Lawyers as Trusted Agents in Nineteenth-Century American Commerce: The Influence of Fiduciary Law and Norms on Economic Development

Abstract

The role of fiduciary law in the development of North American capitalism has been overlooked by institutional economists, who interpret fiduciary law as a form of contract and make the judicial enforcement of contract central to the transaction-cost theory of economic development. This article argues that the emergence of distinctive, equity-based fiduciary laws and norms significantly influenced the development and growth of early-nineteenth-century American markets. Our historical research identifies lawyers as important economic actors, who served as catalysts for the emergence of this governance culture. Lawyers adopted fiduciary principles that allowed them to become trusted intermediaries, thereby addressing the agency-cost problems inherent in complex economic exchange that vex the institutionalists’ contractual account of economic development.