The other day, on a whim, I wondered what William Blackstone wrote about joint-stock companies. Blackstone wrote his thorough and erudite Commentaries on the laws of England between 1765 and 1769. His presentation of English common law as a coherent system of justice resting on natural law dynamics inherent in human nature solidified the intellectual framework for constitutional democracy under the rule of law ideal, a great boon to humankind as we have seen over the last 250 years.

Somewhat to my surprise, I did not find any reference to joint-stock companies in his index.

But I did find a reference to “partnerships.” Turning to page 437 in Volume 3 in my copy of his Commentaries, I made (to me at least) an exciting discovery overlooked all these years of legal study.

Blackstone commented on partnerships – a form of business enterprise with shared ownership and responsibilities – in his chapter on the courts of equity. In addition to partnerships, it turns out he put most activities in what we would consider business or capitalism under the jurisdiction of courts of equity and not courts of law.

Equity, he said, had jurisdiction of all matters where an accounting is required: partnerships, personal assets, debts, estate gifts and bequests, distribution of the residue of holdings, of deposits of goods for security, holders of goods on behalf of others, “factors” or wholesalers and agents.

Courts of Equity also had jurisdiction of cases of “security” where money was lent on the pledge of property as a security for re-payment, such as a mortgage. The pledge on oath created a moral obligation to perform. Thus, the basis for modern finance was put under the supervision of equity.

Any property put in trust for management by a trustee of some kind – a corporate director for example – was also under the jurisdiction of equity.

He wrote “It would be endless to point out all the several avenues in human affairs and in this commercial age, which lead to or end in accounts.”

Now, contracts, both express and implied, so necessary for finance and commerce were under the jurisdiction of courts of law unless some fraud or misrepresentation or other malfeasance was the cause of the dispute over performance by one party or the other to a contract. Then, the aggrieved party could move the litigation to a court of equity.

For centuries, the English lived under and argued their disputes with each other in two different systems of court procedure. One was law and the other equity. To oversimplify, law was based on rules allocating rights and powers, while equity was based on good morals to prevent abuse of powers given by the law. The combined system, we could say, attempted to integrate law with morals.

In the U.S. today, there is no longer such a distinction between two kinds of courts or two different procedures. In 1938, the federal courts combined law and equity in one system of procedure. Equitable doctrines can be applied by any court if relevant to the case before it. Thus, for decades, American law schools have not taught separate courses on equity and only a few have courses on English legal history.

But there is support for the Caux Round Table for Moral Capitalism’s mission of promoting moral capitalism in Blackstone’s discussion of equity.

Intuitive resistance to both the ideal and the practicality of moral capitalism arises from marginalization of the moral sense as a factor in human affairs. Giving up on the moral sense condemns capitalism to a brutish form of competition. With a conviction more in keeping with Herbert Spencer’s social darwinism and its modern progeny, the agency problem, many think of business as purely immediate selfish exploitation of opportunity without regard for good faith, proportionality, stakeholders or long-term consequences.

Law would be enough for such enterprise. There is no need for equity.

Moral capitalism, however, requires equity. Moral capitalism posits that “moral” factors not only should be applied in business but that doing so can predictably lead to better outcomes.

Blackstone’s commentary demonstrates that in his time, moral factors (equity) were required as a part of doing business in a “commercial” society. His presentation of the laws of England is proof that moral capitalism has a claim to legitimacy before the law.