DRI Working Paper No. 88
By Carrie B. Kerekes and Claudia R. Williamson
It is commonplace to assume that legal institutions must be established and enforced by government. The general consensus, even among defenders of free markets, is that some minimal government need exist to provide law. However, between 930 and 1262 the Icelandic Commonwealth (or Free State) functioned in the absence of a coercive state, relying instead on market mechanisms and private institutions. An elaborate legal system developed that guided social interaction and coordinated conflict resolution, without a central government. This article utilizes Hayek’s theory of competition as a discovery process to examine the general social structure and private legal institutions within Medieval Iceland. The goal is to provide an economic theoretical lens to more adequately explain the particular private legal institutions that enabled Iceland to function successfully without a central government for over 300 years.