The second phase in the development of the law merchant is characterized by the juridification of international commercial relations as productive and exchange relations were subject to increasing legal discipline. More international commercial activities came to be regulated through law, while legal disciplines were juridified through the creation of national and territorial-based state power, and its association with establishing control over foreign commercial relations through legislative and judicial means. Juridified commercial relations are characterized by rationalized, systematic, and positivist legal regulation and discipline, exhibiting consciousness in planning or design and formalism in operation. Ultimately, juridified commercial relations established the disciplinary link and “natural” affinity between law and capitalism noted, as discussed below, by Max Weber, Karl Polanyi, and others.

With the development of a system of territorial-based sovereign states, and with the movement from feudalism to capitalism, the public/private distinction came to be firmly established. State-building projects involved the nationalization and control of foreign commercial activities, which were increasing in volume. The consolidation of states signaled a change in both the ability and the willingness of political authorities to regulate international commercial transactions. This is evident in the priority given to positive law as the most appropriate mechanism for regulating international commerce and the displacement of custom as a primary source of law. The result was increasing formalism as regards the sources and subjects of law and the development of a tension between the localizing tendencies of national regulation through positive state-based law and the delocalizing and denationalizing tendencies of private, customary regulation.