4.1 The roots of equity’s changing role
Equity’s correspondence with capitalism began in earnest during the early modern period, and is arguably connected to the same changes in social institutions highlighted by R.H. Tawney in Religion and the Rise of Capitalism (1990). In short, there are identifiable parallels between the relationship of capitalism with religion and religious institutions, and the relationship of capitalism with equity. Equity’s ‘legal’ concerns during this period were much as they are today – namely those involving property. And it was property and money, and the later demands placed on institutions by a capitalist, free-market society that needed both of these things to operate and grow, which meant that the law of equity, in one form or another, became crucial to the legal system under capitalism.
The further encroachment of ideas that would prove to be the building blocks of capitalism from the early modern period onwards, meant the legal system required an element capable of creatively dealing with property and property rights. Thus equity became an important body of law put to work less for the benefit of the broader commonwealth, and more in the service of political and private economic masters interested in growing and maintaining power initially via property, and later via capital, i.e. money. During the course of the eighteenth and nineteenth centuries, thanks in large part to trusts, equity also became increasingly important commercially, as much as, if not more than it already was, for smaller personal and private family interests. As such, equity increasingly became the framework that helped facilitate commercial activity. And this reliance on equity, so to speak, was a trend that would gather pace from the nineteenth century onwards, especially following the Victorian fashion for trusts as vehicles for commercial investments (Stebbings, 2002).
In contrast to the status of the law of equity as a facilitator of commercial activity during the eighteenth and nineteenth centuries, many noted the further decline of equity as a ‘utopian’ idea – a decline which, by manifesting itself in many different ways, speaks to another dimension of the plurality of equity. The philosopher David Hume (1742), for example, noted how the court system (and Chancery in particular) no longer afforded the lawyer room to display ‘eloquence’, essentially because it, like the rest of law, relied on strict law, statutes and precedents (§I.XIII.10). ‘How shall a modern lawyer’, asks Hume, ‘have leisure to quit his toilsome occupations, in order to gather the flowers of PARNASSUS?’ (§I.XIII.10). Another philosopher, and a pioneer of political economy, Adam Smith (1759), takes a different tack, although not one that necessarily results in a wholly different view of equity from Hume’s. For Smith, equity must remain a central idea insofar as it speaks to justice defined in and by the law. Where equity remains a lumpen virtue, a treatment of it that he accords with, among others, Aristotle, it will remain an imperfectly enumerated rule of justice (Smith, 1759, §VII.IV.37).
The reorientation – if indeed that is a suitable term – of equity, which gathered pace during the eighteenth and nineteenth centuries, was further developed during the twentieth century parallel with the economist Hayek’s suggestion that true free-market capitalism required a particular type of legal system. In relation to his particular and highly influential brand of free-market, competitive capitalism, Hayek (2013) believed that the common law, which necessarily included equity in spite of the fact that he neither talks of equity nor Chancery expressly, as well as other modes of law-making, namely legislating, ought to maximise the freedom of individuals in order to allow them to fully realise themselves as liberal economic subjects – a view that became hard-and-fast government policy towards the end of the twentieth century under Margaret Thatcher in the UK and Ronald Reagan in the US. Equity was, in short, complicit, as part of this type of legal system, in helping to promote and guarantee the type of aspiration that had become a characteristic of contemporary capitalism; that is, a type of aspiration that was, among other things, born of fierce competition and spurious notions of freedom. Hayek stated:
The functioning of competition not only requires adequate organisation of certain institutions like money, markets, and channels of information—some of which can never be adequately provided by private enterprise—but it depends above all on the existence of an appropriate legal system, a legal system designed both to preserve competition and to make it operate as beneficially as possible.
As mentioned earlier, the ‘reorientation’ view of equity parallels in large part the experience undergone by religious institutions during the last 300 years. Indeed, as the foundational tenets of religion were increasingly called into question, the various institutions, both pre- and post-Reformation, were forced to change position and alter traditions in order to maintain a semblance of authority and power in the brave new socio-economic world defined both by the Enlightenment and capitalism. However, according to a number of commentators, religions also changed willingly in order to support the growth of capitalism. R.H. Tawney, John Maynard Keynes and especially the US jurist Roscoe Pound viewed Protestant Puritanism in particular as a major force that both defended and promoted capitalism, especially in the early socio-religious life of European settlers in what is now the United States. By virtue of the close relationship between equity in the US and the old British common law system, this fostered a powerful dialogue between the jurisdictions of the new and old worlds that would further help harmonise equity jurisprudence with capitalism.
In explaining the conditions that led to changes in key social institutions such as the church and law, Tawney describes, in two separate passages, the impact and influence that capitalism and capitalist ideas brought to bear on them. While Tawney does not talk explicitly of equity in terms of its status as legal institution, both its popularity and significance during the eighteenth and early nineteenth centuries mean that any discussion of capitalism and its impact on social institutions ought reasonably to consider equity. The first passage raises an issue already discussed: the struggle of the church to evolve in order to survive the demands of capitalism.
The Christian is bound by his faith to a rule of life which finds expression in equity in bargaining and in works of mercy to his neighbours. But the conception that the Church possessed, of its own authority, an independent standard of social values, which it could apply as a criterion to the practical affairs of the economic world, grew steadily weaker. The result, neither immediate nor intended, but inevitable, was the tacit denial of spiritual significance in the transactions of business and in the relations of organized society.
In the second passage Tawney focuses on the ideas of philosopher and political theorist John Locke, and describes the monumental shift in political thinking that occurred during the middle to late seventeenth century – a period dominated by the English Civil War, Restoration of the monarchy, and Glorious Revolution. The basis of Tawney’s argument, however, is that amid such massive social upheaval the nature of politics evolved a greater emphasis on individualism relegating notions of community in favour of commercial or corporate associations:
Society is not a community of classes with varying functions, united to each other by mutual obligations arising from their relation to a common end. It is a joint-stock company rather than an organism, and the liabilities of the shareholders are strictly limited. They enter it in order to insure the rights already vested in them by the immutable laws of nature. The State, a matter of convenience, not of supernatural sanctions, exists for the protection of those rights, and fulfils its object in so far as, by maintaining contractual freedom, it secures full scope for their unfettered exercise.