Market Institutions and Judicial Rulemaking

Abstract

Assuming that the degree of discretion granted to judges was the main distinguishing feature between common and civil law until the 19 th century, we argue that constraining judicial discretion was instrumental in protecting freedom of contract and developing the market order in civil law. We test this hypothesis by analyzing the history of Western law. In England, a unique institutional balance between the Crown and the Parliament guaranteed private property and prompted the gradual evolution towards a legal framework that facilitated market relationships, a process that was supported by the English judiciary. On the Continent, however, legal constraints on the market were suppressed in a top-down fashion by the founders of the liberal state, often against the will of the incumbent judiciary. Constraining judicial discretion there was essential for enforcing freedom of contract and establishing the legal order of the market economy. In line with this evidence, our selection hypothesis casts doubts on the normative interpretation of empirical results that proclaim the superiority of one legal system over another, disregarding the local conditions and institutional interdependencies on which each legal system was grounded.

State Capacity, Legal Design and the Venality of Judicial Offices

“…Another criticism was made by Crettez et al (2018) who contend that French legal centralization actually began with the French Revolution and was an institutional response to the egalitarian aspirations of citizens triggered by the Enlightenment. An alternative explanation for French legal centralization is provided by Arruñada and Andonova (2005) who center on the alleged fact that at the end of the 18th century, local judges opposed free markets and contractual equality. Granting them judicial discretion would have threatened the development of the economy which is why France chose legal centralization and enacted the Napoleonic Civil Code in 1804.…”

“…Granting them judicial discretion would have threatened the development of the economy which is why France chose legal centralization and enacted the Napoleonic Civil Code in 1804. Arruñada and Andonova (2005), however, do not consider judicial venality as such, nor do they highlight the tradeoff associated with this system. In addition, by focusing on the Civil Code (1804), they overlook the fact that the bulk of legal transformations occurred at the beginning of the French Revolution, from 1789 to 1791 (see Blaufarb (2016)).…”