How did the West succeed in generating sustained economic progress? Historians and social scientists have offered various hypotheses, and so far no single explanation has gained general acceptance. Nevertheless, certain elements of an answer have received wide agreement. The growing individualism of Western culture, rooted in Christian doctrine, seems to have contributed significantly.2 In addition, the political fragmentation of the European peoples in the high Middle Ages and the early modern period — a political pluralism with hundreds of separate jurisdictions — fostered the institutional and technological experimentation by which entrepreneurs could discover how to make labor and capital more productive.
"As history confirms, private-property rights require constant defense, lest the precondition of all economic progress be undermined and destroyed."
In the extreme, the merchants established political independence in city states where they could exercise complete control over the legal institutions that undergirded their economic activities. "The fact that European civilization has passed through a city-state phase is," according to Sir John Hicks, "the principal key to the divergence between the history of Europe and the history of Asia."3 In the latter medieval era, Venice, Genoa, Pisa, and Florence led the way. Later, Bruges, Antwerp, Amsterdam, and London took the lead. A town's own militia stood ready to defend it against threats to its politico-economic autonomy.
To facilitate their business, the merchants developed their own legal system. Intended to provide quick, cheap, and fair resolution of commercial disputes, this lex mercatoria established institutions and precedents that have survived to the present, and it now finds expression in a vast system of alternative (nonstate) dispute resolution in arbitration proceedings.4 In some countries, the merchants and manufacturers ultimately used their political influence to embed their customary legal institutions in state-enforced law. Because of Europe's political fragmentation, governments that made life too difficult for the traders tended to lose merchants and their business — and hence a tax base — to competing jurisdictions, and the prospect of such losses motivated rulers to curb their predation and to allow businessmen room to maneuver.5
Read about the Rise of the West.