The Law Of Merchant As An Antidote To Big Government

A Circuitous Route

Intellectual endeavors are not always following a straight line. To be open minded and receptive to new ideas or unusual discoveries is most helpful. You never know where you find some nuggets.

I stumbled upon this subject while reading an article about one of John Keats poems, i.e. in “Binding the Muse” published on 3/22/2013 in the Freeman of the Foundation for Economic Education (FEE).

The Less We Know About History The More Big Government Can Grow

You can bet that lawyers (officers of the court of justice), law schools, and judges do not want us to know more about it or we would discover that these people have carved out lucrative sinecures for themselves like medieval guilds.

Is Administering Justice A Genuine And Exclusive Function Of Government?

I would guess, today most people would without hesitation strongly answer in the affirmative. However, how were e.g. civil disputes resolved before the prevalence of the modern government run justice system? This blog post tries to shed some light on this subject.

The more I learn about this subject by studying history serious doubts abound. While studying economics I came e.g. across the famous essay by Ronald H. Coase about lighthouses in England titled "The Lighthouse in Economics", which challenged the then prevalent view that light houses were a public good.

Brief Overview Of The Law Of Merchant

Also known as Lex mercatoria “is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the international law of commerce. It emphasized contractual freedom and alienability of property, while shunning legal technicalities and deciding cases ex aequo et bono. A distinct feature was the reliance by merchants on a legal system developed and administered by them. States or local authorities seldom interfered, and did not interfere a lot in internal domestic trade. Under lex mercatoria, trade flourished and states took in large amounts of taxation.” (emphasis added).

“[T]he merchants needed to solve their disputes rapidly, sometimes on the hour, with the least costs and by the most efficient means. … The lex mercatoria provided quick and effective justice. This was possible through informal proceedings, with liberal procedural rules. The lex mercatoria rendered proportionate judgments over the merchants’ disputes, in light of "fair price", good commerce, and equity.

Judges were chosen according to their commercial background and practical knowledge. Their reputation rested upon their perceived expertise in merchant trade and their fair-mindedness.”

Borderless Law & Justice

Maybe one of the greatest advantages was its international applicability irrespective of territorial jurisdictions governed by monarchies, nations etc. Unfortunately, the rise of the nation state and the expansion of big government have displaced these early beginnings of voluntarily administered and abided global laws.

An Economic Paper About The Law Of Merchant

Noble prize winner Douglas C. North in collaboration with Paul R. Milgrom and Barry R. Weingast wrote together “The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs” published in March of 1990.

Salient quotes from the paper (emphasis added):

·         “… in the time of the revival of trade in Europe during the early middle ages. At that time, without the benefit of state enforcement of contracts or an established body of commercial law, merchants evolved their own private code of laws (the Law Merchant) with disputes adjudicated by a judge who might be a local official or a private merchant. While hearings were held to resolve disputes under the code, the judges had only limited powers to enforce judgments against merchants from distant places.”

·         “… the evolution of the La Mercatoria or Law Merchant - the legal codes governing commercial transactions and administered by private judges drawn from the commercial ranks. While practice varied across time and space, by the end of the 11th century, the Law Merchant came to govern most commercial transactions in Europe, providing a uniform set of standards across large numbers of locations ….”

·         “While the governments of towns supported the development of markets and were intimately involved in developing merchant law …, they often could not provide merchants protection outside their immediate area.* Nor could they enforce judgments against foreign merchants who had left town prior to a case being heard. Thus, merchant law developed prior to the rise of a geographically extensive nation-state.”

·         “The Law Merchant and related legal codes evolved considerably over time. In addition to providing a court of law especially suited for merchants, it fostered significant legal developments that reduced the transaction costs of exchange …. As agency relationships became common - whether between partners in different locations or between a sedentary merchant who financed a traveling one - a new set of rules governing these agreements was required. The same also held for the new practices of credit agreements and insurance. Here, we note the development of law covering agency relations …, bills of exchange, and insurance ….”