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3 Const. Pol. Econ. 1 (1992)

handle is hein.journals/constpe3 and id is 1 raw text is: CONSTITUTIONAL POLITICAL ECONOMY, VOL. 3, NO. 1, 1992 CUSTOMARY LAW AS A SOCIAL CONTRACT: International Commercial Law* Bruce L. Benson** 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 estab- lished 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. Introduction With the fall of the Roman Empire, commercial activities in Europe almost disappeared relative to what had occurred before and what would come after. Things began to change in the eleventh century. Rapid expansion in agricultural productivity helped stimulate greater trade and population began to move into towns, many of which rapidly became cities of substantial size. One consequence of and impetus for this urbanization and trade was the emergence of a class of professional merchants. These merchants wanted to develop international trade but they were limited by highly localized legal systems. As merchants broke the bonds of localized political constraints during this period to establish *This paper was originally prepared for presentation to the Liberty Fund Conference on Liberty and the Constitutional Foundations of International Order, Washington, D.C., July 1991. I wish to thank Randall Holcombe, Kevin Refitt, and the participants in the Liberty Fund Conference for helpful comments and suggestions that led to several revisions. **Professor of Economics, Florida State University, Tallahassee, FL 32306-2045. 1