fledged bankruptcy statutes was de facto conditioned by a republican (municipal) constitutional order that allowed formalization of such a complex constitutional rule of interaction. a historical sketch To the best of our knowledge, in their fully-fledged classical version bankruptcy laws are a medieval Western European invention. This institution emerged during the thirteenth and fourteenth centuries in the northern Italian trading cities and was typically managed by semi-independent traders’ courts.2 From there it extended to the rest of the continent or at least to its main trading hubs.3 Later, from the seventeenth century onward, this legacy was confirmed, absorbed, and rewritten by the legal and judicial institutions of emerging modern states. In particular, the French commercial codes of 1673 and 1807 carried forward the core Italian patterns,4 first in continental Europe,5 then in Latin America, African colonies, Japan, Turkey, and Republican China.6 In a parallel manner, the specific English tradition was exported to Scotland and Ireland, then to colonies across the world.7 In other terms, bankruptcy became a typical European legal transplant, with the actual planter being English or French, or even Dutch, Portuguese, Spanish, or German. In all those cases, Western and non-Western, there was of course a significant difference between the law in the book and the actual practice of agents. Bankruptcy works only as part of the infrastructure of local credit markets, where differences across countries and centuries are immense, as historians know. In some cases, therefore, an imported statute may respond quite directly to the needs of local trading communities.8 Or it may be progressively adjusted and even improved, following the Belgian and Piedmontese experiences vis-à-vis the French 1807 Commercial Code. Alternatively, transplanting may fail, as in the relatively shallow networks of colonial trading outposts, where a fractured sovereignty apparently opposed limits to political and economic reordering.9 In other words, a given bankruptcy


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statute may or may not affect behaviors, and it may sanction failure more or less strongly. But in turn, because it may bear so powerfully on property rights and market discipline, hence on access to economic exchange, its very presence or absence is doomed to tell a great deal about how contracts are structured and how many of them are exchanged in an economy. This is ultimately why bankruptcy laws are part of global history. Whether in Europe or farther afield, in independent countries or in colonies, this institution is indeed a remarkable marker of the extension of open markets, specifically open debt markets. It reflects the degree to which the adjudicative and enforcement guarantees of the state support exchanges in an impersonal, predictable way, across a more or less extended jurisdiction. Bankruptcy for this reason typically belongs to what Max Weber called modern “calculable rights,” without which the potential for means-end rationalization, characteristic of capitalist economies, is severely impaired. For centuries, however, those rights applied to only a tiny subset of the populations—merchants, bankers, and later manufacturers. This was typically reflected in their falling under the specific jurisdiction of traders’ courts, where the uniquely hard, individualistic rule of bankruptcy law emerged. In societies that otherwise remained very much patrimonial and averse to marketization, the large mass of the populations would just not be exposed directly to the tough rule of market interactions and solvency constraints and the ultimate risk of expropriation. Here is the cultural and institutional environment where the imagery of bankruptcy emerged as a most ignominious form of personal downfall— think of Balzac, Dickens, or Flaubert. Still, the Italian and French early bankruptcy laws were already framed as a civil dispute resolution mechanism. Although the debtor might be convicted, insolvency would not necessarily cause civic death or lifelong prison, for instance. These statutes were explicitly designed to regulate the inevitable flow of commercial failures that surface in any market economy.10 For centuries, judges and lawmakers were indeed haunted by the fate of the legendary “honest but unlucky debtor”—that is, the merchant who had committed neither a fault nor a sin and whose civic status and access to the market should be protected or conditionally reinstated. Beyond fairness, economic efficiency was clearly the issue: in an expanding open market economy, an exclusively penal, exclusionary approach to debt defaults would inevitably impair risk taking and entrepreneurship. Eventually, the standard answer was debt relief, either as a collective decision of the creditors or as a judicial one. Provided the bankrupt had dutifully ceded all his remaining assets, this would open the prospect of a fresh start for him. As Blackstone famously commented:

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“Thus the bankrupt becomes a clear man again; and . . . may become a useful member of the commonwealth” (1811, p. 488). Over the course of the nineteenth century, as the European and American societies fully entered market exchanges, problems of overindebtedness and insolvency extended to retail traders, then to farmers, and later households. Both the law and the judiciary then had to address the needs of this new, much larger clientele, with its specific needs and resources. This would raise considerable challenges to institutions that had been established, sometimes centuries before, to serve only a limited number of cases, arising from a rather homogenous population. Take the case of France, where the total number of bankruptcy cases grew by about 240 percent between the 1840s and World War I: far from reflecting a mostly “Schumpeterian story,” where masses of entrepreneurs would face success or fiasco, the largest contribution in this increase came from the lower strata of small, local businesses.11 A mass of insolvent retail traders and craftsmen then clogged courts, until judges were allowed in 1838 to close or suspend cases ex officio; creditors’ agreement was not even requested. In other words, the old, honorable Tribunaux de Commerce simply excluded small debtors and their creditors and therefore refused to enforce market sanction at the lower end of the economic population. By the 1850s, 20 percent of cases did not proceed to the end; in the ten years before 1914, this ratio averaged 50 percent of the total. In other words, these agents were de facto left to the “informal sector,” an experience very comparable to that observed today in many developing countries: the law and the institutions of open market economies may be in place, although they reach only a part of the populations, often a minority.12 a world without bankruptcy law? This account still carries much weight today, even in countries with wellestablished judiciaries: informal debt markets and private ordering should not be considered a mere residual practice or a testimony of past practices and institutions. Consumer credit or microcredit institutions, for instance, never rely upon judicial enforcement in case of default: they explicitly state that the cost of drawing debtors to the courts is not worth the return. Hence, they rely on a reputation-based mechanism—such as credit bureaus—or on private enforcement. And from there on, of course, undue pressure and extortion may rapidly arise, especially in the most vulnerable, least educated parts of the populations. Racketeering by loan sharks regularly appears on the front pages of newspapers and keeps reminding people of the ever present potential for debt contracts to become the vec-


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tor of highly asymmetric, exploitative social interactions.13 In such conditions bankruptcy again appears, just as in the early modern period, as an obviously harsh answer, though one that is ultimately predicated on a principle of social and economic inclusion. Where mechanisms of socialization have run their course—think of Social Security—access to a courtbased debt relief procedure is the last recourse before social exclusion. This is why, in the United States since the 1980s, the debt threshold that conditions personal bankruptcy and debt relief has become such a major policy issue. It is one of the ultimate backstop rules whereby lawmakers decide that the logic of private contract and market discipline should be suspended in the name of a broader notion of common good—or public decency.14 What this tells us, from a global historical perspective, is that the operation of a bankruptcy law, considered as an ex post relief mechanism, should always be considered in parallel with two other types of institutions: first, those that allow for an ex post social safety net and, second, the ex ante rules that govern and possibly prevent access to debt markets. In the previously discussed case of nineteenth-century France, widespread exclusion from the courts ultimately reflected the gap between a lowered threshold to market entry and an exit threshold that remained high, that is, costly, and therefore unavailable to many new entrants. By the same token, the American policy debate on the regulation of consumer debt markets is always about balancing the ex ante regulation of credit institutions, private responsibility, and ex post relief. At the other end of the historical spectrum, traditional or premodern societies often put much weight on ex ante supply-side rules that prevent agents from taking too much risk. As entrepreneurship and innovation are stymied, the probability that they would accumulate too much debt and become vulnerable to contract breach is controlled. Usury law is the classical example, but the Indian Damdupat is a functional alternative;15 market-based rules can also be relied upon, as in the case described by Brockman (1980) of the contingent clauses written into Taiwanese future rice contracts that split excess price fluctuations between the two parties so as to limit the risks of destabilizing wealth transfers. These risk-limiting rules are then often balanced by harsh, exclusionary treatment of failed debtors, if they go beyond the safeguards: they would have not only broken their contracts but also violated the rules of the social game. In modern Europe, for instance, those we would now call consumer debtors typically suffered a harsher fate than failed traders, because their debts were much less legitimate to start with. Under both the English and the French legal traditions, access to either debt discharge or arrangements typically remained curtailed until the twentieth century.

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Earlier open-ended prison for debt may be seen as the standard counterpart to usury law,16 though public humiliation, excommunication, and banishment had the same effect. One step further are the many possible forms of debt slavery—permanent or time-limited, transmitted to children or strictly personal, allowing (or not) for the debtor to be sold on the market. Greek cities, and more clearly Republican Rome, are examples of the (im)balance between ex ante prevention and ex post repression, which allowed the debt market to profoundly affect broader social and political relations, as Max Weber emphasized.17 Comparable experiences have been observed in the most diverse environments—ancient empires, African kingdoms, or traditional India. Testart (1998, 2002) stresses that debt servitude is quite common in traditional societies, sometimes parallel with the enslavement of war prisoners. It characteristically goes together with a high degree of social differentiation and the acceptance of a strong nexus in the distribution of wealth and power. Modern colonial or postcolonial societies also present many comparable examples, such as coolie labor in Southeast Asia or debt peonage in Latin America.18 Here the debtor does not formally lose his social and civic status, so that servitude, when it becomes enduring, is more a de facto than a de jure situation. In a broad comparative perspective, therefore, these oppressive or despotic institutions should be viewed as an alternate to modern or liberal bankruptcy laws. Depending on the primary choice—a bankruptcy rule or not—social integration and the sanction of contractual failures will be articulated in starkly different manners. Or, hypothetically, a pure “crime and punishment” approach to debt default, rather than bankruptcy, may correspond to societies where either access to debt is highly constrained ex ante or where debt has become the vector of wide-scale, unfree labor. three intermediate cases If we now look for some intermediary institutions between these two polar cases—worlds with or without bankruptcy—three historical experiences may be singled out that help identify the uniqueness of this institution. A first, most original case was the traditional Japanese debtor law under the Tokugawa (1600–1867). It emerged under a well-structured political system and a fairly developed economy, with substantial credit markets and differentiated financial intermediaries.19 Collective action in case of default was apparently most common and included the possibility of joint agreements negotiated by the creditors with their debtor on terms of payments and on write-offs. A majority vote would actually seal the common act and bind dissenters. Apparently, then, Japan was


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the sole country outside of Western Europe where this practice emerged endogenously. Still, one piece was missing in order to obtain a fully developed bankruptcy procedure: majority vote was not confirmed by authorities, so that, apparently, horizontal community relations were strong enough to support self-enforcement. This is consistent with the fragmented character of trade regulations across regions, cities, and professions. It also reflects a more general, explicit pattern of strong resistance against the judicial guarantee of monetary and credit relations: enforcing private contracts in court was uncommon, suing indebted noblemen was most difficult, and even access to the courts by merchants was strongly resisted.20 Wigmore (1970–1986) published, for instance, a 1797 position by the Council of State after which “disputes in money loans, however old, can, if the parties act with integrity and mutual fidelity, be privately settled without difficulty, and the aid of public officials need not be sought. Actions upon such claims must necessarily mean lack of sincerity in both the borrower and the lender. The recent increase of such suits is due to the declining morality of times.” The open, though unanswered question, is whether this political and legal framework could have supported more rapid growth and more market integration, that is, a shift toward more impersonal exchanges and probably a demand for more explicit guarantees of contracts by the sovereign.21 What is certain, however, is that a Western model of bankruptcy law had already been adopted in 1872, which suggests that the existing debtor law was not satisfactory. The second experiment of interest in the present discussion is the Roman cessio that emerged in the later centuries of the empire. Here the debtor’s estate was transferred to an agent of the creditors and liquidated, so that the queue of creditors filing for the debtor’s assets was substituted by an orderly distribution mechanism: the former were served proportionately to their due, whether their contracts had matured or not or whether they were present or not when the default occurred. Prospects for market recovery and social pacification were then greatly enhanced. Conversely, the debtor typically escaped prison, though his remaining unpaid debts were not void: initial contracts remained fully enforceable even though they had been partly amortized. All future wealth and revenue flows might potentially be seized. Hence, compared with the traditional Japanese model, the cessio was clearly less sophisticated, at least in the sense that it left almost no scope for deliberation and collective decision among creditors. In contrast, the cessio was more universal or less constrained by local, communitarian institutions, which explains why it remained a minimal benchmark model widely used in Europe until the nineteenth century. Still today, procedures applied to overindebted consumers de facto follow the

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main features of the old Roman institution, though with discharge as a standard option. Finally, Islamic law offers a version of the cessio so close to the Roman original that the possibility of a direct, causal influence has been actually debated.22 However, deliberation or decision-making among creditors is also absent, and the judge does not confirm any decision they would take: all input by the parties in the procedure is individual. No debt write-off is possible within bankruptcy—discharge is a personal, unilateral act, so that after liquidation all creditors recover their remedies against the debtor (including individual “harassment”). Beyond these important parallel features, the Islamic and European version of the cessio differ substantially with regard to the position of the judge. In the former case, the common civil law judge (the qadi) has substantial discretion for equitybased judgments: he may unilaterally offer terms of payment or free debtors from prison if it appears that they are actually unable to pay. Hence, the risk of a debt trap is balanced by judicial discretion, vindicated by ethical or religious principles, as opposed to explicit, formal regulation. Conversely, in the typical Italian, then Western model, the decision to write off part of the debt is in the hands of the creditors, whereas the law offers formal guarantees that the process that leads to this critical decision will be fair, open, and legitimate. For this reason, the European versions are more formally rational in the Weberian sense and also more protective of property rights in the sense that their reallocation is highly controlled.

bankruptcy law as a constitutional dilemma Modern bankruptcy laws are indeed primarily about the procedure and the rules of the game to be followed by private parties as they bargain on residual assets and past debt contracts.23 They formalize how agents are discretely transferred to a judicial forum where the huge transaction costs of settling multiple defaults should be lowered. Since the first Italian experiments, this one-off transition has been clearly written in the books: individual judicial remedies are closed, the debtor may be put in jail, all payments are suspended, contracts are accelerated, control over residual assets is transferred to an agent, private correspondence is opened, and all past bilateral dealings may be open to the public place, including possible shadowy, late-hour bargains. A bankruptcy law, in other words, is very much a Hobbesian institution that protects the collective interest from a free-for-all run on the assets—


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that is, the equivalent of wealth-destroying civil war or a tragedy of the commons.24 Of course, the very figure of this peace-keeping authority— the Leviathan—immediately raises somber prospects as well. Why should its commitment to peaceful, disinterested intervention be trusted? How may subjects guarantee themselves against the uncontrollable use of its formidable powers? The sovereign may, for instance, legislate that the bankrupt estate is the legal equivalent of the remains of a shipwreck that could be shared between himself and the first ones to put their hands on the goods. What most did, however, and at a late hour, was to manipulate the hierarchy of creditors more or less extensively and protect some privileged stakeholders—doctors, innkeepers, the church, the fiscal administration, workers, local creditors, or real-estate property owners. However, there is more than a visible risk of predation to this postdefault account of a much-threatened, open private wealth. The very legal definition of property rights under bankruptcy is, in fact, utterly problematic. The logic of the procedure is not actually to protect or reinstate those rights but, first of all, to allocate losses among creditors so that the wealth-destroying effects of insolvency will actually be absorbed in the respective balance sheets; otherwise, those losses may just float and create considerable uncertainty in market exchanges.25 On this basis, and as a second-order act only, new property rights will be written and allocated, which distribution may reflect more or less closely that of prebankruptcy rights, though only by design.26 Early bankruptcy lawmakers were actually very careful, if not Byzantine, when qualifying property over residual assets in the course of the procedure. The French 1807 Code, for instance, stated that the debtor lost the administration—or control—of his business. Only the eventual decision to liquidate, at a much later time, would transfer full ownership via a contrat d’union to the body of creditors, or la masse. They would then auction off the assets and share the proceeds in cash, so that the normal regime of individual ownership and contractual exchange could be reinstated. Obviously, these successive steps would not make any sense in the alternate case of a continuation arrangement or Concordat between the creditors and the debtor. Contracting anew on assets self-evidently supposes that the bankrupt keeps very substantial professional and property rights, even if control is temporarily lost. What this implies is that the key constitutional issue at stake in bankruptcy is much more complex than is suggested by the traditional discourse on the “sacrosanct character” of private property—which is a myth, anyway. Bankruptcy law does not merely contribute a further variation around the well-honed principle that voracious sovereigns should have their hands tied when in the proximity of whatever piece of

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private wealth. In fact, bankruptcy helps private contracting recover, though not by restoring past rights: it formally intervenes in private contracts and reallocates wealth. The sovereign would not simply resist the temptation to invade the collapsed market field and collect the debris of failed enterprise. It would also help traders share information, deliberate, and vote, and it would then confirm and enforce the reallocation of wealth, though in principle without imposing its own preferences—such as its urgent need for cash, or the preservation of local employment. Bankruptcy is as much about the public sanctuary of private rights as about the conditions under which these protections may be suspended. In this respect, it belongs in the same category as eminent domain and antitrust. a republican institution? It is therefore quite remarkable that bankruptcy laws emerged in the specific context of the northern Italian municipal republics and then extended to the self-governed, independent trading cities of northern Europe, specifically in Germany and Flanders. What brings these various political entities together is the more or less extended constitutional delegation they obtained from their ultimate rulers—the pope, the emperor, the count of Flanders, the king of France, and so forth. Against a more or less binding allegiance and a fiscal tribute, burghers and merchants could actually govern their local public affairs, administrate courts, and possibly design legal institutions that best suited their interests. This is the political context where powerful innovations with respect to trade law were either developed (such as the commenda contract), or where they actually emerged, such as bankruptcy. In northern Italy the relative independence of cities, as that of the corporations (arti) vis-à-vis municipal bodies, was explicitly formalized in a complex hierarchy of laws and jurisdictions. For the first generations of medieval lawyers that addressed commercial life, a defining issue was indeed the legal and jurisdictional articulation between these specific minority though legitimate interests and those of the city.27 Elected courts, the capacity to adjudicate internal conflicts, judicial confirmation, appeal, guarantees of execution, penal powers: all these were the critical points on which self-government was founded and circumscribed, even though frictions and negotiations with superior authorities were inherent to this relation.28 The structural affinity between bankruptcy and republican or protoliberal constitutions is of course reflected in their being supported by the same constituencies. Beyond their many obvious differences (bankruptcy is


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not a government institution), they also share a common pattern in the way they articulate private and public action or individual interest and the common good. Both institutions are actually committed to private wealth and market exchange, on the one hand, and to majority-driven, collective action by citizens, on the other. They both sanction private rights and recognize the plurality of social interests, hence the possibility of conflicts between citizens or creditors, which may eventually threaten the common good. But rather than being preempted by an invasive, discretionary despot, disputes are to be governed by votes and courts once decentralized aggregation and deliberation has failed. Municipal republics and bankruptcy procedures then explicitly addressed the classical dilemma of collective action, majority rule, and the government of the commons that is typical of modern liberal polities. In both frameworks, collective autonomy and self-regulation are not contingent upon superior goodwill or any transcendent principle. They are to be written into constitutional rules, whereby the sovereign endorses and protects the limited, local, and possibly short-lived, collective will of free agents. The legitimacy of the joint private interest of burghers and creditors, respectively, is thus fully recognized by the sovereign, potentially against his own interests or those of a larger political entity. Hypothetically, this remarkable rule of interaction between the private and public realms—the recognition of civil society or civil association—may offer the critical, seminal difference with nonEuropean or premodern debtor laws—such as the cession and the selfsustained Japanese “private bankruptcy.” Beyond individual property and contracts per se, other examples would be corporations, any form of perpetually lived organization,29 or, by the same token, free political parties or trade unions. Looking beyond the medieval experiences, the ulterior decline of independent cities in Europe could have threatened this unique trading institution at a time when patrimonial or rent-seeking monarchies took over. Yet bankruptcy laws and the courts that served them did not disappear. As already stated, they were progressively included by the new emerging national states in their own vertically integrated judicial organization. Let us turn again to the case of absolutist France, which is the main link between the Italian legacy, on the one hand, and modern, continental commercial law, on the other. This experience is also paradigmatic insofar as it highlights how, in a traditional society where antimarket forces were strong, and rent-seeking interests pervasive, commercial institutions like bankruptcy could still be protected and even extended. The specifically constitutional character of this later institution may help us better understand how transition, or capitalist take-off, could eventually become possible, against all political odds and before a comprehensive liberal constitution

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was adopted. In this sense, this experience also speaks to the East versus West comparison, with Tokugawa Japan a plausible experimental alternative to ancien régime France. Independent, elected commercial courts were established from 1549 onward by the monarchy and then reformed and strengthened during the early reformist years of the reign of Louis XIV (1667–1673). Though these courts were thus granted, the local elites adopted and invested them so that they actually worked, as in Italy, as a commitment mechanism against political interference in the contractual disputes of traders. The main threat, however, did not come from the unchecked powers of the king seated in Paris. It stemmed, rather, from the old overstaffed, rentseeking, local civil courts and regional supreme courts (les Parlements), which never accepted the Cours consulaires and their utterly alien rules. To start with, being elected every other year, the juges consulaires were not owners of their position and did not make a living out of rendering justice, which could thus be free of charge. Procedure was also swift, rules of proof light, oral evidence was preferred, execution was immediate, and commercial customs were widely recognized.30 In this sense they very much looked like the minimal, paradigmatic, third-party dispute settlement institution as envisaged by Shapiro (1981). This contrast obviously caused endless attempts by civil courts to get rid of the Cours consulaires and take control of a major source of money. Although the overall constitutional order was clearly not republican or liberal, limited self-regulation and effective safeguards actually proved enough to preserve and develop institutions designed in an earlier age. And as the commercial courts were incessantly attacked, the delegated, limited rights of traders to self-regulate contractual exchange were ultimately defended by the royal meritocratic administration in Paris. A second line of defense was established. At about the time when the traders’ courts were reformed, the first commercial code was written on the basis of accepted traders’ customs, or the Law Merchant—that is, the diffuse body of specialized norms that had supported earlier trade integration in Europe.31 Against the backdrop of pervasive supply-side regulations coming from both the state and the guilds, the Ordonnance sur le Commerce (1673) was primarily remarkable for its being limited to contractual exchange per se.32 This text de facto reflects a sharp, clear-cut, intriguing division between the regulation of access to product markets and market operations as such: for example, capital raising, payment discipline, and contractual disputes. The mere fact that the Ordonnance, specifically its chapter on bankruptcy, would apply to a segmented, status-based society can simply not be inferred from its reading. It is framed altogether as an egalitarian and a universal rule,


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while the courts’ intervention was not imposed on traders but proposed to them.33 Although for some periods and in some places bankruptcies fell under the jurisdiction of civil courts, the Ordonnance then offered four procedural guarantees: the now well-established confirmation of majority vote (with protection of senior creditors), collection and circulation of information,34 and a series of measures that aimed at controlling moral hazard on the debtor’s side, including penal repression (banqueroute frauduleuse). Finally, Article 9 of the related title of the Ordonnance adds that notaries, escrow account receivers, judicial and police officials, and autres personnes publiques (other officials) could never seize the bankrupt’s cash, even temporarily, during the course of the procedure; if they did they could be prosecuted for corruption. It is difficult to know whether the threat was actually exercised, and to what effect, but the intent is clear: traders should be protected from officeholders and other patrimonial agents. And with this, all decisions of substance (i.e., money) were placed squarely in the hands of the parties, while the juges consulaires and the officials would offer only rule-based, offhand support to collective action.35 In an otherwise despotic regime, characterized by permanent discrete executive intrusions, the institutions that enforced contractual discipline were voluntarily placed off limits and conceded to self-governed bodies.36 conclusion Modern open market economies may be thought of as a social model in which agents receive uniquely large, equal, and unconditional rights to act, contract, and speculate. This ex ante endowment allows them to innovate and take risks on a large scale. This is the primary reason why such societies may experience sustained long-term growth and social differentiation. One defining aspect, however, is that the outcomes of investment, both individual and social, may not correspond to intentions or expectations. Financial crisis may erupt, and individual firms may fail. This is the typical juncture where regulation or intervention by the state returns to the fore of public debate. Policies may then exclusively aim at absorbing ex post the negative externalities raised by the crisis. Think of soup kitchens, debt moratoria, market interventions to support prices, and of course unemployment benefits. Governments may also conclude that future behavior should be regulated. For instance, they may restrict the capacity of financial intermediaries to lend freely to households or to highly leveraged market operators.

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Bankruptcy law responds to yet another logic, which should not be twisted to reflect broader preferences or reallocative priorities that belong to safety net policies. On the one hand, it works ex post and helps making the consequences of individual failures endogenous, that is, the risk of a tragedy of the commons. On the other hand, it enforces in a highly rule-based manner the defining norm of any developed market economy: individual solvency. How this is done tells a great deal about how expectations and behaviors will be shaped and thus how agents will invest and take risks. The ultimate market sanction, in other words, is governed by a public institution that is part and parcel of the long and complex history of modern state building. As bankruptcy contributes to the institutionalization of the market, it also articulates it to this exceptionally powerful authority—only the sovereign in a liberal polity may legitimately reallocate private property, though under restrictive legal and judicial conditions. Despotic forbears opposed powerful ex ante restriction to debt taking, or they exercised or validated oppressive ex post sanctions, such as various forms of debt servitude. Early modern states differentiated between traders and nontraders; hence they delineated a subdivision of society within which market forces would extend much more freely and impose a much more competitive model of social relationship. In contemporary societies, where indebtedness is widespread, bankruptcy still draws the line beyond which the unchecked power of contractual commitments should not extend. As modern constitutional states govern the ultimate market sanction, they still delineate the realm of market exchange and personal risk, on the one hand, and civil society, on the other.

Notes I owe special thanks to John Haley, Timur Kuran, and William Clarence Smith for insights about and input into this chapter. This research was supported by the Institut CDC pour la Recherche (Project “Les Pauvres, le Crédit et la Faillite”). 1. Hobsbawm (2000). 2. See Santarelli (1964) for the early Italian experiences, then Fortunati (2001), Pirenne (1922), and Hilaire (1986). 3. In his classical history of bankruptcy law, Kohler (1891) considers that its emergence in northern Europe reflected Italian influence, rather than a parallel, home-grown experiment. The network of late medieval international fairs may have been a conduit for their extension. However, the logic of collective retaliation between cities, when traders ceased payment, would point instead to bankruptcies being relied upon indirectly, as local institutions, rather than being established directly as a cross-jurisdiction institution (Greif, 2004).


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4. The most reliable references on the history of French bankruptcy laws are Renouard (1857), Guillon (1904), Dupouy (1960), and Hilaire (1986). See also Hirsch (1991). 5. The German and Spanish traditions with regard to bankruptcy took specific characters early on and proved quite resilient though they remain well inside the Italian legacy. For nineteenth-century comparative law, see Saint-Joseph (1844), Thaller (1887); also Sgard (2006). For post–World War II perspectives, see Dalhuisen (1968), Pajardi (1988). 6. See the Annuaire de Législation étrangère (1871–1935) and Les lois commerciales de l’univers (1911–1914). See also Anderson and Steele (2003) for Japan, Young (1906) for the late Ottoman Empire, and Théry (1935) for Republican China. 7. Bankruptcy law in England developed along very specific lines that apparently reflected the original patterns of its judicial history. Most significantly, until the late nineteenth century judges could not confirm majority votes. Continuation arrangements, therefore, were only private affairs, that is, voluntary and noncoercive accords. Note also that English bankruptcy law has always been statute based: there is no concept of bankruptcy under common law. See Treiman (1938), Johnes (1979), Duffy (1985), and Lester (1995). 8. In early twentieth-century Zanzibar, local merchant communities apparently relied extensively on the Indo-British bankruptcy law; see Oonk (2006) and Stephens (1913). 9. Newbury (1972) quotes the English chief magistrate in Lagos, advising in 1874 against the introduction of English bankruptcy law: “The Lagos merchants entrust their Capital to factors, usually native traders, who may or may not have property of their own, but who in their relations with Lagos, act as agents with the tribes up the country. From this state of things it follows that the Court could not possibly exercise any effective control over discharged debtors.” 10. Seventeenth-century England is the only early-modern country where this civil dimension is absent. The introduction of court-based debt discharge, in 1705, would bring it into the fold, though within a procedural framework quite unlike that observed on the Continent (Sgard, 2010). 11. Between 1840 and 1914, the number of bankruptcy cases with ex ante debt under 10,000 francs, a very small sum, fluctuated upward between 25 percent and 35 percent of the total, while absorbing only 4 percent on average of the total debt at risk. The equivalent numbers for large firms, with debts over 100,000 francs, were 12 percent and 33 percent. 12. See De Sotto (2000) and Maloney (2004). 13. See Nugent (1941) on the progress in the regulation of U.S. loan shark lending between 1900 and 1940; McMullan (1980) for a sociological study of the microlevel promiscuity between officials and racketeers in the case of poor consumer debtors in Montreal; and Rezendes and Latour (2006) for a remarkable four-part survey on the same subject published in the Boston Globe. See also Leahy and Chopra (2008) on suicide for debt in contemporary India, or Worth (2009) on prison for debt in Dubai.

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14. Warren (2004). 15. See Swamy (2007). 16. Troplong (1847), Cohen (1982), Innes (1980), and Claustre (2007). 17. “The class struggles of early Antiquity took place between the urban patriciate as creditors and the peasants as debtors or as dispossessed debt slaves. . . . The ancient city experienced as the chief danger arising from economic differentiation . . . the emergence of a full class of citizens, descendants of families with full citizenship rights, who were economically ruined, in debt, without property, no longer capable of equipping themselves for service in the army, and who hoped for a revolution or a tyranny from which they could demand a redistribution of land, a cancellation of debts, or support out of public means.” (Weber, 2:1340– 1341). See also Finley (1965, 1973) and Frederiksen (1966). 18. In a vast literature, see, for instance, Galenson (1984), McCreery (1983), Klein (1986), and Breman (1989). 19. See Sheldon (1983), Iwahashi (2004), and Toby (2004). 20. Sheldon (1983) states that “merchants bringing cases had to crawl on hands and knees from the door of the court to the judgement room.” 21. Greif (2004). 22. See Chehata (1969), Bouvet (1913), Vogel and Hayes (1998), and Ziadeh (2000). Bergé (1914), a French judge in colonial Tunisia, then Morocco, tells the following story about the relative ease of obtaining a convergence between colonial French law and traditional Islamic law. The reference is to an ad hoc commission of Muslim lawyers who contributed to this transplant operation in Tunisia: “When objections emerged in the Muslim Commission on the adaptation of a given legal concept, which had been drawn from some European legislations, the response was to formulate them differently so that they would be accepted. And it was in the Digest that alternate redactions were found. The surprise was that Muslim lawyers then found them perfectly orthodox and that they could even find textually identical formulation in their oldest law treatises. This happened so many times that some research was conducted that led to the discovery of as yet unknown historical phenomena. We understood that during their first invasion of Minor Asia, Arabs met populations that were following Late Empire Roman law . . . etc.” This hypothesis is defended by Thaller (1887), but Bouvet (1913) argues against it. The Digest is the main collection of Roman law, written under Emperor Justinian (sixth century a.d.). 23. German bankruptcy law, for instance, is traditionally part of civil procedural law, not commercial or civil. The landmark 1877 act is, for instance, entirely framed as the description of the rules of the game within the institution, with no regulation that would affect or orient specific outcomes. 24. Hardin (1968). 25. The failure to enforce bankruptcy law in Russia during the 1990s was the prime factor beyond demonetization and the extension of barter. As a mass of insolvent and illiquid firms kept entering into contracts, while being unable to service them, they increasingly relied upon nonmonetary instruments of settlements.


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And as the latter extended to the trading networks, the incentive for liquid firms was to dispose of those instruments in their exchanges and accumulate hard cash positions, primarily abroad (Sgard, 2002; Woodruff, 1999). 26. See Jackson (1986) for a modern discussion of this problem and the redistributive issue it raises. 27. Berman (1983) and Padoa-Schioppa (1992). 28. Sbriccoli (2000). 29. See Roy, Chapter 6 in this volume; also Kuran (2005) and North, Wallis, and Weingast (2009). 30. Dupouy (1960), Hirsch (1991), Kessler (2007), and Sgard (2009). 31. The link that binds the Italian medieval trade law, which was statutory, and the Law Merchant, which is often considered as purely customary and transnational, has not been well explored. A further difficulty is that Anglo-American legal historiography is focused on the later experience and on fair courts, though typically under their rather specific English version (Sutherland, 1934; Donahue, 2004; and Rogers, 1995). The Italian legacy is often disposed of as just another expression of the statutory civilian tradition. Continental historiography, conversely, suggests a continuum between Law Merchant and early mercantile law. The underlying valorization of the former legal experiment is probably also less pronounced. 32. This first modern commercial code was prepared by a commission of experts, led by Jacques Savary, a former successful Parisian trader and legal counsel. Colbert, the minister of finance, then asked him to prepare of book of comments and explanations. Together with the Parères (1688) by the same author, which commented on case law, the Parfait Negociant (1675) was the most influential book on trade practice until the 1807 Code de Commerce. 33. See Gelderblom, Chapter 12 in this volume, for the case of Flanders and Holland. 34. The Ordonnance was the first French statute that made it mandatory for traders to hold proper accounting books (so-called livres de raison), but bankruptcy was the only occasion on which that could be checked, that is, when commercial secrecy could be suspended. 35. Specifically, there was nothing comparable to the “cram-down clause” of the present U.S. bankruptcy code, which allows the judge to impose a restructuring plan on creditors who fail to agree on their own. For the same reason, in the Italian tradition, debt discharge has never been decided by the judge or upon his initiative but remains exclusively a private decision, included in the arrangements. 36. The English common law tradition is known for not having developed a specific independent body of trade law. This echoes the possibility opened early on to English noblemen and aristocrats to enter trade. Still, like its equivalent on the Continent, English bankruptcy law (which is statutory) was restricted until the nineteenth century to traders. As in French or Italian law books, baroque discussions can then be found that try to draw the line between this group and the rest of the population.

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References Anderson, K., and Steele, S., 2003. “Insolvency,” in Taylor, ed. Japan Business Law Guide. Singapore: CCH International. Bergé, S. 1914. “Introduction,” in Codes et lois en vigueur dans le protectorat français du Maroc. Paris: Imprimerie Nationale. Berman, H. J. 1983. Law and Revolution, I. Cambridge, MA: Harvard University Press. Blackstone, Sir William. 1811. Commentaries on the Laws of England. London: William Reed. Bouvet, R. 1913. De la faillite en droit musulman. Paris: Giard & Brière. Breman, Jan. 1989. Taming the Coolie Beast: Plantation Society and the Colonial Order in Southeast Asia. Oxford: Oxford University Press. Brockman, R. H. 1980. “Commercial Contract Law in the Late Nineteenth Century Taiwan,” in Cohen, J. A., Edwards, R. R., and Chen, F. M, eds., Essays on China’s Legal Tradition. Princeton, NJ: Princeton University Press, pp. 76–136. Chehata, Chafik. 1969. Essai d’une théorie générale de l’obligation en droit musulman. Paris: Dalloz, reprint 2005. Claustre, J. 2007. Dans les geôles du roi, L’emprisonnement pour dettes à Paris à la fin du Moyen-Age. Paris: Publications de la Sorbonne. Codes et lois en vigueur dans le protectorat français du Maroc. 1914. Paris: Imprimerie Nationale, 2 vols. Cohen, J. 1982. “The History of Imprisonment for Debt and Its Relation to the Development of Discharge in Bankruptcy,” Journal of Legal History, 3, 153–171. Dalhuisen, J. H. 1968. Compositions in Bankruptcy. Leiden: Sijthoff. Donahue, Charles. 2004. “The Empirical and Theoretical Underpinnings of the Law Merchant: Medieval and Early Modern Lex Mercatoria: An Attempt at the Probatio Diabolica,” Chicago Journal of International Law, 5 (1). Duffy, I. P. H. 1985. Bankruptcy and Insolvency in London During the Industrial Revolution (British Economic History). New York: Garland. Dupouy, Claude. 1960. Le droit des faillites en France avant le code de commerce. Paris: LGDG. Collection “Bibliothèque d’histoire du droit et droit romain,” vol. 6. Finley, M. I. 1965. “La servitude pour dettes,” Revue Historique de Droit Français et Etranger, 43, 159–184. ———. 1973. The Ancient Economy. London: Chatto & Windus. Finn, M. 2003. The Character of Credit: Personal Debt in English Culture, 1740– 1914. Cambridge: Cambridge University Press. Fortunati, M. 2001. “Note sul diritto di fiera nelle fonti giuridiche di età moderna,” in Cavaciocchi, S., ed. Fiere e mercati nella integrazione delle economie europee secc. xiii–xvii. Florence: Le Monnier, pp. 953–966. Frederiksen, M. W. 1966. “Caesar, Cicero and the Problem of Debt,” Journal of Roman Studies, 56, parts 1 and 2, 128–141.


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Galenson, D. W. 1984. “The Rise and Fall of Indentured Servitude in the Americas: An Economic Analysis,” Journal of Economic History, 44, no. 1 (March), 1–26. Galgano, F. 2001. Lex Mercatoria. Bologna: Il Mulino. Greif, A. 2004. “The Empirical and Theoretical Underpnnings of the Law Merchant: Impersonal Exchange Without Impartial Law: The Community Responsibility System,” Chicago Journal of International Law, 5 (1), 109–138. Guillon, A. 1904. Essai historique sur la législation française des faillites et banqueroutes avant 1673. Paris: Société Nouvelle de Librairie et d’Edition. Hardin, Garrett. 1968. “The Tragedy of the Commons,” Science, 162, 1243–1248. Hendley, K. 2004. “Enforcing Judgments in Russian Economic Courts,” PostSoviet Affairs, 20 (1), 46–82. Hendley, K., Murrell, P., and Ryterman, R. 2000. “Law, Relationships and Private Enforcement: Transactional Strategies of Russian Enterprises,” Europe-Asia Studies, 52 (4), 627–656. Hilaire, J. 1986. Introduction historique au droit commercial. Paris: PUF. Hirsch, J.-P. 1991. Les deux rêves du commerce, entreprises et institutions dans la région lilloise (1780–1860). Paris: Editions de l’EHESS. Hobsbawm, Eric. 2000. Bandits. London: Weidenfeld and Nicolson. Huvelin, P. 1887. Essai historique sur le droit des marchés et des foires. Paris: Arthur Rousseau. Innes, J. 1980. “The King’s Bench Prison in the Later Eighteenth Century: Law, Authority, and Order in a London Debtors’ Prison,” in Brewer, J., and Styles, J., eds., An Ungovernable People: The English and Their Law in the Seventeenth and Eighteenth Centuries. London: Hutchinson, pp. 250–298. Iwahashi, M. 2004. “The Institutional Framework of the Tokugawa Economy,” in Hayami, A., Saito, O., and Toby, R., eds., The Economic History of Japan, 1600–1990. Oxford: Oxford University Press, pp. 85–104. Jackson, T. H. 1986. The Logic and Limits of Bankruptcy Law. Cambridge, MA: Harvard University Press. Jones, W. J. 1979. “The Foundation of English Bankruptcy: Statutes and Commissions in the Early Modern Period,” Transactions of the American Philosophical Society, 69 (3). Kessler, A. D. 2007. A Revolution in Commerce: The Parisian Merchant Court and the Rise of Commercial Society in Eighteenth-Century France. New Haven, CT: Yale University Press. Klein, H. S. 1986. African Slavery in Latin America and the Caribbean. Oxford: Oxford University Press. Kohler, J. 1891. Lehrbuch des Konkursrecht. Stuttgart: Verlag von Ferdinand Ente. Kuran, T. 2005. “The Absence of Corporation Law in Islamic Law: Origins and Persistence,” American Journal of Comparative Law, 53, 785–834. Leahy, Joe, and Chopra, Arush. 2008. “Left Behind,” Financial Times, August 25. Legnanti, A. 2005. La giustizia dei mercanti, L’Universitas mercatorum, campsorum et artificium di Bologna e i suoi statuti del 1400. Bologna: Bononia University Press.

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Lester, V. M. 1995. Victorian Insolvency, Bankruptcy, Imprisonment for Debt, and Company Winding-Up in Nineteenth-Century England. Oxford: Clarendon Press. Lois commerciales de l’univers. Paris: Librairie Générale de Droit et de Jurisprudence. 23 vols. published between 1911 and 1914 (German and English language editions were published at the same time). Luckett, T. M. 1992. Credit and Commercial Society in France, 1740–1789. PhD diss., New Haven: Yale University, Department of History. Maloney, W. M. 2004. “Informality Revisited,” World Development, 20 (10), 1159–1178. McCreery, D. 1983. “Debt Servitude in Rural Guatemala, 1876–1936.” Hispanic American Historical Review, 63, no 4, 735–759. McMullan, J. L. 1980. “ ‘Maudits voleurs’: Racketeering and the Collection of Private Debts in Montreal,” Canadian Journal of Sociology/Cahiers canadiens de sociologie, 5 (2), 121–143. Muldrew, C. 1993. “Credit and the Courts: Debt Litigation in a SeventeenthCentury Urban Community,” Economic History Review, 46 (1), 23–38. Newbury, C. W. 1972. “Credit in Early Nineteenth-Century West African Trade,” Journal of African History, 13 (1), 81–95. North, D. C., Wallis, J. J., and Weingast, B. R. 2009. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. Cambridge: Cambridge University Press. Nugent, R. 1941. “The Loan-Shark Problem,” Law and Contemporary Problems, 8 (1), 3–13, special issue “Combating the Loan Shark.” Oonk, G. 2006. “South Asians in East Africa (1880–1920) with a Particular Focus on Zanzibar: Towards a Historical Explanation of Economic Success of a Middlemen Minority,” African and Asian Studies, 5 (1), 57–90. Padoa-Schioppa, A. 1992. “Giurisdizione e statuti delle arti nella dottrina del diritto comune,” in Saggi di storia del diritto commerciale. Milan: Edizione Universitarie di Lettere Economia Diritto, pp. 11–62. Pajardi, P., ed. 1988. Il fallimento nel mondo. Padua: Cedam. Pirenne, H. 1922. “Un conflit entre le Magistrat yprois et les Gardes des foires de Champagne, en 1309–1310,” Bulletin de la commission royale d’histoire. 86 (1), 1–10. Rezendes, M., and Latour, F. 2006. “Debtors’ Hell,” Boston Globe. Four parts, July 30, 31, August 1, 2. Rogers, James S. 1995. The Early History of the Bills and Notes: A Study of the Origins of Anglo-American Commercial Law. Cambridge: Cambridge University Press. Saint-Joseph, A. de. 1844. Concordance entre les codes de commerce étrangers et le code de commerce français. Paris: Videcoq et Delamotte. Santarelli, Umberto. 1964. Per la storia del fallimento nelle legislazioni italiene dell’età intermedia. Padua: Cedam/Antonio Milani. Savary, J. 1675. Le parfait négociant. Paris: Louis Billaine. 2 vols. ———. 1688. Parères, ou Avis et Conseils sur les plus importantes matières du commerce. Paris: Chez Jean Guignard.


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Sbricccoli, M. 2000. “Législation, justice et pouvoir politique dans les cités italiennes du XIII° et du XV° siècle,” in Padoa-Schiopppa, A., ed. Justice et législation. Paris: PUF, pp. 59–80. Sgard, J. 2002. L’économie de la panique, faire face aux crises financières. Paris: La Découverte. ———. 2006. “De Legal Origin Matter: Bankruptcy Law in Europe, 1808– 1914,” European Review of Economic History, 10, 389–419. ———. 2010. “Bankruptcy Law, Majority Rule, and Private Ordering in England and France (16th–19th Centuries).” Ceri/Sciences-Po, mimeo. Shapiro, M. 1981. Courts: A Comparative and Political Analysis. Chicago: University of Chicago Press. Sheldon, C. D. 1983. “Merchants and Society in Tokugawa Japan,” Modern Asian Studies, 17 (3), 477–488. Société de Législation Comparée. Annuaire de Législation étrangère. Paris: Cotillon et fils. Annual editions from 1871 onward. Sotto, H. de. 2000. The Other Path. New York: Basic Books. Stephens, J. E. R. 1913. “The Laws of Zanzibar,” Journal of Comparative Legislation, new series, 13 (3), 603–611. Sutherland, S. 1934. “The Law Merchant in England in the Seventeenth and Eighteenth Centuries,” Transactions of the Royal Historical Society, 17, 149–176. Swamy, A. 2007. “Only Twice as Much: A Rule for Regulating Lenders.” Contribution to the GEHN conference on “Law and Economic Development,” Utrecht, the Netherlands, September 20–22, 2007. Testart, A. 1998. “Pourquoi la condition de l’esclave s’améliore-t-elle en régime despotique?” Revue Française de Sociologie, 39 (1), 3–38. ———. 2002. “The Extent and Significance of Debt Slavery,” Revue Française de Sociologie, 43, supplément, 173–204. Thaller, E. 1887. Des faillites en droit comparé, avec une étude sur le règlement des faillites en droit international. Paris: A. Rousseau. 2 vols. Théry, François. 1935. Loi sur la faillite promulguée le 17 juillet 1935. Paris: Librairie du Recueil Sirey (on Chinese republican law). Toby, R. P. 2004. “Country Bankers in Proto-industrial Japan: The Transformation of Credit,” in Hayami, A., Saito, O., and Toby, R., eds., The Economic History of Japan, 1600–1990. Oxford: Oxford University Press, pp. 300–336. Treiman, I. 1938. “Majority Control in Compositions: Its Historical Origins and Development,” Virginia Law Review, 24 (5). Troplong. 1847. De la contrainte par corps en matière civile et commerciale. Paris: Chez Hingray. Collection “Droit civil expliqué suivant l’ordre des articles du code,” vol. 18. Vogel, F. E., and Hayes, S. L. 1998. Islamic Law and Finance: Religion, Risk, and Return. The Hague: Kluwer. Warren, Elizabeth. 2004. “The Growing Threat to the Middle Class,” Brooklyn Law Review, 69. Weber, M. 1921/1968. Economy and Society. G. Roth and C. Wittich, eds. Berkeley: University of California Press. 2 vols.

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Wigmore, J. H. 1970–1986. Law and Justice in Tokugawa Japan. Reprint, Tokyo: University of Tokyo Press. 17 vols. Woodruff, D. 1999. Money Unmade: Barter and the Fate of Russian Capitalism. Ithaca, NY: Cornell University Press. Worth, Robert F. 2009. For a Bounced Check in Dubai, the Penalty Can Be Years Behind Bars. New York Times, September 12. Young, G. 1906. Corps de droit ottoman, vol. 7. Oxford: Clarendon Press. Ziadeh, F., T. 2000. “Mulazama or Harassment of the Recalcitrant Debtors in Islamic Law,” Islamic Law and Society, 7 (3), 289–299.

chapter eleven

Debt Litigation in Medieval Holland, 1200–1350 Jessica Dijkman

; introduction Among the wide range of subjects appearing in the charter of urban liberties granted to the town of Haarlem (Holland) in 1245, debt and debt litigation may well be the most prominent. The charter describes in some detail under which conditions a purgatory oath is allowed in debt pleas, how to deal with negligent debtors from out of town who fail to turn up in court, and the extent to which a husband can be held responsible for the debts incurred by a wife selling bread, beer, or yarn (Koch et al. 1970–2005 [hereafter referred to as OHZ] I, nos. 672–673; for a recent edition and comments on the charter, see Hoogewerf 2001). This focus on the subject of debts is not a coincidence. Medieval society, and medieval trade in particular, relied heavily on credit. Many transactions between merchants, and merchants and retailers, or merchants and producers involved deferred payments for commodities sold or advances for future delivery; short-term commercial loans were equally common (Postan 1928). To ensure the availability of credit, efficient mechanisms to stop default were vital. Most of these mechanisms were probably of an informal nature, relying on long-lasting personal contacts and reputation. If, as is demonstrated by Oscar Gelderblom in his contribution to this volume (see Chapter 12), even in international trade amicable settlement of debt conflicts and arbitration were preferred to formal litigation, this will certainly have been the case for financial obligations within the small circle of villagers or fellow townsmen. Still, even if only a

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fraction of the debt conflicts ended in a court session, litigation provided a last resort and thus set a standard for the behavior of debtors and creditors. From this point of view the stress on rules for debt litigation in the Haarlem charter of liberties makes sense: a balanced set of rules on this subject and a well-functioning system for administering justice in debt cases did matter. Until the late twelfth century, Holland—the western part of the present-day Netherlands—was a marshy, almost exclusively agrarian region on the periphery of European civilization. Human habitation was possible only on the sandy strip behind the North Sea dunes and on the clay banks in the river delta. Towns did not exist; international trade was very much restricted. Yet only 150 years later, in the second half of the fourteenth century, Holland experienced a phase of strong economic growth, all the more remarkable since it contrasted with the decline, stagnation, or at best only partial recovery that characterized neighboring economies. Market-oriented livestock and dairy farming emerged, non-agricultural activities in the countryside expanded, and urban industries such as brewing, shipbuilding, and textile production developed significantly. Demographic recovery and urban development were particularly striking: by 1400 Holland was almost back to pre-plague population figures and about one-third of Hollanders lived in towns (Van Bavel and Van Zanden 2004, 504–507). If, as is the central contention of this volume, favorable legal institutions are vital to economic growth, Holland between 1200 and 1350 is a good place to look for them. Here the aim is to do so for one aspect: debt litigation, with a focus on commercial debts. This chapter examines the judicial procedures for debt litigation that developed in the towns of Holland during what can be called their formative years, the thirteenth and early fourteenth centuries, and compares them with similar institutions in the southern Low Countries (Flanders and Brabant) and England in the same period. The comparison is useful not only because of the diverging paths of economic development after 1350 but also because in the thirteenth and early fourteenth centuries the social and political structures of the three societies were very different. The reclamation of Holland’s central peat district had given rise to a class of free farmers who recognized the count as their sovereign but were not subject to feudal ties. The manorial system, so prominent in England, had all but disappeared in Holland at an early stage. The count of Holland, although clearly growing in authority especially in the second half of the thirteenth century, did not command the same power over his subjects as the English king. Conversely, towns were late to rise and only slowly acquired political influence. Even in the middle of the fourteenth century they

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were by no means in a position to dictate conditions, as the cities of Flanders frequently were. A comparison can throw light on the effects these differences had on the development of legal systems. For Holland, the choice of sources for a study like this is limited. Urban bylaws, town accounts, resolutions of town authorities, and court records are rarely available before the late fourteenth or even the early fifteenth century. What we do have, however, are the charters of urban liberties of many of Holland’s towns. They have provided the backbone of the data set on which this analysis rests. The comparison with Flanders and England has mainly been based on modern literature. After a note of explanation on the sources and their use, I will discuss the transition from traditional methods of proof based on a belief in divine intervention to fact-finding. The sections that follow focus on the subsequent development of sureties and the registration of debts. the sources: charters of urban liberties It was only in 1200 that the very first reference to a town (opidum) appears in the Holland sources. That town was Dordrecht: situated in the river delta of the Rhine and the Meuse, it developed into a small center of the international river trade in wine, grain, wood, and salt in the course of the twelfth century. Dordrecht’s first charter of liberties—or, to be more precise, the oldest known charter—dates from 1220 or 1221. In the late twelfth century some of the earlier settlements on the sandy strip behind the dunes began to develop into towns. Leiden, Haarlem, Delft, and Alkmaar all acquired charters of liberties in the middle of the thirteenth century.1 In the last decades of that century, urbanization accelerated. Trade and urban industries expanded, existing towns grew, and new ones emerged. By the middle of the fourteenth century, most of these towns had been granted urban liberties (Hoppenbrouwers 2002, 118–120; De Boer 1988). As elsewhere in Europe, liberties were often derived from models used in other towns. In Holland the best known and largest “family” of charters is the Brabant-Holland filiation. A large part of the Haarlem charter of 1245 was based on the liberties of the Brabant town of Den Bosch. In turn, a draft version of the Haarlem charter served as a model for several other towns in Holland. The liberties of a group of smaller towns on the islands in the southwestern part of Holland and in Zeeland, Brielle and Goedereede among them, form a second, more loosely associated filiation (Kruisheer 1985; Cappon and Van Engen 2001). Other towns, for instance, Dordrecht, Leiden, and Amsterdam, had liberties of local origin

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unrelated to one of the two filiations. In this chapter a great deal of attention is paid to the liberties of the Brabant-Holland family, which because of their detailed character and stress on what we would now call civil justice offer the best clues for an analysis of debt litigation. Elements from other charters are used to complement the information. The use of charters of urban liberties in historical research involves some methodological problems that are best understood by looking at the charters’ original function. First and foremost they aimed at officially establishing or confirming the position of the town as a separate administrative and jurisdictional district with a certain degree of autonomy. Charters of urban liberties were never meant to be comprehensive law codes. There was no need for anything of the kind: unwritten customary law met the normal requirements of urban society well enough. The need for recording was probably felt only when new rules were introduced, particularly if these deviated materially from customary law. The charters therefore show only a small part of the rules and practices that were actually being used, and they sometimes tended to stress the exceptional instead of the regular (Van Engen 2005, 73–74; Kruisheer 1985, 60). Still, the charters were not dead letters: in many ways they provided a useful legal framework for many years to come. This is demonstrated by the codification of local rules and customs made by the authorities of the small town of ’s-Gravenzande in 1448. In this document the paragraphs from Haarlem’s by then 200-year-old charter of liberties were taken as the point of departure: although some rules were referred to as outdated, most of the thirteenth-century regulations on contract enforcement were clearly still considered valid in the middle of the fifteenth century (Telting 1901, 382). The use of charters of liberties does require caution, but these documents provide a unique source of information on the development of legal institutions in an otherwise rather barren landscape. It is actually quite surprising that so little use has been made of them for this purpose in the past.2

from divine judgment to the “truth of the aldermen” It was the Belgian historian Henri Pirenne who, in the early twentieth century, first stressed the role of merchants in the development of towns and urban law in the northwestern part of Europe. Pirenne and his followers believed that in the eleventh century, as a result of the revival of


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long-distance luxury trade, traveling merchants organized in guilds established new trading suburbs near existing fortified strongholds. These merchant guilds became the predecessors of urban communities and the driving force behind the eleventh- and twelfth-century communal movement striving for urban self-government. As guild customs acquired a territorial character, “merchant law” became the prime source of urban law (Pirenne 1971, 103–104; Planitz 1940, 103, 111–113; Dilcher 1984, 74–76).3 In keeping with this line of reasoning, the decline of trial by combat has often been attributed directly to the needs of a rising merchant class. Johan Huizinga, for instance, argued that the prohibition of the judicial duel in the Haarlem charter of liberties demonstrates the influence of mercantile customs on urban law: merchants had no wish to jeopardize their life and their profits by dueling over every trade conflict (Huizinga 1905– 1906, 29).4 Huizinga’s opinion is echoed in the view of later historians who explain the turn away from the traditional modes of proof by pointing to the profound economic, social, and mental changes that northwestern Europe experienced in the twelfth century (Hyams 1981, 99–106; Van Caenegem 1991, 111). Admittedly, this point of view is open to discussion. Recently scholars have shown a renewed interest in the role of the church: the ordeal was condemned by the Fourth Lateran Council in 1214 (McAuley 2006; for an evaluation of the older literature on this issue, see Bartlett 1986, 99– 102). Others point out that urban hostility to the judicial duel does not necessarily have to be an expression of the rational and progressive outlook of merchants: it may also have been an attempt to prevent fighting in the urban community or to protect urban autonomy by making sure outsiders could not challenge burghers (Bartlett 1986, 53–62). Still there can be no doubt that from the twelfth century onward, trial by combat did decline, and it is also clear that towns were in the vanguard everywhere. In Holland, Haarlem was by no means the only town with a prohibition on the duel. Similar paragraphs can be found not only in the charters of the Brabant-Holland family but also in the unrelated charters of Dordrecht, Leiden, Vlaardingen, Schiedam, Rotterdam, and Amsterdam, all dating from the thirteenth or early fourteenth century.5 With this clause the Holland towns joined their counterparts abroad that had obtained a privilege to the same effect, some of them at a much earlier date, for instance, Ypres (1116), Saint-Omer (1127), and London (c. 1130) (Vercauteren 1938, no. 79; Derville 1981, 269–271; Stephenson 1933, 129). In Holland’s countryside trial by combat was more resilient, but for commercial conflicts this most likely had little relevance. To be sure, at the end of the fourteenth century, bailiffs’ courts still occasionally resorted to

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a judicial duel as a way to decide about guilt or innocence; comitial accounts from this period mention expenses for the services of champions (De Boer, Faber, and Jansen 1980, xix). However, these were exceptions rather than normal practice: trial by combat had become a voluntary option applied only in criminal justice and, moreover, one which was probably mainly used by the nobility (Fruin 1902, 333–338).6 Wager of law, however, was a different matter. The purgatory oath, often taken together with a number of oath helpers or compurgators prepared to vouch for the trustworthiness of the accused, was closely related to the ordeal in its reliance on divine intervention—perjurers knew that eventually they would not be able to escape God’s vengeance—and the demand of correct pronunciation of the oath formula in the smallest detail: almost a physical test in its own right (Hyams 1981, 92; Bartlett 1986, 30–33). Wager of law gave way to more modern methods of proof only very gradually. It certainly figures prominently in the Haarlem charter of liberties, including the demand for correct pronunciation and adherence to the ritual. At that, whereas Huizinga assumed that the requirement of correct pronunciation of the oath would soon disappear from daily legal practice, the early fifteenth-century law code of Brielle, put in writing by the town clerk Jan Matthijsen, still refers to it in very explicit terms (Huizinga 1906, 22–23; Matthijsen 1880, 161). This persistence of wager of law, to be sure, is not unique for Holland. Both in England and in Flanders remnants of the purgatory oath in civil cases outlasted the Middle Ages (Van Caenegem 1956, 160–161; Pollock and Maitland 1895, II, 631–632). The replacement of traditional modes of proof by new ones was a very gradual process, in Holland no less than in the neighboring regions. Still, in the thirteenth century a transition was taking shape, as is illustrated by the same Haarlem charter of liberties. A Haarlem burgher who was being sued for a debt could demonstrate his innocence by oath only if the claimant had merely uttered a complaint without coming up with any proof. However, if the claimant offered documents or testimony from witnesses to support his case, compurgation was not accepted. The court would then base its verdict on an investigation of the evidence. For this purpose a special session was organized that did not observe the rigid ritual of the traditional court sessions and that took place behind closed doors (Hoogewerf 2001, 66–71, 140–141). What we see here is a procedure that in Flanders was called the veritas scabinorum or “truth of the aldermen”; in fifteenth-century Holland it is referred to as schepenkenning. When a case was brought before the local court of aldermen, two or three of them were to investigate the matter by consulting their own experience, witnesses, and other sources and subse-


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quently pronounce a verdict binding to the bench as a whole. The “truth of the aldermen” was probably used both in criminal and in civil cases. Its introduction in Flanders took place just after the middle of the twelfth century, when it first appeared in the charters granted to several towns by Count Philip of Alsace (Van Caenegem 1991, 96; Van Caenegem 1965, 394–395; Nortier 1874, 48, 54). Of “truths” in the sense of inquests, several varieties developed in northwestern Europe. Their common feature is the effort to uncover the truth by seeking the opinion of well-informed locals (Van Caenegem 1991, 95–97). The English jury system is one of these “truths.” It seems to have developed from the royal inquisition, an administrative device aiming at establishing the crown’s rights to lands and rents, and was also made available as a royal favor to individuals who wished to have their rights ascertained. As is well known, from this point onward, England, under the influence of increasing control by the crown over the judicial system, followed a course of its own. The Angevin reforms carried through in the second half of the twelfth century brought an extension and formalization of the jury system, both in criminal and in civil justice. The jury members were ordinary men from the surrounding area, but the juries as such functioned as part of the developing system of royal justice and royal courts (Plucknett 1956, 106–113, 120–131). In Flanders, in contrast, the introduction of inquests led by comitial functionaries evoked hostile reactions from the powerful towns, which saw them as an intrusion into their judicial autonomy. As with trial by combat, they tried to acquire an exemption, or, alternatively, they claimed the right of inquest for their own magistrates. It was this development that gave rise to the “truth of the aldermen” (Van Caenegem 1965, 396–397). Other parts of the southern Low Countries adopted the Flemish model, although in Brabant the duke’s officials retained a greater degree of control over inquisitorial procedures than in Flanders (Van Caenegem 1965, 395; De Vries [n.d.], 202–207). It is tempting to conclude that in Holland towns also simply followed the Flemish example, but there may have been more to it than that: Holland did have its own variety of the inquest. From at least the last quarter of the thirteenth century onward, in the north of Holland and a few other places in the county, a variety of the inquest, the so-called zeventuig or landsage, was in use for conflicts over real estate: seven neighbors were asked to investigate the claims of both parties to a disputed plot of land. Only a little later we also encounter the zeventuig in water management throughout the county and in other parts of the northern Netherlands as well: there its task was to investigate who was responsible for the maintenance of a stretch of dike (Fruin 1902, 353–366; Joosting 1890, iii–xiv; De Goede 1946).

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To be sure, the origins of the zeventuig are disputed. A. J. Allan, the author of a study on a 1274 law code for the rural district of Kennemerland in the north of Holland, suggests that it was newly introduced as part of this code because there was a need for more modern methods of proof (Allan 2005, 119–127). Consequently, the introduction of the zeventuig would have taken place several decades after that of the “truth of the aldermen.” With this statement Allan contradicts the sometimes overly romantic views of earlier generations that were convinced the zeventuig was an ancient Germanic institution, deeply embedded in tradition (e.g., Fruin 1902, 357; and in particular, De Goede 1946, 275–278). Allan is probably correct in his interpretation that the incorporation of the zeventuig in the Kennemerland law code should be seen as part of the general tendency toward rationalization of justice in the twelfth and thirteenth centuries. Even so, there is little support for the hypothesis that it was only then introduced as a new institution. The code itself does not offer any clues that this was the case; rather, the wording of the text seems to indicate that the zeventuig already existed. In fact a charter dating from just one year later suggests that Holland was perfectly familiar with the institution: it refers to the zeventuig as the “right that in the common language is called the lantsaghe” (OHZ IV, no. 1685). Therefore, the incorporation of the zeventuig in the Kennemerland law code most likely did not imply the creation of a new institution but merely a more detailed definition of the role and functioning of an existing one. The similarities between the zeventuig and the “aldermen’s truth” were pointed out long ago by the Dutch historian Robert Fruin: the institutions are obviously related. As Fruin explains, however, there are also significant differences. The zeventuig was an ad hoc committee consisting of common local people, probably direct neighbors of the parcel of land under dispute; it thus closely resembled the English jury (Fruin 1902, 353, 365). The “aldermen’s truth” as it took shape in the towns of Holland resembled the Flemish version much more closely: it was conducted by the local authorities themselves. In short, the towns most likely did copy the Flemish model of the inquest, but because of a familiarity with other factfinding mechanisms, the innovation fell on fertile ground and could be implemented quickly and easily. sureties The introduction of methods of proof based on fact-finding was an important step toward a more efficient institutional framework for debt litigation, but the process did not stop there. Between the late twelfth and the


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middle of the fourteenth centuries, a wide range of additional instruments developed that facilitated the recovery of commercial debts through legal proceedings. The discussion of these instruments below does not pretend to be exhaustive: it merely aims at demonstrating the most important similarities and differences among Holland, England, and the southern Low Countries. Again, to a considerable extent the rules on debt recovery mentioned in the charters of liberties of Haarlem and the other members of the Brabant-Holland filiation reflect practices common in neighboring countries as well. For a start there was the procedure of distraint in case of reneging on obligations: the seizure of the debtor’s property as security or his arrest in person, with the aim of inducing him to appear in a court of law (De Blécourt and Fischer 1967, 262–263; Zuijderduijn 2009, 119–124). The Haarlem charter states that a defaulting debtor was first to be held in arrest by the authorities for two weeks. Afterward he was handed over to the creditor, who could keep him in custody until payment of the debt had been arranged. Most likely the cumbersome and costly arrest was normally preceded, and hopefully for both parties prevented, by seizure of property: even though the Haarlem charter does not explicitly refer to it, panding (seizure) is mentioned in the thirteenthcentury liberties of Dordrecht and in many later charters. Distraint was also in common use in the southern Low Countries under almost identical conditions; there the prevalence of seizure of property over arrest of a person was explicitly recorded in urban bylaws and privileges from the late twelfth century (Godding 1987, 510–511). A striking instance of distraint in England was the power of a lord to distrain a tenant for rents or services in arrears, usually by taking cattle. This power was exercised extrajudicially: no court order was needed to seize the goods. Still, the lord’s rights were limited: he could not sell or use the beasts but had to give them up again when the arrears were paid (Pollock and Maitland 1895, II, 572–576).7 In the English towns creditors who found their debtors unwilling or unable to pay could also resort to distraint, but the safeguards against abuse had been introduced at an early stage. The debtor first had to be summoned three times, and if that failed, permission from the authorities was needed to distrain the debtor’s goods. Extrajudicial distraint was allowed only against foreigners (Bateson 1972, II, xliv–xlv). Likewise, from the twelfth century onward, several towns in Flanders and Brabant acquired formal privileges that gave their burghers freedom from seizure and arrest unless they had previously been tried and found guilty by the local court of aldermen, thus putting an end to extrajudicial distraint. Here too foreigners did not enjoy the same privilege. On the

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contrary, the entire urban community was expected to collaborate in the arrest of a foreign debtor, who after all might think it best not to appear in court when summoned and might simply leave town (Godding 1987, 507–509; Gilissen 1958, II, 296–297). The charters of the BrabantHolland filiation do not have a paragraph to guarantee the burghers’ freedom from seizure and arrest, but there is one in the Dordrecht charters of 1220–1221 and 1252 and in the Vlaardingen charter of 1273: they state that seizure of a citizen’s property cannot not be executed unless the aldermen have allowed it. As with the introduction of the “truth of the aldermen,” the chronology suggests that Dordrecht, and other towns at a later stage, copied a successful institution developed in the southern Low Countries. Actually, in this case a document exists that indicates how that may have happened: it was in a treaty concluded by the Count of Holland and the Duke of Brabant in 1200. The two rulers agreed that a creditor in Brabant was allowed to seize the property of a debtor in Holland and vice versa only if the creditor’s application to the local court of the debtor’s town or village of residence had met with a denial (OHZ I, no. 245). The paragraph must have been inserted primarily in the interest of the Brabant merchants, who no doubt had a large share in the trade between the two countries. It therefore makes sense to assume that when Holland’s trade began to develop, regulations were adapted to those of the southern neighbors under the influence of commercial relations. Guarantees of this kind may have provided protection from unlawful confiscations, but for creditors trying to recover their money these guarantees brought serious disadvantages: proving the existence of a debt was often difficult, and debtors could easily obstruct the course of justice by fleeing or alienating their goods (Zuijderduijn 2009, 119). In reaction, a series of instruments developed that reinforced the position of the creditor by offering additional securities to ensure repayment. A tendency for change in favor of the creditor seems to have been a general phenomenon: it can be observed in England as well (Brand 2002, 34). Even the ways in which it was achieved were often the same—but not always, as we will see. Personal sureties, pledges that in case of defaulting by the original debtor assumed liability, were frequently asked to secure repayment of all kinds of debts, including commercial ones, throughout the Middle Ages. This was common practice in Holland as well as elsewhere. The Vlaardingen charter of liberties, for instance, states that debts could be claimed from a pledge after three unsuccessful exhortations to the debtor. Another widely used institution aimed at improving security was the (“special”) mortgage or nonpossessory collateral: the creditor acquired a right to a specific property of the debtor. In the thirteenth and early four-


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teenth centuries, this was usually land, tenements, or land rents, to be claimed if the debt was not repaid when scheduled (Zuijderduijn 2009, 217). In England mortgaging of real estate is mentioned in Glanville’s late twelfth-century textbook on the emerging English common law (Brand 2002, 21). In Flanders and Brabant the practice was known even in the eleventh century, although it was rarely used until the early thirteenth century (Godding 1987, 215–216). The Haarlem charter also mentions nonpossessory collaterals. The chronology suggests that here too a model may have been introduced that had already proved its value elsewhere. On the other hand, this is one of the very few instances where the Haarlem charters gives customary law explicit preference over the Den Bosch rules and regulations. Moreover, this paragraph was not incorporated in the Delft charter of 1246, although it was included in the charter of Alkmaar and of all the towns in the northern part of Holland that belonged to the Brabant-Holland filiation. This suggests that a system of mortgages may have existed in customary law in this part of the county. debt registration Until now I have mainly discussed similarities in the organization of debt litigation in the three countries. It is with regard to a final instrument giving surety to the creditor that differences come to the fore: the recognition of debts. In itself, the introduction of ratification and registration of debts by the authorities was a development of international dimension, but there were significant variations in the way it took shape. Of course there were other easier and less costly mechanisms for ensuring that the existence of a commercial debt could be substantiated rather than having it officially registered. The presence of witnesses at a transaction was such a mechanism; the tally was another frequently used option (Zuijderduijn 2009, 201–202). In local trade, in particular, people kept relying on these simple but often effective strategies throughout the Middle Ages and later. Holland was certainly no exception: the Brielle and Goedereede charters of liberties, for instance, make it clear that the testimony of three reliable burghers or merchants was considered valid proof that a transaction had taken place.8 But as society became more complex, the possibility to have debts resulting from deferred payment or delivery ratified by the authorities emerged as an alternative, presumably mainly to be used under high-risk conditions. Formal recognition offered material advantages: it was considered to be absolute proof of the existence of the debt. A creditor who possessed a document issued by the proper authorities stating that a debt

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had been incurred and was to be repaid by a certain date could, if payment was not forthcoming, demand summary execution: immediate distraint of the debtor’s property—that is, enough of it to cover the debt— without a lawsuit preceding it (Zuijderduijn 2009, 202–207, 218–220; Fockema Andreae 1906, 103–105; Godding 1987, 435–437, 509–510). Notably, the principle of formal recognition of debts was much the same in the three countries. The difference was the public bodies that assumed the leading role in noncontentious jurisdiction. Simple written contracts stating the indebtedness of one person to another were issued by aldermen’s courts in Flanders as early as the twelfth century (Murray 1983, 34–36). In Holland they first emerged in the second half of the thirteenth century (Burgers, Dijkhof, and Kruisheer 1996, 199, 201), but ratification of debts before the local court took place earlier than that, even if it was not yet put in writing. The Dordrecht charter of liberties of 1220–1221 explicitly states that the existence of the debt had to be known to the court of aldermen to allow the creditor to take action. The Haarlem charter, though not in the same clear words, refers to the ratification of debts as well. In England registration of commercial debts was organized in a different way, in keeping with the superior degree of control of the crown over the judicial system. For one, a growing number of cases could be initiated only through a writ, to be obtained from the royal chancery. In the late thirteenth century a royal writ came to be required for all litigation concerning debts over 40 shillings. Second, a system of royal courts was introduced. These courts did not replace the preexisting manor and borough courts, which retained a prominent place in the adjudication of debt conflicts throughout the Middle Ages.9 The royal courts, however, did offer certain advantages for creditors attempting to collect a debt, one of them being the possibility of summary execution for debts recorded on the plea rolls of the royal courts or on the rolls of the chancery (Brand 1997, 107–108). In the late thirteenth century, a new system for the registration of commercial debts was introduced, which, although it did involve the urban authorities in the larger towns, had a marked national component as well. The Statute of Acton Burnell of 1283 and the Statute of Merchants succeeding it in 1285 allowed merchants to have debts they incurred recognized by the mayors of a limited number of cities and towns. If such a debt was not repaid in time, the creditor could present the document that had been made up by the mayor and demand summary execution, as in Holland and Flanders. Moreover, if the debtor lived elsewhere, the mayor would forward the documents to the chancellor, who could then issue a writ to the sheriff of the debtor’s county of residence ordering him to pur-


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sue execution. Judging from the number of certificates issued to nonmerchants and to people from out of town, the system was a success, and not just for commercial debts. While the two statutes did not outlaw preexisting forms of registration—apart from the rolls of the royal courts and the chancery registries, we know that in some towns registers were kept as well—these earlier methods seem to have lost much of their function to the statutory bonds (McNall 2002; Kowaleski 1995, 212–215; Postan 1928, 236). English statutory registration differed from debt registration as it took place in Holland in two respects. For one, although statutory registration soon became possible in more towns than at its initial introduction, it was still limited to the larger commercial centers. The system was not extended to small town courts and certainly not to manor courts. In Holland, in contrast, ratification of debts could take place in all urban courts and also rural courts, although in the countryside it probably did take longer before oral testimony was replaced with written statements (Zuijderduijn 2009, 187, 202–204). Second, with the possibility of recourse to central bodies and their powers of enforcement, the statutory registers provided England with a solution to a problem with which towns in Holland, and indeed in Flanders as well, were struggling: how to cope with debts owed by someone living in another town or in the countryside. As trade grew, this must have been an increasingly frequent problem and one for which a good solution was not readily available as long as towns anxiously guarded their autonomy. In a series of regulations, partly originating in Den Bosch and partly newly added, the Haarlem charter of liberties vividly pictures the problems that could rise. When a foreigner reneged on an obligation ratified by the court, he would be called to justice three times. If he did not show up, he would be convicted, which in this case implied that as soon as he reentered the city he was to be arrested and forced to pay not only his debt but also a compensation for damages and a fine. This was hardly an encouragement to fulfill one’s obligations, and probably many debtors decided to stay away. In that case the sheriff, joined by the entire community, was to go to the debtor’s place of residence and seize his property. This procedure was called bannen.10 What this in fact came down to was the right of the urban community, acting in defense of its members’ interests, to take justice into its own hands. At an earlier stage this custom was probably widespread: almost exactly the same procedure is outlined in the early twelfth-century charter of liberties in Saint-Omer (Derville 1981, 269–271). But of course in an increasingly complex and regulated society, this kind of self-help did not

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work: it could not be reconciled with the increasing strength of central government or with the rise of other towns whose burghers also claimed freedom from arbitrary arrest. The mid-fifteenth–century ’s-Gravenzande law code is enlightening in this respect. Although the author of this codification accepted most of the regulations from the Haarlem charter of liberties as still valid, he explicitly warned against the use of the procedure of bannen, especially if the debtor was the burgher of another town: it could damage relations and cause trouble (Telting 1901, 371–372, 380). The alternative that developed in the southern Low Countries was in keeping with the dominant position of the towns in the region: it involved the extension of the urban enforcement mechanisms over the surrounding countryside. In Brabant in particular the role of urban courts in debt ratification was greatly reinforced by privileges the duke granted to the large towns. In the late thirteenth century, Louvain and Brussels received a privilege that later came to be known as the right of ingebod. It gave the courts of aldermen in these towns the right to call to justice all defaulting debtors who had registered their obligations in the court, even if they did not live in town. The practice was afterward known in Antwerp and Den Bosch as well (Godding 1954, 314–315). The right of ingebod offered the creditor a material advantage: he no longer had to go through the trouble of applying to the court at the debtor’s place of residence. But there was a reverse side to it as well: the towns were able to use this privilege to increase their dominance over the surrounding countryside (Godding 1987, 437). In Holland arrangements like this were known only in the south, near the Brabant border: in the late thirteenth century, Dordrecht and Geertruidenberg both managed to have the validity of their aldermen’s charters extended to the surrounding countryside. The small towns of Heusden and Woudrichem claimed the same rights, although for Woudrichem these were successfully contested by the rural communities and their lords in the fifteenth century (Zuijderduijn 2009, 189–190; OHZ III, no. 1815; OHZ IV, no. 2154; Hoppenbrouwers 1992, 610–612; Korteweg 1948, 68–70). In the rest of Holland, however, urban courts were unable to usurp the rights to voluntary jurisdiction in the countryside. This was related to the structure of Holland society. When in the eleventh to thirteenth centuries Holland’s extensive central peat district was reclaimed, the emerging pioneer communities were placed directly under comitial authority. Administration and lower justice were the responsibility of a local court in which both the local population and a government agent, the sheriff, were represented. These courts formed the homogeneous bottom layer of the public jurisdictional system; with only a few exceptions, private


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courts comparable to the English manorial courts were nonexistent (De Monté Ver Loren 1982, 146–147; Hoppenbrouwers 1996, 230–232).11 It was in these local courts, present everywhere in Holland, that the great majority of cases of civil justice between ordinary people were dealt with. As a logical consequence, these courts also assumed a central role in noncontentious jurisdiction: out of the monitoring of land transactions, the basis of wealth in every rural society, developed a responsibility to register mortgages and subsequently other kinds of credit, too (Zuijderduijn 2009, 184–187). Consequently, once towns began to emerge, the foundations for the role of local rural courts in noncontentious jurisdiction were already established. In short, whereas in England contract enforcement beyond the limits of the town’s freedom was ultimately ensured through the intervention of the crown, and in the southern Low Countries through the courts of the large cities, in Holland the autonomy of local courts in towns and villages remained intact. On the one hand, this was the Achilles’ heel of Holland’s system of debt litigation, to be cured (at least in theory) only in the middle of the fifteenth century, when under the reign of the Burgundian duke, Philip the Good, the option of appeal to a central court was introduced, and it became possible to take cases against others than fellow townsmen directly to the central level (De Schepper and Cauchies 1997, 252, 256).12 Before, there was no easy way to obtain justice from evasive debtors. A creditor had no other option but to travel to the debtor’s place of residence and file his claim with the local court. In a small country like Holland, traveling expenses were perhaps not decisive; since the habit of adopting successful practices developed elsewhere had led to a convergence of regulations, differences in legal systems can hardly have posed insurmountable problems either. Still, aldermen were likely to give the interests of a fellow townsman greater weight than those of a mere stranger. In addition there was a serious formal complication: local courts did not simply accept registration with another local court as proof of the existence of a debt. The consequences are illustrated by a case from late fifteenth-century Leiden (Blok 1884, no. 325). Two Leiden burghers, a father and son, had closed a deal about the purchase of a loom in neighboring Noordwijk; the deal and the obligations it created were registered with the court of aldermen in that village. When the loom was delivered in Leiden, the buyers claimed it was of an inferior quality; they refused to pay and wanted to undo the purchase. The Noordwijk seller filed a claim with the Leiden court: he demanded payment. He stated that the buyers had promised to have the Noordwijk charter ratified in Leiden, but the buyers maintained they had made no such promise. In the end, the Leiden

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court decided the buyers had to swear that they had never promised to have the Noordwijk charter ratified in Leiden; if they refused to do so, the court would accept the claim of the seller and therefore also the existence of a debt. The case shows that the fact that a Leiden charter did not exist was a serious complication for the claimant. Even though he did have a Noordwijk charter, summary execution was not an option if this charter had not been ratified in Leiden. Yet in other ways the strong position of both urban and rural courts in voluntary jurisdiction may have been an advantage. For one, it implied the absence of overlapping jurisdictions and the endless legal fights that could result from them. Moreover, it prevented the systematic bias in favor of burghers that was almost inevitable if urban courts dealt with all conflicts between burghers and villagers from the nearby countryside. Finally, the absence of a central corrective mechanism, even if it made debt collection across local borders more difficult, seems to have had positive effects as well: left to their own devices local courts were stimulated to take an active role in debt collection. This is perhaps best illustrated by the way the court of Brielle dealt with debt cases, as is documented in both the charter of liberties and Jan Matthijsen’s early fifteenth-century law code (Matthijsen 1880, 150–153). In this small town the sheriff, at the request of the aldermen, made a tour through the streets of the town three times a year, collecting complaints about unpaid debts. Upon arrival at a debtor’s house the sheriff would “administer justice,” meaning that if the debtor admitted he had not fulfilled his obligations, an arrangement was concluded to ensure that payment would be forthcoming within two weeks. A clerk would write down the details, and the debtor would hand over a collateral to the creditor, either to be redeemed within two weeks or to be left in the creditor’s hands as compensation. The system is reminiscent of the poortgedingen held in fifteenth-century Leiden; special court sessions almost completely devoted to problems of debts (Nortier 1874, 37–46). The ommegangen in the Brielle charter seem to have had the same function, but there the authorities did not merely wait for creditors to file their complaints: they also took steps to actively trace unpaid debts. The strong position and active role of local courts in debt recovery may also explain why, when in the middle of the fifteenth century central judicial bodies were introduced, their role in the settlement of commercial disputes remained very much limited (see Chapter 12). Central courts did allow for debt litigation across local boundaries, but procedures were time-consuming and expensive, while expertise in business disputes was most likely better represented at the local level. In short, central courts


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had little to add to Holland’s preexisting solid foundation of local debt litigation and debt registration, based on a homogeneous and wellfunctioning network of rural and urban courts. conclusion This chapter started out with the hypothesis that during the thirteenth and early fourteenth centuries in the emerging towns of Holland a set of judicial procedures for debt litigation conducive to economic growth developed under the influence of a specific set of social and political relations. Analysis of the institutions as they appeared from the charters of liberties of the Holland towns has shown that reality was more complex. For one, most of the legal procedures for debt recovery used in the towns of medieval Holland were not unique. If the comparison with the southern Low Countries and England has made one thing clear, it is that the similarities among the three countries were far greater than the differences. It has also shown that several of the arrangements for debt litigation practiced in Holland were probably copied from the southern Low Countries under the influence of trade contacts. Processes of institutional transplantation also feature in some of the other chapters in this volume, for instance in the contributions of Tirthankar Roy, Jérôme Sgard, and Oscar Gelderblom (Chapters 6, 10, and 12). The fact that in Holland towns were late to arise worked in their favor: models that had proved their value elsewhere could easily be adopted. As a consequence, the foundations for a favorable institutional framework could be established at an early stage of economic development; by facilitating and supporting exchange, this framework gave the emerging towns an advance. In fact it seems quite possible that the Den Bosch charter of liberties appealed to the Haarlemmers exactly because it contained a set of detailed rules well suited to the needs of a rapidly developing economy. That did not mean that the local context did not matter, however. In medieval Holland institutional transplantation appears to have been facilitated by preexisting indigenous rules and practices. The people of Haarlem were probably already familiar with a local court that played a role in monitoring land transfers as well as with issues such as mortgages, ratification of debts, and fact-finding methods of proof. This prepared the way for the adoption of rules like those in the Den Bosch charter. One important difference from England and the southern Low Countries does stand out, and it is closely related to the social and political characteristics of society: the central position of local courts, both urban

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and rural, in voluntary jurisdiction in Holland, as opposed to the dominance of the large cities in the southern Low Countries and that of the registries acknowledged under the Statute of Acton Burnell and the Statute of Merchants in England. On the one hand, the judicial autonomy of these local courts reveals a weak spot in the system of debt litigation in Holland: the recovery of debts across administrative borders remained cumbersome. On the other hand, this situation may also have had advantages. Holland can perhaps be seen as a rather extreme case of the relatively egalitarian and noncoercive societies in Western Europe, which, according to John Haley, had to rely on private law and adjudication as a way to make and enforce legal rules (see Chapter 2). Local courts, urban and rural alike, were pivotal institutions with regard to debt registration: this fact both reflected and reinforced the absence of urban domination of the countryside. That central courts did not arise until late, moreover, appears to have stimulated an active role for local authorities in debt recovery. Thus a solid foundation of debt litigation and debt registration at the local level was provided that may well have contributed to Holland’s economic success in the second half of the fourteenth century. Notes 1. All these charters have been published in OHZ: for Dordrecht (1220–1221 and 1252), see OHZ I, nos. 406 and 910; for Haarlem, OHZ II, nos. 672–673; for Delft (1245), OHZ II, no. 680; for Alkmaar (1254), OHZ II, no. 1009; for Leiden (1266), OHZ III, no. 1433. In addition, this contribution contains references to the following (edited) charters: Schiedam (1270): OHZ III, no. 1524; Vlaardingen (1273): OHZ III, no. 1632; Rotterdam (1340): Van Mieris (1753– 1756) II, 638–640; Amsterdam (1300–1301 and 1342): Van der Laan (1975), nos. 6 and 49; Vianen (1336): De Geer (1886); Naarden 1353/1355: Van Mieris (1753–1756) II, 847–848; Goedereede (1312): Pols (1885); Brielle (1330 and 1343): Cappon and Van Engen (1999). 2. The work of Huizinga on the rise of Haarlem, dating from the early twentieth century, is an exception (Huizinga 1906, 27–36). 3. Later research has uncovered several flaws in Pirenne’s theories. For an overview of the criticism, see Reynolds (1977), Verhulst (1986), and Van Uytven (1986). 4. A similar statement was made for the English boroughs by Stephenson (Stephenson 1933, 138). 5. For the references to these charters, see note 1. 6. Fruin’s sources do not mention the nobility as such, but the choice of weaponry does suggest that among noblemen trial by combat remained in use longest: combat with the sword survived combat with sticks.


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7. Probably a similar right existed in Holland: Panding is mentioned as compensation for a failure to perform labor services in an early twelfth-century document from the abbey of Egmond (Meilink 1951, 62). 8. For the references to these charters, see note 1. 9. For an example of the role of a manor court in debt litigation, see Clark (1981); for an example of a borough court, see Kowaleski (1995, 212–220). 10. The early fourteenth-century charter of liberties of Amsterdam possibly refers to the same principle when it states that a burgher who leaves town in order to damage or seize some property will be punished unless he has official permission to do so (Van der Laan 1975, no. 6). 11. The count frequently granted lower jurisdiction and the revenues it rendered to an ambachtsheer, or village lord, who in turn appointed a sheriff to do the work; but these courts operated as part of the regular system of public justice and did not compete with it. 12. For a general discussion of the problems of jurisdictional authority over foreigners in medieval and early modern Holland, see Kosters (1914).

References Allan, A. J. 2005. Het Kennemer landrecht van 1274 tot het begin van de Republiek. The Hague: Koninklijke Vermande. Bartlett, R. 1986. Trial by Fire and Water: The Medieval Judicial Ordeal. Oxford: Clarendon Press. Bateson, M., ed. 1972. Borough Customs II. Publications of the Selden Society 21. London: Professional Books. Blok, P. J., ed. 1884. Leidsche rechtsbronnen uit de Middeleeuwen. Werken der Vereeniging tot uitgaaf der bronnen van het oud-vaderlandsche recht 1st series 6. The Hague: Nijhoff. Brand, P. 1997. “The Formation of the English Legal System, 1150–1400,” in Legislation and Justice, ed. A. Padoa-Schioppa, 103–121. Oxford: Clarendon Press. ———. 2002. “Aspects of the Law of Debt, 1189–1307,” in Credit and Debt in Medieval England c. 1180–c. 1350, ed. P. R. Schofield and N. J. Mayhew, 19– 41. Oxford: Oxbow Books. Burgers, J. W. J., E .C. Dijkhof, and J. G. Kruisheer. 1996. “De doordringing van het schrift in de samenleving in Holland en Zeeland tijdens graaf Floris V,” in Wi Florens . . . de Hollandse graaf Floris V in de samenleving van de dertiende eeuw, ed. D. E. H. de Boer et al., 191–211. Utrecht: Matrijs. Cappon, C. M., and H. Van Engen. 1999. “De stadsrechtoorkonden van Brielle (1330 en 1343),” Verslagen en mededelingen. Stichting tot uitgaaf der bronnen van het oud-vaderlands recht 10: 135–162. ———. 2001. “Stad door stadsrecht? De betekenis van de stadsrechtverlening voor de stadjes Goedereede (1312), Brielle (1330 en 1343), Geervliet (1381)

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en Brouwershaven (1403),” Jaarboek voor Middeleeuwse Geschiedenis 4: 168–188. Clark, E. 1981. “Debt Litigation in a Late Medieval English Village,” in Pathways to Medieval Peasants, ed. J. A. Raftis, 247–279. Toronto: Pontifical Institute of Mediaeval Studies. De Blécourt, A. S., and H. F. W. D. Fischer. 1967 (7th ed.). Kort begrip van het oud-vaderlands burgerlijk recht. Groningen: Wolters-Noordhoff. De Boer, D. E. H. 1988. “Op weg naar volwassenheid. De ontwikkeling van produktie en consumptie in de Hollandse en Zeeuwse steden in de dertiende eeuw,” in De Hollandse stad in de dertiende eeuw, ed. E. H. P. Cordfunke et al., 28–43. Zutphen: De Walburg Pers. De Boer, D. E. H., D. J. Faber, and H. P. H. Jansen, eds. 1980. De rekeningen van de grafelijkheid van Holland uit de Beierse periode III, De rekeningen van de gerechtelijke ambtenaren. RGP Grote serie 174. The Hague: Nijhoff. De Geer, B. J. L. 1886. Rechten van Vianen. Verslagen en mededeelingen der Vereeniging tot uitgave der bronnen van het oude vaderlandsche recht 2: 108–189. De Goede, A. 1946. Westfriesche rechtsgeschiedenis 3, Seventuig. Utrecht: Kemink. De Monté Ver Loren, J. P. 1982 (6th ed.). Hoofdlijnen uit de ontwikkeling der rechterlijke organisatie in de noordelijke Nederlanden tot de Bataafse omwenteling. Deventer: Kluwer. De Schepper, H., and Cauchies, J.-M. 1997. “Legal Tools of the Public Power in the Netherlands, 1200–1600,” in Legislation and Justice, ed. A. Padoa-Schioppa, 229–268. Oxford: Clarendon Press. De Vries, K. n.d. Bijdrage tot de kennis van het strafprocesrecht in de Nederlandse steden benoorden Maas en Schelde. Groningen: Noordhoff. Derville, A. 1981. Histoire de Saint-Omer. Lille: Presses Universitaires de Lille. Dilcher, G. 1984. “Personale und lokale Strukturen kaufmännischen Rechts als Vorformen genossenschaftlichen Stadtrechts,” in Gilde und Korporation in den nordeuropäischen Städten des späten Mittelalters, ed. K. Friedland, 65–77. Cologne/Vienna: Böhlau. Fockema Andreae, S. J. 1906. Oud-Nederlandsch burgerlijk recht. Haarlem: Bohn. Fruin, R. 1902. “Over waarheid, kenning en zeventuig in de rechtspleging van Holland en Zeeland,” in Verspreide geschriften VI, ed. R. Fruin, 315–366. The Hague: Nijhoff. Gilissen, J. 1958. “Le statut des étrangers en Belgique, du XIIIe au XXe siècle,” in L’étranger 2. Recueils de la Société Jean Bodin X, 231–332. Brussels: Librairie encyclopédique. Godding, P. 1954. “Les conflits a propos des lettres echevinales des villes brabançonnes,” Tijdschrift voor Rechtsgeschiedenis 22: 308–353. ———. 1987. Le droit privé dans les Pays-Bas méridionaux du 12e au 18e siècle. Brussels: Palais des Académies. Hoogewerf, C. L. 2001. Het Haarlemse stadsrecht: Inleidende beschouwingen, tekst, vertaling en artikelsgewijs commentaar. Amsterdam: Cabeljauwpers.


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Hoppenbrouwers, P. C. M. 1992. Een middeleeuwse samenleving. Het land van Heusden, ca. 1360–ca. 1515. Wageningen/Groningen: Nederlands AgronomischHistorisch Instituut. ———. 1996. “Op zoek naar de ‘kerels.’ De dorpsgemeente in de dagen van graaf Floris V,” in Wi Florens . . . de Hollandse graaf Floris V in de samenleving van de dertiende eeuw, ed. D. E. H. de Boer, E. H. P. Cordfunke, and H. Sarfatij, 224–242. Utrecht: Matrijs. ———. 2002. “Van waterland tot stedenland. De Hollandse economie ca. 975– ca. 1570,” in Geschiedenis van Holland I, Tot 1572, ed. T. de Nijs et al., 103– 148. Hilversum: Verloren. Huizinga, J. 1905–1906. “De opkomst van Haarlem,” Bijdragen voor Vaderlandsche Geschiedenis en Oudheidkunde 4–5: 412–446, 16–175. Hyams, P. R. 1981. “Trial by Ordeal: The Key to Proof in the Early Common Law,” in Essays in Honor of Samuel E. Thorne, ed. M. S. Arnold et al., 90–126. Chapel Hill: University of North Carolina Press. Joosting, J. G. C., ed. 1890. Onuitgegeven oorkonden betreffende het zeventuigsrecht. Nijmegen: Thieme. Koch, A. C. F., J. G. Kruisheer, J. W. J. Burgers, J. Sparreboom, and E. C. Dijkhof, eds. 1970–2005. Oorkondenboek van Holland en Zeeland tot 1299. The Hague: Nijhoff [here referred to as OHZ]. Korteweg, K. N., ed. 1948. Rechtsbronnen van Woudrichem en het land van Altena. Werken der Vereeniging tot uitgaaf der bronnen van het oud-vaderlandsche recht 3rd series 14. Utrecht: Kemink. Kosters, J. 1914. “De rechtsmacht over vreemdelingen naar Oud-Nederlandsch recht,” in Rechtshistorische opstellen aangeboden aan mr. S. J. Fockema Andreae, ed. S. J. Fockema Andreae and R. Fruin, 279–310. Haarlem: De Erven F. Bohn. Kowaleski, M. 1995. Local Markets and Regional Trade in Medieval Exeter. Cambridge: Cambridge University Press. Kruisheer, J. G. 1985. Het ontstaan van de stadsrechtoorkonden van Haarlem, Delft en Alkmaar. Amsterdam: Noord-Hollandsche Uitgevers Maatschappij. Matthijsen, J. 1880. Het rechtsboek van Den Briel, ed. J. A. Fruin and M. S. Pols. Werken der Vereeniging tot uitgaaf der bronnen van het oud-vaderlandsche recht 1st series 1. The Hague: Nijhoff. McAuley, F. 2006. “Canon Law and the End of the Ordeal,” Oxford Journal of Legal Studies 26: 473–513. McNall, C. 2002. “The Business of Statutory Debt Registries, 1283–1287,” in Credit and Debt in Medieval England, c. 1180–c. 1350, ed. P. R. Schofield and N. J. Mayhew, 68–88. Oxford: Oxbow Books. Meilink, P. A., ed. 1951. Het archief van de abdij van Egmond. The Hague: Ministerie van Onderwijs, Kunsten en Wetenschappen. Murray, J. M. 1983. Notaries Public in Flanders in the Late Middle Ages. Ann Arbor: University Microfilms International. Nortier, A. 1874. Bijdrage tot de kennis van het burgerlijk procesrecht in de 15e eeuw binnen de stad Leiden. Leiden: Van Doesburgh.

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Pirenne, H. 1971. Les villes du moyen âge. Paris: Presses Universitaires de France. Planitz, H. 1940. “Kaufmannsgilde und städtische Eidgenossenschaft in niederfränkischen Städten im 11. und 12. Jh,” Zeitschrift der Savigny-Stiftung für Rechtsgeschichte, Germanistische Abteilung 60: 1–116. Plucknett, T. F. T. 1956 (5th ed.). A Concise History of the Common Law. London: Butterworths. Pollock, F., and F. W. Maitland. 1895. The History of English Law Before the Time of Edward I. Cambridge: Cambridge University Press. Pols, M. S. 1885. “Bevestiging der handvesten van Goedereede door hertog Philips van Bourgondië, December 1451,” Verslagen en mededeelingen der Vereeniging tot uitgave der bronnen van het oude vaderlandsche recht 1: 330–347. Postan, M. M. 1928. “Credit in Medieval Trade,” Economic History Review 1: 234–261. Reynolds, S. 1977. An Introduction to the History of English Medieval Towns. Oxford: Clarendon Press. Stephenson, C. 1933. Borough and Town. Cambridge, MA: Mediaeval Academy of America. Telting, A. 1901. “Oude rechten van ’s-Gravenzande,” Verslagen en mededeelingen der Vereeniging tot uitgave der bronnen van het oude vaderlandsche recht 4: 354–429. Van Bavel, B. J. P. and J. L. Van Zanden. 2004. “The Jump-Start of the Holland Economy During the Late-Medieval Crisis, c. 1350–c.1550,” Economic History Review 62: 503–532. Van Caenegem, R. C. 1956. Geschiedenis van het strafprocesrecht in Vlaanderen van de XIe tot de XIVe eeuw. Brussels: Paleis der Academieën. ———. 1965. “La preuve dans l’ancien droit belge des origines à la fin du XVIIIe siècle,” in: La preuve, 2, Moyen Age et temps modernes. Recueils de la Société Jean Bodin XVII, 375–430. Brussels: Librairie encyclopédique. ———. 1991. “Methods of Proof in Western Medieval Law,” in Legal History: A European Perspective, ed. R. C. van Caenegem, 71–113. London: Hambledon Press. Van Der Laan, P. H. J., ed. 1975. Oorkondenboek van Amsterdam. Amsterdam: Israel. Van Engen, H. 2005. “Geen schraal terrein. Stadsrechten en het onderzoek naar stadswording,” in Stadswording in de Nederlanden. Op zoek naar overzicht, ed. R. Rutte and H. van Engen, 63–86. Hilversum: Verloren. Van Mieris, F., ed. 1753–1756. Groot charterboek der graaven van Holland en Zeeland en heeren van Vriesland. Leiden: Pieter vander Eyk. Van Uytven, R. 1986. “Les origines de villes dans les anciens Pays-Bas,” in La fortune historiographique des thèses d’Henri Pirenne, ed. G. Despy and A. Verhulst, 13–26. Brussels: Archives et Bibliothèques de Belgique. Vercauteren, F., ed. 1938. Actes des comtes de Flandres, 1071–1128. Brussels: Académie Royale des Sciences, des Lettres et des Beaux Arts de Belgique.


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Verhulst, A. 1986. “Zur Entstehung der Städte in Nordwest-Europa,” in Forschungen zur Stadtgeschichte, 25–53. Opladen: Westdeutscher Verlag. Zuijderduijn, J. 2009. Medieval Capital Markets. Markets for Renten Between State Formation and Private Investment in Holland (1300–1550). Leiden: Brill.

chapter twelve

The Resolution of Commercial Conﬂ icts in Bruges, Antwerp, and Amsterdam (1250–1650) Oscar Gelderblom

; introduction With the expansion of trade in late medieval Europe, new institutions for contract enforcement emerged, most notably courts that specialized in the settlement of commercial disputes. At international fairs, for instance in England and Champagne, temporary courts were set up to pass immediate judgment in conflicts between visiting merchants. At some fairs foreign traders also organized in guilds, whose leaders acted as substitutes for hometown authorities in the adjudication of disputes between members.1 In towns with permanent markets, foreign merchant communities were sometimes granted a separate jurisdiction. Consular courts applied contracting rules from the place of origin to commercial conflicts and minor criminal offenses that arose between merchants, shipmasters, and sailors of a single city or region.2 Their ability to prevent and punish default notwithstanding, fair courts and consular courts disappeared from the commercial heartland of Europe in the early modern period. Douglass North and others have argued that the creation of a central state-sponsored legal system from the fifteenth century onward obviated the temporary and corporate jurisdictions of the Middle Ages. The judges of central courts such as the Parlement in Paris, the Grand Conseil in the Burgundian Netherlands, and the Reichskammergericht in the Holy Roman Empire applied the same contracting rules

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to all merchants regardless of their background.3 In North’s view, the state as an independent third-party enforcer made it easier for alien merchants to contract with one another and so contributed to the commercial expansion of the long sixteenth century (1450–1650).4 Whether the creation of central courts improved contract enforcement remains to be seen, however. On the one hand, historical and theoretical evidence shows that friendly interventions, or a credible threat with social sanctions, can resolve many conflicts.5 On the other, from the twelfth century onward, town magistrates in Italy, Spain, Germany, the Low Countries, and England acted as third-party enforcers in conflicts between traders. Merchants benefited because the fixed cost of establishing these local courts were borne by the urban community, and magistrates showed a keen interest in the quick resolution of conflicts between visiting merchants. As early as the twelfth century, towns hosting periodic fairs scheduled their court proceedings to fit the rhythm of display, sales, and payment. The magistrates of port towns in the Mediterranean, the North Sea area, and the Baltic region also created separate tribunals to apply maritime law to disputes between shipowners, freighters, shipmasters, and their crew. Between the fourteenth and sixteenth centuries, mercantile courts with jurisdiction over the full range of maritime and commercial disputes were set up in cities in Italy, Spain, and France.6 But if merchants preferred private settlements, and town magistrates tried very hard to accommodate the legal needs of local and foreign traders, why did alien merchants across Europe demand to have their own consular jurisdiction in foreign territories? And why did central courts in the new monarchies of the fifteenth century offer themselves as the protectors of the interests of foreign merchants? Is this because local courts discriminated against aliens? Were local courts unwilling or genuinely unable to apply international commercial customs to disputes brought before them? Were they too slow or too expensive for visiting merchants to rely on? Or should we consider the coexistence of different courts as an optimization strategy, with each of the courts contributing a specific set of legal services in addition to the private settlement of conflicts? This chapter analyzes the combination of public and private institutions that foreign merchants in late medieval and early modern Bruges, Antwerp, and Amsterdam used to resolve commercial disputes. The first section details the universal preference for amicable settlement. Then, in three consecutive sections, the chapter reconstructs the extent to which foreign merchants in the three ports relied on consular courts and local courts to solve business disputes. A double comparison between the foreign nations, on the one hand, and the three ports, on the other, will highlight the legal issues and changes that caused the rise and decline of

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consular courts. In a final section we consider the lawsuits brought before the central courts of the Netherlands since the mid-fifteenth century to gauge the effect of state formation on contract enforcement in longdistance trade. amicable settlement “Hildebrant, dear friend, do realize that I am surprised you did not give us our money, because we can make good use of it, and we need it. So we beg you that you do so, and send us the money.” With these words Wilhelm Weits and Lamsin Kupere prodded Hildebrand Veckinchusen in August 1421 to pay his debts. Veckinchusen had sustained large losses in the salt and textiles trade, and financial difficulties had been exacerbated by his failure to retrieve a loan extended to Emperor Sigismund. At the time the letter was written, Veckinchusen was absent from Bruges as he attempted to obtain new lines of credit in Antwerp, Cologne, and Lübeck. He stayed for some time in Antwerp, where he met with friends and creditors in a local hostel to restructure part of his debts. In the meantime Veckinchusen’s agent in Bruges, the hosteller Jakob Schotteler, was approached by other impatient creditors. Schotteler urged Veckinchusen to return to Bruges, which he eventually did. Together they managed to hold out for several months, until, in February 1422, the Genoese banker Joris Spinola lost his patience and had Hildebrand Veckinchusens locked up in Bruges’ debt prison.7 Merchants were never too strict about the exact date for payments. The balances of current accounts were easily transferred to a following year, obligations were prolonged, or new bills of exchange were drawn to ease liquidity constraints. Creditors exercised restraint because any action that signaled a merchant’s lack of creditworthiness could provoke a chain reaction of other creditors calling in debts, which could create difficulties for many more merchants. In general, delays of a few weeks or even months were accepted if the other party was believed to be honest.8 But even if payment was not forthcoming, merchants did not immediately go to court. They would continue to put pressure on their debtors and in the meantime consider the consequences of firmer action. Then, when debts issued from single transactions with traders outside the core of their business network, a merchant might simply write off irretrievable claims. For instance, in the mid-fifteenth century the Medici branches in Bruges and London reserved 10 percent of their profits to cover bad debts.9 Taking one’s losses was not always possible, however. Too much money could be involved, the failed transaction might be part of a complex set of


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mutual obligations, or merchants expected too many future gains from the continuation of trade. Termination of such relationships was impossible without considerable losses, often to both parties.10 But then a friendly solution might be wanting because of personal frictions, the social distance between trading partners, or simply because parties felt too strongly about their own right. To prevent the collapse of trade as a result of anonymity, animosity, or a lack of appropriate sanctions, foreign merchants in the Low Countries could turn to arbiters to complement their private efforts to enforce contracts. The mediation of two or more men, acceptable to both parties, with access to the necessary papers and testimonies, was impartial, expedient, and cheap. What is more, arbiters could deviate from legal prescriptions and propose equitable solutions to try and appease both parties.11 For foreign merchants arbitration probably had the added advantage that arbiters could be asked to apply the rules of their own city or country. Evidence for arbitration between merchants can be found as early as the thirteenth century in England, and by the sixteenth century it had become common practice throughout Europe.12 In Bruges arbiters may have mediated between foreign merchants as early as 1300.13 The privileges of the English nation granted in 1359 specified that conflicts between members of this community and others should be resolved through arbitration by two Englishmen and two local citizens.14 In the mid-fifteenth century no less than three-quarters of the disputes submitted to the local court by Spanish merchants were referred to arbiters.15 For instance, a conflict between a Genoese merchant and two Spanish merchants was submitted to the maritime court of Damme in 1447, but it was resolved through arbitration by three men—a councilor of the Burgundian duke, a hosteller from Bruges, and a Portuguese merchant.16 The procedure was straightforward. The merchants each named one or two arbiters—mostly fellow merchants—while the local justices sometimes added other members to the committee. The arbiters began with the inspection of the evidence; they heard the arguments of both parties, deliberated, and passed their judgment. Their ruling was confirmed by the local justices and sometimes registered with a notary.17 By the time Amsterdam emerged as Europe’s leading commercial center, arbiters helped merchants to solve a variety of conflicts with business partners, buyers, sellers, shipmasters, and artisans.18 The notarial deeds that survive of Portuguese merchants in Amsterdam show the involvement of arbiters in fifty-seven business conflicts between 1602 and 1627.19 They ruled in simple cases about unpaid bills and the quality of merchandise, in more complex disputes about inheritances or the settlement of accounts between former partners, and also in maritime affairs such as

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damages from privateering and shipwrecks, insurance claims, and the enforcement of freight contracts. Arbitration was especially helpful when both parties believed they had legitimate claims, or the contract between them offered no clear-cut solution for a problem that had arisen. The latter was the case in various conflicts between Portuguese merchants and shipmasters who had experienced delays, changed routes, used smaller ships, or sailed without taking on any cargo. Otherwise, arbiters were called in to escape court procedures and force a speedy resolution of conflicts. Legal historians have shown that in medieval law a distinction existed between two kinds of arbiters. On the one hand, there were goede mannen, amyable compositeurs, or arbitrators, who were appointed by merchants, and whose judgment was based on equity. In this case parties typically chose one mediator each.20 On the other hand, there were arbiters appointed by local or central courts. They applied prevailing law and as a result should be considered lay judges.21 An attestation by a group of lawyers and solicitors in Amsterdam in 1615 bears out this distinction. The jurists declared before a notary that if the local court had referred litigants to arbiters, they retained the right to appeal to their judgment. An arbitral decision was legally binding only if merchants had voluntarily submitted to arbitration.22 The latter rule was confirmed by a Supreme Court, as evidenced by a company contract signed by two cloth traders in 1630. In the contract the partners determined that any future differences should be submitted to two or three goede mannen. “In conformity with a ruling of the Supreme Court,” the contract stated, “the associates were bound by the decision of the arbiter, and had no right to appeal.”23 Merchants who preferred the gentle hand of arbiters sometimes anticipated the mediation of goede mannen in company contracts, freight contracts, and insurance policies.24 The broad acceptance of arbitration in Amsterdam is also demonstrated by the fifty different merchants from Holland, Flanders, and Portugal who acted as arbiters in the fifty-seven conflicts involving Portuguese merchants that were resolved in this way. In the second half of the seventeenth century, Amsterdam’s aldermen even kept registers with the names of those men who in their profession were held to be respectable and knowledgeable and hence eligible as arbitrators should conflicts arise.25 It was only rarely that merchants refused to submit to the mediation of arbiters. One such instance was the refusal of the English merchant Thomas Stafford to settle his affairs with Walloon merchant Pieter Denijs through arbitration, because “in the past Denijs (and his son) had slandered him, challenged him to fight, and even tried to stab and kill him at the Exchange.” Stafford decided to bring the case to court.26 But even in these circumstances it remained up to the


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court to decide whether a lawsuit was appropriate.27 Thus, when in 1630 arbitration seemed impossible in a conflict about a merchant’s sale of calfskins to a gold leather maker because the latter refused to cooperate, the merchant turned to the local court, which then forced the artisan to accept arbitration. Within a month after their intervention an amicable settlement was reached.28 Notarial deeds concerning Portuguese merchants in Amsterdam reveal that at least one-third of arbitral decisions in commercial disputes were referrals from local and occasionally also provincial courts.29 The obvious aim was to speed up proceedings, as with a dispute that arose over the noncompliance with the terms of a freight contract signed in 1596 between a Dutch shipmaster and a Dutch merchant residing in Seville. Initially the case was brought before the local court of Amsterdam, which ruled in 1601. Both parties appealed to the Court of Holland, which suggested in July 1603 that the parties should try and reach an agreement with the help of arbiters. Each of the parties chose three arbiters, and these six men appointed a seventh to act as their chair. Within a month the arbiters had reached a legally binding verdict that included the payment of tolls, fines and damages, the lifting of the seizure of goods, the freeing of a hostage in Seville, the return of business papers, and finally the pledging of sureties.30 commercial litigation in bruges Amicable settlement, with or without the help of arbiters, was the preferred solution in business conflicts, but it was not always possible. Sometimes parties were irreconcilable, or they simply wanted to solve matters without delay. The latter constraint was felt in particular at the fairs of Flanders and Brabant, where traders met only at short intervals. The inclusion of Bruges in the cycle of Flemish fairs in 1200 required the city to offer visitors the possibility to resolve disputes on the spot. Unlike the fairs in Champagne or South England, foreigners in Bruges were never referred to a temporary court. Rather, the local court, established around 1100, took on the responsibility to pass judgment in conflicts between visitors of the fairs. The oldest bylaws in Bruges, dating from 1190, 1281, and 1304, already stipulated that schepenen were expected to rule within three days (or eight, when the defendant was not present) in cases brought before them by foreign visitors.31 In 1330 the Count of Flanders specified that during the fairs justice should be done at least twice a week, with the exception of the three days of display and the three days before and after that, when traders should be left to themselves. In 1396 the city declared

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that procedures for local citizens and foreigners had always been equally expedient.32 The active role of Bruges’s Schepenbank in the resolution of commercial conflicts can be gleaned from the twenty-one trade-related sessions it held between September 1333 and January 1334. Three years later this number had already risen to thirty-one.33 It is difficult to establish what kind of disputes the aldermen’s bench settled. A town ordinance of 1481 mentioned that conflicts between foreigners and between foreigners and locals had of old (van ouden tyden) been brought before the Schepenbank, but the substance of the proceedings is not mentioned.34 The privileges given to the German merchants in 1360 are more precise, stipulating that the local court would deal with any conflict arising from the services provided by local weighers, brokers, shipmasters, “piners,” and “waghenaers.” In addition the authorities confirmed that within three days the court had to pronounce judgment in all disputed credit transactions involving German traders.35 The aldermen’s bench played a very active role in the resolution of conflicts between foreigners, but nevertheless the city of Bruges, in conjunction with the Counts of Flanders, granted consular jurisdictions to foreign merchant communities. This legal privilege allowed consuls, appointed by the merchants or their home rulers, to adjudicate disputes according to the laws and customs of their own country. They ruled in maritime and commercial conflicts, in cases of insult and harassment, and they also administered noncontentious procedures, such as the management of the estates of deceased merchants. Extant documents of the Spanish nation suggest that its consuls also resolved disputes through arbitration, thus providing a highly valued extension of private order solutions.36 The establishment of consular courts in Bruges is remarkable because of its timing. As Figure 12.1 shows, most foreign nations were given a consular jurisdiction a century or more after their initial arrival. German merchants had been regular visitors since 1200, if not much earlier, but they received their jurisdiction only in 1309. The merchants of Aragon obtained a similar privilege early on, in 1330, but there is no evidence that they appointed judges at this date. The great majority of aliens, including most of the merchants from the Italian city-states, received their separate jurisdiction in Bruges only in the fifteenth century. The number of consular courts peaked in 1450, when ten out of fourteen foreign nations had their own court. Only merchants from France, Southern Germany, Scotland, and Milan remained without a consular jurisdiction. Political considerations cannot explain the timing of the establishment of consular courts. Admittedly, in 1359 the English cloth traders—not the wool merchants—were granted a separate jurisdiction in Bruges be-


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Biscay Venice Castile Florence Portugal Genoa Lucca England Aragon Hanse 1250

1300

1350

1400

1450

1500

1550

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1650

Figure 12.1 The consular jurisdictions of foreign merchant communities in Bruges, 1250–1650 sources: Gilliodts van Severen 1883, II, 118n; Van Houtte 1982, 175; De Roover 1948, 15; Gilliodts van Severen 1901, 44–45; Vandewalle 2002, 38–39.

cause the city wanted to lure them away from Antwerp.37 However, Italian and Iberian merchants had been present in Bruges for three-quarters of a century or more before they were finally given a consular court in the second half of the fourteenth century. A better explanation is the larger number of foreign merchants who became permanent residents. In the late thirteenth century and much of the fourteenth century, the majority of foreigners stayed for brief periods only, which allowed them to turn to judges in their home towns to solve disputes. In this early period commercial conflicts involving foreign merchants in Bruges were adjudicated in the Corte de Mercanti in Lucca, the Consulado del Mar in Barcelona, the Consulado of Burgos, the Uffici di mercanzia in Genoa, and the local court of Lübeck. This resolution of conflicts by judges in home towns became problematic once merchants began to stay in Flanders for longer periods of time. The creation of consular courts was a welcome alternative for the intervention of judges in the home towns, since it allowed the settlement of disputes with business associates and trading partners on the basis of the merchants’ own laws and customs. In addition to conflicts between

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traders, the consuls also had the authority to discipline servants, apprentices, and sailors handling the merchants’ money merchandise. Indeed, in many of the grants of consular jurisdictions to foreign nations in Bruges, these two groups—employees and sailors—were explicitly mentioned as submitted to the rulings of the consuls.38 Conflicts between merchants, or between merchants and their personnel, do not necessarily explain why German traders were allowed to set up a consular court in Bruges as early as 1309. At the time most Germans were present in the port only during the trading season. In their absence local hostellers took care of their business, including any dealings with the local authorities. Why then would the Germans want a consular jurisdiction? One explanation lies in the staple rights granted to the German merchants in the early fourteenth century. To secure the compliance of all members, the aldermen of the German community had to be able to punish or possibly even exclude infringers. Up until the formal recognition of the Kontorordnung of 1356, however, this was the responsibility of the Hanseatic diet led by Lübeck. Hence a more convincing explanation would seem to be the disciplining of the numerous German shipmasters and sailors frequenting Bruges since the thirteenth century. Damaged ships, lost cargoes, labor conflicts, and fighting sailors were a real concern for merchants and rulers. The ability to discipline their seamen must have been attractive to the German merchants. This is also apparent from the first privileges granted to German merchants in Dordrecht by the Count of Holland in 1303, which included the right to try crew members who had fought aboard ships—provided there were no fatalities.39 But why did French merchants never obtain a consular jurisdiction in Flanders? Shipmasters from Normandy and Brittany sailed regularly to Flanders in the fourteenth century, and they must have faced problems similar to those of the Germans. The fact that Flanders remained a fief of the French crown until 1508 has no bearing on the subject, for Brittany remained independent from France until 1531. Indeed, wine merchants from Saint-Jean-d’Angely and La Rochelle did receive privileges from the Count of Flanders in 1331. He promised to protect their person and goods from arbitrary confiscation or any other damage. However, the wine merchants were not given a separate jurisdiction. Instead they were referred to the maritime court of Damme in case of disputes.40 The different treatment of French and German merchants probably resulted from the maritime law applied by the judges in Damme. They ruled in conflicts between shipmasters, sailors, and merchants using the articles of the French Rôles d’Oléron.41 German merchants also used this maritime law, but they had their own adaptation, which was known as the


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sea laws of Visby. The separate jurisdiction of the Germans allowed application of these laws, whereas conflicts between French merchants and sailors could simply be adjudicated in Damme on the basis of the Rôles d’Oléron.42 It is tempting to consider the consular courts a substitute for the Schepenbank of Bruges. Indeed, the Venetian and Hanseatic nations threatened to exclude merchants who brought their cases before the local court instead.43 In reality, however, the courts were complementary institutions. The Lucchese nation, for example, explicitly allowed its members to appear before the local court if this benefited a speedy resolution of conflicts.44 Thus merchants from Lucca appeared before the local court, to deal with failed deliveries, arrests, and conflicts with employees and partners. A recent survey of cases brought before the aldermen’s bench of Bruges reveals several hundred lawsuits in matters of insurance, payment and delivery, arrests, and myriad other cases involving members of virtually every nation.45 The foreign consuls themselves appeared before the Schepenbank to support claims by their members, or they called upon local justices to settle an internal dispute. For instance, in 1458, Bruges schepenen intervened to ensure that Catalan merchants paid the membership fee of their nation.46 The aldermen of Bruges also heard appeals lodged by Lucchese, Castilian, and Portuguese merchants against the ruling of their own leaders, and they settled disputes between consuls from different nations.47 Finally, the local court looked after the estates of deceased foreign merchants in case no relatives were present in Bruges, although conflicts regarding the division of estates were always referred back to the respective consuls.48 commercial litigation in antwerp Thirteen years before the German merchants in Bruges obtained their consular jurisdiction from the Count of Flanders, the Duke of Brabant had already extended a similar privilege to merchants from England. Whether the English immediately set up a consular court is doubtful, however. At the time they traveled to Bergen op Zoom and Antwerp only for the duration of the fairs, and in these towns local justices resolved disputes between visitors.49 Also in 1308 Antwerp’s magistrate granted the deacons of its local cloth hall jurisdiction over all conflicts relating to the manufacturing and sales of cloth, the single most traded commodity by the English in Brabant.50 Thus it would seem that the jurisdiction granted to English merchants in 1296 was a symbolic gesture from the Duke of Brabant, very much like the advances he made to Florentine and German traders in 1315.51

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It was probably only in the mid-fifteenth century that English merchants began to rely on adjudication by the leaders of their own community.52 In August 1446 Philip the Good confirmed the consular jurisdiction of the English merchants, and shortly afterward the city magistrate issued an ordinance to regulate its actual proceedings. Antwerp also adjusted its own legal proceedings to suit the needs of the English cloth traders. For instance, in 1474 they were allowed to bring conflicts with local merchants and artisans before the schepenbank rather than the cloth hall. Ten years later, when English merchants complained about the slow procedures before the aldermen’ bench, the town reviewed its appointment of local judges. The privileges of the company of Merchant Adventurers in 1496 confirmed the jurisdiction of the English court but also promised the speedy resolution of conflicts before the aldermen’s bench. In the sixteenth century the Court of the Merchant Adventurers in Antwerp dealt with three kinds of cases.53 First it punished public drinking, gambling, violence, and other objectionable behavior by its members. The disciplining of the community was specifically targeted at servants and apprentices, who were punished even more severely than the freemen of the company. Second, the court applied English law to contracting issues between members of the nation and—if both parties agreed—between freemen and other English traders. Finally, the consular jurisdiction helped the Merchant Adventurers to enforce their monopoly in the cloth trade. The Secretary of the Court kept a register with the powers of attorney London merchants granted to freemen in Antwerp and the transactions these agents carried out on behalf of their principals. This registration was a double sword. It made the consignment trade more transparent, as merchants, members or not, could inquire into existing agency relations. At the same time it made it easier to detect interlopers and punish their illicit trade with fines, confiscation of property, or even imprisonment pending their forced departure from Antwerp. The Merchant Adventurers were not the only merchants with a separate jurisdiction in the sixteenth century. The removal of foreign nations from Bruges brought several other consular courts to Antwerp (see Figure 12.2). In 1511 the city confirmed all earlier privileges of the Portuguese nation in Bruges, including the right to establish a consular court. The decline of Bruges also led to the transfer of the Genoese massaria, in 1522. In 1546 Charles V gave Florentine consuls the right to rule, in first instance, in conflicts between members of their nation. In 1553, after lengthy negotiations with the town magistrate, the Kontor of the Hanseatic League was removed to Antwerp. Finally, around 1560, the merchants of Lucca were given the opportunity to name consuls to “resolve all conflicts between members.”


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Lucca German lands Florence Aragon Genoa Portugal England 1250

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Figure 12.2 Consular jurisdictions granted to foreign merchant communities in Antwerp, 1250–1650 sources: Lazzareschi 1947, xxxiv–xxxv, 286–287; Goris 1925, 58, 67, 71, 76, 79; Harreld 2004, 66; Liste Chronologique des édits et ordonnance des Pays-Bas. Règne de Charles-Quint (1506–1555) (Brussels: Fr. Gobbaerts, 1885), 295; Antwerpse costuymen 1570, 487; Antwerpse costuymen 1582, 36.

As in Bruges, consular and local courts in Antwerp were complementary institutions. English merchants, for instance, wrote many powers of attorney to solicitors to bring cases before local judges. In 1537 the Merchant Adventurers spurred the town magistrate to tighten the rules for payment of bills of exchange, obligations, and insurance claims.54 Portuguese merchants also used both courts to solve problems. Every week two Portuguese consuls presided over a tribunal in which the members of the nation acted as a jury. Besides the correction of insults, scuffles, and other minor offenses, the consuls dealt with commercial and maritime conflicts, most notably the settlement of insurance cases. Merchants who disagreed with the consuls’ rulings, however, never hesitated to bring their case before the local court. This right to appeal was even written down in Antwerp’s customs in 1582. Conversely, the Schepenen always pointed to the consular court to resolve conflicts between shipmasters and sailors, which required the application of Portuguese maritime law.55 The exertions of the English and Portuguese community leaders notwithstanding, consular courts were less important in Antwerp than they

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had been in Bruges. Merchants from Florence, Germany, and Lucca had to wait several decades before they could appoint consuls, and merchants from Aragon, Castile, Venice, France, Holland, and Southern Germany never obtained this privilege.56 The German case suggests that this did not harm trade in the least. The Germans moved to Antwerp in the late fifteenth century, while their Kontor remained in Bruges. In Antwerp the merchants happily turned to the local court to settle disputes between them.57 Conflicts between German merchants and sailors did not warrant a separate jurisdiction, because, when necessary, the local court applied the maritime laws of Visby. Hence Charles V’s permission to remove the Kontor from Bruges in 1553—following an earlier agreement between Antwerp and the Hanse in 1546—was but a symbolic measure in addition to more substantial benefits (i.e., the building of the Oosterlingenhuis) to secure the prolonged presence of German traders in Antwerp. In the first half of the sixteenth century, legal procedures before the Schepenbank were adapted to better serve the needs of foreign merchants.58 Following the English complaints about the enforcement of debt contracts in 1537, Charles V ordered the town to revise its terms to pass judgment. Thus in 1543 it created the opportunity for merchants to bring simple contractual matters, most notably contested short-term debts, before the extraordinaris rol, a subcommittee of aldermen that met twice a week and passed sentence within eight days. Matters that were less urgent but still required a speedy resolution could be brought before the ordinarisse rol, a similar subcommittee, also with two hearings per week but sentencing only within fourteen days. To be sure, the rollen were no courts of first instance, such as the Cloth Hall (1308) or the Orphan Chamber (1497); foreign merchants retained the right to submit their cases directly to the full Schepenbank. Procedural problems nevertheless remained in at least one area, that of insurance conflicts. Already in 1459 Philip the Good had ruled that local courts should settle insurance disputes as quickly as possible. The aldermen of Bruges and Antwerp complied, but eighty years later, in 1537, Antwerp’s magistrate expressed the wish to hand over this particular function to the consular courts.59 This desire was probably related to the different contracting rules applied by Portuguese, Castilian, Genoese, and Florentine merchants. Charles V, however, did not want referral to the consular courts, and promulgated an ordinance that, among other things, instructed the local court to pass provisional judgments, in combination with a financial deposit made by the parties involved (namptisatie).60 This was the first of a series of royal interventions to restructure legal proceedings, especially in matters of insurance. A second attempt dates from 1550, when counselors of Charles V, perhaps following the advice of Antwerp’s magistrate, prepared an ordinance for the establish-


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ment of a mercantile court led by one of the schepenen and the consuls of the four nations—the English, Portuguese, Genoese, and Florentine.61 This court would be authorized to deal with all conflicts arising between merchants trading at the Exchange. The plan would have created a mercantile court like the ones that existed in Italy and Spain, but for reasons unknown the ordinance was never promulgated. Instead, in 1551 the Castilian merchants in Antwerp asked for their own jurisdiction.62 Like the Germans, they were still officially submitted to the authority of the consuls of their nation in Bruges. In the 1520s and 1530s the consuls of Bruges actually came to Antwerp to adjudicate conflicts between merchants. According to the Antwerp members, however, their community leaders were incompetent in their dealings with conflicts in the Scheldt port. In particular, the Castilians wanted qualified judges to support the fulfillment of insurance policies, and hence they asked for their own judges in 1551. In a petition to the governess, the town magistrate of Antwerp endorsed the Castilian request and proposed the establishment of a consulate for all Spanish merchants, which would rule in first instance in commercial matters like the other nations in Antwerp. The magistrate of Bruges was furious and suggested it might withhold its financial support to Charles V if the Spanish consulate—and the wool staple—would be removed to the Scheldt port. At this point the city of Antwerp decided to let the matter rest, and the Spanish merchants were left with their own arbiters, or hombres buenos, to settle insurance disputes. In the sixteenth century Antwerp experienced a transition in the development of public solutions for the resolution of commercial conflicts. Local judges were already able to settle whatever disputes arose between merchants, but the foreign nations were not willing to renounce their legal privileges yet. The town magistrate initially tried to streamline legal procedures through the creation of more, rather than fewer, consular courts. Some officials even toyed with the idea to create a fully fledged mercantile court with the city’s aldermen and consuls together adjudicating conflicts. Royal interventions pushed matters toward the creation of centrally led institutions, most notably for insurance, but this was clearly a bridge too far, as it involved a mandatory public registration of contracts. Eventually, the local court emerged as the single most important third party enforcing contracts between merchants. the local courts in amsterdam In Amsterdam German merchants enjoyed a separate jurisdiction in the second half of the fourteenth century, as they were formally submitted to the authority of the aldermen of the Kontor in Bruges. This impractical

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arrangement was short-lived: in 1413 the town magistrate ruled that conflicts between guests had to be resolved expeditiously by the Gerechte or aldermen’s bench. In practice this meant that foreign merchants could go to court twice a week.63 Particularly important for the German merchants was Amsterdam’s decision to apply the sea laws of Visby to maritime conflicts. This was the legal code used by the Hanseatic merchants themselves, and hence it obviated the need for a separate jurisdiction.64 The court of Amsterdam also committed to the adjudication of conflicts between foreign residents—provided that both parties accepted its judicature. If, for instance, a stranger’s property was sequestered by a fellow town or countryman, the court would take on the issue, but if either of the two parties objected, the case was referred to their “daily judges.”65 The few surviving prescriptive texts suggest that Amsterdam’s Gerechte ruled in all commercial and maritime conflicts in the fifteenth and sixteenth centuries. Incidental references to actual disputes between local and foreign merchants in the second half of the fifteenth century confirm the court’s adjudication of cases concerning payments, disputed arrests, freight charges, the ownership of merchandise, and the dissolution of partnerships.66 Only in exceptional circumstances did the aldermen refuse to intervene in commercial matters. For instance, in April 1482, Amsterdam’s aldermen’s bench decided it would no longer rule in cases against Simon Modder, who on a daily basis threatened to hurt and actually did hurt creditors asking for payment. Modder himself would be fined or imprisoned if he misbehaved again.67 In this case, however, withholding legal support confirms rather than denies the importance of the court’s intervention in business disputes. The immigration of large numbers of Flemish, Portuguese, English, and German merchants between 1580 and 1650 did not lead to the creation of consular courts in Amsterdam. Commercial litigation simply continued before the local judges. The cases Portuguese merchants brought before the Gerecht in the first decades of the seventeenth century are testimony to the court’s capacities. The local judges ruled in disputes with shipmasters and employees, in conflicts regarding the quality of goods, deliveries and payments, insolvencies, and unpaid debts.68 All these proceedings were in Dutch, but foreigners could bring translators or rely on solicitors to defend their interests.69 Furthermore, when ruling in conflicts between foreigners, Amsterdam’s aldermen could be asked to apply the laws under which the disputed contracts were originally signed.70 In this otherwise very formal organization of contract enforcement in Amsterdam, the religious leaders of the Portuguese nation as well as the elders of the Lutheran, Walloon, English, and Dutch churches continued to play a role in disciplining the members of their respective communi-


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ties.71 The consistory of the English Reformed Church, for instance, corrected merchants whose behavior threatened a stable social order.72 Especially in the first years after the church’s establishment in 1607 they dealt with failed payments and deliveries, conflicts between employers and employees, and bankruptcies. On rare occasions the elders even acted as arbiters in business disputes. The elders of the Dutch Reformed Church in Amsterdam—many of whom were Dutch and Flemish merchants—also played an active role in the resolution of commercial conflicts. Between 1578 and 1650 the elders of this church dealt with 247 insolvencies, many involving merchants.73 The imposta board of the Portuguese community, established in 1622, had a slightly different function, as it mainly prescribed behavior, warning against conflicts between brokers and bijloopers, and issuing bans on gambling, on trade in illegal coinage, and carrying arms near the synagogues.74 The church communities could do only so much, however. First, at least in Amsterdam, there were too many different denominations. By 1650 the city boasted about a dozen church communities, most of which counted merchants among their members.75 This is why, for instance, the Portuguese imposta board, which was a collaboration between three Jewish congregations, could issue only warnings. Second, not all traders were active members of these churches. They may have been devout Christians but professed their faith in private. Among Flemish, German, English, and Portuguese Jews there remained many unaffiliated believers. Finally, the punishment of religious leaders was symbolic, and often temporary at that. When two Antwerp grocers had attempted to monopolize the supply of certain foodstuffs in 1590, they were merely reprimanded by their pastor and a church warden. The next year one of the merchants was already reelected deacon.76 In case of insolvency the English and Dutch Reformed Churches in Amsterdam followed an enactment of the Reformed Synod of Dordrecht (1618), which excluded only fraudulent bankrupts from communication.77 Involuntary bankrupts could continue to join the communion, provided they had reached an agreement with their creditors. The completion of the actual bankruptcy proceedings was always left to the creditors or the bench of aldermen.78 The advantage of this common jurisdiction for all merchants was that it saved merchants money. Whereas members of foreign nations in Bruges and Antwerp had to pay a fixed percentage of their turnover to the consuls, regardless of the use of their services, in Amsterdam the costs of the legal system were covered by urban taxes and by fees paid to those who appeared before the court. The obvious disadvantage of the prominent role of local justices in commercial litigation was the increased workload it created. This problem was resolved with the creation of subsidiary

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courts: the second institutional change that set Amsterdam apart from Bruges and, to a lesser extent, Antwerp.79 Between 1578 and 1650 Amsterdam set up a string of subsidiary courts led by commissioners with specialist knowledge. Directly or indirectly involved in the city’s trade were the Orphan Chamber (1578) and the Insurance Chamber (1598), the commissioners of the Exchange Bank (1609), the commissioners of Minor Affairs (Kleine Zaken) (1611), the Chamber of Insolvent Estates (1627), and finally the commissioners of Maritime Affairs (1641).80 Not all these subsidiary courts were equally important. Notably the Insurance Chamber, Maritime Chamber, and commissioners of the Exchange Bank fulfilled crucial functions for the resident and visiting merchants.81 Commissarissen van Kleine zaken ruled only in minor commercial disputes, while merchants often excluded the involvement of the Orphan Chamber in their wills to protect their business interests.82 The combination of a local court taking on general conflicts and a string of specialized courts for bankruptcies, insurances, exchange, and maritime law left very little for merchants to wish for. Even so, in the second half of the seventeenth century, some merchants began to contemplate the creation of a separate court for all commercial conflicts, very much like the merchant tribunals in Spain, Italy, or France. A proposition for this was made by former bookkeeper Johannes Phoonsen in his Wissel-Stijl tot Amsterdam.83 Phoonsen suggested turning the local Exchange Bank into a bank van judicature. Conflicts between merchants that did not fall under the jurisdiction of the Chambers of Insurance and Maritime Affairs should, in the first instance, be brought before the commissioners of the Wisselbank. Their jurisdiction would comprise “all differences concerning matters of exchange trade, sales or purchases, deliveries and payment; and contracts of trade, and their observance; liquidation and adjustments of accounts, as well as provisions, salaries, and pay of Commissioners, Factors, Bookkeepers and Servants &c. en generally all disputes and matters that arise in, or follow from trade.” Although a merchant tribunal was never created in Amsterdam, the very proposition shows the constant concern for the alignment of legal institutions with business practice. the rise of central courts Yet another challenge to the autonomy of the schepenbanken in the Low Countries was the introduction of higher courts. Ecclesiastical courts functioned already in the High Middle Ages, but incidental disputes about


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usury and insolvencies notwithstanding, their rulings rarely touched upon the everyday operations of merchants.84 A greater challenge was the creation of provincial and central courts with jurisdiction over larger territories.85 The vast majority of cases brought before these courts consisted of disputes between ordinary citizens, public officials, villages, towns, and provincial authorities. But long-distance traders also appeared before the central courts, either in first instance or because they disagreed with the rulings of local courts. The provincial and central courts heard cases in first instance for a select group of people, including nobles, ducal officials, widows, orphans, and foreign merchants.86 In 1409 John the Fearless ruled that disputes between nonresident foreigners could be brought before the Council of Flanders in Ghent. In the mid-fifteenth century Philip the Good allowed foreigners to take their disputes to the Grand Conseil in Malines.87 Until the 1480s this supreme court also adjudicated the prize cases resulting from the privateering wars of the Burgundian dukes.88 In the sixteenth century foreign traders in Antwerp could turn to the Grand Conseil in the first instance, and after 1581 the Hoge Raad van Holland and Zeeland offered a similar privilege to merchants in Amsterdam. In the fourteenth century Louis de Male had already allowed his Flemish subjects to appeal judgments of their local courts to the Council of Flanders. In the mid-fifteenth century Philip the Good gave all inhabitants of Flanders, Brabant, and Holland the right to lodge an appeal with their respective provincial courts against the verdict of local justices.89 He also created the opportunity to appeal to the Grand Conseil de Malines against the verdicts of these provincial courts.90 This justice in three stages survived in the northern provinces after the Dutch Revolt. The Hof van Holland simply continued its work while the new Supreme Court for Holland and Zeeland dealt with further appeals. Town magistrates may have balked at this infringement on their autonomy, but the impact on the resolution of commercial conflicts between merchants was probably limited. An exhaustive analysis of lawsuits before the Hof van Holland between 1457 and 1467 reveals only about ten trade-related cases per year, with an even smaller number of foreign traders among the litigants.91 The same applied to litigation before the Grand Conseil in Malines. For the years between 1460 and 1580 Robert van Answaarden has documented sixty-one cases that involved Portuguese claimants, defendants, and occasionally also lawyers and witnesses—but only twenty-three of these were related to Portuguese long-distance trade.92 This kind of litigation simply cost too much time and money for merchants who wanted to settle disputes quickly.93

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When opportunities for appeal were first created in the mid-fifteenth century, merchants did not hesitate using them to delay proceedings and postpone possible sanctions. To secure expeditious justice, the Burgundian dukes quickly decided to limit the possibilities for appeal to decisions of local courts.94 In 1459 they stipulated that appeals would be allowed only in cases of considerable damages. Besides, indemnities awarded in the first instance should be paid awaiting final judgment. The beneficiaries could dispose of the money thus transferred, provided they gave sufficient surety. Also surety should be given for the expected costs of the appeal. Noncompliance with these rules resulted in a penalty of 30 guilders.95 An explicit concern for a speedy resolution of commercial conflicts is evident from Maximilian’s decision in 1488 that no appeal to central courts would be possible on judgments passed by the Antwerp court in conflicts arising from trade at Brabant fairs.96 Perhaps the Supreme Court is not the place to look for a direct involvement of central judges in the resolution of commercial conflicts. Provincial courts were first in line when merchants appealed to local verdicts. We can analyze the role of the Court of Holland in the settlement of commercial disputes through a representative sample of 212 Flemish traders working in Amsterdam between 1580 and 1630—onequarter of the total Flemish merchant community in this period.97 I compared this sample with the names mentioned in the extant sentences of the Court of Holland in the years between 1580 and 1632. This comparison shows 81 merchants from the southern provinces appearing as claimant and/or defendant before the court. Almost half of this group (36) were involved only in cases that were not directly related to long-distance trade, most notably contested wills, care for orphans, and the sale of real estate. As for commercial disputes, a total of 45 out of 212 Flemish merchants were involved in at least one case brought before the Court of Holland between 1580 and 1632. The total number of these commercial cases was twice as high (96) because several merchants appeared more than once. Two merchants from the sample were involved in a very high number of cases: Louis del Becque in thirteen cases and Isaac Lemaire in eighteen. The latter’s appearance in ten cases involving the trade in the Dutch East India Company (VOC) shares comes as no surprise, considering that Lemaire was the leader of the world’s first and failing bear syndicate operating in Amsterdam in 1609 and 1610. Indeed stock trading, together with conflicts regarding payment and delivery were the most common grounds for litigation, with seventeen cases for each category. Most of the other cases brought before the Court of Holland involved insurance


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policies (8), freight contracts (6), insolvencies (6), and miscellaneous financial contracts (13). Disagreements about company contracts (4) and labor conflicts (3) were very few and far between. A simple measure to evaluate the involvement of the Court of Holland in the settlement of disputes is to extrapolate the number of cases in the sample to the entire Flemish merchant community. Doing this yields an estimated 385 cases brought before the Court between 1580 and 1632— fewer than eight per year. A different and perhaps more accurate measure is the probability that an individual Flemish merchant appeared before the Court of Holland in any year between 1580 and 1632. This probability can be calculated by dividing the number of different merchants mentioned in cases starting in a particular year by the total size of the sample. The result, presented in Figure 12.3, reveals that the odds for a Flemish merchant to have a case adjudicated before the Court of Holland in a particular year were below 1 percent before 1607, rising to slightly over 2 percent around 1620, and then dropping again to less than 1 percent in 1627. Compared with the Grand Conseil before 1550, merchants made more use of the provincial court of Holland, but still their court appearances were few and far between. The court cases demonstrate a twofold contribution of the Hof van Holland to the resolution of commercial conflicts. The spate of cases on VOC (East India Company) share transactions after 1607 suggests that the court may have played an active role in determining the rules of the game of stock trading in the aftermath of Isaac Lemaire’s speculation. In addition to this, the court took on appeals to decisions of admiralties, local courts, and their subsidiaries. The willingness of merchants to go through an appeal procedure was small, however, presumably because many years elapsed between an initial appeal and the final verdict. The fifty-odd cases for which we know the year of submission and the year of sentencing show an average duration of five and a half years. Given the speed with which the Hof van Holland sentenced, it comes as no surprise that the number of commercial conflicts involving Amsterdam merchants brought before the Hoge Raad van Holland en Zeeland (the Supreme Court) was smaller still. A survey of 1,094 cases brought before the Hoge Raad between 1582 and 1586 reveals only one nonresident merchant (an Antwerp citizen) bringing a case before the court in first instance—and this case was repealed before passing any verdict.98 In later years the number of merchants appearing before the Supreme Court to settle a commercial dispute remained very small. This is apparent from the notarial deeds signed by Portuguese merchants in Amsterdam in the first decades of the seventeenth century. In thirty years’ time they reveal

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2.5% probability (excl. stocktrading) probability 2.0%

1.5%

1.0%

0.5%

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Figure 12.3 The probability that an individual Flemish merchant appeared before the Court of Holland to settle a commercial dispute in any year between 1580 and 1632 (five-year moving average)

only five appeals of sentences from lower courts, one of which was actually repealed before a verdict was reached.99 References to thirty-eight cases brought before the Court of Holland suggest that this provincial court was slightly more important for the Portuguese merchants but only in cases that divided parties to the extent that proceedings could last for years. Clearly, neither of the two courts was suited to resolve run-of-themill commercial conflicts. conclusion Apart from a few quarrel mongers, merchants in late medieval and early modern Europe did not like legal proceedings. The cost of litigation was probably too high in terms of money and time spent before a solution was reached.100 Moreover, bringing agents to court could easily damage the trust and reputation that cemented business relations. This aversion to litigation is very clear from the dealings of the Antwerp merchant


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Hans Thijs. Between 1595 and 1611 he traded with hundreds of merchants, artisans, and shipmasters, yet only once did he sue one of his trading partners. This case, which involved a shipmaster who refused to pay back a bottomry loan, dragged on for seven years and cost at least a quarter of the initial damages in legal costs and interest foregone.101 Commenting on the financial claims that followed the bankruptcy of his brother-in-law, Hans Thijs wrote in 1596: “I do not want the trials or wrangles that will arise from this. If we reach a [formal] agreement with the creditors, we will be marked as bankrupts ourselves.”102 Merchants at issue with trading partners valued private solutions that strained business relationships as little as possible. To avoid costly and prolonged legal proceedings, the foreign merchants in Bruges, Antwerp, and Amsterdam put personal pressure on their agents, they relied on arbiters to mediate, or they simply took their losses. When formal litigation was inevitable, merchants sought the intervention of judges acting without delay. This is why at the fairs of Flanders and Brabant, the local courts of Bruges and Antwerp played a prominent role in the settlement of commercial disputes. The high frequency of court hearings and the set maximum duration of trials suited the needs of visiting traders. But the local courts were not the only third parties enforcing contracts. As long as the fairs dictated the rhythm of trade, and many traders remained only temporarily in Bruges and Antwerp, the judges in their home towns continued to settle disputes between them. It was only when merchants began to stay for longer periods in Bruges and Antwerp that reliance on home courts became a problem. Not only were traders away from home for much longer periods; they also had to deal with a growing number of employees and business partners in the Netherlands and, in the case of seafaring nations, numerous shipmasters and sailors. The jurisdiction consuls held over their nationals allowed merchants to discipline their commercial and maritime personnel and settle disputes between trading partners. To evade the hassle of formal proceedings they tried to refer as many cases as possible to arbiters. The Hanseatic League and the Company of Merchant Adventurers also used their discretionary powers to enforce internally their staple rights in Bruges and Antwerp. The consular courts never substituted for the local courts, however. The latter continued to deal with a broad range of commercial and maritime disputes between merchants from different backgrounds as well as between members (and consuls) of the same community. Here lies the key to understanding the decline of consular courts in Antwerp in the sixteenth century and their total absence in Amsterdam thereafter. Local courts were increasingly willing and able to adjudicate conflicts between foreign merchants. One case in point concerns the

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settlement of insurance claims in Antwerp. Initially the city left it to the consuls of the various nations to deal with disputed insurance policies written according to their own customs. In the 1570s, however, after repeated attempts by the central government to reorganize the local insurance market, Antwerp’s aldermen began to act as court of first instance in all cases. The growing competence of local judges is even clearer in Amsterdam, where schepenen ruled in maritime affairs already in the fifteenth century and then created a number of specialized courts for matters of shipping, insurance, exchange, inheritance, and insolvency in the first half of the seventeenth century. Thus, the intervention of local courts was important as a complement to the private settlement of business disputes. Contrary to Douglass North’s claim, this was not true for the provincial and supreme courts in the Low Countries. Leaving aside prize cases, foreign merchants used the courts of Flanders, Brabant, and Holland, and the Supreme Courts of Malines and The Hague primarily to appeal to rulings of lower courts. The central courts adjudicated a limited number of cases per year, and they were irrelevant for the resolution of run-of-the-mill conflicts about the delivery of faulty merchandise, unpaid bills, or wrongful arrests. Hearings were not very frequent and proceedings could drag on for years, which explains why even the central judges tried to refer parties back to arbiters to settle matters amicably. Notes I wish to thank Stuart Jenks, Joost Jonker, Maarten Prak, Jean-Laurent Rosenthal, Francesca Trivellato, and the seminar participants at Utrecht University and the University of British Columbia for comments. Abbreviations: NA = Notarial Archives; SR = “Notarial Deeds relating to the Portuguese Jews in Amsterdam up to 1639,” published in Studia Rosenthaliana, 1973–present. 1. Milgrom, North, and Weingast 1990; Wedemeyer Moore 1985, 165–187. 2. Wedemeyer Moore 1985; Perroy 1974. 3. Coornaert 1961, 58; De Schepper and Cauchies 1993, 131–132; Kessler 2007. 4. North 1981, 24; North does acknowledge the efficiency-enhancing effects of private enforcement mechanisms: North 1990, 108–109. 5. Greif 1989, 2000, 2006; Volckart and Mangels 1999, 436; Kessler 2007; Gelderblom 2003. 6. Lane 1962, 24, 33, 36; Jados 1975, xii; Baker 1986, 349ff; Nörr 1987, 196– 198; Piergiovanni 1987a, 1987b; Greif 1994; Kowaleski 1995, 179–221; Basile et al. 1998, 42, 69–70, 114; Niekerk 1998, 1:198–200, 225–229, 245–246; Volckart and Mangels 1999, 443; Grafe 2001; Gonzalez de Lara 2008. 7. Stieda 1921, no. 295; Irsigler 1985, 92–94, 307–308; Rothmann 1998, 553.


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8. Irsigler 1985, 77; De Smedt 1951, 2:587; Gelderblom forthcoming 2011. 9. De Roover 1963, 323; Brulez 1959, 384n. 10. Lambert 2006, 105–108. 11. Goris 1925; Kessler 2007; Donahue 2005, 84. 12. Basile 1998, 41; Godfrey 2002; Irsigler 1985, 86; Kowaleski 1995, 219. 13. Godding 1988; Des Marez 1900, 123, 149, 168, 173–174, 196, 199, 219; Greve 2000, 37–38. 14. Nicholas 1979, 24. 15. Gilliodts van Severen 1901, 35, 50–52. 16. Ibid., 29. 17. Ibid., 29–30; Goris 1925, 67–68. For similar procedures in Antwerp, see Strieder 1962, 293, 294. 18. Goris 1925, 46; De Smedt 1951, 1:92; 2:582 ; Coornaert 1961, 175–176. Mediation by arbiters in Amsterdam is first mentioned in 1493: Poelman 1917, no. 2965. See also Wijnroks 2003, 190, 227. 19. Gelderblom forthcoming 2011. 20. Godding 1988, 128; Le Bailly 2001, 181–182; Lichtenauer 1935, 354– 356. For Antwerp, see Goris 1925, 67. 21. Le Bailly 2001, 181–182. 22. Van Dillen 1929, 238. 23. SR no. 1314. 24. De Groote 1977, 207; Niekerk 1998, 1:230–234; Van Dillen 1929, no. 1202; Gelderblom forthcoming 2001. 25. Gijsbers 1999, 244–245. 26. Gelderblom forthcoming 2011. 27. Noordkerk 1748, 2:577. 28. Van Dillen 1929, 2, no. 1315. 29. Gelderblom forthcoming 2011. 30. Ibid. 31. Gilissen 1958, 293–294; Gilliodts van Severen 1883, 1:208, 249, 311; 2:266n. 32. Gilliodts van Severen 1883, 1:398, 447–448. 33. Ibid. 1:398n. 34. Ibid. 1:114–116. 35. Bartier and Nieuwenhuysen 1965, 493–494. 36. Gilliodts van Severen 1901, 28; Bartier and Nieuwenhuysen 1965, 493. 37. Nicholas 1979, 24. 38. Beukn 1950, 42; Gilliodts van Severen 1881, 2:130–139; Van Houtte 1982, 182; Bartier and Nieuwenhuysen 1965, 238–240, 469–479. 39. Van Rijswijk 1900, 18. 40. Bartier and Nieuwenhuysen 1965, 118–122. 41. Gilliodts van Severen 1883, 1:285; 2:102n, 395; Goudsmit 1882, 140– 141; Nicholas 1979, 28. 42. Gelderblom forthcoming 2011. 43. De Roover 18, 20; Paravicini 1992.

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44. De Roover 1949, 55, 79; Lambert 2006, 157–162. 45. Personal communication by Peter Stabel. Compare: Van Niekerk 1998, 1:200–202; Nicholas 1979, 25n; Gilliodts van Severen 1883, 2:106n; Gilliodts van Severen 1871, 76–77, 79. 46. Gilliodts van Severen 1883, 62–63, 79. 47. De Roover 1948, 18; Lazzareschi 1947, 82–83, 87; Gilliodts van Severen 1883, 2:117n, 118n. 48. Gilliodts van Severen 1883, 2:116n. For an exception to the rule, see Lazzareschi 1947. 49. Slootmans 1985. 50. De Ruysscher 2009. 51. Gotzen 1951. 52. Ibid., 462–465; De Ruysscher 2009, chapter 1; De Smedt 1951, 1:111–112, 130–131. 53. De Smedt 1951, 2:32–36, 61–62, 66–68, 66–69, 98, 106, 158–168, 183–191. 54. Ibid., 2:190n–191n, 576; De Smedt 1940. 55. Goris 1925, 40–41, 44–47. 56. Ibid., 71, 80; Harreld 2004; Coornaert 1961. 57. Strieder 1962, 170, 178, 283–285. 58. De Ruysscher 2009; Gotzen 1951, 305. 59. Niekerk 1998, 2:201n. 60. Ibid., 2:201; De Smedt 1951, 2:576–578. 61. De Ruysscher 2009. 62. Goris 1925, 58–70. 63. Breen 1902, 10; Wachter 1639, 116–118; Verkerk 2004, 182–192. 64. Breen 1902, 11–12; Goudsmit 1882, 97–106; Van den Auweele 1977, 20. 65. Wachter 1639, 90–92 (article XI); Rooseboom 1656, 73–81 (Title 19, article 29). 66. Gelderblom forthcoming 2011 67. Breen 1902, 178–179 68. Gelderblom forthcoming 2011. 69. Rooseboom 1656, 63–64. 70. Consultatien 1657, 2:400. One exception was when foreign contracts implied actions to be taken in the United Provinces, in which case Dutch law was applied: Niekerk 1998, 1:237. 71. Marnef 1996, 181–201; Roodenburg 1990. 72. Carter 1964, 174–177. 73. Roodenburg 1990, 377–381; Gelderblom 2002, 29; Estié 1987, 64–65. 74. Swetschinski 2000, 184, 218. 75. Gelderblom 1999; Carter 1964; Dijkman 2002; Swetschinski 2000, 175–176. 76. Gelderblom forthcoming 2011. 77. Carter 1964, 170, 174–175. 78. Roodenburg 1990, 377–381. 79. Gelderblom forthcoming 2011.


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80. Rooseboom 1656, 18–22; Oldewelt 1962. 81. Lichtenauer 1956, 141–143; Schreiner et al. 1991, 34; Niekerk 1998, 1:208–214; Schöffer 1956, 76. 82. Oudekerk 1938, 25, 28; Goldgar 2007. 83. Phoonsen 1676. 84. Benson 2002, 131–133; Lopez and Raymond 1955, 267; Volckart and Mangels 1999, 440; Helmholz 1979, 1986, 1990. For Germany, see Von Stromer 1967, 775. 85. Berman 1983, 404–519. For the Burgundian Netherlands, see Blockmans and Prevenier 1999, 47. For England, see Brand 1992, 77–102. 86. De Schepper and Cauchies 1993, 162–164; Damen 2003, 6. 87. Van Answaarden 1991, 82; Van Answaarden 1990, 11. 88. Sicking 2004. 89. Le Bailly 2001, 10. 90. Gelderblom forthcoming 2011. 91. Ibid. 92. Van Answaarden 1991. 93. Godding 1988, 125–126, 129; Le Bailly 2001, 182–189; Strieder 1962, 142, 153, 177, 184–185, 271, 281, 284, 295, 316, 324. 94. Gilliodts van Severen 1883, 35–39. 95. Ibid., 2:35–39, 55–58 (1464), 215–217 (1511). 96. Costumen van Antwerpen: Compilitae 1609, title IV, p. 52. 97. See Gelderblom forthcoming 2011 for a detailed description of the analysis. 98. Verhas 1997, case number 509. 99. Gelderblom forthcoming 2011 100. Seifert 2000, 47; Van Dillen 1929, no. 1207. 101. Gelderblom forthcoming 2011. 102. Ibid.

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Volckart, Oliver, and Antje Mangels. 1999. “Are the Roots of the Modern ‘Lex Mercatoria’ Really Medieval?” Southern Economic Journal 65: 427–450. Von Stromer, Wolfgang. 1967. “Das Schriftwesen der Nürnberger Wirtschaft vom 14. bis zum 16. Jahrhundert.” In Beiträge zur Wirtschaftsgeschichte Nürnbergs, vol. 2, 751–799. Nuremberg. Wachter, Jacob Pietersz, ed. 1639. Handtvesten, ofte privilegien, handelingen, costumen ende willekeuren der stadt Aemstelredam. Amsterdam. Wedemeyer Moore, Ellen. 1985. The Fairs of Medieval England. An Introductory Study. Toronto: Pontifical Institute of Mediaeval Studies. Wijnroks, Eric. 2003. Handel tussen Rusland en de Nederlanden, 1560–1640. Een netwerkanalyse van de Antwerpse en Amsterdamse kooplieden, handelend op Rusland. Hilversum: Verloren. Winkelman, Petrus Henricus. 1971. Bronnen voor de geschiedenis van de Nederlandse Oostzeehandel in de zeventiende eeuw. 6 vols., 1971–1983. Rijks Geschiedkundige Publicatiën. Grote Serie. The Hague: Nijhoff.

chapter thirteen

The Portuguese Judicial System in the Nineteenth Century Rules, Risks, and Judges Jaime Reis

; introduction The importance of the role of institutions in economic performance hardly needs stressing. A decade ago, after twenty-five years of dissecting this contribution with the tools of economic theory, it was claimed it had become an “enormous” field and “a cauldron of ideas” (Williamson, 2000, p. 610). It has continued to develop strongly since then (Dam, 2006). The key to a successful research strategy in this field naturally resides in how the variable “institutions” is handled. Leaving aside the immensely complex issue of what is actually meant by an “institution,” two aspects have to be considered. One is the sense in which institutions are deemed to be efficient. A second is how to measure this attribute. The latter has attracted much interest, and a diversified array of mainly contemporary metrics is now available. It is in this area that we will focus our attention. Measuring the quality of institutions is no easy matter. The literature has identified two main criteria for consideration: the protection of property and contractual rights; and the constraints set up to limit the power of large groups in society, particularly the state (Glaeser et al., 2004). Concerning the latter, a popular approach ranks national institutions according to their political regimes. Those furthest from a “representative democratic” model, according to measurable criteria, are considered closest to situations of excessive and arbitrary state economic power, and

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conversely (Tavares and Wacziag, 2001). The resultant indices appear objective, but they can tell us only what institutions are meant to do, not how well they really perform (Olson, 1982). Similar difficulties arise when legal norms rather than political or administrative institutions are examined for the protection they afford to property and contracts. La Porta et al. (1999) select a large number of pertinent features of legal systems, which are aggregated in a single yardstick. This enables them to compare creditors’ or shareholders’ rights across a sample of countries, for example. An analogous result is attained by assigning countries to groups in accordance with their historical-legal origins—common law, French civil code, German or Scandinavian law. These categories are assumed invariant over time and correspond to significantly different legal environments. A ranking of institutional quality thus emerges in terms of how well each of these legal families protects economic agents in matters such as the risk of expropriation. It can also highlight the capacity of adaptation of these systems to social and economic change (Acemoglu et al., 2001). The excessive formalism that plagues all these approaches can be avoided by shifting attention from legal or institutional frameworks to the actual enforcement of the rights they are meant to protect. One approach uses quantifiable homogeneous information from the activity of relevant institutions, particularly courts of law. The number of days it takes to collect a bounced check or to evict a tenant are good examples of how to measure efficiency in this way (Djankov et al., 2003). A more subjective methodology relies on the opinions of investors in the countries under observation on issues such as political stability, accountability, government effectiveness, or corruption. These perceptions are given a numerical expression and are aggregated as a synthetic variable (Kauffman et al., 2002; Mauro, 1995). For historians, none of these solutions are especially helpful or even feasible. Sources for “subjective” indicators corresponding to earlier periods are obviously precluded. Besides, those that combine qualitative assessments into a single numerical index raise formidable problems of additivity, interpretation, and comparison over time and space. Anachronism is a risk encountered when notions such as democracy or accountability are applied outside their proper historical context when evaluating institutions. The approach that employs legal tradition appears more promising, given the historical reasoning that underpins its construction. Recent research has revealed, however, that its adherence to historical reality is sometimes problematic. Neither the pretended invariance of the categories over time nor an ordering of institutional excellence tally with

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the evidence adduced in certain case studies (Lamoureaux and Rosenthal, 2004; Sgard, 2006; Musacchio, 2008). This study is part of a research project to find solutions to the problem of historically assessing the “law-economic growth nexus” in a more appropriate way than the measurement solutions outlined above. The goal is to devise a way of ascertaining, in an objective and quantifiable manner, whether past institutions were efficient and to compare them over space and time. This approach is micro rather than macro oriented. To avoid the subjectivity bias, it uses records of market transactions rather than the opinions of participants about what may have taken place. The response of economic actors to institutional circumstances provides evidence for inferring their perceptions. A second objective is to employ this information to improve our understanding of how the institutional framework influences economic performance. This requires breaking down institutional reality into its fundamental parts—the rules defining economic rights, the organizations created to enforce them, and the individuals entrusted to carry out this task—and relating each to economic outcomes.1 Financial markets are a favorite for this kind of exercise. They are present in every developed economy, their performance is critical to the economy, and their activity is highly sensitive to the quality of institutions (Levine, 2005). In a companion paper (Reis, 2010), I presented a new metric to proxy the institutional efficiency that arose out of a study of the Portuguese mortgage loan market between 1870 and 1910. I established that an unexpectedly high risk premium was often charged, signaling a collective perception that the judicial system was not adequately protecting the contractual rights of creditors. Comparison with other countries revealed that the Portuguese machinery of justice was in the same class, from this point of view, as the Spanish and Brazilian, but was worse than the Netherlands, Great Britain, and Scandinavia. A split thus seems to have existed by then between advanced economies with “efficient” institutions and less developed ones, where the law courts performed poorly. This earlier study suffered from several limitations, however. It was confined to a rural, small-town environment where banks were absent and lenders and borrowers were small operators who rarely engaged in repeat transactions. It did not consider whether results from an urban, larger, impersonal, and financially more sophisticated milieu would have told a different story. It failed to make the important distinction between the impact on economic agents of, respectively, the courts themselves, the law, and those charged with enforcing it. Its most serious shortcoming was that it treated the output of the court system as a simple variable,

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consequently ignoring the fact that credit risk is ascribable to other factors besides institutional inefficiency. In the present study, I try to overcome these deficiencies. I have enlarged the original data base with a substantial number of Lisbon contracts. A second improvement has been to separate the perceived hazard faced by lenders in two parts. One reflects the probability that borrowers default. The other expresses the likelihood that in such an event the courts will function poorly, thereby inflicting a loss on the lender. These distinctions result in two lines of analysis. One discusses the relationship between the risks and concludes that the risk premium paid on mortgages underestimates the inefficiency of the machinery of justice. The other accounts for the ineffectiveness observed not only by recourse to quantitative methods but also to qualitative tools. They enable us to deduce that the problems of the Portuguese judicial system were rooted mainly in the judges rather than the rules or institutions themselves. This chapter has five parts. After an outline of my subject, I recapitulate my methodology in the second part, while the third presents a more realistic model for evaluating the performance of judicial institutions based on the price of mortgage credit. In the fourth part I use a historical narrative to show that the principal cause of institutional inadequacy was the political system working through a captive and venal magistracy. It suggests that this inefficiency, though economically harmful, was on a tolerable scale. The fifth section presents my conclusions. mea sur ing institutional quality The notion that the price of credit can be a meaningful proxy for institutional quality is hardly new. It was proposed almost twenty years ago by North (1990), who suggested that “the level of interest rates in capital markets is perhaps the most evident quantitative dimension of the efficiency of the institutional framework” (p. 69). The present study concentrates on the particular case of collateralized credit, several features of which make it appropriate for this purpose. The first is the vulnerability of financial contracts. Any transaction is threatened by the opportunism of the parties concerned, but financial ones are especially so. In a loan, an asset is transferred from a lender to a borrower, but nothing more than an immaterial claim is usually given in return. Should the contract be broken, the former may be left in a weaker position than the latter to obtain redress. A second peculiarity of such relationships is that they involve an additional risk for lenders arising from the information asymmetry between lender and borrower. The lat-


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ter know systematically more about their projects and capacity to repay than the former, who are also less cognizant of the character and opportunism of borrowers. Altogether, the risk run by lenders tends to be greater than in other transactions (Stiglitz and Weiss, 1981). The mortgage loan was an institutional improvement devised to reduce the impact of such difficulties and limit the corresponding risk premiums. Attaching a good security to a loan serves both ends. It dissuades the borrower from acting opportunistically, given that a default can lead to the loss of the collateral. Second, the lender can learn more about the characteristics of the collateral than about the borrower’s plans, wealth, and intentions. To reap these benefits, however, the collateral must be easy to evaluate and large enough to cover the loan. There must also be an effective institutional setup to ensure that a speedy and inexpensive foreclosure will come about in case of default.2 If these two conditions are not met, interest rates will be higher and credit markets will attract fewer funds for lending (Berger and Udell, 1990). A further advantage of making collateralized credit an object of study is that it generates a large amount of detailed and reliable information on financial contracts. In nineteenth-century Portugal, there had to be a written agreement, drawn up in accordance with a standard formula, and kept in a notarial archive for the contract to be effective. This contained the name, address, occupation, marital status, and capacity to sign of the parties involved. It also specified the amount of debt, the interest charged, the value of the collateral, the duration of the loan, and the identification of the properties constituting the security. Since it was entered into freely and was made before sworn public officials, it is safe to assume that this information was reliable, particularly as it might later serve as proof in litigation (Reis, 2010). Two results may be expected where judicial institutions function well: loan guarantees are sufficient and the credit market is not distorted by imperfections. The mean interest rate will be low and close to riskfree rates. Second, individual rates will be highly concentrated around the mean. Since it is not important to differentiate between borrowers, there should be few outliers. In the event of nonperformance, the lender will be certain to recover his outlay by judicial means. Consequently, there is no reason for a risk premium to be associated with such a contingency. Anyone who tried to do so would be checked by the market, given that competing lenders would bargain the differential away. The contrasting situation occurs when the market is efficient and loan collateral is satisfactory, but the system of justice fails to perform its assigned function properly. The consequence is a higher interest rate on mortgages, since debtors have to pay a risk premium to compensate their

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creditors for possible losses arising from noncompliance. In a context in which recovery is likely to be unreasonably delayed and repayment in full is problematic, this would not only be sizeable, but would display a significant variance around the mean. Using such a mortgage-based model, my earlier study showed that when these guidelines were applied to rural Portugal between 1870 and 1910, they pointed to a severe deficiency in the quality of justice (Reis, 2010). First, the mean rate on collateralized loans was several percentage points above the risk-free rate of 5 percent. Second, the interest rate distribution revealed a high variance, and distant outliers could be removed from the mean by as much as 12 percentage points. This carries two implications. One is that there were clear differences in the risk posed by different borrowers. The other is that lenders had to seek extra information on the specific reputation of the loan and acted on it in negotiating the price. The latter was determined by the borrower’s reputation, his capacity for repayment, and the difficulty in assessing the collateral. Arguably, this risk profile would not have been considered had there been institutions that could have been relied on to protect creditors’ rights fully. the statistical result The view that the interest rate on mortgages is a good indicator of the uncertainty faced by creditors in the market is widely shared in the literature. Although correct, this does not always warrant taking this variable as the appropriate yardstick for the “inefficiency” of the institutional framework. The reason is that it is a composite of two distinct risks, only one of which relates to the quality of the institutional framework. The other— that the borrower may default—is independent of this. It arises mainly from two sets of factors that relate only to the transaction itself. One is the concurrence of personal attributes in the debtor—character, commitment to contractual duties, and economic capacity—which define how likely he is to satisfy his obligation without legal coercion (Guinnane, 2001). The other is a set of contractual features that can influence the procedural difficulty in recovering the loan through litigation. These could be problems of identification, description, or evaluation of the collateral that would render more problematic a favorable decision from the courts. The first risk—that the courts function “badly”—occurs only after a default has taken place and the creditor institutes proceedings to recover his outlay. It does not take place with all loans, however, since not all debtors renege on their obligations. And it occurs only if the institutions charged with contractual enforcement are remiss in their appointed duty.


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This may not always happen. Analyzing these two probabilities separately is the crux of the present exercise. A simple model helps us separate the impact of these risks on how economic agents perceive and react to the market and its institutional framework. The situation is described by Pr = Pd * Pj

(1)

in which Pr is the ex ante probability that lenders should suffer losses arising from a default. It is shown by the interest rate charged on the mortgages in the particular sample. It is a joint probability that two events might take place in succession: default, followed by a judicial contest with an unfavorable outcome. It is given as the product of the simple probabilities Pd and Pj. Pd is the ex ante probability that borrowers will not comply voluntarily with the contract. Unfortunately, a suitable gauge for this variable, the share of loans lenders expect to be nonperforming, is not known. The proportion of loans that actually went unpaid would show this probability ex post, but it is not clear whether the ex ante figure would correctly represent it. In any case, this information is also unavailable. Pj is the yardstick that measures the efficiency of the system of justice. It conveys the degree of institutional dysfunction expected by creditors when, owing to a contractual breach, they resort to the courts of law. Ideally, it could be obtained from (1) as an index number. In practice, this is impossible in view of the problem of satisfactorily estimating values for the probability of default (Pd). Does this imply, then, that the interest rate on mortgages is of no use in ascertaining how efficient the judicial system was perceived by economic agents? In what follows I argue that a fair approximation of this is achievable, even if precise measurement is not. The method considers two eventualities: one in which the evaluation of borrowers by lenders is not influenced by institutional factors and another in which lenders would take this influence into account. The first corresponds to loans deemed by the market as “safe” and for which there is no expectation of a default and ensuing court action. I hypothesize that the appraisal of such contracts and their interest rate was based solely on the pertinent characteristics of the borrower and the contract itself. Lenders should be indifferent to whether institutions were efficient because it would be irrelevant in this instance. The second type of loan would be where noncompliance was not unlikely and a legal dispute might be expected. In that case, when setting the interest on the contract, lenders would have to consider institutional factors besides the specific attributes of the borrower and the contract. To test the first hypothesis empirically, I adjusted a binary model to data on Portuguese mortgages between 1870 and 1910.3 This enabled

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me to verify how the market distinguished between loans that were safe and those for which a risk premium had to be paid. The dependent variable is a dummy that has the value of one for a loan with an almost riskfree interest rate, and zero otherwise. In the particular historical context, the dividing line between the two classes is 6 percent, 5 percent being the rate on quasi risk-free financial assets in Portugal. Four independent variables are used for the different facets of the borrower’s personal ability to meet contractual obligations. The size of the loan (Loan) is assumed to relate positively to the borrower’s economic capacity. Presumably, larger loans would be contracted for investment purposes and to enhance financial capacity; smaller ones would be associated with life-cycle events and consequently be more common among poorer or less credit-worthy agents (Svensson, 2001; Martinez-Soto, 2001). A second variable is a dummy for the borrower’s human capital (Litdebt), measured by the ability to sign (Litdebt = 1), which should contribute to his economic capacity.4 In both cases, the coefficients should be positive. The third is another dummy that relates to character. It refers to the presence of co-signatories (Cosign), who pledged their assets and reputations to the contract’s fulfillment in the transaction (Cosign = 1). The sign of the coefficient is also expected to be positive, given that it would only make sense for a co-signatory to risk his name and assets on behalf of a borrower if he thought the latter reliable. The last variable (Distance) is the distance separating the abodes of the two parties. It reflects the relative difficulty of assessing the reputation of the borrower. If contracting parties lived in the same parish, the variable would have zero value. Otherwise, I measure the physical interval and presume an inverse relationship.5 Representing imperfections inherent in the execution of the agreement, I adopt two further proxies. The number of separate plots of land or buildings (Nplot) that formed the collateral ought to raise the cost of obtaining information on these assets, and a negative coefficient is anticipated. The other (Reg) is a dummy and shows whether these items were inscribed (if registered then Reg = 1) in the land registry. Assets not registered might plausibly be perceived as providing a less reliable guarantee. Unregistered property entailed greater difficulty in distinguishing true title, clear boundaries, and similar problems. Two conclusions can be drawn from the estimation results in Table 13.1. One is that the market recognized the existence of a distinct group of safe mortgages and had practical reasons for doing so. It relied on a judgment of economic capacity and likelihood of repayment by the borrower, which is revealed by the statistically significant coefficients and correct signs of two independent variables: Loan and Litdebt.6 Conversely, neither Distance nor Cosign confirm their anticipated influence. The failure


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of the former suggests either that this variable may have been incorrectly specified (Reis, 2010) or that the separation of residence between the parties was extraneous to the lenders’ decisions. This could have happened if loans had occurred between agents who knew each other well. Although this was seemingly a world of low trust,7 personalized one-to-one credit relations were common and might well dispense with the more stringent informational requirements of institutional lenders. Concerning the irrelevance of the second variable, the explanation may be that in a context of low institutional efficiency, a pledge such as this would not have had much value. An irresponsible guarantor could safely back a potential defaulter with little risk to himself in the event of noncompliance. According to Table 13.1, potentially meaningful contractual features emerge as not significant as well. Neither the number of plots (Nplot) nor the registration of the collateral (Reg) provided a source of useful information to the lender. Apparently, not only did people in the informal money business know the people to whom they lent, but this must have also been true of the collateral provided. Therefore, whether it was more or less divided and dispersed was of secondary importance. As for the irrelevance of property registration (Reg), when declarations for this purpose were made by the proprietor, they were not checked for their veracity. The only information in the registry from an independent source was whether the asset was encumbered. The lender did not need to know this, however, in order to assess the reliability of the borrower himself. What mattered for a loan to be safe was the probability of voluntary compliance, and this, as we have seen, had other determinants. A second finding Table 13.1 offers is that neither the time-related nor the location dummies are significant. This has interesting implications for our understanding of both the market and its relationship to the institutional framework. For one thing, it suggests that the mortgage credit market was homogenous in the sense that the actors in it responded in an analogous way to analogous sets of circumstances. This is hardly surprising with respect to the six rural counties considered, which were very alike in their respective economic, social, and demographic makeups as well as in their relative proximity to Lisbon (Morais, 1889). It is unexpected, however, with regard to the lack of a “Lisbon effect,” unless we accept that Lisbon and its hinterland were reasonably integrated financially. Given the small distances involved, this is not unlikely. Conversely, there are other possible explanations. One is that the nonsignificance of these dummies was simply a demonstration that the machinery of justice functioned in a regular and stable manner across time and space, a clear indication of its efficiency. Or the glaring deficiencies in the judicial system

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Jaime Reis Table 13.1 Low-risk loans: Criteria for their selection

Dependent variable: mortgage interest rate—Safe (probit estimation) Independent variables

Constant Litdebt (+) Loan (+) Distance (−) Cosign (+) Nplot (−) Reg (+)

Coefficient

Probability

10.358 0.701 0.017 0.003 −0.102 0.027 0.033

0.000 0.001 0.123 0.182 0.803 0.485 0.887

McFadden R-squared = 0.045 Probability LR stat = 4.44 E-05 N = 1,334 Sources: Same as in Reis (2010), plus new data on the municipality of Lisbon. Notes: Safe = 1 when the interest rate on the loan is less than 6 percent; = 0 for all higher values Litdebt =1 when borrower signs name; = 0 when he does not Loan = value (in contos) of the loan Distance = number of kilometers separating the abodes of the lender and borrower Cosign = 1 when a guarantor signs the contract also and posts security; = 0 when this is not the case Nplot = number of items that make up the collateral Reg = 1 when the collateral is enrolled in the land registry of property; = 0 when it is not Dummies for the three time periods considered—the 1870s, the 1890s, and the first decade of the twentieth century—were used but are not shown. This happens as well with the location dummies, which refer to Torres Vedras, Sintra, Mafra, Lisbon, Alenquer, Arruda, and Vila Franca de Xira. Default variables: Lisbon and 1870s. Expected signs of coefficients are in parentheses in the column for variable designations.

do not show up in the probit estimation because they may not be relevant to lenders’ decisions on safe loans. To solve this ambiguity I turn to my second hypothesis of how the mortgage market functioned. This time I focus my attention on the 89 percent of loans after removing the safe ones from the sample. Mortgage rates now display a considerable diversity—between 6 and 24 percent a year—and a mean of 8.9 percent, which is substantially above the level of low-risk contracts. The aim is to isolate the circumstances lenders responded to when they set these loan rates. I considered two possible scenarios. In one, they simply took personal and contractual risks into consideration. In the other, they also worried about the likelihood and cost of a fair trial in the event they would need to pursue defaulting clients judicially. In this case I adopt a linear formulation, given that the dependent variable—mortgage rate of interest (Int)—is continuous. The same inde-


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pendent variables as before are used, but the expected signs of the coefficients are not the same as in Table 13.1. Table 13.2 displays the results of the ordinary least squares regression and allows us to draw several conclusions. The first is that lenders applied the same principles for evaluating loans as they used to discriminate safe ones from the others. Both the coefficients of loan size (Loan) and human capital endowment of borrowers (Litdebt) are significant and have the expected signs. This shows that both kinds of loans were part of the same market in the way that perceptions were formed by economic agents. In it, interest rates were governed by such personal attributes of debtors as might be expected to either enhance or diminish their likelihood of servicing and amortizing their debts. A second conclusion is that contractual specificities once again prove to have no impact on interest rates, which leads to the presumption that in this scenario they did not help in reducing the transactions costs of loans. Distances between the parties (Distance), the participation of co-signatories (Cosign), and the number of plots in the collateral (Nplot) were all nonsignificant and exhibited the wrong sign. A striking outcome is that the dummy for registering the collateral in the property register (Reg) was also nonsignificant, despite having the right sign. The implication is that this institutional development, although designed to improve the mortgage credit system, was not deemed useful by those involved and did not seem to have impressed the courts of law as it should have, surely a sign of the low standard of their operation. A third result brings to light an important contrast with the safe loans of Table 13.1. It is revealed in the fact that all the dummies for location and time are significant. In other words, the county where a contract was signed and the period in which it took place made a difference to the risk it represented to the creditor. Thus, when lenders had to take into account the probability of loss from a default, they were sensitive to the quality of the mechanism through which they hoped to recover it. Since relevant local social and economic differences were minimal, the only factor that could explain this variation is the institutional framework provided by the courts of law. The inference must be that institutional efficiency varied over time and space, and this was recognized by the market. Such a capricious system of justice could not be beneficial, since it was so obviously inequitable. A look at the coefficients in Table 13.2 also reveals that these effects were substantial. On average, mortgage operations in the provincial counties considered, except for Alenquer, implied a reduction in the interest rate relative to Lisbon of between 0.5 and 1.8 percentage points. Thus, distances of 20 or 30 kilometers between rural towns could translate into

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Jaime Reis Table 13.2 High-risk loans: Personal vs. institutional factors (ordinary least squares regression)

Dependent variable: mortgage interest rate—Int Independent variables

coefficient

Constant Litdebt (−) Loan (−) Distance (+) Cosign (−) Nplot (+) Reg (−) Mafra Torres Vedras Sintra Via Franca de Xira Alenquer Arruda 1890s 1900s

10.273 −0.236 −0.005 −0.001 0.049 −0.002 −0.202 −1.503 −.1.765 −1.809 −0.564 0.902 −0.739 −0.437 −0.330

probability

0.000 0.052 0.008 0.353 0.743 0.945 0.168 0.000 0.000 0.000 0.051 0.056 0.050 0.003 0.068

(Default variables: Lisbon and 1870s) R 2 = 0.157 Prob (F) = 0.000 N = 1,192 Sources: Same as in Reis (2010), plus new data on the municipality of Lisbon. Notes: Variable definition is the same as in Table 13.1, except for the dependent variable (Int), which is the interest rate charged on “nonsafe” mortgage loans as defined in the text. Default dummies are Lisbon and the 1870s.

differentials of 1 percentage point or more, and the largest, between Alenquer and Sintra, came to almost 3 percent. This can be compared with a reduction of only a quarter of a percentage point if the borrower was literate, as opposed to illiterate. An increase of two and a half standard errors in the size of the loan would bring about a fall of about 1 percentage point in the same rate. A final point takes us back to the model proposed above of risk as a joint probability faced by mortgage lenders. Tables 13.1 and 13.2 make it clear that the case of late nineteenth-century Portugal is correctly described by the formulation set out in expression (1). Lenders who dealt with dubious borrowers adjusted the interest rate they charged as a function of the personal risk the latter represented. But in the event of noncompliance, they incurred, successively, a second risk arising from the inadequate protection of their rights. The probability of the overall expected loss was thus a joint one and should be quantified as the product


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of these two component probabilities. Since, by definition, the latter would always be less than one, this would mean that the overall risk for lenders would have to be less than either of the component probabilities. Thus, the proxy chosen here for this global risk, that is., the mortgage rate of interest, inevitably underestimates the singular risk represented for creditors by either hazard and, in particular, that associated with the inefficiency of the institutional framework. We conclude that in situations characterized by “bad” institutions, the rate of interest on mortgage loans is not the ideal indicator (although it may be the only available one) and minimizes their inefficiency. the portuguese judicial system: a historical narrative Up to now I have relied intensively on concepts such as institutions or institutional efficiency. I have not, however, discussed how they functioned concretely at the microlevel and how their malfunction caused economic damage. In this section I start by looking at the kinds of losses creditors might face owing to the poor operation of the courts. This is followed by an exercise to assign responsibility for such malfunction among the classic constituent elements of this institution. Since quantitative tools cannot help in this, I turn to a narrative approach based on descriptive sources. Ideally, the way to assess the harmful implications of litigation over noncompliant loans would be to investigate a detailed history of the judicial process in Portugal. This is unavailable and would require immense effort to compile. Had it existed, however, it would still have provided at best a partial view. Many cases were never brought to trial and were settled outside the framework of justice, often because the latter could be so irksome. They would never have been registered, so we must turn to essentially circumstantial evidence instead. The losses that can potentially be incurred by a lender seeking judicial redress for nonperforming credit were of three kinds. Rightly or wrongly, the contract might be ruled as imperfect or even not to have existed legally at all. This would entail partial or total loss of the principal and unpaid interest. A less unfavorable result would be that the court ruled in the creditor’s favor but only after a lengthy procedure, which would have had two consequences. One was an increase in litigation costs. The other was the opportunity cost of the extended period of loss of liquidity until the verdict was pronounced. The first possibility does not seem to have been high on the list of creditor concerns. Neither the framers of the 1863 law on mortgage credit nor

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subsequent legal commentators paid much attention to this hypothesis. The burden of their worries lay instead on the need to prevent pettifogging practices aimed at slowing down the legal process (Vaz, 1863; Coelho, 1906). The handbook used by students of civil law at the University of Coimbra stated that “long delays in the trial cause enormous losses to creditors and are the reason why they are unable to lend at moderate rates of interest” (M. O. C. Castro, 1865, p. 210). This is corroborated by the emergence in Lisbon, in the early 1900s, of a new practice in contracting mortgages, which, by 1910, had become quite popular and consisted in imposing a penalty on the borrower should the lender have to go to court.8 In a few cases, this was a one-time lump sum receivable after court proceedings had commenced and was consequently not tied to the unpredictable extension of the loan’s duration by court action. Conceptually, this could be seen as a compensation for the lender’s risk of suffering a confiscation should the court decide to annul the borrower’s obligation. In the majority of contracts, however, the penalty suffered by the borrower for forcing a trial was a significant increment of the stipulated interest rate, which was applied to the extra period that the loan would last due to litigation. This constituted a risk premium due for each day beyond the contracted date of repayment, independent of the court’s decision on the merits of the case. The frequency of such contractual arrangements indicates that what was paramount in the minds of lenders at the time of contracting was the fear of procedural procrastination. This conclusion is supported by comparing the rates on mortgages and on unsecured credits, respectively. The former on average were typically between 8 and 9 percent, with a maximum of 15 to 24 percent, depending on the occasion and the location. The latter would start at 15 percent and rise to 75 or 80 percent a year (Vaz, 1863; Morais, 1889; Ulrich, 1908). In cases of personal credit, in the absence of any collateral, there was little the courts could do to oblige defaulters to pay in full. It therefore had to be remunerated at these exaggerated rates. The much lower rates on mortgages indicate that confiscation of the collateral, including by a court decision, could not have been expected to any great extent since, if it had, the two rates would have converged. I deduce that confiscatory rulings in favor of borrowers were not the usual behavior of courts. If prolonged litigation was deemed by creditors to be their worst affliction, were increased litigation costs a part of this worry? The documents examined show that in every contract the wording imposed the full burden of all such costs on the debtor, including honoraria for lawyers and solicitors, administrative expenses, and judicial fees. Thus, variable costs of this sort did not impend on the lender. I conclude that the


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main harm caused by the judicial system through protracted litigation might have been substantial but not catastrophic and could be successfully recovered ex ante by applying a bearable risk premium to the interest rate. Thus, although they failed to give creditors the full protection of their rights, the courts let them down but only to a certain extent. This goes a long way toward explaining why such transactions were pursued with regularity and, in particular, why a vigorous mortgage market persisted despite the universally recognized poor quality of justice. My second investigation here is to seek the roots of this partial institutional failure. I considered the three dimensions that define the concept of institutions: the law itself, the architecture of the institutions, and the nature of the group entrusted with enforcement of the rules. The first certainly does not seem to have constituted a major problem.9 On the contrary, several reforms improved the legal framework and brought it into line with the more advanced countries. Prior to its modernization in the 1860s, laws governing mortgage credit were indeed imperfect and their working was cumbersome, uncertain, and costly. However, the approval of a law specifically on mortgages in 1863, the creation of a national land registry in the same year, and the compilation of a civil code in 1867 together eliminated many imperfections and created conditions favorable to the expansion and lowered cost of this kind of operation. The advantages of this new legal package were several.10 The hierarchy of precedence of debt obligations was defined more clearly, and mortgages were placed at the top of the scale. The figure of the general mortgage, which fell on all of the debtor’s estate and made it difficult to distinguish between the rights of individual creditors was abolished. The mortgage lien became specific to given assets, and the lender was therefore able to know which of them was assigned to his own credit. Creditors’ rights were thus no longer attached to the person of the debtor. In case of default, all they had to do was seize the collateral through the court, regardless of who owned it. This was easier than pursuing a debtor, who might no longer own the asset or be difficult to locate. Finally, the new civil code abolished the interest rate ceiling of 5 percent and allowed contracting parties to set the price of credit freely. Symbolically, it renamed what used to be called usury, designating it as an “onerous loan.”11 The establishment of a national land registry in 1863 ensured that properties, their attributes and values, and their proprietors and legal onuses were formally inscribed and given full publicity. Inscriptions were made in chronological sequence so that the precedence of obligations could be easily established. Proper identification of owners prevented others without authority from attempting to mortgage properties to which they had no legal title. For further transparency, properties could be

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entered only in the office of the area where they were located. A specialized body of functionaries was put in charge of these arrangements and made liable to severe penalties for the infringement of the rules (Mendes, 2003). Procedural law was also improved. M. O. C. Castro (1910), the author of the work of reference on nineteenth-century courts, was optimistic. He considered that, although hardly perfect, the 1876 Code of Judicial Procedure was clearly written, had simplified procedures to a considerable extent while respecting the rights of the parties, and, by eliminating superfluous acts, had “eradicated the abuses practiced formerly by court officials” (p. 47). In the case of mortgages, he claimed that the 1863 law had gone even further. It established summary proceedings, more expeditious summons, easier identification and seizure of collateral, and a drastic reduction of opportunities for stalling tactics by the defense (M. O. C. Castro, 1865). The machinery of justice itself also appears to have been reasonably adequate for its task. For civil cases, it was organized in three levels, of which two were exclusively for appeals. The lowest jurisdiction was comprised of 160 to 180 local courts and gave a more than sufficient (according to some, even excessive) coverage for the country (Costa, 1897). There seems to have been no shortage of judges or officials to fill the needs of the system. Court functionaries were recruited by public competition, in which they had to show knowledge suited to the tasks before them, and had reasonable qualifications. In reality, none of all this seems to have affected fundamentally the negative perception lenders had of the reformed institutions. The small general reduction in mortgage rates between the 1870s and the end of the century revealed in Table 13.2 leaves open the possibility of a longterm institutional improvement caused by better rules and/or organization. It is impossible, however, to establish which of these improvements lay behind this efficiency gain. The burden of this evidence thus seems to point to the magistracy as the critical weakness of the system. Up to the 1870s, this body of crown servants was the object of a protracted and controversial process of reform. The purpose was to endow Portugal with a competent, efficient, honest, and independent body of professional judges, who would not be beholden to political powers or to local interests. The result was a set of rules that, on paper, obliged them to dispense justice rapidly, fairly, and transparently. (M. O. C. Castro, 1910). Competence was guaranteed by requiring a law degree from the University of Coimbra and selecting entrants from among candidates who had been crown procurators for at least three years. To maintain standards and promote zeal, judges entered a promotional ladder where advancement was a function of experience, measured by seniority, and by competence, as evaluated by senior judges. The right of appeal from a


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court sentence was partly justified in the legal literature as a device to keep junior judges under the constant scrutiny of older and more experienced ones. Independence from private interests was ensured by making this an exclusive occupation—though they could take temporary leave to become members of parliament—and not consenting to more than a few years in each posting. It was reinforced by the principle of nonremovability from office. Appointments, transfers, promotions, and retirements were strictly regulated, in the same spirit, by the law. The day-to-day reality of the judicial profession was far from the idealized image transmitted by this body of law and regulation, however. Judges were neither independent nor apparently inclined to dispense justice fairly. Their promotion, placement, and transfers were decided by the minister of justice, who followed criteria hardly designed to ensure judicial autonomy. Moreover, he had no difficulty in circumventing the legal and constitutional safeguards designed to protect magistrates from interference (Coelho, 1906). What mattered for advancement was political affiliation, friendships, family, and personal relations, as well as services rendered either to politicians and parties or to local or national notables. Describing his career between the 1820s and the 1860s, an anonymous judge gives an illuminating testimonial of the incessant mobility of the profession as well as of the vital role of connections in this. In all these years he was placed in thirteen different courts. He owed both his initial appointment and his first placements to his powerful brother. When the latter died, his life took a turn for the worse. He lost to younger, more influential colleagues and was pursued by local notables and a hostile minister. Later, however, he was protected by friendly administrators and ultimately gained a seat in Lisbon (Recordações, 1862). Seeking protection was not only a matter of prudence. It also made the difference between placement in a remote corner of the country or in a comfortable town or even Lisbon. It could also be to a judicial division where the volume of fees was more significant.12 The result, according to another judge, was that “the independence of the magistracy is a myth” (Desorganização, 1887, 42). At the root of the trouble lay the Portuguese parliamentary system, in which two parties regularly alternated in power by means of elections that served to secure a majority in the chamber of deputies that could sustain a government (Bonifácio, 2002; Almeida, 1995). Parliamentary majorities, however, did not have to represent a majority of the electorate. They were “manufactured” by the governing party of the day, which, by its powers of distribution of largesse and of appointment and transfers of officials in local authority, was able to manipulate the electoral process and obtain a crushing predominance at the polls. Changeovers

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occurred when the king, who could dissolve the chamber of deputies, decided that the incumbent government was no longer in consonance with public opinion and handed the reins of power to the rival party, to start another cycle. Every known method of influencing the election was then ruthlessly used. These tasks were undertaken by “friendly” networks of local notables in collaboration with provincial governors, police and tax officials, municipal administrators, school teachers, municipal doctors, and, apparently, judges, too. What impact did this have on the judicial system? Did it lead to distortions that justified the jaundiced view revealed by creditors in their economic activity? Critics were harsh in their condemnation. “The venality of judges, in various epochs, has been proverbial” (Coelho, 1906, 102). F. A. Pinto (1912), a magistrate with many years of experience, described the situation in detail: Civil and commercial litigation does not exist . . . because a wise citizen knows that the judiciary has been absorbed by another power. When he feels a thirst for justice, he shortens his path and goes directly to those in power. He takes with him neither allegations nor proofs, nor even citations of the law. Rather he presents his current account which demonstrates his surplus, vis-à-vis his opponent, in terms of the land and votes he controls. His antagonist must then bow before this form of justice. (p. 406)

Despite such blatant denunciations, two questions are of relevance. One is that such reports, which were common in the press, were usually partisan and therefore may have been overstated. A recently published compilation of letters to and from José Luciano de Castro, an eminent politician and one of the wiliest political operators of the time, leaves little doubt about their accuracy, however (J. L. Castro, 1998). His correspondence shows not only an intense participation of judges in local politics, election fixing, and local power brokering on behalf of party leaders. It also reveals frequent interference by the latter in individual judicial careers as a way of settling political debts and rewarding supporters. Most important of all, it sheds light on how the most prestigious figures in the country considered it normal to meddle in the functioning of the courts to help friends and political allies. Not uncharacteristically, after winning a legal dispute in the Sintra court, Viscount Valmor wrote in 1886 to José Luciano: “it is evident that this result is entirely due to you, my dear friend. Of this, I have not the slightest doubt” (p. 222). The viscount was one of the richest men in Portugal at that time. The second question is whether the inefficiency of the courts was really the result of this tissue of politically inspired judicial favoritism. Bonifácio (2007) has recently argued that the electorate hardly needed to be coerced


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to make it back a new majority at the polls after a government changeover. Voters did so willingly and opportunistically because the newly appointed local bosses negotiated their support in return for the usual favors on these occasions—a job, an exemption from military service, a road, or a fiscal pardon. There is another side to this story that is downplayed by this approach, however, and comprises all who were unable to avoid military service, whose road was not built, or whose job was lost, not to mention the less common but not unusual episodes of political violence. It is also possible to include in this the court cases dogged by undue procedural procrastination or, alternatively, those that made unexpectedly rapid progress toward a favorable conclusion. Episodes of the second kind were not only extensively reported but were also the unavoidable correlates of the negative and positive incentives that ensured that the political system functioned. It is impossible to quantify the impact of this stream of irregularities, and it is unlikely that this will ever be attempted. Nonetheless, it seems difficult to reject a significant link between the conclusions drawn above concerning court inefficiency and the present account of the contemporary Portuguese nineteenth-century judiciary. In a long-term business like lending on mortgage, the “efficiency” of justice in individual cases must have weighed heavily on costs, given the high degree of uncertainty inherent in the judicial system. We get a sense of its magnitude when we consider that at each political changeover the losing local elite was deprived of access to its previous channels of influence, including the magistracy. On average, governments were replaced every 1.65 years in Portugal during the period 1852–1910, and judicial and politically motivated rotation would have been just as intense. Creditors, who have had to litigate, could not but charge rates of interest high enough to compensate for this constant state of insecurity. conclusion This study examined institutional efficiency as a factor of economic performance in a historical perspective. It focused on the nineteenth century, a period of optimism about the perfectibility of human nature and the possibility of institutional improvement at all levels. It took as its case study Portugal, a peripheral, economically backward society with a disadvantaged legal tradition. It confirmed the existence there of a low level of protection for creditor rights in the period 1870–1910. It also suggested that the relatively high cost of credit, detected as a symptom of this problem, may have been a consequence of a low level of trust in this society.

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Probing deeper, it showed that this was hardly a Hobbesian state, where the rule of law was in total disrepute and the courts were used arbitrarily to expropriate economic agents involved in market activity. The view is rather of a comparatively moderate dysfunction of the judicial system, which had a bearable impact on economic agents affected by it. It raised costs and distorted prices but did not inflict a massive disruption on transactions Going still further, this chapter sheds light on the roots of the poor performance of the Portuguese courts of law. For the most part, this is not ascribable to problems in the design of law or the architecture of institutions, both of which seem to have been reasonable by contemporary standards. The main trouble lay in the configuration of the political regime, a Liberal parliamentary monarchy that permitted the absorption of the judiciary by the mechanisms for achieving and distributing power. This caused the judicial system to be permeated by venality and to function inadequately, a situation not uncommon in Europe at the time. Unfortunately, we lack the tools for determining the differences of degree that would be necessary for a comparative evaluation. This finding implies that the problem had deep origins and was difficult to solve but was not principally rooted in less propitious juridical traditions or institutional forms. I have shown that at a formal level reform was possible, but in practice there was very little change. To achieve appropriate institutions for economic growth, however, would have required thorough reforms of the polity and of the country’s political culture, neither of which was entertained seriously during this period. An optimistic perspective might argue that the absence of such reforms contributed to the stable operation of the political system and consequently also had positive economic spin-offs. A realistic view would acknowledge the impossibility of this in the time frame dealt with here.

Notes The author is grateful for the comments by Jan Luiten van Zanden, Debin Ma, and the participants in the conference on Law and Economic Development in Utrecht, 2007. He also acknowledges the valuable research assistance provided by Helena Monteiro. 1. The literature tends to break down “institutions” into “rules” and “enforcement” only (Ferguson, 2006). 2. This point is often overlooked in the collateral literature, which is usually concerned with countries without problems of institutional inefficiency (Cocco, 2000).


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3. The database and its sources are described in Reis (2010). It now includes additional information (300 cases) for the city of Lisbon. 4. In 1890 the rate of gross illiteracy was 47 percent in Lisbon and 75 percent in the country at large. For participants in mortgage contracts, illiteracy was negligible in Lisbon but reached 60 percent in rural districts. 5. In Reis (2010), the civil status of the borrower was also used as an independent variable. In a peasant society, it seemed reasonable that a married borrower, as head of a family, was backed by a more effective economic unit than a widower or a bachelor would have been. The result was not significant, however. 6. The coefficient for Loan is slightly above the customary 10 percent significance level but still acceptable. The McFadden R-squared is not high, as might be expected from a panel data exercise, but suggests it has reasonable explanatory power. The probability of the LR statistic allows us to reject the null hypothesis of the slope coefficients being jointly equal to zero. 7. Low trust is evidenced by the fact that creditors considered that 89 percent of debtors were likely to default and only 11 percent were worthy of a near riskfree interest rate. 8. In this period, 50 percent of Lisbon contracts conformed to this model. Though an interesting example of institutional innovation, it failed to spread to the provinces for reasons that remain unclear. 9. This is an interesting finding in the perspective of the current debate on the role of legal traditions in the protection of investors. Nineteenth-century Portugal is yet another instance of a legal framework that was not time invariant and adjusted to economic circumstances. See Sgard (2006). 10. This section is based on Vaz (1863), Sousa (1866), and the Civil Code itself. For a recent perspective, see Hespanha (2004). 11. Most of Europe abolished usury laws during the 1850s or 1860s. An exception was France, which kept the 5 percent ceiling until 1918. See Postel-Vinay (1998). 12. In some divisions the annual income from fees was 3 million réis (the equivalent to £650 sterling); in others it was 50,000.

References Acemoglu, D., Johnson, S. and Robinson, J. A. (2001), “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review, 91, pp. 1369–1401. Almeida, Pedro Tavares de (1995), “A Construção do Estado Liberal: Elite Política e Burocracia na Regeneração: 1851–1890,” Ph.D. diss., Universidade Nova de Lisboa. Berger, A. N., and Udell, G. F. (1990), “Collateral, Loan Quality and Bank Risk,” Journal of Monetary Economics, 25, pp. 21–42. Bonifácio, M. F. (2002), O Século XIX Português. Lisbon: ICS. ———. (2007), Estudos de História Contemporânea de Portugal. Lisbon: ICS.

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Castro, J. L. (1998), Correspondência Política (1858–1911). Organização, Introdução e Notas de Fernando Moreira. Lisbon: Quetzal. Castro, M. O. C. (1865), Apontamentos sobre alguns Processos Sumários . . . para a Exigência dos Créditos Hipotecários. Coimbra: Imprensa da Universidade. ———. (1910), A Organização e Competência dos Tribunais de Justiça Portugueses. Coimbra: França Amado. Cocco, G. (2000), “On the Use of Collateral,” Journal of Economic Surveys, 14, pp. 191–214. Coelho, Manuel Trindade (1906), Manual Político do Cidadão Português. Lisbon: A. M. Pereira. Costa, A. (1897), Lições de Organização Judiciária. Coimbra: Minerva. Dam, K. W. (2006), The Law-Growth Nexus: The Rule of Law and Economic Development. Washington, DC: Brookings Institution Press. A Desorganização Judicial. Brado a Favor da Magistratura Judicial Portuguesa (1887). Porto: Manuel José Pereira. Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2003), “Courts,” Quarterly Journal of Economics, 118, pp. 453–517. Ferguson, L. (2006), “Institutions for Financial Development: What Are They and Where Do they Come From?” Journal of Economic Surveys, 20, pp. 27–69. Glaeser, E., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2004), “Do Institutions Cause Growth?” Journal of Economic Growth, 9, pp. 271–303. Guinnane, T. W. (2001), “Cooperatives as Information Machines: German Rural Credit Cooperatives, 1883–1914,” Journal of Economic History, 61, pp. 366–389. Hespanha, A. M. (2004), Guiando a Mão Invisível: Direitos, Estado e Lei no Liberalismo Monárquico Português. Coimbra: Almedina. Kauffman, D., Kraay, A., and Zoido-Lobaton, P. (2002), “Governance Matters II. Updated Indicators for 2000/01,” World Bank Policy Research Working Paper #2772, Washington, DC. Lamoureaux, N. R., and Rosenthal, J. L. (2004), “Legal Regime and Business Organizational Choice: A Comparison of France and the United States During the Nineteenth Century,” NBER Working Paper #10288, Cambridge, MA. La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (1999), “Corporate Ownership Around the World,” Journal of Finance, 54, pp. 471–517. Levine, R. (2005), “Finance and Growth: Theory, Evidence and Mechanisms,” in P. Aghion and S. Durlauf, eds., Handbook of Economic Growth. Amsterdam: North-Holland Elsevier. Martinez-Soto, A. P. (2001), “La ‘Tela de Araña.’ Mercados Informales de Financiacion Agrária, Usura y Crédito Hipotecário en la Region de Múrcia (1850– 1939),” Áreas. Revista de Ciências Sociales, 21, pp. 185–220. Mauro, P. (1995), “Corruption and Growth,” Quarterly Journal of Economics, 110, pp. 681–712. Mendes, I. P. (2003), Estudos sobre o Registo Predial. Coimbra: Almedina. Morais, P. (1889), Inquérito Agrícola. Estudo Geral da Economia Rural da 7a Região Agrícola. Lisbon: Imprensa Nacional.


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Musacchio, A. (2008), “Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil,” Journal of Economic History, 68, pp. 80–108. North, D. C. (1990), Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Olson, Mancur (1982), The Rise and Decline of Nations, New Haven, CT: Yale University Press. Pinto, F. A. (1912), O Despotismo. Lisbon: Gomes de Carvalho. Postel-Vinay, G. (1998), La Terre et l’Argent. L’Agriculture et le Crédit en France du XVIIIe au Début du XXe Siècle. Paris: Albin Michel. Recordações da Vida Pública de um Juiz de Direito Aposentado (1862). Coimbra: Imprensa da Universidade. Reis, J. (2010), “Institutions and Economic Growth in the Atlantic Periphery: The Efficiency of the Portuguese Machinery of Justice, 1870–1910,” in H. Esfahani, G. Facchini, and G. Hewings, eds., Economic Development in Latin America. New York: Palgrave-Macmillan. Resposta do Juiz de Direito da Comarca de Satam no Processo de Querela que lhe Move o Ministério Público (1875). Lisbon: Tipografia Universal. Sgard, J. (2006), “Do Legal Origins Matter? The Case of Bankruptcy Laws in Europe 1808–1914,” European Review of Economic History, 10, pp. 389–419. Sousa, J. C. B. (1866), Crédito. Dissertação para o Concurso da 10a Cadeira da Escola Politécnica. Lisbon: Typographia Franco-Portuguesa. Stiglitz, J., and Weiss, A. (1981), “Credit Rationing in Markets with Imperfect Information,” American Economic Review, 71, pp. 393–410. Svensson, P. (2001), Agrara Entreprenörer. Böndernas Roll i Omvandlingen av Jordbruket i Skåne 1800–1870. Lund: Lund Studies in Economic History. Tavares, J., and Wacziag, R. (2001), “How Democracy Affects Growth,” European Economic Review, 45, pp. 1341–1378. Ulrich, J. H. (1908), O Crédito Agrícola em Portugal. Lisbon: Ferin. Valério, N., ed. (2001), Estatísticas Históricas Portuguesas. Lisbon: Instituto Nacional de Estatística. Vaz, J. J. F. (1863), Do Crédito Predial. Resposta aos Pontos propostos pela Faculdade de Direito da Universidade de Coimbra. Coimbra: Tipografia da Universidade. Williamson, O. E. (2000), “The New Institutional Economics: Taking Stock, Looking Ahead,” Journal of Economic Literature, 38, pp. 595–613.

chapter fourteen

The Evolution of Self- and State Regulation of the London Stock Exchange, 1688–1878 Larry Neal

; introduction Despite the well-recognized virtues of British common law that allowed the continued growth of securities trading in the London stock market, which facilitated greatly both British industrialization and imperialism, the formal self-regulation of the London Stock Exchange evolved circumspectly to avoid state regulation. That it succeeded was due more to its own efforts than to the indifference of the British government. While the success of the London Stock Exchange in the nineteenth century seems to vindicate the “watchman” role of the state, its success was due primarily to the unique governance structure of the exchange. By separating owners of the exchange from its users, both competition and innovation within the exchange were promoted. Stock markets that provide secondary markets for transferable securities issued by governments or corporations, both private and public, are the visible symbols of successful capitalist economies. Economies that flourish over time are typically endowed with functioning stock markets that serve as useful complements to banks and other financial intermediaries that provide primary investment funds to new business enterprises. The existence of a secondary market for the securities issued by a corporate entity enlarges greatly the potential customer base for the intermediaries responsible for marketing the initial public offering. From the time of the successful Italian city-states such as Genoa, Venice, and Florence

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(Pezzolo, 2005), right through the golden age of the Dutch Republic (Gelderblom and Jonker, 2004), the rise of the American republic (Sylla, 2009), and the first industrial nation in the British Isles (Neal, 1990), stock market activity was an intimate part of capitalist economic development. Rousseau and Sylla argue that “financial revolutions,” comprising the creation of a robust financial sector in which banks, stock markets, and government debt management complement each other, have always preceded economic growth historically (Rousseau and Sylla, 2001). None of these eminent historians, however, consider explicitly the role that the law and the existing legal environment play in creating and sustaining such a financial sector, much less the stock market. Another literature, however, argues that the common law countries, once they had adopted preexisting merchant law as appropriate judicial precedents, provided the legal basis for successful finance and, consequently, sustained economic growth (La Porta et al., 1997, 1998, 2000). According to La Porta et al., the essential feature of the common law as developed in Great Britain and imitated to varying degrees in its overseas colonies is the legal protection it provides to outside investors who are removed from direct oversight or management of an enterprise. The adaptability of common law judicial systems to changed circumstances created by new technologies, products, and commercial methods is especially important as opposed to civil law, where adaptation requires cumbersome legislation that can be blocked by endangered incumbents. The preeminence of the London Stock Exchange among the world’s stock markets throughout the nineteenth century makes this argument plausible (Davis and Neal, 1998). Needless to say, La Porta et al.’s argument has provoked scholarly defenses of the civil law both for corporate governance (Lamoureaux and Rosenthal, 2004) and for the Paris Bourse (Hautcoeur, 2007), as well as bankruptcy proceedings (see Sgard, Chapter 10 in this volume; Sgard, 2006). Regardless of the academic debates, after every financial crisis the issue arises whether stock markets should be closely regulated by government or allowed to regulate themselves. Governments are motivated to protect their constituents from professional speculators, especially if they are foreigners, to remove the temptation of gambling from the working classes or to generate a new source of tax revenue. Professional stock traders argue that they are motivated to fulfill their fiduciary responsibilities to their customer base to maintain their business, while governments benefit from the ready market for their debt and the higher price (lower interest) that results if market activity is relatively free of tax or regulation. Recent experience seems to favor government regulation. Both the New York Stock Exchange and the NASDAQ, determined to maintain their status as

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self-regulated organizations, have recovered their losses from the dot.com collapse in 2000 under the new regulations of the Securities and Exchange Commission imposed by the Sarbanes-Oxley legislation of 2004 (Healey, 2007). The other prime example of self-regulation, the London Stock Exchange, has recovered much of its global presence in the global securities market that emerged at the end of the twentieth century after government intervened in 1986 to remove the barriers that its members had erected against financial innovations from abroad (Michie, 1999). Experiments with government regulation versus self-regulation in the transition economies of central and east Europe in the 1990s also seem to favor government regulation. Poland, regulating its stock market by closely following the French example, emerged much stronger from the financial crises of the late 1990s than did the Czech Republic, which left its stock market to develop its own regulations (Glaeser, Johnson, and Shleifer, 2001). By contrast, the examples of the first self-organized stock exchanges in Amsterdam and London have been taken to show the virtues of selfregulation, as both rose to international prominence in their respective heydays—Amsterdam in the seventeenth century and London over the eighteenth and nineteenth centuries (Stringham, 2002, 2003). Examining the London case more closely, however, demonstrates that the particular form of self-regulation of the London Stock Exchange was shaped by the peculiarities of English common law and constrained ultimately by statute and the ever-present threat of additional legislation. The influence of statute and judicial constraint is described below before discussing in detail the various responses by the members of the self-regulating London Stock Exchange. Especially relevant for analysis of the interaction of state and self-regulation over time is the evolution of the rules of the London Stock Exchange for handling the increasingly frequent cases of default by members. Formal regulation can be dated from the Glorious Revolution of 1688, and a convenient ending date for this study is 1878, when a royal commission investigated the practices of the London Stock Exchange in detail and concluded that it should remain a self-regulating organization. The relationship between formal regulation and informal regulation of the London Stock Exchange over time was therefore much more complex than simply reflecting a common law society governed by central government. The evolution of that relationship was subject to frictions especially during financial crises or with financial duress of the members of the London Stock Exchange. Formal laws and regulations were either imposed externally or adopted internally by enforcing rules of the club, but even the internal rules had to keep a fine distinction between what could be binding upon members of the club and what would be upheld in the courts when disputes arose between a member or members and a


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customer. The ever-present threat that the authorities could sanction the creation of a competing exchange kept the proprietors alert to the dangers of self-interested restrictions that the members might impose on their more innovative and aggressive fellows, as in the case of trying to forbid the trade in options on forward contracts in the 1820s discussed below. Meanwhile, informal regulation, epitomized by the phrase “my word is my bond,” was continually reinforced by annual renewals of membership privileges, overseen by a Committee for General Purposes that would then stand for reelection. the course of state regulation, 1688– 1878 The first regulation of stockbrokers at the outset of the “financial revolution” in England took nearly ten years to appear after the Glorious Revolution or “Dutch usurpation” of 1688.1 Responding to numerous complaints against the shady practices of stockjobbers that coincided with the monetary troubles of 1697, the act limited the number of brokers in London to 100, required them to be licensed by the Lord Mayor of London, and forbade them to trade on their own account, while capping their fees at one-half of 1 percent of the value of the securities. This could be seen as an incentive for other traders to forgo commissions in favor of making money from the spread between bid and ask price for the securities available to the public at the time. To limit opportunism among the unlicensed jobbers, then, the act required that any contract for the transfer of stock be completed with an actual transfer within three business days (Banner, 1998, p. 40). The act was renewed once before Parliament allowed it to expire in 1708; thereafter the City of London was authorized to continue to license brokers on whatever terms it chose. (The terms chosen limited the number of Jews and foreigners to a maximum of twelve each, which was remarkably high given later practice by the self-regulating London Stock Exchange when it was created in 1801.) The bill also required brokers to post a £500 bond with the Lord Mayor and to keep a detailed account book recording every bargain made with each customer. This apparently was already common practice, but the bill required the broker to show the book in case of a lawsuit. In 1711, Parliament reimposed the half-percent limit on the fees that brokers could charge, according to Banner. (But one copy of the bill published many years later put the limit at 10 percent, perhaps a misprint.) By 1720, however, active customers in Exchange Alley expected to pay no more than one-eighth of a percent, which was in line with Dutch fees for brokerage on the Amsterdam Beurs. These were the only restraints on securities trading until Barnard’s

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Act was enacted in 1734, well after the collapse of the South Sea Bubble in 1720. Meanwhile, a thriving business in securities trading arose, given the increase in marketable government debt, both funded and unfunded, and the free creation of new joint-stock companies able to publicize their prospects in a press unfettered by government or guild. Securities trade centered in Exchange Alley near the Royal Exchange where London’s wholesale trade was conducted in open view to the public. There dealings in all the products required to service the needs and desires of London’s population required constant contracts at varying lengths and terms of settlement, all of which were enforceable in courts of law, usually relying on common law, which in turn relied on customary merchant law. When contractual disputes arose over delivery of securities, then, the same law courts dealing with issues of mercantile trade dealt with issues of securities trade. Not surprisingly, they tended to apply the same reasoning for resolving issues over breach of contract in trade goods to resolving issues over breach of contract in “virtual” goods, or securities (Banner, 1998, chapter 3). David Dalrymple’s treatise on time bargains, published in 1720, argued that time bargains (agreements that payment and delivery of a given amount of a security would occur at a later date, typically up to three months at one of the quarterly settlement dates) that were made for the purchase of South Sea stock or subscriptions during the bubble would be void in British courts of equity, on the basis that they were knowingly priced by the sellers well above their true value. His reasoning was based on accepted remedies in English civil law for fraudulent contracts that priced goods well above their true market value. This was especially the case, he argued, for the Third Subscription to South Sea stock. Not only should those time contracts be voided to relieve the buyer of the obligation to pay, but also the seller in the first instance (the Directors of the South Sea Company) should be fined half of the excess value. Dalrymple’s obviously self-interested argument merely reflected the practice in English courts of applying precedents from cases arising in disputes over the terms of contracts for the sale of trade goods to cases dealing with sale of securities. In the event, Parliament did pass legislation putting all the subscribers on the same footing, thereby voiding the Third and Fourth Subscription contracts. The one case found by Banner (1998), Thomson v. Harcourt, 1 Brown 193, 1 Eng. Rep. 508 (H.L. 1722), where Dalrymple’s argument was used ended up being rejected by the House of Lords where it was tried. The buyer, Harcourt, refused to pay the agreed price (£920, or near the peak) for South Sea stock to be delivered by Thomson when the price had fallen to one-fourth that level. The House of Lords ordered him to pay


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the price but only for the South Sea shares that Thomson actually held at the time of the contract, which were fewer than the agreed amount. Gary Shea, however, in tracing down the outcome of a similar case dispute between Sir George Caswall against the Duke of Portland, who had contracted to buy enormous sums of South Sea stock at inflated prices, found that the duke’s heir was ultimately successful in staving off the claims of Caswall’s son and others, despite being pursued for twenty years after the collapse of the South Sea bubble (Shea, 2009). The most famous piece of legislation to emerge from the South Sea episode was the Bubble Act of 1720. Thanks to the diligent research of Ron Harris (1994, 2000), it is clear that the main import of that famous piece of legislation was to maintain the primacy of the South Sea Company’s efforts at refinancing the government’s debt for the attention of the professional stockbrokers and jobbers. Specifically, the act (6 Geo. I. cap. 18) required joint-stock corporations issuing shares to the public to be chartered by Parliament, as well as requiring all previously chartered companies to confine themselves to the business for which they had been granted a charter originally. It failed to keep the South Sea Company from collapsing but had little other effect on the development of the stock exchange’s business. That business, providing liquidity for the bulk of the government’s debt, previously tied up in ninety-nine-year irredeemable annuities and a welter of shorter-term redeemable annuities created during the wars of William III, especially the War of the Spanish Succession, was significantly enhanced by Walpole’s resolution of the situation. He ordered the capital stock of the much enlarged company to be split in half, with shareholders receiving the other half of their claims on the stock of the company in the form of perpetual annuities offering 5 percent interest for five years, to be reduced then to 4 percent (and eventually to 3 percent). Thus, Walpole at a stroke created an enormous stock of homogenous, readily transferable, and fungible financial assets that were widely held by at least 35,000 individuals (Carlos, Neal, and Wandschneider, 2005). While the remaining stock of the South Sea Company was gradually wound up due to the resistance of the Spanish Empire against allowing the company to expand upon its monopoly of the slave trade, both the Bank of England and the East India Company periodically increased their capital stock. War finance, however, proved to be the source of continued growth of the stock exchange business and the prosperity and number of its professional middlemen. The War of the Austrian Succession (1738–1742 for Great Britain) was financed by issuing directly to the public the equivalent of the South Sea Annuities, now made perpetual and carrying a nominal 3 percent annual interest. The transfer books and stock ledgers for these issues were maintained by the Bank of England,

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which became necessarily a prime location for trading in the funds. Thomas Mortimer’s classic primer, Every Man His Own Broker, argued, in fact, that the transfer of ownership in any of the various public securities was so transparent that anyone could do it on their own without bothering to contact a self-styled broker. The most enduring, and ultimately most controversial, piece of legislation to arise in the eighteenth century was Barnard’s Act (7 Geo. II, cap. 8). Parliament passed the act originally in 1733 for a period of three years to see what effect it might have and then made it permanent in 1736, after it appeared that the limited number of securities available had not suffered any adverse effects from the act. Even when the government began issuing its 3 percent annuities to finance the War of the Austrian Succession, no effort was made to repeal or even amend Barnard’s Act. The act was intended to eliminate time bargains in public securities altogether, the thought being that this would remove sudden movements in the prices of the various forms of government debt by eliminating the pernicious business of stockjobbing. Of course, with no more major issues of government debt forthcoming, services of stockjobbers were not needed. Navy, Victualling, and Exchequer bills—all short-term forms of government debt— were not considered to be “public securities” according to Sir John Barnard when he defended the bill from the opposing speech of none other than Sir George Caswall, disgraced stockjobber and participant in the South Sea scheme years earlier. Caswall tried to kill the bill by raising the specter that navy victuallers and suppliers would not be able to raise cash for supplying the navy’s needs without possessing the government’s promises to pay, which they needed to pledge as collateral to their banker (or “monied man,” as Caswall phrased it). Barnard squelched this argument by saying that these short-term notes were not covered by the bill. His main argument in favor of the bill, namely, that stockjobbers were essentially con artists whose efforts were a diversion from more useful pursuits, carried the day with the majority of the House of Commons.2 (Stockjobbers would buy and sell a given security on their own account, while stockbrokers would charge commissions on purchases or sales by their customers. In the nineteenth century, the London Stock Exchange eventually made the distinction formal among its members, but in the eighteenth century individuals could act either as jobbers or brokers.) According to Barnard, stockjobbers would try to raise the price of a stock by creating false rumors in its favor if they had a “time bargain” to buy at a fixed price in the future; and then spread ill tidings about it if their time bargain was to sell at a fixed price. He cited the recent rise and then plummet in the price of East India stock to support his argument. By contrast, he noted, the price of South Sea annuities, ignored by stock-


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jobbers he alleged,3 remained stable and higher than the price of shares in the company itself (Budgell, 1733–1735, pp. 266–272). The effect of Barnard’s Act when the necessities of war finance arose a few years later with the War of the Austrian Succession was twofold. On one account, it gave a great deal of business to Dutch brokers, who did business only on time and for quarterly accounts—February, May, August, and November. Isaac de Pinto (1771) asserted that Britain’s success in raising war finance for the War of the Spanish Succession, the War of the Austrian Succession, and the Seven Years’ War was due to the ability of stockjobbers in London to sell their commitments to brokers in Amsterdam. The separation of broker and jobber functions, by his account, put brokers in London and jobbers in Amsterdam. On a second account, the act simply forced the group of London jobbers, whether they had business connections in Amsterdam or not, to deal only with each other, knowing that it was in neither party’s advantage to report the other to the authorities. The reward for reporting a violation of the act to the authorities was only £500 and had to be split with the government. An overlooked part of Barnard’s Act, which proved uncontroversial, was to give legal sanction to the right of buying in or selling out in case of breach of contract. If a buyer’s counterparty seller did not appear at the appointed time and place to deliver the agreed stock, the buyer had the right to buy the stock from anyone else. If the price proved higher than the original agreement, he then had a legal claim on the original seller for the difference in price. Similarly, a seller whose buyer did not show up at the agreed time and place could sell the stock he had on hand to whomever was present. If the price he obtained was lower than the contract price, he then had a legal claim on the original buyer for the difference in price. Many years later, this provision for buying in and selling out was in the original rules and regulations of the London Stock Exchange and continued throughout the nineteenth century. Barnard’s Act, however, merely gave force of law to what was already agreed practice among stockjobbers. Lord Londonderry in 1720, having agreed in March to sell South Sea stock to the stockjobbing partnership of Merttins and Mitford in October, found that they were among the many dealers who had declared bankruptcy with the sudden fall in price of South Sea stock. He went to Exchange Alley, cried out that he had so many shares of South Sea to sell, and took the best offer at the time. Later, his lawyers informed him that his claim for the difference in price had been allowed by the commissioners in charge of disposing the assets of the bankrupt firm (Neal, 2008). The only developments in buying-in and selling-out rules within the London Stock Exchange over the remainder of the nineteenth century dealt with spacing out the times when disappointed members could exercise

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their rights. Eventually their claims had to be directed through an appointed secretary of the Settling Room. Further, unsettled claims in mining shares and American securities had to be dealt with on separate days from the rest of the traded securities, given the overwhelming volume of business in these categories by the end of the nineteenth century. The second part of Barnard’s Act, in short, simply codified existing practice already recognized as legally binding under common law and equity law at the time. Self-regulation by the members of the London Stock Exchange over the following century and a half merely fleshed out the operational details for settling contracts and dealing with breaches of contract in the growing number and variety of tradable securities. By contrast, the rules for dealing with defaulting members of the exchange became increasingly elaborate over the nineteenth century. the course of self- regulation From 1734 to 1860, when it was repealed, Barnard’s Act was the sole piece of legislation designed to regulate trading British securities. Intended to eliminate the “infamous practice of stockjobbing,” the act outlawed forward dealings in shares of public securities if the seller did not have and maintain physical possession of the shares for the entire time required for completion of the transaction. Nevertheless, traders in British securities settled their accounts with each other every month or more in the remainder of the eighteenth century without requiring the necessary documentation from their counterparties. After establishing the formal London Stock Exchange in 1801, the members settled accounts with each other every two weeks and often extended for another account period in the normal course of business. This meant that members of the Stock Exchange typically engaged in forward, or time, transactions with each other, and many went so far as to deal in options as well. As long as both parties were happy with the terms of the agreement for a forward transaction or an option, Barnard’s Act had no effect despite their obvious illegality if one of the parties challenged the other. Indeed, one of the reasons given for the formation of a formal self-governing securities market in London was that it enabled members to avoid litigation brought by a disappointed counterparty who could legally invoke Barnard’s Law if a bargain were struck outside a formal exchange—an exchange that was governed by its own set of rules—or outside a club with a traditional set of procedures established by custom. By 1762, a group of brokers formed such a club at Jonathan’s Coffee House. They limited their number to 150 members who paid an annual


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subscription to the proprietors of eight guineas. This attempt at exclusion of individual brokers unwilling or unable to pay the eight guineas prompted a lawsuit by one of the outsiders. It being proved that Jonathan’s had been a market for “time out of mind” (that is, for as long as anyone could remember) for the buying and selling of government securities, the jury, under the direction of Chief Justice Mansfield, brought in a verdict in the plaintiff’s favor with one shilling damages. Three legacies emerged from this episode: (1) the general use of the acronym “TIPS” (“To Insure Prompt Service”) in the English language for service charges, (2) the designation of attendants in the stock exchange as “waiters” well into the twentieth century, and (3) a change in formal organization of the professional stockbrokers. The essential change was to charge a daily admission fee of 6d. a day, and any person at all who paid that sum to the waiter who stood at the bar received in exchange a token that entitled him to proceed beyond the bar, although it is not clear that he could then do business as a broker. Thomas Mortimer’s classic guide to the late eighteenth-century stock market, Every Man His Own Broker, urged individuals to transact their own deals directly in the market and not pay the expense of commission to the various hustlers lying in wait for the unwary and inexperienced investor. Presumably, his readers could pay the 6d. and transact on their own account at Jonathan’s. There was a committee in charge of the market place, but as there are no official minute books before December 6, 1798, it is not clear what, if any, control they exercised over the members who used Jonathan’s regularly (Guildhall Library, Ms. 17,961, hereafter Satterthwaite4). The open market form of the stock exchange in Sweetings Alley, initiated in 1773, proved to be a failure, open as it was to opportunistic outsiders. At particularly hectic times on Account Days, when the various deals made among the individual brokers were settled up, either by delivery of the stock or a continuation of the deal until the next Account Day, opportunities for fraud were especially rampant. Satterthwaite mentions that deals were commonly settled in notes, not by check, so it was the personal honor of the buyer that had to be accepted by the seller, not a claim upon a bank. The form of payment required for final conclusion of a given deal shows up repeatedly in later editions of the formal rules and regulations of the London Stock Exchange, especially as the number and variety of members admitted to its trading floor became too large for personal dealings. One early incident occurred between two brokers, Martin and Lyons, when an effeminate-looking youth approached Martin, asking him to sell £16,000 scrip (the subscription receipts for a new issue of government debt). Martin refused to deal, saying he did no business for new clients without an introduction. Lyons, nearby, feigning resentment

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that the deal was not being offered to him, then made the introduction to Martin. Martin accepted the deal but quickly determined that the scrip was a forgery. Lyons was arrested and convicted; the youth turned out to be his sister (Guildhall Library, Ms. 17,961). It was evidently the desire to prevent repetition of this kind of fraud practiced upon legitimate traders by unknown outsiders that led to the formation of the organization of specialists in stockbroking known as the London Stock Exchange. The first minutes of a governing committee of the formal securities market are from a meeting of the “Committee of the Society for the Protection of Property against fraud in the Stock Exchange,” and it was held at the “Stock Exchange Coffee House.” The committee discussed a letter from R. W. Wade (who subsequently became secretary) but who was at that time a defaulter. Wade asked to be reinstated as a member, “so that I may not be prevented in future from making those exertions which are necessary to enable me to fulfill my engagements to the House with the same punctuality as I have hitherto done where it depended only on myself.” Wade attributed his current misfortune to “the villainy of Colonel Campbell” the previous year. The committee responded favorably to Wade, obviously a respected member of long standing among the group, and accordingly revised Articles 2 and 3 in the then standing Rules and Regulation of the House, to deal with this and all future cases of default by members. The resulting rules regarding members who defaulted on their contracts with other members of the exchange remained substantially intact in spirit through the entire history of the London Stock Exchange. They merit reproduction in full, as later editions of the rules obscure somewhat the motivation for the procedures devised to deal with members who defaulted on the bargains they had struck with other members of the exchange: 2nd That on every future failure a Committee of Inspection be appointed by this Committee out of their number to examine the Defaulters Books & accounts & if it appears that the person failing has acted in every respect as a honest man he shall be received again in the House with that tenderness & humanity every unfortunate man deserves. 3rd That if a defaulter refuses to submit his accounts to the Committee of Inspection or if at such inspection of his accounts he shall appear to have been concerned in any improper transaction for himself or others, such person shall be deemed unworthy of the countenance of this House. (Guildhall Library, Ms. 17,961)

These were evidently handwritten notes available to Satterthwaite, as the first printed Rules and Regulations of the stock exchange were not produced until 1812, and then only under duress from the courts of law.


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The rules governing defaulters among the subscribing members of the exchange were made by a Committee for General Purposes, whose thirty members were elected annually by the subscribers and the proprietors, the owners of the new stock exchange constructed in 1801. While most of the proprietors who paid in capital to construct the new facility were themselves experienced stock traders, they offered access to their house to anyone who wished to engage in trading, conditional only upon paying a nominal annual subscription fee and having the written recommendation of at least two members. Thereafter, the owners were motivated to increase the number of subscribers to recover their capital, as they felt constrained by the rule of common law to keep the subscription fee at the modest level charged for access to Jonathan’s. Shares in the new company were allotted to the 248 individuals who wished to help finance the new building. To make up the £20,000 capital needed to construct a new facility, 400 shares at £50 each were created, with no proprietor allowed to own more than three shares.5 By separating owners from users in this manner, the London Stock Exchange created the incentives for the owners to continue increasing the number of members and the resulting incentives for the members to increase their business by whatever means—increase the number of customers, increase the number of public companies, or create new financial products (Davis and Neal, 2006). Nevertheless, when a subscribing member of the exchange ran afoul of the law, the proprietary owners of the exchange could also be exposed to judicial sanction. For example, the Managers of the Stock Exchange wrote to the Committee of General Purposes in 1811, complaining that they had been humiliated by being forced to appear at Old Bailey in response to a charge brought against them by a defaulter whose name had been posted in the House. While the defaulter did not press charges and the managers were found not guilty by order of the presiding magistrate, they suggested that more precise rules should be promulgated “so that none might plead ignorance of the law.” The committee immediately resolved that it had the right to post publicly in the House the name of any defaulter whose creditors found his conduct dishonorable or “marked with any circumstances of impropriety” (Guildhall Ms. 14600/7, April 22, 1811). The procedures were designed to maintain the flow of business created by the defaulter in an effort not only to restore his balances but to complete restoration of the losses suffered by his counterparties on the exchange. But to show his good faith toward his colleagues, the defaulter had to open all his account books to the scrutiny of a special committee appointed for the purpose by his colleagues, and this committee, not the defaulter, or an outside commission of bankruptcy, would determine how his remaining assets were to be divided up among his creditors and how

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his outstanding bargains were to be wound down or carried forward. If he refused, then he was excluded forever from the exchange and left to the not nearly so tender mercies of England’s bankruptcy proceedings. Initially, there were two classes of defaulters’ notices to be posted on the floor of the exchange. One stated that the defaulter “does not deserve the future confidence of the House”; the other stated that the committee “recommended him to the indulgent protection of this House.” In this way, the proto-Committee for General Purposes established the basis for effective governance of the formal securities marketplace in London. When the financial crisis of 1819 created a large number of defaulters among the members of the London Stock Exchange, however, the membership of the exchange had to confront the legal complications of Barnard’s Act, which could still be invoked by a principal who was not a member of the exchange against a member of the exchange. Just such a case, Baker and others v. Salomons, went to trial in 1819. Although Salomons, a long-standing member of the London Stock Exchange, had been cleared of the specific charges against them, it was only because the firm could prove that the monies paid to its members had been paid to cover differences in prices and that they were not premiums on put or call options. The law firm for the stock exchange’s Society for Protection of Property Against Fraud and Artifice, Crowder & Lavie, warned the committee therefore: that the greatest danger that can be apprehended by individuals in the Stock Exchange under Sir John Barnard’s Act arises from these sort of dealings. In these transactions they are excluded from all chance of defense if the proper proceeding be taken, & the non belief of witnesses upon which fortunately cases on stock transactions are generally decided, will not prevail. In short, we will undertake to say, that in no transaction of a Put & Call is either party safe, & such transactions, as they are most properly prohibited by your by-laws, ought on no account to be engaged in. (Guildhall Ms. 14600/9, f. 67)

In fact, at the time, the bylaws did not prohibit option dealings; they were just not recognized as claims upon a defaulter’s estate; and payments made on options by a defaulter had to be restored to his assets for the benefit of the creditors. The warning of the legal counsel, however, persuaded the stock exchange’s governing Committee for General Purposes that the bylaws should be altered to prohibit dealing in options. The expenses of the trial against Salomons had been so great that the defendants had been forced to appeal to the Society for Protection of Property Against Fraud and Artifice for assistance; and the Society, in turn, finding the amount needed far beyond its resources, had suggested that the stock exchange levy a “tax” on each member to defray the legal expenses. (While


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charges were leveled against only seven members of the stock exchange, no fewer than forty-six members were served with writs and forced to appear as witnesses.) The committee declined to take any action in this case, but it did undertake to outlaw future dealings in options. In the same year, the committee ruled against Jacob Ricardo, nephew of the deceased David Ricardo. The committee decided that Ricardo must turn over the guarantee money he had received from a subsequent defaulter, one F. Clarke, and that the money be distributed for the general use of all of Clarke’s creditors. To make this principle binding, the committee required that in the future each recommender of a new member to the stock exchange post a guaranty bond of £250; the deposit to be used for the benefit of all creditors if the new member should become a defaulter at some time in the future. By relying on the monitoring that the recommenders might be expected to exercise over the activities of their candidate, the committee sought to limit the actions that new members might undertake in an effort to bring their incomes up to expectations as quickly as possible. Thus, the groundwork was laid for a major confrontation between two groups of members—one group of older, conservative, and typically creditor members and a second group of younger, risktaking, and often debtor members. After raising the concerns about the implications of the Baker and others v. Salomons case in early 1820, in November 1821 a memorial signed by 235 members of the stock exchange was presented to the committee. The memorial urged that the committee move beyond “discountenancing” the use of options and abolish the practice entirely. A riposte to the memorial—a riposte signed by only 88 members headed by Jacob and Benjamin Ricardo—was presented to the committee at the same meeting. It made a clear case for the benefit arising from dealing in options: We submit that the general business of the Stock Exchange is increased by optional Bargains. Such transactions obviously comprise a limit to the amount of risk, which induces careful people to engage in speculations, who would otherwise feel precluded; hence the immense jobbing which is now consequent upon Options, would in the event of their entire prohibition cease, or only be effected upon comparatively a very contracted scale. We further submit that the rules of the Stock Exchange as they now exist, afford no protection to optional Bargains. Divested of such protection, they now with all their other risks depend entirely upon the individual honor of the contracting parties, & viewing the community of the Stock Exchange with those feelings of consideration due to persons of honor, Independence & property we cannot but consider that any further restraint upon the bargains in question would more resemble the severity of school discipline, than those wise & liberal Regulations proper for the Stock Exchange. (Guildhall Ms. 14600/9, 181–182)

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At least eleven of the thirty members of the Committee for General Purposes were strongly opposed to the practice of options, and they raised alarms among the membership of the possible damages that discontented clients could create by invoking Barnard’s Act. A letter addressed to the committee on November 28, 1821, came from the partners Lavie & Oliverson: In order to confirm what we took the liberty of suggesting in a letter we addressed to your Secretary on the 20th August 1820 on the subject of Puts & Calls we cannot do better than lay before you a short and intelligible extract from Sir John Barnards’ Act which accompanies the present communication. It is here seen 1st That those dealing in Puts & Calls as principals, can never be sure of retaining the Monies or other considerations they may receive. 2nd The parties are compellable to discover any monies or considerations received, and which may be thereupon recovered on their confessions (which they cannot refuse to make) with double costs. 3rd The penalty of £500 attaches on both Principals on the mere making of the Bargain. 4th The same penalty attaches on the Broker, if one employed. 5th Either of the three parties concerned, are protected from the penalties by suing for & recovering them from either or both of his co-adjutors. 6th One half of the penalties (say to the amount of the three penalties of £750) is given the common informer. 7th And, what we consider the most likely to affect the gentlemen of the StockExchange from the open manner in which we are told these transactions are negotiated is, that any bystander merely witnessing the negotiation, may be able to give sufficient evidence: and if two persons were to come forward who had witnessed the transactions, all the parties engaged would be fixed with the penalties without the smallest chance of getting off. And it is our opinion that even one person deposing to the transaction as having passed in his presence would be more likely to be believed than any Bankrupt or other person who was originally a party to the negotiation. It is no matter under what disguise the consideration is given and it may be a question whether any entire sum in Stock made subject to the wager, may not be considered as the amount of consideration. We do not conceive that these transactions at present passing with impunity should encourage their continuance, since the blow may by and by fall very heavy on the parties concerned. [signed] Lavie & Oliverson, Frederick Place. (Guildhall Ms. 14600/9, f. 185)

After considering two other memorials—one against and one in favor of options (there were 283 signatures on the memorial against and 92 on the memorial in favor of options)—and reviewing the minutes (the committee’s review of its minutes revealed that in 1802 the committee had voted unanimously to condemn dealings in options but had not made an


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explicit rule against options), the Committee of 1821 voted that dealing in options should be abolished (Guildhall Ms. 14600/9, f. 186). Further, committee members voted to include a statement in the letters of application for next year’s members that each candidate would pledge “not to deal in Puts and Calls under the penalty of ceasing to be a Member” (ibid., f. 187). They confirmed this resolution in the next meeting on December 10. But in the meeting of December 17, a letter again written by Jacob Ricardo but now with 193 signatures (including those of B., F., R., and S. Ricardo) was read to the committee. The letter urged the committee not to take explicit action against members dealing in options. The committee then decided to conduct hearings, and it called in leading members of each faction to explain their views. Several of the signers of the pro-option memorial declared that they were against the use of options in principle, but they objected that the committee in limiting the range of business practices available to members of the exchange was arrogating so much power to itself. At the same time the leading signers of the anti-option memorial, all former members of the committee, made much the same arguments: while they were opposed personally to the use of options in the exchange, they were more opposed to the committee unilaterally taking such extreme steps to curb the practice. One signer commented that he had never expected the committee to go so far as it had. Finally, on December 31, 1821, the leaders of the anti-option faction on the committee moved to rescind the resolution of December 10, and they agreed not to press the issue in the future. At the first meeting in January 1822, however, the same committee members approved resolutions that amended the rules so that anyone dealing in options after February 14, 1822, would be expelled from the House and all defaulters’ accounts would be examined for evidence of dealing in options; if such evidence was found, the defaulter would not be readmitted until all his creditors had been fully paid off. While both resolutions were passed by a majority of the eighteen members present at that meeting, the election of the thirty members of the committee on March 25, 1822, would decide the final outcome. The campaign began in earnest, with the “optionists,” as they were disparagingly named by their opponents, turning for help to the Trustees and Managers, the committee of nine that represented the interests of the proprietors. Clearly, the arguments of the Ricardo clan that the rise in membership that followed the end of war inflation owed a great deal to the use of risk-abating options appealed to the proprietors. Their income from the revenues raised by members’ subscriptions depended on the number of subscribers in the exchange. As a result, the Trustees and Managers turned to the courts to determine whether or not the proprietors could overturn the decision of

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the committee. The resulting legal opinion, however, affirmed that the Deed of Settlement gave the committee full power to control the admission of members, that the committee could require that the letter they were proposing was a condition of membership, and that the agreement in the letter would be binding on those who signed it. Only by amending the Deed of Settlement could the proprietors take this power away. The decision was printed up in triumph, probably by members of the committee, and it was circulated to the membership, with a gloating comment that the opinion rendered by the Managers’ own legal counsel “like a killing frost it has nipped their root; and now they fall, alas! Like Lucifer, never to hope again.” An unprecedented 419 ballots were turned in for the election of the thirty members who were to comprise the Committee for General Purposes for the year 1822. The scrutineers—H. Wheeler, James Wetenhall, and William Turquand—ruled, however, that 415 of the ballots were imperfect, as they included the names of two individuals who had not paid their subscriptions and who were not proprietors and so were ineligible to be members of the committee. As a result, only four ballots determined the outcome of the election; and seventeen new members were chosen, a group that included the redoubtable Jacob Ricardo. The leader of the “antioptionists,” Mr. A. Baily, resigned as deputy chairman, and two of his supporters, Wakefield and Coopers, also resigned their positions. They were replaced by de Leon and Abraham Montefiore, both signers of the original “anti-optionist” memorial; both received sixty-nine votes. At that point three more members resigned, their resignation requiring yet another byelection. Given those resignations, Mr. Laurence moved that, as the resignations had occurred because the members in question felt the original election was irregular, the new by-election should be for all twenty-eight positions that had been filled with only four votes. His motion was lost for want of a second. In the election to fill the three vacancies, no fewer than twenty-five members received votes; the winning candidates received 142, 125, and 94 votes—evidence that the bloc voting for the committee that had characterized previous elections (and which would resume for most of the exchange’s history) had finally been put aside. In the very first printed set of Rules and Regulations produced for the benefit of the members of the London Stock Exchange in 1812, there had been a section on “Puts and Calls.” But the extent of the exchange’s rules at that time was only to note that differences arising from expired options with a defaulter would not be admitted as valid claims against the defaulter. Moreover, any payments made on options by the defaulter had to be made good to the creditors. Apparently this was the extent to which Barnard’s Law was effective in limiting dealings among members


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of the stock exchange. Options were not mentioned again until the battle between “optionists” and “constructionists” broke out in 1820, as described above. After the resolution of that battle in favor of the “optionists,” options continued to play a useful role in dealings among members of the exchange thereafter. The points raised by Jacob Ricardo in his petition to the Committee for General Purposes in 1821 in favor of options, however, had their counterpoints in that allowing younger members to take greater risks also increased the likelihood of periodic failures by them. Limiting the length of options to the settlement periods of every two weeks, however, required their counterparties to make frequent reassessments of the risks they were running. If the terms of the option of a time bargain were running against the originator, he could pay his creditor to allow an extension to the next settlement period. Years later, an analysis of the difference in settlement times between London and Paris, which had monthly settlements, argued that the Paris rules allowed greater risk taking. Another analysis of the differences in settlement times between London and New York, which required daily settlements, argued that London’s longer settlements were responsible for the much larger number of failures on the London Stock Exchange. Both analyses were certainly appropriate, although the smaller size of firms on the London Stock Exchange than in the New York Stock Exchange was probably more responsible for the greater number of failures in London. Recurrent financial crises throughout the nineteenth century required the London Stock Exchange to pay explicit attention to the claims on options outstanding when dealing with disposal of a defaulter’s estate. For example, a court ruling in 1837 required a change in the rules concerning settlement of claims on a defaulter who was active in both English and foreign stocks. The committee explained: A recent decision of the court of law having enabled creditors for differences on bargains in Foreign Stocks to prove their claims under a fiat of Bankruptcy, whereas an advantage may be obtained over the creditors for differences on English Stock, under the existing rules and regulations which govern the settlement of Defaulter’s Estates it is hereby, “Resolved to repeal the following rule, 17, under the heading ‘failure,’ viz., Creditors on either English or Foreign Stock, or securities, shall participate in the participation of their respective claims, in the general Assets of a Defaulter’s Estate” and to enact the following in place thereof, viz.—“on the failure of any member in the Stock Exchange, his accounts shall be divided into Two Distinct Estates, one consisting of the Differences arising from Bargains in English Stock, and the other on Differences in accounts of Shares and in Foreign Stocks; and the money brought forward by a Defaulter from his own resources shall be divided between such Estates in the proportion of their Balance Claims, and the Security money, if any, shall be applied in like manner.” (Guildhall Ms. 14600/16, June 26, 1837)

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Self-regulation, to be effective, had to make the sanctions that could be imposed by the stock exchange’s governing Committee for General Purposes very painful for any member who violated the rules or regulations of the exchange. The effective device created by the London Stock Exchange was to require annual renewals of membership by each subscriber to the exchange. The renewals as well as initial applications were reviewed and approved by the current Committee for General Purposes. After the new set of members for the coming year was established in March, they would vote for the members of the Committee for General Purposes for the following year. Not surprisingly, the composition of the committee remained virtually intact from year to year, save when a serious issue arose that divided the membership, such as the options issue discussed above. Nevertheless, the committee amended its rules regularly in response to court cases involving defaulters among the membership or to withstand possible challenges to the supremacy of the stock exchange as the marketplace for British securities. First one, then two appointed members of the exchange were given the responsibility of Official Assignees, charged with collecting the funds due to each defaulting firm or member and then dispersing appropriately those funds to the list of creditors. By the twentieth century, creditors who were not members of the exchange were allowed to participate in the funds dispersed by the Official Assignees, but their claims were allowed only if the creditors who were members of the exchange permitted. conclusion The illusion that the London Stock Exchange was entirely a self-policing club independent of state regulation arises, no doubt, from the desuetude of the long-standing regulations passed early in the history of English securities trading. The limit on stockbrokers to be licensed by the City of London effectively lapsed by 1708, the Bubble Act was repealed in 1826, and Barnard’s Act was finally repealed in 1860. Under close scrutiny by the Royal Commission of 1878, the exchange managed to convince the members of the commission, and therefore members of Parliament, that it had effectively met the government’s demands for protection of unwary investors. The key to understanding the success of the self-regulation of the exchange in terms satisfactory to the British authorities, however, lies not so much in the enlightened view of the members of the club about their duties to their customers as it does in the unusual governance structure of the exchange. Dividing the authority over admission of members between the Committee for General Purposes, elected annually by the admitted members of


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the exchange, and the Trustees and Managers, appointed by the proprietors who held shares of the capital stock of the exchange, worked very well. Even the Royal Commission in 1878 was split on whether the exchange should become a joint-stock company owned by the members, like the New York Stock Exchange, or continue with its divided governance structure. In the event, it took two world wars and externally imposed capital controls to force the London Stock Exchange to unify its governance structure in 1946. It then took the Big Bang legislation of 1986 to undo the stultifying effect of the new governance structure, which served to maintain the restrictions on further financial innovations (such as electronic trading platforms) and so preserved comfortable niches for the multitude of small, undercapitalized firms within the exchange. By that time, self-regulation of the London Stock Exchange had become much too selfinterested to serve the public interest, and state regulation was required to allow more efficient methods of marketing financial assets to be adopted. In contrast, the divided governance structure of the nineteenth century, combined with the fear of an alternative exchange arising if membership dues were increased by the proprietors, meant that competition among the members, whether as brokers or jobbers, was constantly maintained through an increase in membership whenever financial conditions warranted. Competition, admittedly more internal than external as in the case of New York, maintained the fiduciary responsibility of self-regulation in the London Stock Exchange as state regulation withered away until the outbreak of World War I. Ultimately, the downfall of the beneficial interplay between formal and informal regulation of the fiduciary responsibilities of the stockbrokers and jobbers on the London Stock Exchange came from the excessive crowding of the exchange’s facilities in the first decade of the twentieth century. The impulses toward restricting internal competition by decreasing both the number and variety of members were evident before the outbreak of World War I, but that event reinforced and established for most of the twentieth century the internal forces that were tending to remove the City of London from the center of global finance. World War I and the “temporary” rules imposed by the government also increased permanently the role of formal external rules imposed on the members of the London Stock Exchange. The concerns of government finance also limited the possibilities for further financial innovation within the exchange until the Big Bang of 1986. The increasing challenges of the twenty-first century, however, surely require continued changes in both the formal and informal regulations of the London Stock Exchange, changes well underway by its global competitors.

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Notes 1. 8 & 9 W. III c. 32 (1697). 2. Stockjobbers would buy and sell a given security on their own account, while stockbrokers would charge commissions on purchases or sales by their customers. In the nineteenth century, the London Stock Exchange eventually made the distinction formal among its members, but in the eighteenth century individuals could act either as jobbers or brokers. See Mortimer (1765, pp. 27– 28), who elaborated: Stock jobbing may be divided into three different sorts. The first are foreigners, who have property in our funds, with which they are continually jobbing. The second are our own gentry, merchants, and tradesmen, who likewise have property in the funds, with which they job, or, in other words, are continually changing the situation of their property, according to the periodical variations of the funds, as produced by the divers incidents that are supposed to lessen or increase the value of these funds, and occasion sudden rises or falls of the current price of them. The third, and by far the greatest number, are stock-brokers, with very little, and often with no property at all in the funds, who job in them on credit, and transact more business in the several government securities in one hour, without having a shilling of property in any one of them, than the real proprietors of thousands transact in several years. 3. Reviewing the stock ledgers of the South Sea annuities for 1723–1728, however, reveals several active stockjobbers at work already and earning substantial incomes (Carlos, Neal, and Wandschneider, 2005). 4. This is a history of the early stock exchange, handwritten by Edward Satterthwaite, long-time secretary of the Committee for General Purposes, presumably after his retirement in the 1920s and presented to the stock exchange by his widow in 1931. 5. Guildhall Library, Ms. 19297/1, “Minutes and related papers, Trustees and Managers,” minutes of the fourth meeting, Antwerp Tavern, March 23, 1801.

References Anonymous. Some observations on the Bill now depending, intitled, An Act to prevent the infamous practice of stock-jobbing, London (?): 1733. Attard, Bernard. “The Jobbers of the London Stock Exchange, 1800–1986,” Financial History Review, 7 (2000), pp. 5–24. Banner, Stuart. Anglo-American Securities Regulation: Cultural and Political Roots, 1690–1860, New York: Cambridge University Press, 1998. Budgell, Eustace. The Bee: or, universal weekly pamphlet. Containing something to hit every man’s taste and principles, vol. 4, London: 1733–1735.


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Carlos, Ann, Larry Neal, and Kirsten Wandschneider. “The Origins of National Debt: Refinancing the War of the Spanish Succession,” unpublished paper, 2005. Cope, S. R. “The Goldsmids and the Development of the London Money Market During the Napoleonic Wars,” Economica, 9:34 (May 1942), pp. 180–206. ———. “A New Look at the London Securities Market of the Eighteenth Century,” Economica, 45, no. 177 (February 1978), pp. 1–21. Dalrymple, David. Time Bargains tryed by the Rules of Equity and Principles of the Civil Law, London: Eliz. Moryhew, 1720. Davis, Lance E., and Larry Neal. “The Evolution of the Structure and Performance of the London Stock Exchange in the First Global Financial Market, 1812–1914,” European Review of Economic History, 10:3 (December 2006), pp. 279–300. ———. “Micro Rules and Macro Outcomes: The Impact of Micro Structures on the Efficiency of Security Exchanges: London, New York, and Paris: 1800– 1914,” American Economic Review, 88:2 (May 1998), pp. 40–45. De Pinto, Isaac. Traité de la circulation et du crédit. Contenant une analyse raisonné des fonds d’Angleterre, & de ce qu’on appelle commerce ou jeu d’actions, Amsterdam: 1771. Dickson, P. G. M. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756, London: Macmillan, 1967. Gelderblom, Oscar, and Joost Jonker. “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612,” Journal of Economic History, 64 (September 2004), pp. 641–672. Glaeser, Edward, Simon Johnson, and Andrei Shleifer. “Coase Versus the Coasians,” Quarterly Journal of Economics, 116:1 (August 2001), pp. 853–899. Gordon, Thomas. An Essay on the practice of stock-jobbing, and some remarks on the right use, and regular improvement of money, London: J. Peele, 1724. Guildhall Library, Manuscripts Collection, Ms. 17,961, Mss. 14600/7, 9, 16. Harris, Ron. “The Bubble Act: Its Passage and Its Effects on Business Organization,” Journal of Economic History, 54:3 (September 1994), pp. 610–627. ———. Industrializing English Law: Entrepreneurship and Business Organization, New York: Cambridge University Press, 2000. Hautcoeur, Pierre-Cyrille, Le marché financier français au XIXe siècle. Vol. 1. Le récit, Paris: Publications de la Sorbonne, 2007. Healey, Thomas J. “Sarbox Was the Right Medicine,” Wall Street Journal, August 9, 2007, p. A13. Hickson, Charles R., and John D. Turner. “The Rise and Decline of the Irish Stock Market, 1865–1913,” European Review of Economic History, 9:1 (April 2005), pp. 3–33. Lamoreaux, Naomi, and Jean-Laurent Rosenthal. “Legal Regime and Business’s Organizational Choice: A Comparison of France and the United States,” NBER Working Paper W10288, January 2004. La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Schleifer, and Robert Vishny. “Investor Protection and Corporate Governance,” Financial Economics, 58 (2000).

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———. “Law and Finance,” Journal of Political Economics, 106 (1998). ———. “Legal Determinants of External Finance,” Journal of Finance, 52 (1997). Michie, Ranald S. The London Stock Exchange: A History, Oxford: Oxford University Press, 1999. Morgan, E. V., and W. A. Thomas. The Stock Exchange: Its History and Functions, 2nd ed., London: Elek Books, 1969. Mortimer, Thomas. Every Man His Own Broker, or, A Guide to Exchange-Alley, 6th ed., London: S. Hooper, 1765. Neal, Larry. “ ‘I Am Not Master of Events’: John Law’s Bargains with Lord Londonderry, 1717–1729,” unpublished paper, 2008. ———. The Rise of Financial Capitalism: International Capital Markets in the Age of Reason, New York: Cambridge University Press, 1990. Patterson, Margaret, and David Reiffen. “The Effect of the Bubble Act on the Market for Joint Stock Shares,” Journal of Economic History, 50:1 (March 1990), pp. 163–171. Pezzolo, Luciano. “Government Debts and Credit Markets in Renaissance Italy,” in William Goetzmann and Geert Rouwenhorst, eds., Origins of Value, New York: Oxford University Press, 2005. Rousseau, Peter, and Richard Sylla. “Financial Systems, Economic Growth, and Globalization,” NBER Working Paper 8323, June 2001. Sgard, Jérôme. “Do Legal Origins Matter? The Case of Bankruptcy Laws in Europe, 1808–1914,” European Review of Economic History, 10 (2006), pp. 389–419. Shea, Gary. “Sir George Caswall vs. the Duke of Portland: Financial Contracts and Litigation in the Wake of the South Sea Bubble,” in Jeremy Atack and Larry Neal, eds., The Origins and Development of Financial Markets and Institutions from the Seventeenth Century to the Present, Cambridge: Cambridge University Press, 2009. Stringham, Edward. “The Emergence of the London Stock Exchange as a SelfPolicing Club,” Journal of Private Enterprise, 17:2 (Spring 2002), pp. 1–19. ———. “The Extralegal Development of Securities Trading in Seventeenth Century Amsterdam,” Quarterly Review of Economics and Finance, 43:2 (Summer 2003), pp. 321–344. Sylla, Richard. “Comparing the British and U.S. Financial Systems, 1790–1840,” in Jeremy Atack and Larry Neal, eds., The Origins and Development of Financial Markets and Institutions from the Seventeenth Century to the Present, Cambridge: Cambridge University Press, 2009.

chapter fifteen

British Legal Institutions and Transaction Costs in the Early Transport Revolution Dan Bogart

; introduction For centuries scholars have tried to identify which features of legal systems are crucial to economic activity. Recently the legal origins school has posited that some legal systems contribute to different degrees of transaction costs and hence different levels of trade, investment, and innovation. The common law legal system is often singled out because it is believed to provide strong protection for property rights.1 According to the standard narrative, British landowners could invest in their property with little fear of government expropriation or judicial activism. Laws and norms protecting rights to land were eventually extended to contractual arrangements in finance following the political transformations of the seventeenth century (North and Weingast 1989; Neal 1990). In the long run, Britain succeeded economically, so the argument goes, because its legal system was conducive to development. The legal origins view may be helpful in explaining Britain’s precocious leadership in agriculture and finance, but it is not an obvious fit in the infrastructure sector.2 Infrastructure projects often pit landowners against promoters because land is an input into infrastructure investment. In most societies, the legal system has to choose between the rights of landowners and promoters when determining compensation for land taken or damaged. Given that Britain’s legal system has traditionally provided strong property rights to land, it is not clear that courts would be friendly to infrastructure promoters in condemnation proceedings.

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The link between British legal institutions and infrastructure has broader implications. There is a growing body of scholarship showing that transport improvements were a key driver of economic development in Britain.3 Hence legal deterrents to infrastructure investment could affect the economy greatly. This chapter examines the role of juries in implementing rights of way in Britain during the early transport revolution. Juries have a long history in criminal trials, but their role in civil litigation, specifically condemnation proceedings, is more nuanced. In the seventeenth century, commissions composed of large landowners were given the authority to determine compensation for infrastructure projects. There was a shift following the Glorious Revolution of 1688–1689 in that parliamentary acts gave juries composed of small and large landowners the authority to recommend compensation. The role of juries increased in the eighteenth and nineteenth centuries as they were called to determine compensation for thousands of road, river, canal, and railway projects. There is divided opinion on the effects of juries in the law and economics literature. Some scholars favor the legal origins view, which asserts that juries are a key bulwark against inefficient state incursion. Others view juries as a hindrance to investment and innovation. For example, it is argued that most U.S. corporations are established in Delaware in part because its main civil court does not have a jury (Kahan and Kramar 2002; Roe 2007). Some nineteenth-century commentators took a similar view of juries. Sir Rowland Hill, a member of the Royal Commission on Railways in 1865, argued that “exorbitant prices often have to be paid through fear . . . of partial awards of juries.” He went on to argue that juries encouraged redistribution, stating that “while railways have notoriously conferred enormous benefits on the public, at the same time greatly enhancing the value of land and other fixed property, the general result to those whose capital and energy have produced this beneficial change has been unsatisfactory and too often disastrous.”4 Subsequent research on railways has offered additional perspectives on juries. Pollins (1952) estimates the proportion of land purchases in total railway investment costs. The data indicate that land purchases represented 14 percent of investment costs on average, suggesting that juries could indeed affect profitability. Kostal (1994) documents that railway companies in the 1830s and 1840s had a heightened concern that jury members would be biased in favor of their fellow landowners. Interestingly, Kostal also notes that landowners were concerned that jury members would be biased in favor of railways because they had invested in railway securities. It appears that jury bias could cut both ways.

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This chapter moves the literatures on juries in a new direction. First, a theoretical framework is developed to highlight the link between jury bias and investment incentives in infrastructure projects. The key intuition is the following: once a promoter has initiated a project, the jury can redistribute most of the surplus to the landowner, leaving an insufficient amount to cover the promoter’s sunk costs. As a result, if the promoter anticipates that the jury is biased and will redistribute most of the profits to the landowner, the promoter will not initiate the project to begin with. Second, the behavior of juries is investigated empirically through two case studies involving river navigation projects in the eighteenth century. The evidence shows that juries awarded landowners compensation well above the market value of land. The premiums ranged from 50 percent of the market value to as much as 270 percent. Third, I investigate whether jury premiums significantly affected investment incentives. A simulation analysis shows that internal rates of return would have increased by around 0.2 percent if juries engaged in no redistribution. The simulation also shows that without redistribution, some navigation projects would have changed from earning a return below the yield on government bonds to earning a return above this threshold. Overall the findings suggest that juries redistributed profits from river navigation promoters to landowners and in the process discouraged projects at the margin of profitability. These conclusions need to be qualified because juries had other beneficial effects. Juries awarded compensation quickly, often within a few months. Jury decisions were also final, preventing negotiations from dragging on endlessly. Swift and final adjudication prevented capital from being tied up in infrastructure projects. In prerevolutionary France, infrastructure projects could be delayed for decades because courts were slow and indecisive (Rosenthal 1992). The analysis of juries also needs to be placed in a broader legal and political context. Of most relevance is the fact that British property rights were transformed through the passage of thousands of enclosure, estate, and statutory authority acts in the century following the Glorious Revolution. These intrusions into private property rights had a potential to cause great harm to landowners and other vested interests. Bogart and Richardson (forthcoming) argue, however, that procedures for changing property rights were consensual in the sense that affected individuals or groups had a voice in the process and generally came out as well or better off than before. Jury redistribution provides an important illustration of how the “losers” from changes in property rights were compensated in Britain.

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background on infrastructure promotion and implementation in britain The limitations of Britain’s medieval transport system became a problem in the seventeenth century as its economy began a long period of ascent. The Stuart monarchy that prevailed in the early 1600s was unwilling or unable to undertake investments. Instead it enabled individuals or local communities to initiate projects. Promoters sought various types of enabling rights, including patents and acts, but few were successful. Political turmoil greatly impacted infrastructure promotion. Both the crown and Parliament sought to control the supply of rights, sometimes at the expense of the other. Their ability to exert control fluctuated with political changes such as the era of Personal Rule (1629–1640), the period of Civil War (1641–1649), and the Restoration (1661–1669). The Glorious Revolution of 1688–1689 finally settled the issue of regulatory authority. After 1689 all promoters turned to Parliament for rights first. King William and his successors to the throne ratified parliamentary bills supplying rights but were not instrumental in the process (Bogart forthcoming). Infrastructure bills were first submitted to the Commons and then approved by the Lords and eventually the king. There were no formal “barriers” to submitting bills. Essentially any individual or community could submit a petition. For example, in 1725 the Master, Wardens, Searchers, Assistants, and Commonality of the Corporation of Cutlers in Hallamshire petitioned to improve navigation on the river Dun. In their petition they state: “Making the River Dun navigable from . . . Doncaster . . . to . . . within two miles of Sheffield will be advantageous not only to the said corporation but also to the public in general by preserving the roads and by a cheap conveyance of commodities to and from London.”5 Once submitted, a private bill committee heard evidence from witnesses and petitions from groups opposed to the bill. The committee then made a recommendation to the entire House of Commons or Lords. Committee proceedings often determined the success or failure of a bill (Hoppit 1997). There were costs associated with getting a parliamentary bill passed. Promoters had to pay a schedule of fees dictated by legislative procedures known as standing orders. In general, the further the bill went in the process, the more the total fee increased. The fees were paid to various officers of the House who performed services such as handling the bill or engrossing the bill on parchment. MPs and Peers did not directly receive these fees. Promoters also hired parliamentary agents or solicitors to advance their bill. The agents played an important role because they organized


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witnesses, ensured bills did not fail for technical reasons, and helped persuade MPs and Peers of the merits. Agent fees could be the most substantial expense in obtaining rights, sometimes exceeding 80 percent of the total cost.6 Once a promoter obtained an improvement act, he faced the difficult task of implementing the project. One of the most challenging hurdles involved negotiations with property owners for the purchase of land. These negotiations were crucial because many infrastructure projects could not be completed without the land input. The negotiations were also complicated because particular pieces of land were often necessary to widen rivers and roads or to construct a canal or railway. Parliamentary acts typically contained clauses determining how property owners would be compensated for lands taken or damaged. In the early 1600s, patents and acts named a body of commissioners who had authority to award compensation if landowners and promoters could not agree privately. Commissions could be unpopular, and there were cases where bias seems likely. For example, a commission appointed by the crown in 1638 recommended that the promoter for the River Lark should pay landowners £40 per acre.7 The market value for land in the early seventeenth century was around £10 per acre or one-fourth the compensation recommended by the commission.8 After 1689 the rules for compensating landowners changed. Increasingly commissioners were required to impanel juries if promoters and landowners could not agree. In eleven river navigation acts from 1661 to 1688, only one included a jury provision.9 However, in the sixteen river navigation acts from 1690 to 1714, eight stated that juries must advise and recommend compensation. The trend continued after 1715, with nearly all road improvement and river navigation acts empowering juries. The minute books for a number of commissions and juries have survived and provide insights into their behavior. I briefly review these sources for a jury that was impaneled to determine compensation for the Aire and Calder River navigation. The Aire was authorized to be made navigable from Leeds to Ferrybridge by an act in 1699. It was promoted by merchants in the nearby woolen textile town of Leeds, who later became the undertakers for the Aire and Calder navigation company. They were known locally as the “fourth estate of the realm” because they were enriched by the substantial profits from the navigation (Wilson 1971, p. 140). The Aire and Calder Act named a body of nearly 100 commissioners that included members of the nobility, gentry, and other classes.10 The act also included a clause that the jury was to “inquire and assess damages upon oath; the Commissioners were to give judgment accordingly by

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examinations on oath and determine all controversies touching the said matters.” The commissioner minute books describe the condemnation proceedings.11 The first entry in September 1699 states that the undertakers came to an agreement with Charles Robinson for the sale of a dam and lock near Fleet Mills. The sale of Robinson’s land was approved by seven commissioners in the same month. The second entry in October 1699 states that a jury was impaneled and issued a verdict on the value of land. The jury included twelve men described as “able and sufficient men of the county of Yorkshire.” None appear to have been nobles. The commission ordered the undertakers to award the compensation recommended by the jury. Additional entries in 1700 and 1702 describe similar verdicts by the jury and commissioners’ approval. From this case it is clear that juries could play a pivotal role in determining compensation for infrastructure projects. There is similar evidence that juries determined compensation for the Dun River navigation project in the 1730s. Below I will compare the compensation awarded by the juries for the Aire and Calder and the Dun navigations with the market value of land in Yorkshire where these two projects were located. First, the following section provides an analytical framework for studying juries. a model of jury compensation and infrastructure promotion Jury behavior has been modeled from a number of perspectives, but there is little theoretical work on the relationship between jury decision making and investment decisions.12 This section combines a model of jury behavior and infrastructure promotion. It illustrates how jury bias influences compensation awards and hence the incentive to invest. The model is based on a stage game involving promoters and juries. The stages and payoffs are described in Figure 15.1. In Stage 1 the promoter decides whether to initiate the project. If the promoter does not initiate, then he receives a payoff of zero and the game ends. If the promoter initiates, he must pay private bill fees f. Private bill fees are a “sunk” cost: once paid they cannot be recovered. Private bill fees are assumed to be exogenous, but they can be endogenously determined in an extension of the model.13 In Stage 2 the jury must determine a compensation award t to the landowner. Juries are assumed to have no financial stake in the project, but they may be biased in favor of landowners or promoters.14 Juries are


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Stage 1: Promoter decides whether to initiate project

Project not initiated

Project initiated

Stage 2: Payoff promoter: 0

Jury determines compensation t

Stage 3: Promoter decides whether to build project

Project built:

Project not built:

Payoff promoter: b-t-f

Payoff promoter: −f

Payoff landowner: t-v

Payoff landowner: 0

Figure 15.1 Jury-promoter stage game

also assumed to have no ability to commit. In particular they cannot guarantee the promoter a positive return on their project. In Stage 3 the promoter decides whether to build the project. If the project is built, the payoff to the promoter is b − t − f, where b is the net present value of the project, t is the compensation award, and f is the private bill fee. The payoff to the landowner is t − v, where v is the market value of the land in its normal use. If the project is not built, then it is

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assumed that the promoter does not compensate the landowner because the property is not taken or damaged. The payoff to the promoter is –f if the project is not built. Throughout I assume that b − f − v > 0, which implies that the project has a positive social as well as private value. The equilibrium is a triplet {I,t,B}, where I ∈ {0,1} is an indicator taking the value 1 if the promoter initiates; t ∈ (0, ∞) is the transfer payment awarded by the jury; B ∈ {0,1} is an indicator taking the value 1 if the promoter builds. There are two equilibriums. In the first, projects are initiated and built, and the transfer t is less than b − f. In the second, projects are not initiated and built and no transfers are made. The equilibriums are identified using backward induction beginning with the build decision in Stage 3 and working backward to the compensation and promotion decisions in Stages 2 and 1. Suppose first that the promoter has initiated the project in Stage 1 and the jury has made a compensation award t to landowners in Stage 2. In Stage 3 the promoter’s decision whether to build is straightforward. If the payoff from building the project b − t − f is greater than the payoff from not building −f, then the promoter builds. Simplifying this expression implies the project is built if b ≥ t. Notice that the private bill fee f is irrelevant at this point in the game because it was paid in Stage 1. Notice also that the promoter does not necessarily earn a positive payoff from building. The payoff b − t − f could be less than zero if the transfer is close to b, but building is still worthwhile because the losses from moving forward are less than scrapping the project and suffering a loss of –f. Next consider the jury’s decision to award compensation in Stage 2, assuming that in Stage 1 the promoter has initiated the project. A key assumption is that the jury awards a greater transfer if it is biased in favor of the landowner. In general we can define the jury’s compensation as t*(q), where q is a parameter between 0 and 1. A value of q close to 1 represents greater favoritism to the landowner. A value of q close to 0 represents greater favoritism to the promoter. To illustrate ideas, it is useful to consider an example where t* = qb + (1 − q)v. In this case, the transfer approaches the value of the project b as the jury becomes more biased in favor of the landowner, and it approaches the value of the land v as the jury becomes less biased in favor of the landowner.15 Later it will be useful to analyze the premium earned by the landowner measured by the ratio: (t* − v)/v. In the example the premium is q(b − v)/v and is increasing in the degree of jury bias to the landowner. Next consider the promoter’s decision whether to initiate the project in Stage 1. The promoter knows the degree of bias, and therefore he anticipates the transfer payment in Stage 2. The promoter’s payoff is b − t* − f


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120

Value of the project

100 80 60 40 project initiated

20

project not initiated

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1

0

Degree of jury bias

Figure 15.2 Range of parameters over which projects are initiated

if he initiates and 0 if not. Rearranging terms implies that the promoter will initiate only if t* < b − f. If the transfer t* is close to the value of the project b, then the promoter will not initiate since the return is insufficient to justify the payment of private bill fees f. The promoter is less likely to initiate the project if the jury is biased in favor of the landowner because the compensation t* increases in the bias. In the example where t* = qb + (1 − q)v, the condition for the promoter to initiate is q < (b − v − f)/(b − v). If the jury becomes sufficiently biased in favor of the landowner (i.e., q approaches 1), then the inequality above will not hold. This example also illustrates how the value of the project b is crucial. If the jury is not completely biased in favor of the landowner, then the promoter will initiate for large b. Figure 15.2 shows the range of values for b and q where projects are initiated, assuming v and f equal 1. For sufficiently large values of b or sufficiently small values of q, promotion will occur. As a final remark it is important to emphasize that the jury cannot commit to give the promoter a positive payoff once it has initiated the project. If the jury could commit, then it would promise never to award a transfer larger than b − f, which is the condition for positive payoffs at the initiation stage. Redistribution from the promoter to the landowner could still occur, but it would not discourage the initiation of projects.16

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empirical analysis of jury redistribution and investment The theoretical framework illustrates how juries had the potential to redistribute profits to landowners and potentially undermine the incentives to invest in infrastructure. Jury decisions were recorded in minute books that list the compensation awarded to each landowner. In this section I use jury minute books for the Aire and Calder River navigation and the Dun River navigation to investigate how juries compensated landowners in the early eighteenth century. The minute book for the Aire jury shows that the degree of compensation varied across ninety-five landowners.17 Two received £50 per acre as compensation, twelve received £40 per acre, and eighty-one received £15 per acre. Some of the landowners in the latter group held land subject to common rights or at a greater distance from Leeds, which partly explains the lower compensation. Across all plots the average compensation was £19 per acre. These payments can be compared with the average price of land in Yorkshire, where the Aire was located. The charity commission records compiled by Greg Clark (1998) provide a sample of land transactions for charities from the 1600s to the 1900s. The data show that the average price across fifty transactions between 1680 and 1720 was £12.6 per acre, and the standard deviation is 8.5. I use this sample to test whether the average land value in the charity data between 1680 and 1720 was statistically different from the average compensation awarded by the Aire jury. The test statistic for a difference in means is 15.03, with a p value close to 0. The ratio of the average compensation awarded to the average market value was 1.5 (= 19/12.6). This indicates that the Aire jury awarded a 50 percent premium to landowners. A 50 percent premium is substantial, but it does not necessarily follow that total investment costs were substantially affected because land was only one input in construction. The Aire navigation company raised a total of £26,700 for construction, including compensation to landowners (Wilson 1971).18 The jury minute books do not indicate the total area taken and thus the total amount paid for land. Nevertheless, it is likely that navigation companies purchased one acre of land or less, because their activities were confined to widening or making new cuts in the river. Therefore, I assume that promoters purchased one acre from each plot listed in the jury minute book. The total compensation if one acre was purchased would be £1,795, or 7 percent of the total investment cost. The 50 percent premium implies that if the Aire jury gave landowners the


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25

Frequency of plots

20 15 10 5

5 15 25 35 45 55 65 75 85 95

10 5 11 5 12 5 13 5 14 5 15 5 16 5 17 5 18 5 19 5 20 5

0

Price per acre

Figure 15.3 Distribution of prices per acre awarded by the Dun jury

market value in Yorkshire around 1700, then total compensation would have decreased to £1,189, which represents a 2.5 percent decrease in total investment costs. A similar comparison is made for the Dun navigation project. The Dun navigation was authorized by a series of acts in the late 1720s. It was promoted by the Corporation of Doncaster and merchants in the metal-working districts near Sheffield in Yorkshire. The Dun is also unique because it was one of the first joint-stock transport companies. A jury was impaneled in 1729 to determine compensation for landowners near the Dun. Over a five-year period the jury awarded compensation on eighty-three plots.19 The price varied between a minimum of £10 per acre and a maximum of £600 per acre. Figure 15.3 plots the distribution of compensation awards per acre across the eighty-three plots. Most of the awards were less than £70, but some exceeded this amount. Across all landowners the average compensation was £52 per acre. The charity data show that the average price across fifty-nine transactions in Yorkshire between 1710 and 1750 is £13.8 per acre, and the standard deviation is 10.3. As before, we can reject the hypothesis that the average market value was the same as the average compensation awarded by the Dun jury. The test statistic for the difference in means between the two samples is 4.47, with a p value close to zero. Taking the average value for the compensation to be £52 per acre implies that the Dun awarded a 270 percent premium to landowners. The premium is

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still large if outliers are dropped. Without compensation awards above £100, the average is £38 per acre, or 175 percent more than the market value of land. The compensation awarded by the Dun jury had a large effect on total investment costs. Willan (1964) states that the Dun company raised £24,750 for construction. Assuming the company purchased one acre from all the landowners listed in the jury minute books implies a total compensation of £4,298, or 17 percent of the total investment cost. If the Dun jury had given landowners the market value in Yorkshire around 1730, then compensation would have fallen to £1,140, which would represent a 12 percent decrease in total investment costs. The compensation awarded by the Dun and Aire juries is striking because it greatly exceeded the market value of land. The Dun jury awarded more than 175 percent of the market value, and the Aire awarded 50 percent more. These figures suggest that juries engaged in substantial redistribution because they were biased in favor of landowners. There is a caveat in that juries might have awarded compensation in anticipation of the increases in land values following the completion of river navigation projects. Transport improvements generally increase property values. Econometric studies of turnpikes, canals, and railroads in Britain and the United States find that land values were increased by 15 to 25 percent.20 If we assume that river navigations increased land values by the same amount, then this can explain some of the premiums awarded by juries. However, there is still a large residual—particularly for the Dun jury— which appears to reflect redistribution above any returns warranted by higher land values from the river improvement. The remaining issue to consider is whether the observed redistribution patterns significantly affected investment promotion. According to the model, investment promotion occurs when the value of the project is greater than private bill fees and expected compensation payments. In practical terms this meant that a project had to have sufficiently high operating profits or sufficiently low investment costs net of compensation payments and private bill fees. The proportion of projects that met this criterion can be characterized using simulation analysis and information on the distribution of operating profits and investment costs. To begin, I estimate the internal rate of return using the net present value formula: ∞

Net Present Value =

tollt − kt

∑ ——–— (1 + r) t

t=0

where tollt is the toll income in year t, kt is the investment cost in year t, and r is the internal rate of return. The toll income is used as a proxy for


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Table 15.1 Distribution of investment costs and toll income per mile for a sample of projects Investment cost per mile

0–499 500–999 1,000–1,499 1,500–1,999 2,000–2,499 2,500–2,999 3,000–3,499 >3,500

Frequency

1 4 4 0 1 0 0 2

Toll income per mile (1750)

25–50 51–75 76–100 101–125 126–150 151–175 176–200 >200

Frequency

1 4 3 1 0 1 1 1

Sources: See Appendix.

operating profits because toll collection costs were already deducted, and maintenance costs for river navigations were small (Willan 1964). The internal rate of return is equivalent to the interest rate at which a project’s net present value is zero. In all the calculations, investment costs are spread evenly over ten years, and the annual rate of growth in tolls is 1.6 percent from 1700 to 1830. The values for investment costs and toll income are taken from a sample of river navigation projects. Table 15.1 summarizes the frequency of toll income per mile in 1750 and investment cost per mile. The appendix provides details on the sample and sources. Clearly there is a distribution across projects. In the following analysis, the internal rate of return for projects is simulated at different percentiles. The assumption is that the observed distribution reflects the population distributions. However, there will be some bias since implemented projects will tend to have higher toll income and/or lower investment costs. Moreover, investment costs and toll incomes may not be independent. Panel A in Table 15.2 summarizes the internal rate of return for the 25th and 75th percentiles of toll income and investment costs reported in Table 15.1. The interest rate on government debt was around 5 percent in the early eighteenth century. Therefore, I use 5 percent as the threshold internal rate of return for a river navigation project to be initiated. In the baseline scenario, projects in the bottom quartile of toll income and the upper quartile of investment costs would not be initiated because they earned a return below 3.5 percent. Projects above the 50th percentile in toll revenues and below the 50th percentile in investment costs would be initiated because they earned a return in excess of 5.9 percent. Projects within the 25th and 50th percentiles for toll revenues and within the 50th and 75th percentiles for investment costs earned around 4.9 percent

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Dan Bogart Table 15.2 Simulation of internal rates of return for river navigation projects Panel A: Baseline

25th PCTL toll income 50th PCTL toll income

50th PCTL investment cost 4.9 5.9


Panel B: Counterfactual with lower jury redistribution

25th PCTL toll income 50th PCTL toll income



Note: PCTL = percentile.

and 4.1 percent, respectively. In other words, they were below or at the margin of profitability. Now consider the counterfactual where juries awarded the market value for land. In other words, assume that juries engaged in no redistribution and did not anticipate increases in land values from the transport improvement. The earlier evidence suggests that investment costs would have declined by between 2.5 and 12 percent if juries awarded the market value. For the purposes of the counterfactual, consider the case where reducing jury premiums would lower investment costs by 7 percent at all points of the investment cost distribution. The rates of return in this case are reported in Panel B of Table 15.2. Not surprisingly, the returns are all higher, increasing by 0.2 to 0.3 percent. More important, the rate of return for the project in the 25th percentile of toll revenues and the 50th percentile of investment costs is now 5.2 percent and above the threshold for project initiation. The implication is that jury redistribution may have discouraged some projects in the second quartile of the distribution of toll revenues. conclusion Juries played a pivotal role in condemnation proceedings for infrastructure projects in the eighteenth and nineteenth centuries. Juries had the power to redistribute profits from promoters to landowners and in theory could deter promoters from initiating projects. Drawing on the cases analyzed in this chapter, it appears that some juries engaged in substantial redistribution and deterred the promotion of projects that were at


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the margin of profitability. Overall it appears that juries might have been a hindrance to infrastructure investment in Britain. These findings remain tentative because more studies on jury redistribution are needed. Second, there may have been benefits from juries, such as expedited dispute resolution, which are not captured by the model described above. It is also worth noting that transportation facilities are natural monopolies, and thus the owners can earn substantial rents from receiving rights of way. Juries may have helped to spread some of the gains to small- and medium-sized landholders. Juries also need to be placed in the context of other institutional changes that emerged in the post–Glorious Revolution period. Infrastructure promotion was associated with substantial transaction costs. There was a risk of government manipulation of improvement rights in the 1600s because of the conflict between crown and Parliament. Several undertakers had their rights violated following the Civil War and the Restoration. After the Glorious Revolution, improvement rights became more secure. Only a small fraction of undertakers obtaining rights between 1689 and 1750 suffered violations. The greater stability of the political regime in the eighteenth century contributed to a lower risk of government manipulation and ultimately encouraged investment (Bogart forthcoming). Other institutional changes involving negotiations among promoters, opposition groups, sponsoring MPs, parliamentary committees, and party leaders were of crucial importance as well. Future research will reveal how these other institutional changes mattered along with juries. appendix Table 15.3 shows the average toll income per mile for various rivers using data on toll leases. The sample consists of river navigations covering 175 miles, which is more than 35 percent of the total made navigable by 1750. Some of the observations come from 1750 while others come from the 1720s, 1730s, and 1740s. It is necessary to extrapolate the toll income to 1750 to estimate the distribution of toll income in 1750. Detailed data on the Aire show that the average annual growth rate from 1740 to 1750 is 3.7 percent. Extrapolating toll income to 1750 using this growth rate yields the estimates of average toll income per mile in the last column. The annual growth rate of toll income must also be estimated for the rate of return simulation. The data indicate that toll income for the Great Ouse navigation grew at 1.3 percent per year before 1750 but was stagnant in real terms after 1750. Toll income for the River Dun grew by 2.2 percent in the 1740s. Toll income for the Cam grew by 0.4 percent from

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Dan Bogart Table 15.3 Toll income per mile on river navigations (net of collections costs)

River

Aire and Calder Beverley Beck Cam Dee Dun Great Ouse Kennet Lark Tone Weaver and Dane Wear Yorkshire Ouse

Miles

Estimated toll income, 1750 (in £)

Estimated toll income per mile, 1750 (in £)

4,400 99 430 556 1,500 1,784 667 332 386 1,674 1,200 600

25 0.75 7 8 18 23 20 14 11 20 11 18

4,400 130 430 780 193 1,784 1,312 435 813 2,271 2,208 1,104

176 173 61 98 83 77 66 31 74 114 221 61

1,136

15

1,322

103

Time period

Annual toll income (in £)

1750 1730s 1750 1740 1740 1750 1720s 1742 1720s 1730s 1732 1732

Average

Sources: For the Aire and Calder, Beverley Beck, Dun, Kennet, Tone, Weaver and Dane, and Yorkshire Ouse rivers, see Willan (1964, pp. 124–130). For the Cam, Great Ouse, and Lark, see Summers (1973, pp. 150, 226–228). For the Dee and Wear, see Journals of the House of Commons, February 6, 1732, and March 5, 1743. The mileage of rivers is taken from Priestly (1969) and Shead (2007).

Table 15.4 Investment by river navigations, 1600–1750 River

Aire Avon Beck Dee Douglas Dun Exe Great Ouse Kennet Salwerpe Weaver Wey Average

Time period

1720s 1640s 1720s 1740s 1720s 1730s 1690s 1630s 1720s 1660s 1720s 1650s

Amount invested (£)

Miles

Investment per mile (£)

26,700 30,000 1,400 56,461 6,000 24,750 21,000 10,000 44,603 6,000 18,000 15,000

25 42 1 8 17.5 18 4 14 20 5 20 19.75

1,068 714 1,400 7,058 343 1,375 5,250 714 2,230 1,200 900 759

21,660

16

1,918

Sources: For the Avon, Beck, Douglas, Dun, Kennet, and Weaver rivers, see Willan (1964, pp. 66–72). For the Salwerpe and Wey rivers, see Bogart (2009). For the Aire and Calder, see Wilson (1971, p. 138). For the Great Ouse, see Summers (1973, p. 50). For the Dee, see Journals of the House of Commons, March 5,1743, and for the Exe, see Journals of the House of Commons, February 15, 1699. The mileage of rivers is taken from Priestly (1969) and Shead (2007).


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1750 to 1813. Toll income for the Aire grew by 3 percent per year from 1700 to 1750, 3.3 percent from 1750 to 1772, and 1.3 percent from 1775 to 1827. The rate of return calculation assumes an average annual growth rate of 1.6 percent. Secondary sources and the Journals of the House of Commons provide information on total investment for a sample of river navigations (see Table 15.4). The sample of projects covers 187 miles or nearly 40 percent of the total made navigable by 1750. The price level was fairly stable over this period, so the investment figures were not corrected for inflation.

Notes I would like to thank Stegrios Skepardis, Michelle Garfinkel, Dan Klerman, Debin Ma, and Jan Luiten van Zanden for comments on drafts of this chapter. 1. For a sample of works in this large literature, see Hayek (1960), Mahoney (2001), La Porta et al. (2004), and Klerman and Mahoney (2007). 2. It is also possible to argue that the common law was not necessarily conducive to manufacturing because of restrictions on business organization. See Harris (2000) for a discussion of these points. 3. See Bogart (2005) and Leunig (2006) for recent evidence on the effects of transport improvements. 4. Hill’s quotes are drawn from the Report of the Board of Trade Railway Conference (Board of Trade 1909). 5. See the Journals of the House of Commons, 11.3.1725 (March 11, 1725). 6. For more details, see the survey of the bills charged by parliamentary agents in the 1820s and 1830s (House of Commons 1833 XII, pp. 248–251). The report also lists the average fees collected on various bills in the House of Commons in 1832. 7. Willan 1964, pp. 27–28. 8. The prices of land in Suffolk near the River Lark are taken from the Charity Commission records (Clark 1998). These will be discussed later in the chapter. 9. See the Parliamentary Archives for copies of all river navigation acts. Some acts relating to road and river improvements before 1714 are available in the Statutes of the Realm, but most require archival sources. 10. See William III, 1698: “An Act for the makeing and keeping navigable the Rivers of Aire and Calder in the County of Yorke [Chapter XXV. Rot. Parl. 10 Gul. III. p. 4. n. 10],” Statutes of the Realm: vol. 7: 1695–1701 (1820), pp. 534– 538. http://www.british-history.ac.uk/report.aspx?compid=46958 (accessed February 18, 2010). 11. See the National Archive RAIL 800/1. 12. There are some recent works addressing judicial agency from a contract theory perspective. See Bond (2009) for one example. 13. Private bill fees were partly determined by the degree of opposition to a bill. More opposition meant greater expenditures on parliamentary agents,

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identifying witnesses, influencing MPs, and so forth. The interaction between opposition and promoters could influence jury deliberations and vice versa, but this is not explored here. 14. This assumption seems appropriate, given that jury members were drawn from the population of tenants and landowners in a county. Most investors in transport were drawn from a narrow group, at least before railways, so they were unlikely to be investors in the project. 15. This particular transfer rule is one among many cases. It can be derived by assuming the jury sets the compensation to maximize the objective function qlog(t − v) + (1 − q)log(b − t), which weighs the utilities of the promoter log(b − t) and the landowner log(t − v). Taking first-order conditions and solving for t* yields t* = qb + (1 − q)v. 16. It could be argued that commissioners provided a check on the jury’s decision and hence encouraged commitment. This possibility could be considered in an extension of the model. 17. See the National Archive RAIL 800/1. 18. It was typical in accounting practices at the time to regard compensation payments and private bill fees as investment costs. 19. See the National Archive RAIL 825/7. 20. For a sample of works, see Heckelman and Wallis (1997), Craig, Palmquist, and Weiss (1998), and Bogart (2009).

References Board of Trade. Great Britain. (1909). Report of the Board of Trade Railway Conference. Parliamentary Papers, Vol. 77. Bogart, Dan. (2005). “Turnpike Trusts and the Transportation Revolution in Eighteenth-Century England.” Explorations in Economic History 42, pp. 479–508. ———. (2009). “Turnpike Trusts and Property Income: New Evidence on the Effects of Transport Improvements and Legislation in Eighteenth-Century England.” Economic History Review 62, pp. 128–152. ———. (Forthcoming). Did the Glorious Revolution Contribute to the Transport Revolution? Evidence from Investment in Roads and Rivers. Economic History Review. Bogart, Dan, and Gary Richardson. (Forthcoming). “Property Rights and Parliament in Industrializing Britain.” Journal of Law and Economics. Bond, Philip. (2009). “Contracting in the Presence of Judicial Agency.” The B.E. Journal of Theoretical Economics 9 (Advances), Article 36. Clark, Greg. (1998). “The Charity Commissioners as a Source in English Economic History.” Research in Economic History 18, pp. 1–52. Craig, Lee A., Raymond B. Palmquist, and Thomas Weiss. (1998). “Transportation Improvements and Land Values in the Antebellum United States: A He-


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donic Approach.” Journal of Real Estate Finance and Economics 16, pp. 173–189. Great Britain. (1960). Statutes of the Realm. London: Printed by Command of His Majesty King George the Third. Harris, Ron. (2000). Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844. Cambridge: Cambridge University Press. Hayek, F. (1960). The Constitution of Liberty. Chicago: University of Chicago Press. Heckelman, Jac C., and John Joseph Wallis. (1997). “Railroads and Property Taxes.” Explorations in Economic History 34, pp. 77–99. Hoppit, J. (1997). Failed Legislation, 1660–1800. London: Hambledon Press. House of Commons. Great Britain. (1833). Report from the Select Committee on House of Commons Officers and Fees. British Parliamentary Papers, Vol. 12. ———. (Various dates). Journals of the House of Commons. London: Printed by Command of His Majesty King George the Third. Kahan, Marcel, and Ehud Kramer. (2002). “The Myth of State Competition in Corporate Law.” Stanford Law Review 55, pp. 679–749. Klerman, Daniel, and Paul Mahoney. (2007). “Legal Origin.” Journal of Comparative Economics 35, pp. 278–293. Kostal, R. W. (1994). Law and English Railway Capitalism, 1825–1875. Oxford: Clarendon Press. La Porta, Rafael, Florencio Lopez-de-Silanes, Cristian Pop-Eleches, and Andrei Shleifer. (2004). “Judicial Checks and Balances.” Journal of Political Economy 112, pp. 445–470. Leunig, Timothy. (2006). “Time Is Money: A Re-Assessment of the Passenger Social Savings from Victorian British Railways.” Journal of Economic History 66, pp. 635–673. Mahoney, Paul. (2001).”The Common Law and Economic Growth: Hayek Might Be Right.” Journal of Legal Studies 30, pp. 503–525. Neal, Larry. (1990). The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press. North, Douglass. C., and Barry Weingast. (1989). “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in SeventeenthCentury England.” Journal of Economic History 49, pp. 803–832. Pollins, Harold. (1952). “A Note on Railway Construction Costs 1825–1850.” Economica 19, pp. 395–407. Priestly, Joseph. (1969). Priestly’s Navigable Rivers and Canals. London: David and Charles. Roe, Mark. (2007). “Juries and the Political Economy of Legal Origin.” Journal of Comparative Economics 35, pp. 294–308. Rosenthal, Jean-Laurent. (1992). Fruits of the Revolution: Property Rights, Litigation, and French Agriculture, 1700–1860. Cambridge: Cambridge University Press. Shead, Jim. (2007). “UK Waterways Locks and Distances.” http://www.jim-shead. com/waterways/index.php (last updated August 2007).

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Summers, Dorothy. (1973). The Great Ouse: The History of a River Navigation. London: David and Charles. Willan, Thomas S. (1964). River Navigation in England, 1600–1750. London: Frank Cass. Wilson, R. G. (1969). “Transport Dues as Indices of Economic Growth, 1775– 1820.” Economic History Review 19, pp. 110–123. ———. (1971). Gentleman Merchants: The Merchant Community in Leeds. New York: Augustus M. Kelley.

Index

Absentee landlords, 83, 101–102 Account Days, London Stock Exchange and, 309 Accounting practices, regulation of, 303 Acemoglu, D., 3, 160 Adjudication: China and, 92, 104–107; early Western kingdoms and, 28; evolution of law and, 20, 23–24; Islamic law and, 185; Japan and, 38–39, 193n46; law enforcement and, 19, 23; medieval Europe and, 32, 33, 238; reliance on, 6; Roman Catholic Church and, 26 Administrative systems: Alfred the Great and, 29–30; Carolingian empire and, 29; China and, 48, 49–50, 57; Holland and the Low Countries, 234–235; India and, 140–146; Japan and, 35, 36; Portugal and, 293–295; Spain and, 31 Adversarial adjudication, 39 Agrarian League (India), 145 Agriculture: China and, 95, 96; India and, 147–152; Japan and, 33, 34; zamindar (landlord) and tenant relations, 144–146 Aire and Calder river navigation project, 327–328, 332, 334, 337, 338, 339 Alamanic laws, 29 Aldermen’s courts: in Amsterdam, 258; in Antwerp, 255, 256; in Bruges, 250, 253; commercial litigation and, 266; debt registration and, 232 Aldermen’s truth, 226–227, 228 Alfred the Great, 29–30 Al-Hedaya (legal code), 128 Aligarh school, 118, 119

Allan, A. J., 228 Amicable settlements, 245, 246–249, 265 Amsterdam: arbitration and, 247–248; charters of urban liberties, 239n10; commercial litigation in, 257–260; stock markets and, 302 Anachronism, economic history and, 278 Angevin reforms, 227 Annuities, government debts and, 305, 306 Antitrust laws, 208 Antwerp, commercial litigation in, 253–257, 266 Aoki Atsushi, 77 Appeals: arbitration and, 248, 249; central courts and, 235, 261, 262, 263, 266; Chinese legal systems and, 55; consular courts and, 255; Supreme Court for Holland and Zeeland, 264 Arbitration and mediation: adjudication and, 23; commercial debts and, 247–248; commercial litigation and, 265; debt recovery instruments and, 247; Huizhou prefecture and, 99; Islamic law and, 187–188, 190, 193n50; Ming dynasty and, 104–105; religious leaders and, 259; trade disputes, 12. See also Adjudication Arrests, 229, 230 Austin, Gareth, 3 Authoritarianism, 6 Awadh state, 128 Bad debts, 246–247 Baker and others v. Salomons (England, 1819), 312, 313 Bandyopadhyay, D., 152

344

Index

Banerjee, Abhijit V., 154n12 Banking, Islamic economics and, 167–168 Bank of England, 305–306 Bankruptcy laws: in Amsterdam, 259; constitutional issues and, 206–208; dispute resolution and, 198–200, 211–212; historical background of, 200–202; other debt resolution mechanisms and, 202–206; political systems and, 208–211; spread of, 9 Bannen (seizure of property), 233 Baojia (mutual security associations), 99 Barnard, John, 306–307 Barnard’s Act (England, 1734), 303–304, 306, 307; London Stock Exchange and, 308, 312, 316–317; repeal of, 318 Bavarian laws, 29 Becque, Louis del, 262 Bellah, Robert, 40 Bengal Rent Act of 1859 (India), 145 Bengal System. See Permanent Settlement (India) Bengal Tenancy Act of 1885 (India), 145 Bengal Tenancy Act of 1928 (India), 152, 153n6 Berman, Harold, 53, 60 Besley, Timothy, 152 Bhattacharya, N., 150 Bian Li, 100–101 Bias, jury compensation and, 324, 325, 330–331, 334 Biblical law, 25–26 Big Bang legislation (England, 1986), 319 Birge, Bettine, 5 Blackstone, William, 201–202 “Blue mutiny” (India), 129 Bodin, Jean, 6 Bombay Deccan, 139, 146, 148 Bond servants, 110n19 Bonifácio, M. F., 294–295 Book of Dooms, 30 Bourgon, Jerome, 59 Bouvet, R., 214n22 Brabant. See Holland and the Low Countries Brabant-Holland filiation, 223, 224, 229–230, 231 Brielle (Holland), charter of urban liberties and, 226, 236 Brockman, R. H., 203 Brook, Timothy, 95, 107 Bruges, 247, 249–253 Bubble Act (England, 1720), 305, 318

Buddhism, 4, 40 Buoye, Thomas, 87n28 Bureaucratic systems: Carolingian empire and, 29; Chinese legal systems and, 49, 55–56; development of political systems and, 21, 22. See also Administrative systems; Government officials Burgess, Robin, 152 Buying-in and selling-out rules, 307–308 Cadastral surveys, medieval Japan and, 37 “Calculable rights,” bankruptcy laws and, 201 California school, 62n2 Canon law, 5–6, 8, 121 Capitalism: bankruptcy laws and, 209–210; Islamic law and, 190–191; legal systems and, 1; stock trading and, 300–301; Western legal traditions and, 46, 47 Carolingian empire, 29 Caste, precolonial India and, 121 Castro, José Luciano de, 294 Castro, M. O. C., 292 Caswall, George, 305, 306 Catanach, I. J., 149 Censorship, China and, 59 Censuses, medieval Japan and, 37 Central courts (Holland), 236–237, 245, 246, 260–264 Centralization: Chinese political development and, 56–57; Japan and, 35, 37–38; precolonial India and, 117–118 Cessio (debtor law), 9, 205–206 Chamber of Insolvent Estates (Amsterdam), 260 Charity, 124, 169 Charlemagne, 29 Charles Martel, 29 Charles V, 256–257 Charlesworth, Neil, 149, 154n9 Charters, joint-stock companies and, 305 Charters of urban liberties, 234; Amsterdam, 239n10; debt litigation in Holland and, 223–224; debt recovery instruments and, 229; debt registration and, 233–234; mortgages and collateral, 231; trial by combat and, 225 Chatterjee, Partha, 152, 153n6 Chehata, Chafik, 214n22 Cheng Minzheng, 98

Index Chengshi zhichanbu (account book), 101 Chicago School, 16n1 China: courts and litigation, 11; evolution of law and, 7–8; government officials and, 41n4; “Great Divergence” debate and, 61–62; intermediation and adjudication, 104–107; Islamic law and, 192n14; Japanese legal traditions and, 33–34; land markets and land laws, 74–82; land ownership, 69–73, 100–104; law and economic development, 82–86, 91–95, 107–108; legal profession and, 53–56; negotiated settlements and, 189–190; notaries and, 182; political systems and, 22, 56–60; property rights and ownership, 9–10, 68–69, 96–99, 180, 181; Song and Ming dynasties, 5; traditional legal systems and, 49–53; Western legal traditions and, 46–48 Chiu Pengsheng, 55 Chola state, precolonial India, 118 Ch’u T’ung-Tsu, 57 Citations, of legal codes, 76, 77, 86n10 City-states, Italian. See Italian city-states Civil law: bankruptcy laws and, 213n10; charters of urban liberties and, 224; China and, 47, 50, 57, 62nn3, 4, 76; contract enforcement and, 100–101; economic growth and, 1–2; French commercial law and, 210, 211; India and, 8, 118–120, 121; Islamic law and, 179, 185–186; stock markets and, 301; Western legal traditions and, 20 “Clear evidence” principle, 75, 76, 79, 82, 87n22 Clovis, 28 Coats, T. W., 148 Code of Judicial Procedure (Portugal, 1876), 292 Codes of conduct, translation theory and, 117 Codex Euricianus, 28 Codification, of traditional legal systems, 9, 49, 125–126, 127, 130. See also Legal codes Coercion: contracts and, 178; Islamic law and, 185; law enforcement and, 23; Roman Catholic Church and, 26; zamindar (landlord) and tenant relations, 144, 145, 153n7 Cohn, Bernard, 119, 120, 124

345

Coke, Edward, 54, 57 Collateral: debt recovery instruments and, 230–231; institutional efficiency and, 281, 284, 285, 287 Collective rights: bankruptcy laws and, 199, 209; colonial India and, 128, 131 Colonialism: bankruptcy laws and, 200–201, 213n9; debt servitude and, 204; India and, 8–9, 115–117; Islamic law and, 189; non-Western legal traditions and, 3; Western legal traditions and, 2, 20 Colonial law (India), 116–117, 130–131 Commerce: bankruptcy laws and, 200–202, 212; China and, 59, 95, 96–97, 103–104, 109n7; commercial litigation and, 244–245; debt litigation in Holland and, 221–222; development of political systems and, 22; Italian city-states and, 31–32; Japan and, 35 Commercial Code (France, 1807), 200, 207 Commercial debts, 231–237 Commercial law: amicable settlements, 246–249; central courts in Holland, 260–264; Chinese legal systems and, 50, 57, 62n4; commercial litigation in Amsterdam, 257–260; commercial litigation in Antwerp, 253–257; commercial litigation in Bruges, 249–253; debt recovery instruments and, 230; France and, 210–211, 215n32; in Holland and the Low Countries, 222, 244–246, 264–266; in India, 115, 122–124, 128–129; Islamic law and, 179; Japan and, 34; medieval Japan and, 38–39; “merchant law” and, 225. See also Bankruptcy laws Commercial litigation: in Amsterdam, 257–260; in Antwerp, 253–257; in Bruges, 249–253; central courts in Holland, 260–264 Committee for General Purposes, London Stock Exchange, 311, 315–316 Common law: Chinese legal systems and, 48; codification of social norms and, 52–53; economic growth and, 1–2, 323; India and, 115–116; stock markets and, 301; Western legal traditions and, 20. See also English common law

346

Index

Communitarian political systems: Chinese land ownership and, 72, 82; contract enforcement and, 100; early Western kingdoms and, 27–28; informal norms and, 47; Japan and, 34–35, 40, 41; law enforcement and, 22 Communities, Islamic law and, 184–185 Community-based legal systems, India, 117–124, 130 Community sanctions, 23, 24, 94, 98, 99 Compensation: Aire and Calder river navigation project and, 332–333; Carolingian empire and, 29; Chinese legal systems and, 63n5; Dun River navigation improvements and, 333–334; public infrastructure development and, 13–14; transportation infrastructure and, 324, 325, 327, 328–331 Conditional sales, 75, 76–77, 78, 79–80, 100–101 Confucianism, 4, 5 Constitutionalism, Western political development and, 56 Constitutional issues, bankruptcy laws and, 200, 206–208 Consular courts: Amsterdam and, 258; Antwerp and, 254, 255–256, 257; Bruges and, 250–253; commercial litigation and, 244, 245–246, 265–266; Court of the Merchant Adventurers, 254; trade disputes, 12 Consumer credit institutions, 202 Consumer debt, 203–204, 212 Consumer goods, 168 Contract Act of 1872 (India), 129–130 Contract enforcement: China and, 51–52, 63n6, 91, 99; commercial litigation and, 12, 244, 245; Court of the Merchant Adventurers, 254; courts and litigation, 92–93; economic growth and, 1; India and, 128–130, 132n4, 139, 144, 148; institutional efficiency and, 282–289; Islamic law and, 178, 185–188; London Stock Exchange and, 304–305, 307; “new institutional economics” paradigm and, 21; risk of losing in court and, 289–290. See also Bankruptcy laws Contract registration, 179, 183–185, 189, 257, 281

Contracts: bankruptcy laws and, 201; central courts and, 262–263; China and, 100–104, 108n4, 109n12; debt registration and, 232; dispute resolution and, 198; Islamic law and, 178–182, 189–191; land ownership and, 73, 97, 100–104; lineage organizations and, 109n17; precolonial India and, 121 Copyright laws, 59 Cornwallis, Charles, 141, 142 Corporate governance, 301, 318–319 Corporations, Islamic law and, 10, 171–172, 180, 181 Corpus Juris Civilis, 19, 20, 32, 33 Corruption. See Fraud and corruption Cotgel, Metin, 160 Cosigners, on loans, 284, 287 Costs: of bringing lawsuits, 122, 183, 264–265, 289, 290–291, 312–313; infrastructure investment and, 326–327, 328–331; private bill fees, 328, 331, 334, 339–340n13; transportation infrastructure and, 332–336 Coulson, Noel J., 193n48 Council of Flanders, 261 Cours consulaires (France), 210 Court Opinions from Songjiang (Mao Yilu), 105–106, 110n21 Courts and litigation: amicable settlements, 246–249; Chinese land laws and, 68–69, 74, 75–78, 86n10; Chinese legal systems and, 11, 50, 55–56, 60, 62n4, 91–95, 107–108; colonial India and, 125, 126, 131, 153n2; dispute resolution and, 198–199; economic growth and, 11–13; French commercial law and, 210; Holland and the Low Countries, 11–12, 234–235, 244–246, 264–266; Huizhou prefecture and, 98–99, 100–104; India and, 122, 142, 148–149, 153n2; intermediation and adjudication in China, 104–107; Islamic law and, 178–179, 185, 188, 189–191, 206; Japan and, 38–39, 205; land ownership and, 73; London Stock Exchange and, 304, 309, 312, 315–316; Ming dynasty and, 96–99; Portugal and, 12–13, 289; public infrastructure development and, 13–14; Roman Catholic Church and,

Index 26; stock markets and, 302–303; trial by combat and, 225–226. See also Commercial litigation; Debt litigation “Cram-down clauses,” 215n35 Credit markets: bankruptcy laws and, 200–201, 203; debt litigation in Holland and, 221–222; India and, 138, 147, 148–149; institutional efficiency and, 280–289; Islamic law and, 183; Portugal and, 282–289, 295–296 Creditors: bad debts and, 246–247; bankruptcy laws and, 199; cessio (debtor law) and, 205; debt recovery instruments and, 230–231; institutional efficiency and, 279–281; legal systems and, 278; Portugal and, 12–13, 291 Criminal law: China and, 49–50; consumer debtors and, 203–204; debtors and, 201; India and, 129; Islamic law and, 186, 188; Japan and, 38 Cross-country growth regressions, 1–2 Cultural and religious values: China and, 63n8; economic growth and, 2; formal justice and, 46–47; India and, 119–120, 127; Japan and, 20; legal traditions and, 4–6, 14 Cultural conflicts, India and, 126–130 Customary law: London Stock Exchange and, 304; medieval Holland and, 224; precolonial India and, 119–120, 133n13; Roman Catholic Church and, 25–26. See also English common law; Informal norms Dalrymple, David, 304 Damdupat (limit on collectable interest), 149, 203 Damme, maritime law and, 252–253 Daoism, 4 Daoxue reform movement, 213n11 Davidson, D., 146 Debt litigation: charters of liberties and, 223–224; debt registration and, 231–237; development of, 224–228; Holland and the Low Countries, 221–223, 237–238; Islamic law and, 185; sureties and, 228–231 Debtors: bankruptcy laws and, 199, 201–202, 203–204; human capital of, 284, 287, 297n5; religious sanctions and, 259; repayment risks and, 282;

347

traditional Japanese debtor law, 204–205 Debt recovery instruments: arbitration and, 247; debt registration and, 231–237; Holland and the Low Countries, 229–231, 237, 238 Debt registration, 231–237, 238 Debt relief, 201–202, 205, 206 Debt servitude, 204, 214n17 Deccan Agriculturists’ Relief Act of 1879 (DARA), 149 Deccan Riots, 149, 154n9 Deccan Riots Commission (DRC), 149, 153n8 Decision-making: Chinese land ownership and, 70; corporations and, 181; infrastructure investment and, 328–331 Defaults, London Stock Exchange and, 302, 308, 310–312, 315, 316–317 De jure total power, 57–58 Den Bosch rules, 231, 233, 237 Deng Jianpeng, 59 Denijs, Pieter, 248 Dharna (shaming), 153n7 Didactic conciliation, 50 Disciplinary legal systems, 49 Discretionary enforcement, 57–58 Dispute resolution: amicable settlements, 246–249; bankruptcy laws and, 198–200, 211–212; central courts in Holland, 260–264; Chinese land laws and, 79–82; Chinese legal systems and, 55, 57–58; commercial litigation in Holland and the Low Countries, 249–260; Holland and the Low Countries, 244–246, 264–266; Islamic law and, 185–188; juries and, 337; lijia system and, 94–95; Ming dynasty, 96–99; “servile” tenants and, 103–104; zhaotie (land price) and, 87n28. See also Arbitration and mediation; Courts and litigation Distraint, 229 Divine judgment, 226 Dordrecht (Holland), 223, 229, 230, 232 Dual possession, 72, 73, 82, 83, 101–102 Due process, colonial India and, 126 Dun River navigation improvements, 328, 333–334, 337, 338 Dutch Reformed Church, 259

348

Index

East India Company: Bengal and, 140; central courts and, 262, 263; colonial law and, 116, 125–126; credit markets and, 138–139; London Stock Exchange and, 305 Ecclesiastical courts, 26, 260–261 Economic growth and development: China and, 82–86, 91–95; Chinese and Western divergence, 61; corporations and, 180; Holland and the Low Countries, 222; India and, 115–117, 138–139, 147, 150–151; Islamic world and, 158–161, 172–173, 190–191; legal systems and, 1, 15; legal traditions and, 62; “new institutional economics” paradigm and, 21; traditional Japanese debtor law, 205; transportation infrastructure and, 324 Economic situation, Chinese land laws and, 77–78 Egypt, 22, 84–85 Eisenstadt, S. N., 40 Election process, 316 Elphinstone, Mountstuart, 146 Eminent domain, 208 Emperor, of China, 49, 50, 57, 58, 107 Employees, consular courts and, 252 Enforcement, 11–13; adjudication and, 19, 23–24; Chinese legal systems and, 57–58; debt registration and, 233–234; efficiency of, 278; evolution of law and, 22–23; medieval Europe and, 32; stock markets and, 302–303; traditional Japanese debtor law, 205. See also Contract enforcement England: Antwerp and, 253–254; arbitration and, 247; bankruptcy laws and, 213nn7, 10; Chinese legal systems and, 48, 53–56; debt recovery instruments and, 229; debt registration and, 232–233; evolution of law and, 7; Holland and the Low Countries, 222, 223, 237–238; infrastructure investment and, 13–14, 326–336; inquests and, 227; legal systems and, 323–325, 336–337; London Stock Exchange and, 300–319; purgatory oaths and, 226; toll income data and, 337–339; Western political development and, 29–30 English common law: China and, 53–56; colonial India and, 125–126; commercial law and, 215n36;

evolution of law and, 60; London Stock Exchange and, 13, 302; manufacturing and, 339n2 English Reform Church, 259 Enlightenment, the, 63n14 Entrepreneurship, bankruptcy laws and, 201, 202, 203, 211 Equal-field system, 68, 71, 74 Ergene, Bogaç A., 186 Estates, settling, 317 Ethnic groups, Indian land transfers and, 149–150 Eurocentrism, 1–2, 3, 86n3 Every Man His Own Broker (Mortimer), 306, 309 Evidence: courts and, 226–227, 228, 231, 235, 247; witnesses and, 11, 181–182, 185–187, 190, 226, 231 Evolution of law, 7–9; adjudication and, 23–24; enforcement and, 22–23; English common law and, 55, 60; Holland and the Low Countries, 12; India and, 115–117, 138; Japanese legal traditions, 33–39, 40–41; private law, 19–22; Western legal traditions and, 14–15, 24–33, 40–41, 53 Exchange Bank (Amsterdam), 260 Exogeneity, development economics and, 2 Extraordinaris rol (Antwerp), 256 Fairbank, John King, 47 Fair courts, 244, 245, 249–250, 253, 265 False testimony, 181–182, 186–187 Families, Islamic law and, 180, 181 Family law, 5–6, 121, 128 Family ownership, 70, 72 Fees, regulation of, 303 Fen-tian system, 71 Feudal system, 73 Fiduciary responsibility, 319 Financial crises, 301–302, 317 Financial markets, 279–280, 319 Five-year law (China), 79, 81 Flanders. See Holland and the Low Countries Foreign merchants: in Amsterdam, 257–260; in Antwerp, 253–257; arbitration and, 247; in Bruges, 249–250; central courts and, 261–264, 266; commercial litigation and, 245–246; consular courts and, 250–253; debt recovery instruments

Index and, 229–230; debt registration and, 233 Formal justice, 46 Fourth Lateran Council, 225 France: bankruptcy laws and, 199, 202, 207, 209–211; commercial law and, 215n32; consular courts in Bruges and, 252–253; debt relief, 203; infrastructure investment and, 325 Francis, Philip, 141 Frankish kingdom, 27, 28, 29 Fraud and corruption: French commercial law and, 211; London Stock Exchange and, 309–310; Portuguese legal system and, 293–295 Fruin, Robert, 228 Fuero Juzgo, 28 Futawa Alamgiri (Mughal legal code), 123, 127–128 Fu Yiling, 103 Germany: Antwerp and, 256; bankruptcy laws and, 213n5, 214n23; consular courts in Bruges and, 250, 252–253 Glorious Revolution of 1688, 54 Goldsmid, H. E., 146 Gough, K., 118 Government administration. See Administrative systems Government debts, 304, 305, 306 Government legitimacy: charters of urban liberties and, 224; corporations and, 171–172; Islamic economics and, 167–168; Islamic legal community and, 163, 164; Islamic world and, 161–162, 165–166; Ottoman Empire tax codes and, 167; printing presses and, 170–171 Government officials: Carolingian empire and, 29; China and, 41n4, 58–59, 63n11, 94–95, 97, 108n2; contract mediation and, 104–107; French commercial law and, 211; Holland and the Low Countries, 227; India and, 122–123, 143–144; institutional efficiency and, 292–293; Islamic legal community and, 164; Japan and, 35–36, 37, 38 Government of the commons, 209 Government regulation: economic regulations and, 211–212; London Stock Exchange and, 300, 303–308; stock markets and, 301–302

349

Gratian, 26 Great Divergence (Pomeranz), 48 “Great Divergence” debate, 4, 14, 15, 48, 61–62, 85 Great Ming Code, 105 Greek culture, 4, 204 Gregory I, Pope, 28 Greif, Avner, 14, 47, 56 Guaranty bonds, 313 Guilds, 120–121, 225 Gunpowder weapons, 165 Haarlem (Holland): charters of urban liberties and, 221, 223, 237; debt recovery instruments and, 229; debt registration and, 232, 233; mortgages and collateral, 231 Hadith, Islamic law and, 183, 190 Hairei (Ming bureaucrat), 51–52 Hai Rui, 87n22 Haley, John O., 238 Hamilton, Charles, 128 Hanafi School, 164 Hanseatic League, 254, 258, 265 Harris, Ron, 305 Hayes, S. I., 214n22 Heads of household, 5–6 Hideyoshi, Toyotomi, 38 High-risk loans, 287–288 Hill, Rowland, 324 Hindu law, 121, 127, 133nn13, 17 Hiroshi, Kato, 193n50 Hobbes, Thomas, 206–207 Hobsbawm, Eric, 117 Hof van Holland, 261, 263 Holland and the Low Countries: amicable settlements, 246–249; central courts in, 260–264; charters of urban liberties and, 223–224; commercial litigation in Amsterdam, 257–260; commercial litigation in Antwerp, 253–257; commercial litigation in Bruges, 249–253; courts and litigation, 11, 12; debt litigation in, 221–223, 224–228, 237–238; debt registration and, 231–237; dispute resolution in, 244–246; sureties and, 228–231 Household property, 180 House ownership, 184–185 Huang, Philip, 52, 86n3 Huff, Toby, 61

350

Index

Huizhou prefecture: contracts and land ownership, 100–104; government records and, 109n8; intermediation and adjudication, 106–107; property disputation and, 96–99 Huizinga, Johan, 225, 226 Human capital, of borrowers, 284, 287, 297n5 Ibn Khaldun, 186 Ideology, legal traditions and, 4–6 Ieyasu, Tokugawa, 38 Immovable property, 183–184 Imposta boards, 259 Incan people, 22 India: agricultural growth and, 150–151; community-based legal systems and, 117–124; consolidation of colonial rule and, 143–146; credit markets and, 138–139, 151–152, 203; cultural conflicts and, 126–130; evolution of law and, 8–9; fairness and, 15; land transfers and, 147–150; legal codification and, 125–126; legal traditions and, 115–117, 130–132; Permanent Settlement and, 140–142; property rights and ownership, 10–11; Raiyatwari system and, 142–143 Indian Mutiny (1857), 139 Indigenous laws: China and, 48, 49–53; India and, 116, 125–126, 130–131; traditional Japanese debtor law, 204–205 Indigo business, 129, 132n4, 147 Individual rights: Chinese land ownership and, 70, 71–72, 82; colonial India and, 128, 131. See also Property rights and ownership Industrial Revolution, 61 Inflation, 77–78 Informal norms: bankruptcy laws and, 202–204, 213n9; China and, 51, 52, 59, 79–80, 82, 105–106, 190; common law and, 52–53, 115–116; dispute resolution and, 198, 199; economic systems and, 2; evolution of law and, 60; India and, 8, 123, 124; Islamic law and, 11; Japan and, 21, 34; law enforcement and, 22, 23; London Stock Exchange and, 13, 303; merchants and, 31–32; property rights and ownership and, 47; trade disputes, 12; translation theory and, 117

Infrastructure investment: finance and public infrastructure, 13–14; property rights and ownership and, 323–325; taxation and, 151; transportation infrastructure, 326–328 Inheritance: Islamic law and, 180, 184, 185; settling estates and, 317 Innovation, 301, 319 Inquests, 227 Inquisitorial adjudication, 39 Institutional efficiency: economic performance and, 277–280, 295–296; measurement of, 280–289; Portuguese legal system and, 289–295 Institutional evolution, 4, 53 Institutional rules, 6, 14 Insurance Chamber (Amsterdam), 260 Insurance conflicts, 256–257, 266 Interest groups, 160, 161–162 Interest rates: institutional efficiency and, 282, 283, 286–288; Portugal and, 12–13, 291; risk premiums and, 290; transportation infrastructure and, 335 Intermediation and adjudication. See Adjudication International law, commercial litigation and, 244–245 Investment promotion, 334–335 Irrigation projects, 151 Islam, Mukhafurul M., 150 Islamic economics, 167–168, 191 Islamic law: bankruptcy laws and, 9, 206, 214n22; change and, 158, 159; China and, 192n14; contracts and, 179–188; courts and contracts, 178–179, 189–191; economic development and, 162–164; evolution of law and, 8; India and, 119–120, 121, 123, 127–128; mediation and, 193n50; Middle East and, 2; property rights and ownership, 10; secular rulers and, 160 Islamic world: economic development and, 158–161, 172–173; legal traditions and, 162–164; political economy of change and, 161–162; stagnation and change in, 165–172 Islamoglu, Huri, 84–85 Italian city-states: bankruptcy laws and, 9, 199, 200, 208, 209; consular courts and, 254; Western political development and, 31–32 Iyer, Lakshmi, 154n12

Index James I (England), 54, 57 Japan: adjudication and, 19, 21, 38–39, 193n46; bankruptcy laws and, 9; cultural and religious values, 20; evolution of law and, 7, 33–39, 40–41; law enforcement and, 23; negotiated settlements and, 189; O’oka sabaki and, 189, 193n46; state ownership of land and, 85; traditional Japanese debtor law, 204–205; Western legal traditions and, 20 Jewish people, 259 Jiang Yonglin, 105 John the Fearless, 261 “Joint Report” (1847), 146 Joint stock companies, 305, 333 Jonathan’s Coffee House, 308–309 Jones, William, 50 Jotedars (land owners), 140–141, 144 Judeo-Christian culture, legal traditions and, 4 Judges and magistrates: arbitration and, 248; China and, 50, 51, 55–56, 68–69, 76–77, 79–82, 108n2; commercial litigation and, 245; contract mediation and, 104–107; French commercial law and, 210; India and, 142–143; Islamic law and, 11, 163–164, 185, 186, 187, 189; Portugal and, 292–293 Judicial persons, 180–181 Juries: England, 227; infrastructure investment and, 324–325, 336–337; landowner compensation and, 327–331; redistribution of assets, 332–336; social classes and, 340n14; “truth of the aldermen” and, 228 Jurisdiction: consular courts in Bruges, 250–253; Holland and the Low Countries, 233–238, 239n11; Portuguese mortgage markets and, 292; precolonial India and, 119–120; Roman Catholic Church and, 26 Jurisprudence, China and, 60 Justinian code, 5 Kaino Michitaka, 69–70, 86n1 Kamakura bakufu, 36, 38–39 Kennemerland law code, 228 Kings, legal position of: bankruptcy laws and, 207–208; Chinese political development and, 57; England and, 54; medieval Europe and, 5–6, 19;

351

Ottoman Empire and, 8; precolonial India and, 118, 119, 121–122, 130; Western legal traditions and, 53 Kohler, J., 212n3 Korean Empire, 85 Kostal, R. W., 324 Kranton, Rachel F., 149 Kumar, Ravindar, 148, 149 Kupere, Lamsin, 246 Land laws, Chinese, 68–69, 74–82 Landlords, 101–104 Land ownership: China and, 59, 63nn5, 12, 68, 69–73, 94, 97, 100–104; contracts and, 100–104; Holland and the Low Countries, 227–228; India and, 140; Japan and, 35, 36; mortgages and collateral, 231; social classes and, 93; Spain, 30–31; state ownership of land and, 83–84; transportation infrastructure and, 327 Land reforms, India, 152 Land registries: institutional efficiency and, 284, 285, 287; medieval Japan and, 37; Portuguese mortgage markets and, 291–292 Land sales and transfers: contracts and land ownership, 101; India and, 147–150; Qing dynasty and, 182 Land values: Chinese land laws and, 74, 78, 81; infrastructure investment and, 327, 329–330, 332, 333–334; jury compensation and, 324, 325, 336; zhaotie (land price), 68, 79–82, 83, 87n28 Lantsaghe. See Zeventuig (investigation of disputes) La Porta, R., 278, 301 Latin language, 25, 28 Law enforcement. See Enforcement Law Merchant, 210, 215n31 Laws, written. See Legal codes Lawsuits. See Courts and litigation Legal casebooks: Chinese legal systems and, 92–93; Ming dynasty and, 105–106; precolonial India and, 123; Qingming-ji (legal casebook), 75–78, 108n3 Legal codes: Alfred the Great and, 30; Antwerp and, 256–257; charters of urban liberties and, 224; China and, 49–50, 52, 60, 76, 78–79, 81, 91–95, 105; common law and, 115, 116;

352

Index

Legal codes (continued) contract disputes and, 106; early Western kingdoms and, 28; Holland and the Low Countries, 228, 234; India and, 121, 123, 125–132; Islamic law and, 163–164, 190; Latin language and, 25; Ottoman Empire tax codes and, 166–167; Portuguese mortgage markets and, 289–290, 291, 292. See also Bankruptcy laws Legal manuals, Islamic law and, 179, 181, 186, 187 “Legal Orientalism” (Ruskola), 108n1 Legal origins: China and, 48; English common law and, 323; global perspective on, 1–4; Indian law and, 8–9, 117; juries and, 324 Legal profession: in Amsterdam, 258; arbitration and, 248; China and, 53–56, 57, 60; Chinese and Western divergence, 61; England and, 54–55; India and, 123, 126; Islamic world and, 162; litigation masters (pettifoggers) and, 55–56, 63n8, 93–94; medieval Europe and, 32; Portugal and, 290, 292–293; Western legal traditions and, 53 Legal reforms: Angevin reforms, 227; colonial India and, 126; medieval Japan and, 37–38; Ming dynasty, 94–95; Portuguese mortgage markets and, 291 Legal-religious community, Islamic world, 162–164, 166–167, 170, 171, 172 Legal systems: economic growth and, 1; English legal systems and, 323–325, 336–337; infrastructure investment and, 326–328; institutional efficiency and, 281–289; jury compensation and, 328–331; jury redistribution and investment, 332–336; in Portugal, 289–295, 296; Weber and, 2–3 Legal traditions: China and, 82–86; culture and ideology and, 4–6; economic growth and, 62; global perspective on, 1–4; India and, 115–124, 130–132; Islamic world and, 159, 162–164; Qing dynasty and, 104–105 Legislation: Barnard’s Act (England, 1734), 303–304, 306, 307, 308; Bubble Act (England, 1720), 305;

Carolingian empire, 29; Chinese land laws, 68, 74–79; English property rights and, 325; infrastructure investment and, 326; precolonial India and, 119. See also Legal codes Legislative units, precolonial India and, 120–121 Leiden (Holland), 235–236 Lemaire, Isaac, 262, 263 Lex loci, colonial India and, 125 Lex Romana Visigothorum, 28 Liang Ziping, 58 Liber Judiciorum. See Fuero Juzgo Licensing regulations, 303 Lijia system, 94–95, 98, 99 Lineage organizations, 96–97, 98, 100, 101, 103, 109n17 Lineages, precolonial India and, 119, 120 Literacy, 170–171, 174n15, 297n4 Litigation. See Courts and litigation Litigation manuals, 92 Litigation masters (pettifoggers), 55–56, 63n8, 93–94 “Liti-negotiation,” 52 Liu Hsinchun, 86n10 Lizhang (tax captain), 94, 98, 99, 104, 106–107 Loans, size of, 284, 287, 288, 297n6 Loan sharks, 202–203 Local courts: in Amsterdam, 257–260; in Antwerp, 255; central courts and, 262; commercial litigation and, 265–266; debt registration and, 235, 236; foreign merchants and, 245, 253; jurisdiction of, 238; Portugal and, 292 Londonderry, Lord, 307 London Stock Exchange: British common law and, 13; government regulation, 303–308; regulation of, 300–303, 318–319; self-regulation, 308–318 Louis de Male, 261 Louis XIV (France), 210 Low Countries. See Holland and the Low Countries Low-risk loans, 286 Lucca, 253, 254 Lyndon, Ghislaine, 16n5 Maddison, Angus, 115 Magistrates. See Judges and magistrates Maine, Henry, 118, 119, 120, 129

Index Mamlatdars (tax collectors), 146 Mamluk period, Islamic law and, 186, 188 Manufacturing, English common law and, 339n2 Mao Yilu, 105–106 Maratha empire, 118 Marini, Ahmad al-, 187 Maritime Affairs commissioners (Amsterdam), 260 Maritime law: Amsterdam and, 258; Antwerp and, 256; Bruges and, 252–253; colonial India and, 133n16; commercial arbitration and, 247–248; commercial litigation and, 245 Market exchange: bankruptcy laws and, 201, 202, 207, 212; Chinese land ownership and, 68, 69, 70–71; Ming dynasty and, 95; modern India and, 152; property rights and ownership, 10 Marx, Karl, 118, 119 Mass, Jeffrey P., 38 Matthijsen, Jan, 226, 236 Mayor’s Courts, 125 Mazalim courts, 185, 188 “Mean people,” 102, 109–110n18 Mediation. See Arbitration and mediation Medieval Europe: bankruptcy laws and, 200, 208; evolution of law and, 7; Islamic law and, 185; legal position of kings and, 5–6; private law and, 19; Western political development and, 27–33. See also specific countries Mercantile courts, 245, 256–257, 260 Merchant Adventurers, 254, 255, 265 Merchant classes: bankruptcy laws and, 201, 208; China and, 59, 63n11, 96–97; precolonial India and, 120–121, 123–124 “Merchant law,” 225 Merchants, 31–32, 224–225, 244–245, 248. See also Foreign merchants Miceli, Thomas, 160 Microcredit institutions, 202 Military forces, 26–27, 36, 165 Military technology, 165–166 Ming dynasty: Chinese legal systems and, 51–52, 92–95; contracts and, 100–104; dispute resolution and, 96–99, 107–108; government structure, 108–109n6; intermediation

353

and adjudication, 104–107; judges and magistrates, 108n2; land ownership and, 72, 78–79; legal position of women in, 5 Ming Taizu, 94–95, 108–109n6 Minor Affairs commissioners (Amsterdam), 260 Mizoguchi Yuzo, 84 Modder, Simon, 258 Mokyr, Joel, 61–62 Mongol rulers, of China, 5 Moral hazard, 131 Moreland, William, 124 Mortgages and collateral: debt recovery instruments and, 230–231; institutional efficiency and, 279–281, 283–289; Portuguese legal system and, 289–295 Mortimer, Thomas, 306, 309 Movable property, 183 Mughal Empire, 118, 119, 123, 133n12 Muhammad, Prophet, 164 Muhammad Ali, 84 Muhammad Bin Tughlaq, 122 Multiple ownership, 73 Munro, Thomas, 142–143, 146 Muqaddima (Khaldun), 186 Mu-you (legal secretaries), 55–56 Nakajima Gakusho, 98–99, 100, 104 NASDAQ, 301–302 Nationalization, of land, 84 Natural law, 20, 26, 33, 40 Neale, W., 151 Negotiation: Chinese legal systems and, 52; Islamic law and, 189; precolonial India and, 123–124; traditional Japanese debtor law, 204–205 Neo-Confucianism, 40 Newbury, C. W., 213n9 “New Economic History,” 2 “New institutional economics” paradigm, 4, 21 New York Stock Exchange, 301–302, 317 Nobility, development of, 36 Nobunaga, Oda, 38 North, Douglass, 244–245, 266, 280 Notarial deeds, 247, 249, 263–264 “Notarial” law, 39 Notaries, 182, 186, 187

354

Index

Oath helpers, 226 Occupancy tenants, 145–146, 152 Ocko, Jonathan, 86n2 Office of Records (Kirokujo), 36 Onin Wars, 37 O’oka sabaki, 189, 193n46 Operation Barga, 154n13 Opportunity costs, 289 Options, London Stock Exchange and, 308, 312, 313–316, 317 Oral contracts, 183 Order beyond law, 2 Ordinarisse rol, 256 Ordonnance sur le Commerce (France, 1673), 199, 210–211, 215n34 “Oriental despotism,” 108–109n6 Orphan Chamber (Amsterdam), 260 Ostrogothic Italy, 27, 28 Ottoman Empire: change and, 158, 159; contracts and, 179; evolution of law and, 8; Islamic law and, 164, 188; land ownership and, 84–85; stagnation and change in Islamic world, 165–172; taxation and, 166–167 Ottoman Land Code (1858), 84 Outright sales, 75, 76–77, 80 Ownership: Chinese land ownership and, 70–73; Islamic law and, 179–183, 184, 190–191; London Stock Exchange and, 311. See also Property rights and ownership Pactus Legis Salicae, 28 Panchayats (community courts), 123, 124, 148 Pandits, colonial India and, 127 Paper, adoption of, 168 Parliamentary agents, 326–327 Parliamentary systems: infrastructure investment and, 326; legal profession and, 54; legal systems and, 58; Portugal and, 293–295 Partnership contracts, 180, 181 Patnidars (sublettors), 144 Peasant rebellions, 104 Peasants, legal subordination of, 31 Penalty fees, 290, 314 Permanent Settlement (India), 139, 140–142, 144–146 Personal taxes, Ottoman Empire and, 166 Pettifoggers: litigation masters (pettifoggers), 55–56, 63n8, 93–94; Portuguese mortgage markets and, 290

Philip of Alsace, Count, 227 Philip the Good, 235, 256, 261 Phoonsen, Johannes, 260 Pinto, F. A., 294 Pinto, Isaac de, 307 Pirenne, Henri, 224–225 Placard of Instruction, 94–95, 99, 107 Political economy of change, Islamic world and, 159–160, 161–162, 172–173 Political systems: bankruptcy laws and, 200, 208–211; China and, 48, 56–60; development of, 21–22, 29–33; early Western kingdoms and, 27–28; economic growth and, 62; economic institutions and, 277–278; India and, 117–124, 140–142; Japan and, 33–38; law enforcement and, 22–23; legal profession and, 54; Raiyatwari system, 142–143; Western political development and, 24–27 Pollins, Harold, 324 Pomeranz, Kenneth, 48, 100 Population growth: colonial India and, 151; medieval Holland and, 222; Ming dynasty and, 100, 108n5 Portland, Duke of, 305 Portugal: courts and litigation, 12–13; credit markets and, 282–289; institutional quality and, 280–282; judicial system of, 277–280, 289–296 Portuguese merchants, 254, 255, 258, 259, 261, 263–264 Power, constraints on: adjudication and, 24; bankruptcy laws and, 207–208; Chinese political development and, 57; development of political systems and, 21–22; England and, 54; Holland and the Low Countries, 222; Islamic world and, 159, 163, 164; Roman Catholic Church and, 26; Western legal traditions and, 19, 53 Powers of attorney, 254, 255 Precedent: Chinese legal systems and, 49, 50; evolution of law and, 60; medieval Japan and, 39; precolonial India and, 122, 123 Preemption, right of, 184–185 Price, Pamela, 154n11 Printing presses, 168, 170–171, 172–173 Private bill fees, 328, 331, 334, 339–340n13

Index Private law: adjudication and, 23–24, 33; evolution of law and, 19–22; Holland and the Low Countries and, 238; Japan and, 34; “new institutional economics” paradigm and, 21; Roman Catholic Church and, 26; Western legal traditions and, 24–33, 47; Western political development and, 31 Proclamation of 1793 (India), 141, 144 Promoters, of infrastructure improvements, 326–327, 328–331, 337 Proof. See Evidence Property, seizure of, 233. See also Bankruptcy laws Property rights and ownership, 1, 9–11; bankruptcy laws and, 201, 206, 207–208, 209, 212; China and, 9–10, 48, 63n12, 68–69, 74; Chinese land laws and, 74–79, 82–86; Chinese legal systems and, 58–59, 63n6, 91–95, 107–108; colonial India and, 125, 128, 131, 133n17, 138, 139, 147–150; compensation and infrastructure development, 13–14; contract enforcement and, 199; economic institutions and, 277; India and, 10–11, 115; informal norms and, 47; infrastructure investment and, 323–325; Islamic law and, 10, 183–185; legal systems and, 278; “new institutional economics” paradigm and, 21; precolonial India and, 120, 130; Raiyatwari system and, 142, 143; social welfare and, 203; tenant farming and, 151–152; Western legal traditions and, 58; Western political development and, 27, 31; zamindars (landlords), 140–141, 142 Provincial courts, 261 Public infrastructure. See Infrastructure investment Public law systems, 24, 29, 47 Public opinion, false testimony and, 187 Punishments, 24, 49, 63n10, 203. See also Enforcement Punjab Land Alienation Act (1900), 150 Purgatory oaths, 221, 226 Puts and calls, London Stock Exchange and, 315, 316–317 Qing dynasty: land laws and, 76, 79–82; legal codes and, 49–50, 52; legal profession and, 57; legal traditions

355

and, 104–105; negotiated settlements and, 189–190; notaries and, 182; property rights and ownership, 48, 72, 73; state ownership of land and, 85 Qingming-ji (legal casebook), 75–78, 92, 94, 108n3 Qur’an, 178, 183, 190 Racketeering, 202–203 Railway development, 324 Raiyatwari system, 139, 142–143, 146, 151 Rates of return, transportation infrastructure and, 335–336 Rebellions, preventing: corporations and, 171–172; Islamic world and, 159, 161–162, 165, 166; Ottoman Empire tax codes and, 167; printing presses and, 171 Reconquista, 30–31, 41n3 Redemption, Chinese legal systems and, 68 Redistribution of assets: Chinese legal systems and, 51–52, 63n5; jury compensation and, 325, 332–337; Permanent Settlement (India) and, 144; zhaotie (land price) and, 79–81, 83 “Red-stamp” contracts, 109n12 Reformed Synod of Dordrecht (1618), 259 Registries. See Contract registration; Land registries Reischauer, Edwin O., 47 Religious law. See Canon law Religious traditions, 4, 8, 258–259 Rents, Indian tenant farmers and, 144, 145 Republican political systems, bankruptcy laws and, 208–211 Reputation-based credit mechanisms, 202; commercial litigation and, 264–265; evaluating risk and, 284, 287; London Stock Exchange and, 309–310, 311–312, 313 Resource endowment view, 16n4 Resources, control of, 21–22, 26, 37 Revenue farming, 141 Revenues: adjudication and, 24; development of political systems and, 21–22; Japan and, 35; Western political development and, 31. See also Taxation Ricardo, Jacob, 313, 315, 316, 317

356

Index

Right of ingebod (debt collection), 234 Risk, managing: bankruptcy laws and, 211–212; credit markets and, 203; evaluating risk and, 288; institutional efficiency and, 279–280, 281, 282, 283–289; London Stock Exchange and, 317 Risk premiums: institutional efficiency and, 281–282, 283–284; Portuguese mortgage markets and, 279, 280, 290, 291, 295 Ritsuryo period, 35 River navigation improvements, 327–328, 332–336, 337–339 Robb, Peter, 141 Robinson, James A., 160 Roman Catholic Church, 25–26, 28, 32, 225 Roman culture, 4, 25 Roman law: cessio (debtor law), 9, 205–206; Chinese legal systems and, 49; debtors and, 204; early Western kingdoms and, 28; legal position of kings and, 5, 6; medieval Europe and, 32, 33; Western legal traditions and, 19 Rosen, Lawrence, 193n50 Rousseau, Peter, 301 Royal Commission (England, 1878), 318, 319 Royal courts (England), 232 Rubin, Jared, 160 Rule of law, political systems and, 58 Rulers: of China, 49, 50, 57, 58, 107; Islamic law and, 159, 160; Islamic legal community and, 162–164; medieval Holland and, 222; Roman Catholic Church and, 26; social welfare and, 161–162; stagnation and change in Islamic world, 165–173; warrior rulers and, 22, 27–28, 33–34, 36–38. See also Kings, legal position of Rules and procedures, legal, 14 “Rulings by analogy,” China and, 60 Russia, 214–215n25 Sale prices, 68, 79–82, 83, 87n28, 184. See also Land values Salihiyya court (Damascus), 179, 183, 185–186, 191n5 Sanctions, 23, 29 Sarbanes-Oxley Act (United States, 2004), 302

Satterthwaite, Edward, 320n4 Schepenbank. See Aldermen’s courts Schotteler, Jakob, 246 Schumpterian story, 202 Scientific innovation: Islamic world and, 158–159, 168–169; Western legal traditions and, 61–62, 63n13 Sectarian legal regimes, 119–120, 127, 132n8 Segmentary states, 118, 119 Self-interest, 178, 319 Self-regulation: bankruptcy laws and, 209; London Stock Exchange and, 13, 300, 308–318; stock markets and, 302 Senegal, 41n3 “Servile” tenants, 102–104, 109–110n18, 110n19 Settlement periods, London Stock Exchange and, 304, 308, 317 ’s-Gravenzande, 224, 234 Sharecroppers, 144, 145, 152, 154n13 shari‘a courts, 179, 185, 187–188, 191n4, 192n14. See also Islamic law Shea, Gary, 305 Shiga, Shuzo, 50, 51, 52, 59–60, 70, 86n3 Siena, bankruptcy laws and, 199 Siete Partidas law, 25–26 Slave communities, United States, 41n3 Small claims courts, 256 Smith, Julia, 28 Social classes: China and, 57, 102–104; India and, 118–119; Japan and, 35–36, 38; juries and, 340n14; land ownership and, 93; social welfare and, 161–162; Spain and, 30–31; Western political development and, 27 Socialism, 85 Social-political structures: Chinese legal systems and, 51–52; Islamic law and, 8; legal traditions and, 4–6, 14 Social welfare: bankruptcy laws and, 202–203, 206–207, 209, 211–212; group motivations and, 161–162; Islamic world and, 169 Society for Protection of Property Against Fraud and Artifice, London Stock Exchange, 312–313 Song dynasty, 5, 75–78, 92–93, 109n7 Southall, Aidan, 118 South Sea Bubble, 304–305 Sovereignty, precolonial India and, 117–118

Index Spain, 27, 30–31, 213n5, 257 Spinola, Joris, 246 Stafford, Thomas, 248–249 Stage games, jury compensation and, 328–331 Stagnation and change, Islamic world and, 159, 160, 165–172 State action: bankruptcy laws and, 198, 199–200, 207; China and, 7; courts and litigation, 12; dispute resolution and, 107–108; India and, 121–122, 139; legal traditions and, 4; London Stock Exchange and, 13; property rights and ownership, 9–10; public law systems and, 24 State ownership of land: China and, 83–84; Ottoman Empire and, 84–85 Statute of Acton Burnell (England, 1283), 232 Statutes of limitations, 74, 76–77, 78–79, 81–82 Steele, A., 148 Stein, Burton, 118 Stephens, Thomas, 49 Stockbrokers, 306, 307, 308–309, 319 Stockjobbers, 303, 306–307, 308, 319, 320nn2, 3 Stock trading, 262–263. See also London Stock Exchange Sub-infeudation, 142, 144, 153n3 Subscription fees, London Stock Exchange and, 311 Subsidiary courts, 260, 266 Subsoil rights, 72, 101 Substantive justice, 46 Sufi brotherhoods, 181 Supreme Court for Holland and Zeeland, 261, 262, 263–264 Sureties, 228–231 Su Yegong, 60 Suzerainty, precolonial India and, 118, 119 Swamy, Anand V., 149 Sylla, Richard, 301 Tadasuke, O’oka, 189 Taiwan, 203 Taizu. See Ming Taizu Tang dynasty, 49, 73, 74–75 Taxation: China and, 63n12, 74, 95; colonial India and, 138, 139, 140–141, 142–143, 144, 146; infrastructure investment and, 151;

357

Islamic world and, 164, 166–167, 169; Japan and, 35, 36; precolonial India and, 118; social welfare and, 161 Tax-exempt estates, 36 Technological innovation: group motivations and, 162; Islamic world and, 158–159, 160; rulers’ response to, 165–166, 168–169, 170–171 Tenant farming: conditional sales and, 101; Huizhou prefecture and, 97, 102; Permanent Settlement (India) and, 140–141, 142; property rights and ownership and, 151–152; “servile” tenants and, 102–104; zamindars (landlords) and, 144–146, 153n7 Terada, Hiroaki, 62n4, 72 Testart, A., 204 Textile production, 95 Theodoric, 28 Thijs, Hans, 265 Thomas Aquinas, Saint, 26 Thomson v. Harcourt (1722), 304–305 Thorburn, Septimus, 150, 153n8 Time bargains, 304, 306, 308, 317 Time limit laws. See Statutes of limitations Tokugawa rule, 39, 204–205, 210 Toll income, 334–335, 337–339 Topsoil rights, 72, 83, 101 Town charters. See Charters of urban liberties Trade disputes, 12, 122–123, 128–129. See also Commercial litigation Traders’ courts, 200, 201, 210 Traditional Japanese debtor law, 204–205 Tragedy of the commons, 212 Transaction costs: contract enforcement and, 178; economic growth and, 115; infrastructure investment and, 337; legal systems and, 336–337 Translation theory, 9, 116–117, 130 Transmission theory, 8–9, 116, 130, 131 Transportation infrastructure: English legal systems and, 323–325, 336–337; infrastructure investment in, 326–328; jury compensation and, 328–331; jury redistribution and investment, 332–336; toll income data and, 337–339 Trial by combat, 225 Trials, Islamic law and, 11 Tribal migrations, Western political development and, 25

358

Index

Tribunaux de Commerce (France), 202 Trust agreements, 181 “Truth of the aldermen,” 226–227, 228 “Two masters to a field” custom. See Dual possession Umayyad Province, 30 United States, bankruptcy laws and, 199, 203, 215n35 Universal values, legal traditions and, 40–41, 47, 61 Universities, 32, 54 Unsecured credit, 290 Urban law, development of, 224–228; debt litigation and, 237; debt registration and, 234–235; medieval Holland and, 222–224 Usufruct, Islamic law and, 184 Usury laws, 203, 291, 297n11 Uttaranchal state, 152 Vakils (lawyers), 123 Van Answaarden, Robert, 261 Veckinchusen, Hildebrand, 246 Village leaders: China and, 94, 98, 99; colonial India and, 128–129 Villages, precolonial India and, 120, 122, 123, 124 Visigothic Spain, 27, 28, 30 Vogel, F. E., 214n22 Wade, R. W., 310 Wager of law, 226 Walpole, Robert, 305 Wang Chao’en, 79–80 Wang-tu-wang-min (king’s land, king’s people), 70–71, 72–73, 82. See also State ownership of land Wang Zhiqian, 57 Wang Zhuhui, 56 Waqf (charitable foundations), 169, 181 Warfare, 26–27, 34–35 War financing, London Stock Exchange and, 305, 306, 307 War of the Austrian Succession, 305, 306, 307 Warring States period, China, 70–71 Warring States period, Japan, 37 Warrior rulers: development of political systems and, 22; early Western

kingdoms and, 27–28; Japan and, 33–34, 36–38 Washbrook, David, 118 Watanabe Shin’ichiro, 71 Weber, Max: bankruptcy laws and, 201, 204; Chinese legal systems and, 86; English common law and, 53–54, 55; Islamic law and, 189, 191; legal systems and, 1, 2–3; Western legal traditions and, 46–47 Weits, Wilhelm, 246 Well-field system, 71, 72–73 Western legal traditions: China and, 46–48, 53–56; evolution of law and, 7, 14–15, 24–33, 40; Japan and, 41; political systems and, 56; studies of legal systems and, 1–2 Widows, 128 Wigmore, John H., 39, 205 Willan, Thomas, 334 Wingate, G., 146, 153n8 Witnesses: debt registration and, 231; Islamic law and, 11, 181–182, 185–187, 190; purgatory oaths and, 226 Women, legal position of, 5, 128 Written testimony, 11 Wu Yanhong, 105 Xiangyue (village covenant associations), 99 Yanagihashi, Hiroyuki, 181 Ye (profit-making utility of land), 69, 72–73, 83 Ye Xian’en, 103 Yoritomo, Minamoto, 36 Yuan dynasty, 78 Zakat (alms), 167, 168 Zamindars (landlords), 140–141, 142, 144–146, 151, 153n7, 154n11 Zanzibar, bankruptcy laws and, 213n8 Zeventuig (investigation of disputes), 227–228 Zhang Zhongqiu, 47 Zhan Yanfu, 92 Zhaotie (land price), 68, 79–82, 83, 87n28 Zheng Qin, 58 Ziadeh, F. T., 214n22

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