Lord Mansfield and the Law Merchant: Law and Economics in the Eighteenth Century

Author(s): S. Todd Lowry
Source: Journal of Economic Issues, Vol. 7, No. 4 (Dec., 1973), pp. 605-622
Published by: Association for Evolutionary Economics
Stable URL: http://www.jstor.org/stable/4224261 .
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Journal of Economic Issues.


Vol. VII No. 4 December1973

Lord Mansfieldand the Law Merchant:
Law and Economicsin the
S. ToddLowry

When WilliamMurray,Lord Mansfield, "the first Scotchmanwho
ever gained distinctionin the profession of law in England," became
Chief Justice of the Courtof King's Bench in 1756,he had, according
to his biographer, "a very low estimate of the Common Law of
Englandwhich he was to administer.""This system," Lord Campbell
wrote, "was not at all badly adapted to the conditions of England
in the Norman and early Plantagenetreigns, when it sprangup, land
being then the only property worth considering."' By the time of
Lord Mansfield's accession to the bench, however, "England had
grown into the greatest manufacturingand 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 growingmerchantclass, and the common law judges
"had, generally speaking, been too unenlightenedand too timorous
to be of much service."
Hence, when disputes arose about the buying and selling of goods,
or marine insurance, or bills of exchange and promissory notes, 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 reportswhich, said Lord Campbell,"swarmed
The author is Associate Professor of Economics, Washingtonand Lee University,
Lexington, Virginia.


S. ToddLowry

withdecisions aboutlords and villeins, about marshalingthe champions
upon the trial of a writ of right by battle, and about the customs
of manors whereby an unchaste widow might save the forfeiture of
her dower by riding on a black ram and in plain languageconfessing
her offense." "Mercantilequestions," he wrote, "were so ignorantly
treatedwhen they came into WestminsterHall, 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
CommonLawyers) understandone half of our case, we being amongst
them as in a Foreign Country."3
Bornin 1705in the "ruinouscastle" of Scone in Perthshire,Scotland,
WilliamMurrayreceived a classical educationat WestminsterSchool
and at ChristChurchCollege, Oxford. After studyinglaw at Lincoln's
Inn, he became one of England'smost famous advocates. He played
a leadingrole in partisanpolitics, notablyas the parliamentaryopponent
of William Pitt, until he called in all his political debts to obtain
the appointmentas LordChiefJustice. Withthe accompanyingpeerage,
he became BaronMansfieldof Mansfieldin the Countyof Nottingham.
Undeterredby the backwardstate of affairs in the courts, Mansfield
set aboutthe task of bringingthe usages andcustoms of the merchants,
the so-called "Law Merchant,"intothe mainstreamof Englishcommon
law. Where before the merchantshad had to deal with judges "who
thoughtin terms of haystacks and horses" and who gave "the central
area of commerciallaw for more than a century the flavour of land
and manureratherthan of commerce,"4 they now could bring their
disputes before a judge who understoodthe world of commerce and
was eager to develop appropriatelegal remedies. Wrote Holdsworth:
"Some few lawyers indeed recognized that the legal principles underlying 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 master of this learningthat the rules deduciblefrom the many
various commercialcustoms which had come before the courts were
formed into a coherent system, and completely incorporated with
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 litigationwere 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 contemporary,Adam Smith (1723-1790). The latter, as indicated in his

Lord Mansfieldand the Law Merchant


lectures and in the conclusion of his Theory of Moral Sentiments,
conceived his definitive work on political economy as a facet of
jurisprudence.7Althoughbothaddressedthemselves to the relationship
of the legal system to the economic life of their time, theirconceptions
of the issues were so paradoxicallydifferent as to be hardlyrecognizableas partof the same jurisprudentialtradition.WhileSmithperceived
a system of self-regulatingnaturallaw ("the obviousand simplesystem
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 Mansfieldundertookto 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 Merchantpublished in England,
a brief sketch entitled Lex Mercatoria, dates from about 1280 and
is included in what is traditionallycalled 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 daughterout of certain privileges and in certain places
[and] will not depriveher of what it previouslygrantedin 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 furtherstates: "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 guaranteeda decision
the day followinga complaintas a necessarypartof itinerantmercantile
activity, were maintainedandtheirdecisionsenforced by the merchants
themselves. The mercantile policy of the Crown during this period
was limited mainly to regulatingthe marketstructureto prevent sales
of stolen propertyand to ensuringfair prices. In Anglo-Saxontimes,
"the law tried in every way to encourage the publicity of dealings
with moveable property as it tried in later times to encourage the


S. ToddLowry

publicity of conveyance of land." "Sometimes it . . . requiredthat
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 concentratedthe marketprocess where it could
be more easily regulated. To combat "forestalling," "engrossing,"
and "regrating," one of the more common forms of regulationwas
the grantingof monopolies to port towns, societies, and individuals.
Within this structuredframework, the merchants worked out their
own system of courts and rules for the efficient conduct of trade,
drawingon the continentalLaw Merchantwhich incorporatedRoman
legal tradition. The first extensive treatment of the Law Merchant
in England was written in 1622 by Gerard Malynes, a prominent
mercantilistwriter on economic topics who, however, was "forced
to admit that this mercantile custom was wholly unknown to and
legally impossible in the common law" at that time.'2
While the Crown with its mercantilist policies had supervised
domestic commerce and striven to protect England'snationalproductive and monetary position in international trade, the merchants
themselves clearlyhad maintaineda system of laissez-faireself-regulation within this general frame of reference. However, as the protectionist system began to breakdown because of its restraininginfluence
on the increasinglyindividualisticand spontaneousexpansion of both
maritimeand inland commerce, these same forces contributedto the
breakdownof the enforceabilityof the merchants'customs and usages
amonga no longer stable, close-knit fraternity.Even so, the crumbling
of the protective shell and the erosion of fraternal standards of
performanceand enforceabilitydid not take place withoutthe perpetuation of some of the better features of the older system. For example,
a statute of 1697-1698 permitted merchants to obtain common law
enforcementof the results of arbitration,"' thus giving them the benefit
of legal enforceabilitywithoutforcingthemto cope with the difficulties
of a tedious and uncomprehendingcommon law court system. The
strengthof the traditionof this legallyindependentsystem of mercantile
regulationis illustratedby one of the stated functions of the Glasgow
Chamberof Commerceas late as 1785.Duringthis periodof intimate
association with Adam Smith and espousal of his free trade policy,
the chamberwas prepared"to accept of arbitrationsin disputes upon
mercantilecases, in order to save the heavy expenses attendinglaw
suits." '4 Arbitrationdecisions were approvedby the general meeting
of the chamber and circulated "to members of Parliament, other
Chambersof Commerce, and influentialpersons."
The main course of development, however, indicated a growing

Lord Mansfieldand the Law Merchant


need among merchantsto resort to common law remedies to provide
the frameworkof stabilityand ordernecessary for expandingcommercial activity. In 1645 the Court of King's Bench granted a motion
to impanela special jury of merchantsto decide a commercialdispute.
"It was conceived thatthey mighthave betterknowledgeof 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
requireda special jury, and "the costs then followed the result."
By 1765Mansfieldcould declare in Pillans v. van Mierop that "the
law of merchantsand 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 jurorsas a permanentliaison between law and commerce." 17
These jurors served continuallyover 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
maintaineditself for centuriesas a voluntaristic,unmanagedstructure
of rules developed by the merchantsthemselves for the conduct of
business. On Mansfield's theoretical and empiricalinterplay with his
juries, Fifoot wrote:
For the most part Lord Mansfield corrected the exuberance of
the jury without offending its susceptibilities,and restrainedits
power even while he raised its prestige. A verdict was to be
accepted as raw materialbroughtto the court to be fashioned.
The jury found a usage, the judge accepted or rejected it as
furtheringor impedingthe convenience of trade. The jury solved
a particularproblem,the judge rationalizedthe solutionfor future
use. The jury revealed a fresh facet of human experience, the
judge framed it in the general policy of the law. By insisting
upon these complementaryfunctions, Lord Mansfieldmaintained
an equilibriumbetween stability and expansion, and determined
the axis about which the mercantileworld could revolve.'8

At the same time, Adam Smith used a naturallaw traditioncouched
in Newtonian terms to justify the abandonmentof legal involvement


S. ToddLowry

in the economic process. AlthoughMansfieldwas a free traderbefore
Smith, he believed that reason is a higher standardof reference than
naturallaw, and he spoke disparaginglyin one case of "inferences
from gatheringacorns and seizing a vacant piece of ground" in "an
imaginarystate of naturebefore the invention of letters." 19
Mansfield's Philosophy of Law and Economics

The basic structure of Mansfield's legal and economic views is
generallyindicatedby his most famous decisions and by his relations
with his special merchantjuries. He was strongly influenced by the
Roman legal tradition, especially by Cicero. It is recorded that while
at Lincoln's Inn he translatedCicero into English and back into Latin
to improvehis rhetoricalstyle. His own classical educationis reflected
in the course of study he recommended for the young Duke of
Portland.20He 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,underthe Stoic tradition,was based upon the presumption
of the universalityof 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
indisposedto pursuea course recommendedby unimpeachableauthority."-21 The jus naturae was "the ideal law which might not exist"
but towardwhich humanreason strove and towardwhich the superior
and well trainedintellectcould approachmore nearlythanthe common

This jurisprudentialpremise is illustrated by Mansfield's role as
the articulator of generalizable principles in interaction with his
merchantjuries. While he recognized the factual orientationof the
jus gentium, he in no way minimizedthe importanceof the role of
the legal scholar in generalizingand rationalizingthe popularusages
of the merchantsin 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 materialistemphasis 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


approachedthe problem of preparingthe legal and political structure
as a shelter for the individualisticcommercial life of the emerging
Smithconceived exchange price as gravitatingtowardnaturalprice.
The Romanlaw tradition,on the other hand, assumed a naturaljustice
(or just price) toward which reasoned decisions would gravitate. This
permitted a concept of a natural justice essentially synthesized by
the cumulative reason 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 interdependentsociety where the
advantagesof specializationand the division of labor make long-run,
Just as the moderneconostable economic relationshipsmandatory.23
mist can be expected to carry the analysis of efficient possibilities
beyond the calculations of the ordinary man, so the Roman jurist
withhis specialtrainingandwiththe aidof colleaguescouldbe 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 makingsince 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-termpatterns
of commitment with government guarantees of enforceability was
entirelyconsistent with this traditionof law and with the Law Merchant
itself. It was but a natural sequence in a changing social scale of
organizationand authority, from the guild and municipalsociety, to
the internationalfair, and to the nationaland internationaleconomy,
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

Althoughnaturalismserved 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


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 acceptedas an ideal, it convenientlycan becomea justification
for the abandonmentof a faltering system.25In this context, Smith
conceived the body of mercantilistlaw designed to shape and order
nascent commercial life in the shadow of the feudal system as an
unnaturalintervention.This laissez-faireoutlook fell withinhis sweeping definition of jurisprudenceas "that science which inquires into
the general principles which ought to be the foundation of the laws
of all nations."26
The naturalismof Smith's jurisprudencewas built on a different
base than the Ciceronianrationalismof Roman law. The latter held
thatconsultationbetween humanbeings exercisingintellectualpowers
is the essence of social progressand is a source of moraland expedient
advantage.27Perhaps 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 describinghumancontact with the materialworld
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 struggling for a single piece of
wreckage to sustain him), there is, on the one hand, no need for
humanorganizationand, on the other hand, no possibility of it since
the rawest physiologicalresponses of survivaldominate.29The whole
rangeof 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
responsiblefor the initiationof the organizationof society.
Smithseems to have carefully avoided makingthe initialconcession
that rationalandefficient (expedient)conductresultsfrom the exercise
of humanreason. Instead, he extendedthat area of basic physiological
responseexpressedby self-interestandthe so-calledinstinctto "truck,
barterandtrade" so as to postulatea physicallynaturalhumanbehavior
patternin interactionwith a physically naturalmaterialbase.30Thus,
in his view, the natural response of the individual combined with
the naturalconditions of the physical world result in a naturalprice
toward which aggregate behavior tends to gravitate. This approach
provides no reasonedjustificationfor naturalprice, 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 Mansfieldand the Law Merchant


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 littlerole in this system. Thisapproachto a "scientific"
definition of the economic process ignores much of the necessary
legal structuringof property rights requisite for economic planning.
Smithdismissedthis undefinedarea with his referenceto the necessity
for "a tolerable administrationof justice." Moreover, he seems to
have viewed justice in this areaas mainlycriminallaw for the protection
of private property.
Smith's response to the restrictivemercantiletraditionof legislating
prices, standards,and constraintsfor internaland external trade was
twofold. He denied its validity in terms of a "system of natural
jurisprudence" and demonstratedwith a Newtonian rationalization
of the benevolentharmonyof the physicalworldthateconomicprogress
would proceed best if freed from confining legal patterns and left
to the essentially physical drives of the individual.This reliance upon
a physical formulationas the basis for social analysis set the tone
for nineteenth-centurypolitical economy and, in a sense, for the
analyticaljurisprudencewhich paralleledit. Smith's views, however,
dealt with a changing relationshipbetween the legal structure and
the economy. As C. A. Cooke pointed out,
though Adam Smith made much of individual initiative and
criticizedgovernmentalcrampingof it, he attemptedto establish
a valid critiqueof law in terms of social and economic movement.
This study of social phenomenain terms of movementwas largely
abandonedin 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 workingof given legal
andeconomic mechanisms.And since for the purposeof deductive
theory these mechanismswere 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 importantlegal treatise synthesized 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 harmonioussystem of rules, "so
nicely constructedand so artificiallyconnected together,that the least


S. Todd Lowry

breach in any one of them disorders for a time the texture of the
whole."32 The forces that molded the common law, in Blackstone's
view, had "so intimately connected, so inseparablyinterwoven 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 pursuitof self-interest
was somehow bound up with the naturalharmonyof 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-honoredlegal precept that "what is not reason is not law,"
he displayed an uneasiness about individual reason tamperingwith
what he regardedas the inherent rationalityof 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 inconveniences that have followed the
While Blackstone's work was a conspicuously successful contribution to the orderly study of the common law, the Commentarieswere
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
stillobsessed with the refinementsof the feudallaw 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
assimilatedand perpetuatedan ancient formulationof a framework
of law withinthe limitsof whichindividualparticipantsexercise 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 subordinationto, the former."38
It was withinthe "indifferent"zone, where regulationhadbeen found

Lord Mansfieldand the Law Merchant


necessary for the benefit of society, that Mansfieldconcentrated his
Contractsand NegotiableInstruments

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 precommercialforms of
action, however, Mansfield's approach was to analyze the law in
terms of contemporary economic 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 wheneverpossible to justify his decisions,
Mansfield's insistence on abstracting principles from the cases to
implementthe customs and usages 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 requirementsof assumpsit 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 natureof 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 ratherthanas legallyenforceableagreementscreatingfuture
rights. When a contract is made for an exchange to take place at
some point in the future, the legally enforceablecommitmentbecomes
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 instrumentof economic planning
which permits individualsto organize the enforceable commitments
(raw materials, labor, marketing) requisite for complex economic
undertakings.Withoutthe legal sanctionof privatecontract,economic
planning would be limited to the patterns structured by custom,
governmentalauthority,or independentlycontrolledresources.
Legal writers refer to the contractual process as risk spreading,
but its full significanceas 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


S. ToddLowry

the economic abstraction so important in organizing idle resources
in an expanding economy. By contrast, Smith's emphasis on the
importanceof materialstock and saving as the key to opulence limited
the play of economic analysis to currentlydefinable 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 between rightby natureandrightby conventionor enactmentperpetuated
in the Roman legal tradition of law by nature or law by custom or
legislationwas an integralpart of his intellectualbackground.In this
context, the arbitraryrules of a reasoned commercial policy which
permit planningand stability are necessary in order to prevent the
chaos that would result from the absence of rules. In Whitfieldv.
Lord Le Despencer,4'for example, where a bank note had been stolen
out of the mails by a postal sorter, Mansfielddenied recovery against
the Postmaster-General.Citing Lane v. Cotton,42he wrote: "In 1699
a solemn judgment was given that an action on the case will not
lie against the Postmaster-Generalfor 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 anticipationof its constancy. This concept of arbitrary
legal consistency contributedto a broaderperspective for rationally
designinglegal institutionsaffecting economic activity.
Oneof the fields in whichMansfield'sdecisions were most influential
was in the development of the law of negotiable instruments. The
origins of fiat money and credit are intimately intertwinedwith the
practicesof the merchantsin medievaltimes. "Earlyin 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 importantfunction of
these fairs."43 Credit instrumentshad been developed as a part of
mercantileactivity to the extent that they were free from the presumed
existence of hard money backing. The acceptance by the merchants
of these instrumentsrequireda very tightly knit commercialstructure
that previously had been enforced by the organizationof the fairs.

Lord Mansfieldand the Law Merchant


By the end of the seventeenth century in England, however, the
close fraternity of internationalmerchants had broken down and
ostracism and mistrust were 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 1698in 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 problemwas essentially this. For centuries, mercantilepractice
had permitted an entrepreneurto use his standing as a competent
businessmanas the basis for credit creation. He mightpay 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 endorsement 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
commonlaw enforcementof negotiableinstrumentshad been to argue
that their notes were "specialities" or contracts under seal which,
as instrumentsin writing under seal, did not need proof of consideration. 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 importantissue was
whether one who has taken stolen property from a thief has any
rightin thatpropertysince the thief did not. If the propertyin 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

S. ToddLowry


tradeand commerce:which wouldbe muchincommodedby 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 correspondingto the commercialopportunitiesthey envisioned and the plans they made. The strength of these instruments
could be based solely upon the reputationof the individualmerchant
or the backing of a commercialhouse 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 endorserpledged his personal credit so that the more
hands it passed through,the strongerthe cumulativepledge of credit,
and the more easily negotiatedthe instrument.
AdamSmith'streatmentof negotiablepaperfalls shortof Mansfield's
basic analysis of its role as money. He showed an appreciationof
its history: "The customs of merchants,which were establishedwhen
the barbarouslaws of Europe did not enforce the performance of
their contracts, and which duringthe course of the two last centuries
have been adopted into the laws of all Europeannations, have given
such extraordinaryprivilegesto bills of exchange, that money is more
readilyadvancedupon them, thanupon any otherspecies 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
Consistent with his materialistorientation, however, Smith
thoughtthe notes were frequently unsupportedby the money supply.
They were, he wrote, "over and above . . . what the circulation

of the countrycould easily absorbandemploy." It is unclearwhether
Smith's objection to this expansion of circulatingcurrency was due
to a presumptionof a static economy or to its inflationarypotential
if it outran sound investment. He, however, was not theoretically
receptiveto the creative social policy of the rationalisticlegal tradition
representedby Mansfield.
It would be improper to presume a detailed grasp of economic



processes on Mansfield's part, much less the ability to think in terms
of formulatingeconomic systems, but his careful use of legal fictions
illustrates his ability to use hypothetical models to isolate important
issues. One of his rulingson ejectmentis 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 numeroustribe
of fictitious participants (Fairclaim, Shamtitle, John Doe, William
Stiles, and so forth) in these cases. In Fairclaimd. Fowler v. Shamtitle
Mansfielddeclared "that he had it at heart to have the practice upon
ejectments clearly settled upon large and liberal grounds for the
advancementof 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 furtheranceof justice."
The divergence between political economy and jurisprudence in
the eighteenth century had many facets. Mansfield, "the first judge
to speak the languageof the livinglaw,"51epitomizedthe long tradition
of the applicationof humanreason to the developmentof functioning
institutions to cope with the needs of society. On the other hand,
Adam Smith, the founder of British political economy, initiated a
line of emphasisstressingdeductionsfrom observedmaterialquantities
and relationships. Both nineteenth-centuryBritish political economy
and analytical jurisprudence,deducing from utility and authority in
staticframeworks,followed the morepositivisticinclinationsof Smith.
Upon reflection, however, Mansfield's role in bringingthe tradition
of reasoned rule makinginto play at a creative level for developing
working institutional patterns seems conspicuously modern. This
approachis particularlyappropriateto the handlingof modernproblems
of administrationand regulation.
1. Lord Campbell, The Lives of the Chief Justices of England(New York:
James Cockcroft & Co., 1873),vol. 3, p. 299.
2. Ibid., pp. 299-300.


S. Todd Lowry

3. A Discourse about Trade (1690), p. 113. Quoted by C. H. S. Fifoot,
Lord Mansfield(Oxford:ClarendonPress, 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'sIntroductionto Smith's Lectureson Justice, Police,
Revenue and Arms (Oxford: Clarendon Press, 1896), pp. xxxi-xxxii,
particularlyhis discussion of Smith's reiterationof the inclusion of his
politicaleconomy withinthe purviewof jurisprudencein the sixth edition
(1790) of The Moral Sentiments.See also C. A. Cooke, "Adam Smith
and Jurisprudence,"Law QuarterlyReview51 (1935):322. Cooke wrote:
"The problemsof the law are economic because the law governs human
activitiesin the satisfactionof wantsfromlimitedresources.The problems
of economics are legal because law is the frameworkof human action
and the economic element is one particularside 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'sEarliestTreatiseon the Law Merchant,"
AmericanJournalof Legal History6 (1962): 178-210.
9. Ibid., pp. 193, 195.
10. The term pie powderor piepoudre(dusty feet) was appliedto the courts
at the merchants'fairs. As Teetor points out, Simple Simon's "pie-man"
in the nurseryrhyme was certainlyan itinerantmerchantand not a pastry
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 Worldof Adam Smith(New York: AugustusM. Kelley,
1966),p. 37.
15. Fifoot, Mansfield,p. 104.
16. 3 Burr. 1663.
17. Fifoot, Mansfield,p. 105.
18. Ibid., p. 114.
19. Millarv. Taylor [(1766) 1 W. Bl. 301, 321].
20. Printed in The European Magazine, June 1791, p. 418. Lord Campbell
records that Mansfieldopposed the appointmentof his successor, Lord
Kenyon, "because he did not wish to see in the seat of Chief Justice
of Englandone who did not know the charactersof the Greek language,
and of Latin knew only some scraps to be misquoted"(Campbell,Lives,
p. 291).
21. Fifoot, Mansfield,p. 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 obligationin a marketsituation. Diogenes suggests that the seller

Lord Mansfieldand the Law Merchant


behaves expediently and morally in terms of his profession as long as
he makesno misrepresentations,while Antipatercontends thatthe seller's
obligation is to society, to "tell everything, so that the buyer can be
just as much in possession of the facts as the seller." Antipater'spolicy
would result in a perfectly informedmarket.
24. Heinrich A. Rommen, "The Natural Law in the Renaissance Period,"
Notre Dame Lawyer24 (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 naturallaw 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 contradictorystatements 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 empirical science (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 attemptto connect in the imaginationthe phaenomenaof the Heavens,
but as the greatest discovery that ever was made by man, the discovery
of an immensechain of the most importantand sublimetruths,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 Concerningthe Principlesof Morals, Sec. 3
(New York: CharlesScribner'sSons, 1927),pp. 203-10.
29. The cheapness of water illustrationgoes back to Plato's Euthydemus;
that of the shipwreckedtravelleris 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 developmentin economic theory.
31. Cooke, "Adam Smith," pp. 330-31.
32. William Blackstone, Commentarieson the Laws of England, vol. 2, p.
33. Ibid., vol. 1, p. 40.
34. Boorstin, The MysteriousScience, p. 52.
35. Blackstone, Commentaries,vol. 1, p. 70.
36. Fifoot, Mansfield,pp. 89-90.
37. See S. Todd Lowry, "Aristotle's MathematicalAnalysis of Exchange,"
History of Political Economy 1 (1969):44-66.
38. Blackstone, Commentaries,vol. 1, pp. 41-42.
39. (1774), Lofft, p. 385. Cited by Fifoot, Mansfield,p. 227.


S. Todd Lowry
Ibid., p. 221.
(1778)2 Cowper, 754.
1 Ld. Raym. 646.
Holdsworth,English Law, p. 179.
(1698), 1 Ld. Raym 360. Cited by Fifoot, Mansfield,p. 89.
Millerv. Race (1758), 1 Burr., 452.
Adam Smith, Wealth of Nations (Edwin Cannan, ed.), Book II, chap.
2 (New York: ModernLibrary, 1937),p. 293.
Ibid., p. 294.
Ibid., p. 2%.
(1762) 3 Burr., 1290.
Fabrigasv. Mostyn [(1774) 1 Cowper, 161].
Fifoot, Mansfield,p. 252.