A Public Choice Approach to Private Ordering: Rent-Seeking at the World’s First Futures Exchange: Comments on Mark West’s ‘Private Ordering at the World’s First Futures Exchange’
The literature on private ordering systems has expanded exponentially over the last decade. Yet, very few scholars have actually attempted to define the term “private ordering” – a failure that sometimes leads to confusion. Some scholars identify private ordering with non-state ordering. According to this view, the private legal systems Robert Ellickson, Lisa Bernstein, McMillan & Woodruff, Mark West, and others have investigated are “private” simply because their norms are not manufactured or enforced by the state. The alternative view emphasizes the decentralized feature of private ordering systems. Robert Ellickson, for example, studied “how people manage to interact to mutual advantage without the help of a state or other hierarchical coordinator,” implying that any form of centralized coordination, even. if not controlled by the state, renders the system less private. Similarly, Bob Cooter has attributed the superiority of private ordering to its decentralized structure and the fact that its lawmaking processes are subject to competition. The second approach would treat a nonstate legal system like that of the National Grain and Feed Association (NGFA) as “private” only if (a) it competes with other associations, or (b) its substantive law gives priority to the law that merchants write in their contracts. The mere fact that the organization is a nonstate entity is not a sufficient condition for it to be “private.” The opposite may also hold – a piece of legislation produced by the state may give rise to private ordering. The Clean Air Act, for example, is certainly the product of a centralized lawmaking process, but it generates a private ordering system: instead of dictating pollution standards, it assigns property rights, thereby allowing the market to dictate standards. Similarly, United States corporate law is produced and enforced by states, but it may still be considered “private ordering” because (a) states compete, and (b) states largely give priority to corporate bylaws. Mark West’s fascinating article provides an interesting case study for demonstrating the tension between these two approaches. In Private Ordering at the World’s First Futures Exchange, West tells a remarkable story about the Dojima Rice Futures Exchange. The governance rules of this futures market, which began its operation in the late seventeenth century and survived until World War II, resemble those of any modem futures exchange, including clearing houses, brokers, margin accounts, and trading rules designed to contend with manipulative practices.