When Trust Fails: Merchants, Law, and the British Empire in the Eighteenth Century

Abstract

Trusting agents, trading partners, and others to fulfill their obligations honestly and in accordance with expectations stands as the “fundamental problem of exchange.” These problems were even more pronounced in long-distance trade, where agents or trading partners lived on the other sides of oceans and were seemingly immune from immediate sanctions. How merchants could police each other’s behavior – how they could trust each other sufficiently to engage in risky trade – remains a basic question in understanding the development of modern economies.

I take up this question by examining how British and American merchants in the eighteenth century resolved their disputes and paying particularly close attention to their relationship with the law. I examine merchants in New York, Glasgow, and Calcutta. Looking more closely at the use of law as a formal institution of economic relations and imperial governance helps us understand how the “modern” elements of economy and empire began to emerge during these years. The co-development of trade and empire in the eighteenth century laid some of the legal foundations for the global capitalism of the twentieth and twenty-first centuries.

This dissertation shows that merchants and law had a complex relationship. As a rule, merchant-capitalists always sought stronger protection for their property rights while insisting on maximum flexibility for themselves. Law, including unenforced law, provided merchants, mariners, traders, and many others with a set of rules that shaped their behavior. Law could cast a shadow just as much through its ideas, concepts, forms, and expectations as it did through its enforcement institutions. The exact nature of any group of merchants’ relationship with the law depended on the time, place, and nature of what was going on. The dissertation shows how the local context in each city mattered in shaping how merchants and law interacted.

Further, the dissertation traces a double process of convergence and divergence in the greater British world. While on the one hand the conditions favorable to free trade were emerging, tying disparate parts of the world together economically, on the other hand the state became more powerful and able to project its power beyond its borders by enforcing its laws, which erected barriers between different regions. The tensions between those two developments played out in the degree of “latitude” afforded to, and taken by, Britain’s colonies. Paradoxically, some legal changes led to both convergence and divergence. The strategy of “designed divergence,” as I term it in Chapter 2, relied on creating regions of the Empire that were clearly delineated legally. Those regions had particular sets of laws or rules that encouraged increased commerce between them and other parts of the Empire. By creating exceptions and exclusions from general English laws in the colonies, British policymakers created a legal system that drew the colonies and mother country closer together economically.

In the same way that law became a necessary support structure for empire, it served as the groundwork for a new wave of globalization. It created the common ground on which traders from around the world could meet and transact, and functioned as one of the most important structural foundations which supported the growing edifice of global trade. For those reasons, we can speak of an “empire of commerce” that stepped onto the world stage at the end of the eighteenth century.