'Whatever Is, Is Right'?, Economic Institutions in Pre-Industrial Europe (Tawney Lecture 2006)

Institutions – the structures of rules and norms governing economic transactions – are widely assigned a central role in economic development. Yet economic history is still dominated by the belief that institutions arise and survive because they are economically efficient. This paper shows that alternative explanations of institutions – particularly those incorporating distributional effects – are consistent with economic theory and supported by empirical findings. Distributional conflicts provide a better explanation than efficiency for the core economic institutions of pre-industrial Europe – serfdom, the community, the craft guild, and the merchant guild. The paper concludes by proposing four desiderata for any future economic theory of institutions.

Guilds, Efficiency, and Social Capital: Evidence from German Proto-Industry

This paper analyzes an early modern German economy to test alternative theories about guilds. It finds little evidence to support recent hypotheses arguing that guilds corrected market failures relating to product quality, training, and innovation. But it finds that guilds were social networks that generated a social capital of shared norms, common information, mutual sanctions, and collective political action. Guilds’ social capital affected rival producers, suppliers, employees, consumers, the government, and the wider economy. Economic analyses of collective action, it is argued, can explain why guilds were so widespread while not necessarily being efficient.guilds, social capital, social networks

The Use and Abuse of Trust: Social Capital and its Deployment by Early Modern Guilds

Guilds are social scientists’ favoured historical example of institutions generating a ‘social capital’ of trust that benefited entire economies. This article considers this view in the light of empirical findings for early modern Europe. It draws the distinction between a ‘particularized’ trust in persons of known attributes and a ‘generalized’ trust that applies even to strangers. This is paralleled by the distinction between a ‘differential’ trust in institutions that enforce the rights of certain groups and a ‘uniform’ trust in impartial institutions that enforce the rights of all. Guilds had the potential to generate the particularized and differential trust to solve market failures relating to product quality, training, and innovation, although the empirical findings suggest that they often failed to fulfil this potential. Guilds also had the potential to abuse their trust, and the empirical findings show that they indeed manipulated their social capital of shared norms, common information, mutual sanctions, and collective political action to benefit their members at others’ expense, blocking the spread of generalized and uniform trust. Counter to the assumptions of social capital theory, the example of pre-industrial guilds suggests that the particularized and differential trust fostered by associative institutions do not favour but hinder the generalized and uniform trust fostered by impartial institutions.

What Lessons for Economic Development Can We Draw from the Champagne Fairs?

The medieval Champagne fairs are widely used to draw lessons about the institutional basis for long-distance impersonal exchange. This paper re-examines the causes of the outstanding success of the Champagne fairs in mediating international trade, the timing and causes of the fairs’ decline, and the institutions for securing property rights and enforcing contracts at the fairs. It finds that contract enforcement at the fairs did not take the form of private-order or corporative mechanisms, but was provided by public institutions. More generally, the success and decline of the Champagne fairs depended crucially on the policies adopted by the public authorities.legal system, medieval Europe, trade, private-order institutions, community responsibility system

Contract Enforcement, Institutions and Social Capital: the Maghribi Traders Reappraised

Economists draw important lessons for modern development from the medieval Maghribi traders who, according to Greif, enforced contracts multilaterally through a closed, private-order ‘coalition’. We show that this view is untenable. The Maghribis used formal legal mechanisms and entered business associations with non-Maghribis. Not a single empirical example adduced by Greif shows that any ‘coalition’ actually existed. The Maghribis cannot be used to argue that the social capital of exclusive networks will facilitate exchange in developing economies. Nor do they provide any support for the cultural theories of economic development and institutional change for which they have been mobilised.contract enforcement, reputation, legal system, social network

Occupational structure in the Czech lands under the second serfdom

A shift in occupational structure towards non-agricultural activities is widely viewed as a key component of European economic growth during the early modern ‘Little Divergence’. Yet little is known about this process in those parts of eastern-central Europe that experienced the early modern ‘second serfdom’, the massive increase in the institutional powers of landlords over the rural population. We analyze non-agricultural occupations under the second serfdom using data on 6,983 Bohemian villages in 1654. Bohemia resembled other eastern-central, nordic and southern European economies in having a lower percentage of non-agricultural activities than western Europe. But Bohemian serfs engaged in a wide array of industrial and commercial activities whose intensity varied significantly with village characteristics. Nonagricultural activity showed a significant positive relationship with village size, pastoral agriculture, sub-peasant social strata, Jews, freemen, female household heads, and village mills, and a significant negative relationship with arable agriculture and urban agglomerations. Non-agricultural activity was also positively associated with landlord presence in the village, although the relationship turned negative at higher values and landlord presence reversed the positive effects of female headship and mills. Under the second serfdom, landlords encouraged serf activities from which they could extort rents, while stifling others which threatened their interests