"Justice of the Marketplace": Legal Disputes and Economic Activity on America's Northeastern Frontier, 1700–1860

"Resolved, That we are in favor of 'a well regulated credit system . . . its free and general use is the distinguishing feature between despotism and liberty.'"

—Niles' Weekly Register (1837)

During the eighteenth century, the economic standing of the colonies on the British American mainland lagged behind that of many countries in Latin America and theWest Indies. By the middle of the nineteenth century, however, it became evident that the United States was in the process of overtaking even the early industrializing nations in Europe. Economic and social historians have offered competing explanations for the transformations that enabled the United States to achieve such rapid economic success. More generally, they show disagreement about the potential for human nature and its expression in culture and commerce to change over time. Institutional economists, for instance, argue that individuals in all eras tend to respond to incentives, as well as to the rules and standards that comprise such key institutions as markets, property rights, and the legal system.¹

By way of contrast, an extensive historical literature explores the so-called "transition to capitalism" in early American society. One variation in the transition thesis draws a distinction between community-based interactions and impersonal market exchange. In this view, the operation of a "moral economy" predated the advent of "capitalism," wherein transactions were governed by social and religious norms and traditions and featured violent reactions to the encroachments of markets on prevailing values and cultural practices. Discussion of the transition encompasses diverse topics: the rationality and objectives of farmers and their mentalité (world-views); claims that real property rights were uncertain and ultimately decided by force; and allegations of class-based conflict between rural farmers and more economically oriented entrepreneurs, merchants, or landed proprietors. Kulikoff noted one point of consensus in all of the debates—that rational, impersonal market exchange emerged only after the American Revolution (some scholars infer a causal connection, allowing them to conclude that subsequent changes were the result of independence).²

To address how citizens engaged in commerce and cooperation in different eras, historians have mustered a rich array of information from diverse sources, ranging from account books and diaries to probates; data about wages, prices, and incomes; and even material artifacts. Rothenberg made creative use of evidence drawn from farmers' account books and the convergence of prices, as well as a limited number of probates in her investigation of the development of capital markets. She maintains that rural areas were integrated into regional markets only after the 1780s. Lamoreaux suggests that since the existence and timing of the transition are no longer controversial, scholars should start paying more attention to the process of transformation itself. Historical inquiries into these issues have an analog in studies of the legal system, although the two schools rarely integrate their findings explicitly. For example, Horwitz and Pound propose that the disjuncture between the archaic colonial legal system and the rationalization of U.S. law did not occur until the early nineteenth century.³

Although studies on this point have added significantly to our understanding of early transactions, a number of central questions about the nature and evolution of early markets and legal institutions remain unresolved. Much of the evidence is fragmented; samples are often too small for statistical significance or too limited across time; and the findings about some locales are inconsistent with those from others. As a case in point, the contention that a transition occurred around the time of the founding of the Republic fails to take into account conflicting findings that even in seventeenth-century Manhattan, market incentives dominated the interactions of residents and that such profit-oriented exchanges may have enhanced community norms. It is telling that many of the standard studies fail to analyze data from the earlier half of the eighteenth century.⁴

This article incorporates a systematic study of the relationship between legal institutions, markets, and economic activity. The results are based on an extensive panel data set that extends from the period before major settlement through the middle of the...