Is the State necessary for flourishing international trade? Conventional wisdom thinks so. According to that wisdom, private international commerce would wither without intergovernmental treaties, State courts dealing with international affairs, and State-crafted legal practices for international merchants. Some commentators have gone so far as to suggest that a world legal system is needed to ensure the continual growth of international commerce.
Superficially, at least, the idea that State involvement might be indispensable for international trade seems sensible. Without it, how could merchants from different legal systems—not to mention cultures, languages, and religions—make binding contracts, providing the security they need to trade with persons beyond their nations' borders? Without a world court for private international commercial agreements, what law would take precedence in commercial disputes? Which nation's courts would handle merchants' disagreements? And how could merchants secure a fair hearing in the courts of their adversaries? Without a supranational legal system, or at least national governments' cooperation, these and myriad other potential problems stemming from commercial conflicts between parties from different countries would seem insurmountable.
Yet private parties have surmounted these problems—without government. International trade first took off under a private international legal system called the lex mercatoria, or Law Merchant. It continues to thrive under private legal arrangements today.
In the eleventh century Europeans discovered agricultural improvements that could sustain a larger population. The growing population increasingly migrated to urban areas. In these cities a new class of merchants was born. Merchants across Europe were separated by language, distance, and local law. To facilitate trade, they needed a common set of commercial rules. Out of that need the Law Merchant was born.
The Law Merchant was a purely informal body of law. It developed out of merchants' international commercial customs and shared legal notions. Roman law (the ius gentium) provided many of these notions, which merchants modified to meet their special needs, as Bruce L. Benson pointed out in "The Spontaneous Evolution of Commercial Law" (Southern Economic Journal, 1989.)
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The popular wisdom that flourishing international trade requires government may be popular, but it's also wrong. We have the Law Merchant to thank for the incredible wealth that commerce has created. Today, international trade accounts for nearly one-third of world GDP—some $6 trillion in 2008. That's an astonishing volume—produced predominantly on the basis of private order.
More: http://www.mises.ca/posts/articles/the-law-merchant-and-international-trade/
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