*MONEY, TRUST, AND THE LAW: COERCIVE POWER OR SPONTANEOUS ORDER?*


It is often asserted that centralized state authority is necessary to
establish common standards of measurement, of exchange, and of law.  Recent
decades have seen, however, a concerted scientific research program into
the ways in which common standards have emerged spontaneously, without the
guiding hand of a sovereign.  The case of money is especially instructive,
and students and scholars of social order in a variety of fields can now
benefit from an outstanding review of the recent literature and issues
concerning the provision of money in the absence of centralized state
monetary authorities.

Monetary specialists George A. Selgin and Lawrence H. White, in 3How Would
the Invisible Hand Handle Money?,2 *Journal of Economic Literature*, Vol.
32, No. 4 (December 1994), pp. 1718-1749.  This essay should be read not
only by students of economics interested in monetary institutions, but also
by anyone interested in the general issues of spontaneous social ordering
processes.  Here are a few suggestions of opportunities for the study of
the spontaneous emergence of order in several related areas:

.....Coordinating Institutions.....

Understanding the ways in which trust emerges in complex interactions,
especially those in which exchange of benefits is not simultaneous, has
long posed a challenge.  Recent years have seen a great upsurge of
scientific research into these problems, the results of which have great
implications for our attitudes towards the choice of institutions, e.g.,
centralized coercive power or decentralized contractual relations.

Janet Tai Landa has brought together the results of her research into the
emergence of trust relations into an important new book, *Trust, Ethnicity,
and Identity: Beyond the New Institutional Economics of Ethnic Trading
Networks, Contract Law, and Gift-Exchange* (Ann Arbor: University of
Michigan Press, 1994).  Weaving together case studies and social science
theory, she shows how very complex sets of trust relationships have grown
up spontaneously; although not commonly understood, these trust
relationships are vitally important for the survival of civil society and
individual liberty.

Drawing from a similar set of conceptual tools, but dealing with different
sets of problems, social scientists have begun to look at how common pool
resources are managed without centralized state control (i.e., without
socialism).  In *The Political Economy of Customs and Culture: Informal
Solutions to the Commons Problem* (Lanham, Md: Rowman & Littlefield, 1993),
Terry L. Anderson and Randy T. Simmons, eds., a group of political
scientists, anthropologists, and economists examine solutions to common
property problems.

.....Law.....

Money and law have been connected, in a variety of ways, for centuries.  In
particular, the theory of state centralization of money and the theory of
state sovereignty have been conceptually related, with one built on the
other.

The brilliant and highly influential sixteenth century advocate of
centralized legal authority Jean Bodin (*On Sovereignty*, ed. by Julian H.
Franklin [Cambridge: Cambridge University Press, 1992], pp. 57-58), for
example, defended legislative authority against defenders of spontaneous
customary (or common) law as follows:

3I answer that custom acquires its force little by little and by the common
consent of all, or most, over many years, while law appears suddenly, and
gets its strength from one person who has the power of commanding all.
Custom slips in softly and without violence; law is commanded and
promulgated by power, very often against the subject9s wishes  ....  Custom
carries neither rewards nor penalties; law always attaches rewards or
penalties, unless it is a permissive law that removes the prohibitions of
another law.  To put it briefly, custom has no force but by sufferance, and
only in so far as it pleases the sovereign prince, who can make it a law by
giving it his ratification.  Hence the entire force of civil law and custom
lies in the power of the sovereign prince.2

Bodin made the connection between money and law quite directly: 3As for the
right of coining money, it is of the same nature as law, and only he who
has the power to make law can regulate the coinage....2  (Jean Bodin, *On
Sovereignty*, p. 78.)  If it is the case that centralized authority is not
necessary to the establishment and efficient functioning of payment media
and intermediation services, one can ask whether centralized authority is
in fact necessary to the establishment and functioning of law, the
adjudication of disputes, and the peaceful coordination of social activity.


Law as the product of decentralized spontaneous evolution was a major study
of Bruno Leoni, whose work *Freedom and the Law* (3rd ed., Indianapolis:
Liberty Press, 1991) set out a very important research agenda.  (See
especially the chapter on 3The Law as Individual Claim.2  Leoni had a
profound impact on F. A. Hayek, and the intellectual connections between
Leoni, Hayek, Michael Polanyi, and other students of spontaneous order are
chronicled in Leonard P. Liggio, 3Law and Legislation in Hayek9s Legal
Philosophy,2 *Southwestern University Law Review*, Vol. 23, No. 3, [1994].)


A more recent and very detailed study of the spontaneous emergence of law
is found in Robert C. Ellickson, *Order Without Law: How Neighbors Settle
Disputes* (Cambridge, MA: Harvard University Press, 1991).  (Ellickson
reserves the term 3law2 for state imposed rules, whereas other scholars,
including Leoni and Lon Fuller, would have considered the rules Ellickson
studies to be laws.)

A very recent look at the functioning of customary law courts in the
adjudication of disputes is offered by John S. Beckerman, in his 3Toward a
Theory of Medieval Manorial Adjudication: The Nature of Communal Judgments
in a System of Customary Law,2 *Law and History Review*, Vol. 13, No. 1,
Spring 1995, pp. 1-22, in which he concludes that 3The origin of custom in
practice, its sanction from long usage, and its articulation by lay judges
all suggest that declarations of customary law produced by manorial
adjudications may well have better reflected societal norms and shared
cultural values--9the purposes and convictions of the community at
large9--than do the rules produced by principled adjudications today.2
(The relationship between money and law was examined in Tom Bell,
3Polycentric Law,2 *Humane Studies Review*, Vol. 7, No. 1 [Winter 1991/92],
available upon request from the Institute for Humane Studies, email:


Tom G. Palmer
Research Fellow in Political Theory
Institute for Humane Studies at George Mason University
and Hertford College, Oxford University




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