The History of Market Discipline: Bankruptcy, Debt Discharge, and Renegotiation in England and France (sixteenth–nineteenth Century)
Abstract: Between the 1620’s and the 1880’s, English bankruptcy law forbid the confirmation of majority votes by creditors on continuation arrangements. By making collective action more difficult, this rule affected in a major way the working of this institution, both before and after default. It also set English law apart from mainstream European traditions, namely the Italian, and later French legacies. In accounting for the initial divergence, this article gives a decisive role to early-modern conflicts between courts over the jurisdiction on trade issues; in the background commercial expansion and unsettled relations between the executive, legislative and judicial powers did also weigh heavily. Ulterior stability then responded, first, to the comprehensive constitutional commitments that had to be taken in order to protect market discipline against rent-seeking interests; and, second, to the internal microeconomic coherence attained by the respective regimes. Lastly, the slow return of English law to confirmed arrangement, over the course of the 19th century, reflected changing economic conditions and a more stable environment, where the overall commitment to market discipline was better institutionalised. The strictures built into the initial regime could thus be relaxed. This comparative historical paper is thus a contribution to the debate on the fragile transition from “limited access” to “open access” economies, in the terms recently used by North, Wallis and Weingast (2009).
