Abstract: Inspired by Gerschenkron's thesis, this paper contends that conditions of institutional 'backwardness' in late-medieval England stimulated legal innovations to provide the foundations for negotiability in international financial instruments. Though late-medieval England was not 'backward' in the senses expounded by so many earlier historians, her financial institutions, in comparison with those found on the continent, were far less developed. More retrograde were English fiscal and monetary policies, which played a major role in the fall of England's wool trade, once her most lucrative source of revenue, and thus indirectly in the expansion of her cloth export trade, which came to be canalized on the Antwerp market, where the major financial innovations did take place. Medieval English bullionist legislation was particularly regressive, by contemporary standards, in attempting to prevent the use of credit in foreign trade, in order to force exporters to repatriate receipts in bullio n even if such policies had a seemingly noble purpose: to protect the integrity of the coinage, while eschewing continental practices of debasement. In their application, however, they not only hindered the use of credit but also prevented the development of deposit banking, with domestic transfer instruments, on the continental model. English Common Law, furthermore, was generally hostile to any developments that would make bonds, especially registered recognizances, fully transferable and negotiable. But, from the late thirteenth century, the crown proved to be progressive in permitting mercantile courts to utilize the practices of an international lex mercatoria. From the 1360s, English merchants in the wool and cloth trades sought to reduce their transaction costs, to avoid costly recognizances and litigation in Common Law courts, by resorting to informal holograph bills payable to bearer. But these lacked legal protection in transfer payments, until 1436, when the London Mayor's law-merchant court specifically awarded the bearer of a dishonoured bill-of-exchange rights equal to those of the designated payee: the first recorded in Europe, serving as the vital precedent for a similar Antwerp court ruling in 1506 and for national Habsburg legislation in the 1530s to establish full negotiability of commercial bills, including discounting, with revocation of the usury laws.
JEL Classification: N1;N2;N4;N7;E5