Governments, institutions, and growth

The experience of early modern Europe

The State• The main institution since the 14th century : the State.

• Modernity : emergence of the State as dominant institution (to the detriment of the Church and the nobility)

• Nation-State as an early efficient political model invented in England and France (from 100 years’ war); generalized at high costs in the 19th and 20th centuries.

• Today : international organizations (IMF, etc) and NGO may become crucial.

• Heart of classic political economy and today’s economics : the proper role(s) and size of the State.

• The traditional « whig » solution is that governments must provide institutions guaranteeing property rights and allowing for an efficient functioning of markets (contracting rights). That is: good laws, efficient judiciary and police enforcing justice decisions. Markets will do the rest if they are not hindered doing so.

• Enforcement of increasingly sophisticated property rights (intellectual property, complex financial products…) require an increasing share of modern economy when the production of goods is decreasing or externalized: finance, accounting, law, parts of management, government, etc.

Question

What is the impact of governments on growth?– Predatory ?– Or provision of public goods necessary for

growth ?

Channel of causality : institutionsMajor influence: D. North Institutions, institutional change

and economic performance, Cambridge, 1990

Dominant answer• North-Weingast (1989) argues that the main change towards adequate

government is the 1688 “Glorious Revolution”• bringing in parliamentary government, separation of powers and shared control

over public finances ;• And then decreasing the major (previously dominant) risk of government

predation (levying excessive taxes and seigneuriage).• This led to the industrial revolution via a general decrease in interest rates.

• This is part of a large recent literature focusing on public finances as the crucial element in the development of the State.

• We will discuss this in the following directions:– Was the Glorious revolution such a Pareto improving change ? Did it aim at

economic institutions improvement ? If not, how did it reach it ?– Was the impact on the economy so important ?– Were English institutional innovations truly innovative compared to other

countries ? In what sense ?

Plan of this lecture

• The English « Glorious revolution »– Obtaining credibility– More on political institutions and credibility– Neglected issues in the Glorious Revolution

• England in international perspective

• The Netherlands as true pioneers ?

• The French Revolution

The English financial revolution

• Three major steps (Dickson, 1967): – Debt consolidation– Centralization of taxation and spending power

• Institutional basis for this (North-Weingast 1989): • Parliamentary regime resulting from 1688 Revolution is the

political homologue (and condition) of perfect financial markets: unified and homogenous debt allows for a liquid market, which protects equally all participants.

• Parliament makes debt credible.• Independent Bank of England makes inflation almost impossible

(Britain came back to convertibility after all suspensions up to 1931) and guarantees interest payments.

• But : « post hoc ergo propter hoc » ?

Arguments

• Contemporaries testimonies. Necker 1781: England’s credit comes from « la nature de son gouvernement » and « la notoriété publique à laquelle est soumis l’état de ses finances ».

• Principal-agent theory: the State is able to borrow when the property rights of the lenders are protected enough. Parliament and independent judiciary as protections. Reinforced by the fact that the Parliament mostly represented property or public-debt owners.

• An historical innovation: frequent debt repudiation in medieval England: Jews’ fortunes confiscated in late 13th c (idem Templars in France), especially when Italian merchants (Lombards) can substitute for them (before suffering the same fate), or on the eve of war.

More detailed argument : • Stuarts’ abuses.

– Conflict with Parliament on tax increases leads the government to use other sources of funding:

• Budget deficit covered by land sales• Tariffs on imports, forced loans, sales of monopolies, of

patents, of titles (=expropriation of all quasi-rents)– « Prerogative courts » and « Star Chamber » allow

the king to govern against Parliament and ordinary courts.

• Result in 1640 Revolution and civil war.• Restauration in 1660. Little progress.• Glorious revolution (1688):

– Restraint on the crown’s power and new powers to Parliament (taxes and expenses) and courts (independence).

– Revolutionary threat now credible, makes the crown compromise.

Success

• Increase in budget and taxes accepted; balanced budget (except for renewed war).

• No abuse from Parliament : diversity of opinion within it; balance of powers;

• Increase in borrowing power : table. Debt reaches 100% of GDP in 1720.

• Decrease in interest rates (table) proves credibility. No inflation.

• 1694: Bank of England as coalition of lenders, improves credibility.

• Around half the debt owed to the privileged companies (old and new East India Cies, Bank, South Sea Cy), which reinforce the lenders’ coalition.

Are these new institutions sufficient ? • The balance of powers between parliament / government / judiciary

– Balance of powers usually defined by the fact each has a veto power. Here protection of lenders supposes they control a veto power.

– If they are in minority (the usual case after a political crisis : most people have gone away from risky assets), their protection relies

• Either on parliamentary practice and alliances (a guaranteed position within a governing party);

• Or their over-representation (censal vote).– This is not enough. Most important is the reversion point : the situation

which applies in case all powers use their veto on the others’ preferred actions. Inflation is frequently the remaining solution at reversion point, when the government controls the printing press.

• The Bank of England– The importance of the delegation of power (e.g. to the Bank of England),

although it can always be taken back, is that is it modifies the reversion point, making inflation unlikely.

– The Bank’s privilege can be suppressed (or its issuing monopoly), but only with the Parliament’s agreement.

• Hence, the new constitution is indeed a substantial change.

BUT historical research qualifies this result :• Parliament control of taxes is not a major aspect of the Revolution :

– The reform of the tax system had been made by the Stuarts up to the 1670s, and sometimes opposed by the Whigs.

– Some predation (e.g. delays in payments on debt) remain after the Revolution; sometimes the Parliament is responsible for it.

• What about the role of Whig supremacy ? (Stasavage)– No stable party supremacy in Parliament before 1715. So Whigs have influence

mostly through control of debt.– Correlation between Whig supremacy and the level and volatility of the cost of

government borrowing; also with Bank of England share prices. (Graph)– So credibility depends on who controls the government and the Bank.– Attempt by the Tories to establish a rival company (the South sea Cy) ends in

failure (1720).

• Then partisanship is important (or is it stability?), with potential redistributive results:

– The power of rich lenders leads to regressive taxes.– The power of merchant lenders leads to land taxes.– Bank of England lends at high rates : not a neutral institution but a profitable one.– Shares in East India Cy not freely traded but exclusively among party members

(Carruthers), suggesting an instrument for the control of power, not a normal firm maximising economic profit.

Other issues : religion and politics

• Another potential explanation : stabilization of the external position : the 1715 break is correlated with – the end of the war (1713) – and the end of the uncertainty on the royal family (George II,

Hanover, 1714).• Conflict between Whigs and Tories does not centre on property

rights, but mostly on– Religion : three conflicting groups 1/ Calvinists (many Whigs), 2/

Anglicans (the national semi-protestant religion, tory dominated), 3/ and Catholics (James II is a catholic, so are many Tories). Anglicanism as a mid-term solution.

– International politics (France vs Netherlands); • 1688 = takeover by Netherlands over a France-oriented king;• 1714 : autonomy after wars against both.

• International affairs and religion used in order to reinforce the merchant elite's internal power and their control of international trade ?

– wars• Create national cohesion

• Benefit merchants (war against competitors, protectionism)

• Require debt, making the big companies indispensable, and raising interest rates, benefiting lenders if they can avoid bankruptcy.

– Religion interact with international affairs:

• Abolition of the Edict of Nantes in the dominant power (France, 1685) recreates an international threat against Protestants, and provides Protestant countries (England, United provinces, German states) with migrant Huguenots hostile to France.

• France supports the Stuarts in England, and the independence of Ireland and Scotland...

Long term economic impact of new English institutions ?

• North and Weingast mostly show the impact on nominal interest rates of new government loans;– impact on actual rates delayed to about 1715 (see above).

• Limited impact of Glorious Revolution on:– Interest rate on private rent contracts (Clark): suggests property

rights on private assets were established long before the Revolution.

– Growth (Clark): suggests government’s debt problems had little overall impact.

• Impact on financial development ? (the early causal link)– Trade on the shares of the privileged companies develop (but

political dimension in their ownership may have delayed rather than favored that development);

– Trade on government bonds developed later (1740s);– So impact on financial development not so clear.

Conclusions on the English « Glorious Revolution »

- It reinforced the State borrowing capacity- Partly by giving Parliament a veto power on taxes and debts- Mostly thanks to the control of Parliament by the lenders, in a solid

urban protestant pro-war (rather than anti-French) and centralizing alliance, the whig party (and to the detriment of rural gentry and peasants, and peripheral regions in the UK),

- an alliance which was itself reinforced by the ressources of the Bank of England and the great corporations (East India Co…).

- This process lasted several decades and succeeded developing State power and colonization abroad (US, India, West Indies, Canada).

- It may have had an impact on growth through financial development (a market for public bonds) and the enlargement of markets;

- but this was much delayed and is not visible either on interest rates or in growth figures.

Long term European perspective

• States developed when they were able to win wars, which required money. New taxes were raised and the States borrowed.

• But the constituency had to choose between two dangers:• Loosing the wars and being ransomed by the winners (eg holding the King in

prison);• Winning the war reinforced the power of the State, which allowed it to raise more

taxes permanently (and not only during the war), and may lead it to fight new wars.

• The problem is to develop political institutions with the following characteristics:

– Stability : stable political systems are required in order for the debtor to be clearly identified. Hereditary rules as a first solution creating stability (but wars and revolutions could overthrow governments).

– Credible commitment to repay requires checks to the government (North and Weingast).

– Capacity to reimburse loans, through the development of efficient tax and debt management administrations, which existence must be independent from the person of the ruler (or even from the political regime).

What are early modern States ?

• Key point : Medieval or early modern political entities are very different from contemporary States:– Since the development of feodalism in the middle-ages (esp. XIth-

XIIth c.), local power is stronger than regional, royal or imperial one (“nation” being non-existent). Concentration process very slow (reinforced by 100 years’ war in England and France but strongly opposed : the Fronde or the English civil wars).

– Individuals pertain less to a state than to specific groups or corporations (on a local or professional basis), which provide them with « privileges » or « freedoms » (meaning rights to be defended by the group and judged by the group); no universalist states (where all individuals are equal).

– No clear hierarchy between these independent groups, which also overlap each other (e.g. City of Paris and University of Paris, orders such as the clergy, or any guild or corporation) and then extensive coordination problems.

• A major goal of pre-modern states is to diminish legal heterogeneity and judiciary fragmentation which raise transaction costs. – One may see markets (where participants are equal) as public

goods based on cooperation, and the states are needed in order to allow them to work.

– Their capacity at compensating the losers allows the states to impose coordination and homogeneity; in order to do so, they need taxes and power.

• Then: maybe coordination problems and prisoners dilemma (implying a need for a more powerful government) are more important than principal agent problems (requiring a less powerful governments). (Epstein opposed to North and Weingast).

How to test for this ?

- Some historical context

- A measure of political fragmentation in a European economic perspective

- Case studies:- Netherlands- Tax administration: England vs France- Debt administration: idem

- The French Revolution and its impact

• States differ by their size and their history, which explains much of their political institutions:– Up to the Vienna congress (1815), one may oppose territorial

states to city-states (Tilly):• Territorial states control large pieces of territory and population

under (post) feudal rules (as above).• Cities rich enough (large ports usually) to buy their independence

organize themselves as “republics” (of merchants, usually plutocratic/oligarchic); they may even control colonies (Venitian and Genoese Mediterranean empires…).

– Size makes more difficult (but also potentially more rewarding) the imposition of homogeneity;

• So the easy success of city-states (in Italy, Germany, the Netherlands), eventually reinforced through coalitions (Hansa, Netherlands), which blocked the development of some future nation- states (Italy, Germany),

• and the higher concentration of power, centralization, tax rates and economic development of smaller states like the Netherlands and England compared to larger countries having invested in controlling large territories (Spain, France, Russia).

– Monarchies are far from today’s centralized (or even federal) powers

• Holy Roman (German) Empire as pure coordination device with little central power ; also true to some extent for kingdoms such as France or Spain.

• Absolutism is a rhetoric, an aim, not a reality, mostly in France and Spain. Taxes cannot be raised on the members of established corporations except if they accept it in ”Etats généraux” (France), “Cortes” (Spain), all forms of parliaments representing people by their status (nobility, clergy,...) or corporation (cities). High judiciary (Parlement de Paris) had legislative power in France (and was dominated by hostile Jansenists).

• Crucial role of cities in the development of public debt : 18 main cities in Spain (Fortea Perez) issue the juros for the king and fund them with their own taxes; idem in France for rentes sur l’hotel de ville (Lyon, Paris 1522). Balance of power makes kings weak (absolute power on persons, limited power on wealth).

• England's peculiarity is that of an early and more centralized country, where Parliament before 1688 was weaker compared to Cortes or Etats généraux, and the new Parliament was based on the modern universalist principle (corrected by censal suffrage) protecting persons rather than wealth.

– Fragility of most crowns: « foreign » meddling in 50% of successions in the 16th c, with the complicity of parts of nobility or others: wars of successions, Fronde, Glorious revolution. Heredity as an (imperfect) solution to avoid it.

• Observing levels of interest rates in different countries (graph) suggest political regime was not central: if one takes Italian republics out, no impact of the political regime after 1550 (graph). England is an outlier in having late very high borrowing costs.

• This may result from the fact that England was late in building efficient taxes: • its isolation after the 100 years’ war limited the need for new taxes

(usually a result of wars); this changed with civil and foreign wars after 1588 (the Spanish armada and the now obvious need for a costly Navy).

• The absence of cities independent enough to bargain with the crown as on the continent may have hindered the development of a public debt.

• The late 17th century reforms and revolutions created a more efficient state, mostly through administrative reforms, and allowed England to catch up.

Customs and growth (Dincecco)

• Question : was the threat of government more or less important for growth than the costs of excessive fragmentation ?– Cf. late medieval Italy: many city governments controlled by merchants,

but integration at larger scale impossible, which blocked growth. • Measures internal fragmentation within European sovereignties from

1700 to 1815 in terms of domestic customs (as a – good – proxy for fiscal zones).– Note England, not U.K. used (when Ireland and Scotland were actually

under English control… and French regions under the direct control of the King were greater than England and had no customs and centralized taxation); Portugal/Italy excluded.

– Neglects Empires, crucial to the development of cities and “small” states (Venice and Genoa, Netherlands…).

– 175 cities above 10.000 inhabitants as units of observation : homogeneous unit throughout Europe and the period; essential for growth.

– Crucial moment is French Revolution: in 1700, over 30 percent of cities, but only around 10 percent of countries, were surrounded by a customs zone of less than 50,000 sq km.

1700 vs 1815, cities vs countries

Economic impact ?- Integration of wheat markets in Europe accelerates in

the early 19th c. (Federico)

- Correlated with the increase in centralization.

- Exceptions such as England and Netherlands explained by international trading positions.

Next step: a test of the impact of the custom unit size on growth.

Case studies:

- The Netherlands

- Tax administrations

- Debt management

The Netherlands : from cities to State ?

• “Old whig” story suggests merchants and economic development prefer low taxes and develop city-states in order to lower them. Cf De Long & Shleifer 1993.

• Problem of city states : they represent an easy prey for territorial monarchies (only partially mitigated by the conscience th later have of the fragility of that wealth). See the sack of Antwerp (“Spanish fury”, 1576), the decline of Italian cities in the 16th c. with wars, and that of German ones with the 30 years war.

• Dutch solution : city states building an alliance and increasing taxes in order to resist. Necessary when facing increasing war costs (the « military revolution »).

• Origin : external threat from Spain which produces an alliance (1572 revolt of Holland; 1579 Union of Utrecht among the 7 Provinces); independence (excluding today’s Belgium) recognized by France in 1596, Spain in 1648).

• « New whig » solution (as in North-Weingast) : taxes may be increased at low cost (both in political and economic terms) if controlled by a parliamentary regime.

• In the Netherlands: almost universal urban citizenship (and most population is urban), and some (varying) « democratic » control over taxes (Van Zanden-Prak)

• What makes the solution work ?– Alliance always dominated by Holland, the most populated and

urban province; and Holland by Amsterdam (200,000 population in a total of 0.8M for Holland, 2M for the Netherlands in 1780).

– Rich Holland pays for the coalition : from 1616, pays for 58% of the federal budget, but nominates only 38% of deputies to the General Estates, and 3 « State council » (government) members in a total of 12.

– Balance between urban economic power and the military power of the nobility dominated by Stadtholder William of Orange.

• But part of the autonomy of the cities disappeared (tax heterogeneity reduced, and centralization increased).

Dutch (Amsterdam) financial innovations

• Come clearly before those in England but after political changes in the Netherlands:

– Consolidation of public debt : 1644– VOC: 1602; much bigger than English East India Cy (1599).– Bank of Amsterdam : 1610

• But with different functions:– Bank is no lender to the State, but aims at improving the quality of money and

lowering exchange risk. From 1659 at least, guilder banco (florin) dominant unit of account for all foreign transactions.

– VOC no lender to the State either. More influenced by the government than in England, but as a tool in the hands of Amsterdam merchants in order to develop an overseas Empire (taken from the Portuguese) and make monopoly profits through trade.

• Dominance not maintained– Economic and colonial success dates mostly from late 16th-early 17 th

– Later on, the United Provinces remain a high income economy with high public debt, and a net international creditor

– But partly overtaken by the English Empire and traders.– And overtaken by the French and disappear for a while: 1793-1813

Then:

- England to a large extent the adaptation of Dutch political and financial innovations.

- Reinforcing, centralizing and unifying the government clearly central part of the Dutch economic success.

Taxing : England vs France

• England as homogeneous country, – centralized tax decision, partly local tax distribution, mostly

centralized expenses. – Political disputes concentrate in Parliament (and then well

known)• France more heterogeneous :

– various parliaments ; « pays d’élection » (= where direct administration) vs « pays d’états » (where local « états généraux » decide on tax level and allocation). Price of France competitive territorial expansion (not so in Britain : ask the Irish).

– Fronde (1648ss) as quasi destruction of central power.– No central place for political debate at the national level before

the Revolution, then bargains difficult to make (and information difficult to find for the historian).

Tax systems

• British taxes:– Medieval tradition (King major landowner): crown pays on its

feudal revenues for justice and the army.– Ordinary taxes are indirect (tariffs, excise, « hearth and stove »)– extraordinary taxes (requiring Parliament consent) are direct (in

war periods): « subsidy » (on income) and « assessment » (on land).

– Post-revolution innovation : new land tax (1693) becomes a major resource (= sign of merchants’ rise to power). But in the long run indirect taxes grow more.

• French taxes:– Both direct (taille, on land, adjusted for income) and indirect

taxes (gabelle) as ordinary incomes. Any rate increase requires the consent of the Etats généraux.

– Sale of privileges and offices as extraordinary incomes.

Tax administration

• Some offices (private firms) as tax collection positions in many countries (including France and England);

• Farming of taxes as a way :– Not to create an administration (costly to control)– Smooth government revenues– To borrow providing a guarantee– Protect lenders by building coalitions (Johnson).

But– coalition of tax collectors decrease competition among lenders.– Farming is a costly solution if profit margin is high. Competitive

bidding in Britain; verification (with heavy sanctions) in France (problem of political motivations: Fouquet).

• Progressive move from farming to direct administration. Ferme générale as quasi-administration.• More efficient but politically criticized (local “privileges” violated,

monopoly without control).

Other majors French problems are: • controlling the army and navy during wars:

they ask for payments and sign bills without central control (emergency as a reason);

• Controlling the “payeurs” (those paying government expenses locally).

• Leads to separation of payeurs from tax receivers, which is costly (cash transportation to and from Paris).

Impact on the financial system

- In the short term, the government can borrow from the financiers (holders of tax offices) (with taxes in guarantee) or foreign bankers (with long term debt – guaranteed by stable taxes paid and accepted by the cities – in guarantee);

- The financiers themselves borrow on the « monetary market » (short term, commercial paper), an international market controled by merchants and not by any government.

- So interdependence between the two: makes the credit and then the entire economy dependent on public finances’ stability (see Spanish or French government « defaults » in 16th and 17th c.) (Chamley-Nogal)

Debt : France vs Britain

• The English standard model:– Debt consolidated in a single highly liquid asset (3% consols) :

1749. Equality among lenders.– Default impossible thanks to institutions (Bank of E…); inflation

also impossible thanks to Bank independence and the convertibility of its notes.

– Balanced budget in normal times; debt issued only in order to finance wars.

• A French model ?– No homogeneous consolidated debt quoted on an exchange;– Segmentation of financial markets, personalization of debts

(administrative and tax offices, annuities, tontines);– Selective default on politically chosen segments of the market.– Then high interest rates (expectation of default); maybe not ex-

post rates (forced conversions).

Results

• Much higher debt and taxes in England.– Debt/GDP up to 2.7 in 1815.– Enormous redistribution machine or efficient very long term

smoothing ? Maybe both.

• English model won in 1815 (thanks to finance or anti-hegemonic European alliance ?): even France adopted it. Also victorious today.

• But French model came back later : unfunded « pay as you go » pension systems also politically managed with an enlarged constituency (compared to holders of financial assets).

• Externalities on growth ?

The French RevolutionThe Revolution imposed a lot of major reforms – some of which had been

considered for a long time but never realized because of the weakness of the central government.

- Administrative and political unification of the territory: same administrative units everywhere, clearly hierarchized, used for all purposes (tax, police, judiciary, even religious).

- Single administrative authority under government rule : trésoriers, préfets, recteurs, even bishops. End of « offices » for sale

- The civil code: unification of law; end of privileges, equality of rights;- Abolition of guilds- New systems of weights and measures

Huge redistribution of wealth thanks to the confiscation of the wealth of the clergy and of part of the nobility (“biens nationaux”) and the hyperinflation of the assignats.

- Creates a society with lower inequalities (land ownership)

European impact

After 1792 French armies invaded and reformed the institutions of many European countries. The lessons from this episode are central to some of the current debates on institutions.

The French imposed on areas they conquered most of their reforms. Acemoglu & al. use this invasion in order to identify the impact of these

reforms.Conclusions:« Areas that were occupied by the French and that underwent radical

institutional reform experienced more rapid urbanization and economic growth, especially after 1850. There is no evidence of a negative effect of French invasion. Our interpretation is that the Revolution destroyed (the institutional underpinnings of) the power of oligarchies and elites opposed to economic change »

« The evidence does not provide any support for several other views, most notably, that evolved institutions are inherently superior to those 'designed'; that institutions must be 'appropriate' and cannot be 'transplanted'; and that the civil code and other French institutions have adverse economic effects.»

CanalsEngland :- In the mid-18th c. begins a folly for canals in England

- E.g. the Duke of Bridgewater developed a canal allowing the cheap transportation of coal from its mines to newly growing cities such as Manchester. This was the first entirely artificial canal, and engineering wonder which attracted a lot of enthousiasm and tourism (it included an aqueduct carrying the canalover a river). It opened in 1761.

- England well connected before the end of the Industrial revolution. - Decreases transportation costs, integrates the market for goods.

- Strength of the canals revolution in England : - High demand (coal, but also other goods : in Staffordshire, the

porcelainmaker Wedgwood funded the canal that allowed transporting its fragile products without accidents).

- Borrowing on the market relatively easy;- Rich landowners able to develop canals within their lands;- Acts of parliament relatively easy (if costly) to obtain for them;

Rosenthal on irrigation in Provence

Conclusion

• Political reforms important for the reinforcement of central government (which help develop a centralized financial market);

• Have no direct impact on growth;

• But may participate in the building of a more integrated market through the development of unified institutions.

BONUS Law and growthSet of papers in mid-1990s to today (by La Porta, Lopez de Silanes, Shleifer & Vishny

among others) suggest strong impact of legal origin on growth through property rights, secure institutions and financial development.

Based on cross countries regressions today.

What is legal origin : pertaining to a “family” of laws as defined by some legal scholars:- French, German or Scandinavian civil laws- British common law

Civil laws: codified laws defining precisely what judges must do in particular situations;

Common law : judgment based on precedents; supposedly more flexible and adaptable to the changing needs of the economy.

Specified in particular regarding business laws: corporation law, contracts law, bankruptcy law; also efficiency of the judiciary (speed, enforcement…).

Discussion:- Measurement problems: frequent or systematic ?

- Collection process- Conceptual problems : State interventions have costs and benefits.

- Problems for the historian : if legal origin is about historical origin (and which other could it be?), a test for an earlier date should confirm the results.

- Various authors find the contrary (Bordo, Sgard)- Musacchio 2009:- Improves the data (especially on market caps).- Enlarges the sample.- Finds very different results

- Orders of magnitudes different;- Impact of legal system diseappears;

- Then : 20th century results only a proxy for State intervention rather than legal origin ? Then endogeneity problem not solved.

A key question : Civil code or commercial code ?

- « law merchant » (lex mercatoria) supposed to solve conflicts among merchants in the medieval / early modern periods without State intervention.Has probably more influence on the French commercial law (Colbert ordinance 1673, Code de commerce, 1807) than British common law (controlled by an independent and professional judiciary, and dealing with all conflicts or crimes in a unified manner).

- An important French peculiarity is the existence of commercial courts, early on under the control of merchants’ corporations, have been integrated in the State judiciary system with little change except compulsory enforcement: judges are (elected) merchants; justice is rapid (no appeal for many cases, and simplified procedures); possible because reserved to relationships among merchants (“commerce”), actually extended to a large population accepting it (2 million patentés by 1900). Use of arbitrage, under the auspices of the State.

- French model exported to many countries by the Revolution, but disappear there frequently before the end of the 19th c (Italy, Germany, Spain). Around 1850, various bills in English Parliament discuss the introduction of similar courts in England, because they are considered more efficient, less costly and opened to a wider share of the population than comparable English courts.

- In England and the US: costly court system for business cases leads to the development of private arbitrage, which the government recognizes : a different solution.

- Bankruptcy : bankruptcy treatment is key to the credibility of contracts. In France, the commercial courts deal with bankruptcy cases. Despite severe sanctions, they attract a much higher number of cases than in England until, in the 1860s and 1870s, English law converges to the French (European) one and the efficiency of the courts increases.

- Despite this convergence, British law remains much more pro-liquidation than European ones (in practice). Is this pro-creditors and then pro-contract credibility ? Not clear.

Conclusion : variety of practices which in many cases cannot be linked strictly to economic performance.

In the case of commercial justice, France is on the side of a less integrated and less State-governed institution, allowing for more flexibility, speed and arbitration (despite unification by the code and jurisprudence): requires an adaptation of the standard rationale for the law and growth argument.