CHAPTER 6

Law as an Institution of Economic Growth: Europe Compared with Japan

Doom very evenly: doom not one doom to the rich, another to the poor; nor doom one to your friend, another to your foe. [1]

Pluralism in law is a feature of the more-developed world. It consists of multiple jurisdictions, relationships among them, appeals, checks and balances, and distinctions between public and private law and among judicial, legislative, and executive functions. This pluralism was crafted over centuries by negotiation and compromises among many interest groups.

In the less-developed world by contrast, law often "belongs" to power groups. Although the organizations of law may be similar to or even copied from those of the West, the institution is not. Power groups make laws by executive decree, manipulate the parliament, interpret and selectively enforce laws according to their interests, and make arrests or seize property and persons without regard to law. This contrast is presented starkly for emphasis. While qualifications and exceptions abound, they are insufficient to devalue the general distinction. In the power-diffusion process, law plays a significant role in the resulting efficiency or inefficiency of economic enterprise.

Law and the Power Group

From medieval times on, European kings might make law but they also had to obey it, at least in principle and often in practice. Henry II of England (r.1154-89) wrote down both the capabilities and the limitations of royal power. [2] Ptolemy of Lucca wrote that "Political rulers are bound by laws and cannot proceed beyond them in the pursuit of justice." [3] Louis XI and Charles VIII of France each "imposed rules upon himself and recognized limits to his power, those limits being the customs of the country." [4]

"The king had to beg and pray, as Maitland put it, for he could not command and punish." [5] John of Salisbury, who protested professional specialization in royal and ecclesiastical bureaucracies, declared in Policraticus in the twelfth century that "the military class has general responsibility to maintain laws against abuse by the monarch." [6]

According to Berman, "belief in a `fundamental law,' to which governments must adhere or risk overthrow as despotisms is characteristically Western." [7] Cannon and Griffiths suggest that it descends from Roman and Christian law, which "served, on the one hand, to develop the power of kings and, on the other, to direct — even to limit — their actions." [8] The church played a major role in curtailing the power of kings. As far back as 390, Ambrose, bishop of Milan, had declared that the emperor is "within and not above the church." [9] It is hard to believe that the precept of a legally-limited monarchy would endure over the centuries if contemporary circumstances did not continually re-inforce it.

This good order has not been perfected anywhere. In the United States, even though President Nixon was forced to resign in 1974, other high-level usurpers or evaders of the law have escaped punishment, when the reputation of a high office — not the officeholder — was thought likely to suffer unduly. The Iran-Contra hearings in the 1980s are an example of this principle.

When a ruling group persistently dictates law in its own interests or flouts it, then — in addition to human suffering — resources are wasted and economic development retarded. Bribery, property seizures, suppression of competition, and diversion of public funds all are characteristic of much of the less-developed world today.

When the power-diffusion process operates, law may first "belong" to power groups, which violate it to their advantage, but the pressure of newly forming groups causes law to have power of its own. It becomes like the institution described on page 7 — a balloon being held in position by the breaths of the power groups that sustain it — none being strong enough to alter its course substantially. Ideally, none will destroy the legal system just to win a single case. Finally, as the groups tend toward balance of power, the law tends toward equality for all corporate beings, personal and artificial.

Max Weber presumed that "modern capitalism has need, not only of the technical means of production, but of a calculable legal system and of administration in terms of formal rules." [10] These two needs are mutually re-inforcing. Economic growth may proceed while law is still captured by a power group; for a modern example of this, see Chapter 21 on the "Four Dragons." Ultimately, however, an independent law must prevail, or the power-diffusion process will be slowed and economic development delayed.

Law in the Middle Ages

In both northwestern Europe and Japan, early law was of two types. First, it was custom: that which has been done from time immemorial. Customary law kept a society functioning smoothly, settling disputes rather than seeking abstract justice. Decisions, made in the courts of rulers or local authorities, centered on fact-finding and punishment, not around contract and enforcement. Punishment usually required the violator to compensate the victim.

Second, law was promulgated by decrees of those in power, whose primary aim was to maintain their power. This law concentrated on land ownership, taxes, treason, lèse majesté, and other insults to authority. Punishment was brutal, torture, mutilation, and death being common. This was the law that Henry II centralized in England in the twelfth century.

The origins of customs often remain unknown, but presumably they come from some intratribal balance of power and are not determined solely by the chiefs. Cantor writes that Germanic customary law resided in the Volk, and that even the chief could not invent laws. British law was derived from the German in this respect. [11] However, because the chiefs and elders administer it and because there is no legal process independent of them, it is reasonable to presume that even customary law "belongs" to the power group.

For a long time Europeans believed law was either "divine" or "natural" or both. Divine law comes direct from God, usually with priests or tribal chief or king as intermediary. Natural law conforms to nature as perceived by people. Over the centuries, law has become more recognized as "positive," or determined by enactment or judicial procedure.

Under the centralization of law by Henry I (r.1100-1135) and his grandson Henry II (r.1154-1189), "the royal government sought to exercise a general supervision over the workings of the local courts [which] remained community courts." [12] The law itself was composed by local officials responsible to the king. Over the centuries, however, this common law of the courts replaced the king's capture of the law.

Likewise on the continent, law originally captured by the king increasingly leaked into the domains of judges and scholars. About 1080, when Italian legal scholars discovered a vast collection of documents from Emperor Justinian, whose code had been published about 534 CE, [13] they were tempted to consider these the long-sought universal law. Law schools sprang up in many cities, the most famous in Bologna in the twelfth century, and "Roman law" thereafter applied in many places.

Philip II of France (r.1180-1223) found himself threatened by this law, which he interpreted as enhancing the power of the Holy Roman (German) emperor. He obtained a papal bull forbidding Roman law in Paris, but increasingly it spread to local jurisdictions. [14] His successors, however, discovered the usefulness of Roman law in centralizing power in the king. By the sixteenth century it was dominant in the south of France, although supplemented by court decrees and customary law. Customary law still dominated in the north. [15] As in England, so in France, law that early on purported to centralize power in the monarchy moved increasingly into the domain of lower-level legists and scholars.

Nor did the studies end with Roman law. In a heroic example of compromise, the jurists reconciled and synthesized Hebrew theology, Greek philosophy, and Roman law into legal systems useful to principalities and emerging nations. All this happened despite the fact that Greek philosophy and Roman law were not acceptable to Hebrew culture, nor Roman law or Hebrew theology to Greek culture, nor Roman culture to Hebrew theology. [16] Into this melting pot they also stirred principles from the customary laws of widely differing European tribes.

Thus, the laws of northwestern Europe originated in a compromise among customary laws of many tribes, plus manorial law, royal law, church law, Roman law, and Greek philosophy. This pluralist origin helped law become a power in its own right, because those who came before any court had a vast array of precedent from which to choose. This complexity in turn made rulers more dependent on jurists, who, adopting professional standards, began to value law as independent doctrine.

As feudalism waned and economic development proceeded, a distinction had to be worked out between public and private law. Today, this line divides administrative and constitutional law on the one hand from laws concerning the rights between private persons on the other. The Romans understood the difference, but Germanic tribes, such as Burgundian, Frank, and Lombard, did not. [17]

The borders between private and public power, possessions, and behavior had all eroded by the Middle Ages. In a document by Charles the Bald in 856, in which the king and several subjects agreed on an undertaking, it is not clear whether the obligations of each were contract or public law, and surely the difference had not occurred to those participating. [18] Europeans of the Middle Ages did make a distinction, however, between the laws of the kingdom and the laws of the family. Presumably the laws of the family would be adjudicated by the paterfamilias, supreme within his domicile. Only the community beyond the family was governed by custom. Thus the family rather than the individual was the economic actor, capable of suing and being sued.

The ruler's law was an antagonist, against which the private person defended himself: "[F]riendships formed a bulwark against 'the law,' which insinuated itself wherever it could, manifesting its power when successful through a symbolism of penetration." [19] This is still the law of the powerful, not yet yielding to a balance of forces.

Two incidents in the early fifteenth century in England illustrate the bending of a general law to suit a particular circumstance. In the first case, Henry IV (r.1399-1413) refused to allow statutes that would make piracy illegal, because to do so would limit the rights of British ships to attack the French, who were supplying his Scottish foes. Henry V (r.1413-22) reversed this stand by demanding statutes to outlaw the piracy that was damaging English trade with Burgundy, with whose duke he was allied in the war against France. [20] Neither Henry expressed a principle against piracy per se. In the second case of expedient law, Henry V, hoping to win the loyalty of "his" subjects in Normandy, introduced sound English currency in place of the debased and uncertain coinage from many parts of France. [21] Thus sound money was a matter of momentary political advantage, not a value in itself. Each Henry, IV and V, used his power to make a decision responding more to the exigency of the moment than to any consistent principle.

Only over subsequent centuries did merchants gain power relative to the king so that laws against piracy and for sound money became institutionalized and universally applicable. By the time of the English civil war in the seventeenth century, the king could no longer legislate to suit his whim. He had to pay some attention to his subjects, albeit not yet to the most humble of them.

Comparison with Japan

Chapter 2 summarizes how, from the first shogun in 1192 until the Meiji Restoration in 1868, power over the law was contested among the shogun, officials such as shugo and jito, ikki (peasant warriors), and later on daimyo (feudal lords) and merchants. Each of these lower groups captured law where it could, ignoring the shogun if it could.

Among the similarities with northwestern Europe is the continuing contest between centralized and local law. The two areas waged this contest in different ways. Whereas feudal law declined with centralization of government in Europe, in Japan it was strengthened, probably because a feudal chief, Yoritomo, overcame the emperor in the thirteenth century, taking power by issuing orders over a domain where his only rights were by military conquest. [22] He then imposed feudal law on local areas at the expense of customary and domain law. [23] In northwestern Europe, by contrast, the kings and lords compromised on power sharing, an exogenous difference (one with no more fundamental explanation), but possibly a reason why European economic development preceded Japanese.

In the thirteenth century, the Hojo family — the power behind the shogun — drew up the Joei formulary as a codification of feudal law. [24] This set forth the duties of local officials and distinguished them from the shogunal court.

Pluralism in Law

"In the West, the competition and cooperation of rival limited jurisdictions not only required each to systematize its law but also gave each the basis for doing so." [25] Each jurisdiction became bound by the laws of the others: a "system of plural jurisdictions." [26]

Legal pluralism was evident in northwestern Europe early in the Middle Ages. [27] King Aethelstan encouraged nobles, clergy, and commoners in London to combine in making city law in the 920s or 930s. [28] The multitude of jurisdictions in the twelfth century forced compromises on which courts accepted which cases. While ecclesiastical courts accepted those where secular law had "failed," nevertheless they voluntarily placed restrictions on their own jurisdiction. [29] Feudal princes, ecclesiastics, and monarchs not only staked out their territories, but they delegated authority to others reporting to them, creating a patchwork of jurisdictions. [30]

From the eleventh to the thirteenth century, however, England and France moved toward centralized government and centralized law. However, this centralization refers to the scope of jurisdiction, not to all lawmaking. From the thirteenth until the seventeenth century, the royal jurisdiction was extended in England, but the law itself was increasingly fashioned by towns, merchants, sellers of land, and financiers, who argued their cases in both town and royal courts. By the early fifteenth century, Parliament was the primary lawgiver for national issues in England (coinage, war, treason, religion, piracy, taxes for the king) while local authorities administered most commercial law and local disputes. Land was adjudicated on both levels. Few statutes were "'officially' sponsored (what today might be called a 'government bill,')" [31] other than requests for taxes to finance the king's war with France.

From the twelfth century on, "legislation and its enforcement came to be a central feature of the monarchy, binding peoples to respect and obey their king's authority . . . [L]aw codes were stressing royal rights, royal justice, and royal control in a monarchy where the balance between the king and the community as the fount of law and the dispenser of justice was being perceptibly altered in favour of the king." [32] Likewise, "Gregory VII [pope 1073-85] asserted for the first time the power of the pope to 'create new law in accordance with the needs of the time.'" [33] This centralization may have been the result of military victories, such as the Norman conquest in England, Philip II's unification of France, and Gregory's struggle against Emperor Henry IV.

In France, the king rarely interfered with customary law of localities before the sixteenth century, but thereafter Louis XIII and XIV extended their authority persistently. [34] Only in the eighteenth century, as France was being swept into the Revolution, did the tendency again turn toward decentralization.

Even as law was being centralized, however, local jurisdictions and interest groups took actions of their own to gain command over certain aspects of it, in particular merchant law. The concept of civil disobedience, peculiar to the West and Japan, may help explain how local initiative came about. In their famous "heresy" of the fourth century, the Donatists declared that no Christian need participate in church ceremonies under an unworthy priest. In the eleventh century reformist Cardinal Humbert found that although the laity should not interfere in affairs of the church, nevertheless no parishioner was required to take sacraments from an immoral priest. [35] Since the king was responsible to the law but there was no court to try him, in the twelfth century Gratian argued that citizens were morally obliged to disobey unjust laws. [36] But if ordinary people could be civilly disobedient, they must have held some power vis-à-vis the church or the king.

Gratian's view was echoed by other scholars, such as Eike von Repgau, Beaumanoir, [37] Thomas Aquinas, Althusius, [38] and Azo. [39] Thomas Becket tested this principle in his dispute with Henry II of England. [40] Mario Salamonio (about 1450-1532) wrote that "the ruler is a contractual partner in the state [like partners in a mercantile venture]; and, if he breaks the law, the state is dissolved — inequality of conditions break up a partnership." [41] All these writers, who viewed the situation as contemporaries, wrote in terms of a moral society. Serendipitously, however, they reveal that military vassals, town officials, and others could hold the king in check. Passive resistance to taxes was extensive in thirteenth-century England, [42] as it was in the Poujadiste movement in France in the twentieth century.

The medieval concept that the king was subject to his own laws was sorely tried by later kings, both in England and on the continent, but it has never been utterly violated. James I (r.1603-25) agreed that he was subject to the law, but he insisted that he was the judge of his actions. "The obligation to keep within the law was a matter of the king's own conscience, knowing that God would punish any transgressions." [43] Charles I (r.1625-49) "never broke the letter of the law, but his law officers stretched his powers to a point where the letter of the law was far removed from its spirit." [44] During his trial, he said: "If power without law may make laws, I do not know what subject he is in England that can be sure of his life." [45]

By their civil disobedience, men like John Hampden, John Lillburne, Walter Udall, and William Penn "laid the foundations for the English and American law of civil rights and civil liberties." [46] Royal Judge Jenkins and Presbyterian John Maynard went to the Tower of London in civil disobedience. [47]

In France, the same principles applied despite the recentralization of authority under Louis XIII (r.1610-43) and his successors. Louis and Richelieu avoided relying on the king's absolute authority as much as they could. Even Louis XIV did not conceive of himself as above the law. But the king exercised justice "retained" (retenue), or all the powers that he had not specifically delegated. [48] However, "French constitutional ideas were essentially ambiguous. On the one hand, writers [of the seventeenth century] stressed the king's absolute authority to legislate and tax at will, limited only by his obligation to observe the fundamental laws. . . . On the other, it was argued that he should respect France's customs and traditions. . . He should respect the privileges of provinces, towns, courts and other groups." [49]

Not all Western jurists and philosophers agree on the legitimacy of disobedience. Spinoza, for example, wrote that "the individual justly cedes the right of free action, though not of free reason and judgment; no one can act against the authorities without danger to the state . . ." [50]

Comparison with Japan

As in Europe, the Japanese legal system of the thirteenth century conformed to the pluralist society already forming. Each jurisdiction — emperor, court nobility, shogun, sho-en, and temple — had its own courts. As in Europe, it was possible for a plaintiff to move from one to the other. If the lower courts did not give satisfaction, cases could sometimes be appealed upward, to the emperor or — increasingly — to the shogun.

Beginning about the thirteenth century, independent farmers and warriors carved out their own spheres of autonomy outside the sho-en. But the multiplicity of jurisdictions was of a different quality from the European. In northwestern Europe, the law of one jurisdiction was likely to be accepted in another, and jurists made an effort to reconcile them. In Japan, the competition was fierce. Instead of attempting to reconcile different kinds of law, the jurisdictions tried to capture it, each unto itself. By mid-fifteenth century, shogunal law was increasingly ignored.

Yet in Japan, as also in Europe, local law became well developed. The evidence is cited in chapter 2, from authors such as Wigmore and Henderson. In each case, the balance of power was the underlying reason. Also, where Europe began to distinguish private from public law, the fifteenth-century shoguns developed a rough division between civil and criminal law. [51]

As in Europe, civil disobedience occurred in Japan, expressed by the ikki. Bix writes of peasant resistance during the period 1590-1884:

When local officials failed to act in the interests of the majority, or when they were overly enthusiastic in enforcing fief policies of tax exploitation, peasants formed autonomous groups outside their reach. These would threaten to break off the village's relationship to the state, that is, to withhold labor and tribute payments. [52]

In both northwestern Europe and Japan, pluralism and centralization developed side by side, without contradicting each other. The kings of Eng-land and France and the shogun of Japan all fine-tuned and intensified their legal systems on their levels, with more distinctions in law and greater specialization in their courts. They all wanted to extend their authority downward. Each of them was stopped by "lesser" authorities, who were also filling out their law and their legal institutions. On the "lower" levels, law was increasingly in the hands of towns, guilds, and other regional organizations, and it was influenced by ikki and other organizers of peasant rebellions. By the seventeenth century in both northwestern Europe and Japan, the boundaries between central and local law had become reasonably clear.

Laws for Production and Trade

From the start towns established their own courts and made their own laws. . . Already in the early towns the rule of law . . . was widely adopted as a constitutional principle. This was partly because the town judge was often appointed by the lord, and townsmen were therefore keen to insist that he give sentence according to their own laws. [53]

In northwestern Europe laws of apprenticeship, hiring and contract, buying and selling, transporting commodities, insurance, property, leasehold, chattels, and borrowing and repayment grew out of medieval court cases and decrees by town patricians and sometimes by the lord. For the most part, however, the lord left town law alone, partly because he did not have the power to influence it and partly because it was not in his interest to do so. So long as the town brought prosperity and taxes to his manor, he was content.

Town patricians and guildmasters composed the rules. Their concerns were to feed the town, which had to survive famines; to produce goods of sufficient quality to sell in available markets at "fair" prices; to create and protect monopolies; and to employ and train labor. These were the precursors to modern legal and economic principles. On the one hand, townspeople conceived of competition negatively, to be avoided; they did not extend equal rights and privileges to all citizens; status was by birth; "fairness" was a concept of the ruling classes; many disputes were settled within the guild to the advantage of the master; and quarrels with neighboring towns were bitter. [54] "Merchants regularly paid fines for breaking every law that concerned their business, and went on as before." [55]

On the other hand, "fair prices" were debated publicly; the concept of the "public good" underlay decisions; [56] some disputes were tried in town courts — outside the guild — with citizen jurors free to decide; [57] courts became more orderly, with written records [58] and judgments based on precedent; and disputes with neighboring towns were often — not always — settled by negotiation, not war.

In France, the decentralization of law was promoted under Henry II when he "created a consular jurisdiction at Toulouse in 1549; this practice would be extended to different trading sites within the kingdom." [59] Judges and consuls were elected by local merchants. In 1673, after consulting other merchants and jurists, a merchant named Savary prepared a merchants' code for France, which simplified rules that up until that time had become entangled in details. This code continued in use for over two centuries, and many of its provisions were adopted in the Commercial Code of 1807, under Napoleon. [60]

Until the eighteenth century, commercial law in England was primarily adjudicated by town courts. Only toward the end of that century had royal courts acquired the expertise to act in "disputes over insurance, bills of exchange, ships' charters, sales contracts, partnership agreements, patents, arbitrations, and other commercial transactions to make English courts and law seem a factor contributing positively to the development of English commerce." [61]

These examples have three elements in common. First, laws on trade and economics were forged by the participants — guilds, towns, merchants, and craftsmen — with the cooperation of the lord of the manor or the king and his bureaucracy. Second, although discriminatory early on, over the centuries the laws tended toward equal treatment of all participants. Third, and most important to the power-diffusion process, the changes were not sudden. Mainly they were negotiated, as hundreds of positive-sum moves, in a free market for institutions. Royal authorities cooperated, but generally they did not dictate.

From Simple Laws to Complex

Compared with later centuries, early medieval law in northwestern Europe and Japan was simple, conforming to the simple nature of the economy. It relied much on "the concept of the good-faith purchaser (whose rights in the goods might exceed those of the seller), symbolic delivery of goods through transfer of documents, implied warranties, the binding character of informal agreements, and joint ventures." [62] Thomas Aquinas spoke of "just purchases, sales and suchlike, without which men cannot live together," as "derived from the law of nature." [63]

Over time, the increasing complexity of the economy had to be matched by complexity in the law. Instead of specifying how to deliver a cow, the law often required "the coordination of an intricate sequence of activities by people far removed from one another in space and time." [64] This complexity was matched by increasing popular knowledge of the law and greater willingness to act upon that knowledge. [65]

These complex forms would have been impossible or grossly inefficient had they been worked out from tabula rasa by a central bureaucracy. Only when they were crafted, piece by piece, by those intimately knowledgeable could they sustain complex economic development. Popular knowledge also required successive experiences over time. Both complexity and popular knowledge increased as part of the power-diffusion process, for neither would have been possible under concentrated power.

Comparison with Japan

Chapter 2 described how law was made by Japanese merchants and financiers through village and town agreements that they themselves adjudicated. They appealed to daimyo and shogun only for disputes they could not settle among themselves. While the shogun considered his laws to be supreme, beginning around the fifteenth century he was increasingly unable to enforce them.

Upon unifying the country in the sixteenth century, Hideyoshi opened free trade and made the highways safe for the first time in centuries, under laws to which all were bound. [66] But this centralized law was both partial and transitory. The burst of finance and trade that characterizes the Tokugawa era once more returned commercial lawmaking and dispute settlement to those engaged in manufacture and commerce.

Notes