Institutions and European Trade: Merchant Guilds, 1000-1800

500 Pages·2011·3.449 MB·English

by  Sheilagh Ogilvie

Institutions and European Trade
Whatwastheroleofmerchantguildsinthemedievalandearlymodern
economy?Doestheirwideprevalenceandlongsurvivalmeantheywere
efficient institutions that benefited the whole economy? Or did mer-
chantguildssimplyofferaneffectivewayfortherichandpowerfulto
increasetheirwealth,attheexpenseofoutsiders,customersandsoci-
etyasawhole?Theseprivilegedassociationsofbusinessmenwerekey
institutions in the European economy from 1000 to 1800. Historians
debatemerchantguilds’roleintheCommercialRevolution,economists
usethemtosupporttheoriesaboutinstitutionsanddevelopment,and
policymakers view them as prime examples of social capital, with
important lessons for modern economies. Sheilagh Ogilvie’s magiste-
rialnewhistoryofcommercialinstitutionsshowshowscrutinizingmer-
chant guilds can help us understand which types of institution made
trade grow, why institutions exist and how corporate privileges affect
economicefficiencyandhumanwell-being.
sheilagh ogilvie isProfessorofEconomicHistoryattheUniver-
sityofCambridge,andaFellowoftheBritishAcademy.Herprizewin-
ning publications include State Corporatism and Proto-Industry: The
Wu¨rttemberg Black Forest 1590–1797 (Cambridge, 1997, winner of the
Gyorgy Ranki Prize 1999), and A Bitter Living: Women, Markets, and
Social Capital in Early Modern Germany (2003, winner of the Rene´
KuczynskiPrize2004).
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pauljohnson LaTrobeUniversity
sheilaghogilvie UniversityofCambridge
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Institutions and
European Trade
Merchant Guilds, 1000–1800
Sheilagh Ogilvie
UniversityofCambridge
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InstitutionsandEuropeanTrade:MerchantGuilds,1000–1800/
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p. cm.–(CambridgeStudiesinEconomicHistory.SecondSeries)
Includesbibliographicalreferencesandindex.
ISBN978-0-521-76417-9(hardback)–ISBN978-0-521-74792-9(paperback)
1.Europe–Commerce–History. 2.Merchants–Europe–History. I.Title.
HF3495.O45 2011
382.094–dc22 2010052617
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Contents
Acknowledgements pagevi
1 Merchantguilds,efficiencyandsocialcapital 1
2 Whatwasamerchantguild? 19
3 Localmerchantguilds 41
4 Alienmerchantguildsandcompanies 94
5 Merchantguildsandrulers 160
6 Commercialsecurity 192
7 Contractenforcement 250
8 Principal-agentproblems 315
9 Information 344
10 Pricevolatility 391
11 Institutions,socialcapitalandeconomic
development 414
Bibliography 435
Index 476
v
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Acknowledgements
I have been exceptionally fortunate to have so many colleagues and
friendswhogavetheirenergy,ideasandtimetohelpimprovethisbook.
Jeremy Edwards read several very different drafts, provided detailed
comments, and encouraged me to say when I thought an emperor
had no clothes. Andre´ Carus, Tracy Dennison, Erik Lindberg, Tom
Scott, Danielle van den Heuvel, and several anonymous readers all
made extremely helpful comments on the whole manuscript. In addi-
tion, the following provided stimulating advice on particular aspects of
the book and reactions to some of its arguments: David Abulafia, Jo¨rg
Baten, Marco Belfanti, Ian Blanchard, Chris Briggs, Montse Cachero,
D’MarisCoffman,ParthaDasgupta,KentDeng,RobertaDess`ı,Steven
Durlauf, Ann Fender, Oscar Gelderblom, Jessica Goldberg, Regina
Grafe,OliverGrant,TimGuinnane,DonaldHarreld,JohnHenderson,
AjitKarnik,TimurKuran,PaolaLanaro,JoeManning,ChrisMeissner,
LeosMu¨ller,KlasNyberg,GeoffreyParker,MaartenPrak,TomSafley,
Paul Seabright, Joel Sobel, Mark Spo¨rer, Peter Spufford, Peter Stabel,
James Thomson, Michael Toch, Francesca Trivellato, Allan Tulchin,
Klaus Weber, Ralph Woodward and Hillay Zmora. I would also like
to thank participants in the lively and well-attended session on ‘The
Costs and Benefits of Merchant Guilds, 1300–1800’ at the Fifth Euro-
pean Social Science History Conference in Berlin in March 2004, for
eloquently demonstrating that economic history can arouse inspiration
andpassion.
vi
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1 Merchant guilds, efficiency and social capital
Merchant guilds – privileged, corporate associations of wholesale
traders–wereimportantinstitutionsintheEuropeaneconomyfromthe
eleventh to the nineteenth century, and scholars are still arguing about
them now. Historians debate their economic, social and political roles.
Economistsdrawlessonsfrommerchantguildstosupporttheirtheories
abouttheinstitutionsthatsupporteconomicdevelopment.Socialscien-
tistsviewmerchantguildsasprimehistoricalexamplesof‘socialcapital’,
withimportantlessonsforthepresentday.
But why did merchant guilds exist? Does their wide prevalence and
long survival mean they were efficient institutions that benefited the
entire economy? Or did they simply offer an effective way for rich and
powerfulmentogrababiggersliceofthepie,attheexpenseofoutsiders,
customers and society as a whole? These questions are controversial.
This book shows that the answers to them can help us understand how
economies grow, why institutions exist and what are the real effects of
socialcapital.
Privileged associations of merchants have been widespread since
ancienttimes.TheyexistednotjustinEuropebutalsoinNorthAfrica,
theNearEast,CentralandSouthAmerica,IndiaandChina.Merchant
associations were active in Egyptian, Greek and Roman antiquity, and
survivedinEuropeanandMediterraneantradingcentresduringthefive
centuries after the fall of Rome. They became a salient institution in
much of Europe during the medieval Commercial Revolution, between
c. 1000 and c. 1500. Although merchant guilds declined in some
societies – particularly the Low Countries and England – from the
sixteenth century on, they survived in many parts of southern, central,
Nordic and eastern Europe into the eighteenth or early nineteenth
centuries. New merchant guilds (and privileged merchant ‘companies’
that often resembled guilds) formed in emerging sectors such as proto-
industrial exporting and the intercontinental trade until around 1800.
MerchantguildsalsospreadtoEuropeancolonies,especiallytoSpanish
1
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2 Merchantguilds,efficiencyandsocialcapital
America,wheretypicallytheywereonlyabolishedwithindependencein
theearlynineteenthcentury.
1.1 Merchantguildsandtheoriesofinstitutions
Anyinstitutionthatexistssowidelyoversuchlongperiodsraisesfunda-
mentalquestions.Whydidthisinstitutionarise?Whydiditsurvive?Why
did it ultimately decline? And what was its long-term impact? In recent
decades many scholars have been attracted by the idea that institutions
ariseandsurvivebecausetheyare‘efficient’.Aninstitutionisefficientif
itsolveseconomicproblemsbetterthananyother–ifthereisnofeasible
alternativeinstitutionsuchthatthegainsofthosewhowouldbenefitfrom
thealternativeexceedthelossesofthosewhowouldbeharmedbyit.1So
anefficiencyviewwouldarguethatmerchantguildsexistedsowidelyand
survivedforsolongbecausetheymadethewholepre-industrialeconomy
workbetter–theiraggregateeconomicbenefitsoutweighedtheircosts.2
Efficiency views of historical institutions have become very popular
in the last few decades. This started with North and Thomas’s the-
ory of European serfdom, and soon spread to peasant communes, craft
guilds and a colourful array of other pre-modern social arrangements
including feuds and vigilantism.3 The merchant guild alone has been
portrayedasasociallybeneficialsolutiontoatleastsixseriouseconomic
problems:stateextortion,commercialinsecurity,contractenforcement,
principal-agent relationships, imperfect information and economic
1 A set of economic arrangements is Pareto-efficient if there is no feasible alternative set
ofarrangementsthatcanmakesomeindividualbetteroffwithoutanotherbeingmade
worseoff.APareto-improvementinvolvesachangethatbenefitsatleastoneindividual
without harming any others. Since this concept of efficiency relates only to changes
in which there are no losers, it is silent about distributional trade-offs. In practice,
it is difficult to make changes in economic arrangements that do not involve both
gainersandlosers,sotheconceptofefficiencyisofteninterpretedintermsofthegainers
beingableinprincipletocompensatethelosersandstillbebetteroffafterthechange.In
thisinterpretation,aninstitutionisefficientifthereisnofeasiblealternativeinstitution
such that the gains of those who would benefit from the alternative exceed the losses
ofthosewhowouldbeharmedbyit.Itisimportanttonotethatminimizingthecosts
of economic activity (of producing and transacting) is a necessary, but not sufficient,
conditionforeconomicefficiency.Forexample,amonopolymayproduceitsoutputat
minimumcost,buttheoutcomeisnotefficientbecausethepricechargedtoconsumers
exceedsthemarginalcostofproduction.Endingthemonopolywouldincreaseefficiency
becausethegainstoconsumerswouldexceedthelossesofthemonopolist,andthusin
principletheconsumerscouldcompensatethemonopolistforthelostmonopolyprofits
andstillbebetteroff.Ontheconceptofefficiencyasappliedtopre-industrialeconomic
institutions,seeOgilvie(2007b),651–8;Ogilvie(2007a),4–5.
2 ThisisthesimplifieddefinitionofefficiencysuggestedbyAcemoglu(2006),516.
3 Forasurvey,seeOgilvie(2007b),652–5.
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Merchantguildsandtheoriesofinstitutions 3
volatility.4 By solving these problems, merchant guilds are supposed
to have fuelled the medieval Commercial Revolution – the substantial
and sustained quickening of exchange from the eleventh century on,
first in the Italian maritime cities, later in other coastal areas (Flan-
ders and the German Hanseatic towns), reaching most of Europe by
thefifteenthcentury.Regulatedorcharteredmerchantcompanieswhich
closely resembled guilds are held to have solved a resurgence of these
problemsduringasecond,‘earlymodern’CommercialRevolutionwhen
Europe began trading extensively with other continents in the sixteenth
century. Merchant guilds facilitated these two great bursts of long-
distancetrade,theargumentgoes,therebypoweringthelong-termdevel-
opment of the European economy between the Dark Ages and factory
industrialization.
But this is not the only way to look at merchant guilds. Merchant
guildssecuredlegalprivilegeswhichgavetheirmembersthesolerightto
trade in particular sectors. Merchant guilds excluded most people from
membership: they barred trade by women, Jews, immigrants, peasants,
the poor, particular ethnic groups, different religions and people their
members simply didn’t like. Merchant guilds regulated how their own
members could do business, limiting competition, so customers had to
payhigherprices.Guildsbribedandlobbiedofficialsandrulerstoenforce
theirprivilegedposition.Theyengagedinbitterconflict–evenviolence–
againstindividualsandotherguildswhotriedtoinfringeontheirtrading
privileges. Merchant guilds thushadadark side–theyusedtheirsocial
capital to seek ‘rents’ (monopoly profits) and distort markets in favour
of their members. Monopolies, market distortions and rent-seeking are
not efficient: they reduce aggregate well-being and economic growth.
Nor are they socially just: they redistribute resources from outsiders to
insiders.
Thismeanswehavetolookateverythingmerchantguildsdid–thedark
side as well as the bright side – before we conclude that they favoured
economicdevelopment.Italsomeanswehavetothinkdifferentlyabout
institutions in general. In particular, we have to question the idea that
institutionsexistandsurvivebecausetheyareefficient.Afterall,institu-
tions affect not just efficiency – the aggregate size of the economic pie –
butdistribution–howthispieissharedout.Soaninstitutioncanemerge
andsurvivenotbecauseitservestheinterestsofthewholeeconomy,but
because it benefits powerful interest-groups, who use the benefits that
4 Some but not all of these efficiency theories of merchant guilds are referred to in
Gelderblom and Grafe (2004), 1–2. Each of these theories is explored in detail in a
separatechapterofthepresentbook.
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