Introduction

Risk management is a crucial element in the success of a maritime economy, and it has attracted a great deal of attention from economic historians looking to explain why the European maritime sector was quite so successful in the early modern period. Premium insurance is unsurprisingly seen as a key innovation in this respect. Invented in late medieval Italy, the institution whereby risk was transferred to third parties in exchange for the payment of a premium gradually spread to other parts of Europe.3 Luisa Piccinno, ‘Genoa, 1340–1620: early development of marine insurance’, in Adrian Leonard (ed.), Marine Insurance: Origins and Institutions, 1300–1850 (Basingstoke: Palgrave Macmillan, 2016), 24–45. Historians who have examined insurance, however, have been at pains to point out that early modern underwriters certainly did not avail themselves of modern statistical methods as is sometimes assumed.4 See the collection of essays in Adrian Leonard (ed.), Marine Insurance: Origins and Institutions, 1300–1850 (Basingstoke: Palgrave Macmillan, 2016). It is a key argument of this book, moreover, that other neglected risk-management institutions – considered ‘archaic’ in the economic literature if indeed they are considered at all – continued to be widely used even after the advent of premium insurance, and structured the European maritime economy in important ways. The ‘modern’ institutions are not so modern, nor the ‘archaic’ institutions so static as has been supposed. The linear narratives of change and modernisation that economic historians have tended to write are called into question by the continued use and developments of these techniques.

The ‘archaic’ institution that is the chief protagonist of this book is the institution now known as General Average – GA for short. While premium insurance is a risk-shifting device that transfers risk to a non-participant in the venture, GA is a risk-sharing one that distributes risk amongst those who already have a stake in the outcome in accordance with the size of their investment. Its underlying principle (at least as it exists today) can be expressed succinctly in the following axiom: ‘That which has been sacrificed for the benefit of all shall be made good by the contribution of all’.5 Richard Cornah, A Guide to General Average (London: Richards Hogg Ltd, 1994), p. 6. The definitive modern-day practioner text (or ‘GA Bible’) is Richard Cornah, John Reeder, Richard Lowndes, and George R. Rudolf, Lowndes and Rudolf: The Law of General Average and the York-Antwerp Rules (London: Sweet & Maxwell, 2013). GA is ‘declared’ when some part of the ship or cargo has been reasonably sacrificed in order that the remainder of the ship or cargo might be saved from peril.6 ‘York-Antwerp Rules’ (2016), <https://comitemaritime.org/work/york-antwerp-rules-yar/> [accessed 18 August 2021], Rule A. Every party with a financial interest in the voyage is then called upon to contribute to this extraordinary expense in proportion to their original investment. If the sacrifice represented 20 per cent of the total value of the maritime venture, for instance, then each stakeholder shall be deemed liable to bear a loss amounting to 20 per cent of the value of their investment, with those whose property has survived reimbursing those whose property has been lost. The underlying principle is thus one of beautiful – and deceptive – simplicity. The classic example of a GA event is a jettison. To avoid sinking, a shipmaster orders some of the cargo to be thrown overboard to lighten the ship, thus saving the ship and the remainder of the goods. In this circumstance, it would be unfair if the owner of those goods bore the cost of the jettison since everyone else benefitted from their sacrifice.

The heart of the procedure might thus be considered ethical. A sacrifice – individual loss, made consciously to save the property of another – demands reciprocation. On a ship the force of these moral obligations is starkly evident. The ship is the ultimate common enterprise. It is no coincidence the ‘ship of state’ should be one of the oldest and most enduring metaphors for the polis, a community of reciprocal rights and obligations that stands or falls together.7 Norma Thompson, The Ship of State: Statecraft and Politics from Ancient Greece to Democratic America (New Haven & London: Yale University Press, 2001), pp. 167–74. Even more than the walls of a city, the hull of a ship creates a collective. The heart of the procedure is moral, then, but there are utilitarian benefits as well. Firstly, GA rules ensure right action in a crisis. If it is known beforehand that such sacrificial losses can be shared, potentially fatal delays resulting from self-interested reluctance are avoided. At the same time, GA provides players with a form of mutual insurance. If the GA principle is established, at least some of the losses associated with maritime transport are shared between stakeholders, blunting the financial impact of maritime disasters on any single interested party. The larger the number of situations to which GA can be applied, the wider the remit of this insurance. Finally, as will be shown, GA produced and to some extent continues to produce unexpected benefits for a certain interested party – ship-owners – especially in the domain of cost management. The archival evidence on GA also highlights the extent to which other ‘archaic’ instruments remained crucial, including the sea loan, an arrangement whereby a merchant would provide a shipmaster with cash up front to finance the voyage or pay an expense and would thus take some of the sea risk upon himself.8 Raymond De Roover, ‘The organization of trade’, in M.M. Postan, E.E. Rich, and Edward Miller (eds), The Cambridge History of Europe, Volume III: Economic Organization and Policies in the Middles Ages (Cambridge: Cambridge University Press, 1963), 52–9; Andrea Zanini, ‘Financing and risk in Genoese maritime trade during the eighteenth century: strategies and practices’, in Maria Fusaro, Andrea Addobbati, and Luisa Piccinno (eds), General Average and Risk Management in Medieval and Early Modern Maritime Business (Cham: Springer, 2023), 335–59. In examining GA and other ‘archaic’ instruments such as sea loan, sometimes used in tandem with premium insurance and sometimes in its stead, this book sheds light on the broader risk-management strategies of early modern merchants and ship-owners, for whom premium insurance was just one weapon in the arsenal.

GA’s neglect at the hands of both economic and legal historians is in part due to contemporary factors. Premium insurance has spread to almost all domains of business activity and is thus highly visible, whilst GA remains quietly at work only in the maritime sector. Modern GA, moreover, can by its very nature only cover partial losses – since a total loss of ship and cargo would leave no surviving property to make good the loss – and, of those partial losses, it can only share those made deliberately for the common benefit. GA viewed from the vantage point of our own time thus appears the archytype of a niche instrument, playing its small part in the vast machine of global shipping, no doubt, but not in a way that should merit any attention from non-specialists. Most of all, its neglect is due to two misconceptions: firstly, that GA is an ancient and ‘archaic’ instrument, and secondly, that it was fundamentally uniform across time and space.

In the scholarly world, these misconceptions have been fed by two powerful grand narratives in legal and economic history respectively. On the legal side, GA has been cited as evidence of the medieval lex mercatoria (or its subset, the lex maritima) – the supposedly universal customs of the sea that applied everywhere before the early modern national state began meddling in their operation. GA, ancient and apparently ubiquitous, seems to provide much-needed evidence of the existence of such a body of law, which tends to be dismissed by archival historians but continues to find favour among certain legal theorists.9 See Orsolya Toth, The Lex Mercatoria in Theory and Practice (Oxford: Oxford University Press, 2017), pp. 6–30. The assumption that GA was essentially unchanging has had the effect of depressing any further interest in its operation and development. Even non-legal historians completely uninterested in the theories of the ‘mercatorists’ have similarly invoked GA and its uniformity as evidence of a common commercial culture that united the Mediterranean. In The Donkey and the Boat, for example, a highly comprehensive and erudite reassessment of the medieval ‘commercial revolution’, Chris Wickham leans heavily on GA’s supposed fundamental uniformity as evidence of a ‘common culture’ that transcended traders’ regional origins.10 Chris Wickham, The Donkey and the Boat: Reinterpreting the Mediterranean Economy, 950–1180 (Oxford: Oxford University Press, 2023), p. 648.

In economic history, GA’s ‘archaic’ status is reinforced by historians who stress the role of institutions in economic development. These accounts tend to give consideration to older risk-management practices only to the extent that they supposedly prefigured more ‘sophisticated’ modern technologies. In some popular histories, serious risk management only begins when Lloyd’s Coffee House emerges as a marine insurance centre in eighteenth-century London.11 Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk (New York: John Wiley & Sons, 1996), pp. 18–19, 58–60. Most scholarly accounts do give consideration to earlier techniques but tend to view these as ‘proto’ instruments. Of particular interest here is the work of New Institutional Economics (NIE) and particularly Douglass North’s ‘evolutionary story of risk’, updated and rearticulated in several more recent works.12 Douglass North, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press, 1990), p. 127. This can be crudely summarised as a modernity narrative, whereby older institutions – ‘community’-based, relatively simple, widely diffused throughout most of the globe – were replaced by modern, impersonal institutions perfected in North-Western Europe, which drew on but then superceded these older practices. GA in this conception is the amoeba – an instrument with a self-evident quality that legislates against its being given any further consideration: much better, and certainly more eye-catching, to study the innovations that supposedly made the difference. GA certainly has a long pedigree: if it can indeed be traced back to the ninth-century BC Rhodian laws of jettison, as Justinian’s Digest suggests, then it is a practice with an almost 3,000-year continuous history.13 D.14.2; Alan Watson, The Digest of Justinian, 4 vols (Philadelphia: University of Pennsylvania Press, 2011), vol. 2, pp. 419–22. It is certainly not the case, however, that ideas and practices about risk sharing remained fixed.14 Proshanto Mukherjee, ‘The anachronism in maritime law that is general average’, WMU Journal of Maritime Affairs 4 (2005), 195–209, at p. 195. This stadial account of institutional development is curiously mirrored in a contemporary debate among maritime industry professionals, a small number of whom have launched strident criticisms of GA on the basis that it is a costly anachronism maintained only thanks to inertia and vested interests.15 Mukherjee, ‘The anachronism in maritime law’. These contemporary considerations will be reflected upon further in the conclusion to this book.

The evidence presented here shows how GA was a more capacious instrument than even contemporary normative sources lead us to believe. The archetypal GA situation may be one of imminent peril in which ship and cargo are ‘saved’, but it can in fact be argued that any extraordinary expense made to bring ship and cargo safely to their destination performs a similar ‘saving’ function, even in a situation that is not obviously perilous. In other words, the ‘common safety’ interpretation of GA – with eligible expenses restricted to those made to directly remove the ship and cargo from peril – has usually been broadened to a ‘common benefit’ interpretation, admitting all expenses required to see the ship safely resume its journey.16 Cornah, A Guide, p. 8. This remains a point of potential controversy in modern-day GA cases.17 Xie Ming, ‘Legality, rationality of general average for MV Ever Given’ (2022), <https://law.asia/legality-and-rationality-mv-ever-given/ > [accessed 10 Aug. 2023]. Early modern Tuscan GA fully subscribed to the latter logic, at least in operational practice, as indeed has been the case for most of GA’s history. Whereas the ‘unit’ of the GA as it existed in Roman law was the ship, in early modern GA it was the voyage which needed to be saved. The effect of this dynamic is that GA was – and arguably still is – a shipmasters’ and ship-owners’ instrument, notwithstanding the fact that the archetype of the GA is the jettison of cargo. GA was a tool for recouping extraordinary expenses, and, as we will see, some ordinary ones as well. GA was therefore a key tool for the early modern transport sector – a somewhat neglected element in most historical considerations of maritime institutions, in which the protagonist is invariably the merchant.

Furthermore, this study demonstrates that GA practices varied not only across jurisdictions but also across time. Even the principles that lay behind it were not universally agreed upon. To write a history of ‘GA’ remains something of an anachronistic exercise until the sixteenth century, and arguably right up to the close of this study in the early eighteenth century, for there was still no agreement among theorists as to what GA actually was. The practices that we might with hindsight heuristically identify as ‘GA’ varied depending on time, place, economic conditions, the economic and political power balance between ‘ship’ and ‘cargo’ interests, the business arrangements that bound the different players involved, and the development and use of other risk-management tools. Rather than being a simple proto-institution that birthed modern premium insurance, GA continued to change and adapt alongside newer instruments, whilst remaining a useful tool in a domain that is still not just relatively dangerous but fundamentally unpredictable. This raises an epistemological challenge that both New Instutional economists and proponents of the lex mercatoria ignore: whether to group similar but diverse practices under the rubric of a single, stable ‘institution’.