Lord Mansfield and the Law Merchant

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JWOURNAL

OF ECONOMIC

SSUES

Vol. VII No. 4

December

1973

Lord Mansfield and the Law Merchant:

Law

and Economics

n

the

EighteenthCentury

S. Todd

Lowry

WhenWilliamMurray,LordMansfield, the first Scotchman who

ever

gaineddistinction in

the profession of law in

England,

became

Chief

Justice of the

Court of

King's

Bench

in

1756,

he

had,

according

to his

biographer,

a very low estimate of the

Common Law of

England

which he

was to

administer.

Thissystem, Lord

Campbell

wrote, was not

at all

badly

adapted to the

conditions of

England

in

the

Norman

and

early

Plantagenet

reigns, when

it

sprang

up,

land

being

then

the

only

property

worth

considering. '

By

the time

of

Lord Mansfield's accession to the bench, however, Englandhad

grown

into the greatest

manufacturing

and commercial

country

in

the

world,

while her

jurisprudencehad

by no means

been expanded

or

developed

in

the same

proportion. Parliamenthad not

responded

to the needs

of a

growing

merchant

class,

and

the common

law

judges

had,

generally speaking, been

too

unenlightened

and too

timorous

to be of

much

service.

Hence,

when

disputes arose about the

buying

and

selling

of

goods,

or marineinsurance,or bills of exchange and promissorynotes, no

one knew

how

they

were

to

be

determined. No treatise had been

publishedon

any

of

these

subjects, nor were

cases

on

these questions

to

be found in

the

court

reports

which, said Lord

Campbell, swarmed

The

author is

Associate

Professor

of

Economics, Washington

and Lee

University,

Lexington,

Virginia.

605



606 S. Todd

Lowry

with

decisions about ords andvilleins,

about

marshaling

he

champions

upon the trial

of

a

writ of

right by

battle,

and

about the

customs

of manorswhereby an unchaste widow might save the forfeitureof

her dower

by riding

on a black ram and in

plain

languageconfessing

her offense. Mercantile

questions,

he

wrote,

were so

ignorantly

treatedwhen

they came

into

Westminster

Hall,

that

they

were

usually

settled

by private arbitration

among

the merchants

themselves. 2

Josiah

Child

had

earlier

complained

that

it is well

if,

after

great

expenses of time and

money,

we

can make our own counsel

(being

Common

Lawyers)

understand ne half of our

case,

we

being

amongst

them as in a

ForeignCountry.

Born n

1705

n

the

ruinouscastle

of

Scone

in

Perthshire,

Scotland,

William

Murrayreceived

a

classical

education

at

WestminsterSchool

and at

ChristChurch

College,

Oxford. After

studying

aw

at

Lincoln's

Inn, he became

one of

England's most famous

advocates. He played

a

leading

role

in

partisanpolitics, notably

as the

parliamentary pponent

of William

Pitt,

until

he

called

in

all his

political

debts

to obtain

the

appointment

s Lord

Chief Justice. With he

accompanying

peerage,

he

became BaronMansfield

of Mansfield

n

the

County

of

Nottingham.

Undeterred

by

the backwardstate of

affairs

in

the

courts,

Mansfield

set about the task

of

bringing

he

usages

and customs

of the

merchants,

the so-called Law

Merchant,

nto

the

mainstream

f

English

common

law. Where

before the

merchants

had had

to deal with

judges

who

thought

n terms

of

haystacks

and

horses and

who gave the central

area of

commercial

law

for more than

a

century

the flavour

of

land

and manure rather

than

of

commerce, 4

they

now could

bring

their

disputes

before

a

judge who understood

the

world

of

commerce

and

was

eager to develop

appropriate egal

remedies. Wrote Holdsworth:

Some few

lawyers

indeed

recognized

that

the

legal

principles

un-

derlying

these

commercial

customs could be

learned only from the

writings of

the foreign

civilians.

. .

. But these

works were not

easy

for a

common

lawyer to

read; and so they remained

unread. It

was

not

until the common law

obtained in

Lord Mansfield a judge

who

was a masterof this

learning hat the

rules deducible

from the many

variouscommercial

customs which had

come before the courts

were

formed into a coherent system, and completely incorporatedwith

the

common law. 5

C.

H.

S.

Fifoot

wrote: He was required,

on

occasion,

not

only

to

trace but to

design the

pattern upon

which

the

scattered

fragmentsof litigation

were to be

arranged. 6

The

life of

Lord

Mansfield

(1705-1793), the father of

commercial

law,

runs

strangely parallel with

that of his

more famous

con-

temporary,

Adam

Smith

(1723-1790).The latter, as

indicated in

his



Lord

Mansfield

and the Law Merchant 607

lectures and in the conclusion of

his

Theory of

Moral

Sentiments,

conceived

his definitive work on

political economy

as a facet of

jurisprudence.7Althoughboth addressed hemselves to therelationship

of

the

legal system

to the economic

life of their

time,

their

conceptions

of the issues were so

paradoxically

different as to be

hardlyrecogniz-

able as partof the same jurisprudential

radition.While

Smithperceived

a

system of self-regulatingnatural aw ( the obvious and simple system

of natural liberty ) outside the legal framework, Mansfield sought

to respond to the

needs of

commerce by incorporatingcommercial

customs withina frameworkof

legally

enforced

order. An

examination

of the eighteenth-centurynexus of law and economics as conceived

by

Mansfield and

Smith may

shed some

light upon

the

subsequent

divergence of these disciplines as well as clarify their converging

roles

in

a mixed economy.

The MercantileSystemand the Law

Merchant

The Law Merchantwhich Mansfieldundertook o make a functional

part

of the

common law

of

Englandwas of ancient vintage. As rules

for

settling disputes between merchants, it embodied Mediterranean

maritime

practices such as the Rhodian Sea Law and the Law of

Oleron,

as well

as inland

commercial practices which had spread

across Europe

in the

medieval period.

The earliest treatise on the Law Merchant published

in

England,

a brief sketch entitled

Lex

Mercatoria,

dates from about 1280 and

is included

in

what is traditionally called

The Little Red Book

of

Bristol.8 This Latin document states that he who asks for the law

merchant is

always

heard

.

.

.

since the Common

Law

.

.

.

has

endowed

its

daughter

out of certain

privileges

and

in

certain

places

[and]

will

not

deprive

her of what it

previouslygranted

n

perpetuity.

In

keeping with the recognition of the Law Merchantas a body of

rules

promulgated by the natural principles of the merchants

themselves,

The Little Red Rook

further states:

In

all marketcourts

all

judgments ought

to

be

rendered

by

the merchants of that same

court

and

not

by

the

mayor

or

steward of the market. 9

The

special

courts of

pie powder, '0

which

guaranteed

a decision

the

day following

a

complaint

as a

necessarypart

of itinerantmercantile

activity,

were maintained nd theirdecisions enforced

by

the merchants

themselves. The

mercantile policy

of the

Crown during

this

period

was limited mainly to regulating he market structure o prevent sales

of stolen

property

and

to ensuring

fair

prices.

In

Anglo-Saxon times,

the law tried in

every way to encourage the publicity of dealings

with moveable property as it tried in later times to encourage the



608 S. Todd

Lowry

publicity of

conveyance of

land.

Sometimes

it .

.

.

required

that

all sales take

place

in

a

'port. Staple

towns

created

a sales market

to protect peasants from unfair prices paid for export commodities

by foreign

buyers

and concentrated he market

process

where it could

be more

easily regulated.

To

combat

forestalling, engrossing,

and

regrating, one of the more common forms of

regulation

was

the

granting

of

monopolies

to

port

towns, societies,

and individuals.

Within this

structured framework, the

merchants worked out

their

own

system

of

courts

and rules for the

efficient conduct of

trade,

drawingon the

continental

Law

Merchantwhich incorporatedRoman

legal tradition. The first extensive

treatment of the Law Merchant

in

England

was written

in

1622

by Gerard Malynes, a prominent

mercantilist writer on

economic topics

who, however, was forced

to

admit that this

mercantile custom

was wholly unknown to and

legally impossiblein the common law

at that time.'2

While the

Crown with

its

mercantilist

policies

had

supervised

domestic commerce and striven

to

protect England's nationalproduc-

tive and

monetary position

in

international

trade,

the

merchants

themselves

clearly

had maintained

system

of laissez-faire

self-regula-

tion

within

this

general

frame

of

reference.

However,

as

the

protec-

tionistsystem

began to break down because of its

restrainingnfluence

on the

increasingly

ndividualisticand

spontaneous expansion

of both

maritime

and inland

commerce,

these same forces

contributed

to the

breakdownof

the

enforceability

of

the merchants'customs and

usages

among

a no

longer stable,

close-knit

fraternity.

Even

so,

the

crumbling

of the

protective

shell

and the

erosion of fraternal standards

of

performance

and

enforceability

did

not take

placewithout the

perpetu-

ation of some

of the better features of the oldersystem. For

example,

a

statute of 1697-1698

permittedmerchants to obtain common

law

enforcementof the

results of

arbitration, '

thusgiving them the

benefit

of

legal

enforceability

without

forcing

them

to cope with thedifficulties

of a

tedious and

uncomprehending ommon law court system.

The

strength

of the tradition

f

this

legally ndependent ystem of mercantile

regulation

s

illustratedby one of the

stated functions of the

Glasgow

Chamber

of

Commerceas late as

1785.

During

this

period

of intimate

association with Adam

Smith and espousal of his free

trade

policy,

the

chamberwas

prepared to accept of

arbitrations

n

disputes

upon

mercantile

cases,

in

order to save the

heavy expenses attending

law

suits.

'4 Arbitration

decisions were

approved by the general

meeting

of the

chamber

and circulated to

members of Parliament,

other

Chambers

of

Commerce,

and

influential

persons.

The main

course of

development, however, indicated a

growing



Lord

Mansfield

and the Law

Merchant

609

need among

merchants

o resort to common

law remedies

to provide

the framework

of

stability

and order

necessary

for

expanding

commer-

cial activity. In 1645 the Court of King's Bench granted a motion

to impanel

a special jury

of

merchants

o decide a commercialdispute.

It was conceived

that

they might

have better

knowledge

of the

matters

in difference

.

. .

than others

. .

.

who were

not of that

profession.

But its

use

long remainedspasmodic

and without

system.

15 In

1730

a statute provided

for the use of merchant juries at the

expense

of the requesting

party. Later,

the

judge

might

find that

the

case

required

a special jury,

and the

costs then followed

the

result.

By 1765 Mansfield

could

declare

in Pillans

v.

van

Mierop

that

the

law of merchants

and the

law of the land

is the

same.

16

To provide

an

effective

source

of information

about the

law

of merchants,

he

converted

an occasional

into

a

regular

institution,

and trained

a

corps

of jurors

as a permanent

iaison between law and

commerce.

17

These

jurors

served continually

over

long periods

of

time,

and many

of

them,

such as

Mr.

Edward

Vaux, achieved

distinction

in

their

own

right

as experts

on commercial

law

and

received acclaim

as

Lord Mansfield's

jurymen.

When Mansfield undertook

to

incorporate

the Law

Merchant

as

an integral part of the

common

law so

as to make it an

effective

and

available

recourse

for mercantile justice,

he was undertaking,

with

the aid of his

merchant

juries,

to bring under formal

legal

supervision

and

management

a

system

that

had

perpetuated

and

maintained

tself for centuries

as a voluntaristic,

unmanaged tructure

of

rules developed by

the

merchantsthemselves

for the

conduct

of

business.

On

Mansfield's

theoreticaland

empirical

nterplaywith

his

juries, Fifoot

wrote:

For

the most part Lord

Mansfield corrected

the exuberance

of

the jury

without

offending its susceptibilities,

and

restrained ts

power

even

while

he raised

its

prestige.

A verdict was to be

accepted

as raw material brought to the court to

be fashioned.

The

jury

found

a

usage,

the judge accepted

or rejected

it as

furthering

or

impeding he convenience

of trade.

The jury solved

a

particular

roblem,

the judgerationalized

he solution

for future

use. The jury revealed a fresh facet of humanexperience, the

judge

framed it in

the general

policy of the law.

By insisting

upon

these

complementary

unctions,

Lord Mansfield

maintained

an

equilibrium

between

stability

and expansion,

and determined

the

axis

about which

the mercantileworld

could

revolve.'8

At the

same

time,

Adam

Smith

used

a

natural

aw traditioncouched

in

Newtonian

terms to

justify the abandonment

of legal involvement



610

S.

Todd

Lowry

in the economic

process.

Although

Mansfield

was a free trader

before

Smith,

he believed

that reason

is a

higher

standardof reference

than

natural aw, and he spoke disparagingly n one case of inferences

from

gathering

acorns

and

seizing

a

vacant

piece

of

ground

in

an

imaginary tate

of

nature

before the invention

of letters.

19

Mansfield's Philosophy of Law and Economics

The

basic structureof Mansfield's

legal

and

economic

views is

generally

ndicated

by

his most

famous

decisions and

by

his

relations

with

his special

merchantjuries. He

was

stronglyinfluenced by the

Romanlegal

tradition,

especially by Cicero. It is recordedthat while

at Lincoln's Inn

he

translatedCicero into

English and back

into Latin

to

improve

his

rhetorical tyle. His

own classical

education

s reflected

in the

course

of study he

recommended for

the young Duke

of

Portland.20

He

suggested beginning

with

Xenophon,

Cicero,

and

Woolaston's

Religion of Nature

before going

on to a more detailed

study

of Roman

law.

The

jus

gentium, in

Cicero's conception, is

that body of

law which

is

common to

all mankind and

which was

applied by the

Roman

courts

to

noncitizens. It resembles

the

common law of England in

that

its

stability

may be

presumed to be

related to

precedent, but

its

ubiquity,

under he Stoic

tradition,was based

upon the

presumption

of

the

universality

of

human reason.

Coke,

Wood, and Blackstone

all

assumed

that,

in

the

ultimate

analysis, law and

reason were

synonymous, and

Lord

Mansfield, while he

understood

the perils

of

translatingthe

assumption into

the language of

reality, was not

indisposed

o

pursuea course

recommendedby

unimpeachable uthor-

ity. -21

The jus naturaewas the ideal law which might not exist

but toward

which

humanreason

strove andtowardwhich

the superior

and

well

trained

ntellectcould

approachmore

nearlythanthe common

mentality.22

This

jurisprudentialpremise is

illustrated

by

Mansfield's

role

as

the articulator

of

generalizable

principles

in

interaction with his

merchant

juries.

While he

recognized

the factual orientation

of

the

jus gentium,

he in no

way

minimized the

importance

of

the

role of

the

legal

scholar in

generalizing

and

rationalizing

he

popular

usages

of the

merchants

n

terms of

expediency

or

efficiency

and

morality.

It

is

specifically

in

this

association of reason and

efficiency

made

by

the

followers of the Roman

civil

law

(the civilians),

as

opposed

to the

materialist

emphasis

upon

natural

order

found

in

Smith,

that

we

must

look for

an

explanation of the

dichotomy

between what

these

two

contemporaries

would

call

jurisprudence

and how

they



Lord Mansfieldand the Law Merchant

611

approached he problem of preparing he legal and political structure

as a shelter

for

the individualisticcommercial life of the

emerging

IndustrialRevolution.

Smithconceived exchange priceas gravitating owardnaturalprice.

The Roman aw tradition,on the other hand, assumed a natural

ustice

(or just price)

toward

which reasoned decisions would

gravitate.

This

permitteda concept

of a natural

justice essentially synthesized by

the cumulativereason of

competent judges,

whereas Smith's natural

price was deduced from

what he

conceived

to be the

physical

realities

of the economic process.

Cicero

took

the

view that

expedient, efficient,

and reasonable

behavior

all

are

synonymous

in

an

interdependent ociety

where the

advantagesof specializationand

the division of

labor

make

long-run,

stable economic relationshipsmandatory.23

ust

as the modernecono-

mist can

be

expected

to

carry

the

analysis

of efficient

possibilities

beyond

the calculations

of the

ordinary man,

so the Roman

jurist

with his specialtrainingandwith the aid of colleagues could be

expected

to

delineate

the nuances of reasonable

and

expedient

behavior

on

a

more sophisticated

level than the

gentium.

For this reason, the

civil law tradition

was not disturbed

by

the

exercise of

organized

decision making

since

naturalprice, just price,

or a

price

administered

by

a board of informed

experts

were

synonymns

for the

highest

approachesto social maximization.

Clearly,

the

development

of rules and

practices for enforcing

contracts and

negotiable

notes as a

foundation

upon

which

the men

of

business could build increasingly complex and long-term

patterns

of

commitment

with

government guarantees of enforceability

was

entirelyconsistent with this traditionof law andwith theLawMerchant

itself. It

was

but a

natural sequence

in

a changing social

scale of

organization

and

authority,

from the

guild

and

municipalsociety,

to

the international

air,

and to the national and

international conomy,

with authorityvested successively

in

guild master or mayor,

steward

of the

fair,

and Chief Justice of

the King's Bench.

The contrast

between this view

of law and economic growth and the laissez-faire

views

of Adam Smith during this period should reveal some of the

premises on which the diverging disciplines of law and economics

were based.

Eighteenth-Century Naturalism and Laissez-Faire

Althoughnaturalism erved an expandingrole in eighteenth-century

thought, its use as an argumentagainst regulatedprice was not

new.

At

the end of the sixteenth century Luis de Molina in his De justitia



612 S.

Todd Lowry

et de jure had

held that the natural (i.e., the just) price has

the

greatest chance

to be

the actual market

price

under conditions

of

a free exchange

market and

stability

of

money. 24

Where natural

justice

is

accepted

as an

ideal,

itconvenientlycan become ajustification

for the abandonment

of a

faltering system.25

In this

context,

Smith

conceived

the

body

of mercantilist aw

designed

to

shape

and order

nascent commercial

life in the shadow of the feudal system

as an

unnaturalntervention.

This laissez-faireoutlook fell within his sweep-

ing definition of jurisprudence

as that science

which

inquires

into

the general principles

which

ought

to be the foundation of the laws

of all nations.

26

The naturalism

of

Smith's

jurisprudence

was built on a different

base than

the

Ciceronian

rationalismof Roman

law. The latter held

that consultationbetween

human

beings

exercising

ntellectual

powers

is

the essence

of social progress

and

is

a sourceof moraland expedient

advantage.27

Perhaps the cleavage

best

can

be seen by taking

David

Hume's essay, Of Justice, 28

as a point of departure. Hume

sets

up the problem

by describing

human contact with the material

world

and the control over

property

as the basic

concern of justice. At

either extreme of absolute abundance (air and water) or absolute

scarcity (a shipwrecked

traveller

strugglingfor a single piece

of

wreckage to sustain him), there

is, on the one

hand, no need for

human organization

and, on the other hand, no

possibility of it

since

the rawest

physiological

responses of survival

dominate.29The

whole

range of

humanrelationsto propertybetween these

extremes requires

the

exercise

of

choice

and

reason

among

individualswho divide their

labor and become conscious

that they benefit

from exchange

and

interdependence.Thus rationalitygoverns the principles of justice,

even

though

rationality and the

social contract may not have

been

responsible for the initiation

of the organization

of society.

Smith

seems to

have

carefully

avoided

making

he initialconcession

that rational

and

efficient

(expedient)

conduct results

from theexercise

of

human

reason.

Instead,

he

extended

that

area of basic physiological

responseexpressed

by self-interestand the so-called

instinctto

truck,

barterandtrade so as to

postulate

a

physically

naturalhumanbehavior

pattern n interactionwith a physically naturalmaterialbase.30Thus,

in

his

view, the

natural

response

of the individual

combined with

the natural

conditions

of the

physical world

result

in

a

naturalprice

toward

which aggregate

behavior

tends

to

gravitate.

This

approach

provides no

reasonedjustificationfor natural

price, but only the

stark

reality

that

if

the phenomenafunction so that

exchange takes

place,

the

aggregate

forces will

establish

a

natural

market confine within



Lord

Mansfield

and the Law Merchant

613

which exchange can

and

will

occur.

Individuals then

may

exercise

some voluntary

choice

and

adjust

their individual

exchange

rates

toward a central, naturally valid price. In general, the reasoning

individualplays little

role in this system. This

approach o a scientific

definition of

the economic process ignores much of the necessary

legal structuringof

property rights requisite

for economic planning.

Smith

dismissedthis undefinedarea with his referenceto the

necessity

for a

tolerable administrationof

justice.

Moreover, he seems

to

have viewedjustice

in

this area

as

mainlycriminal

aw for the

protection

of private property.

Smith's

response

to the restrictivemercantile

raditionof

legislating

prices, standards,

and constraints for

internaland external

trade was

twofold.

He denied its

validity

in

terms of a system

of natural

jurisprudence

and

demonstrated with a Newtonian rationalization

of the benevolent

harmonyof

the

physical

world hateconomicprogress

would proceed best if freed from confining

legal patterns and

left

to the

essentially physical

drives of the

individual.This relianceupon

a

physical formulation

as the basis for

social analysis set the tone

for nineteenth-centurypolitical economy and,

in

a

sense,

for

the

analyticaljurisprudence

which

paralleled

t. Smith's views, however,

dealt

with a

changing relationship

between the legal

structure and

the economy.

As C.

A.

Cooke pointedout,

though

Adam Smith made much of

individual

initiative and

criticized

governmental

cramping

of

it,

he

attempted

o establish

a valid

critiqueof

law

in

terms

of social and

economic

movement.

This

study

of social

phenomena

n terms of

movement

was

largely

abandoned n the nineteenth century development

of both legal

and economic theory. Under the influence of Bentham, Austin

and Holland set

up

an abstract

analysis

of the legal equilibrium

of

a

social

system,

just

as

Ricardo,

Mill

and Jevons propounded

an

equilibriumanalysis of the economic

order. In both fields

the

analysis

was static; it investigatedthe working of given legal

and

economic mechanisms.

And since

for

thepurposeof deductive

theory

these

mechanisms were separately

evolved, a separation

of

economic

and

legal analysis

came about.3'

Insufficient

attention has been given

to the similarities between

the philosophical ideas of Adam Smith and William Blackstone. It

is

known that Smith

had a copy of Blackstone's

Commentaries (1767)

in

his library.This

important egal treatisesynthesized the apparently

conflicting principles

of

individual self-interest used by Smith

and

of

human reason

relied on by Mansfield.

It combined them

with a

Newtonian

concept of a perfectly harmonious

system of rules,

so

nicely

constructedand so

artificiallyconnected

together, that the

least



614

S. Todd

Lowry

breach

in

any

one of them disorders for a time the

texture of the

whole. 32The forces that

molded the

common law, in Blackstone's

view, had

so intimatelyconnected,

so inseparably

interwoven the

laws of eternal justice

with the happiness

of each individual, that

the latter

cannot be attained

but by

observing the former. 33

As

noted by

Daniel Boorstin, the theory

that the pursuit

of self-interest

was somehow

bound up

with the naturalharmony of

the world, had

a peculiar usefulness for

Blackstone.

It was, in fact, the principal

notion by which the doctrine

of natural law

was to be

made safe

and

conservative.

He used the current theodicy

to

limit the

range

within which

man's reason

should criticize existing

institutions,

and

to show how restricted

was man's

right

to

appeal

to Nature

against

the positive

law. 34

Although

Blackstone

out of necessity

embraced

the time-honored egal precept

that what

is

not

reason

is

not law,

he displayed an uneasiness

about

individual reason tampering

with

what he regardedas the

inherent rationality

of the existing system:

And it hath been an ancient

observation

in

the laws

of

England,

that

whenever a

standing

rule of

law,

of

which

the reason

perhaps

could not be

rememberedor

discerned,

hath been wantonly

broken

in upon by

statutes or

new resolutions,

the wisdom of the rule hath

in

the end

appearedfrom

the inconveniencesthat

have followed the

innovation.

5

While Blackstone's

work was a conspicuously

successful contribu-

tion to the

orderly study

of the

common

law, the Commentaries

were

inadequate

in the realm of commercial law. According

to Fifoot,

English

lawyers had been so long preoccupied

with the problems

of real

property

that they

felt themselves strangers

to a

generation

that

knew not feudalism. Blackstone was no exception and was

still obsessed

with the refinementsof the feudal aw

and theirextension

to the more abstract

forms of

property.

Furthermore,

he had

not

grasped

the essential and

revolutionarycharacter

of the

negotiable

instrument. 36Nevertheless,

it is of interest

to note that Blackstone

assimilated and

perpetuated

an ancient

formulation

of a framework

of law within he

limitsof which ndividual

participants

xercise

rational

choice

as

jurists

or

as

bargainers.37

There are

. . .

a

great

number

of indifferent points in which both the divine law and the natural

leave a man at

his own liberty; but which

are found

necessary,

for

the benefit

of

society,

to be

restrained within certain

limits.

And

herein it is that

human laws have their

greatest

force and

efficacy;

for,

with

regard

to such

points

as are not

indifferent,

human laws

are

only

declaratoryof,

and act

in

subordination o,

the former. 38

It was

within

the

indifferent

zone,

whereregulation

had

been found



Lord

Mansfieldand the

Law

Merchant

615

necessary for

the benefit of

society,

that Mansfield concentrated

his

efforts.

Contracts ndNegotiablenstruments

Historically,

the

enforceability

of contracts in

England

had

been

logically

deduced from the

action

of assumpsit

by the

common law

judges.

In

attemptingto

free the

law from

precommercial

orms of

action,

however, Mansfield's

approach was to

analyze the law

in

terms of

contemporaryeconomic

realities.

It

would be

strange,

he

wrote in

Jones

v.

Randall,

if,

after so

large

an

increase

of

commerce, art and

circumstances

accruing, we

must go to the time

of RichardI to find a case and see what is law. 39

Althoughhe

used

case

law

whenever

possible to

justify

his

decisions,

Mansfield's

insistence

on

abstracting

principles from the

cases

to

implement

he

customs andusages

of the

merchantswas

characteristic

of his

use of the

past to

rationalize

current

necessity. The

law of

England would

be a

strange

science

indeed

if

it were

decided

upon

precedents

only.

Precedents only

serve

to illustrate

principles and

to

give them

a fixed

authority. '0

In Pillansv. van

Mierop

he sidesteppedthe requirements f assump-

sit and

the

cumbersome

doctrine of consideration in

favor

of

the

simple

principles

of consent and

fair

dealing

of the

Law

Merchant.

By

isolating

these

principles,Mansfield

demonstrateda

grasp

of the

conventional

and

synthetic

nature of

contract

which

economists

only

partially

have

gleaned

from

the law. For the

most

part,

Smith

and

even some

modern

economists think of

contract

in

terms of sales

and

debts rather han as

legally

enforceable

agreements

creating

uture

rights. When a contract is made for an exchange to take place at

some

point

in

the

future, the legally

enforceable

commitment

becomes

a

reciprocal right dissociated

from

the

necessary present

existence

of either the

goods

or

money

as the

substance of the

exchange.

In

this

very

real

sense,

contract

is

an

instrument

of

economic

planning

which

permits

individuals to

organize the

enforceable

commitments

(raw

materials,

labor,

marketing)

requisite for

complex

economic

undertakings.

Without

the

legal sanction

of

private

contract,

economic

planning would be limited to the patterns structured by custom,

governmental

authority,

or

independently

controlled resources.

Legal writers

refer

to the

contractual

process as risk

spreading,

but

its full

significance as the

public

enforcementof an

individualized

system of

economic

planning has not

been fully

explored by

either

legal

scholars or

economists.

Mansfield's

decisions in

the field of

contract

had

the effect of

enlarging the scope

of

enforceability of



616

S.

Todd

Lowry

the economic abstraction so important

in

organizing idle resources

in an expanding economy. By contrast, Smith's emphasis on the

importanceof material tock and savingas the key to opulence limited

the play of economic analysis to currently

definable resources.

Although it is difficult to determine how well Mansfield grasped

a concept of contractual structuringof future economic activities,

it is clear that he understood the role of arbitraryconvention in the

design of economic relationships.

The ancient Greek distinction be-

tween rightby natureandrightby convention

or enactmentperpetuated

in the Roman legal tradition of law by nature or law by custom or

legislation was an integralpart of

his intellectualbackground.In this

context, the arbitraryrules of a reasoned commercial policy which

permit planning

and

stability are

necessary in order to prevent the

chaos that would result from the

absence of rules. In Whitfield

v.

Lord Le

Despencer,4'

or

example,

where a bank note had been stolen

out of the mails by a postal sorter,

Mansfield denied recovery against

the

Postmaster-General.Citing Lane

v.

Cotton,42 e wrote: In 1699

a

solemn

judgment

was

given

that

an

action on

the

case

will

not

lie against the Postmaster-General or a loss in the office by the

negligence or fault of his servant.

. .

. The bar have taken notice

of

it

. . .. What

have merchants done since and continue

to

do

at

this

day, as

a

caution

and

security

against a loss? They cut their

bills

and notes into two

or

three parts and send them at different

times:

one by

this

day's post,

the other

by

the next.

This

shows

the sense

of

mankind as to

their

remedy.

.

.

. The fairness of the

rule lay in its legal stability which

permitted merchants to organize

theiractivities

in

anticipation

of its

constancy.

This

concept

of

arbitrary

legal consistency contributed to a broader perspective for rationally

designing legal

institutions

affecting

economic

activity.

One of

the fields

in

whichMansfield's

decisions

were most influential

was

in the development of the law

of negotiable instruments. The

origins

of fiat

money

and

credit are intimately

intertwined

with the

practices

of the

merchants

n

medieval

times. Early

n

the fourteenth

century,

Holdsworth

noted,

banks

were

being

used to

exchange,

to

remit,

and to

deposit money.

By

the sixteenth

century

at the

fairs of Lyons, the Spanish fairs, and the fairs of Genoa it was this

adjustment

of

accounts

which was the most

important

function

of

these fairs. 43

Credit instruments

had been

developed

as

a

part

of

mercantileactivity to the extent thatthey were free from

the

presumed

existence of hard

money backing.

The

acceptance by

the

merchants

of these instruments

required

a very tightly

knit

commercial

structure

that

previously

had

been enforced

by

the

organization

of

the

fairs.



Lord Mansfield

and the Law Merchant

617

By

the end

of the seventeenth

century

in

England, however,

the

close fraternity

of international

merchants

had broken down

and

ostracism and mistrustwere no longer adequate bases for enforcing

the rules of

the Law

Merchant.

With the

growing

use

of

inland

bills

of

exchange,

Lord Holt

was

being

called

upon

to

enforce

negotiable

notes.

In 1698 n Hawkins

v.

Cardy

a

plaintiff

declaredon the custom

of merchants that the drawer

must

answer to

an

indorsee as

well

as to

the

original payee.

Hold

denied the claim on the

basis of

real propertyparallels.

The

problem

was

essentially

this.

For

centuries,

mercantile

practice

had permittedan entrepreneur o

use his

standing as

a

competent

businessman

as the basis for credit creation. He

might pay

for

goods

with a promissory note to be redeemed at some future date when

he had

completed

his

transaction

and, presumably,

made a

profit.

The instrumentcould be issued to a named payee or to bearer.

This

type

of

note,

if

properlydrawn,

could

be transferredby endorse-

ment and

delivery,

or

merely by delivery

if

it was a bearer

instrument, and the

endorsee or holder could claim under the note

in

terms of its face value. The problem was that, in order for

these

notes to circulate in trade as currency, the holder had to be

able

to claim free from any

disputes that might arise out of the initial

transaction.

In

this sense, the

transferee of negotiable paper had an

even

stronger

claim under the note than

did

the

actual payee

from

whom he had received it.

This willingness on the part of the

Law

Merchant to create

a

stronger right

in

the hands of a

party who

took

that

right

from

someone

with a

faulty claim was anathema to

common law

logic.

One

approach

used

by

the merchants

to

obtain

common aw

enforcement

of

negotiable

nstrumentshad been

to

argue

that their notes were

specialities

or

contracts under seal

which,

as

instruments

n

writing

under

seal,

did

not need

proof

of consider-

ation. But this

contention had been

rejected by Holt.

Mansfield

dealt

with the problem

in

an early case.45 The

plaintiff

had

presented

for

payment a note made out to one

WilliamFinney,

or

bearer,

on demand. This

note had been sent

through the mails,

whence it was stolen. The

thief passed it to the plaintiff, who took

it in the course of trade as a legal holder. The important ssue was

whether one who has

taken stolen property from a thief has

any

right

n

that propertysince the

thief did not. If the property n question

had

been

a

horse,

the

rightfulowner

could

have

recovered his

property

and the

plaintiff

could have

sought

the thief

for redress.

Mansfield's

position

was

that the

action would

lie

against

the

defendant

. .

.

upon

the

general

course

of

business,

and

from

the

consequences to



618

S.

Todd

Lowry

trade

and commerce:

which would be much ncommoded

by

a

contrary

determination.

Now

[banknotes]

are . . . treated as

money,

as

cash,

in

the ordinary

course

and transaction of

business

by

the

general

consent

of mankind.

. . . It has been

quaintly

said 'that the

reason

why money can not be followed

is,

because it

has no

earmark' but

that is not true. The true reason

is, upon

account of the

currency

of

it;

it

can not

be recovered

after it has

passed

in

currency.

In

this case

Mansfield

brought

the

force

of the law into

play

to

validate a

centuries' old custom whereby

merchants, by

common

agreement,

had

been

able to

synthesize

the

necessary money

to

serve

as

tokens

corresponding

o

the

commercial

opportunitiesthey

envi-

sioned and the plans they made. The strengthof these instruments

could

be based

solely upon

the

reputation

of the individualmerchant

or the

backing

of a

commercial

house or

bank,

but

in

order for this

system

of

money to function,

it

had to pass from hand to

hand,

free from the need for careful inquiryas to its

interimhistory. When

endorsed,

each endorser

pledged

his

personal credit

so that the more

hands it

passed

through,

the

stronger

he

cumulativepledgeof credit,

and the more

easily negotiatedthe instrument.

AdamSmith's reatmentof negotiablepaper alls shortof Mansfield's

basic

analysis

of

its role

as

money.

He

showed an appreciationof

its history: The

customs of merchants, whichwere establishedwhen

the

barbarous

laws

of

Europe

did

not

enforce the performance of

their

contracts,

and which

during

the course of

the two last centuries

have been

adopted

into the laws of all Europeannations, have given

such

extraordinary rivilegesto bills of

exchange, that money is more

readilyadvanced

upon them, than upon any other

species of obligation;

especially when they are made payable within so short a period as

two or three

months

after their

date.

46

He referred

to the

use

of

these instruments as

raising money by

circulation and added:

Many vast and

extensive projects .

.

. were

undertaken, and for

several

years

carried

on without

any

other fund to

support

them

. 47 Consistent

with

his materialist

orientation, however, Smith

thought

the notes were

frequently unsupported

by

the

money supply.

They were,

he

wrote,

over and

above

. . .

what the circulation

of thecountrycouldeasilyabsorbandemploy. It is unclearwhether

Smith's

objection

to this

expansion

of

circulatingcurrency

was due

to

a

presumption

of a static

economy or to its

inflationarypotential

if it

outran

sound

investment.

He, however, was not

theoretically

receptive to the

creative social policy of the rationalistic egal tradition

representedby Mansfield.

It would

be

improper

to

presume a detailed grasp of economic



Lord

Mansfield nd the Law

Merchant 619

processes on

Mansfield's part,

much less the

ability

to think

in

terms

of

formulating

economic systems, but his careful use of legal fictions

illustrateshis

ability to

use

hypothetical models to isolate

important

issues. One of his

rulingson ejectment

is

a good

example.

The common

law for centuries

had used the action

of

ejectment as a

legal

form

under

which

to

try the right

of

a plaintiff to occupy the premises

and

prove

his title. The

common lawyers had built

up

a network

of logical

deductions spun out of the interests of the

numerous

tribe

of fictitious

participants (Fairclaim,

Shamtitle,

John

Doe,

William

Stiles,

and

so

forth)

in

these

cases.

In

Fairclaim d. Fowler v.

Shamtitle

Mansfield

declared that

he

had it at heartto have the

practice upon

ejectments

clearly

settled

upon large

and liberal

grounds

for the

advancement of

the remedy. 49Furthermore,

the great advantage

of this

fictitious mode is that, being under the

control of the court,

it may be so

modelled as to answer in the best manner every end

of

justice

and

convenience.

Defending a fiction

of venue in another

case,50

he

wrote: It is a fiction of form.

Every country has its

forms,

which are

invented for the

furtherance

of justice.

Conclusion

The

divergence between

political economy

and

jurisprudence

in

the

eighteenth

century

had

many facets.

Mansfield,

the first

judge

to speak

the

language

of the

living law,

51

epitomized he

long

tradition

of

the application

of humanreason to the

development of functioning

institutions to

cope with the needs of society. On the other hand,

Adam

Smith,

the founder of British political economy, initiated a

lineof emphasisstressingdeductions romobservedmaterialquantities

and

relationships.

Both nineteenth-centuryBritish political economy

and

analytical

jurisprudence,deducing

from

utility

and

authority

in

static

frameworks, ollowed the more positivisticinclinationsof Smith.

Upon reflection,

however,

Mansfield's

role

in

bringingthe tradition

of

reasoned rule

making into play at a creative level for developing

working institutional patterns seems

conspicuously modern. This

approach

s

particularly ppropriate

o the

handling

of modern

problems

of administration nd regulation.

Notes

1.

Lord

Campbell,

The

Lives of

the

ChiefJustices

of

England

(New York:

James

Cockcroft &

Co., 1873),vol.

3,

p. 299.

2. Ibid.,

pp.

299-300.



620

S. Todd Lowry

3.

A Discourse about Trade

(1690), p.

113.

Quoted by

C.

H.

S.

Fifoot,

Lord

Mansfield Oxford: Clarendon

Press, 1936),p.

7.

4.

Mansfield, William Murray,

in

Encyclopaedia

Britannica

(Chicago:

WilliamDenton, Publisher,1969),vol. 14, p. 807.

5. W.

S.

Holdsworth, A History of English Law (Boston:

Little, Brown

and

Co., 1924),vol. 5, p. 147.

6.

Fifoot, Mansfield,p. 84.

7.

See Edwin

Cahnan'sIntroduction

o Smith's

Lectures on

Justice, Police,

Revenue

and

Arms (Oxford:

Clarendon Press, 1896),

pp. xxxi-xxxii,

particularly

his

discussion of Smith's reiterationof the

inclusion

of

his

politicaleconomy

withinthe

purviewof

jurisprudence

n

the sixth edition

(1790)of

The

Moral

Sentiments. See also

C.

A.

Cooke,

Adam

Smith

and

Jurisprudence,

Law

Quarterly

Review

51

(1935):

322. Cooke

wrote:

The problemsof the law are economic because the law governs human

activities

n

the

satisfactionof wants from limitedresources.The

problems

of economics are

legal

because

law

is

the frameworkof human action

and the

economic element is one

particular ide of

the

social

co-operation

of individuals.

It

is

because Adam Smith saw

economic problems

as

problems

of justice and therefore as problems of law

that the Wealth

of

Nations is

as much

a functional study of law as it is an

investigation

in

political economy.

8.

See Paul R. Teetor, England's

EarliestTreatiseon the Law

Merchant,

AmericanJournalof Legal History6 (1962):178-210.

9.

Ibid.,

pp. 193, 195.

10.

The term

pie powder

or

piepoudre

dusty feet) was appliedto

the courts

at the

merchants' airs.

As

Teetor

points out, Simple Simon's pie-man

in the

nurseryrhyme

was

certainlyan itinerantmerchant

and

not a pastry

vendor.

11.

Holdsworth, English Law, vol.

2, p.

81.

12.

Ibid.,

vol.

8, p.

150.

13.

Ibid.,

vol.

6, p.

635.

14.

C,

R.

Fay,

The World

of

Adam

Smith

(New

York:

Augustus

M.

Kelley,

1966),p. 37.

15.

Fifoot, Mansfield,p.

104.

16.

3

Burr. 1663.

17.


105.

18.

Ibid.,

p.

114.

19.

Millarv.

Taylor [(1766) 1 W. Bl. 301, 321].

20.

Printed

in

The

EuropeanMagazine, June 1791, p.

418.

Lord

Campbell

records

that

Mansfield

opposed

the appointment

of

his

successor,

Lord

Kenyon,

because he did

not

wish

to see

in

the seat of

Chief

Justice

of

England

one who did

not know the

characters

of

the

Greek

language,

and of Latin knewonly some scrapsto be misquoted (Campbell,Lives,

p.

291).

21.


215.

22.

HuntingtonCairns, Legal

Philosophy from

Plato

to

Hegel

(Baltimore:

Johns

Hopkins Press, 1949),p.

133.

23.

De

Off. III, 8,

35.

See also De

Off. III, 12, 51, where Cicero

reports

an

argument

between

Diogenes

and Antipater over the limits

of the

seller's

obligation

n

a

market

situation. Diogenes suggests

that

the seller



Lord

Mansfieldand the Law

Merchant

621

behaves

expediently

and

morally

in terms

of his

profession

as

long as

he makes

no

misrepresentations,

while

Antipater

ontends that the

seller's

obligation

is

to

society,

to tell

everything,

so that the

buyer

can be

just as muchin possession of the facts as the seller. Antipater'spolicy

wouldresult in a

perfectly

informedmarket.

24. Heinrich

A.

Rommen,

The Natural Law in the

Renaissance

Period,

Notre Dame

Lawyer

24

(1949):

487.

25. See

Daniel J.

Boorstin,

The

MysteriousScience

of

the Law: An

Essay

on

Blackstone's Commentaries

Cambridge,Mass.: Harvard

University

Press,

1941),pp.

48-49 for a

discussion

of

the use of

natural

aw

arguments

in

social

criticism.

26.

Smith,

Lectureson

Justice,

pp. I,

3.

27. See Henry J. Bittermann, Adam Smith's Empiricismand the Law of

Nature, Journal

of

Political

Economy

48

(1940):

487-520,

703-734

for

a

tracing

of

the

Roman legal

tradition up

to

Hutcheson. Bittermann

discusses

some of the

contradictory

statements of Smith's

position

on

the relation

between

empirical

fact

and

human choice. He cites

the

contention

(of

Rae and of

Veblen)that Smith's

theory

is a

philosophical

system

rather than

empiricalscience

(p. 500). This contention is based

on

Smith's

History of

Astronomy, but the final

sentence of

this work

strongly

suggests a more

positivistic

view: Can we

wonder then,

that

it [Newton's

system]

should have gained the

general

and complete

approbationof mankind,and that it should now be considered, not as

an

attempt o

connect

in

the

imaginationhe phaenomena

of

the Heavens,

but as

the

greatest

discovery

that ever was made

by man, the

discovery

of an immense

chain of

the most

important

and

sublime

truths,

all

closely

connected

together, by

one

capital

fact, of the reality of

which we have

daily

experience.

This

closing sentence indicates that

Smith conceived

of

hypothetical

systems

as

eventually arriving

at an

unimpeachable

empirical

validity,

a

presumptionwhich

he

might

well

have

applied

to

his own

work.

28.

David

Hume,

An

Enquiry

Concerning

he

Principlesof Morals, Sec.

3

(New York:CharlesScribner'sSons, 1927),pp. 203-10.

29.

The

cheapness

of

water

illustration

goes back to Plato's

Euthydemus;

that of

the

shipwrecked

raveller s

found in

Cicero, De

Off., IV.

30.

See

W. D.

Grampp, Adam Smith

on the

Economic Man,

Journal

of

Political

Economy 56

(1948):

315-36, who asserts

that the

rational

individualor

economic man

is not an

element in Smith's

thought

but,

rather, a later

development

n economic theory.

31.

Cooke, Adam

Smith, pp. 330-31.

32.

William

Blackstone, Commentarieson

the

Laws of England, vol.

2, p.

376.

33.

Ibid.,

vol.

1, p.

40.

34.

Boorstin,

The

Mysterious

Science, p.

52.

35.

Blackstone,Commentaries, ol.

1, p.

70.

36.

Fifoot,

Mansfield,

pp. 89-90.

37.

See

S. Todd

Lowry, Aristotle's

Mathematical

Analysis of

Exchange,

History

of

Political

Economy 1 (1969):

44-66.

38.

Blackstone,Commentaries,

ol. 1, pp.

41-42.

39.

(1774),

Lofft, p. 385.

Citedby Fifoot,

Mansfield,

p. 227.



622

S. Todd Lowry

40. Ibid., p.

221.

41. (1778)

2 Cowper,

754.

42. 1 Ld. Raym.646.

43. Holdsworth,English Law, p. 179.

44.

(1698),

1 Ld. Raym360. Cited

by Fifoot,

Mansfield,p. 89.

45. Miller

v. Race

(1758),

1

Burr., 452.

46.

Adam Smith, Wealth of Nations (Edwin Cannan, ed.), Book

II,

chap.

2

(New

York: ModernLibrary,

1937),p. 293.

47.

Ibid.,

p. 294.

48. Ibid., p. 2%.

49.

(1762)

3

Burr.,

1290.

50. Fabrigas

v.

Mostyn [(1774)

1

Cowper,

161].

51.

Fifoot, Mansfield,

p.

252.

Lord Mansfield and the Law Merchant

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