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[This article is excerpted from the first two chapters of The Enterprise of Law.]

Anyone who would even question the "fact" that law and order are necessary functions of government is likely to be considered a ridiculous, uninformed radical by most observers. Bernard Herber, in a typical public finance textbook, for example, wrote

The… function… of providing domestic stability in the form of law and order and the protection of property …could be logically opposed only by an avowed anarchist. Since …[law and order is] not [a] controversial function of government… [it does] not require a lengthy analysis in the effort to construct an economic case fix the existence of a public sector for resource allocation purposes.

But even though most academics do not question the logic of government domination of law and the maintenance of order, large segments of the population do. Surveys and polls indicate growing dissatisfaction with all aspects of government law enforcement in the United States, particularly with the courts and the corrections system. More importantly, citizens are turning to the private sector in ever increasing numbers for services which presumably are "not controversial functions of government." Privately produced crime detection and prevention, arbitration, and mediation are growth industries in the United States.

This study will use economic theory to compare institutions and incentives that influence public and private performance in the provision of law and its enforcement. Some critics may contend that law is not an appropriate subject for "economic analysis," because it is not produced and allocated in exchange markets. To be certain, economics has a great deal to say about market institutions, but its relevance and scope are not so narrowly limited. Economic theory requires only that scarce resources be allocated among competing uses. Clearly, the enterprise of law — the use of police services, court time, and all other inputs in the process of making law and establishing order — requires scarce resources that must be allocated. Beyond that, economic theory explains human behavior by considering how individuals react to incentives and constraints.

Using economic theory, then, it can be convincingly demonstrated that private-sector (i.e., market or voluntary) institutions are capable of establishing strong incentives that lead to effective law making and law enforcement. The resulting legal constraints facilitate interaction and support social order by inducing cooperation and reducing violent confrontation. It can also be shown that public-sector institutions create incentives that can lead to substantial inefficiencies in the provision of these same functions. In fact, our modern reliance on government to make law and establish order is not the historical norm. Public police forces were not imposed on the populace until the middle of the nineteenth century in the United States and Great Britain, for instance, and then only in the face of considerable citizen resistance. Crime victims played the prosecutors' role in England until almost the turn of the century, and they did not yield to public prosecution without a struggle. The foundation of commercial law was developed by the European merchant community and enforced through merchant courts.

To this day, international trade is "governed" to a large extent by merchants, as they make, arbitrate, and enforce their own law; and in the United States, at least 75 percent of commercial disputes are settled through private arbitration or mediation with decisions based on business custom and practice (customary commercial law). ​Arbitration services, particularly for commercial disputes, have been increasingly used for some time, but the last few years have witnessed the development of a new industry — private for-profit courts competing with public courts for a wide spectrum of civil disputes. Furthermore, there are now over twice as many private police as public police in the United States, as citizens hire more and more watchmen, guards, and highly trained security experts. Between 1964 and 1981, employment by private firms offering protective and detective services increased by 432.9 percent, and the number of firms offering such services grew by 285.5 percent over the same period (see Table 9.3).

Individuals are also increasingly supplementing government protection with efforts of their own. More and more citizens are buying firearms for personal protection; burglar alarms are being installed and guard dogs purchased. Citizens are barring their windows, learning self-defense, carrying whistles and other noisemakers, and buying self-protection devices. There is a growing business in providing bullet-proof cars and security systems for the powerful and wealthy who fear assassination or kidnapping. There are also less costly activities, such as neighborhood or tenant watches and patrols, and escort groups. A Gallup poll found that during the early 1980s, 17 percent of those surveyed reported at least one of these voluntary crime prevention efforts in their neighborhood.

People turn to the private sector when public police and courts are presumably available because there is a growing dissatisfaction with public-sector efforts to maintain social order. Citizens' dissatisfaction arises in part because of a growing belief that the government is not adequately controlling crime. In 1982, the Figgie Report on Fear of Crime found that "most people perceive crime rates as continually increasing and look at any decline as an aberration, a temporary ebb in the inexorably rising tide of petty theft, armed robbery, murder, and international terror." The report also pointed out that crime statistics understate the true level of crime. According to the report, an estimated 60 percent of all personal larceny cases where there is no contact between the thief and his victim go unreported; and less than 50 percent of all assaults, less than 60 percent of all household burglaries, less than 30 percent of household larcenies, and only a little more than half of all robberies and rapes are reported. Thus, the Figgie Report concluded: "These striking statistics are either a measure of the lack of public confidence in the ability of the police to solve crimes or a more realistic appraisal of what is possible…" After all, in 1980 less than 20 percent of reported crimes were cleared by arrest (down from 26 percent in 1960), and in at least one California county only 12 percent of those arrested as felons in 1977 were actually convicted. The U.S. Department of Justice report on crime victimization in 1979 found that approximately 10 percent of unreported crimes were not reported because people believed that the police "do not want to be bothered:."

Dissatisfaction with the public criminal law apparatus extends to the courts as well. Since 1965 more and more people have come to believe that the courts have not been harsh enough in criminal cases, rising from 48.9 percent in 1965 to 84.9 in 1978 (see Table 1.1); from 1980 to 1986, this percentage held fairly steady in the 82 to 86 percent range. A 1972 study found that 82 percent of its survey respondents agreed "somewhat" or "a great deal" that "recent Supreme Court decisions have made it more difficult to punish criminals."

Table 1.1 Trends in Attitude Toward the Courts Survey Date Percentage

Saying

Courts Are

Not Harsh

Enough Gallup 3/1965 48.9 Gallup 9/1965 59.3 Gallup 1/1968 63.1 Gallup 1/1969 74.4 GSS 3/1972 74.4 Gallup 12/1972 66.3 GSS 3/1973 73.1 GSS 3/1974 77.9 GSS 3/1975 79.2 GSS 3/1976 81.0 GSS 3/1977 83.0 GSS 3/1978 84.9 SOURCE: A.L. Stinchcornbe et al. Crime and Punishment — Changing Attitudes in America (San Francisco: Jossey-Bass Publishers, 1980), p. 31.

The Figgie Report also found that 80 percent of the study's sample believed that the courts and prison system were ineffective in rehabilitating criminals. More than half of those surveyed (52 percent) thought that the prison sentences currently given do not discourage crime and that the "revolving door policy in the justice system makes a prison term a mere inconvenience for the experienced criminal." Plea bargaining now leads to approximately 90 percent of criminal convictions, implying to many that criminals are getting off with light sentences; beyond that, criminals serve, on average, less than half their sentences in jail (down from 61 percent in 1965). Many also believe that prisons do not fulfill their functions of deterrence and rehabilitation, but instead serve as "schools" for the study of crime. Indeed, a nationwide follow-up study of 78,143 offenders who were released from prison in 1972 found that 74 percent were rearrested.

The courts receive low marks from citizens in the area of civil law as well. A 1978 survey found that only 23 percent of those interviewed had a high degree of confidence in state and local courts, while over a third of the sample expressed little or no confidence. Moreover, 57 percent believed that "efficiency in the courts" was a serious national problem. After all, court backlogs can delay a civil trial for more than five years in some states.

Why is delay in the public courts such a problem when most criminal cases are settled by plea bargaining and most commercial disputes are settled by private arbitration? Why, for that matter, does the system rely so heavily on plea bargaining and private arbitration? Why do citizens think they must spend billions of dollars to hire private police officers and establish private security systems when the government is already spending billions on a public police force? Why are local, state, and federal authorities spending taxpayers' dollars to contract with private firms to build, staff, and maintain prisons when the public prison system already costs billions of dollars? Why do victims of crimes choose not to report a significant portion of all crimes committed? These questions and others like them can only be answered by comparing the institutions associated with public-sector law creation and enforcement with private-sector counterparts. Neither system is perfect, but the growing dissatisfaction with the public sector's performance and increasing reliance on private-sector alternatives indicate that it is time to question the presumption that law and order must be governmentally provided.

In the analysis that follows, I consider such topics as the characteristics of primitive legal systems and the evolution of common law and other legal systems. I explore modern law enforcement; the behavior of public police, prosecutors and judges; and political corruption. I also examine current trends in government "contracting" with private firms for police and prison services, and trends in private-sector provision of arbitration, mediation, and crime prevention. Issues in legal theory are discussed, such as the role of custom in law and the question of how "law" should be defined. Throughout the analysis, I liberally use others' thoughts and research findings, demonstrating that many of the relatively broad conclusions reached using an economic perspective have been reached by others in their complementary, yet relatively more narrow, approaches. But more importantly, drawing from a large and seemingly dispersed literature can lead to a more complete understanding of the potential for private-sector maintenance of social order. In this way the study we can achieve a more accurate comparison of the effectiveness of the public and private sector in this vital public policy area.

It is a widely held belief that state governments and law develop together and, therefore, that law and order could not exist in a society without the organized, authoritarian institutions of the state. One means of dispelling this perception is to illustrate that a nation-state is not a prerequisite for law. First, however, it is necessary to understand just what is meant by "law," and how systems of law work.

If law is simply represented by any system of rules, as some have suggested, then "morality" and law would appear to be synonymous. Lon Fuller contended that "law" when more appropriately "…viewed as a direction of purposive human effort, consists in the enterprise of subjecting human conduct to the governance of rules." ​Law consists of both rules of conduct and the mechanisms or processes for applying those rules. Individuals must have incentives to recognize rules of conduct or the rules become irrelevant, so institutions for enforcement are necessary. Similarly, when the implications of existing rules are unclear, dispute resolution institutions are required. As conditions change, mechanisms for development of new rules and changes in old rules must exist. So, legal systems display very similar structural characteristics. Fuller's definition of law is accepted here, in part because it allows the analysis of law to focus on the institutions involved in the production and enforcement of legal rules, and on the incentives which both lead to the development of and arise as a consequence of those institutions. That is, it lends itself to an economic analysis of the enterprise of law.

Law can be imposed from above by some coercive authority, such as a king, a legislature, or a supreme court, or law can develop "from the ground" as customs and practice evolve. ​Law imposed from the top — authoritarian law — typically requires the support of a powerful minority; law developed from the bottom up — customary law — requires widespread acceptance. Hayek explained that many issues of law are not

whether the parties have abused anybody's will, but whether their actions have conformed to expectations which other parties had reasonably formed because they corresponded to the practices on which the everyday conduct of the members of the group was based. The significance of customs here is that they give rise to expectations that guide people's actions, and what will be regarded as binding will therefore be those practices that everybody counts on being observed and which thereby condition the success of most activities.

Customary law is recognized, not because it is backed by the power of some strong individual or institution, but because each individual recognizes the benefits of behaving in accordance with other individuals' expectations, given that others also behave as he expects. Alternatively, if a minority coercively imposes law from above, then that law will require much more force to maintain social order than is required when law develops from the bottom through mutual recognition and acceptance.

Reciprocities are the basic source both of the recognition of duty to obey law and of law enforcement in a customary law system. That is, individuals must "exchange" recognition of certain behavioral rules for their mutual benefit. Fuller suggested three conditions that make a duty clear and acceptable to those affected:

First, the relationship of reciprocity out of which the duty arises must result from a voluntary agreement between the parties immediately affected; they themselves "create" the duty. Second, the reciprocal performances of the parties must in some sense be equal in value…. We cannot here speak of an exact identity, for it makes no sense at all to exchange, say, a book or idea in return for exactly the same book or idea. The bond of reciprocity unites men, not simply in spite of their differences but because of their differences…. Third, the relationships within the society must be sufficiently fluid so that the same duty you owe me today, I may owe you tomorrow — in other words, the relationship of duty must in theory and in practice be reversible.

Because the source of recognition of customary law is reciprocity, private property rights and the rights of individuals are likely to constitute the most important primary rules of conduct in such legal systems. After all, voluntary recognition of laws and participation in their enforcement is likely to arise only when substantial benefits from doing so can be internalized by each individual. Punishment is frequently the threat that induces recognition of law imposed from above, but incentives must be largely positive when customary law prevails. Individuals must expect to gain as much or more than the costs they bear from voluntary involvement in the legal system. Protection of personal property and individual rights is a very attractive benefit.

Under customary law, offenses are treated as torts (private wrongs or injuries) rather than crimes (offenses against the state or the "society"). A potential action by one person has to affect someone else before any they question of legality can arise; any action that does not, such as what a person does alone or in voluntary cooperation with someone else but in a manner that clearly harms no one, is not likely to become the subject of a rule of conduct under customary law. Fuller proposed that "customary law" might best be described as a "language of interaction." Facilitating interaction can only be accomplished with recognition of clear (although not necessarily written) codes of conduct enforced through reciprocally acceptable, well established adjudication arrangements accompanied by effective legal sanctions.

James Buchanan asked, if government is dismantled "how do rights re-emerge and come to command respect? How do 'laws' emerge that carry with them general respect for their 'legitimacy'?" He contended that collective action would be necessary to devise a "social contract" or "constitution" to define rights and to establish the institutions to enforce and those rights. But collective action can be achieved through individual agreements, with useful rules spreading to other members of a group. Demsetz explained that property rights will be defined when the benefits of doing so cover the costs of defining and enforcing such rights. Such benefits may become evident because a dispute arises, implying that existing rules do not adequately cover some new situation. The parties involved must expect the benefits from resolving the dispute (e.g., avoiding a violent confrontation), and of establishing a new rule, to outweigh the cost of resolving the dispute and enforcing the resulting judgment, or they would not take it to the adjudication system.

Dispute resolution can be a major source of legal change since an adjudicator will often make more precise those rules about which differences of opinion exist, and even supply new rules because no generally recognized rules cover a new situation. ​If the relevant group accepts the ruling it becomes part of customary law, but not because it is coercively imposed on a group by some authority backing the court. Thus, good rules that facilitate interaction tend to be selected="true"="true" over time, while bad decisions are ignored.

Dispute resolution is not the only source of legal evolution under customary law. Individuals may observe others behaving in a particular way in a new situation and adopt similar behavior themselves, recognizing the benefit of avoiding confrontation. Institutions for enforcement similarly evolve due to recognition of reciprocal benefits.

Consider the development of dispute resolution procedures. No state-like coercive authority exists in a customary system to force disputants into a court. Because rules of customary law are in the nature of torts, the aggrieved party must pursue prosecution. Under such circumstances, individuals have strong reciprocal incentives to form mutual support groups for legal matters. The makeup of such groups may reflect family (as it frequently did in primitive societies), religion (as in some primitive groups), geographic proximity (as in Anglo-Saxon England), functional similarity (as with commercial law), ​or contractual arrangements (e.g., as in medieval Ireland and in medieval Iceland). The group members are obligated to aid any other member in a valid dispute, given that the member has fulfilled his obligations in the past. Thus, ability to obtain support in a dispute depends on reciprocal loyalty.

Should a dispute arise, reciprocal support groups give individuals a position of strength. This does not necessarily mean, however, that disputes are settled by warfare between groups. Violence is a costly means of solving a dispute: if the accuser and his support group attack the accused, the accused's group is obliged to avenge the attack. Consequently, arrangements and procedures for non-violent dispute resolution should evolve very quickly in customary law systems.

The impetus for accepting adjudication in a customary legal system (as well as in an authoritarian system) is the omnipresent threat of force, but use of such force is certainly not likely to be the norm. Rather, an agreement between the parties must be negotiated. Frequently, a mutually acceptable arbitrator or mediator is chosen to consider the dispute, but this individual (or group) will have no vested authority to impose a solution on disputants. The ruling, therefore, must be acceptable to the groups to which both parties in the dispute belong. The only real power an arbitrator or mediator holds under such a system is that of persuasion.

If the accused offender is found guilty, the "punishment" tends to be economic in nature: restitution in the form of a fine or indemnity to be paid to the plaintiff. Liability, intent, the value of the damages, and the status of the offended person all may be considered in determining the indemnity. Every invasion of person or property is generally valued in terms of property. A judgment under customary law is typically enforceable because of an effective threat of total ostracism by the community (e.g., the primitive tribe, the merchant community). Reciprocities between the groups, recognizing the high cost of refusal to accept good judgments, takes those who refuse such a judgment outside their support group and they become outcasts or "outlaws." The adjudicated solutions tend to be accepted due to fear of this severe boycott sanction.

Carl Menger proposed that the origin, formation, and ultimate process of all social institutions (including law) is essentially the same as the spontaneous order Adam Smith described for markets. Markets coordinate interactions, as does customary law. Both develop as they do because the actions they are intended to coordinate are performed more effectively under one system or process than another. The more effective institutional arrangement replaces the less effective one.

The evolutionary process is not one of deliberate design. In the case of primitive societies, for example, early kinship or neighborhood groups were effective social arrangements for internalizing reciprocal legal benefits — as well as other benefits arising out of cooperative production, defense, religious practices, and so on — relative to previously existing arrangements. Others saw some of those benefits and either joined existing groups or copied their successful characteristics and formed new groups. Neither the members of the earliest groups nor those who followed had to understand what particular aspect of the contract actually facilitated interactions that led to an improved social order. One example of a primitive legal system is revealed in Leopold Popisil's work with the Kapauku Papuans of West New Guinea.

In 1954, Popisil began conducting research among the Kapauku Papuans, a primitive linguistic group of about 45,000 people living by means of horticulture in the western part of the central highlands of West New Guinea. He discovered that their reciprocal arrangements for support and protection were based on kinship. Members of two or more patrilineages, however, typically joined together for defensive and legal purpose, even though they often belonged to different sibs. These "confederations" generally encompassed from three to nine villages, with each village consisting of about fifteen households.

The Kapauku had no formal governmental authority with coercive power. Most observers concluded that there was a lack of leadership among those people, but one Dutch administrator noted that "there is a man who seems to have some influence upon the others. He is referred to by the name tonowi which means 'the rich one.' Nevertheless, I would hesitate to call him a chief or a leader at all; primus inter pares [the first among equals] would be a more proper designation for him." Popisil suggested that to understand the role and prestige of the tonowi one must recognize two "basic values" of the Kapauku: individualism and physical freedom. For instance, a detailed system of private property rights was evident, and there was no common ownership.

A house, boat, bow and arrows, field, crops, patches of second-growth forest, or even a meal shared by a family or household is always owned by one person. Individual ownership …is so extensive in the Kamu Valley that we find the virgin forests divided into tracts which belong to single individuals. Relatives, husbands and wives do not own anything in common. Even an eleven-year-old boy can own his field and his money and play the role of debtor and creditor as well.

The paramount role of individual rights also was evident in the position of the tonowi, typically "a healthy man in the prime of life" who had accumulated a good deal of wealth. He was, Popisil reported, "an individual who has a great amount of cowrie-shell money, extensive credit, several wives, approximately twenty pigs, a reasonably large house, and many cultivated fields." Individual wealth almost always depended on work effort and skill, so a tonowi was generally a mature, skilled individual with considerable physical and intellectual abilities. But not all tonowi achieved the respect necessary to assume leadership. "The way in which capital is acquired and how it is used make a great difference," Popisil concluded; "the natives favor rich candidates who are generous and honest. These two attributes are greatly valued by the culture."

Each individual in the society could choose to contract with any available tonowi (availability generally involved kinship). Typically, followers became debtors to a tonowi in exchange for agreeing to perform certain duties in support of the tonowi. The followers got much more than a loan, however: "The expectation of future favors and advantages is probably the most potent motivation for most of the headman's followers…. Even individuals from neighboring confederations may yield to the wishes of a tonowi in case his help may be needed in the future." Thus, tonowi leadership was given, not taken, and reflected to a great extent an ability to "persuade the unit to support a man in a dispute or to fight for his cause." Thus, this position of leadership was achieved through reciprocal exchange of support between a tonowi and his followers, support that could be freely withdrawn by either party (e.g., upon payment of debt or demand for repayment). The informality and contractual characteristics of Kapauku leadership led many Western observers to conclude that Kapauku society lacked law, but there is clear evidence that law was recognized, and that processes for adjudication and change existed in the Kapauku's legal system.

Recognition. Recognition of law was based on kinship and contractual reciprocities motivated by the benefits of individual rights and private property. Indeed, a mental codification of abstract rules existed, so that legal decisions were part of a "going order." Grammatical phrases or references to specific customs, precedents, or rules were present in all adjudication decisions that Popisil observed. He concluded: "not only does a legal decision solve a specific case, but it also formulates an ideal — a solution intended to be utilized in a similar situation in the future. The ideal component binds all other members of the group who did not participate in the case under consideration. The [adjudicator] himself turns to his previous decisions for consistency. In a way, they also bind him. Lawyers speak in such a case about the binding force of the precedent."

Adjudication. The Kapauku "process of law" appears to have been highly standardized, almost to the point of ritual. It typically started with a loud quarrel where the plaintiff accused the defendant of committing a harmful act while the defendant responded with denials or justification. The quarrel involved loud shouting in order to attract other people, including one or more tonowi. Close relatives and friends of those involved in the dispute presented opinions and testimony in loud, emotional speeches. The tonowi generally listened until the exchange approached violence, whereupon he began his argument. If he waited too long, "stick fighting" or even war could occur, but this was rare (Popisil observed 176 dispute resolutions involving "difficult cases"; only five led to stick fights and one resulted in war). ​The tonowi began by "admonishing" the disputants to have patience and then proceeded to question the accused and various witnesses. He searched the scene of the offense or the defendant's house for evidence. Popisil reported: "Having secured the evidence and made up his mind about the factual background of the dispute, the authority starts the activity called by natives boko duwai, the process of making a decision and inducing the parties to the dispute to follow it." The tonowi then summed up the evidence, appealed to the relevant rules and precedents, and suggested what should be done.

When judged to be guilty, a Kapauku was punished. Sanctions varied considerably depending on the offense. Despite the use of a wide array of sanctions, however, the Kapauku's paramount concern for individual freedom precluded imprisonment, and neither torture nor physical harm was permitted. As with primitive societies in general, "economic sanctions are by far the most preferred ones among the Kapauku." Popisil observed several cases where the defendant was simply ordered to pay the sum stipulated in a broken contract or to make monetary restitution. Defendants were sometimes asked to return loans to their tonowi, thus losing their reciprocal arrangement for protection.

The Kapauku did resort to physical punishment at times, but in a sense, their use of physical punishment actually reflected the paramount role of individual rights. Defendants often had a choice between an economic sanction and a physical sanction, and could weigh the personal and family costs of the alternatives. One form of physical sanction was beating the offender's head and shoulders with a stick. The offenders were not constrained, so they could fight back; but in each instance Popisil observed, they submitted without raising a defense.

Economic payment was apparently considered an insufficient sanction for a few offenses, but even in these instances, "a heinous criminal or a captured enemy would be killed but never tortured or deprived of liberty." In keeping with the emphasis on individual freedom, the killing generally took place in an ambush with bow and arrow: "A culprit …would always have the chance to run or fight back."

Ostracism took one of two general forms. First, "the most dreaded and feared of the psychological and social sanctions of the Kapauku is the public reprimand." Similarly, punishment by sorcery or through the shaman's helping spirits could also be employed, with "disease and death [being] the ultimate (psychosomatic) effect of this 'supernatural' punishment." Second, when the offender would not accept a judgment that the group considered to be just, the offender could be declared an outlaw. His reciprocal arrangements for protection were no longer in force, so anyone in the confederation was obligated to pursue him, either killing him or driving him from the area (which presumably would also lead to his death).

What if a tonowi was ineffective or dishonest in his legal role? Clearly, change in leadership was possible; indeed, one purpose of the Kapauku procedure that involved articulation of relevant laws by the tonowi was to achieve public acceptance of his ruling. After all, one source of "the affinity between legality and justice consisted simply in the fact that a rule articulated and made known permits the public to judge its fairness."

Within the Kapauku, "every functioning subgroup …has its own legal system which is necessarily different in some respects from those of the other subgroups…. Because an individual… is simultaneously a member of several subgroups of different inclusiveness (for example, a Kapauku is a member of his household, sublineage, lineage, and political confederacy …) he is subject to all the different legal systems of the subgroups of which he is a member." There were also differences between the laws of these legal systems so an individual was subject to several legal systems with different laws. It might seem that jurisdictional conflicts would arise under such circumstances. Note, however, that a multiplicity of legal systems is the norm in both primitive and modern state-dominated societies, because the spectrum of interactions ranges from intimacy at one end (e.g., family relations) through interactions of friendly strangers (e.g., commercial transactions) to hostility at the other (e.g., enemies, or hostile nations). The nature of the interaction substantially changes from one level to another, so efficient facilitation of these various types of interaction demands different laws and procedures.

Among the Kapauku, an individual could be tried only by a tonowi of a group to which he belonged. Thus, a dispute was considered by the tonowi of the least inclusive group that included both litigants as its members. ​The status of the tonowi was cumulative, and the designation of tonowi of a relatively inclusive group (e.g., a confederacy) was accorded to the tonowi of the largest constituent subgroup. If two litigants were in the same family, jurisdiction for the dispute was at the family level; two parties from different families but the same sublineage were judged by a tonowi from that sublineage; and so on. The tonowi of a confederacy might be viewed as a sort of "chief justice," but there was no appeal from one level to the next so he only judged cases where the disputants were not from the same lineage.

The types of law adjudicated and the kinds of sanctions that could be employed varied from level to level. Disputes over refusal of economic cooperation, breaches of etiquette, and verbal quarreling, for instance, were adjudicated only at the family level; war crimes and disloyalty were tried only at the confederacy level. Thus, rules of adjudication among the Kapauku included clearly specified detailed jurisdictional delineations.

Change. Kapauku law was not static, and Popisil documented two ways that "legislation" could occur. First, law could change as custom changed. For example, before 1954 an adulterous woman was executed by her husband. But as the price for wives increased, men — particularly relatively poor men — came to realize that the sanction was too costly and the pumshment was changed to beating or perhaps wounding the adulteress. The new customary sanction was upheld by tonowi in four adultery cases observed by Popisil during 1954–1955: "Thus what started as a more economical practice among the poorer husbands became customary law by being incorporated into legal decisions." In a similar fashion, a law can lose its popular support and be abolished.

A second procedure for legal change was observed when a change in one lineage's incest laws resulted from "successful legislation" by a sub-lineage tonowi. Popisil reported: "He succeeded in changing an old rule of sib exogamy into a new law that permitted intrasib marriages as close as between second cousins." This legislation did not force compliance by others, but its acceptance spread as individuals voluntarily adopted it. First it was adopted by the tonowi, then by young men in his sublineage, and ultimately by tonowi of other sublineages within the same lineage. The head of the confederacy also ultimately accepted the new law, but other lineages in the same confederacy did not. Thus, incest laws varied across lineages within the same confederacy. This legal change was an intentional legal innovation initiated by a tonowi, although its adoption was voluntary.

Law in Primitive Societies: Some Generalizations. Because many social scientists and legal scholars believe that physical sanctions administered by a coercive authority are the basic criterion of law, many primitive societies have been held to be "lawless." The example of law among the Kapauku clearly denies this view — and it is only one example among many. As Hoebel explained, in virtually all primitive societies

the community group, although it may be ethnologically a segment of a tribe, is autonomous and politically independent. There is no tribal state. Leadership resides in family or local group headmen who have little coercive authority and are hence lacking in both the means to exploit and the means to judge. They are not explicitly elected to office; rather, they lead by the tacit consent of their followers, and they lose their leadership when their people begin no longer to accept their suggestions …As it is, their leadership is confined to action in routine matters. The patriarchal tyrant of the primitive horde is nothing but a figment of nineteenth-century speculation…. But primitive anarchy does not mean disorder.

The legal system evident in Kapauku culture — and in many other primitive societies — exhibits several characteristics:

primary rules characterized by a predominant concern for individual rights and private property; responsibility of law enforcement falling to the victim backed by reciprocal arrangements for protection and support in a dispute; standard adjudicative procedures established in order to avoid violent forms of dispute resolution; offenses treated as torts and typically punishable by economic payments in restitution; strong incentives to yield to prescribed punishment when guilty of an offense due to the reciprocally established threat of social ostracism; and legal change arising through an evolutionary process of developing customs and norms.

By studying the incentives and institutions of primitive law, it becomes evident that precisely the same kinds of customary legal systems have existed in more complex societies, ranging from medieval Iceland, Ireland, and Anglo-Saxon England to the development of the medieval Law Merchant, and even to the western frontier of the United States during the 1800s.

Anglo-Saxon law prior to the Norman invasion had virtually all the characteristics of primitive legal systems. Evidence of the nature of early English law comes primarily from a few "codes" compiled by kings who rose to power during the late Anglo-Saxon period. In addition, a number of tracts or custumals were written after the Norman conquest in an effort to compile the customary law of the time, much of which was Anglo-Saxon in origin. Sir James Stephen concluded in 1883 that "the general impression which [one such compilation] makes is that [the Anglo-Saxons] had an abundance of customs and laws sufficiently well established for practical purposes." Similarly, Sir Frederick Pollock and Frederick Maitland surmised that "written Anglo-Saxon laws …are mere super-structures on a much larger base of custom."

The early codes did not define crimes, but they did define as illegal a large proportion of the offenses that appear in a modem criminal code. Indeed, Anglo-Saxon laws were very concerned with protection of individuals and their property. In particular, offenses against individuals are minutely provided for by the laws which delineate the economic payment appropriate for homicide, various kinds of wounds, rape, and indecent assaults. Similarly, theft was extensively treated in the codes. The law of property was unwritten so little specific detail can be found, but right of possession was clearly the primary concept of property law:

it is possession that has to be defended or recovered, and to possess without dispute, or by judicial award after a dispute real or feigned is the only sure foundation of title and end of strife. A right to possess, distinct from actual possession, must be admitted if there is any rule of judicial redress at all; but it is only through the conception of that specific right that ownership finds any place in pure Germanic [and, therefore, Anglo-Saxon] law. Those who have studied the modern learning of possessory rights and remedies are aware that our common law has never really abandoned this point of view.

Note the striking similarity in emphasis on individual harm and property between the Anglo-Saxon and Germanic customary law and the laws of primitive societies.

The primitive German tribes from which the Anglo-Saxons descended had kinship as the basis for reciprocal recognition and enforcement of law. The kindred was reciprocally responsible for protection and for pursuit when an offense occurred, and successful pursuit resulted in payment of restitution defined by a system of wergeld or man-price (wer). These were more than just reciprocal policing arrangements, however; they clearly involved a surety responsibility as well. As Lyon noted, the kindred had a "duty to make amends" for the offenses of one of its members. The Anglo-Saxons carried this system to England, and there can be little doubt that "the kindred is one of the principal bonds of Anglo-Saxon society and one of the foundations of its law…. [T]he kindred was a group so powerful and so entrenched by custom and tradition that it never completely yielded priority to government."

When the Anglo-Saxons moved into Britain after about A.D. 450, they were generally led by tribal war chiefs. German tribes were divided into pagi, each of which was made up of vici. Lyon suggested that a pagus might have consisted of one hundred men or households, while the vici was a subdivision of the pagus responsible for law enforcement. Conceivably, these vici were bound by kinship. As J. H. Baker explained, public meetings were held to

…encourage the parties to settle their differences or at least submit them to arbitration. The parties can air their grievances before their fellows, and with communal advice perhaps reach a compromise. If the parties cannot agree, the community does not act as a judge or jury, but may agree on the test which the parties, or one of them, should perform to establish the truth of the matter. Procedures of this sort do not evolve through coercion, but parties who do not cooperate may be put outside the protection of the community.

By the tenth century, in much of Anglo-Saxon Britain, there was a clearly recognized legal institution called the "hundred." The primary purposes of the organizations were rounding up stray cattle and dispensing justice. One member of the hundred, the hundredsmann, was recognized as a chief official who was informed when a theft occurred and who informed the men of the several "tithings" that made up the hundred and had a reciprocal duty to pursue the thief. A tithing was not obviously based on kinship (as the vici may have been); it was apparently a group of neighbors, many of whom probably were kin. As kinship reciprocities broke down, perhaps due to increased mobility, neighborhood groups were probably organized. These voluntary groups were clearly designed as cooperative protection and law enforcement associations. Stephen characterized them as "the police system of the country, and in that capacity [their members] had various duties, of which the most important was that of raising in case of need the hue and cry, and tracking thieves and stolen cattle." But their role went beyond policing; they also "made everyone accountable for all his neighbors." ​The tithing took on the legal functions of the vici.

An individual who was not bonded by such a group was effectively an outcast, forced to be self-sufficient, so individuals had strong incentives to join a group. Because others in the group provided insurance (credit) for all members, however, they would not accept or keep someone who was not of good character. Consequently, members of a surety organization could disclaim someone who committed an egregious wrong, providing strong incentives to abide by the law.

This healthy system tended to reduce or prevent the introduction into any society of anyone who did not have credentials transferred from a previous peaceful participation in a surety association…. Thus, social relations were maintained only with people who shared surety protection.

In effect, everyone who wanted to participate in and benefit from the social order was bonded.

The tithings and hundreds organizations also performed the local judicial function. Four members of a tithing served as "suitors" of a hundred court, along with four members of all the other tithings within the court's jurisdiction. "The court consisted of the suitors collectively, but a representative body of twelve seem to have been instituted as a judicial committee of the court." This committee served as an arbitrator in disputes between members of tithing groups in the area. Disputes between individuals who were not in the same hundred jurisdiction were handled by a shire court. All the suitors in the hundred courts within a shire were also suitors in the shire court, but again a twelve-man committee served the judicial arbitration function. Above the shire court there was apparently a third court to handle disputes between individuals who did not reside within the jurisdiction of one shire.

The hundreds organization has been characterized as a major innovation implemented by Anglo-Saxon kings before the tenth century, because the hundreds were described in some of the king's early codes. Lyon has argued, for instance, that as their kingdoms grew, kings needed a way to organize local government, so they supplemented "the duties of the kindred in protection and policing by introducing …the tithing." According to this view, authoritarian royal legislation "forced" freemen to join in a surety arrangement and to exercise the tithings' policing function. As Blair pointed out, however, this interpretation "mistake[s] the nature of Anglo-Saxon legal codes which were not so much concerned with promulgation of new law as with codification of established custom. There is little doubt that the hundred [and tithing] was functioning as a unit" before they appeared in any code.

There are several other reasons to believe that Anglo-Saxon reciprocal arrangements correspond to those in primitive societies (and in more advanced ones like Iceland and Ireland). A primary reason for recognizing reciprocal duty in these systems was that offenses were treated as torts with economic restitution as the major form of punishment. Thus, potential victims recognized that in order to recoup their losses when an offense occurred, they would probably require community support. As a consequence, they were obliged to back others' claims in a reciprocal fashion.

A well-established set of rules arose some centuries before there were written records. When a dispute arose, it was subject to arbitration ending in a prescribed payment to the winner. Monetary payments could be made for any offense if it was the first offense committed by the aggressor. "A deed of homicide," for example, "can be paid for by money …the offender could buy back the peace he had broken." Refusal to submit to arbitration would result in a legal right for the accuser to take the life of the accused. Likewise, refusing to accept the monetary fine put the accuser outside the law. Refusal by either party to yield to the court's decision, thus, led to outlawry and the potential of a "blood-feud."

Some historians have viewed outlawry and the blood-feud as the primary legal sanctions prior to efforts by kings to force acceptance of economic restitution. In all likelihood, however, given the incentives arising in customary legal systems and the resulting institutions of primitive law, the blood-feud was a valid recourse only after an attempt had been made to go to trial, long before kings became active in law. In this way, the potential for such violence was used to force compliance with the monetary sanction set forth by the courts. Furthermore, because the earliest written codes were articulations of existing customs, the wergeld system probably preceded their appearance. As with primitive law in general, the threat of violence was used to create incentives that could lead to a peaceful settlement. In addition, an outlaw was ostracized by the society in general and physical retribution became the responsibility of the entire community. The threat of social ostracism would seem to have been quite severe, providing very strong incentives to submit to and abide by the rulings of arbitration.

Institutions were developed to avoid violence even when a person was unable to pay his fine. For certain offenses involving especially large fines, for example, an offender was apparently given up to a year to pay. But there was another option as well. "Slavery was a recognized penalty when the thief was unable to make restitution. This… might be regarded as handing over the debtor's person by way of compensation rather than a punishment in the modern sense."

By the time laws began to be recorded, ealdormen (later called earls) had become a king's appointed representatives in a shire, and by the ninth century, part of the aristocracy. The appointed position probably evolved from a tribal or kinship arrangement involving a well-respected individual (elder) whose opinion carried particular weight in the community (e.g., like a tonowi among the Kapauku). Early codes make it clear that "the ealdorman, and the king at need, may be called in if the plaintiff is not strong enough himself; in other words the contumacious denier of justice may be dealt with as an enemy of the commonwealth." Thus, the ostracism process by which an offender was made an outlaw was backed by the most powerful members of Anglo-Saxon society. A strong offender might resist if he had little to fear from his neighbors, but when his entire society backed the ostracism it was probably a very significant threat. In fact, if a victim had to call upon an elder (and ultimately an ealdorman or king), the monetary cost to the offender would increase considerably. He would not only have to pay monetary restitution (wer) to the victim or his kin, but also to the individual (wite) who used his power to bring about a settlement. Once kingship evolved, there were actually three kinds of fines:

The fines were called wer, bot and wite. The wer was a price set upon a man according to his rank in life. If he was killed the wer was to be paid to his relations. If he was convicted of theft he had in some cases to pay the amount of his wer to his lord, or the king. If he was outlawed his sureties (borhs) might have to pay his wer. Bot was compensation to a person injured by a crime. It might be either a fixed rate (angild); or at the market price of the stolen goods (ceaf-gild). Wite was a fine paid to the king or other lord in respect of an offense.

It should be stressed that kings and ealdormen had no sovereign powers to coerce compliance. The king's "business is not to see justice done in his name in an ordinary course, but to exercise a special reserved power which a man must not invoke unless he has failed to get his cause heard in the jurisdiction of his own hundred." This institutionalization of a king's role in the justice process, and in particular a payment to the king for performing his role (wite), was one of the first steps in what would soon be a rapid extension of the king's role in law.

By the ninth and tenth centuries, England was a kingdom (or at times several kingdoms) and Anglo-Saxon kings were clearly recognized, but these institutions did not develop initially for the purpose of seeing justice done.

Around A.D. 450 Saxon or Jutish chieftains led the first of the Germanic raiding parties into Britain; others quickly followed. Chieftains were war leaders whom freemen chose to follow, and their tenure was temporary unless warfire was continuous. For those Anglo-Saxons who moved into Britain, however, warfare apparently became virtually permanent, as efforts were continually being made to expand landholdings. Thus, successful war chiefs became more or less permanent leaders and their land holdings expanded. Of course, the primary reason for voluntarily following a war leader was the anticipation of gains, partly in the form of land. Whenever voluntary associations arise, reciprocal benefits must be significant.

The word "king" derives from the old English work cyninge, and the earliest historical records refer to ceosan as cyninge, which means "choose as king." ​The "office" of kings was not necessarily hereditary, and appointment of a successor was not automatic; nor was a kingship considered a position for life. Kings apparently tried to establish a system of life tenure and hereditary succession very early in the Anglo-Saxon period, but these efforts were never completely successful.

Kingship required reciprocal recognition of duty, reflecting the solid contractual foundation of leadership during earlier periods. War chiefs provided followers with battle equipment, food, and war booty (including land) in exchange for their support in war. Anglo-Saxon kings were expected to help protect the rights and property of the citizens of their kingdoms in exchange for their loyalty. Interestingly, it was not until the tenth century that there was a clear expression of a requirement that freemen had to swear an oath of fealty to their king; kings' oaths to their subjects are recorded for much earlier periods.

Through shifting contractual arrangements, the land area associated with a particular lord could change, and at some earlier time when many kingdoms existed, freemen could probably shift from one king to another when a particular king proved to be a poor leader. Significantly, the rights and well-being of freemen declined considerably as the power of kingship increased. Blair noted that "the one generalization about the Anglo-Saxon agrarian community upon which all seem to agree is that the condition of the peasantry was markedly worse in the later part of the period [of Anglo-Saxon rule] than it had been in the earlier…. [I]t should be recognized that the position of the seventh-century ceorl [agrarian freeman] as an independent freeman of some substance is mainly derived from the position he held in the law.

Why did freemen's freedoms and well-being gradually diminish as the powers of kings expanded? Because the Anglo-Saxons were virtually in a constant state of war, they required strong war chiefs. Military ability won a small group of war chiefs prestige and land, and their accumulated wealth allowed some to set themselves apart as kings. If a king's successor was endowed with military ability, his kingdom would last; and if the king could establish a blood descendant as his successor and that descendant had similar skills in warfare, precedent for a hereditary dynasty would be established. As long as a hereditary descendant was a good leader, followers had little reason to dispute his "right" to be king.

Between 450 and 600, the number of kingdoms declined until reasonably well established dynasties existed in seven fairly well defined regions of Britain. Throughout this period, the primary function of kings was in warfare. They apparently did not presume to be law-makers, and law enforcement remained in the hands of local reciprocally established groups. The next 250 years saw further consolidation, with three kingdoms (Northumbria, Mercia, and Wessex) moving to positions of dominance. During most of this period, warfare was between the various Anglo-Saxon kingdoms. In the late eighth century, however, Vikings began to raid the English coast.

None of the Anglo-Saxon kingdoms was prepared to meet the Viking attacks. The English seaboard was simply too long to defend without a greater concentration of military force than any of the kingdoms controlled, and the Scandinavian invaders ultimately destroyed the dynasties of all the kingdoms except Wessex. Alfred, King of Wessex, fortified south England, and began the gradual unification process by retaking London from the Danes. His son, Edward the Elder, continued the reconquest of Danish holdings and by 917 had recovered the former kingdoms of Mercia and East Anglia. During the next three years he established himself as the most powerful ruler in all of Britain. By 937, "the older political system had perished through the disintegration or destruction of several once independent kingdoms upon which that system had rested and its place had been taken by the single kingdom of England."

By the early eleventh century, many of the relatively localized functions of ealdormen (e.g., within a shire) had been taken over by royal appointees (sheriffs). The earls who remained, by now clearly designated as royal appointees, were lords over much larger areas (several shires) than the typical ealdorman of earlier times. Thus, the aristocracy that survived the long period of warfare was quite strong and relatively concentrated.

At the same time, the well-being of non-noble freemen in England declined considerably. In the ebb and flow of the wars, crops were constantly destroyed and farms burned. Men frequently left their lands to protect their area from raids and invading armies. "These and other factors, including the growth of powerful families among the nobility, tended towards the depression of many of the less fortunate, especially in the later part of the period… [and] had produced semi-servile communities in many parts of the country."

Events occurred during the late tenth century that hastened the decline of the non-noble classes of freemen. In 980, the Danes began raiding England again, and local areas were left to their own defenses. Some lords paid the Danes to spare their lands and the king followed their lead, paying the raiders a large tribute (Danegeld) to leave his kingdom alone. During the next few years, large sums were raised through taxation to pay more Danegeld. The burden of these taxes further reduced the well-being of the English peasantry.

A Dane, Canute, took the throne in 1016. He appeased the Anglo-Saxons by confirming their customary laws, establishing a close rapport with the Anglo-Saxon aristocracy, and supporting their church, actually ruling as an Anglo-Saxon. While Canute's reign (1016–1035) was a peaceful one, his sons viewed England as a foreign source of revenues. They extracted as much from the English as they could, further reducing the status of Anglo-Saxon freemen. In 1042, the crown fell to Edward the Confessor, who surrounded himself with Norman advisors and appointed Normans to rich ecclesiastic positions. Actual control of England fell to the most powerful of the Anglo-Saxon earls, who possessed vast land holdings. In 1066 when Edward died, Harold, the dominant member of aristocracy, was chosen as his successor, despite stronger hereditary claims to the throne. It was Harold who was killed on September 28, 1066, at the Battle of Hastings.

This very brief discussion of the development of the Anglo-Saxon kingdom emphasizes that the reason for the development of the institution of kingship was not a need for establishment of law or maintenance of internal order. Rather, government evolved due to external conflict (warfare). Throughout the decades of warfare and the growing power of the aristocracy, kingship as an engine of war also acquired important legal ramifications. Anglo-Saxon kings saw the justice process as a source of revenue, and violations of certain laws began to be referred to as violations of the "king's peace." Well before the Norman conquest, outlawry began to involve not only liability to be killed with impunity but "forfeiture of goods to the king." The codes of the later kings indicate that the attractiveness of such revenues was apparently quite strong. As Pollock and Maitland stressed, one of the

bad features of pecuniary mulcts was the introduction of a fiscal element into the administration of criminal law. Criminal jurisdiction became a source of revenue; "pleas and forfeitures" were among profitable rights which the king could grant to prelates and thegns. A double process was at work; on the one hand the king was becoming supreme judge in all causes; on the other hand he was granting out jurisdiction as though it were so much land.

The stage was being set for the king to take over many aspects of law production and enforcement.

The concept of the "king's peace" traces directly to Anglo-Saxon law in the sense that every freeman's house had a "peace"; if it was broken, the violator had to pay. Initially, the king's peace simply referred to the peace of the king's house, but as royal power expanded, the king declared that his peace extended to other places. First it was applied to places where the king traveled, then to churches, monasteries, highways, and bridges. Eventually, it would be "possible for royal officers such as sheriffs to proclaim the king's peace wherever suitable. Even included were festivals and special occasions of the year such as Christmas, Lent, Easter, and Whitsuntide."

Violations of the king's peace required payment to the king. The expansion in places and times protected by the king's peace meant greater potential for revenue. Kings also gradually added offenses against others that required payment of wite to the king. As revenues grew from such operations, the king could "buy" additional support for such arrangements by granting the right to parts of those revenues to others (e.g., earls and sheriffs). The populace did not always accept these changes gracefully, because they meant that the true victim of an offense claimed as a crime against the king received little or no restitution. ​As Pollock and Maitland indicated: "There is a constant tendency to conflict between the old customs of the family and the newer laws of the State; the family preserves archaic habits and claims which clash at every turn with the development of a law-abiding commonwealth of the modern time."

Although Anglo-Saxon customary law was giving way to authoritarian law, the development of medieval commercial law, lex mercatoria, or the "Law Merchant," effectively shatters the myth that government must define and enforce "the rules of the game." Because the Law Merchant developed outside the constraints of political boundaries and escaped the influence of political rulers for longer than many other Western legal systems, it provides the best example of what a system of customary law can achieve.

With the fall of the Roman Empire, commercial activities in Europe drastically declined. From the sixth to the tenth centuries, commercial trade was almost nonexistent. But by the eleventh and twelfth centuries, rapid expansion in agricultural productivity meant that less labor was needed to produce sufficient food and clothing to sustain the population. Agricultural commodities were produced at levels that stimulated greater trade, and the population began to move into towns.

One consequence of (and one impetus for) the increased agricultural productivity and urbanization was the re-emergence of a class of professional merchants to facilitate trade. Customary law had traditionally been the source of the rules of trade and commerce, but by the tenth century merchants' customary law had been highly localized. Thus, there were substantial barriers to overcome before inter-city, inter-regional, and international trade could develop. Merchants spoke different languages and had different cultural backgrounds. Beyond that, geographic distances often prevented direct communication, let alone the building of strong inter-personal bonds that would facilitate trust. Numerous middlemen were required to bring about an exchange, including buyer's agents, seller's agents, and shipping agents. All of this "gave rise to hostility" towards foreign customs and they ultimately led to mercantile confrontations."

During this period, "the basic concepts and institutions of modern Western mercantile law — lex mercatoria ('the Law Merchant') — were formed, and, even more important, it was then that mercantile law in the West first came to be viewed as an integrated, developing system, a body of law." By the end of the eleventh century, the Law Merchant had developed to such a degree that it governed virtually every aspect of commercial transactions in all of Europe (and in some cases outside Europe). In fact, the commercial revolution of the eleventh through the fifteenth centuries that ultimately led to the Renaissance and industrial revolution could not have occurred without the rapid development of this system of privately adjudicated and enforced customary law.

Rulers who sought by means of national law to rigidify this free commerce would inhibit the success of exchanges in the market place — to the loss of both the foreign and the local merchant community. The only law which could effectively enhance the activities of merchants under these conditions would be suppletive law, i.e., law which recognized the capacity of merchants to regulate their own affairs through their customs, their usages, and their practices.

How could merchants from such far-ranging backgrounds produce law? What is the source of recognition? Fuller suggested that free trade and commerce itself is the source, because traders

enter direct and voluntary relationships of exchange. As for equality it is only with the aid of something like a free market that it is possible to develop anything like an exact measure for the value of disparate goods. . Finally economic traders frequently change roles, now selling now buying. The duties that arise out of their exchanges are therefore reversible, not only in theory but in practice. This analysis suggests the somewhat startling conclusion that it is only under capitalism that the notion of moral and legal duty can reach its full development.

The reciprocity necessary for the recognition of commercial law arose due to the mutual gains generated by exchange.

The Law Merchant evolved into a universal legal system through a process of natural selection. As merchants began to transact business across political, cultural, and geographic boundaries, they transported trade practices to foreign markets. Those previously localized customs that were discovered to be common to many localities became part of the international Law Merchant. Where conflicts arose, practices that were the most efficient at facilitating commercial interaction supplanted those that were less efficient. By the twelfth century, mercantile law had developed to a level where alien merchants had substantial protection in disputes with local merchants and "against the vagaries of local laws and customs."

"Initially, the king's peace simply referred to the peace of the king's house, but as royal power expanded, the king declared that his peace extended to other places."

The laws that were adopted "reinforced rather than superseded the cycle of business practice…. Moreover, [these laws] generally avoided complex legal forms and mandatory controls over business which had not already been sanctioned either in custom or in commercial habit." Complexities that might hinder communication and thereby inhibit trade were avoided. Agreement was the overriding force in regulating business conduct.

Commercial law coordinated the self-interested actions of individuals, but it also coordinated the actions of people with limited knowledge and trust. Medieval commerce involved traders traveling to fairs and markets all over Europe, exchanging goods about which they knew little with unfamiliar people. From 1000 to 1200 (and especially from 1050 to 1150), the rights and obligations of merchants developed to handle this uncertainty. In their dealings with each other, merchant law "became substantially more objective and less arbitrary, more precise and less loose."

Furthermore, as the norms of commercial law became more precisely specified, they were increasingly recorded. These written laws were not in the form of statutory codes (although many governments ultimately adopted privately created mercantile law in their commercial legislation), but took the form of written commercial instruments and contracts. Fuller explained that "the term contract law. . refers primarily not to the law of or about contracts, but to the 'law' a contract itself brings into existence…. If we permit ourselves to think of contract law as the 'law' that parties themselves bring into existence by their agreement, the transition from customary law to contract law becomes a very easy one indeed."

When it is recognized that individuals had to voluntarily enter into a contract, it becomes clear why the Law Merchant had to be objective and impartial. Reciprocity in the sense of mutual benefits and costs is the very essence of trade. Each party enters into an exchange with expectations of obtaining something that is more valuable than what is given up. But the principle of reciprocity of rights, as it was developed during the late eleventh and early twelfth centuries and is still understood today, involves more than mutual exchange. It involves an element of fairness of exchange. Thus, fraud, duress, or other abuses of the will or knowledge of either party in an exchange meant that the transaction would be invalidated in a mercantile court. Beyond such procedural issues, however, "even an exchange which is entered into willingly and knowingly must not impose on either side costs that are excessively disproportionate to the benefits to be obtained; nor may such exchange be unduly disadvantageous to third parties or to society generally." Fairness was a required feature of the Law Merchant precisely because obligation to obey it arose voluntarily from recognition of mutual benefits. No one would voluntarily recognize a legal system that was not expected to treat him fairly.

Merchants "governed" without the coercive authority of a state by forming their own courts to adjudicate disputes. As Wooldridge explained, merchant

court decisions were generally respected even by the losers; otherwise people would never have used them in the first place …Merchants made their courts work simply by agreeing to abide by the results. The merchant who broke the understanding would not be sent to jail, to be sure, but neither would he long be a merchant, for the compliance exacted by his fellows, their power over his goods, proved if anything more effective than physical coercion.

Merchant court decisions were backed by the threat of ostracism, a very effective boycott sanction. If a merchant court ruled that a London-based merchant had breached a contract with a merchant from Cologne at a trade fair in Milan, for example, the London merchant had strong incentives to pay the compensation the court judged appropriate. If he did not, other merchants would no longer trade with him. But this sanction, while a real threat, was not often required. "Good faith was the essence of the mercantile agreement," Trakman concluded. "Reciprocity and the threat of business sanctions compelled performance. The ordinary undertakings of merchants were binding because they were 'intended' to be binding, not because any law compelled such performance."

Merchants established their own courts for several reasons. First, royal law differed from commercial law. For instance, the king's courts typically would not consider disputes arising from contracts made in another nation. Nor would royal courts honor any contractual agreement involving the payment of interest, considering any interest usurious. Common-law courts would not consider books of account as evidence, even though merchants held such records in high regard.

Second, merchant courts developed to resolve commercial disputes involving highly technical issues. Merchant court judges were chosen from the relevant merchant community; when technical issues were involved, the merchant courts used judges who were experts in that area of commerce.

Third, speed and informality were important in adjudicating commercial dispute. Merchants had to complete their transactions in one market or fair and quickly move to the next; even if they did not move on, they frequently dealt with others who did. A dispute had to be settled quickly to minimize disruption of business affairs. Speed and informality could not have been equitably achieved without judges who were knowledgeable about commercial issues and concerns and whose judgments would be respected by the larger merchant community. Participatory adjudication, therefore, was a necessary characteristic of the Law Merchant. The adjudicative procedures, institutional devices, and substantive legal rules adopted by merchant courts all reflected the Law Merchant's concern for facilitating commercial interaction.

For the same reason, rules of evidence and procedures were kept simple and informal. Appeals were forbidden to avoid undue delay and disruption of commerce. Lengthy testimony under oath was avoided; notarial attestation was usually not required as evidence of an agreement; debts were recognized as freely transferable through informal "written obligatory," a process developed by merchants themselves to simplify the transfer of debt; actions by agents in transactions were considered valid without formal authority; and ownership transfers were recognized without physical delivery. All of these legal innovations were validated in merchant courts despite their illegality in many royal courts, but they promoted speed and informality in commerce and reduced transactions costs, so merchant courts accepted them.

By the early thirteenth century the Law Merchant was an integrated system of principles, concepts, rules, and procedures. Berman concluded that, "a great many if not most of the structural elements of the modern system of commercial law were formed in this period." Consider, for example, the development of credit devices. By the twelfth century, barter trade had been virtually replaced by commercial middlemen who bought and sold using commercial contracts involving credit. The main forms of credit extended by sellers to buyers were promissory notes and bills of exchange. When such commercial instruments "became common in the West in the late eleventh and twelfth centuries, they not only acquired the character of independent obligations, like money itself, but they also acquired another characteristic of money, namely, negotiability." ​The practice of negotiability of credit instruments was "invented" by Western merchants because of the need for an improved means of exchange as commerce developed and because the rise of the Law Merchant generated sufficient confidence in the commercial system so that a reservoir of commercial credit could be established.

Credit instruments became the means of exchange that allowed trade to flourish and the commercial revolution to take place. The Roman commercial system had functioned because of the availability of money to facilitate trade; but with the fall of Rome, a currency that could be trusted to maintain its value disappeared, and so did commercial trade. With no sound source of money, merchants had to develop their own exchange medium.

Many kinds of credit instruments developed, and all became part of the Law Merchant. Credit was extended from sellers to buyers in the form of negotiable instruments, and buyers extended credit to sellers through the use of various contracts for future delivery of goods. Third parties (e.g., bankers) extended credit to buyers, and devices such as mortgages of movables were developed to protect these creditors against default. In this way, creditors retained a security interest in goods that required payment before they could be resold; and if payment was not forthcoming, the goods could be taken for resale in order to satisfy the debt.

Other aspects of the Law Merchant could be examined to emphasize the integration of a wide variety of principles, concepts, rules, and procedures into a system of law. The Law Merchant's

development was quite rapid, not only in its formative period but thereafter, in the thirteenth, fourteenth, and fifteenth centuries…. [T]he objectivity of mercantile law, the specificity of its norms, and the precision of its concepts increased over time; its universality and generality, its uniformity, increasingly prevailed over local differences; reciprocity of rights became increasingly important as contractual opportunities expanded; adjudication of commercial disputes became increasingly regularized; and the degree of integration of commercial law increased."

Commercial law grew and developed, changing and adopting in response to new conditions in commerce.