Ludwig von Mises Institute

Private law

From Mises Wiki, the global repository of classical-liberal thought
Jump to: navigation, search

Private law is a branch of law concerned with private persons, property, and relationships.[1]

In contrast, public law is concerned with regulating the relations of individuals with the government and the organization and conduct of the government itself[2]

Private law in common law jurisdictions[edit]

This article uses content from the Wikipedia article on Private law under the terms of the CC-by-SA 3.0 license.

The concept of private law in common law countries is a little more broad, in that it also encompasses private relationships between governments and private individuals or other entities. That is, relationships between governments and individuals based on the law of contract or torts are governed by private law, and are not considered to be within the scope of public law.

Areas of private law[edit]

Law as a public good[edit]

Law, even more than national defense, appears to be the perfect example of a public good that government simply must supply if order is to exist at all. Law is non-excludable because everyone enjoys its fruits merely by living in society, and it is entirely non-rivalrous, for once the state creates a body of sound legal principles, an unlimited number of people can benefit from them at no additional cost. Public goods theory predicts that private entities cannot provide law, and unless government provides it society cannot prosper. Social contract theorists from Hobbes and Locke to Buchanan and Tullock hold this view.

However, researchers have documented that, despite what Thomas Hobbes and others suggest, numerous examples of polycentric legal orders do exist, and they are not as chaotic as most would assume. Dispute resolution benefits multiple parties, so many consider it a public good. To the extent that these benefits can be internalized, however, the private sector (be it for-profit or not-for-profit) will be capable of providing this public good.[3]

A 2005 survey of Fortune 1,000 companies (the largest U.S. corporations) showed that "79% used arbitration to resolve commercial disputes in the last three years."[4] Thus, one of the central functions of government, business dispute resolution, is largely escaping the state's sphere of influence.[3]

Private arbitration appears to be an attractive substitute for litigation, in part because arbitrators can be selected on the basis of their expertise in matters pertinent to specific disputes. Other potentially important benefits include: (a) arbitration is generally less 'adversarial' than litigation so it is more likely to allow continuation of mutually-beneficial repeated-dealing relationships; (b) if desired, privacy can be maintained; and (c) businessmen may wish to avoid the application of state-made law by agreeing to something in a contract that would be overturned in a government court, since an arbitrator looks to the contract first and the contract can specify the relevant law for deciding a case. (International traders generally assume that national courts will not enforce obligations derived solely from customary commercial law. Indeed, during the medieval period this was particularly true, and as a result, the medieval 'Law Merchant' was an almost pure system of privately-arbitrated customary commercial law backed by private sanctions.)[5]

History of private non-state law[edit]

Arbitration has been favored in all the ancient legal systems (Jewish, Roman, Greek, Byzantine, Islamic, and Christian), except that of the Chinese, who believed that "going to law" or court was an evil. (The Chinese, while using mediation and conciliation, have always been reluctant to give third parties the right to make a judgement.) It is probably not an exaggeration, as Jerzy Jakubowski has written, to say that arbitration "is a universal human institution. It is [the] product of a universal human need and desire for the equitable solution of differences inevitably arising from time to time between people by an impartial person having the confidence of and authority from" the disputants themselves.[6]

Research details how in primitive societies, law develops gradually from custom in the absence of any sort of government. On occasion, primitive law gradually spreads beyond the narrow confines of a single tribe to encompass a broader community. Early tribal Germanic law, for example, evolved into a more universal legal code in the absence of a central government. The history was similar in ancient Iceland, ancient Ireland, and many other places. By this process primitive law became more civilized, broadening its vision to include anonymous as well as face-to-face societies. To exist and evolve, such systems must have given rule-creating incentives to someone; in other words, at least some of the benefits were not public but exclusive.

History contains many instances of pluralistic legal systems in which multiple sources of law existed in one geographic region. These were much more sophisticated than primitive law. In medieval Europe, for example, canon law, royal law, feudal law, manorial law, mercantile law, and urban law co-existed; none was automatically supreme over the others. Naturally, some jurisdictional conflicts occurred. But this system of concurrent jurisdiction overlapped with a period of economic development (c.1050-1250), not a period of chaos and impoverishment. Apparently these diverse systems did what Thomas Hobbes declared impossible: They created social order and peace in the absence of a distinct, supreme sovereign.[3]

United States[edit]

George Washington placed an arbitration clause in his Last Will and Testament in 1799. Washington hoped that no conflicts would arise concerning the testamentary disposition of his property. However, he provided that "all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen by the disputants each having the choice of one and the third by the two of those. Which three men thus chosen, shall, unfettered by Law, or legal constructions, declare their intent of the Testators intention; and such decision is to all intents and purposes to be as binding on the Parties as if it had been given in the Supreme Court of the United States."[7] So far as is known the provisions of this clause went unexercised.

Business arbitration in the States and Europe certainly pre-dated Washington's will. Americans used arbitration during the Stamp Act crisis of 1765-66 when their refusal to pay British taxes blocked their access to colonial courts. In May 1768, the New York Chamber of Commerce appointed an arbitration committee "for the settlement of commercial disputes outside of the courts." Referred to as "the oldest American tribunal," the New York Chamber of Commerce "has continuously, except for a short time at the beginning of [the 20th] century, maintained some form of arbitration procedure." The New York Stock Exchange, founded in 1792, provided for arbitration in its Constitution of 1817. The oldest arbitral institution in the cotton trade is to be found in Liverpool, England, where the first rules of cotton trading, which included rules governing arbitration, were published in 1863 by the Liverpool Cotton Exchange. Likewise, the first rules of the New York Cotton Exchange, founded in 1870 provided for a court of arbitration. The Dried Fruit Association of New York (now the Association of Food Distributors, Inc.) still maintains an arbitration tribunal which has been in continuous existence since the time of the group's founding in 1906. One of the Association's officials, writing in 1958, pointed out that it was not unusual for a request for arbitration to be received in the morning, and the arbitral award be issued the same afternoon. This was most desirable where the commodity in question was perishable and where it needed to be moved before the free time on the dock expired.[6]

Colonial Religious Communities[edit]

Some who came to America in the seventeenth century were fleeing religious oppression by the English government. They purposefully moved outside the reach of the English government's law and established their own legal systems. Religion's moral teaching provided their rules of law and the church arbitrated or mediated their disputes.

One example of such legal systems was in the Puritan communities. They generally chose mediation when disputes arose. In this regard the role of the church was paramount. The church had jurisdiction over religious offenses like defilement of the Sabbath or heresy, "but churches also resolved a variety of commercial and property disputes. These included questions of business ethics . . .; land title disagreements; and, as late as the beginning of the nineteenth century, allegations of breach of contract and fraud". Judicial procedure was standardized. The entire congregation typically participated in the dispute-resolution process. Individual members actively provided information, opinion, and admonition. This encouraged a collective congregational judgment, isolating offenders and thereby strengthening the social order.

These congregations employed a very effective threat of ostracism to induce compliance with their laws. "The sanctions of admonition and excommunication were sufficient for this purpose. The church could neither arrest a wrongdoer nor seize his property, but the danger of expulsion, where church and community were virtually co-extensive loomed ominously" Indeed, these communities would not accept into their midst someone who was not, in a sense, "bonded" by church affiliation.

One of the most well-known religion-based legal systems of the colonial period outside of New England was that of the Quakers. Quakers were not only Christians, of course, but Quaker law also required pacifism, so keeping the peace was a predominant religious concern. In this regard, if a dispute arose, the complainant, "calmly and friendly," spoke to the other party, trying "by gentle means, in a brotherly and loving manner to obtain his rights." If he was unsuccessful, be reasserted his claim in the company of one or two other "discreet, judicious friends," who were expected to act "justly and expeditiously" to resolve all differences. That failing, they were to "admonish and persuade" the parties to accept arbitration by disinterested Quakers. Refusal to arbitrate diverted the dispute to the monthly meeting. . . . The meeting appointed arbitrators; refusal to abide by their judgement was an intolerable affront to the entire community. . . . The penalty was disownment by the society.

Quaker law reached well beyond religious matters despite being enforced through religious institutions. The Quakers also arbitrated business disputes, for example, and the Quaker economic system was very much in the "capitalist" mold, based on private property and free enterprise. Other religion-based legal systems had similar characteristics, though some did not.[8]

Nineteenth-Century Utopian Communities[edit]

Over 100 utopian communal societies established their own legal systems in the nineteenth century, primarily in New England and the Midwest. "The framework for resolving disagreements was mutual and consensual. . . . Peer pressure was relentless, ranging from surveillance by neighbors or leaders . . . to ferret out deviance, through moral suasion to guide erring members back to the community (through forms of confession and atonement), to the ultimate sanction of expulsion". By-and-large they failed because they suppressed private property and individual rights, which generally provide the basis for the reciprocity necessary for recognition and participatory enforcement of such law.[8]

Law in Ethnic Immigrant Communities[edit]

Chinese in urban Chinatowns, Scandinavians in Minnesota and North Dakota, as well as Eastern European and Jewish immigrants to Eastern American cities, all established their own legal order outside the federal, state, or local government that supposedly ruled over the geographic territories encompassing their communities. While commonality of religious beliefs was at times present, more important sources of reciprocal cohesion appear to have been kinship, ethnic cultural norms, and economic relationships.

For instance, "American Chinatown were conspicuously insular". Law in China was largely kinship-based custom at the time of the large nineteenth-century migrations. Consequently, a system similar to that existing in Chinese villages was exercised through local benevolent associations in American Chinatowns. Merchant elders took on the role as mediators for communities consisting of numerous clans and local associations. Each such group took care of internal conflicts while a Consolidated Benevolent Association provided mediation of disputes between members of different groups. "Ostracism, mixed with shame of public scrutiny (and no doubt an occasional threat), was a strong deterrent. The community-based system of law and internal conflict resolution did not begin to yield to state law enforcement until after World War II.

"Among the various immigrant groups for whom internal dispute-settlement procedures were vital for community cohesion, none migrated with as strong a historical commitment to law, and as deep a mistrust of alien legal systems, as the Jews of Europe. Jews were a people whose religion was law; they clung to the Torah to preserve their identity as a people during two millennia in dispersion. . . . In the most literal respects the Torah was their living law". Throughout Europe, Jews maintained a strong desire for religious, cultural and economic autonomy. Thus, they enforced their own law through synagogues and the Bet Din (rabbinical courts). The Bet Din adjudicated virtually every kind of dispute among European Jews.

New York Jewry revived the European institution of Kehillah (community) in an effort to facilitate economic and cultural interaction. Rabbis did not have widespread followings in America, so they could not serve the strong adjudicative role they had played historically. However, the Jews' European experience led the Jewish Kehillah to establish a dispute-resolution system, beginning with a Bureau of Industry around 1910, to mediate and bring a degree of order to the clothing, fur, and millinery industries. Their success in industrial mediation led them, by 1914, to develop a court of arbitration and network of neighborhood arbitration hoards to handle the full range of commercial and religious disputes. This system was dominant in the provision of law and order to the Lower East Side Jewish community until after World War I, and the principles established by the Kehillah persisted for some time beyond that.

The post-war period saw the New York Jewish community develop a variety of arbitration tribunals. Again the procedures were informal and disputes were resolved according to Jewish and Yiddish customary law. One important arbitration tribunal-the Jewish Arbitration Court-resolved thousands of disputes during the 1920s and had branch offices throughout the New York Jewish community. It was funded and staffed through philanthropic and professional support. This private court actually faced stiff competition in the market for disputes from the Jewish Conciliation Court of America. As the Jewish Community was assimilated into American society, however, these courts gradually took on characteristics of the public courts and lost their ability to attract constituents.[8]

Commercial law[edit]

Commercial law was firmly established by the merchant community in Europe (though not by European state governments) centuries before colonies were settled in America. Merchants in America quickly moved to establish their own systems of law and dispute resolution; commercial arbitration was settling disputes in and between the New York and Philadelphia business communities soon after these settlements developed. Commercial law reflected business practice and custom, and its enforcement in America was dominated by private institutions through the eighteenth century.

Merchants wanted to be sure that commercial law would reflect business practice and custom. In addition, resolution of commercial disputes at times had to be achieved after consideration of relatively technical issues. Arbitrators were generally merchants from the relevant merchant community. Thus when technical issues were involved, the disputants used judges who were experts in that particular area of commerce, unlike government court judges who could adjudicate disputes about which they knew nothing. Furthermore, arbitration tended to be relatively speedy and informal. This characteristic is of course desirable to merchants-a dispute had to be settled quickly to minimize disruption of business affairs, and this speed and informality could not have been equitably achieved at the time without arbitration. Merchants avoided state judges and courts because those institutions did not apply commercial law in what the merchant community considered to be a just and expeditious fashion: "Not only did courts, according to one New York merchant, dispense 'expensive endless law'; they were slow to develop legal doctrine that facilitated commercial development".

Around the beginning of the nineteenth century, state courts began to apply the merchants' law as the merchants had established it, and the commercial arbitration system began to disappear. However, the potential for such a system always remained. When the public system became unwilling or unable to adjudicate as the merchant community demanded, commercial arbitration developed again in the United States. Thus there was a significant reemergence of commercial arbitration around the end of the nineteenth century. One factor in the reemergence was clearly the growing problem of court congestion and trial delay, but in addition, "the stronger the regulatory state, the stronger the desire for spheres of voluntary activity beyond its control. The growth of the regulatory state unsettled advocates of commercial autonomy who turned to arbitration as a shield against government intrusion".

The New York Chamber of Commerce established arbitration committees in 1768, and following a period of relative inactivity it evolved into a permanent tribunal just before the end of the century. The main area of rapid redevelopment of commercial arbitration, however, was in the trade associations. Reciprocal benefits within trade associations, backed by the use of boycott sanctions against any member refusing to comply with arbitration, proved sufficient to elicit recognition of legal obligation. By the end of World War I, arbitration was the preferred practice among many of these groups, and it has since "grown to proportions that make the courts secondary recourse in many areas and completely superfluous in others".

The American Arbitration Association (AAA), the largest single group of arbitrators with twenty-five regional offices and 23,000 associates around the country in 1970, helped settle some 22,000 disputes that year. By 1978 the number of disputes settled through the AAA had increased to 48,000. The fact is that since the Association's founding in 1926, entire classes of legal disputes have been removed from the courts altogether. But the growth of AAA activity reflects only a relatively small portion of private sector arbitration. A study conducted in the mid 1950s, for example, found that the AAA conducted only 27 percent of all commercial arbitration. Indeed, the main area of rapid redevelopment of commercial arbitration has continued to be in the trade associations. Statistical information as to the extent of arbitration today by non-AAA affiliates is not available, but by the 1950s it was estimated that almost 75 percent of all commercial disputes were being adjudicated before arbitrators rather than public courts; estimates in 1965 indicated that the use of commercial arbitration was increasing at about 10 percent per year.[8]

The Wild West[edit]

Miners, farmers, ranchers, and many others moved westward much more rapidly than the government of the United States could expand its law enforcement system, particularly during the period from 1830 to 1900. The frontier West was not the lawless, violent society of popular fiction or of academic assumption.

Private citizens began moving into the Western lands that were "owned" by the U.S. government long before this "public domain" was surveyed or available for sale. These "squatters" had no claim to the land under federal law; thus disputes over the possession and use of the land or its product could not be settled under state law even if courts had been available. "The result was the formation of 'extra-legal' organizations for protection and justice. These land clubs or claim associations . . . were found throughout the Middle West". The land clubs and claim associations each adopted their own written contracts setting out the laws that provided the means for defining and protecting property rights in land. They established procedures for registration of land claims, as well as for protection of those claims and adjudication of the internal disputes that arose.

After gold was discovered in California in 1848, large numbers of people began moving across the continent in wagon trains. Members of these trains "created their own lawmaking and law-enforcing machinery before they started". In many cases the members of a wagon train agreed to adopt a formal contract laying out a basic set of rules that would govern them during the journey. Most trains waited until they were out of the jurisdiction of state law and then selected officers with responsibility for enforcing their own rules. The previously agreed-upon contract generally included rules regarding voting eligibility and decision rules. They also typically provided for means of amending the contract, for the banishment of law breakers from the train, and for the dissolution of jointly held property should the train split or reach its destination. More specific rules often included a procedure for organizing jury trials, laws regarding gambling, intoxication, and Sabbath breaking, and penalties for the failure to perform certain tasks like guard duty. But most important, the negotiated contracts "included a very well-accepted set of private rights especially with regard to property". Respect for rules of private property was paramount.[8]

Mining camps[edit]

Gold, discovered in California in 1848, attracted hundreds of thousands of people to the area within a very short period of time. The earliest contractual arrangements that developed (primarily before 1850) involved small groups of miners. The only contractually controlled activities related to gold mining, and the agreement typically involved equal shares of all gold found. Agreements among larger groups generally were not needed, since gold deposits were so widespread and relatively few miners were in the area. This was not to last. The Harbor Master's Office in San Francisco reported the arrival of almost 40,000 people from throughout the world in 1849; the population of California was estimated at 107,000 by the end of 1849 and reached 264,000 by the end of 1852.

As the size of the mining population grew and the mineral lands became relatively more scarce, contractual arrangements began to change. Rather than sharing the gold from a joint production effort, each individual was given the exclusive rights to a specific piece of land, and "[o]wnership of the gold went with the land". These property rights were assigned and enforced by the miners themselves. The first step in this process of contractual law and order was a "miners' meeting" for the purpose of setting up a "mining district." The laws set by miners' meetings were always chosen by majority rule, but individuals who did not agree with the majority were not forced to accept its rules. They were free to move to a new location, or to opt out of the contract for reciprocal protection of rights. If a minority disagreed with a majority they could set up their own separate district. Thus, those governed by a particular set of laws actually unanimously agreed to be so governed.

One result of these meetings was specification of the geographic boundary of the mining district-the area over which the laws of the group would apply-and the size of the piece of land each miner could claim within that area. Claims were allocated on a first-come-first-served basis. In order to retain rights to a claim a miner was required to work it a specified number of days out of each week. Then, as long as a miner complied with these rules, the entire community of miners was obliged to defend his rights under the privately contracted set of laws of the district. "If the miner failed to comply with the terms of the contract, his claim was considered by others to be nonexclusive and open to any jumpers".

Some camps appointed or elected an alcalde or justice of the peace to act as arbitrator in mining disputes. In such cases, given that decisions were acceptable to the majority of miners, the arbitrator was backed by the community at large. When the majority disagreed, a new alcalde was appointed. Most districts, however, did not elect any arbitrator. More typically, when a dispute arose each party appointed a representative and these two picked a third party. Then the three would arbitrate the dispute. The decision was affected if acceptable to the other miners in the district. Another alternative for dispute resolution was the "miners' court." By this method, a subset of the miners in the district would be summoned when a dispute arose. A presiding officer or judge would be elected and a jury selected. The ruling of the arbitrators or miners' court was rarely disputed, but if it were, a mass meeting of the camp could be called where a dissatisfied party could plead his case and possibly get the decision reversed.

Property rights apparently were very secure. Violent crimes occurred occasionally and if sufficient illegal activity arose miners would arm themselves for protection. Even so. the violence was minimal. The contractual systems of law effectively generated cooperation rather than conflict, and on those occasions when conflict arose it was, by-and-large, effectively quelled.[8]

Vigilante justice[edit]

Local governments were established fairly rapidly in some places in the Western frontier. State and federal officials also appeared on the scene. However, in several instances the resulting law enforcement was so ineffective or so corrupt that private citizens had to reestablish law and order through vigilante organizations. There were at least 300 historical vigilante movements in the United States and its Western territories.

With the swelling of San Francisco's population during the early period of the gold rush the situation began to get out of hand. The public law enforcement apparatus simply could not handle the rising tide of crime. Even those criminals who were caught frequently escaped or were released before a trial could be arranged.

Some 3,000 citizens gathered in early June, 1851, during the trial of a suspected arsonist, and during the next few days separate small groups of businessmen spontaneously began meeting and discussing the possibility of forming a "committee of vigilance." The committee officially made ninety-one arrests during its 100 days of action. Four were hanged, one was whipped (a not at all uncommon punishment at that time), fourteen were deported to Australia, and fourteen were informally ordered to leave California. Fifteen were handed over to public authorities, and forty-one were discharged. Crime had declined so rapidly that for a short period, San Francisco was a city of considerable order and safety. The committee suspended action as of September, 1851.

By the spring of 1855, "the criminals were making out better than the honest men in the political atmosphere of San Francisco. Between November 1855 and May 1856 more than 100 murders were committed in San Francisco. The reactivated committee hanged two politicians for murder. The committee was active for over three months, its membership growing to 8,000 (in those three months there were two murders in San Francisco as compared to the more than 100 that took place during the previous six months). During June and July the committee put many of the city's undesirables on outbound ships. On July 29 two more murderers were hanged. On August 18, 1856, the committee on vigilance disbanded.[8]


  1. ↑ "Private law", Free Merriam-Webster Dictionary, referenced 2012-12-07.
  2. ↑ "Public law", Free Merriam-Webster Dictionary, referenced 2012-12-07.
  3. ↑ 3.0 3.1 3.2 Bryan Caplan and Edward P. Stringham. "Privatizing the Adjudication of Disputes" (pdf), Independent Institute Working Paper Number 69, October 17, 2007. Referenced 2012-12-15.
  4. ↑ Darryl Geddes. "Survey: Corporations now widely use dispute resolution over litigation", Cornell Chronicle, Vol. 28, Number 38, June 19, 1997. Referenced 2012-12-15.
  5. ↑ Bruce L. Benson. "Arbitration" (pdf) from the Encyclopedia of Law and Economics, Volume I. Cheltenham, Edward Elgar, 2000, ISBN 1 85898 984 1. Referenced 2012-12-15.
  6. ↑ 6.0 6.1 Carl Watner. "Stateless, Not Lawless: Voluntaryism & Arbitration", The Voluntaryist, Number 84 - Feb 1997. Referenced 2012-12-17.
  7. ↑ George Washington. "Last Will and Testament", Mount Vernon, 9th July 1799. Referenced 2012-12-15.
  8. ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 Bruce L. Benson. "Reciprocal Exchange as the Basis for Recognition of Law: Examples from American History" (pdf), Journal of Libertarian Studies, Vol X. No. 1, Fall 1991. Referenced 2012-12-07.


Personal tools