Socio-economic institutions and transaction costs: merchant guilds and rural trade in eighteenth-century Lower Silesia

There is a lively ongoing debate, led by Stephen Epstein and Sheilagh Ogilvie, about the economic effects of institutions (particularly guilds) on the pre-industrial economies. The focus of the controversy is an article published by Ogilvie in which she points out that there is a new trend, as Epstein puts it, a modern consensus, aimed at the rehabilitation of guilds. Based on her study of the Wrttemberg worsted industry and supplemented with a variety of examples from all over Europe, she develops a theoretical framework outlining the reasons for the economic inefficiency of the guilds. She challenges the view that guilds had a tangible effect on market failures with regard to (1) product quality, (2) innovation and (3) training. She also examines (4) the link between guilds and social capital. This article suggests that the first two issues are the most relevant for an analysis of the economic effects of the activities of the Silesian merchant guilds on regional growth in the eighteenth century. The focal point of this argument is the difference between craft guilds and merchant guilds and thus refers back to the earliest studies by Ogilvie on corporative institutions. © 2009 European Historical Economics Society.