Blockchain, Crypto Infrastructure and the Transaction Cost View of Economic History

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@ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND LAW professor nelson rosario CRYPTO AND THE TRANSACTION COST VIEW OF ECONOMIC HISTORY nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM

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DANIEL MARTIN KATZ E D U | I L L I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | S M O L I N S K I RO S A R I O L AW P. C . BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW

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FROM HUNTER GATHERER SOCIETIES TO A HIGHLY COMPLEX GLOBAL ECONOMIC SYSTEM(S) BLOCKCHAINLAWCLASS.COM

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OVER THE PAST 5000+ YEARS WE HAVE ENGAGED IN A MASSIVE TRUST SCALING EXERCISE BLOCKCHAINLAWCLASS.COM

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NOT BITCOIN PER SE BUT RATHER CRYPTO INFRASTRUCTURE PURPORTS TO BE THE NEXT CHAPTER … BLOCKCHAINLAWCLASS.COM

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IN THE TRANSACTION COST VIEW OF (ECONOMIC) HISTORY BLOCKCHAINLAWCLASS.COM (NOTE: THIS IS A HIGH LEVEL OVERVIEW OMITTING MANY KEY DETAILS)

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ONE OF THE BENEFITS OF A LONGER FORM COURSE …. BLOCKCHAINLAWCLASS.COM

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IS THAT WE CAN HELP PUT THESE DEVELOPMENTS IN A PROPER HISTORICAL PERSPECTIVE … BLOCKCHAINLAWCLASS.COM

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SO TODAY WE WILL HARKEN BACK THOUSANDS OF YEARS AND WALK FORWARD … BLOCKCHAINLAWCLASS.COM

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LIFE WAS ONCE BLOCKCHAINLAWCLASS.COM ‘NASTY, BRUTISH AND SHORT’ (NOTE IT STILL IS FOR SOME)

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HUNTER GATHERER SOCIETIES HUNTING OR FORAGING WAS REQUIRED FOR SUBSISTENCE (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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HOW WERE WE ABLE TO GET PAST MERE SUBSISTENCE ? BLOCKCHAINLAWCLASS.COM

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HOW WERE WE ABLE TO SLOWLY DEVELOP THE COMPLEX ECONOMIC ARRANGEMENTS THAT HELP DEFINE THE MODERN ECONOMY? BLOCKCHAINLAWCLASS.COM

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ECONOMIC HISTORY TO DATE CAN BE SEEN AS A QUEST TO SCALE TRUST AND LOWER TRANSACTION COSTS BLOCKCHAINLAWCLASS.COM

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THIS HAS OFTEN BEEN FACILITATED THROUGH THE DEVELOPMENT OF INSTITUTIONS BLOCKCHAINLAWCLASS.COM

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THE ORIGIN AND MAINTENANCE OF TRUST INSTITUTIONS HAS LONG BEEN AN INTEREST OF ECONOMISTS, ANTHROPOLOGISTS AND OTHER SOCIAL SCIENTISTS BLOCKCHAINLAWCLASS.COM

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HUNTER GATHERER SOCIETIES HUNTING OR FORAGING WAS REQUIRED FOR SUBSISTENCE (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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BOB HAS RECENTLY KILLED A DEER WITHOUT SALT, BOB CAN ONLY PERSONALLY CONSUME A LIMITED AMOUNT OF DEER MEAT BEFORE IT ROTS BLOCKCHAINLAWCLASS.COM

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BOB HAS RECENTLY KILLED A DEER BOB WOULD LIKE TO BOTH TIME SHIFT AND PERHAPS DIVERSIFY HIS CONSUMPTION BLOCKCHAINLAWCLASS.COM WITHOUT SALT, BOB CAN ONLY PERSONALLY CONSUME A LIMITED AMOUNT OF DEER MEAT BEFORE IT ROTS

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ALICE IS GOOD AT FORAGING BERRIES BLOCKCHAINLAWCLASS.COM BERRIES ALSO HAVE A LIMITED LIFE WHICH IS LONGER THAN RAW MEAT (BUT NOT UNLIMITED)

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ALICE IS GOOD AT FORAGING BERRIES BERRIES ALSO HAVE A LIMITED LIFE WHICH IS LONGER THAN RAW MEAT (BUT NOT UNLIMITED) ALICE WOULD LIKE TO DIVERSIFY HER CONSUMPTION BLOCKCHAINLAWCLASS.COM

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CONSIDER THE SIMPLEST TRANSACTION BLOCKCHAINLAWCLASS.COM

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3 FISTS OF BERRIES 1 FIST OF DEER MEAT BLOCKCHAINLAWCLASS.COM CONSIDER THE SIMPLEST TRANSACTION

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BLOCKCHAINLAWCLASS.COM BOTH SIDES CAN (IN THEORY) BENEFIT FROM SUCH AN EXCHANGE

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NO DEBT NO CURRENCY JUST A SPOT BARTER WITH REAL TIME DELIVERY IT IS PRACTICALLY THE SIMPLEST FORM OF TRANSACTION BLOCKCHAINLAWCLASS.COM

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BUT NOTE EVEN THIS SIMPLE TRANSACTION REQUIRES COORDINATION (I.E. IT HAS TRANSACTION COSTS) SEARCH: BARGAINING: NEED TO LEARN THAT THE OTHER PARTY HAS A SURPLUS ENFORCEMENT: BLOCKCHAINLAWCLASS.COM NEED TO AGREE UPON AN ACCEPTABLE RATE OF EXCHANGE NEED TO MAKE SURE THE OTHER PARTY DELIVERS ON THE DEAL

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THE ECONOMIC ANTHROPOLOGICAL ACCOUNT REGARDING TRUST INSTITUTIONS VS BLOCKCHAINLAWCLASS.COM

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PURE ARMS LENGTH BARTER APPEARS TO BE PERHAPS LESS COMMON THAN SOME ECONOMIC SCHOLARS ACKNOWLEDGE BLOCKCHAINLAWCLASS.COM

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BECAUSE MANY LIVED IN SMALL SCALE GROUPS — THUS WERE INVOLVED IN REPEATED INTERACTIONS BLOCKCHAINLAWCLASS.COM

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BARTER INDIVIDUALS IN REPEATED INTERACTION STRANGERS ON THE SPOT MARKET CUSTOMS, REPUTATION + INFORMAL CREDITS = = BLOCKCHAINLAWCLASS.COM

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FOR EXAMPLE, GIFT ECONOMIES CAN BE SEEN AS RUNNING SOME SORT OF AN INFORMAL LEDGER ENFORCED THROUGH SOCIAL NORMS, ETC. BLOCKCHAINLAWCLASS.COM

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NOW WE CAN INCREASE THE COMPLEXITY OF THE TRANSACTION 3 FISTS OF BERRIES 2 FISTS OF DEER MEAT + 3 FISTS OF BERRIES BLOCKCHAINLAWCLASS.COM

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OKAY NOW THIS HAS BECOME MATERIALLY MORE COMPLICATED DEBT BLOCKCHAINLAWCLASS.COM

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THE BENEFIT OF DEBT IS THAT CREDITOR COULD THEREBY SHIFT THEIR CURRENT SURPLUS AND TRANSFER IT TO THE FUTURE (OTHERWISE IT MIGHT BE WASTED) BLOCKCHAINLAWCLASS.COM

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HOWEVER, THE DEBT MUST BE ENFORCED SOMEHOW … DEBTOR CREDITOR BLOCKCHAINLAWCLASS.COM

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NOW IT IS POSSIBLE THAT THE DEBT COULD BE SETTLED BETWEEN THE TWO PARTIES DEBTOR CREDITOR BLOCKCHAINLAWCLASS.COM

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THERE IS A HISTORIC DEBATE REGARDING THE EXTENT TO WHICH FORMAL VS INFORMAL MECHANISMS WERE USED TO SATISFY DEBTS DEBTOR CREDITOR BLOCKCHAINLAWCLASS.COM

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BUT OFTEN IT IS LESS COSTLY TO ALLOW AN INSTITUTION (SUCH AS THE STATE OR 3RD PARTY) TO HELP ENFORCE AGREEMENTS DEBTOR CREDITOR BLOCKCHAINLAWCLASS.COM

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OTHERWISE, EACH CREDITOR MUST DO ALL OF THE ENFORCEMENT THEMSELVES DEBTOR CREDITOR BLOCKCHAINLAWCLASS.COM

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IT IS MORE EFFICIENT TO ALLOW EACH PERSON TO SPECIALIZE RATHER THAN HAVE TO BE A JACK OF ALL TRADES … HUNTER FORAGER (NOT A PROFESSIONAL DEBT COLLECTOR) BLOCKCHAINLAWCLASS.COM

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INSTITUTIONS (BROADLY DEFINED) CAN HELP COORDINATE THESE (AND OTHER) TRANSACTIONS BLOCKCHAINLAWCLASS.COM

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SOME SYSTEM OF DEBT RECORDING BECOMES IMPORTANT SUCH AS A LEDGER … ACCOUNTING LEDGER. TABLET WITH AN ACCOUNT IN SUMERIAN CUNEIFORM DESCRIBING AMOUNTS OF BARLEY BLOCKCHAINLAWCLASS.COM

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IT IS ALSO IMPORTANT TO HAVE LEGAL RULES SUCH AS CONTRACT LAW TO SUPPORT ENFORCEMENT BLOCKCHAINLAWCLASS.COM

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LEDGERS, LEGAL RULES AND CURRENCY ALLOW FOR A RANGE OF TRANSACTIONS TO OCCUR WHICH OTHERWISE WOULD BE DIFFICULT OR IMPOSSIBLE BLOCKCHAINLAWCLASS.COM

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THIS IS JUST A TASTE OF INSTITUTIONAL AND TRANSACTION COST ECONOMICS BLOCKCHAINLAWCLASS.COM

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THE FIELD HAS MANY OFFSHOOTS BUT IT SEEKS TO CHARACTERIZE THE ROLE OF INSTITUTIONS (BROADLY CONSTRUED) IN FACILITATING TRANSACTING BLOCKCHAINLAWCLASS.COM

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WHAT ARE ‘TRANSACTION COSTS’ ? “In order to carry out a market transaction it is necessary to discover who it is that one wishes to deal with, to inform people that one wishes to deal and on what terms, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on. These operations are often extremely costly, sufﬁciently costly at any rate to prevent many transactions that would be carried out in a world in which the pricing system worked without cost.“ Ronald Coase, The Problem of Social Cost, 3 The Journal of Law and Economics 1 (1960) BLOCKCHAINLAWCLASS.COM

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DENNIS P.KEHOE, DAVID RATZAN, AND URI YIFTACH (EDS.), LAW AND TRANSACTION COSTS IN THE ANCIENT ECONOMY, UNIVERSITY OF MICHIGAN PRESS (2015) “Transaction costs (TC) are the ‘friction’ in an economic system, and their analysis is vital to understanding institutional design and economic performance” TOWARD FRICTION FREE TRANSACTING? BLOCKCHAINLAWCLASS.COM

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WHAT ARE ‘TRANSACTION COSTS’ ? (1) SEARCH AND INFORMATION COST (2) BARGAINING AND DECISION COST (3) POLICING AND ENFORCEMENT COST BLOCKCHAINLAWCLASS.COM

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SOME COSTS FOR THE SIMPLE SPOT MARKET BARTER SEARCH: BARGAINING: NEED TO LEARN THAT THE OTHER PARTY HAS A SURPLUS ENFORCEMENT: BLOCKCHAINLAWCLASS.COM NEED TO AGREE UPON AN ACCEPTABLE RATE OF EXCHANGE NEED TO MAKE SURE THE OTHER PARTY DELIVERS ON THE DEAL

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SOME COSTS FOR THE BARTER WITH A DEBT OBLIGATION SEARCH: BARGAINING: LARGELY THE SAME ENFORCEMENT: BLOCKCHAINLAWCLASS.COM LARGELY THE SAME NEED TO MAKE SURE THE OTHER PARTY DELIVERS ON THE DEAL INCLUDING SECURING PAYMENT AT A LATER POINT IN TIME (I.E., THE DEBT OBLIGATION)

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MESOPOTAMIA GREECE ROME MEDIEVAL ERA MERCHANT LAW RENAISSANCE PRE ANALOG ERA THE CORPORATION MARITIME LAW + INSURANCE HUNTER GATHERERS CODE OF HAMMURABI SOME EARLY TRANSACTION ENHANCING INNOVATIONS AND SOCIETIES

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WE WILL *NOT* DO COMPLETE JUSTICE HERE TO ALL NUANCES OF THESE SOCIETIES BUT WE WANT YOU TO SEE THE OVERARCHING THEMES

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EARLY SOCIETIES

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HUNTER GATHERER SOCIETIES HUNTING OR FORAGING WAS REQUIRED FOR SUBSISTENCE (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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HUNTER GATHERER SOCIETIES DIFFICULT TO TIME SHIFT CONSUMPTION (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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HUNTER GATHERER SOCIETIES HUMANS BEGAN TO LIVE TOGETHER IN PART TO SPECIALIZE IN TOOL MAKING (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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HUNTER GATHERER SOCIETIES DEVELOPED COOPERATIVE CULTURAL PRACTICES IN AN EFFORT EXTEND TRUST WITHIN SMALL GROUPS (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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AGRARIAN SOCIETIES FARMING COMPLETELY (OR PARTIALLY) REPLACES HUNTER/ GATHERING FOR SUBSISTENCE (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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AGRARIAN SOCIETIES COORDINATION OF THAT ACTIVITY IS MORE CHALLENGING (SOME STILL EXIST TODAY) BLOCKCHAINLAWCLASS.COM

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MESOPOTAMIA WAS HOME TO A NUMBER OF EARLY CIVILIZATIONS BLOCKCHAINLAWCLASS.COM SUMERIANS, BABYLONIANS, ASSYRIANS, ETC.

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MESOPOTAMIAN TABLETS RECORDED CREDITS AND DEBTS ON A FORM OF LEDGER

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DEVELOPED A VARIETY OF TRANSACTION COST REDUCING INNOVATIONS CODE OF HAMMURABI (BABYLONIAN CODE OF LAW) BLOCKCHAINLAWCLASS.COM ACCOUNTING LEDGER. TABLET WITH AN ACCOUNT IN SUMERIAN CUNEIFORM DESCRIBING AMOUNTS OF BARLEY ACCOUNTING LAW

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ROME

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FAST FORWARD NOW TO THE ROMAN EMPIRE BLOCKCHAINLAWCLASS.COM

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ROME IS ABLE TO VASTLY EXPAND ITS GEOGRAPHIC REACH BLOCKCHAINLAWCLASS.COM

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A MAJOR CHALLENGE WAS TO ENSURE A CONSISTENT FOOD SUPPLY AS MANY URBAN LOCATIONS HAD GROWN BEYOND LOCAL AGRICULTURE CAPACITY BLOCKCHAINLAWCLASS.COM

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TO FACILITATE THESE AND OTHER RELATED GOALS IT WAS NECESSARY TO DEVELOP AN INCREASINGLY COMPLEX ADMINISTRATIVE AND LEGAL INFRASTRUCTURE BLOCKCHAINLAWCLASS.COM

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MAP AVAILABLE AT HTTP://BIT.LY/2DUWNPK BLOCKCHAINLAWCLASS.COM

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THE ADMINISTRATIVE AND LEGAL INFRASTRUCTURE HELPED SUPPORT INCREASING LEVELS OF TRANSACTIONS OVER LONGER AND LONGER DISTANCES BLOCKCHAINLAWCLASS.COM

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IN ADDITION, ROME DID FEATURE MANY FAIRLY SOPHISTICATED FINANCIAL TOOLS WHICH LOOK QUITE FAMILIAR TO US IN THE MODERN ECONOMY … “ C O I N A G E , C O N T R A C T S , C O L L A T E R A L I Z A T I O N , M O R T G A G E S , A P U B L I C T R E A S U R Y A N D C E N T R A L BANKING” WILLIAM GOETZMANN, MONEY CHANGES EVERYTHING: HOW FINANCE MADE CIVILIZATION POSSIBLE, PRINCETON UNIVERSITY PRESS (2017) BLOCKCHAINLAWCLASS.COM

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THERE ARE ARGUABLY MANY REASONS FOR THE EVENTUAL FAILURE OF ROME … WE NEED *NOT* CONSIDER THOSE AS MANY BOOKS HAVE BEEN WRITTEN ON THIS SUBJECT BLOCKCHAINLAWCLASS.COM

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OUR PURPOSE IS TO UNDERSTAND THAT IN PART ROME’S SUCCESS WAS LINKED TO THE ABILITY TO FACILITATE TRADE THROUGH INSTITUTIONS WHICH WERE TRUST ENHANCING AND TRANSACTION COST REDUCING …. BLOCKCHAINLAWCLASS.COM

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ROMAN DECLINE AND FALL BLOCKCHAINLAWCLASS.COM

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ROMAN TERRITORY CHANGED HANDS MANY TIMES IN THE CENTURIES THAT FOLLOWED THEREBY FRAGMENTING UNDERLYING INSTITUTIONS BLOCKCHAINLAWCLASS.COM

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EUROPE BECAME A ‘COMPETITIVE PATCHWORK OF CITIES AND STATES THAT ONLY RARELY ORGANIZED THEMSELVES INTO A UNIFIED POLITY’ WILLIAM GOETZMANN, MONEY CHANGES EVERYTHING: HOW FINANCE MADE CIVILIZATION POSSIBLE, PRINCETON UNIVERSITY PRESS (2017) BLOCKCHAINLAWCLASS.COM

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THIS COMPETITION AMONG CITIES A N D S T A T E S W A S G O O D A N D HELPFUL FOR WHAT WOULD COME … THE PATCHWORK WAS BAD AS IT UNDERMINED THE FACILITATION OF TRADE FOR EXAMPLE, EACH CITY AND STATE HAD ITS OWN LAWS AND CUSTOMS W H A T W A S N E E D E D W A S A N I N S T I T U T I O N W H I C H C O U L D C O O R D I N A T E A C R O S S T H E S E VARIOUS POLITICAL UNITS … BLOCKCHAINLAWCLASS.COM

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A N I N ST I T U T I O N ( S ) W H I C H CO U L D COORDINATE ACROSS THESE VARIOUS POLITICAL UNITS WOULD NEED TO BE ABLE TO SUPPRESS THE DESIRE OF LOCAL RULERS TO CONFISCATE THE PROPERTY OF TRAVELING MERCHANTS (OR THEIR AGENTS) BLOCKCHAINLAWCLASS.COM

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MERCHANT LAW

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AVNER GREIF, PAUL MILGROM & BARRY R. WEINGAST, COORDINATION, COMMITMENT, AND ENFORCEMENT: THE CASE OF THE MERCHANT GUILD, 102 JOURNAL OF POLITICAL ECONOMY 745 (1994) BLOCKCHAINLAWCLASS.COM

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“EUROPEAN ECONOMIC GROWTH BETWEEN THE TENTH AND THE FOURTEENTH CENTURIES WAS FACILITATED BY THE ‘COMMERCIAL REVOLUTION OF THE MIDDLE AGES” — THE REEMERGENCE OF MEDITERRANEAN AND EUROPEAN LONG-DISTANCE TRADE AFTER AN EXTENDED PERIOD OF DECLINE.” AVNER GREIF, PAUL MILGROM & BARRY R. WEINGAST, COORDINATION, COMMITMENT, AND ENFORCEMENT: THE CASE OF THE MERCHANT GUILD, 102 JOURNAL OF POLITICAL ECONOMY 745 (1994) BLOCKCHAINLAWCLASS.COM

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“ F O R T H I S C O M M E R C I A L EXPANSION TO BE POSSIBLE, I N S T I T U T I O N S H A D T O B E CREATED TO MITIGATE THE MANY K I N D S O F C O N T R A C T U A L PROBLEMS ASSOCIATED WITH LONG-DISTANCE TRADE” AVNER GREIF, PAUL MILGROM & BARRY R. WEINGAST, COORDINATION, COMMITMENT, AND ENFORCEMENT: THE CASE OF THE MERCHANT GUILD, 102 JOURNAL OF POLITICAL ECONOMY 745 (1994) BLOCKCHAINLAWCLASS.COM

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“IN THE LATER MEDIEVAL PERIOD, THE MERCHANTS OF EUROPE D E V E L O P E D A N E L A B O R AT E INFRASTRUCTURE SYSTEM THAT A L L O W E D F O R T R A D E O V E R L O N G E R A N D L O N G E R DISTANCES.“ AVNER GREIF, PAUL MILGROM & BARRY R. WEINGAST, COORDINATION, COMMITMENT, AND ENFORCEMENT: THE CASE OF THE MERCHANT GUILD, 102 JOURNAL OF POLITICAL ECONOMY 745 (1994) BLOCKCHAINLAWCLASS.COM

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“LONG DISTANCE PREMODERN TRADE TOOK PLACE IN A HIGHLY C O M P L E X A N D U N C E R T A I N ENVIRONMENT. MANY UNANTICIPATED EVENTS COULD OCCUR ALONG THE WAY AND IT WAS OFTEN DIFFICULT TO D E T E R M I N E R E S P O N S I B I L I T Y. INSTITUTIONS WHICH CAN OBTAIN AND INTERPRET INFORMATION PROVED NECESSARY.” AVNER GREIF, PAUL MILGROM & BARRY R. WEINGAST, COORDINATION, COMMITMENT, AND ENFORCEMENT: THE CASE OF THE MERCHANT GUILD, 102 JOURNAL OF POLITICAL ECONOMY 745 (1994) BLOCKCHAINLAWCLASS.COM

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MERCHANT GUILDS WERE ABLE TO BAND TOGETHER IN PART TO LOWER NEGOTIATION COSTS AND HELP SUPPORT LONG DISTANCE TRADE. THERE WAS REAL POWER IN NUMBERS WHICH WAS NEEDED TO HELP ENCOURAGE RULERS FAR AWAY TO RESPECT THE PROPERTY RIGHTS OF THE GUILD’S MEMBERSHIP. BLOCKCHAINLAWCLASS.COM

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AS GUILDS GREW IN THEIR POWER, THEY COULD CONDITION FUTURE TRADE IN A JURISDICTION ON PRESENCE OF PAST GOOD BEHAVIOR. OTHERWISE, THEY COULD BOYCOTT. THE BENEFIT OF COLLECTIVE BEHAVIOR IN THE CONTEXT WERE CLEAR BUT THE ORGANIZATION NEEDED TO PREVENT INDIVIDUAL MEMBERS FROM DEFECTING. BLOCKCHAINLAWCLASS.COM

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AGAIN WE SEE THAT MANY KEY HISTORICAL MOMENTS ARE FUELED BY INNOVATIONS WHICH CAN SCALE TRUST AND ALLOW TRADE AND/OR SOME CLASS OF FINANCIALIZATION TO OCCUR BLOCKCHAINLAWCLASS.COM

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THE INCREDIBLE INTELLECTUAL GAINS OF THE RENAISSANCE (IN ART, SCIENCE, ETC.) DERIVE FROM THE ECONOMIC SURPLUS GENERATED BY INCREASING COMPLEX TRADE NETWORKS RICHARD A. GOLDTHWAITE, THE ECONOMY OF RENAISSANCE FLORENCE. JHU PRESS, 2009. NOTE: THE PRECISE CONTOURS ARE A SUBJECT OF ONGOING ACADEMIC DEBATE SEE E.G. FOR MORE INFORMATION — BLOCKCHAINLAWCLASS.COM

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THE (MODERN) CORPORATION

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THE CORPORATE FORM IS AMONG THE MOST IMPORTANT ECONOMIC INNOVATIONS OF ALL TIME BLOCKCHAINLAWCLASS.COM

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ITS ORIGINS CAN BE TRACED BACK MANY CENTURIES TO ROME AND LATER SWEDEN AND EVEN LATER TO 14TH CENTURY ITALY … BLOCKCHAINLAWCLASS.COM

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A CLEARER MANIFESTATION OF THE MODERN FORM CAN BE SEEN IN CHARTER COMPANIES SUCH AS DUTCH EAST INDIA COMPANY AND THE HUDSON'S BAY COMPANY BLOCKCHAINLAWCLASS.COM

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SUCH COMPANIES WERE TRAVELING THE WORLD AND OPERATED IN A RISKY GLOBAL ENVIRONMENT BLOCKCHAINLAWCLASS.COM

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WHEN PAIRED WITH LIMITED LIABILITY - THE CORPORATE FORM ALLOWS FOR THE SEGMENTATION AND SHIFTING OF RISK BLOCKCHAINLAWCLASS.COM

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FIRMS HELP SOLVE FOR CERTAIN FORMS OF TRANSACTION COSTS Ronald Coase The Nature of the Firm 4 Economica 386 (1937) BLOCKCHAINLAWCLASS.COM

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THE CORPORATE FORM ITSELF AND THE SIZE OF CORPORATIONS CAN ALSO IMPOSE COSTS OF THEIR OWN (IT IS A TRICKY BALANCE) BLOCKCHAINLAWCLASS.COM

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A SHORT ARTICLE WRITTEN FOR COASE’S 100 BIRTHDAY IN THE ECONOMIST “HIS CENTRAL INSIGHT WAS THAT FIRMS EXIST BECAUSE GOING TO THE MARKET ALL THE TIME CAN IMPOSE HEAVY TRANSACTION COSTS. YOU NEED TO HIRE WORKERS, NEGOTIATE PRICES AND ENFORCE CONTRACTS, TO NAME BUT THREE TIME-CONSUMING ACTIVITIES. A FIRM IS ESSENTIALLY A DEVICE FOR CREATING LONG-TERM CONTRACTS WHEN SHORT-TERM CONTRACTS ARE TOO BOTHERSOME.” BLOCKCHAINLAWCLASS.COM

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A SHORT ARTICLE WRITTEN FOR COASE’S 100 BIRTHDAY IN THE ECONOMIST BLOCKCHAINLAWCLASS.COM “THE PROPER BALANCE BETWEEN HIERARCHIES AND MARKETS IS CONSTANTLY RECALIBRATED BY THE FORCES OF COMPETITION: ENTREPRENEURS MAY CHOOSE TO LOWER TRANSACTION COSTS BY FORMING FIRMS BUT GIANT FIRMS EVENTUALLY BECOME SLUGGISH AND UNCOMPETITIVE.”

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MARITIME LAW + INSURANCE

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THE DESIRE TO MANAGE RISK AND RETURN HAS FUELED OTHER IMPORTANT INNOVATIONS BLOCKCHAINLAWCLASS.COM

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SHIPPING HAS BEEN CRITICAL IN VARIOUS PERIODS OF ECONOMIC HISTORY BLOCKCHAINLAWCLASS.COM

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EVEN TODAY SHIPPING AND WORK ON THE HIGH SEAS IS AN INHERENTLY DANGEROUS ACTIVITY BLOCKCHAINLAWCLASS.COM

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THE SIZE OF LOSSES COULD BE LARGE AND THUS IT WAS CHALLENGING FOR AN INDIVIDUAL TO BEAR THE GIVEN LOSS BLOCKCHAINLAWCLASS.COM

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MARINE INSURANCE IS ONE OF THE OLDEST FORMS OF INSURANCE BLOCKCHAINLAWCLASS.COM

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THE ORIGINS OF MARINE INSURANCE CAN BE TRACED BACK TO GREECE AND ROME (EVEN EARLIER) BLOCKCHAINLAWCLASS.COM

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MODERN FORMS COULD BE SEEN IN AS AN IMPORTANT INGREDIENT IN THE EXPANSION OF THE BRITISH EMPIRE BLOCKCHAINLAWCLASS.COM

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LLOYD'S COFFEE HOUSE (ORIGIN OF MODERN INSURANCE) BLOCKCHAINLAWCLASS.COM

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UNDERWRITING BEGAN WITH INDIVIDUALS WHO SIGNED UNDERNEATH THE LINE ON THE BOTTOM OF INSURANCE CONTRACTS BLOCKCHAINLAWCLASS.COM

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HMS LUTINE (1799) BLOCKCHAINLAWCLASS.COM “Lutine sank during a storm at Vlieland in the West Frisian Islands on 9 October 1799, whilst carrying a large shipment of gold. The gold was insured by Lloyd's of London, which paid the claim in full. The underwriters therefore owned the gold under rights of abandonment and later authorised attempts to salvage it. However, because of the state of war, the Dutch also laid claim to it as a prize of war.”

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LLOYDS UNDERWRITING ON TITANIC BLOCKCHAINLAWCLASS.COM

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LATER THIS BECAME A CORPORATE EXERCISE … BLOCKCHAINLAWCLASS.COM

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KEY IDEA IS THAT MARINE INSURANCE SOLVED A REAL NEED IN THE RELEVANT MARKET BLOCKCHAINLAWCLASS.COM

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AN ENTIRE RANGE OF ECONOMIC ACTIVITY WOULD LIKELY *NOT* OCCUR WITHOUT SOME CONTINGENCY FOR DOWNSIDE RISK BLOCKCHAINLAWCLASS.COM

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UNDERWRITING BEGAN WITH INDIVIDUALS WHO SIGNED UNDERNEATH THE LINE ON THE BOTTOM OF INSURANCE CONTRACTS BLOCKCHAINLAWCLASS.COM

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TWO CORE QUESTIONS HOW TO EX ANTE VALUE THE RISK ? HOW TO ENSURE PAYMENT IN THE EVENT OF LIABILITY ? BLOCKCHAINLAWCLASS.COM

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CONCLUSION

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GREATER COORDINATION OF EXCHANGE GREATER ABILITY TO TIME SHIFT CONSUMPTION ABILITY TO SCALE TRUST LOWER TRANSACTIONAL FRICTION BLOCKCHAINLAWCLASS.COM

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OVER THE PAST 5000+ YEARS WE HAVE ENGAGED IN A MASSIVE SCALING EXERCISE BLOCKCHAINLAWCLASS.COM

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FROM HUNTER GATHERING TO A HIGHLY COMPLEX GLOBAL ECONOMIC SYSTEM(S) BLOCKCHAINLAWCLASS.COM

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CRYPTO PURPORTS TO BE THE NEXT CHAPTER … BLOCKCHAINLAWCLASS.COM

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IN THE TRANSACTION COST VIEW OF (ECONOMIC) HISTORY (NOTE: THIS IS HIGH LEVEL OVERVIEW OMITTING SOME KEY DETAILS) BLOCKCHAINLAWCLASS.COM

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WE HAVE HIGHLIGHTED SOME IMPORTANT HISTORICAL EXAMPLES FROM THE PRE-ANALOG ERA BLOCKCHAINLAWCLASS.COM

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NEXT TIME WE HIGHLIGHT ANALOG, DIGITAL AND COMPUTATIONAL INSTITUTIONS … BLOCKCHAINLAWCLASS.COM

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TELEGRAPH TELEPHONES INTERNET LONG TAIL COMMERCE (MERCHANT LAW TAKE 2) CRYPTO INFRASTRUCTURE ANALOG ERA DIGITAL ERA COMPUTATIONAL ERA INTERNET OF THINGS FIAT CURRENCY EARLY COMPUTERS GLOBALIZATION PERSONAL COMPUTERS ARTIFICIAL INTELLIGENCE AUTOMOBILE CREDIT CARDS CHARGE CARDS BLOCKCHAINLAWCLASS.COM

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SOME OPTIONAL READING OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM, SIMON AND SCHUSTER (1985) DOUGLASS NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE AND ECONOMIC PERFORMANCE, CAMBRIDGE UNIVERSITY PRESS (1990) BLOCKCHAINLAWCLASS.COM

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SOME OPTIONAL READING AVNER GREIF, INSTITUTIONS AND THE PATH TO THE MODERN ECONOMY: LESSONS FROM MEDIEVAL TRADE, CAMBRIDGE UNIVERSITY PRESS (2006) DENNIS P.KEHOE, DAVID RATZAN, AND URI YIFTACH (EDS.), LAW AND TRANSACTION COSTS IN THE ANCIENT ECONOMY, UNIVERSITY OF MICHIGAN PRESS (2015) BLOCKCHAINLAWCLASS.COM

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SOME OPTIONAL READING DAVID GRAEBER, DEBT: THE FIRST 5,000 YEARS, MELVILLE HOUSE (2014) WILLIAM GOETZMANN, MONEY CHANGES EVERYTHING: HOW FINANCE MADE CIVILIZATION POSSIBLE, PRINCETON UNIVERSITY PRESS (2017) BLOCKCHAINLAWCLASS.COM

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SOME OPTIONAL READING GILLIAN HADFIELD, RULES FOR A FLAT WORLD: WHY HUMANS INVENTED LAW AND HOW TO REINVENT IT FOR A COMPLEX GLOBAL ECONOMY. OXFORD UNIVERSITY PRESS, 2016. BLOCKCHAINLAWCLASS.COM