Should-Read: Prateek Raj: How merchant guilds became obsolete

Should-Read: Prateek Raj: How merchant guilds became obsolete: “For much of human history, markets were embedded in relationships…. Merchant guilds… associations of wholesale traders were networked, and were considered reliable…

rich conduits of information, settings for repeated exchange, and avenues for collective action…. In the medieval era there were no formal institutions like courts and police, and the methods of gaining information about new opportunities were limited. In such a setting, trade in impersonal settings beyond networks was risky and networked trade therefore dominated, especially trade based on relationships…. What explains the emergence of impersonal markets in northwestern Europe?… Why did the decline of merchant guilds occur only in the northwestern region? Why did the decline occur only in the 16th century, and not before? Why did other parts of Europe not benefit from the same benefits that were transforming northwestern Europe?…

City level data on the 50 largest European cities during the 14th, 15th and 16th centuries and codified the nature of the 16th century economic institutions…. Merchant guilds declined only in those cities that: were at the Atlantic coast (and hence benefiting from a commercial revolution), and had high levels of printing in the fifteenth century…. Region 1 (northwestern Europe) is close to Mainz and the Atlantic ports, and so it was at the heart of the commercial and communication revolutions. Region 1 contained all the cities with emerging impersonal markets. Region 2 (northern Italy) is close to Mainz and the sea. In Region 2, elites in the cities undergoing reform also reformed to ensure that impersonal markets did not develop. Region 3 (the rest of Europe) contained relationship-based cities…. Hamburg is an example of an entrepôt in which guilds declined…. Hamburg stopped giving privileges to merchant guilds and started to attract foreigners in the 16th century…. Network-based institutions like guilds were dominant historically in a world without formal and impartial legal institutions, and regions needed both trade and information shocks to break their persistent dominance.


January 6, 2018


Brad DeLong
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