Debates about arbitration often assume that it is or can be a purely private way to resolve disputes. This paper challenges that assumption by offering a new account of how and why truly extralegal commercial arbitration declined during the eighteenth century. It argues that the rise of the modern credit economy altered the possibilities of private ordering. Until the middle of the eighteenth century, merchants could generally resolve their disputes without courts or lawyers. But that changed as new forms of lending arose, credit transactions became more impersonal, and disputes became more focused on short-term victory than long-term relationships. As a result, merchants sought more formal ways to settle their differences, and even ‘private’ arbitration came to depend on state law. The law’s heightened importance, in turn, enhanced the state’s control over merchants. This historical account has two implications for our understanding of arbitration today. First, it suggests that a great deal of contemporary private ordering necessarily exists at the sufferance of the state. Second, it casts doubt on recent attempts to distinguish ‘private’ arbitration from ‘public’ litigation by questioning whether commercial arbitration in a modern economy can be truly private.
Burset, Christian R, The Rise of Modern Commercial Arbitration and the Limits of Private Ordering (July 27, 2017).