voluntarily paid because non-payment meant losing all future trade at the Champagne
fairs. This combination of private judges and individual merchants’ reputations created
incentives for all merchants to fulfill contractual obligations, it is argued, even though
state enforcement was absent and repeated interactions between trading partners were
rare. From this portrayal of the Champagne fairs, Milgrom, North and Weingast
conclude that international trade expanded in medieval Europe through merchants
developing ‘their own private code of laws’, employing private judges to apply these
laws, and deploying private-order sanctions against offenders - all ‘without the benefit
of state enforcement of contracts’.113
This view of the Champagne fairs is widely accepted by economists, sociologists,
legal theorists, and policy-makers, and is used to underpin far-reaching conclusions
about the institutional basis for exchange in modern economies. Dixit instances private
judges providing enforcement to merchant ‘customers’ at the Champagne fairs as an
example of a well-functioning ‘private government’.114 Davidson and Weersink use
the Champagne fairs to specify the conditions necessary for markets to function in
developing economies without adequate state enforcement.115 Swedberg places this
portrayal of private courts at the centre of his view of medieval merchant law as
‘laying the legal foundations for modern capitalism’.116 Richman agues that private
judges at the Champagne fairs show how ‘coordination among a merchant community
can support multilateral exchange without relying on state-sponsored courts’.117 The
central role played by the Champagne fairs in social scientists’ understanding of
contract enforcement in modern economies makes it important to be sure that it is
accurate.
The argument advanced by Milgrom, North and Weingast depends crucially on the
absence of public contract enforcement. If the Champagne fairs had possessed public
authorities capable of penalizing defaulting merchants, then to deter opportunism
merchants would not have needed to incur the costs of imposing collective boycotts or
113 Milgrom / North / Weingast (1990), 2 (quotation), 10, 20, and passim.
114 Dixit (2004), 12-13, 47-8, 98-9.
115 Davidson and Weersink (1998), 565-6.
116 Swedberg (2003), 12-13.
117 Richman (2004), 2334-5 with n. 15.
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