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

Abstract

This article is the first to demonstrate the important role that fiduciary principles, and the attorneys who adopted them, played in American economic development during the nineteenth century. Our original historical research provides a detailed look at agency relationships during the period. We show that (1) lawyers were heavily involved as trusted agents in U.S. commerce during the nineteenth century, and that (2) their profession’s devotion to fiduciary principles, enabled them to play this crucial role as intermediaries. We argue that principles of fiduciary law, disseminated by lawyers, helped to solve agency problems, which institutional economists consider to be a significant barrier to modern economic development and growth. This critical role of fiduciary law in the development of American capitalism has been missed by economists who interpret fiduciary law as a form of contract. Only by understanding fiduciary law as a distinct normative regime, can we appreciate how it served to constitute a social role for lawyers that helped generate trust in a risky economy. Understanding fiduciary law’s place in the development of American capitalism illustrates important connections between the legal and cultural development of market institutions and has implications both for scholars and for policymakers engaged in modern development efforts.