In this everyday example, both you and the other driver are governed by law. The first person to stop his car near a parking space being abandoned and to put his blinker on in the direction of that space is widely recognized as having established for himself a temporary property right to that space. It is a right that other drivers generally recognize and respect.

This law is not written in any book. It was not designed by a committee of parking geniuses. It emerged, unplanned and unintended, in the course of human interactions. And it serves the useful purpose of peacefully allocating scarce parking spaces in ways that are widely accepted as being fair.

This example of spontaneously evolved law governing the allocation of scarce parking spaces is just one instance of evolved law. A much more significant body of evolved law is the lex mercatoria, or “Law Merchant.”

When trade in the Mediterranean region began to rapidly expand a thousand years ago, disputes between merchants naturally occurred with greater frequency. There was, though, no single sovereign power with authority over all of these merchants who traded with each other—some of whom were in Genoa, others in Venice, others in Umbria, and yet others in the several other different independent political jurisdictions that were then spread throughout the Mediterranean region. Nevertheless, a highly complex and uniform system of law emerged in this large region to settle commercial disputes. This law is today known in the English-speaking world as the Law Merchant.

Two features of the Law Merchant are worth emphasizing here.

The first is that the Law Merchant evolved spontaneously out of the actions of merchants; it wasn’t designed and imposed by a king, military general, or parliament. Routine merchant practices came to be known by the merchants and these routines created expectations in all merchants about how they and their fellows would act under different circumstances. But conflicts arose when these expectations were violated—either intentionally or unintentionally—or when new occurrences happened that were out of the ordinary. Merchants themselves established and manned courts to settle these conflicts. These courts generally ruled in favour of those parties whose actions were most consistent with established merchant practices—and, hence, these courts generally ruled against those parties whose actions were deemed to have run counter to established merchant practice.

In much the same way that lexicographers look to widely accepted and established meanings of words when declaring in their dictionaries the meanings of words, Law Merchant courts looked to widely accepted mercantile practices to settle disputes and declare the law in the cases before them. Through this process, law is created and modified by ongoing human practices and interactions, and this law is further refined and spelled out in decisions by these courts. The important feature for our purposes is that no one designed this law. It is the result of human action but not of human design.

A second feature of the Law Merchant is that it was widely obeyed even though there was no government to enforce it. For starters, each merchant typically had powerful incentives on his own to follow the law—in the same way that you have incentives to follow the law of allocating parking spaces in crowded parking lots. By “breaking the law,” you risk retaliation by others. Other drivers honk angrily at you and perhaps even confront you face-to-face to scold you for your offense. (Violating the law of allocating parking spaces usually causes only minor problems for others, so the punishments typically inflicted on violators of this law—nasty looks, repeated horn blowing, a few angry words, and the like—are correspondingly minor.)

For merchants, violating the Law Merchant risked severe damage to their professional reputations. A trader who didn’t pay his debts on time, or who refused a certain shipment of supplies in situations when established commercial practice required that he accept that shipment, was a trader who lost future opportunities to borrow and trade with other merchants. Because those future opportunities were valuable, merchants had strong personal incentives to maintain their reputations for being law-abiding. And the best way to get and keep such a reputation was actually to be law-abiding.

It’s no surprise, then, that the historical record shows that even when merchants lost cases decided by Law Merchant courts they typically obeyed the rulings. The merchants obeyed not because the government forced them to obey; again, in most cases there was no government available to enforce a Law Merchant court’s ruling. Merchants obeyed the courts’ rulings because to disobey those rulings would damage their own reputations.