Money for nothing and the risks for free

Limited liability is at the nub of it all. Paul Frijters points the finger.

Roman men engaged in commerce had a problem: Roman law did not recognise limits to the liability of their actions, so if some enterprise went badly wrong, they and their whole family could end up as slaves to pay off damages.

One solution was to let their slaves do the trading and only invest them with a certain amount of money, the “peculium,” that represented the liability of the master. This legal invention reduced the degree of personal responsibility and stimulated risk-taking.

Throughout the centuries limited liability was refined and extended further to become a dominant feature of capitalist society.

One key invention was

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Paul Frijters

Paul completed his Masters in Econometrics at the University of Groningen, and a PhD in wellbeing economics at the University of Amsterdam. He is now a Professor of Economics and …

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