Legal institutions reduce costs of forming new exchange relationships, boosting mobility

Evidence

Work by Greif (2006), a historical institutional economist, suggests that systems that societies use to reduce uncertainty in exchange relationships can have a profound impact on the ability for individuals to form new exchange relationships. His research examined two groups of medieval traders, the Maghribi and the Genoese. Both groups faced the same basic problem of dealing with uncertainty in economic exchanges, but they took completely different approaches to address the problem. The Maghribi formed a closed system of trading, where one could only trade with other members of the same closed society. By taking this “collectivistic” solution, they could be assured that no one would behave in an untrustworthy manner as those who did so would be promptly excluded from the closed network. The Genoese traders, on the other hand, approached this problem by investing in a centralized legal system that relied on third parties such as courts for contract enforcement, enabling those who broke contract to be subject to litigation. Such centralized legal systems, such as police and courts of law, greatly reduce the costs associated with seeking out new exchange relationships and likely lead to the increase in mobility of trading relationships in many Western societies (Greif, 2006). It is possible that implementation of such a system made it possible for North American societies to prosper by enabling immigrants from various countries around the world and who were otherwise strangers to communicate and interact with each other with reduced social uncertainty. — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 1649 (#corroborates, via linked claim)

Opponents, who drew inspiration from the antislavery movement, argued that regulated indentured migration, even with contracts, was state-sanctioned slavery. Also, the initial act contained su≈cient ambiguity to make the potential for exploitation greater. For example, although the act specified conditions for transportation, they were fairly arbitrary and did not protect laborers from accruing debts through the commonplace practice of taking out high-interest loans with brokers and lenders. And leaving return passage out of the act, a key omission, created communities of permanent migrants in colonies because it placed the burden of paying for return transportation on workers who not only were paid meager wages but were remitting most of the money to their families in the home country. — Junaid Rana, Terrifying Muslims, 484 (#complicates, via linked claim)

In the social evolution, with the march of the arts and sciences and in the resultant effects upon organized society, it is quite intelligible that new conditions must arise in personal relations, which the rules of the common law, cast in the rigid mould of an earlier social status, were not designed to meet. — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process, 1127 (#complicates, via linked claim)

Categorization

• XREF: connects to: Centralized legal systems lower exchange costs and raise relational mobility — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 1649; Private enforcement institutions restore cooperation but impose priced transaction costs. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 125; Private arbitration systems reduce cross-border transaction costs among traders. — Lisa Bernestein, Opting out of the Legal System, 247 (+13 more)

Broader Connections

• Centralized legal systems lower exchange costs and raise relational mobility #corroborates (0.98) — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 1649
• Omitted return passage costs created permanent migrant communities through debt bonding. #complicates (0.75) — Junaid Rana, Terrifying Muslims, 484
• Technological change creates personal-relations harms that rigid common-law rules cannot address #complicates (0.74) — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process, 1127
• New economic forms usually revert to established practices rather than fully institutionalizing #complicates (0.72) — Shoshana Zuboff, The Age of Surveillance Capitalism, 145