The Competitiveness of Nations in a Global Knowledge-Based Economy
John R. Commons
LEGAL FOUNDATIONS OF CAPITALISM
THE PRICE BARGAIN - CAPITALISM AND EXCHANGE-VALUE
Macmillan Company 1939
[January 1924], 225-282
I. The Commonwealth
Sir Thomas Smith, in his account of the Commonwealth, barely mentions “citizens and burgesses” as “next to gentlemen,” yet it was these citizens and burgesses, who, since the reign of John,  had been obtaining collective powers and immunities, also known as “liberties,” and who, within a third of a century after Smith wrote, would, like the landlords, begin to be deprived of the monopolistic and governmental features of their franchises. The gild franchises of the merchants and manufacturers gave to them a “collective lordship” similar to the private lordship of the barons, for their gilds were erected into governments with their popular assemblies, their legislatures, their courts, their executives, and even with authority to enforce fines and imprisonment of violators of their rules. Their most important sovereign privilege granted by the King was that of binding all the members by a majority vote so that they could act as a unit. These merchants’ and manufacturers’ gilds, at the height of their power, were not only legalized “closed shops” but also legalized governments. Within their jurisdiction no person could compete who was not authorized by the gild, and within the gild no one could compete except on the terms of fair competition which their rules imposed. They maintained standards of quality of product and of qualifications of competitors designed both to protect the public and prevent destructive competition.  They even required members to share with each other the raw material and any exceptional good bargains that one might come across. They enforced the contracts of their members. Associated together they even gained control of the borough governments, and their chief men became mayors and aldermen.
1. GROSS mentions 24 charters granted to merchant gilds prior to 1215. GROSS, CHAS., The Gild Merchant 9-166 (1890).
2. Cp COMMONS, J. R., “The American Shoemakers,” 24 Quar. Journ. Econ., 39 (:909)7 Labor and Administration, 219 (1913).
Thus the gilds were the spots, here and there, where capitalism had its origin. Surrounded by feudal landlords they obtained immunity as small peddlers and artisans only by obtaining from a feudal superior privileges which enabled them to act as units and to make and enforce their own by-laws. The gilds were Defensive Capitalism. But they grew in wealth and power. Their defensive privileges became exclusive privileges in proportion as markets and commerce advanced over militarism and agriculture and increasing numbers of people depended on buying and selling for a living, where formerly they depended on command and obedience.
Beginning in 1599, by that line of notable decisions referred to by Justice Field in the Slaughter House Cases,  the highest court of the common law, the King’s Bench, deprived them of their closed-shop privileges in so far as those privileges depended on enforcement of penalties by the King’s executives. In France they were abolished by the Revolution; in Germany they lived over to the nineteenth century; in England they lived on as voluntary organizations but without sovereign power physically to enforce their rules.
In 1599 the Merchant Tailors of London were the first to lose their legalized closed shop. The King’s Bench, in that year, declared that a by-law of the Tailor’s Society was unlawful in requiring every “brother” of the society to give to another brother who “exercised the art of clothworker,” at least as much of his cloth to be worked up as he might give to any clothworker not a member of the society, upon pain of forfeiting ten shillings, and providing enforcement upon his goods. This by-law, although authorized in the charter granted from early times to the Society and confirmed by successive Kings and Parliament, was nevertheless adjudged against the “common right and public good,” and “against the common law,” because, being a monopoly, it was “against the liberty of the subject,” and “against the commonwealth.” 
This argument was even more clearly and forcibly made in the Case of Monopolies, in 1602, at the close of Elizabeth’s reign.  This case concerned but one of the many patent monopolies which Elizabeth had granted for the upbuilding of the country, for the development of new resources and the encouragement of new importations from
1. Above, Chap. III, p. 46.
2. Davenanl v. Hurdis, Trin. 41 Eliz., Moor (A. B.) 576 (1599); commented on by Coke in Case of Monopolies, ix Co. 86 a, b.
3. Darcy v. Allein, Trin. 44 Eliz. (1602), 11 CO. 84 b.
abroad. Indeed, as Unwin has said of the similar monopolies granted by Elizabeth’s successors, James and Charles, “It was not merely that such grants seemed to afford the easiest way out of the Crown’s growing financial difficulties. The spirit of corporate monopoly which pervaded all classes engaged in commerce and industry, from the richest to the poorest, made it possible, perhaps with sincerity, to represent the grants, not as a hateful but unavoidable expedient for raising money, but as part of a great and beneficent scheme of national policy.” 2
Elizabeth had, however, yielded to the outcry against monopolies, had revoked the most unpopular patents, and left the rest to the decision of the judges. Darcy’s case was the monopoly of sale, manufacture and importation of playing cards. Popham, the Chief Justice, and the entire court declared that it was void, as against the common law and acts of parliament, for four reasons:
1. All trades which prevent idleness, “the bane of the commonwealth,” and increase the substance of themselves and families to serve the Queen when occasion requires, “are profitable for the commonwealth.”
2. “The inseparable incidents to every monopoly against the commonwealth” are, increase in price, inferior quality, and impoverishment of mechanics and their families, because “the patentee, having the sole trade, regards only his private benefit and not the common wealth.”
3. The Queen was deceived in her grant, for she intended it “for the weal public,” but “it will be employed for private gain of the patentee, and for the prejudice of the weal public.”
4. “It cannot be intended that Edward Darcy, an Esquire, and a groom of the Queen’s Privy Chamber, has any skill in this mechanical trade of making cards; . . . To forbid others to make cards who have the art and skill, and to give him the sole making of them who has no skill to make them, will make the patent utterly void.”
Thus the basic principle of the commonwealth, stated clearly by the chief justice of the common-law courts at this early day, was the principle - Let any person get rich in so far as he enriches the commonwealth, but not in so far as he merely extracts private wealth from the commonwealth.
Other similar decisions were given during this critical period. In 1519 Henry VIII had granted to the physicians of London a charter of
1. CUNNINGHAM , W. E. The Growth of English Industry and Commerce, x:58, 287n· (1903)
2. UNWIN GEORGE, The Gilds and Companies of London, 300 (1908).
incorporation, confirmed later by Parliament, giving to them authority to pass upon the qualifications of physicians within the city and suburbs, and to prohibit the unqualified from practicing, on penalty of fine and imprisonment, prosecuted before the governors and censors of this company of physicians. Under this authority Dr. Bonham, in 1608, was imprisoned by agents of the company, and brought his action of false imprisonment. The court, Coke being then Chief Justice, decided that the censors and wardens had not that power, and, in this case he went to the extreme point of squarely overruling an act of parliament. For, said he, “in many cases the common law will controul acts of parliament and sometimes adjudge them to be utterly void: for when an act of parliament is against common right and reason, or repugnant, or impossible to be performed, the common law will controul it, and adjudge such act to be void.” 
This was followed by the Ipswich Tailors in 1615.  This society had been incorporated by Henry VII and confirmed by parliament in the year 1504, with power to make and enforce ordinances. The company brought an action in debt against a tailor who came to the town and practiced his trade without proof that he had served an apprenticeship for seven years, and without being admitted by the master and wardens as a sufficient workman. It was resolved by the court that, at common law, “no man could be prohibited from working in any lawful trade;” that the youth ought “to learn lawful sciences and trades which are profitable to the commonwealth;” that the restraint was “against the liberty and freedom of the subject,” and “all this is against the common law, and the commonwealth.”
Thus the common-law courts accomplished, in the case of the gilds, what they had accomplished in the case of the barons. They abolished the private jurisdictions with their private courts,  and the way was thenceforth open for them to build up, for the Kingdom, a common law of the price-bargain, just as they had built up a common law of the rent-bargain. The business man now, like the Yeoman and copyholders, could have his customs inquired into by the King’s justices, and his rights and privileges asserted against private jurisdiction of both gilds and barons. Capitalism entered upon its offensive stage, intent on controlling the government whose aid it had petitioned dur-
1. Bonham’s Case, 8 Co. II4 a, 118 a (1610).
2. I I CO. 53 a.
3. Certain decisions in the 18th century seem to have supported the claims of the gilds. See HOLDSWORTH, History of English Law, 1:352. They were abolished in 1853.
ing its defensive period. Eventually its petitions became its rights. The next hundred years, until the Act of Settlement in 1700, was substantially the struggle of farmers and business men to become members of the Commonwealth, whereby they might have courts of law willing and able to convert their customary bargains into a common law of property and liberty. The King’s courts themselves had been impotent after Chief Justice Coke, the great champion of the common law, had been removed from office by King James in 1616,  and consequently the farmers and business men turned towards collective control through parliament, towards raising an army, and even, for a period of ten years, abolishing both King and House of Lords and converting the Kingdom literally into a commonwealth. Although the Kingdom was restored and the very name of Commonwealth stricken from the records, yet, after 1700, the courts were made independent of the King, and the common law of business was incorporated into the common law of agriculture. The name of commonwealth was moved to America, and, under new auspices, is resurrected in the Commonwealth of Australia.
It will thus be seen that the notion of a commonwealth, as expounded by Sir Thomas Smith in the middle of the sixteenth century, differed from the notions of the Wealth of Nations expounded by Adam Smith’s followers, more than by Adam Smith himself, in the eighteenth and nineteenth centuries, in that it explicitly included both the economic and the political aspects in a single concept. It was a notion both of common-weal and of participation in that weal through the possession of rights and the corresponding power to enlist the officials of government in one’s behalf. The classical economists tended to separate the wealth of nations from the commonwealth, making the wealth of nations identical with the prosperity of but a single class within the commonwealth, the business men, upon whom all other classes depended for prosperity. But the notion of a commonwealth which arose with Thomas Smith in the sixteenth century and led to the two revolutions of the seventeenth century was a notion of participation by each freeman in both the government and the wealth of the nation. The difference between Thomas Smith’s notion and the notion of Coke, Selden, Littleton, the common-law lawyers and their successors of the seventeenth century, extended only to the degree to which merchants, manufacturers and farmers
1. GARDINER, S. R., History of England, 1603-1642, 3:27 (1890).
should actively participate in the commonwealth along with barons, monopolists, gilds and the other beneficiaries of the King’s prerogative. The literal “commonwealth” of 1640 went further and abolished both the monarch and the House of Lords. The reaction which followed gave to the landlords an even more powerful participation than they had before, and it has required more than two additional centuries and the growth of the then inferior merchants and manufacturers into the new world-power of capitalism to bring attention back to the original notion of the commonwealth as it struggled for recognition in the reigns of Elizabeth, James and Charles.
Yet the original participants in the King’s prerogative were trying to do what needed to be done, and had to be done in other ways when the power of the prerogative to protect them was weakened. The abolition of the legal power of the gilds required the courts both to take over the rules of fair competition and to enforce the contracts which had grown out of their customs and had been enforced in their own courts. We shall see how, in 1580 and 1620, the common-law courts began to take over, and to enact into law for the whole of England, certain of the regulations of the gilds whose private authority they were then abolishing. The first of the goodwill decisions enforcing a contract to sell a going business (1620) and the first of the trade-mark decisions enforcing a claim for damages against the use of a competitor’s name in business (1580) were but the legal adoption on a national scale of the very rules of fair competition which the gilds adopted within their own exclusive membership. The court which abolished the power of the gilds began to take over the work of the gilds. Their private jurisdiction became a public jurisdiction. And the very customs which the gilds endeavored to enforce within their ranks became the customs which the courts enforced for the nation. The monopoly, the closed shop, and the private jurisdiction were gone, but the economics and ethics remained. Much later, in the modern commonwealth, other functions of the gilds, such as protection of the quality of the product and the qualifications of practitioners, have also been taken over by courts or legislatures. Beside the chartered gilds there were other less formal courts at the fairs where merchants came with their goods (piepoudre) and there were the practices of merchants in drawing bills of exchange upon each other calling for money, which the common-law courts, at about the same period, began to take notice of and to interpret according to the customs of
merchants. The common law became the law of property, liberty and business.
But neither business expectations nor the expectations aroused by the law of property and liberty could expand as long as the prerogative of the monarch was above the common law. The struggle, begun with Magna Carta, did not reach its crisis until the rise of protestantism and commerce. The former asserted a new right, the right to equality, liberty and security of worship, the latter the right to equality, liberty and security of business. Business could not be free and secure while the prerogative exercised capricious control, especially over currency, franchises and rents.
Arbitrary alterations of the currency were not repeated after Edward VI,  and money thenceforth became a comparatively reliable standard of value and medium of exchange, a universal representative of the value of products, a trusted instrument of inducement and compensation, and therefore a solid foundation for the credit system. Franchises were not taken from the personal control of the monarch until the victory of parliament in the civil wars and not completely until the Act of Settlement in 1700, which confirmed the Case of Monopolies of 1602 and the Statute of Monopolies of 1624. Taxes were not made certain until, after 1689, they could be levied only by consent of Parliament. By these measures business, based on predictable prices, was permitted to develop unhampered by arbitrary interference of the sovereign.
Even these stabilizing reforms of currency, franchises and rents, which prepared the way for a business economy based on prices, could not be rendered permanently secure until the Revolution of 1689, and especially the Act of Settlement of 1700, which took from the monarch the power to remove the justices of the courts. When James I succeeded Elizabeth, in 1603, the prerogative, besides including the power to appoint judges of the common-law courts and of the highest of those courts, the King’s Bench, included also a number of other courts, or rather a number of other agents of the King appointed and removed at his pleasure. Greatest was the Star Chamber, the personal council of the King sitting as a court in the Star Chamber, exercising civil, criminal and political jurisdiction wherever great questions of state or great and powerful personages, or violations of the King’s prerogative, were called in question or litigated. The most
1. CUNNINGHAM, Growth of English Industry and Commerce, 2:I27 (1903).
significant function of the Star Chamber was its position as an administrative court by means of which the King’s officials were exempt from trial in the common-law courts.1 A similar jurisdiction existed in the Court of Exchequer where all cases between taxpayers and the crown were tried, as well as cases in which revenue officers themselves were tried. It, too, had power to remove cases from the common-law courts.  Then there was the Court of High Commission with inferior ecclesiastical courts, having authority to try cases of religious doctrine and ritual, and to remove the clergy from the jurisdiction of the common-law courts.  Finally was the Chancellor, a member of the King’s Council and the highest personage next to the King, who kept the King’s seal which alone authenticated the King’s acts, and exercised likewise the King’s prerogative power of issuing injunctions restraining parties from bringing their cases to the common-law courts, or, if they had already done so, from enforcing judgment. 
The parliament of 1640 and the revolution that followed abolished these prerogative courts or limited them, while the Act of Settlement in 1700  made the judges as well as the chancellor independent of the King and appointed for life. Henceforth came about that peculiar and outstanding feature of Anglo-American law, the subjection of officials as well as citizens to the jurisdiction of the ordinary courts of law. It was this that made it possible for Francis Lieber, in 1853, to say “The guaranty of the supremacy of the law leads to a principle which, so far as I know, it has never been attempted to transplant from the soil inhabited by Anglican people, and which, nevertheless, has been in our system of liberty, the natural production of a thorough government of law as contra-distinguished to a government of functionaries,”  and for English and American courts to say, ours is a “government of laws, and not of men.” It is such because officials and citizens are each subject to the same courts, interpreting the same due process of law.
But the American constitutions went much further. While the Act of Settlement made the judges independent, yet parliament retained the power to overrule the courts. But in America, as is
I HOLDSWORTH, History of English Law, 1:276.
2 ibid., 104, 105.
3 Ibid., 375 1F.
4 Ibid., 246.
5. ADAMS and STEPHENS, Select Documents of English Constitutional History, 475-479.
6. LIEBER FRANCIS, Civil Liberty and Self-government, 91(1853); TAYLOR, H., Due Process, 608 (1917).
well known, under written constitutions, the Supreme Courts are the final interpreters of the constitution and of the powers and responsibilities of officials, as well as the rights and duties of citizens. In this respect, as is brought out by Haines,  America, went back to the doctrine of Sir Edward Coke, who would have made parliament, as well as the King, subordinate to the common-law court of King’s Bench over which he presided as Chief Justice. But with a difference. Coke would have made the King and parliament subject to the common law. The supreme courts of the United States make legislatures, executives and judges subject to the common law and equity. The common law is historic custom, precedent, and the ancient law of the land; equity is conscience, reason, and the law of God or nature. The two are in fact inseparable. King James had said that “he thought the `law’ was founded upon reason, and that he and others had reason, as well as the judges.” “True,” said Coke, “God had endowed his Majesty with excellent science and great endowments of nature. But his Majesty was not learned in the laws of his realm of England, and causes which concern the life, or inheritance, or goods, or fortunes of his subjects, are not to be decided by natural reason, but by the artificial reason and judgment of law, which law is an act which requires long study and experience, before that a man can attain to the cognizance of it.” The King ought not, indeed, to be under any man, but under “God and law” yet not God’s law, as James and the Church contended, but the common law.  Furthermore, contended Coke, when an act, even of parliament, “is against common right and reason, or repugnant or impossible to be performed, the common law will control it, and adjudge such act to be void.”  Thus Coke interpreted the common law as not only the customs and precedents of ancient law but also as the rule of “right and reason,” interpreted by the common-law judge. In this respect he distinguished it from equity, which at that time was the arbitrary power of the sovereign, and agreed with his great contemporary, John Selden, who likened equity to the Chancellor’s foot.
Meanwhile, the common law also, under the influence of Lord Mansfield in the eighteenth century, had itself widened out with principles of natural justice drawn from Roman law and from equity, 
1. HAINES, C. G., The American Doctrine of Judicial Supremacy 25 ff. (1914).
2. Prohibitions del Roy, 12 Co. 64-65 (1608); HAINES, 28.
3. Bonham’s case, 8 Co. 118 a., b.,; HAINES, op. cit. 31.
4. HOLDSWORTH, 1:253; JENKS, 234 ff.
thus adapting itself to the change from a feudal. economy to a capitalist economy. It required another century, in England, before the parliament, in 1873, consolidated the common law and equity courts in a supreme court of judicature,  a consolidation which was effected in America, by the Constitution of 1787 making the judicial power of the federal government extend to all cases at law and equity under the Constitution, while the state constitutions began the similar consolidation with New York in 1840.
The evident advantage of the equity process over the common-law process is in its control over conduct in advance of action instead of punishment after action. The proceedings do not require the prolonged investigation, indictment and jury trial of the common law, but both the injunction and punishment for its violation are expeditious. For the Court of Chancery had the peculiar faculty of commanding specific behavior by mandamus or injunction, on mere allegations and affidavits of a complainant, without waiting for the slow processes of a suit for damages, as in the common-law courts. It commands first, and finds out afterwards what are the law, the rights and the facts; whereas the common law finds out first what are the law and facts and afterwards issues its commands. This one feature alone would have required the equity courts to intervene with the injunction, or else would have required the extension, by the common-law courts, of their writs of mandamus and prohibition, in order to create those intangible property rights of modern business which have made the transition from physical property to intangible property. By means of the injunction the court can, in advance, enter into the most minute detail of behavior needed to recognize new rights and protect new definitions of persons and property.  The common law was able to deal effectively only with physical things and to punish after the event, equity deals with the most intangible values, for it commands directly, before the event, the very performance, avoidance or forbearance on which value depends. Equity looks on property as behavior claimed of other persons; the common law looks on it as a thing owned by a person. 
1 Jenks, op. cit. 408.
2 “This capacity of moulding a decree to suit the exact exigencies of a particular case is indeed one of the most striking advantages which procedure in chancery enjoys over that at common law, and must have been one of the elements which contributed in no small degree to the origin and growth of equitable jurisprudence.” Bispham, Principles of Equity, 9 (8th ed., 1909).
3 Ames, J. B., Lectures in Legal History, 108 (1913).
Indeed, the first important field of equity was that of creating uses and trusts, which distinguish physical things from the expected transactions growing out of things. And since value does not reside in things but in these expected transactions, equity procedure at once extracts from the common-law procedure the very substance of value. Hence flowed the whole range of behavioristic values by way of the relief which equity afforded against the rigidity or inadequacy of the common law, such as the remedying of accidents and mistakes, the controlling of accounts, partnerships, and every detail of corporation law. The remarkable expansion of the equity jurisdiction in the Eighteenth Century reflected the rise of capitalism based on pecuniary expectations, and the corresponding subsidence of feudalism and the prerogative based on physical power. Thereafter it became possible for the courts to build up the law of business in proportion as business itself developed.
II. INCORPOREAL PROPERTY-ENCUMBRANCES
The law of credit instruments passed through two stages, first, the stage of enforcement of contracts, the second the authorization of the supplementary buying and selling of the contracts themselves. The first may be distinguished as the stage of enforceable promises, or incorporeal property; the second the stage of negotiable promises, or intangible property. The first stage was practically completed by the latter half of the sixteenth century; the second begins with the first recorded opinion on bills of exchange at the beginning of the seventeenth century. The distinction between the law of intangible property, which we name the law of opportunities, and the law of incorporeal property, which we name a special case of the law of encumbrances, turns on the question whether the opposite party has or has not liberty of choice between alternatives.
If the opposite party has no liberty of choice, in the particular behavior at issue, then, to that extent, he is burdened by an encumbrance, or duty, of performance, forbearance or avoidance. If, however, the opposite party is at liberty to choose an alternative then the relation between them is one of opportunity. The law of encumbrances on behavior is the law of right and duty; the law of opportunities for behavior is the law of liberty and exposure. An
encumbrance indicates the psychological relation of command and obedience. The first party issues a command, the opposite party obeys, or is compelled to obey. He has no option. But an opportunity indicates the psychological relation of persuasion or coercion. The opposite party is free to choose alternatives rather than obey. Instead, therefore, of a command and obedience, the first party must resort to that kind of inducement which consists in setting up, or taking advantage of, alternatives between which the opposite party may choose. If the alternative is onerous so that the choice is a hard one, the opposite party still improves his condition, as perceived at the time, by selecting the better alternative. He always gains by choosing, and persuasion and coercion do not differ in kind but in degree. A hard alternative, where taken advantage of, is coercion; an agreeable, or not disagreeable alternative, is persuasion.
Command and obedience are thus legally different from persuasion or coercion, although psychologically they may look alike, for in the one relation the opposite party has no lawful option. He must obey. But in the other relation he has an option; he is free to accept or reject. Command and obedience imply the juristic relation of duty of the opposite party, which therefore we name encumbrance. Persuasion and coercion imply the juristic relation of liberty, which we understand by choice of opportunities. Command and obedience, that is, encumbrances, are sanctioned by legal rewards and penalties; persuasion or coercion, that is, opportunities, are sanctioned by economic advantage and disadvantage. Each is expected to be beneficial to the first party, but encumbrances are beneficial in that they are mandatory acts required of an opposite party; opportunities in that they are optional transactions with an opposite party. Encumbrances, completely defined, are expected, beneficial, one-sided, mandatory actions; opportunities are expected, beneficial, reciprocal, optional, transactions.
Now, the law of incorporeal property is a special case of the law of encumbrances, in that it imposes only a “positive” duty, the duty of performance, whereas the “negative” duties of forbearance and avoidance are the encumbrances peculiar to the law of intangible property. Incorporeal property turns on the duty to pay a debt, but intangible property turns on the duty to avoid or forbear in the exercise of physical, economic or moral power. The two are insep-
arable in fact, the distinction between the two being made at the point of time when an enforceable promise is deemed to come into effect. Before the promise is made the parties are in the position of choosing between opportunities; after the promise is made there is no further choice if the promise is enforceable in law. Yet both before and after the promise comes into effect, there exist duties of forbearance or avoidance on the two parties and all third parties. It is the gradual historical change in all of these encumbrances on behavior, whether of performance, avoidance, or forbearance, that marks the evolution of both incorporeal and intangible property and the shift back and forth from one to the other.
Since, therefore, the special case of a duty of performance is the peculiar attribute of incorporeal property, we may take for granted the presence of the necessary supporting duties of forbearance and avoidance and may speak of the law of encumbrances as the law of “positive” encumbrances of performance and therefore equivalent to incorporeal property in that it is the law of creditor and debtor relations; while the law of opportunities is the law of intangible property, in that it deals with the relation of buyer and seller in its various forms of purchase and sale, lending and borrowing, hiring and hiring out, leasing, and so on.
The law of positive encumbrances may be said to have had a two-fold development, distinguishable as the law of labor encumbrances, and the law of investment encumbrances. The law of labor has historically unfolded as the law of owner and slave, landlord and serf, master and servant, employer and employee, principal and agent, with perhaps subordinate divisions of parent and child, husband and wife. The law of investment is mainly the law of landlord and tenant, lessor and lessee, creditor and debtor. Each of these shows an evolution of the notion of property from the ownership of visible things to the ownership of invisible encumbrances on behavior and opportunities.
The law of employment and agency sets up the creditor and debtor relation until such time as wages or salaries are paid, and then slides informally into the law of specific investment. The investor proper of modern industry emerges as a specialist who takes over, at pay-day, from the employee or agent, the burden of waiting for compensation until that time when the ultimate consumer makes compensation for all of the preceding services. He may be a formal or an informal
investor. As an informal investor he enters by investing his own money in his own business.
The bargain which the formal investor makes is a sale of present purchasing power in exchange for future purchasing power. This occurs, in modern business, under many forms and includes shares of stock, as well as bonds and promissory notes. In either case, the essential transaction consists in selling present purchasing power and accepting a promise or expectation of future purchasing power. The one is money, the other is credit.
In selling present purchasing power he sells that part of his liberty which consists in control over the purchasing power which had been his, so that his field of liberty, for the time being, is thus limited by a duty of avoidance. He accepts, in return, a promise of future purchasing power, an encumbrance on the debtor or the going concern, and it is this investment encumbrance, or incorporeal property, that has emerged out of the primitive notion of holding physical things for one’s own use.
The law of investor’s encumbrance started, under the common law, with the idea of property in physical things and with corresponding legal actions for the recovery of tangible goods and even specific money coins, wrongfully deforced, detained or held, from their owner; and also with actions against violent trespass on lands, chattels, or persons, until it gradually became, about the middle of the Sixteenth Century, the enforcement of a mere promise, express, or implied, written or unwritten, accepted formally or even acted upon without a formal promise, as though it had been promised.
Thus, for example, the “writ of right” and the “writ of debt” indicated similar ideas and procedure, the one being a remedy for forcible detention of land, the other for forcible detention of physical chattels. The writ of right, addressed by the King to the sheriff, bade him to require the defendant A to render to the plaintiff B, a piece of land, which A had unjustly taken from B.  This merely gave to B a better right of possession than to A. It gave possession, but not property.  Yet, eventually, out of this remedy grew the complete remedies of the judgment in rem, affirming the absolute right of property against all the world with its various remedies, applicable to title and ownership of all physical things, whether lands, goods, or even paper instruments serving as evidence of ownership.
1 JENKS, 56 (1912).
2 POLICE and MAITLAND, 2:77.
The “writ of debt” was scarcely different from the writ of right except in the physical object claimed by the plaintiff. It, too, bade the sheriff to require the defendant A to render to the plaintiff B not land, but, say, one hundred specific pieces of coin which A owed B. The defendant was to restore the very coins lent. Afterwards this became, not the specific coins, but the amount of the debt.  Even where a personal obligation of the debtor to perform a certain act was recognized, it had to take objective form in a sealed bond, made with formality in the presence of witnesses or the court,  and it was not so much the promise of the debtor that constituted the ground of his debt as the bond itself with its huge seal. 
But the modern simple, or parol, contract, a written or unwritten promise, with its recognition of a personal liability of the debtor, got its recognition, not by way of enforcement of a promise, but by way of physical damage done to the person or property of the creditor. “The gist of the Writ of Trespass was an allegation that the defendant had, with force and arms, and against the peace of our Lord the King, interfered with the plaintiff’s possession of his body, land, or goods.”  Next by authority of Parliament in 1285  the writ of trespass was permitted to be extended to analogous cases, and came to be known as “trespass on a similar case,” then as “trespass on the case,” then simply as “action on the case,” or merely “case.” Under this authority it was extended to “malfeasance,” or damage to a physical object owned by the plaintiff, as early as the year 1374; then extended to “non-feasance,” in 1424, or the damage caused by mere nonfulfillment of a promise without fraud or deceit; then to “misfeasance” or deliberate fraud of the defendant in breaking his promise though not involving physical damage (1433); then, including “assumpsit” and limited by the doctrine of “consideration,” or “value received,” it established the modern form of contract in the latter part of the Sixteenth Century. 
Thus the promissory note or even a simple promise by word of mouth or only implied in the conduct of the parties, was slowly legalized through the period of the sixteenth century, and the court
1. JENKS, 57, 58. 59.
2. AMES, Lectures on Legal History, 123 (1913).
3. JENKS, 135-6 510.
4. Ibid., 137; POLLOCK and MAITLAND, 182 (contract) 510 (The Trespasses),
5. Westm. 2, 13 Edw. I,
c. 24 (1285).
6. POLLOCK and MAITLAND, 2:511.
recognized the essential notion of a credit instrument, the modern incorporeal property, where protection was something distinct and widely different from the older notions of protection against trespass on the body, land, or goods of a plaintiff.
Not that there had not been in the feudal period a type of incorporeal property, but that property was not the modern relation of voluntary agreements between equals, but was lordship over physical things, or the physical products of the soil or of labor. The “rents” of land were even a part of the lordship over lands and tenants. “The landlord who demands the rent that is in arrear is not seeking to enforce a contract, he is seeking to recover a thing.”  It was only in course of time, and with the modern freedom of labor and money economy, that this “medieval realism,”  became the modern obligation of contracts between equals. The law of landlord and tenant unfolds into many varieties of the law of lessor and lessee, a special case of the law of creditor and debtor. The lessor turns over to the lessee the control of his property, and accepts, for the period of time, the economic relation of investor and creditor, the lessee that of business man or going concern and debtor.
We need not delay to consider the informal investor, the business man, who puts his own property or money into his own business. He does so, of course, not on a formal promise, but on an implied expectation of something roughly in excess of what is promised in similar cases. He takes chances on expected opportunities.
2. Legal Tender
It has been the practice in economic theorizing, since the reaction of the Physiocrats and Adam Smith against Mercantilism, to eliminate money from consideration and to get back to the realities of physical commodities and human wants. Money was simply a measure of value and a medium of exchange, and, while important, its importance belonged to the category of weights and measures or transportation. The government should provide an authentic unit of measurement of value just as it provided a unit of length, weights or cubic content, and it should provide a smooth administration of coinage and banking, since what it provided was Adam Smith’s “great wheel of circulation.” In these respects the value of
1 POLLOCK and MAITLAND, 2:126.
2 Ibid., 2:181, on Ownership and Possession.
money was simply nominal value, containing nothing more in itself than a yardstick or an empty basket. The real thing back of it was the production, exchange and consumption of quantities of commodities, whose measurement and transfer money facilitated.
These views obviously took the individualistic or private standpoint, as against Mercantilism which had taken the public or rather monarchical standpoint. What the individual wants is commodities, not money, - satisfaction, not prices. When the public standpoint was needful it was brought in as a servant or administrator operating “ a great wheel of circulation,”  rather than a judge deciding disputes, or brought in as a “ natural order “ and beneficent purpose of nature or deity, rather than a common-law judge enforcing private contracts. Obviously it followed that, when the history of money was traced out of the customs of primitive society, showing the evolution of the material of money from beads, cattle, tobacco, to iron, copper, silver, gold, and bank credit, it was the mechanism of money and credit, rather than the behavior of judges in interpreting and enforcing promises, that attracted attention.
This attitude conformed to the general attitude imposed on both economists and publicists by the constitutional struggles of three hundred years between monarchs and parliaments which made it appear that government signified only the executive and legislative branches of government rather than the judicial branch. Hence they sought for the legal attributes of money in the proclamations of the prerogative or in the statutes of the legislatures rather than the common law. Yet it is out of the common law, the law that standardized the customs of the people, that the legal tender quality originated, and the function of the prerogative or legislature came in afterwards to direct the judges as to the lawful standards of weights and measures, including money, which all of them should employ uniformly throughout the land in deciding disputes and enforcing promises.
This oversight of the Physiocrats, of Adam Smith and the classical economists, is explicable in the fact that what they mistook for the order of nature or divine providence was merely the common law silently growing up around them in the decisions of judges who were quietly selecting and standardizing the good customs of the neighborhood and rejecting the bad practices that did not conform
1. Cp. VEBLEN, Place of Science, 6G.
to the accepted rules of reason. Legislatures and monarchs are dramatic, arbitrary and artificial; courts are commonplace and natural.
It is also explicable in the fact that economic theory has consistently taken the point of view of individuals on the one hand and commodities on the other hand, instead of the point of view of transactions between individuals. Our analysis of a transaction has shown that there is always a third party to every transaction, the judge who decides or is expected to decide every dispute upon the principle of the common rule applicable to all similar transactions. The business man is not concerned, directly, in his daily transactions, with what the legislatures or the state or monarch does - he wants to know what the judge and the sheriff will do. This judge, however, necessarily takes a public point of view, since his decisions must conform to what other judges have decided in similar disputes and to what the customs or laws of the community authorize and support. In applying the common rule he is conforming to public purpose. Hence the public point of view is inherent in every transaction, and just as much so in primitive society as in a credit economy.
Money originated, indeed, out of the habits and customs of individuals in their transactions, but whenever a dispute arose between individuals as to the price, or the payment of a deferred price, agreed upon, it is evident that the judge, chieftain, headman or king, exercising the controlling power of the community, had to decide upon the quantity and quality of the circulating medium which the seller or creditor should be required to accept. This decision settled the dispute, stopped private vengeance, liberated the debtor or buyer and restrained the creditor or seller. Then when markets and fairs appeared, the same process automatically appeared, and the impromptu pie poudre1 courts of early England testify to the inherent function of the judiciary in interpreting and enforcing accepted customs even of the most transitory and individualistic of itinerant peddlers.
Consequently there is another custom to be taken into account in the history and origin of money - the custom of judges in deciding disputes according to the principle of the working rule, and thereby determining what is “lawful money” or “lawful tender” in the settlement of claims. The fact that these judges presumably followed the
1. The “dusty feet” courts of traveling merchants; cp. POLLOCK and MAITLAND, 1:467; HOLDSWORTH, I:300, 302, 309.
custom of the community in making their decisions is simply the universal fact of the common law which consists in selecting the good and approved customs and eliminating bad practices in the decision of disputes. This custom of courts led to the next stage when conquest or federation had brought together tribes under a sovereign with many local courts and many private coiners and minters of money. Ethelstan, Edgar and Canute, in Anglo-Saxon times, issued proclamations condemning and threatening punishment of those who corrupted the coinage; Edward I proclaimed that “no subject should be compelled to take in buying or selling or other payment any money made but only of lawful metal, silver or gold”; and Henry II is said to have selected the coins of a set of foreign merchants from Flanders, the Esterlings, and proclaimed their “ sterling “ alloy to be the standard for all goldsmiths, coiners,  and obviously also for the itinerant justices whom Henry was the first to send out on the circuits. Thus it came to be settled, at common law, that the King, “by his absolute prerogative” might make foreign or any coin “lawful money” in England,  and that an obstinate creditor had no remedy by the common law to have payment “ because it shall be accounted his own folly that he refused the money when a lawful tender of it was made to him.”  The records of the pie poudre court at St. Ives in the year 1300 contain a decision by merchants requiring a fellow merchant to pay in “lawful money”- legali moneta - since the “crocards and pollards” in which he promised to make payment had meanwhile been “prohibited by the lord King throughout all England.” 
Evidently the King was directly concerned in stabilizing the coinage, since by impairing the coins the King lost his revenues, forfeitures and subsidies, the coercive debts of his subjects. Then when the modern banking system arose, with its bills, notes and deposits, the expectation of what the judges will do in deciding disputes becomes the all-important standard for all private transactions. The “customs “ of business men and bankers are still the foundations of money, but these private practices must conform to the customs of the courts if business promises are to be secure. It is this legal tender
1. 2 Coke Inst. 576.
2. 5 Co. Rep. II4a Wades Case; Trin. 43 Eliz. (1601).
3. Co. Litt. 207, a. b. 208, a; Pong v. Lindsay, I Dyer, 82a, Hil. 6 and 7, Edw. VI; I B1a. Com. 276; Viner Abr. “Tender.”
4. 23 Selden Soc. So.
medium of payments, including governmental paper money, the “greenbacks,”  required by the custom of courts which, in American practice, is known as “lawful money,” the common-law term that goes back to Anglo-Saxon times.
There is thus always a public purpose in every system of money, even the most primitive, as soon as there is an authoritative decision of disputes respecting the means of payment. The public purpose develops along with the growth of population, the practices of the people, the form of government and the motives of the governor. In early times it might go no further than the purpose of keeping the peace; but soon it becomes the purpose of obtaining a revenue for the sovereign; then, with the development of modern capitalism and the predominance of business in the counsels of government, it became Adam Smith’s purpose of providing “the great wheel of circulation,” truly “an organ of the economic commonwealth.”
Soon the question had to arise as to whether the legal tender standard itself had been designed to accomplish accurately the purpose of a “great wheel of circulation,” and then a critical examination ensued as to the relative importance of different purposes from the public standpoint. Since the time of John Locke the dominant purpose for the sake of modern world commerce has been that of settling upon a single standard of value that should be undisturbed by the ignorance or interests of monarchs who controlled its issue. This standardization of gold and silver came in with the overthrow of absolutism in England in 1689 and the control of government by the constitutional methods of parliamentary representation. Here the public purpose was simply that of providing a ‘simple uniform medium of exchange for both domestic and foreign trade.
A hundred and fifty years after the settlement of this as the dominant purpose, a new public purpose began to be suggested as the ideal, namely, a stable level of prices, in order to prevent injustice between creditors and debtors. This purpose was based upon a new device of statistics, namely, the tabular standard or index number of prices, suggested, in 1822 by Joseph Lowe, the London merchant, and renewed in 1833 by C. Poulett Scroupe, the politician and publicist.
Malthus, in 1821, had previously suggested another practical pur-
1 Hepburn v. Griswold, 8 Wall. 603 (1869); Legal Tender Cases, I2 Wall. 457 (1870); Juillard v. Greenman, 110 U. S. 421 (1884).
pose from the public standpoint, namely, that of preventing the oscillations of prosperity and depression, over-employment and underemployment, which he had connected with the oscillation of the general purchasing power of money.  This public purpose has now come to the forefront as a criterion for determining the legal standard of value and the operations of the banking system, which are the means instituted by government for furnishing and withholding credit.  If the governing officials are changed, or the existing officials change their minds in conformity with this new criterion, as was the case when John Locke addressed himself to them at the close of the Seventeenth Century, then the public purpose, as revealed in the behavior of officials and judges, will also advance another step and adopt a stable price level as well as a single standard of value as its criterion.
Thus it is not so much the material out of which money is made, nor the mechanism of money and credit, as it is the behavior of judges in deciding disputes, that determines the measure of value and medium of exchange. It is not gold, but the legal tender attribute of gold attached to it by the courts, that determines the prices that business men shall pay for commodities, for it is that that determines the enforceability of contracts, the liquidation of debts, the assets and liabilities of a going concern. Prices are indeed “nominal values” - they are the expectations of judicial behavior in the enforcement of promises. And modern economics is not a barter economy or a truck economy as the Physiocrats and classical economists would have it, nor is it a pleasure and pain economy of production and consumption, as the hedonic economists would have it, but it is a price economy, as the customs of business and the custom of courts actually have it. For business is not an exchange of commodities - it is a purchase and sale of commodities. It is an economy of buyers and sellers, borrowers and lenders, not one of truck and barter. Its essential quality, before anything else can be done, is transfer of titles and the liberation of debtors from encumbrances through the tender of lawful means of liquidating their promises. It is strictly, in the fullest sense of the word, a “ credit “ economy, for it is a transfer of goods and services for a mere promise to pay a price, whose reality is none other than confidence in the expected behavior of citizens, judges
1. MALTHUS, T. R., Principles of Political Economy, 397. 398 (1821).
2. CJ. COMMONS, MCCRACKEN, and ZEUCH, “Secular Trends and Business Cycles,” 4 Rev.of Ec. Stat., 6 (1922).
and legislatures. Back of this insubstantial and delicate process of the mind with its purely nominal values or prices, is the great reality of production and consumption, prosperity and poverty, private wealth and commonwealth. We cannot, however, clearly see the connection between promises and reality, between prices and welfare, until we have seen another and most remarkable quality of this mental process, by which the courts have made mere promises actually to look and act like a commodity - the quality of negotiability.
III. INTANGIBLE PROPERTY - OPPORTUNITIES
We have described the change in meaning of the term property from the common-law meaning of physical things to the business-law meaning of the prices of things. The expected prices are imputed as a present value and become the assets, or expectations, which the business man entertains, of future transactions on the commodity markets. An even more momentous change from the common law to the business law was that which converted the mere promises of one person to another into commodities that could be bought and sold on the money and securities markets. “If it were asked,” says McLeod, [l] “ what discovery has most deeply affected the fortunes of the human race it might probably be said with truth - The discovery that a debt is a saleable commodity. When Daniel Webster said that credit has done more a thousand times to enrich nations than all the mines of all the world, he meant the discovery that a debt is a saleable commodity, or chattel; and that it may be used like money; and produce all the effects of money.”
There were two circumstances which prevented the primitive common law from enforcing the assignment or negotiability of contracts,
1. MCLEOD, H. D., Theory and Practice of Banking, 5th ed., I:200. Further references on negotiability and assignment are as follows: Morse Joan T. JR., Banks and Banking, 4th ed., 1903; HOLDSWORTH, W. S., “Origins and Early History of Negotiable Instruments,” 31 L. Q. R. 12, 173, 376; 32 L. Q. R. 20 (7975-x6); JENKS, EDWARD, “Early History of Negotiable Instruments,” 9 L. Q. R. 70 (1893); GREER, F. A., “Custom in the Common Law,” g L. Q. R. 153 (1893); CARTER, A. T., “The Early History of the Law Merchant in England,” 17 L. Q. R. 232 (1901); AMES, JAMES BARB, “History of Assumpsit,” 2 Harv. L. Rev. x, 53. 377 (1888); Selected Essays in Anglo-American Legal History, 3:259; HOLDSWORTH W. S., A History of English Law, 302 (1909); POLLOCK and MAITLAND, History of English Law, 2:226 (1911); PAGE on Contracts, 2343 et passim (1919); POUND, ROSCOE, “Liberty of Contract,” 18 Yale Law Jour. 454 (1909); BROWNE, J. H. B., The Law of Usages and Customs (1875).
namely, the concept of property as tangible objects and the concept of contract as a personal relation. The concept of tangible objects arises from man’s dealings with physical nature; the concept of personal relations arises from the character and confidence imposed in individuals. While the business law in the 17th century was converting man’s dealings with nature into the assets of a going concern, the same business law was eliminating the personality of individuals by converting their debts also into the assets and liabilities of a going concern.
The primitive mind could not conceive of property apart from physical possession. “Property” is really an intangible relation depending on the promises of government, such that a person may own an object that he cannot see. But “possession” is, in its original meaning, a physical relation of seeing, touching and holding tangible things. And if the thing cannot be physically handled yet that physical handling can be symbolized by another physical object which can be handled. Hence a class of promises embodied in such paper documents as deeds and bonds, the so-called “specialties,” drafted in the presence of witnesses with great solemnity and loaded with the formidable seal of the grantor, symbolized physically to the owner and all others his direct holding of a physical object, in the case of a deed, or his indirect holding of the same to be delivered to him, in the case of a bond. The primitive mind could not grasp the underlying promise with its unseen foundation in the expected behavior of courts that enforce the promise, but must grasp it in the paper instrument with its huge decorated seal.
Survivals of this primitive materialism continue to the present day. In distinguishing the paper symbol of a deed, which had been altered and modified, from the “substance” of the promise contained in the deed, which had not been modified, Justice Holmes, in 1901, pointed out that, under the primitive law, “the alteration was a cancellation of the deed, having the same effect that tearing off the seals would have had. This rule comes down to us from a time when the contract contained in a sealed instrument was bound so indissolubly to the substance of the document that the soul perished with the body when the latter was destroyed or changed its identity for any cause.”  And, in distinguishing a debt from the paper instrument which was merely an evidence of the debt, Justice Holmes also said,
1. Bacon v. Hoofer, 177 Mass. 335. 337 (1901).
in another case, “The debt is inseparable from the paper which declares and constitutes it, by a tradition that comes down from more archaic conditions. Therefore, considering only the place of the property, it was held that bonds held out of the state could not be reached… But it is plain that the transfer does depend upon the law of New York, not because of any theoretical speculation concerning the whereabouts of the debt, but because of the practical fact of its power over the person of the debtor… What gives the debt validity? Nothing but the fact that the law of the place where the debtor is will make him pay. Power over the person of the debtor confers jurisdiction.” 
Thus has judicial analysis continually been called upon to go behind the primitive notions of physical things as the “substance” or symbol of property and to find the reality of property, not in things but in the promises of individuals supported by the promises of courts to hold individuals responsible for the execution of their promises. This outcome is a result of the several centuries of experience required to work out the principle of the simple unsealed promise, made without formality which we have seen in the preceding section, and especially to work out the devices by which such promises could be bought and sold.
There was another fundamental reason in primitive society accounting for the non-negotiability of promises. Promises, express or implied, are the foundation of human society. This is the root of the doctrine that society originated in contract. But the contract was not an original formal contract made once for all at the beginning of society and then interpreted afterwards by each individual, but is a process of implied promises inferred from daily behavior according to the approved way of doing things at the time.  When a person enters a room with others, he promises, by his very act of entrance, that he will not trespass, but will fall in line with the custom of that kind of gathering. Such promises are personal. They are made between the persons then living and acting together. But while personal, they are not individual. They are collective. An injury to one is the concern of all who are acting together. In primitive society these collective expectations absorbed the individual
1 Blackstone v. Miller, 188 U. S. 189, 205, 206 (1903).
2 “It is custom that writes out slowly from generation to generation the terms of the social compact.” GREER, r. A., “Custom in the Common Law,” 9 Law Quar. Rev. Rev. Rev. 153 (1893).
in the group, such that the violation of express or implied promises must be atoned vicariously by other members of the group and by the children of the wrongdoer, while the recompense accrued not alone to the individual injured but to his group and his children. Thus the blood feud, hereditary serfdom, fixed status of individuals, and communism, followed the primitive notions of collective responsibility and collective power to enforce responsibility.
When the individual emerged out of the group it was by stages and by classes of individuals, first the landed proprietors by conquest, second the capitalists by participation in sovereignty, third the laborers. This emergence consisted in the equality and liberty of the individuals constituting the class, retaining superiority and command over individuals of classes not yet participating in sovereignty. Between superior and inferior the promise was the involuntary one of protection and obedience, and its enforcement was in the hands of the superior. Between equals the promise was the voluntary one of reciprocal service, and its enforcement was accomplished, as we have seen, by the judiciary, who took away from individuals the power of private enforcement while recognizing the binding character of the promise.
Such recognition of the promises of reciprocal service between equals consisted in allowing equal liberty to make individual promises and the accompanying individual responsibility to fulfill the promise. As such, the resulting contract did not bind a successor of the one who promised nor did its benefits accrue to a successor of the one to whom the promise was so made. Likewise, the liability to make redress for violation of the custom could not be vicariously transferred to another, neither could the one to whom redress is owed transfer his claim to another, but the compensation must be rendered in person by the wrongdoer and satisfaction must be obtained in person by the sufferer. Neither may the liability survive the life of the wrongdoer nor the claim to redress survive the life of the injured individual, else it ends in blood feud, or in the hereditary relation of slavery and serfdom which nullifies the equality and liberty - if individuals in the same class. The law of equality and liberty of the individual is, then, the law of non-transferability and non-survivorship of both the right to recompense and the duty to make recompense, while the law of slavery or status was the law of transferability and survivorship of the rights of the superior and the duties of the inferior.
Thus it was that, after the law of creditor and debtor had been perfected in the sixteenth century, it required still another century to convert the personal relations of creditor and debtor between equals, as conceived in the common law of liberty and equality, into the property relation of assets and liabilities. This consisted in inventing the transferability and survivorship of promises freed from the personality of the parties to the promise. And so substantial has been the transformation that these mere promises between equals, which constitute the debts of the credit system, can themselves be treated, in law and popular thought, like commodities, to be bought and sold like other commodities, though they are neither commodities nor slaves nor serfs treated like commodities, but are a mental expectation arising out of confidence in the promises of governments, courts and business men.
The essential requirement of business practice was to convert these promises of freemen into something as nearly like money as possible. Primitive buying and selling was barter - the direct exchange of movable products. Even when money was introduced the exchange for money was but a barter of coins for products, and both were chattels. This constituted strictly a money bargain as distinguished from a credit-bargain or price-bargain. No credit-bargain was recognized, the “action of debt” being an action to recover coins or chattels unlawfully held, just as the “action of right” to land was an action to recover land forcibly detained.  They were actions to recover physical property, not actions to enforce promises. In so far as mere promises were enforced, involving no idea of unlawful assault, trespass or theft, they were matters of conscience or honor, and the court to which appeal could be made was only either the priest in the confessional or the wager of battle to ward off dishonor.
It was similar with the relation of landlord and tenant. Being a personal relation, the rent bargain and its resulting contract could not be transferred by either the landlord or the tenant to another landlord or tenant, without the consent of the other party. The King’s tenant could not alienate his tenancy without consent of the King; and the sub-tenants down the line could not alienate without consent of their immediately superior landlord.
The same was true of other contracts. A contract, being a personal relation between creditor and debtor, could not be sold by the creditor to a third party, nor assumed on behalf of the debtor by another
1. Above, p. 238.
debtor, without the consent of the adverse party to the original contract. Being personal promises of oath and fidelity, or of reciprocal personal service of equals, the common-law lawyers could not see how other parties not originally bound to each other in good faith could become so unless they also personally pledged themselves to each other in a similar confidence.
Thus, at common law, the assignment of contractual rights, being the voluntary promises of two parties equal and free, was of no effect if the opposite party did not consent to the assignment. The relation between the two was a personal relation arising out of personal confidence, and not a property relation arising out of the transfer of the physical things. Wherever this personal relation continues, indeed, to prevail at the present day, the contract continues to be non-transferable. A promise to marry cannot be assigned by the promisee to a third party, nor negotiated upon the market. A promise to perform any special service depending on the contingencies of character or skill of the promisor cannot be transferred.
The highest and most complete type of assignability is negotiability, which consists in a promise to pay a definite sum of money, without condition, at a definite time and place. Here the personal element is as nearly eliminated as possible, so much so that a third party to whom the promise is legally transferred, can bring suit in his own name as though the promise were made to him personally. And in doing so, he is free of all defenses of fraud or offsets which the debtor might have set up against the party with whom the contract was actually made. The bearer of certain negotiable paper takes even a stronger title than that possessed by the original creditor, for he takes it free from defect in title and free of equities against the creditor from whom he received it; and the anomaly is created of authorizing a person to sell more than he owns. The debtor must pay and then bring suit against the original creditor who has presumed to sell more than he owned.
It was this anomaly that persisted in the minds of the common-law judges until the legislature was compelled to intervene. As late as 1704, Chief Justice Holt refused enforcement of the promissory notes of the goldsmiths of London, payable to bearer on demand, and constituting the modern bank note. These promissory notes, he said, “are only an invention of the goldsmiths in Lombard street who had a mind to make a law to bind all those that did deal with them; and sure
to allow such a note to carry any lien with it were to turn a piece of paper, which is in law but evidence of a parol contract, into a specialty; and besides it would empower one to assign that to another which he could not have himself; for since he to whom this note was made could not have this action, how can his assignee have it?”  It required an Act of Parliament to reverse this common-law theory of Justice Holt. 
While the negotiability of promissory notes was thus long delayed, it had been a rather simple matter to bring about recognition of the negotiability of bills of exchange, including their modern development, the checks drawn by a depositor on the bank. A bill or check is an order by a creditor upon his debtor to pay to a third party designated, or even to any third party, “the bearer,” a part or the whole of the debt owing. The first recorded case recognizing the negotiability of bills of exchange in England was decided in 1603. This related to a foreign bill of exchange, and negotiation was easily allowed since international trade was distinct from domestic trade and came under a mercantile custom common to merchants of all lands. But once started in this direction, the negotiability of inland bills was afterwards slowly allowed. At first, both for bills and notes, it was necessary to set out and prove the custom of merchants, but after 1695 and 1704, the courts began to assume “judicial knowledge” of the custom and hence a mere declaration of the custom was good.  At first the courts applied the law only to those who were actually merchants, then it was extended to all traders and dealers, and finally, in 1689, an acceptor who was not actually a merchant was forbidden to deny that he was.  Thus, by a process extending through a hundred years, aided by equity and legislation, of gradually taking away the defenses which at common law the debtor could set up against paying his debt, the bona fide holder of the debtor’s promise could not only sue in his own name even though the promise had not been made to him personally, but could even have a stronger case at law than that of the original creditor; and that which had been a personal relation between definite individuals became the assets and liabilities of a going business,
1. Butler v. Crips, 6 Mod. 29 (1702). But see MCLEOD, Theory and Practice of Banking, I:224 ff., who contended that justice Holt was wrong and that promissory notes were negotiable at common law. This contention overlooks the decisive fact that Lord Holt was one of the most eminent of the common-law lawyers.
2. 3 and 4 Anne c. 7, 1705.
3. Martin v. Boure, Cro. Jac. 6 (1603).
4. Williams v. Williams, Carthew, 269 (1693); Bromwich v. Lloyd, 2 Lutw. 1582 (1704).
5. Sarsfield v. Witherly, Carth. 82 (1689).
independent of the persons, past, present or, future, who might actually constitute the concern.
It can be seen, therefore, why it is that modern capitalism begins with the assignment and negotiability of contracts. They accomplish two purposes, a low rate of interest and a rapid turnover of capital. The two operate together. Capitalism could scarcely survive on a 10% or 20% rate of interest and a turnover once or twice a year. It has survived on a 3% to 6% rate of interest and a turnover three to five times a year. The difference is cumulative. Ten per cent a year on capital turned over once a year means an overhead cost of obtaining capital ten times as great as 5% a year on capital turned over 5 times a year. The, same amount of capital does five times as much work at one-half the rate of interest.
Shortly after the middle of the 17th century in the year 1668, when the legal process of assignment and negotiability above mentioned was halfway accomplished in England, Sir Joshua Child, the great English exponent of Mercantilism, compared the advantages which Holland enjoyed contrasted with England, where the current rate of interest was 3% in “peaceable times” compared with a legal rate of 6% in England, and the turnover of capital was twice or thrice that of England. This “turnover,” as it now would be named, was accomplished in Holland, said Child, by “the law that is in use among them for transference of bills of debt from one man to another; this is of extraordinary advantage to them in their commerce; by means whereof they can turn their stocks twice or thrice in trade, for once that we can in England; for that, having sold our foreign goods here, we cannot buy again to advantage, till we are possessed of our money; which it may be we shall be six, nine or twelve months in recovering: and if what we sell be considerable, it is a good man’s work all the year to be following vintners and shopkeepers for money. Whereas, were the law of transferring bills in practice with us, we could presently after the sale of our goods dispose of our bills, and close up our accounts.” 
And Sir Joshua proposed a cumbersome piece of legislation authorizing assignment, equivalent to the modern “acceptance,” which, however, was, within the next thirty years accomplished, as we have just noted, by the simple method of judicial recognition and
1. CHILD, SIR JOSHUA, “A New Discourse of Trade,” original, 1668. See Dict. of Pol. Econ. (6th ed. of 1804).
enforcement of the customs of merchants. “The great advantage,” he said, “that would accrue to this kingdom by a law for transferring bills of debt from one person to another, is sufficiently understood by most men, especially by merchants. The difficulty seems not to be so much in making of a law to this purpose, as reducing it to practice; because we have been so long accustomed to buy and sell goods by verbal contracts only, that rich and great men for some time will be apt to think it a diminution of their reputation to have bills under their hands and seals demanded of them for goods bought, and meaner men will fear the losing of their customers by insisting upon having such bills for what they sell.” These compunctions of the great and meaner men have long since given way, as we know, before the greater economy of buying and selling short-term promises at the commercial banks. Twenty years after the perfection of negotiability of promises, by the Act of 1704, the rate of discount at the Bank of England had fallen to 2 1/2%, and has since fluctuated between 2% and 7% according to business conditions.
2. Commodity Tickets and Price Tickets
This remarkable innovation of negotiability, which took an entire century for its accomplishment from the first decision on bills of exchange in 1603 to the parliamentary reversal of Lord Chief Justice Holt in 1704, while it established modern capitalism, yet introduced the most disturbing confusion between primitive notions of physical commodities and the new notion of a promise acting like a commodity. Stock-jobbing frenzies for the first time seized upon the minds of Englishmen in 1792,1 the Mississippi Bubble and the South Sea Bubble overwhelmed France in 1716 and England in 1718, and a recurring cycle of inflation and contraction, prosperity and depression set in for two hundred years so regularly that learned men ascribed it to the sun, to Venus, to human nature, to human depravity, until, in more recent times, it is seen to be the workings of the clever invention of negotiability of promises. What negotiability actually introduced was the phenomena of two opposite markets, two opposite classes of legal claims to commodities or services, and two opposing concepts of value. The two markets are the commodity markets and the money markets; the two classes of legal claims may be contrasted as commodity tickets and price tickets, and the
1. MACAULAY, T. B., History of England, 4:x56. (1856).
two concepts of value are the real value assigned to commodities or labor and the nominal value expressed in prices.
Every productive enterprise carries on these two lines of business, the business of buying, storing, enlarging and selling quantities of real value or real wealth in the form of commodities and labor, and the business of creating, buying, selling, offsetting and cancelling promises to pay the nominal value or price of that real value or real wealth. The former kind of business is carried on at factories, retail and wholesale stores, railroads, theatres, warehouses, produce exchanges, farms, real estate markets, where people deliver commodities or labor power and transfer the titles to them. Every factory is a kind of warehouse in which raw material and labor are “deposited” to reappear in a few weeks or months as a finished product. Every wholesale or retail store is a warehouse where finished goods and the labor of salesmen are bought and stored to be sold in a few days or weeks. So with every farm, every railroad, every workshop, every theater, and so on. These are the commodity markets and labor markets of the country, and the operations there going on constitute that process which we have named a going plant with its producing organization, creating the real values and real wealth of the country.
But the business of creating, buying, selling, offsetting and cancelling the promises to pay the prices which are negotiated on the commodity markets is conducted at commercial banks which are the money markets of the country. The “going business” of any concern connects its commodity market and its money market, for it is the business on the commodity markets, of buying and selling, hiring and hiring out, renting and leasing, and the business on the money market of borrowing and lending, discounting and depositing promises to pay the prices of commodities in lawful money within 24 hours to 90 days.
Historically the legal transition is the transition from bailments which are commodity tickets, to debts, which are price tickets. The Bank of Amsterdam and the Goldsmiths of London began their “banking” business as warehouses for the storage of gold and silver and the issue of warehouse certificates to depositors for the amount of the commodity, gold or silver, which they had stored. The survival of that warehouse business is seen in the American gold and silver “certificates.” Latterly, finding that all of this commodity in storage was not called for at any one moment, they violated their pledge of
storage, loaned their depositors’ money to other people at a profit, and issued their commodity tickets in excess of the quantity of commodity on hand. This violation of a pledge, if practiced by an ordinary warehouseman, would constitute an unlawful conversion of bailment, since, in such a case, the deposited commodity, such as wheat or gold, is not the property of the warehouseman to loan or sell to others, but is the property of the depositor. In order that this unlawful practice of the goldsmiths might become lawful, it was necessary for the courts to substitute a sale of gold to the banker for a deposit of gold by the customer, and to substitute a debt of the banker to the customer for a bailment of the customer to the warehouse. The warehouseman now became the owner of the commodity instead of a bailee, and the former owner became a creditor, owning a bank note, instead of a depositor owning the commodity. This was the unlawful “invention of the goldsmiths in Lombard street who had a mind to make a law” different from the common law, that stirred the wrath of Chief Justice Holt and required an act of parliament to overrule him.
Yet the names “deposit” and “depositor” were retained in banking practice in order not to break with that conservative materialism of the human mind which insists on tangible evidence, although the depositor had changed from owner of a thing to creditor of the bank. This retention of the primitive materialism was convenient under the practice of bank checks, although the depositor now deposits not a commodity but his own or his customer’s promise to pay, and the bank, through the device of negotiability, becomes, not the warehouseman, but the owner of that promise. “Money” now becomes, not a corporeal property, gold or silver, but bank credit, having the two legal qualities of incorporeal property, the demand-promise of the banker, and intangible property, the exchange-value of that promise on the markets. And this kind of money becomes elastic since its volume changes with the prices that business men agree to pay for commodities. Thus the transition is accomplished from a commodity ticket, or bailment, calling for a specific corporeal property, gold or silver, to a price-ticket, or bank credit, calling for any commodity at its then exchange-value.
The commodity ticket is, in effect, a title of ownership of corporeal property, the price-ticket is a negotiable promise. The significance of commodity tickets is originally that of corporeal property, the owner-
ship of physical things, even real estate, whose ownership does not pass by physical delivery, but by recording the ticket which is the title of ownership. So with all commodities, that is, chattels. I hand you physically a bushel of potatoes, but I do not pass the title to you unless there goes with it an evidence which the law acknowledges as transfer of ownership. Thus all titles of ownership are commodity tickets authorized by government, being evidences of ownership regardless of changes in the value of the thing owned.
These titles of ownership slip over into that huge class of bailments, wherein something of a personal nature is delivered to another to be held but not owned and to be returned to self or delivered to third parties, the evidence being recorded on such tickets as warehouse receipts, dock warrants, bills of lading and those original deposits of the Bank of Amsterdam and the goldsmiths of London, or even not recorded, as in the case of goods hired or left for repair.
Bailments, which are promises to deliver things, shift into what may broadly be designated futures, which are promises to deliver the values of things as when an iron manufacturer promises to deliver a quantity of iron or its value, or when a banker promises to deliver gold or its equivalent checking account, which is, in reality only an account set off against other debtors of that or other banks. But it has therefore the great value of liquidating debts.
These specific futures slide into speculative futures, to which the name “futures” is usually attached, where either party, not having the thing itself, expects to buy or borrow it on the market or to deliver the then market price as of the date of delivery, or at least the “margin” between the agreed and the then market price.
But commodity tickets themselves finally comprehend even the entire range of incorporeal and intangible properties as well as corporeal property, since, with the device of negotiability, stocks, bonds, debentures, warrants, bills of lading and so on have been rendered as nearly like money as possible, and may be passed readily from hand to hand along with their titles of ownership.
There remains, however, in all these transactions, the distinguishing character of commodity tickets, whether they be claims to real estate, chattels, bailed goods, futures, or even all incorporeal and intangible properties, namely, that the commodity ticket changes in value exactly as the value of the thing itself to which the ticket lays title. But it is different with the price-ticket, money. Money is power to
obtain in exchange, not a specific thing, but power to obtain anything at the then price of anything. A warehouse receipt calls for a given number of bushels of wheat stored in an elevator; but a price-ticket calls for any number of bushels of wheat at the then price of wheat. If the wheat rises in price the price-ticket obtains a smaller number of bushels; if the wheat falls in price the price-ticket obtains a larger number of bushels.
Hence it is that, although the two kinds of business of every concern on the commodity markets and the money market are inseparable, yet they are likely to move off remarkably in different directions with very different social effects. I sell to you 1,000 tons of pig iron at $20 per ton and you promise to pay me $20,000 in 60 days. I take your promise to the bank and the bank gives me a deposit of $20,000, less the discount. The bank writes down on its books under the heeding “loans and discounts” $20,000 receivable in 60 days, and under the heading “deposits” $20,000 payable on demand.
But suppose I sell that thousand tons of pig iron at $40 per ton. You now promise to pay me $40,000. I now take your promise to the bank and get a loan and a deposit of $40,000. It is the same quantity of pig iron. There is no change in the commodity. It is deposited in a warehouse or converted into stoves or steel. I have transferred the title or bill of lading to you - have given to you a commodity ticket that calls for 1,000 tons - and have taken from you a promise that calls for $20,000 or $40,000, as the case may be, in lawful money in 60 days. The bank then underwrites that promise by agreeing that that price was a going price, that you and I are good for that price in 6o days, and by issuing to me its own negotiable promise to pay that price on demand. This “deposit” is a price-ticket, good at any bank in payment of debts.
The significance of it is that the commodity ticket and the price ticket move off in different directions, since they are independent variables on different markets. If a warehouse company promises to deliver 1,000 tons of real value on demand, in the form of pig iron which has been “deposited” at the warehouse, it receives and delivers 1,000 tons regardless of whether the nominal value changes meanwhile from $20,000 to $40,000 or from $20,000 to $10,000. But if a bank promises to deliver the price of that pig iron on demand it does so irrespective of whether the $20,000 will, within the same 60 days, purchase 1,000 tons or only 500 tons. The warehouse deals in com-
modifies regardless of changes in their prices; the bank deals in prices irrespective of changes in the quantity of commodities. The commodity ticket calls for 1,000 tons of pig iron regardless of whether or not its price changes from $20,000 to $40,000. But the price-ticket calls for a price of, say, $20,000, regardless of whether the price afterwards will purchase 1,000 tons or only 500 tons.
A commodity ticket is good at a warehouse, a factory, a farm, because it is simply a title of ownership, a bill of lading, a warehouse receipt, a claim to a seat or standing room in a theater or street car, which calls for a given quantity of commodity or service. But a price-ticket is good at a bank because it is a check drawn on a “bank deposit” at one of the banks for a given price of that commodity or service. A valid commodity ticket is good on its specific commodity market. A properly authenticated price-ticket is good on any commodity market and any money market. A commodity ticket follows the specified commodity with every change of ownership, regardless of changes in its price. But a price-ticket petrifies the price of that commodity on a given day at the bank and then circulates that price around from bank to bank for 30 to 90 days, regardless of changes in the quantity of that commodity which that petrified price meanwhile will purchase.
It is here that the public purpose of that negotiable promise, a price-ticket, or bank deposit, may be discovered. The two kind of business on the commodity markets and the money markets correspond to two ways of getting rich or making a profit in business. One is by increasing the quantity of products or reducing their costs without raising prices; the other is by getting higher prices without increasing the quantity of products. The first method is that of increasing the quantity of commodities with a stable level of prices; the second is that of marking up the level of prices without increasing the quantity of commodities. The first is an increase of output, the second is relatively a restriction of output. The first is the productive method of making a profit by increasing the welfare of the community. The second is a speculative method of making a profit by taking it out of other people whose prices are not moving up as fast and hence without furnishing to them a corresponding increase of real wealth.
The commercial banks themselves do not clearly distinguish this public point of view from this private point of view, for two reasons: they are interested in the solvency of borrowers and they are interested
in their own reserves of lawful money, and not in the movement of the general level of prices. In other words, they have no common rule of public policy to guide them. A pig-iron producer is perhaps as good a risk for a bank deposit of $40,000 when the price of pig iron moves up from $20 to $40 a ton if his customer’s prices for their products are also moving up, as when the quantity of pig iron, which he sells, moves up from 1,000 tons to 2,000 tons at $20 per ton. In either case the bank can perhaps safely lend the producer $40,000 and thereby create “new credit,” which is equivalent to creating “new money.”
But there is a great difference in the public consequences of the two methods of creating new money. The first method creates new money because prices are being marked up. The second creates it because real wealth is being enlarged. In the second case the bank guarantees the public, in effect, that the quantity of real wealth has been doubled. But in the first case the bank guarantees only that the price of that wealth has been doubled. This is because the marking up of nominal values, or prices, by the business community is accompanied by the marking up, on both sides of the bank’s books, of approximately just that amount of increase in the total volume of bank loans and bank deposits, or price tickets. It is simply a marking up of promises by business men ratified by a marking up of promises by bankers.
This is the second reason for the banker’s private point of view, namely, the ratio of his reserves of lawful money to the volume of checks which he has promised to pay on demand. Were it a matter of a barter economy or a metallic money economy, there would be little or no elasticity in the supply of the commodity which the producer furnishes. But the bank is not dealing in commodities, it is dealing in promises to pay lawful money. And the volume of its promises to pay on demand may be as great as the risks it is willing to take on the chance of having enough lawful money on hand to meet a run of outgoing checks presented by customers and other banks in excess of the run of incoming checks deposited by customers and drawn on other banks. If the two are about equal, then the bank merely offsets one promise on its books by other promises, and its total liabilities remain constant.
But if it has greatly increased its volume of demand promises by guaranteeing an increased volume of price-agreements between business men, then the volume of outgoing checks increases without a corresponding increase in the volume of incoming checks. And,
since the volume of lawful money, constituting the reserves which it has promised to pay on demand, is like the volume of other commodities in that it cannot be increased merely by issuing more promises but must be increased only by buying or producing more commodities, then the ratio of lawful money to the volume of demand promises falls, the risks are increased, and the bank begins to withhold its issue of promises. From the bank’s point of view, this is the process of inflation and deflation - inflation is the increase of deposits relative to bank reserves of lawful money, deflation is the decrease of deposits relative to bank reserves.
But from the public standpoint, inflation is a general rise of prices without a corresponding increase in the quantity of products, and deflation is a general fall of prices without a corresponding decrease in the quantity of products. The reconciliation of the two points of view is to be accomplished by the adoption of a working rule stabilizing the general level of prices, such that price-tickets calling for nominal values, shall always call for as nearly as possible the same quantity of real values, and such that banks will not insure business men in making profits on the mere rise of prices to be followed by a general collapse, but will insure them in making profits on an increase in the quantities and a reduction in the costs of commodities to be followed by a general increase in public welfare. 
3. Goodwill and Privilege
Every social relation involves, for our present purpose,  at least three parties, who may be named the first, the second and the third party. The first party is self. The second is an opposite party, say a debtor, an agent, an employee or a bargainer. The third party is a possible disturber of the relation between the first and the second party, say a trespasser, an intruder, a competitor, an infringer.
Furthermore, every act, for our present purpose,  is either a positive act which we name a performance, or a negative act (an “omission,” negative performance), which we name an avoidance.
1. Practicable details are discussed by IRVING FISHER, Purchasing Power of Money (1911) and Stabilizing the Dollar (1920); by G. CASSEL, The Nature and Necessity of Interest (1903); The Money Market and Foreign Exchange after 1914 (1922); The World’s Monetary Problems (1921); and by R. G. HAWTREY, Currency and Credit (1919) and Monetary Reconstruction (1923); FOSTER and CATCHINGS, Money, (1923)
2. Above, Chap. IV, Sec. I, p. 66 ff.
3. Above, Chap. IV, Sec. II, p. 78.
An encumbrance, then, may be either positive or negative, that is, a performance or an avoidance, and it is proper to name it an encumbrance in either case, because it limits the field of liberty of him upon whom it is enforced. If the encumbrance is positive, that is, a performance, it means that the opposite party is required positively to perform an act, to pay a debt, to obey the commands of the principal or the employer. He has no option. It is this form of encumbrance which we have distinguished as the labor encumbrance and the investor encumbrance, or incorporeal property.
If the encumbrance, however, is negative, that is, an avoidance, it means that a third party is restrained from committing an act, for example, to trespass, intrude, or compete, and therefore is constrained to direct his behavior elsewhere. Each deducts from the field of free behavior of another party. The duty of performance deducts positively from the field which the second party already controls; the duty of avoidance constrains a third party to push elsewhere the boundaries of his field of control, if he can.
If the matter at issue is a positive encumbrance, the relation of debtor and creditor, then the duty of performance imposed on the second party implies a duty of avoidance imposed on all third parties. An encumbrance is thus two-fold: a duty of performance which deducts from the liberty of the second party and a duty of avoidance which deducts from the liberty of any third party.
Now, opportunities differ from encumbrances in that the second party, a bargainer, is burdened by no duty either of performance or avoidance within the field where the transaction occurs. He may be, and is, encumbered, at other points of the matter at issue, by a duty of avoidance. He must not carry his liberty too far beyond the limit of allowable deception or coercion. But beyond that limit he is free to negotiate, to offer alternatives, to persuade or coerce, to withhold or yield, bound by no encumbrance either of performance or avoidance, just as the first party is also free. Within this field of opportunity the relation between the first and second party is that of liberty, the absence of duties.
But a third party, the possible trespasser or competitor, is burdened only by a duty of avoidance. Up to a certain point he must not intrude between the first and second parties to the potential bargain. Up to that point he must avoid physical disturbance, or trespass, and competitive disturbance, or infringement.
For the sake of brevity of discourse it is not customary to state explicitly the part played by third parties either in the case of encumbrances or opportunities. Third parties are usually “all the world,” and it is usually enough to take for granted the negative encumbrance, the avoidance, or duty to not-do something, which is imposed upon their liberty of action. Generally, we shall speak of the second party as the opposite party, since the duty of avoidance is imposed on third parties for the sake of the transactions with opposite parties. The terms encumbrance and opportunity therefore will be usually employed with reference only to the transactions between first and second parties. Thus limited, but with third parties always implied and taken for granted, an encumbrance is a positive duty of the opposite party; an opportunity is an absence of both the positive duty of performance and the negative duty of avoidance.
But third parties cannot always betaken for granted. Individuals emerge out of “all the world” as specific persons at critical points. It is, for example, a third party (possible competitor) who sells his liberty to compete when he sells the goodwill of his business, or who is restrained from unfair competition or fraud when the court protects the goodwill or trademark of the first party. In either case there is imposed upon him, as a third party, not a general, but a more specific and limited duty of avoidance that originates the law of goodwill and privilege.
The law of goodwill was tardier in its development than the law of encumbrances. It was not until the year 1620 that what appears to have been the first decision was handed down to the effect that a person might lawfully sell his liberty along with his business. The opinion was given in the highest court of the common law, and then was appealed to “all the justices and barons of the Exchequer.” That the matter contained a doubt is revealed in the dissent of one of the justices. The opinion aroused great interest and was recorded by all of the reporters of that day,  for it legalized a restraint of trade by stretching the common law at the very time of intense excitement over those restraints of trade which the sovereign had been exercising by stretching his prerogative.
A merchant had sold his stock of goods at a price in excess of their inventory value, and, in selling, had agreed not to set himself up in
1. Jollyfe against Brode (1620-21) Cro Jac. 596; Noy, 98; 2 Rolle, 201; W. Jones, 13. Referred to in Taylors of Exeter, 3 Lev. 241 (1686).
competition with the business of the purchaser. He violated his promise, suit was brought against him by the purchaser for damages, and decided in the latter’s favor. Prior to that time contracts in restraint of trade seem uniformly to have been held void and even criminal, and the only case on record in which an English judge is reported to have resorted to profanity in rendering his decision was in the case of a dyer in the year 1417  who had agreed under bond not to practice his craft within the town for a certain period of time. The bond was declared void and the dyer was absolved by the court from compliance. So the decisions had uniformly run against agreements in restraint of trade from the year 1417 until, in 1620, this exception was made, thus laying one of the cornerstones of the modern law of goodwill.
At about the time when it was thus first decided, in 1620, that a person could lawfully sell a part of his liberty, reference was made, in a different case,  to an earlier case in 1580 which, however, had not been reported, in which it was alleged to have been held that a competitor might lawfully be deprived of a part of his liberty to compete, even though he had not consented to it. In the year 1580 it was said, a clothier alleged that “he had gained great reputation for his making of his cloth, by reason whereof he had great utterance to his great benefit and profit, and that he used to set his mark to his cloth, whereby it should be known to be his cloth; and another clothier perceiving it, used the same mark to his ill-made cloth on purpose to deceive him.” He brought suit against the infringer and the case was decided on the question of extending the writ of “trespass on the case” so as to afford a remedy for injury to business. The court now decided, in 1580, that the “action did well lie.” The development of this form of action has already been mentioned in connection with the law of enforcement of contract; here we note the way in which it split off into the law of bargaining, the law of liberty of contract.. In the latter case it indicates the gradual and scarcely perceptible enlargement of the law from the protection of physical property to the protection of intangible property after the latter had emerged with the extension of markets. The ancient “writ of trespass” had
1. Year Book, 2 hen. V, fol. V, pl. 26 (1417) Judge Hull said: “By God, if the plaintiff were here he should go to prison until he pay a fine to the King.”
2. Poph. 144 (1618) referring to an opinion said to have been given in 22 Eliz. See Wigmore, Select Cases on the Law of Torts, 1:318.
3. Above, Sec. 11, p. 239.
been a form of action at common law, based on an allegation of violence done to the body, or a forcible entrance on the plaintiff’s lands or chattels. Then the term “trespass” was so extended as to include every species of wrong causing an injury. This made it possible for the common-law courts to expand the law of torts along with the expansion of markets, so that, by easy steps from the Act of Parliament in 1285  to the trade-mark case in 1580, injury to physical property became injury to business, violence became unfair competition, trespass became infringement.
Thus the two cornerstones of the law of goodwill were laid, in 1580 and 1620, in the action to recover damages to intangible property and in sustaining a voluntary sale of one’s liberty along with one’s business. It is significant as already suggested, that this first recorded case in which a voluntary agreement in restraint of trade was enforced by the court occurred in the decade following the great decision which nullified both the monopolies and the involuntary restraints of trade by the gilds under patents and charters granted by the Crown. In the Case of Monopolies, already referred to, two of the three grounds on which the Queen’s patent to Lord Darcy was held to be against the common law were the increase in price and the decrease in quality of the product, for, said the court, the patentee is not “skilled in the trade” and must turn over the actual making of the playing cards to artisans, whereas, he himself, “having the sole trade, regards only his private benefit and not the common wealth.”  Likewise in the Case of the Merchant Tailors of London (1599) the by-law requiring members to share their bargains with fellow-members was adjudged a monopoly and void under the common law, although the by-law was authorized under a charter long before granted by the King. 
These decisions from the King’s Bench established, against the King’s prerogative, a common-law rule against monopolies and charters in restraint of trade, on the ground, partly, of the power of oppressing the public, that is, “the common wealth,” which the King thereby had placed in private hands. With these privileged restraints cleared away it became possible to clear the air for the en-
1. Above, Sec. II, p. 239.
2. Above, p. 227.
3. Another by-law of the Tailors of Ipswich (11 CO. 53 b. 1615), was nullified on similar grounds, but by-laws to enforce a “custom” were held good. The cases are distinguished in Mitchell v. Reynolds, below.
forcement of such unprivileged restraints as did not oppress the commonwealth. Notwithstanding the prices charged might be even higher than those charged by competitors yet the test of whether the customer received a commensurate benefit was left to be determined by the customer himself on the assumption that he was free to go elsewhere if not satisfied.
Nearly a hundred years after the transaction of 1620, Justice Parker, in 1711, [l] stated the law regarding voluntary restraints of trade as it had evolved meanwhile, and his opinion is the recognized guide for all subsequent opinions. He distinguished voluntary from coerced restraints (the latter being always unlawful) and “general” restraints from “particular” restraints. Voluntary restraints, by agreement of the parties, are void if they are “general” in extent, that is, if they extend throughout the Kingdom, and this is so even if a consideration is paid in exchange for the agreement not to compete.  “No man can contract not to use his trade at all,” “since the public interest requires that he should not remain in idleness.” “Particular” restraints are those limited to places or persons, and these are also void if there was no consideration, but are lawful if “made upon a good and adequate consideration, so as to make it a proper and useful contract.” Even “a particular restraint is not good without just reason and consideration.” Although the law presumes in favor of liberty, yet, just as a man may part with his property, so he may part with a part of his liberty, if “by his own consent, for a valuable consideration.” And, having accepted compensation for his promise not to compete he will be compelled by the court to keep his promise, if within the particular limits.
But it was not until the year 1743 that the term “goodwill” first crept into the decisions, and then only by way of illustrating a different matter.  Again, in the year 1769, the term was used in the copyright case, by Justice Yates, in order to show, by illustration, that a common-law copyright could not be held to be property. Good-
1. Mitchell v. Reynolds, 1 P. Wms. 185-189 (1711).
2. This limitation has been enlarged in later times by the rule that it may extend to the area of the entire country if the business that is sold extends actually that far. However, it is doubtful whether the purchaser can insist that the vendor retire completely from his kind of business, though this depends on the extent to which the court resists the tendency to monopoly or the encouragement of idleness on the part of the seller. Nims, Unfair Competition 2d ed. 38 ff, (1917); 1 Page on Contracts (1905), 589 ff.; Nordenfeldt v. Maxim-Nordenfeldt Guns and Ammunitions Co., App. Cas. 535 1894)·
3. Gibblett v. Read, 9 Mod. 459 (I743): below, p. 274.
will, he said, was not property because the purchaser “has no power to confine it to himself,” since day if he pleases the customer may withdraw the next day if he pleases. Furthermore, he cannot “use any power to prevent other people from gaining the custom.” In this opinion Justice Yates adhered to the common-law notion of property as pertaining only to physical things, though the majority, in that case, took a different view as respects copyright. 
It was not until the beginning of the Nineteenth Century that the meaning of goodwill had broadened out to cover the whole field of competition, so that the Chancellor, Lord Eldon, in 1803, could give to it the first indication of its more modern statement of the law of “fair” and “unfair” competition. Lord Eldon, while usually charged with limiting the term to what may be termed “location” goodwill, recognized two other types which may be distinguished as personal goodwill and business goodwill, or the goodwill of a going business.  Location goodwill, he said, is “nothing more than the probability that the old customers will resort to the old place.” In this respect it was merely a special case of land value, and the enjoyment of the benefits of location could not be enjoined by a court of equity without interfering with the owner’s legitimate use of his land.
But fraud, or unfair competition, presented a different case. If there is fair competition, there is no damage or injury. The injunction is granted by Lord Eldon, not to prevent the “fair course of improving a trade in which it was lawful to engage,” but to prevent representing it to be the trade of an established business built up by another. 
But goodwill, after all, begins as personal goodwill. It is built up by the efforts of individuals. The individual may sell his location goodwill or his business goodwill, but still carry his personal goodwill with him. In order that this too may be sold he must agree to contract away his future liberty. Indeed, what the vendor sells is not a physical thing but a market opportunity which yields a certain net income, and in order to give effect to the sale he must part with his liberty to do certain acts which diminish this income. The “physical” part of this opportunity is apparently only the bodies of his customers whose patronage he has obtained and which is expected to
1. Below, Sec. IV, p. X77·
2. Hogg v. Kirby, 8 Ves. 215 (1803); Cruttwell v. Lye, 17 Ves. 335 346 (1810).
3. 8 Ves. (1803)
continue. What he has actually sold, however, is not his customers, but his liberty to sell commodities to his customers. And what the purchaser of the goodwill buys is not commodities, but is an exclusive right to the liberty of selling certain commodities to customers. He has truly bought something intangible. He has bought the right to control the supply of commodities through buying an expectation that government will restrain the bodies of competitors if they attempt to supply that particular commodity. The mere ownership of land, physical capital, or commodities has no significance for a business economy unless accompanied by access to a market, and access to a market has no significance without power to control the supply and fix the prices of things offered on the market. Historically, as we have noticed, the right of access to a commodity market began as a special privilege, granted to merchants, merchant gilds, craft gilds, money lenders, or favored courtiers in the form of patents, charters, or other special protection by the sovereign. These special privileges were done away with, not by abolishing the privileges, but by making them universal - by extending the right equally to all citizens, and eventually, by treaties, to aliens.
This then became the universal, equal right of access to markets, the personal right to economic liberty. But, as such, it is without value because exposed to free competition. Not until it could legally be separated from the person and sold to others did it have a value which could constitute the assets of a business.
This separation of business goodwill from personal goodwill began with the trade-mark case of 1580 and the legalized voluntary restraint of trade in 1620. The object now owned and protected by law became merely the probability of beneficial transactions, and the justification became the expectation which one might reasonably entertain if he has devoted his efforts or possessions to a service that satisfies those who come freely upon that market. By protecting this mutually beneficial expectancy and giving to it the attribute of negotiability the law converts a valueless personal right into a valuable property right.
Thus the protection of goodwill is not the protection of property in physical things, it is protection of power to control the supply of physical things against the price-exposure of unlimited competition. Hence the separation of business goodwill from personal goodwill is also the separation of control over supply of things from ownership
of the things. Where the thing is itself physically limited in supply, the separation, in so far as thus limited, cannot be made, and business goodwill dissolves into forms of special privilege. Thus “location goodwill” is but a special case of land values. Lord Eldon defined it, in 1810, as “nothing more than the probability that the old customers will resort to the old place.”  When the land is sold, or the rent is raised by the landlord, the business goodwill is, in so far, absorbed by the land value. Goodwill has given added value to that site, and in so far as that added value, or rent, is permitted to eat up the business income, so far has business goodwill been absorbed by privileged site value.
This can occur only in the custom-order or retail-shop stage of industry. When industry passes over into the wholesale-order, wholesale speculative, merchant-capitalist or industrial-capitalist stages,  then business goodwill separates itself out, independently of situation, and broadens out into almost anything that can be ascribed either to the attitude of the public or the activity of the concern that conduces to business success. Commenting on Lord Eldon’s remark as to location goodwill the Supreme Court of Wisconsin, by Justice Winslow, said: “The habit of people to purchase from a certain dealer or manufacturer, which is the foundation for any expectation that purchases will continue, may depend on many things besides place … Goodwill is a sort of beaten pathway from the seller to the buyer, usually established and made easy of passage by years of effort and expense in advertising, solicitation, and recommendation by travelling agents, exhibition tests or displays of goods, often by acquaintance with local dealers who enjoy confidence of their own neighbors, and the like.”  And the Supreme Court of the United States could say, in 1877: “Suppose the latter has obtained celebrity in his manufacture, he is entitled to all the advantages of that celebrity, whether resulting from the greater demand for his goods or from the higher price the public are willing to give for the article, rather than for the goods of the other manufacturer, whose reputation is not so high as a manufacturer.” And Justice Story, carrying the content of goodwill still further, could describe it, in 1841, as “the advantage
1.Crutwell v. Lye, 17 Ves. 335-346 (1810).
2. Regarding these successive stages See Commons, “The American Shoemakers-1638-1895 - A Sketch of Industrial Evolution,” 24 Qua”. Jour. Econ. 39 (1909); reprinted in Labor and Administration, 219 (1913); Doc. History Amer. Industrial Society, Vol. 111.
3. Rowell v. Rowell, 12 2 Wis. 1, 17 (1904).
or benefit which is acquired by an establishment, beyond the mere value of the capital stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances, or necessities, or even from ancient partialities or prejudices.” 
In one respect Justice Story went too far when he included the “necessity” of the customer as one of the factors in goodwill, if by necessity is meant the absence of costless alternatives. Under modern conditions of industry, developed since the time of Justice Story, with the growth of great public service corporations occupying limited and strategic positions for the sale of their products, location goodwill has taken on a new importance and has dissolved business goodwill into monopoly privilege, and the freedom of customers into their necessities. When, in 1907, the Consolidated Gas Company of New York, claimed the right to charge its customers a price high enough to earn interest on “goodwill and franchises,” Justice Hough in the federal court disallowed the claim as respects goodwill, on the ground that the company enjoyed a monopoly in fact, and the customer had no choice except to remain with the company. And the Supreme Court adopted this view, saying, “The complainant has a monopoly in fact, and a consumer must take gas from it or go without. He will resort to the ‘old stand’ because he cannot get gas anywhere else.” 
And Justice Savage, of the Supreme Court of Maine, in a case where a water company had set up a valuation of the goodwill of customers as a valuable asset, said, “Goodwill is inappropriate where there can be no choice. So far as the defendants’ system is ‘practically exclusive’ the element of goodwill should not be considered.”  And similarly the Wisconsin court excluded goodwill as assets in the case of a monopoly like that of a water supply. 
In one respect Justice Yates, in the copyright case, while denying that goodwill was property, yet asserted the essential attribute of goodwill. The owner has no right whatever against the customer. Rather is the owner exposed to the liberty of the customer, for good-
1. Story on Partnership, 139 (1841).
2. Above, p. 191.
3. Kennebeck Water Dist. v. Waterville, 97 Me. 185, 217 (1902).
4. Appleton Water Works v. Railroad Corn., 154 Wis. 121, 147.(1913); above, p. 207.
will is the customer’s freedom to choose an alternative without additional cost to himself. Goodwill is not a positive right, like the right to have a debt paid. It is a “negative” right, the right of avoidance against third parties.
Thus goodwill is a by-product of liberty, and should be looked for where liberty ripens. The first and most perfect instrument of economic liberty is money. A dollar is a bundle of options both between different classes of commodities and different producers of the same class. Money affords the largest liberty known to man, although within the limits of the amount of money possessed and the number of alternatives accessible. As these alternatives enlarge with the extension of markets and the variety of products, so does the freedom of choice enlarge, and the owner of money is further and further removed from the limit of coercive alternatives. In proportion, too as subordinate classes receive their compensation in money, at shorter intervals and without obligations attached to its expenditure, the range of economic liberty is enlarged, their goodwill must be obtained, and they rise literally to the level of “patron” where previously they were “clients.”
For, goodwill is good action, not necessarily a virtuous will or a loving will, or a sentimental goodwill, but a will that is free to go elsewhere and does not go. Goodwill is property, not love, sympathy or loyalty. But the good act is good, not for anything or anybody, but for each of the two persons who are willing to accept and pay the price, and thus to convey reciprocal benefits though not compelled to do so. Goodwill is reciprocity. It is evidence, not of the good or bad quality of the will of either party, but of agreement between opposing wills. It is “good” because it overcomes competition and because it yields consent, not that the motives or intentions are good or bad, but that it is the “meeting of wills” in action. It is the meeting of wills not compelled to meet, and this signifies, not the meeting of metaphysical “free wills,” but of free choices under actual circumstances, the meeting-place of wills within the limits of limited resources and alternative opportunities.
Consequently goodwill is pleasurable, not because it is that individualistic pleasure, or subjective utility, of economic theory, but because it is the pleasure of being persuaded instead of being coerced. It is the pleasure of economic liberty, of power and wealth, against the pain of economic necessity, impotence, or poverty.
It is also the social psychology of persuasion, and implies the right to be informed before choosing. No individual, however free or powerful, makes up his mind and decides out of his own unaided will. His right to liberty of choice is his right to be informed of all the alternatives open to him, for ignorance of alternatives is absence of alternatives, and the right to liberty is the right to be persuaded by free speech, a free press, free advertising, free assembly. The more narrowly the individual is tied down to the alternatives offered by a single person the more nearly does he become the private property of that person. It is this that Justice Field distinguished as servitude, in contrast with slavery.  It is this that distinguishes goodwill from loyalty and duty. The slave is loyal to his master if he serves him devotedly, but the master does not rely on his goodwill, else he would emancipate him. The laborer is loyal to his employer if he looks out for his employer’s interest under fear of losing his job, but the goodwill of the workman is his willingness to renew the contract after he has been released from its obligations. Loyalty is duty and fear; goodwill is liberty and hope. Goodwill in business is liberty to go elsewhere. In proportion as alternatives diminish, goodwill diminishes, until with the disappearance of all alternatives, goodwill disappears in the loyalty of vassal or slave.
Hence goodwill, as a business asset and a property right, is not limited to commercial goodwill - it is also industrial goodwill, the willingness of employees to work for one employer as against competing employers.  And what is “good credit” but the goodwill of investors? The willing investor lends his savings in larger amounts and at lower rates of interest, so that the goodwill of investors is the largest asset of business, without which all others are unavailing.
Liberty is, as it were, the common property of citizens; goodwill is the private property of a definite person or concern. Liberty is unlimited in supply, hence without value, hence common property; goodwill is limited in supply, an expectation of income, hence private property, determined by the amount of expected income. Liberty is common property in that it is an unexercised option, always in the future, never appropriated, gone as soon as exercised. Goodwill has a past, a present and a future - a history of past performance,
1. Above, Chap. II, p. 12, 13.
2. Below, Chap. VIII, p. 295; Commons, J. R., Industrial Goodwill (1919). See also the important article by C. J. FOREMAN, “Economics and Profits of Good-will,” 13 Amer. Econ.Rev. 209 (1923).
of options exercised in the past, of investment accrued in the present; and it has a future of expected income, commuted and capitalized, negotiable in the present. Liberty is a valueless right to choose, goodwill is a valuable right of continuous choosing. Hence the protection of liberty is the common right to engage in any business or enter any occupation; it is the right to do business or the right to work. But the protection of goodwill is protection of the individual right to follow a business previously entered or a job already held - the right to continue in business or to continue at work.
Thus goodwill is an asset, but an extraordinarily evanescent asset. It is held only on good behavior. Of all kinds of property it most of all demands watchfulness. Good reputation slips away with a few little mistakes left uncorrected. The British law of partnership arbitrarily capitalized the expected income from goodwill at only “two years’ purchase,” a capitalization at the rate of 50% where bonds and lands will capitalize automatically on the market at twenty years’ purchase, or 5%. Goodwill requires too much effort, thought, ability and attention to business. No wonder capitalists endeavor to convert it into bonds, land and monopolies.
For it is the most highly creditable of all assets. It survives only while it renders what is deemed, by those who receive it, to be an equivalent service. It is the one measurable evidence that the owner is becoming wealthy in proportion to his contributions to the commonwealth, for it is measured by that only behavioristic test, the willing patronage of those who are free to choose. Hence it is that goodwill is so often honored by that tribute which vice pays to virtue, and monopolies, special privileges and economic oppressions hide their transactions under the name of goodwill.
That goodwill should not have found its place in the economic theories of value while it is the crux of legal theories of value and the principal asset of business must probably be explained by the individualistic materialism and hedonism of those theories which sought to eliminate the will as something capricious. Yet goodwill can be seen and felt - seen not in commodities, but in the transactions of business; and felt, not in consumption and production, but in the confidence of patrons, investors and employees.
4. Copyrights and Patents
The transition from concepts of physical things to concepts of business assets, could not be fully completed until the idea of ownership was shifted from the holding of physical things to the expectations of profit from the transactions of business. The foregoing discussion has had to do mainly with the instruments devised to protect that ownership, not with the thing itself, the subject-matter of ownership. And it was with considerable difficulty that the courts of England in the Eighteenth Century bridged this gap from property in the sense of ownership of physical things to property in the sense of ownership of so invisible a thing as expected profits to be derived from beneficial transactions with other people.
The question arose, in 1743, of the disposition of that part of an estate represented by shares in the profits of an unincorporated business. It is difficult, said the Chancellor, Lord Hardwicke, “to define the various natures of property, yet it may, notwithstanding, be transmissible to representatives… All things of this sort ought to be taken according to the known nature of the dealing, and the method of the parties considering these matters and carrying them on … It would be a deceit and a fraud on the parties if this court did not consider things on the same foot as purchasers of a thing of this sort did … There are many cases where no property of a testator has been employed or made use of in carrying on the business, and yet the executor has been accountable for the profits of the business as the testator’s personal estate. The case put of physical  secrets or nostrums, where everything was carried on by the materials purchased after the testator’s death, and yet the nostrum is part of the personal estate of the testator … Suppose the house were a house of great trade, he must account for the value of what is called the goodwill of it.” 
These references indicate that, by the middle of the Eighteenth Century, the expectation of profits distinct and separable from the ownership of tangible things had become assimilated to the notion of property in its aspects of exclusive holding for one’s own use, of purchase and sale, and of transmission to representatives. Goodwill, whose foundations, we have seen, were first laid in the decisions of 1580 and 1620, was first mentioned by that name in this case of 1743,
1.. i.e. medical, physiological.
2. Gibblett v. Read, 9 Mod. 459 (1743).
and then only by way of illustrating a recognized species of property. It was not until 1803 that a legal definition of goodwill began its separate evolution. However, the substantial but intangible thing underlying goodwill, and especially the difficult and even treacherous step which was taken in shifting the meaning of property from physical things to expectations of profit, are better shown in the copyright cases that came to a head in the year 1774.  These cases were critical turning points in the progress from the primitive common-law meaning of property to the modern business-law meaning, and for that reason the points at issue deserve attention.
The question that came before the highest court of the common law in the case of Millar v. Taylor, in 1769, was whether an author and his successors had the same common-law right to the perpetual exclusive printing and publishing of his writings that the owner of tangible property, his heirs and successors, have to the exclusive perpetual use and selling of a tangible thing and of the products yielded by that thing. The copyright statute of Queen Anne, in 1709,  as an exercise of the prerogative, had granted this exclusive privilege for a period of twenty-eight years to authors who registered under the act, but the issue in 1769 was that of a book published forty-two years before but not registered under the copyright statute, and consequently the question was whether the common-law action of “trespass on the case” could be brought by the legal successors of the author, some forty years after the first publication, against a competing publisher bringing out an unauthorized edition.
The court of King’s Bench, the highest court of the common law, divided on the question, the majority supporting Lord Mansfield, who went to the furthest possible extreme in his identification of the right of exclusive copying and selling the copies of one’s manuscript with the right of exclusive holding and selling physical things and their products. Had his opinion and that of the majority with him prevailed afterwards in the House of Lords, copyright would have become, like the ownership of physical objects, the perpetual property of the author, his heirs and assigns forever. This outcome Mansfield expressly contemplated, saying, “property of the copy thus narrowed (i.e. defined as a common-law right] may equally go down from
1.. Millar v. Taylor, 4 Burr. 2303 (1769); Donaldson v. Beckett, 4 Burr. 2408, a Bro. P. C. 129 (1774).
2. 8 Anne, c. 19.
generation to generation, and possibly continue forever.” (2397) This conclusion was vigorously protested by Justice Yates, the only dissenting justice, saying, “This claim of a perpetual monopoly is by no means warranted by the general principles of property.” (2367.)
But Mansfield’s opinion did not permanently prevail, owing, apparently, more to its consequences than its logic. Five years later the issue came before the House of Lords,  and that highest tribunal, although the majority agreed with Mansfield that the common law gave a perpetual copyright, yet wisely held that the copyright statute of 1709 should be interpreted, by implication, as having taken away that common-law right, and having substituted an exclusive privilege for a period of only twenty-eight years, a point which Mansfield had expressly denied. (2406)
What almost happened in these cases was an extension into perpetuity, by merely enlarging the definition of property, of that extension of the common law in the restraint of trade which had begun with the sale of goodwill in 1620 and the trade-mark case of 1580. In the goodwill cases the restraint of trade could, in the nature of things, extend only to the duration of the life of the merchant or clothworker, or the life of his going business. In this case, however, it would extend to the author’s assigns or descendants forever, just as the ownership of lands or other physical things extends to them forever. It was, perhaps, with such consequences in mind, that Thomas Jefferson, in 1788, exclaimed: “I hold it essential in America to forbid that any English decision which has happened since the accession of Lord Mansfield to the bench, should ever be cited in a court; because, though there have come many good ones from him, yet there is so much sly poison instilled into a great part of them, that it is better to proscribe the whole.”  And the opinion of Justice Yates in the copyright case as against Mansfield’s was afterwards, in 1834, approved by the Supreme Court of the United States as one that displayed “an ability, if equalled, certainly not surpassed.”  Jefferson’s opinion of Mansfield’s method of reasoning by analogy became the opinion of the Supreme Court of the United States.
That which Mansfield appealed to, first of all, was the sense of justice, and in this he introduced the theory of John Locke, first pro-
1. Donaldson v. Beckett, 2 Bro. P. C. 129, 4 Burr. 2408 (1774).
2 Jefferson’s Works, 2:487.
3. Wheaton v. Peters, 8 Pet. 593, 655 (1834).
pounded in 1695, and repeated by Adam Smith in 1776,  that the source of the right of property is not in the will of the sovereign but in the natural right of a person to his own labor and the fruits of his labor. Neither did the rights of property spring from immemorial usage, but from the sense of justice. “From what source, then,” asked Mansfield, “is the common law drawn? … From this argument - because it is just that an author should reap the pecuniary profits of his own ingenuity and labor ... It is fit that he should judge when to publish, or whether he ever will publish. It is fit he should not only choose the time, but the manner of publication; how many; what volume; what print. (2398.) The whole, then, must finally resolve in this question, “Whether it is agreeable to natural principles, moral justice and fitness, to allow him the copy, after publication, as well as before. (2399.) … The general consent of this Kingdom, for ages, is on the affirmative side.” (2399)
It was, likewise, upon this inner sense of fitness rather than the correctness of his logic, that Justice Yates differed from Lord Mansfield, and this difference expressed itself in Yates’ definition of property. Physical things, lands and chattels, go on forever or according to their physical structure; their ownership is transferred from hand to hand, is transmitted to descendants, in a perpetual succession of owners. Not so with these intangible things which it was now proposed to extend into perpetuity. “The goodwill of a shop, or of an ale-house,” said Yates, “and the custom of the road (as it is called among carriers) are constantly bargained for and sold as if they were property. But what are these? Nothing more than the goodwill of the customers, who may withdraw from them, the very next day, if they please. The purchaser of this custom, or goodwill, gains no certain property in it; he has no power to confine it to himself nor can he use any power to prevent other people from gaining the custom. It is an advantage …. as it gives the purchaser a priority for custom. And so it is in the case of the publication of a book: it gives a priority, and gets a set of first customers. But none of these cases can establish an absolute, perpetual, exclusive property.” (2369.) “The mere fact of usage,” he said, “will be no right at all, in itself … No usage can be a part of the law or have the force of a custom that is not immemorial.” (2368.)
Differences in their sense of fitness not only produced differences
1. LOCKE, John, Two Treatises of Government, Works, 5:354 421 filth ed., 1812).
between Mansfield and Yates in their interpretation of the common law, but also in their interpretation of the prerogative. They agreed, indeed, that the stretch of the prerogative from the time of Henry VIII to the end of the Stuarts could not be cited as precedent to justify the stretch of property from physical things to expected profits. The monarchs of that period had incorporated the Stationers’ Company as a gild, with exclusive rights of publication of books to be registered with that Company, and with drastic powers of search and seizure of unauthorized books. Mansfield, however, contended that the practice of the Stationers was based on a notion of private property in the “copy,” which, on the strength of that practice, he defined as “the exclusive right of publication of somewhat intellectual.” He thus was reading into the word “copy” what Yates contended was the fallacy of an “equivocal use of the word ‘property’ which sometimes denoted the right of the person, sometimes the object itself.” (2362.) These exclusive privileges of the Stationers’ Company, based on the King’s prerogative, Yates rightly declared, were really a denial of the right of property in an author or his representative who was not a member of that Company. (2377)
But it was not on the exercise of the King’s prerogative in the hands of the Stationers’ gild, which he admitted was obnoxious and overthrown by the Revolution of 1689, that Mansfield based his right of property in the “copy,” but on an analogy which made the prerogative the private property of the King. The King had the exclusive publication of the English Bible, of the statutes, the Year Books, the common prayer-book, because he had paid for them out of his own pocket. (2403 2405) And, by parity of reasoning, “whatever the common law says of property in the King’s case, from analogy to the case of authors, must hold conclusively, in my apprehension, with regard to authors.” (2406.) Thus it was not the King’s prerogative but the King’s private property that gave him the exclusive right of publishing these privileged books, and that also is the right of an author or his representative independent of prerogative. (2402.) To which Yates replied that this right of the King was not grounded on “property” but on what would now be known in America as the police power of the “head of the Church and the political constitution,” “founded on reasons of religion or of state.” (2382, 2383.) “The King does not derive this right from labor or composition or any one circumstance attending the case of authors.” (2384.)
All of the justices agreed that “literary property was not the effect of arbitrary power, but of law and justice, and therefore ought to be safe” (2314), but Yates contended that neither was it founded on the common law nor an extension of the common-law definition of property, but solely on the copyright statute of 1709, which was an exercise of prerogative in its widened form of sovereignty, which limited the duration of the grant to a term of years roughly corresponding to an author’s life expectancy. In short, according to Yates, the judiciary should not create this right of property by enlarging the common-law definition of property but should leave it to the legislature in exercising the King’s prerogative.
Yet neither justice Yates nor the majority were quite clear as to exactly what was the thing for which was claimed this perpetual right of ownership. Mansfield and the majority seemed to think that it was the ideas; Yates thought it was only the manuscript. It required later legal opinions to reveal that the object claimed and owned is merely the expected behavior of other people to be obtained through expected restraint of competition and control of supply of the book.
Mansfield spoke of “intellectual ideas or modes of thinking” and of “property in notion” as though the object to which a person has an exclusive right of ownership is his own ideas, his “modes of expression,” his “somewhat intellectual,” which he might give out or keep to himself. And even if he gives them out, that is, “communicates them by letters,” or sells them in a book, he does not give to others any property right in those ideas, nor does he turn them over to “common ownership” unless he shows a definite intention to do so. He retains the right to control the correctness of their expression, to prevent additions, to amend; retract and prevent their further publication, just as he is the master of the use of his own name. (2398.) This holding, withholding and selling one’s ideas, replied Yates, may have a distant analogy to holding, withholding and selling one’s physical property, but it was the latter alone that was included in the common-law notion of property. In the case of an author the physical property is merely the manuscript, a kind of property that may, indeed, be acquired, like other physical property, by labor. But “ideas” and “thoughts” are not thus tangibly produced and held for one’s own use, like the manuscript. “The invention and labor,” he said, “which are ranked among the modes of acquiring specific
property in the subject itself are that kind of invention and labor which are known by the name of occupancy.” 1 In that sense, Yates continued, “invention is defining and discovering of a vacant property; and labor is the taking possession of that property and bestowing cultivation upon it. Property is founded upon occupancy. But how is possession to be taken, or any act of occupancy to be asserted, on mere intellectual ideas? … The occupancy of a thought would be a new kind of occupancy indeed.” (2357)
Applying these primitive notions, Justice Yates could recognize but three species of property, that is, real estate, goods and debts (2384), distinguishable as “corporeal” and “incorporeal” property. But this new property, which we now define as “intangible property,” or the right to an opportunity to sell and to control the supply of the thing sold, this right to Mansfield’s “sole printing and publishing of somewhat intellectual,” did not fall under either of these species. It was unknown to the common law, for, of course, it consisted not in the exclusive holding for self of lands, goods or services, nor in the enforcement of contracts, but in a field of market opportunities and control of supply, free from competition. The only “property,” in this case, that fitted the primitive notion was the manuscript. This was, indeed, a species of “goods”; it was “corporeal,” had “visible substance,” was “capable of actual possession.” But “mere intellectual ideas,” these were “incapable of any distinct separate possession.”
“The author’s unpublished manuscript,” said Yates, “will indeed very properly fall under this class of property because that is corporeal; but after publication of it, the mere intellectual ideas are totally incorporeal; and therefore incapable of any distinct, separate possession; they can neither be seized or forfeited or possessed.” (2385) They have become common to all the world; title to them has been renounced; they have been “abandoned” and may be taken up, but not held nor “occupied” exclusively, by anybody who comes along. “Nothing can be an object of property which is not capable of a sole and exclusive enjoyment.” (2362.)
It was this distinction between the manuscript and the publication of the manuscript that furnished the clue to what afterwards be-
1. “Occupancy is the taking possession of those things which before belonged to nobody. This … is the true ground and foundation of all property, or of holding those things in severalty, which by the law of nature, unqualified by that of society, were common to all mankind.”
2. Bla. Corn 258.
came the settled law, not only of copyright, but also of patents, trade secrets, and even of every going concern in business. The later decisions on copyright have turned on drawing the line at the point at which publication occurs, yet the line has not been drawn between the physical manuscript and the utterance of the ideas, as contended by Yates, but between the class of persons with whom the author is dealing. As decided in later cases, “publication” denotes “those acts of an author which evidence a dedication to the public.” But “the public” is the “general public,” not those persons who bear what we have described as the internal relation of “economy,” such as the relation of friendship, agency, employment, or privacy. The acts which indicate a “dedication to the public” are such as take it out of this field where the will of the author remains supreme and bring it into the field which we have described as “expansion,” where other persons, the general public, are free to exercise their own will. The printer may print the book but he has no right of publication (unless previously stipulated), since the author or his representative may store the copies or order them to be stored instead of published. If the author loans the manuscript to a friend to read and return, he has not dedicated it to the public, and the publication may be restrained by injunction. There may be also a “limited publication,” or “a restricted or private communication of its contents” under conditions “expressly or impliedly precluding its dedication to the public.” A lecture delivered orally is not thereby “published.” Even a printed book, leased to a subscriber for his own use but not for the general public, is not thereby published.  And an immense business has grown up on this distinction, for it includes an associated press franchise, the use of stock exchange and market reports, the use of great systems of business forecasting, all of them belonging to that intangible property which is far more important and valuable than the underlying physical property.
The similar principle has been worked out in the law of patents and trade secrets. A secret process or invention, not yet given to the public nor patented, remains by operation of common law, the exclusive property of the inventor, and his secret cannot be wrested from him by fraud or communicated to or used by others through breach of confidence. Yet “whenever the inventor permits the invention to pass beyond the legally defined limits of his exclusive pos-
1. 6 R. C. L. 1134, and cases there cited.
session, his right to it ceases and the right of all mankind to it begins.” 
In other words, the old distinction between the possession of physical property and liberty of contract becomes the distinction between the behavior of those persons who are subject to command and obedience and the behavior of those persons who are subject only to persuasion or coercion. “Economy” is the exclusive holding for one’s own use, according to one’s own will, but the thing now held for one’s own use is not a physical thing, the manuscript, nor even the printed book, nor the physical objects embodying an invention, but is the behavior of persons over whom the owner retains the power of command and obedience, since they are his employees, agents, friends, who are bound to obey his commands in their use of the manuscript, book, or secret process. On the other hand, “expansion” relates to the behavior of the general public, the outsiders, who have liberty of choice of opportunities or exercise of economic power, the field of persuasion or coercion.
1. ROBINSON, W. C., Law of Patents, seta. 24-40 (1890)