The Economic History of Sovereignty: Communal Responsibility, the Extended Family, and the Firm

Abstract

In merging the scholarly literatures on the bill of exchange and the emergence of the corporation, Lars Boerner and Albrecht Ritschl make several noteworthy claims about the role of communal responsibility in medieval Europe (Boerner and Ritschl [2009]). They explore the well-known fact that merchants from the same city operating in foreign regions were effectively part of the same liability pool. The communal responsibility improved the merchants' credibility and thus facilitated exchanges between merchants from different jurisdictions. In a Europe defined by its fragmented jurisdiction, the communal liability of merchants from the same town played a central role in establishing sufficient trust for the bill of exchange system to function. The authors also explore the role of communal responsibility in debt enforcement on the city level. Throughout much of the middle ages, in particular to the east of the Rhine, members of a merchant's extended family and household were responsible for debts incurred by the merchant. While this mechanism reduced the creditors' risk exposure, the authors suggest that it might have led debtors to take on projects that were too risky because they expected the family to pay for their failures. The economically distorting tendency of this communal responsibility, they claim, might provide a rationale for the emergence of the limited liability corporation. They conclude that the corporation was more conducive to the fast accumulation of large sums of entrepreneurial capital (p. 1 10) than the family firm and thus fostered commercial expansion. Consequently, since the limited liability corporation contributed to the internalization of risk amongst merchants operating abroad, providing a more well-defined liability pool further strengthened the bill of exchange system. This paper posits a series of well-defined research questions about the role of communal responsibility in medieval economies that are well worth pursuing. Below, I suggest further avenues for their research. The authors interestingly explore the embeddedness of economic institutions in the social and familial organization of Medieval Europe. They indicate that the family was a powerful organizational unit, both economically and financially. Yet, they argue that merchants had a tendency to take on risk in excess of what they