Customary law as a social contract: International commercial law

Abstract

Merchants broke the bonds of localized political constraints during the tenth and eleventh centuries to establish the constitutional foundations of international commercial law as we see it today. The medieval “Law Merchant” was an international legal system that governed without the centralized coercive power of the state. In order to see how this was possible, the incentives which led to the merchants community's social contract, as well as the rules and institutional arrangements that the resulting contract produced are examined and explained. A process of legal change evolved, participatory institutions were established to adjudicate disputes and effective incentives were implemented to induce compliance with the resulting judgements. The unwritten social contract established by the medieval business community remains in force to this day. International commercial law is still largely independent of nationalized legal systems, retaining many of the basic (though) modernized institutional characteristics of the medieval Law Merchant. James Buchanan suggested that “Free relations among free men—this precept of ordered anarchy can emerge as principle,” under an appropriately structured social contract. The international Law Merchant provides a historical and modern demonstration that Buchanan is indeed correct.