Pre-Modern Credit Networks and the Limits of Reputation

This Essay examines pre-modern European credit networks to question a fundamental assumption of private ordering scholarship that a good reputation is so critical to the functioning of a private system that its maintenance incentivizes members of the community to keep their promises and act honestly. Pre-modern credit networks, which involved the whole society in interlocking webs of credit and debt, arose from the actions of individuals who offset the lack of sufficient specie by inventing credit mechanisms to solve the problem of purchase and sale. Governments played little to no role in creating these solutions. Reputation, to some extent, did drive lending decisions, but reputation did not reliably parallel a good history of timely repayment. Default, it turns out, was not a simple binary concept in the past, and, consequently, neither were the decisions about extending credit. The article argues that reputation, or at least reputation in the sense we might understand it today, did not bear quite the weight which private ordering theory assigns to it. This appears to be due in part to a more expansive pre-modern sense of what it meant to keep a promise, in part to the role of higher-level notions of confidence and reciprocity that transcended individual debtors to encompass whole communities of lenders and borrowers, and in part to the availability of public institutions, both lay and ecclesiastical, to sanction nonpaying debtors