The German Civil Code

Economists have a long tradition of influencing legislation. Schmoller called his journal the ‘Annals of Legislation, Administration and Political Economy in Germany’. Hence it is no surprise that economists would intervene in the debates about large legislative projects.

Outstanding examples are the great codifications, such as the ‘Code Civil de Napoleon’ and the German Civil Code. The German Civil Code can actually even be considered an explicit attempt at efficient legislation. The Civil Code was, in its ultimate form, passed with the explicit input of the leading economists of their time in Germany, and based on explicit economic reasoning. Otto von Gierke played an important role in this process. How this came about is worth recounting briefly.

In 1848, when the first German democratic parliament convened in the Church of St Paul in Frankfurt, there were no fewer than 56 different legal systems governing bills of exchange. This exceeded by far the number of member states of the German Federation at that time. It is obvious that such splintering of the legal system stood in the way of the rapidly developing market economy, and there was therefore already an initiative of the Frankfurt parliament to pass a common German Civil Code and also a Commercial Code. However, the parliament had a short lifespan and it dissolved before it had even seriously started the task. There were new initiatives in 1866 and 1869 in the northern German Federation, the precursor of the Reich, but only after the unification of the German states as a confederation of principalities in 1871 could the task be resumed, and this happened with initiatives in 1873 in both the imperial parliament and the imperial council (the representation of the confederated princes). In 1874, the pre-commission of five members was established, and in the same year a commission of eleven was established under the chairmanship of Heinrich Eduard von Pape.

This commission issued a report in 1887, and the ‘act of introduction’ with various drafts of by-laws was also issued, in 1887 and 1889, in order to provide for a broad discussion. However, the editor of the leading economics journal in Germany at the time, the Jahrbucher fur Gesetzgebung, Verwaltung und Volkwirtschaft im deutschen Reich (Annals of Legislation, Administration and Political Economy in Germany), Gustav von Schmoller with his colleagues in the German Economic Association (Verein fur Socialpolitik), agreed that the draft was impractical because it did not build on established economic practices and their respective legal counterparts, rather providing a deductively reasoned set of norms based on the Roman law tradition, and hence not corresponding to the economic practices of a developed industrialized market economy. Entire issues of the journal were devoted to critiques of the draft act, with the articles by Gierke having the strongest influence. (See, for example, Gierke, 1888, 1889.) This unsolicited advice led to the establishment of a second commission in 1890 which provided a completely revised draft Code in 1895 which was duly passed, after stormy discussions in the imperial parliament, on 1 July 1896, with 222 votes in favour and 48 against, and in the imperial council on 14 July, and ratified by the emperor on 18 October. The Code took effect on 1 January 1900 and, with numerous small revisions, it has remained the same ever since. This episode illustrates again that efficient legislation is possible, although it also illustrates that, had the economics profession not intervened, legislation would probably have been imposed that would have burdened the German economy with high and persisting transactions costs. The Code would not have become the export article it actually became, and still is today.

Gierke’s approach proved to be important well after the Civil Code had been passed. In building on his criticism of the first draft of the Code, he developed a full theory of German private law, consisting of the three pillars of the law of persons (1895), the law of things (1905) and the law of obligatory relations (1917).

It was this coherent body of legal theory, based on empirical research, which allowed for consistent interpretations of the Code in the vicissitudes of the different economic and social environments of, first, the empire, second, the war economy of 1914-18, the challenge of the hyperinflation that it posed to private contracts, the corporatist economy established by the national socialists, the war economy again, and finally the reconstruction period in Germany after the currency reform of 1948.

Bibliography

Gierke, Otto von (1888, 1889), ‘Der Entwurf eines burgerlichen Gesetzbuches und das deutsche Recht’ (The draft of a Civil Code and German Law), Jahrb¹Ucher fur Gesetzgebung, Verwaltung und Volkswirtschaft, 12 (3,4), 842-904, 1179-1264; 13 (1), 183-322.

Gierke, Otto von (1895-1917), Deutsches Privatrecht [German Private Law], 3 vols, Munich and Leipzig: Duncker & Humblot; vol. 1, Allgemeiner Teil und Personenrecht, 1895; vol. 2, Sachenrecht, 1905; vol. 3, Schuldrecht, 1917.

Lewis, John D. (1968), ‘Otto von Gierke’, International Encyclopedea of the Social Sciences, vol. 6, New York: Macmillan/Free Press.

Pearson, Heath (1930), Origins of Law and Economics: The Economist’s New Science of Law 1830-1930; reprint, Cambridge: Cambridge University Press, 1997.

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Source: Backhaus Jürgen G. (ed.). The Elgar Companion to Law And Economics. Second Edition. Edward Elgar,2005. – 777 p.2. 2005

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