Currency policies and legal development in colonial New England.

• Author: Priest, Claire

Legal historians have long emphasized the role courts played in promoting the development of a market society in colonial America. Indeed, judicial enforcement of debt agreements and other contractual obligations has been viewed as the central and most important aspect of government promotion of the nascent colonial economy. Nevertheless, there has been substantial disagreement about the extent of colonial economic development and about colonists' attitudes toward markets and commercialism. Judges have been characterized in contrasting terms as bulwarks of pre-industrial cultural norms impeding development or as knowing catalysts of commercial transformation. Legal historians, however, have universally (if implicitly) agreed that focusing on the court system and judicial decisionmaking is the best means of assessing the role of law in economic development.

An emphasis on judicial decisionmaking has led legal historians to accept two underlying assumptions about the relationship of law to the development of markets. First, colonial law has been generally perceived as rooted in inherently local cultural norms and local market conditions. When the principal source of law is considered to be the decisions imposed by judges on disputing parties, "law" in a more composite sense is naturally characterized as emerging endogenously out of relationships between individuals within local communities. Legal historians therefore principally see the impact of law on economic development as the combined effect of many individual decisions relating to the economic matters emerging within particular communities.

Legal historians' focus on judicial decisionmaking has also led to an assumption that the law adjusts in some natural way to changing economic and cultural climates. According to this view, lawsuits are an indirect reflection of prevailing cultural norms and market conditions. Judges adapt the law as those norms and conditions change. The court system therefore fulfills an institutional role of ensuring that the law keeps pace with societal transformation. As described in greater detail below, however, colonial legal historians have characterized the court system not merely as keeping pace with changing conditions. According to current legal historical scholarship, whether by formalistically requiring parties to adhere to their commitments and thereby promoting economic advance and the extension of a market society, or by resolving disputes in a matter consistent with communitarian values, judges actively promoted an agenda in harmony with local preferences. Colonial courts are therefore typically depicted as optimally satisfying the legal needs of local communities.

The most prominent description of the insular and community-oriented base of colonial law is in Morton Horwitz's The Transformation of American Law, 1780-1860. Horwitz emphasizes the centrality to eighteenth-century law of limitations on market activity such as the just price and usury doctrines, contracts involving transfers of property rather than monetary payments, and damages based on equity and fairness rather than on satisfying expectations.(1) Emphasizing the prevalence of litigation based on direct property exchanges, Horwitz concludes that the law reflected undeveloped markets and a community-oriented society in which goods "were usually not thought of as being fungible.... [and] [e]xchange was not conceived of in terms of future monetary return."(2) To Horwitz, colonial law reflected a pre-industrial communitarian mindset, "essentially antagonistic to the interests of commercial classes,"(3) in which the justification for contractual obligation was "the inherent justice or fairness of an exchange."(4) Colonial law applied by judges, therefore, reflected the values associated with pre-industrial, agrarian societies.(5) In this respect, Horwitz contrasts the judicial doctrine of the eighteenth century with that of the nineteenth century, when judges began using common-law decisions to promote capitalist values and a market economy.(6) With regard to both the colonial period and the nineteenth century, however, Horwitz portrays the law as harmoniously synchronized to advance prevailing cultural norms and preferences regarding economic advance.

More recently, legal historians such as Bruce Mann and Cornelia Dayton have examined colonial court records and have developed a vastly different interpretation of colonial law and its relation to market activity. By focusing on legal practice and litigation trends, rather than strictly on doctrine, these historians conclude that civil law in colonial New England was neither static nor reflective of antimarket communitarian beliefs. According to Mann and Dayton, seventeenth-century civil law derived from economic conditions of predominately household subsistence production and market transactions that were largely confined within relatively insular communities. In the seventeenth century, judges tailored their decisions to individual litigants and to the relationship between the parties underlying the transaction. By the first half of the eighteenth century, however, economic advances made these informal procedures untenable. In response to commercialization, judges began to apply more formal and predictable legal rules, which provided greater certainty to contractual promises and generated, as a result, even further economic development. The law, therefore, modernized in the New England colonies during the first half of the eighteenth century in response to, and to promote, the expansion of markets and the growth of contractual promises between citizens of different communities.(7)

Bruce Mann's and Cornelia Dayton's theories of legal development in eighteenth-century New England have been widely accepted and endorsed by a generation of legal historians. Although a relatively recent addition to legal scholarship, this "modernization theory"(8) of legal change parallels a longstanding body of scholarship among historians that describes the decline in community in colonial New England as the society transformed from one oriented around close-knit, cooperative Puritan towns to one with extended markets and market values. The decline in community also coincided with increased immigration, geographical mobility, and the growth of urban centers.(9)

The central evidence supporting the legal modernization theory consists of widely accepted statistics relating to the volume and substantive content of litigation. These statistics show that, in the first half of the eighteenth century, the total volume of litigation rose exponentially, far above increases in population. These statistics also show that the increase in litigation is largely attributable to an increase in the volume of cases based on debts--suits to reclaim money, goods, and services.(10) The modernization hypothesis claims that this increase in litigation volume resulted from growing commercialization and the use of more formal credit instruments that resulted in an increase in the number of debt obligations entered into and, as a result, an increase in the number of debt cases to reclaim money owed on those obligations.(11) Proponents of the modernization theory show that the legal system was becoming more formal and predictable by demonstrating increases in the percentage of uncontested debt cases, pleadings based on purely technical issues, as well as a decline in the use of juries. In essence, modernization theory scholars contend that rising litigation accompanied a process of legal formalization and was a function of economic advance and commercialization.

The acceptance of the modernization theory has led to a partial rejection of Horwitz's and others' conclusion that colonial law was static in comparison to the more development-oriented law of the nineteenth century. Although the modernization theorists do not dispute that communitarian values may have influenced judicial decisionmaking in the seventeenth century, they identify the eighteenth century--not the nineteenth century--as the key moment when the legal system began promoting the expansion of markets. Much of the success of the modernization theory has derived from its seemingly superior ability to explain colonial litigation data. The Horwitz hypothesis of dominant communitarian norms does not explain, for example, the remarkable rise in the volume of debt litigation and the shift to litigation based on more formal credit instruments during the first half of the eighteenth century.

Some aspects of the modernization theory, however, do not seem to be thoroughly worked out, especially with respect to the interpretation of the legal data. First, as discussed below, economic scholarship raises considerable doubts about the extent to which New England experienced substantial economic growth during the first half of the eighteenth century, which supports Horwitz's view that market activity was suppressed during this period. Second, according to the modernization theory, the law became steadily more formal and predictable at the same time that civil litigation increased exponentially. This relationship is peculiar because under steady economic conditions, the adoption of more predictable legal rules should decrease, rather than increase, litigation, and out-of-court settlements should increase because of greater predictability.(12) It follows that to sustain the modernization explanation of litigation increase--that economic advances led to an increase in the volume of credit agreements entered into, and a proportionate increase in debt defaults--requires a showing of economic growth and commercialization at levels high enough to account for an absolute increase in litigation despite a reduction in the litigation rate because of greater legal predictability. To date, no modernization scholar has attempted this proof. As a consequence, there are reasons to question the relationship...