CHAPTER 10

Conclusion

What can we conclude about guilds? Tens of thousands of them set the institutional rules for industries and services in medieval and early modern Europe. Europe is where sustained economic growth first arose, so understanding its economic institutions is important. Questions about guilds are not historical quibbles, but issues of topical importance. What do guilds tell us about the kind of institution that makes an economy work well?

The guild was a Janus-faced institution. It was an association formed by people with shared characteristics and shared purposes. But it also enjoyed public recognition, securing privileges from governments that entitled it to limit entry and manipulate markets. The guild was thus neither a private- nor a public-order institution, but a corporate group pursuing its members’ interests, partly by deploying external enforcement secured from governments. In the typology discussed in Chapter 1, a guild was a “particularized” institution whose rules favoured its own members. But it was also closely interwoven with the “generalized” institutions of the state and the market, whose rules in principle applied to all economic agents impartially—though not, as we have seen, when they were refracted by the particularized privileges of guilds.

Guilds’ multi-faceted character meant they interacted with the economy in multiple ways. Assessing their overall impact requires answers to four questions:

First, did guilds use the trust and social capital they generated as closely knit networks to behave extractively, redistributing resources to their own members at others’ expense and inflicting deadweight costs on the economy?

Second, did guilds use that same trust and social capital to correct market failures, generating countervailing economic benefits?

Third, did guilds engage in activities that had unintended spillover effects, indirectly shaping the distribution of resources and the performance of the economy?

Fourth, why did guilds exist as widely as they did, survive for as long as they did, and disappear as late as they did?

The first question amounts to asking whether this particularized institution was able to operate without harming outsiders to the group. The second amounts to asking whether it was able to organize collective action that enhanced economic performance. The third question amounts to asking whether it was able to generate particularized benefits for its own members without inflicting unintended costs on society as a whole. The final question amounts to asking what we can learn from this long-lived institution about why economic institutions exist at all.

DID GUILDS INFLICT ECONOMIC HARM?

A guild was an association, which meant it could determine who was a member and who was not. A guild also had the right to regulate its craft or trade, setting rules that applied internally to its own members and externally to non-members whose activities impinged on that occupation. In principle, therefore, a guild was entitled to limit entry and manipulate markets in a particular occupation, giving it the capacity to operate as a cartel of producers. Cartels, by limiting competition, secure artificially high profits for their members, extracting resources from other groups in society and imposing deadweight losses on the whole economy.

Some scholars argue that guilds did not act like this. They propose a range of interpretations according to which guild behaviour was harmless or even beneficial. Guilds might have been more interested in piety, sociability, or solidarity than in economic aims. They might have been voluntary organizations that did not claim sole rights for their members to produce certain things, limit entry to that occupation, or regulate how it was carried out. They might have refrained from exercising their formal rights to limit entry and manipulate markets. They might have tried to limit entry and manipulate markets but failed because the public authorities stopped them or individuals easily evaded them. Guilds might have ended up limiting entry or manipulating markets in a period of degeneracy after c. 1500, but in their medieval origins operated as open and market-oriented institutions with no aspirations to act as cartels. Guilds might have been irrelevant institutional superstructures of underlying cultural values, such as anti-Semitism, misogyny, xenophobia, or anti-market sentiment, which might have had identical economic effects with or without guilds.

This book finds no support for these conjectures. The analysis in Chapter 3 of over 4,900 observations of entry barriers shows guilds keeping out people who would have otherwise practised an occupation. The analysis in Chapter 4 of over 2,500 observations of market manipulation shows guilds comprehensively intervening in markets to benefit their members. The analysis in Chapter 5 of over 3,400 observations relating to guilds’ treatment of women shows guilds excluding, exploiting, and oppressing people because of their gender.

Guilds’ behaviour with regard to entry barriers makes it clear that guilds pursued economic aims, claimed exclusive rights for their members to practise an occupation, restricted entry, enforced their admission rules, enjoyed government support, repressed evasion successfully, restricted entry as intensely before 1500 as after, and enforced discriminatory cultural values such as anti-Semitism, misogyny, and xenophobia from which people deviated wherever guild regulation was absent.

Guilds’ behaviour in markets shows that they were able and willing to manipulate transactions to benefit guild members. In output markets, many guilds limited price competition, output, sales, workshops, equipment, raw materials, and employee numbers. In input markets, many guilds capped workers’ wages and raw material prices; limited competition for employees, raw materials, and selling space; and penalized recalcitrant workers. These market rules were seldom easy to evade. Guilds enforced them internally using formal and informal sanctions, and secured external enforcement from the authorities. Contrary to the notion that they were market-oriented before 1500, guilds manipulated markets in the medieval and early modern periods alike. Nor can market manipulation be regarded as a reflection of anti-market cultural values, since economic agents both inside and outside guilds competed vigorously in markets when guild rules were weakened or removed.

Women were particular targets. Guilds let females engage in the pious, sociable, and charitable aspects of guild life, but as a rule denied them mastership, refused them training, restricted their work as family members, and capped their pay as casual workers. Guild rules restricting women were not easily evaded, as shown by the conflict, costs, and hardship they evoked. Governments did not prevent guilds from oppressing women but commonly legitimized and enforced their regulations. Guild restrictions on females can be observed throughout the existence of guilds in Europe, demonstrating that the medieval period was no golden age for liberal guilds or liberated women. Nor can guilds be regarded as merely reflecting universal cultural norms, since ordinary people transacted with female producers, trainees, and workers wherever guilds failed to prevent them.

Although not all guilds have been investigated in detail, where documents survive they show that people allocated substantial resources to obtain, defend, attack, circumvent, or sub-contract into guild regulations relating to entry barriers, market manipulation, and gender discrimination. Applicants paid high fees to get into guilds. Outsiders spent large sums circumventing guild privileges. Guilds themselves engaged in costly political and legal conflicts to obtain, defend, and extend their privileges. The willingness of so many contemporaries to spend resources obtaining, attacking, defending, and circumventing them suggests that guild privileges were enforced sufficiently to have a real economic impact.

What was this impact? Guilds’ entry barriers enabled guild members to engage in tacit market collusion. Guilds’ rights to manipulate markets enabled them to go much further, organizing active collusion. These multifarious forms of market collusion, as we saw in Chapters 3 and 4, secured artificially high profits for guild members, caused harm to outsiders, and inflicted deadweight costs on the whole economy. Guild discrimination against women, as we saw in Chapter 5, reduced human capital investment, labour force participation, and entrepreneurship by females, with inevitable knock-on damage to the wider economy.

The documentary record provides only occasional snapshots of the direct, quantitative effect of guilds on markets. But for the times and places where figures survive, they indicate that guild monopolies diminished the welfare of non-guild-members and reduced the overall size of the economy. When guild barriers were tightened, entry declined and rejected applicants had to find worse-paid jobs or beg for charity. When guild barriers were relaxed, new businesses and workers started operating productively. In places where guild entry barriers were abolished, growth in the industrial sector accelerated. Guilds charged substantially higher prices than non-guilded producers, and guild output restrictions substantially reduced supplies over what was economically and technically feasible. Little wonder, therefore, that guild entry barriers and market manipulation motivated investments by outsiders in attacking them and investments by guilds in defending them.

Guilds could seldom defend their privileges perfectly. They were sometimes breached by free-riding insiders or cartel-breaking outsiders. But this did not mean that guild regulations had no economic effects. Instead, the effects of guilds consisted partly of preventing prohibited forms of work altogether and partly of pushing them into the black market. So even imperfect enforcement caused economic harm by pushing work into the informal sector where growth was stifled by insecure property rights, poor contract enforcement, high risks, short time horizons, information scarcity, consumer fraud, and labor exploitation.

DID GUILDS CREATE COUNTERVAILING BENEFITS?

Guilds might still have encouraged economic growth on balance if they created countervailing benefits. Medieval and early modern Europe lacked the impartial states and well-functioning markets—the generalized institutions—required to make an economy work well.²¹¹ Market failures were widespread and governments were corrupt and ineffectual. Guilds might have used their social capital to solve market and state failures. Such benefits might have more than compensated for the costs imposed by their entry barriers, market manipulation, and gender discrimination.

Some literature has proposed that guilds actually did solve three market failures, those relating to product quality, skilled training, and technological innovation. Some go so far as to argue that guilds’ ability to solve these market failures was facilitated by their entry barriers, market manipulations, and restrictions on women. These apparently malignant forms of guild rent-seeking, it is argued, generated artificially high profits, motivating guild members to commit themselves to forms of collective action that benefited the economy at large.

These conjectures are theoretically possible but, as this book has shown, the empirical findings do not support them. Pre-modern European economies certainly suffered from market failures relating to product quality. But the analysis in Chapter 6 of over 470 observations of quality regulation showed that guilds seldom solved such problems. Guilds proved spectacularly ineffective at certifying the quality of producers or products. Not all guilds even had quality-certification mechanisms, but those that did worked poorly. Guild certification of producers and products was largely based on a pass-fail system that excluded many low quality-price combinations that consumers wanted. Even for certifying high quality-price combinations, guild inspectors lacked the incentive to develop the skills and deploy the effort necessary to detect low-quality work beyond noting superficial features (such as size) that were readily apparent to merchants and consumers anyway. Guilds typically penalized their members’ quality violations too mildly to deter them. Customers, merchants, towns, and governments commonly described guild quality controls as inadequate. Guild quality-certification schemes were ineffectual because guilds existed not primarily to penalize their members, but rather to defend those members’ profits.

Pre-modern economies also certainly suffered from market failures surrounding human capital investment. But the analysis in Chapter 7 of over 2,600 observations of training regulation found little evidence that guilds solve these problems. A surprisingly high proportion of guilds did not even require apprenticeship. Those guilds that did impose training requirements shed bleak light on the incentives of monopolistic professional associations with regard to human capital investment. Guilds commonly refrained from penalizing neglectful trainers and guild apprentices had very high drop-out rates, both because guilds mandated excessively lengthy training and because they failed to address opportunism between trainers and trainees. Guilds often issued certificates to apprentices without examination and granted mastership without training to favoured applicants. Such problems were widespread because guilds, as associations of masters, had incentives to certify the relatives of members regardless of skill, reap rents by selling admission to untrained entrants who could afford to pay for privileges, and avoid irritating their own members by penalizing neglectful or abusive masters.

All economies suffer from the problem that knowledge is a public good, with the result that markets may fail to provide good incentives for its invention or diffusion. But the analysis in Chapter 8 of over 700 observations of guild behaviour with regard to innovation casts a sobering light on the notion that guilds solved this problem. Some theoretical models suggest monopoly rents encourage innovation, but these require there to be no barriers to entry, a condition violated by guilds. Guilds certainly generated monopoly rents for their members, but there is little evidence that such rents encouraged innovation. Guilds certainly limited price competition, too, but there is no evidence that this diverted guild members’ efforts towards innovation rather than the “quiet life” postulated by John Hicks. Diffusing innovations across generations did not require guild apprenticeship: outsiders who were denied guild training managed to acquire technical knowledge without it, masters’ widows who never had guild training practised the techniques well, and many successful industries transmitted technical knowledge across generations without guilds. Diffusing innovations geographically did not require guild journeymanship: in fact, the most innovative European economies did not require journeymen to travel (or even to exist), and pre-modern workers migrated readily in non-guilded occupations. Diffusing innovations among masters may have been encouraged by spatial clustering, but industrial agglomeration existed widely without guilds because of its recognized economic advantages. No concrete empirical findings show guilds encouraging innovation—and many show them obstructing it.

The idea that guilds were efficient institutions for solving market failures relating to product quality, skilled training, or innovations relies on the notion that no other institutional solutions existed. But the institutional landscape of pre-modern Europe was not so desolate. Product quality was certified by merchant, municipal, and state institutions. These, though imperfect, at least provided customers with information less distorted by producer rent-seeking. Training in many occupations, guilded or non-guilded, was provided through apprenticeships agreed privately between trainers and trainees and enforced like other contracts. Opportunism in training relationships was addressed by monetary bonds, personal guarantorships, contractual forms, notarial systems, municipal offices, and public legal systems. Likewise, pre-modern European societies addressed the public good characteristics of innovations through patent systems, scientific associations, and prizes for inventors. None of these offered a perfect solution to the problem that information is a public good, but all compared favourably to guilds, which not only failed to solve the public good problem, but also—as we saw in Chapter 8—blocked innovations that disrupted their members’ rent-extraction, and manipulated markets in ways that hindered innovation.

Individual behaviour also casts doubt on the idea that guilds were the efficient solution to failures in markets for product quality, skills, or innovation. Consumers and merchants were happy to buy non-guild-certified products from non-guild-certified producers who offered the quality-price combinations they preferred. They eagerly patronised producers who failed to obtain guild training—often, as in the case of women and Jews, because guilds excluded them—but who supplied attractive goods and services. Guild members attacked disruptive innovators precisely because such interlopers enticed customers away from the guild masters’ own technologically hidebound goods and services.

Cross-country comparisons confirm these findings. In many cases, strongly guilded industries produced goods and services whose quality, skill of execution, and innovativeness—measured in terms of what consumers wanted—compared poorly with those of the same industry in places where guilds were weak or absent. Conversely, many industries in which guilds were weak or non-existent successfully addressed domestic and export markets without guild regulation of quality, training, or innovation, supplying not just cheap products but fine wares recognized for their excellence and skilled production. Although guilds sometimes permitted or even pioneered new practices and products, they were neither necessary nor sufficient for innovation. In many cases non-guilded or weakly guilded industries were at the forefront of inventing, adopting, and diffusing new techniques, while industries with strong guilds intensified, rather than correcting, imperfections in markets relating to innovations —not just markets for ideas, but also the factor and product markets necessary for putting new ideas to work in practical business settings.

DID GUILDS HAVE UNINTENDED EFFECTS?

Guilds limited entry and manipulated markets. Their aim was to increase their members’ profits by bolstering revenues and depressing costs. But by doing these things, guilds also exerted unintended but far-reaching effects on the rest of the economy and society.

Exclusive Rights to Practise

Guild privileges stated uncompromisingly that guild members were the only suppliers from whom customers could legally buy. This was necessary to ensure that guilds could generate cartel rents for their members. But it had unintended consequences. For one thing, it reduced guild members’ incentives to maintain product quality, since they did not have to worry about losing customers to competitors if they failed to do so. Even when exclusive rights to practise did not wholly remove incentives to maintain product quality, it reduced attentiveness to customers’ preferences. As we saw in Chapter 6, guild members’ privileged market position as sole suppliers removed their incentive to provide the quality-price combinations consumers actually wanted. This had the unintended consequence of pushing work into the informal sector, where its illicit nature exacerbated information asymmetries about product quality, hampered contract enforcement, and impeded redress when quality problems arose.

Guilds commonly defended their members’ exclusive right to practise by enforcing demarcations between different occupations. But strict occupational demarcations deterred innovation by preventing the productive exchange of ideas between adjacent bodies of knowledge, experimentation with the equipment and raw materials of other specialists, and the invention of products combining inputs and techniques from different branches. Many craft guilds also imposed strict demarcations between manufacturing and wholesaling, excluding merchants from admission to the guild and forbidding their own masters to act like merchants by sub-contracting production. This had the unintended consequence of stifling those many innovations which, as we saw in Chapter 8, combined engineering with marketing expertise.

Guilds often protected their members’ exclusive rights by securing barriers against imports. This indirectly harmed innovation. Many techniques are embodied in products. When these products are imported, they give local producers information needed to reverse-engineer the imported item. By obstructing competitive imports, guilds inadvertently blocked new knowledge and techniques that their members could have learned and from which the economy could have benefited.

Guilds also defended their exclusive privileges by hindering the outward diffusion of technical knowledge, which they typically defined as the “mystery” of their craft or trade. Guilds commonly penalized emigration of guild members in whom “secrets” were embodied and blocked publication of craft “mysteries”. But these proscriptions had the unintended consequence of hindering the diffusion of innovations between separate pools of producers, thus restricting the interchange of technical knowledge between different parts of Europe.

Entry Barriers

Guilds imposed entry barriers, as we saw in Chapters 3 and 5, restricting admission to the guild and thus to the right to practise an occupation. They did this to prevent the number of practitioners from growing, limit supply, keep prices up, and protect their members from competition. But entry barriers had unintended effects.

One serious consequence was a diminution in human capital investment, particularly for the least advantaged members of society. Guilds, to limit the number of licensed practitioners, decided who was allowed to get training, and kept most people out. The conditions they placed on admission to apprenticeship severely disadvantaged those with the lowest pre-existing levels of human capital: females and poor males. Guilds thereby reduced human capital investment in the economy at large by providing training for a privileged few while denying it to the disadvantaged many.

Guild entry barriers also had unintended effects on innovation. As Chapters 3 and 4 showed, guilds limited the number of practitioners, the number of workshops each could run, the amount of equipment each could use, and the number of workers each could employ. These restrictions diminished the quantity of capital available in the industry to invest in innovations. Guilds erected particular barriers against applicants from outside the local community, ethnicity, and religious confession. This harmed innovation, since knowledge about new industrial and commercial practices was often embodied in human beings from backgrounds that differed from those of existing guild members. Another entry barrier imposed by many guilds was to mandate a minimum length of apprenticeship and journeymanship, which obliged applicants to spend many years learning a particular set of techniques. This endowed guild masters with a heavy investment in human capital specific to that technology, giving them incentives to resist innovations that threatened the returns from these long years of investment.

The most serious entry barriers guilds imposed were those that excluded half the population: women. As Chapter 5 showed, hardly any guilds admitted female masters; few allowed female apprentices to learn the trade; almost all restricted the work of masters’ widows, wives, daughters, and other female household members. This limited women’s entrepreneurship, business ownership, human capital investment and labour force participation—all key contributors to economic performance. By discriminating so pervasively against women, guilds unintentionally imposed deadweight costs on the entire economy.

Manipulating Output Markets

Guilds manipulated markets for their members’ output by imposing minimum prices and restricting supplies. Their aim was to keep prices artificially high so guild members would reap extra profits. But price floors and output ceilings had unintended effects on the economy. Minimum prices prevented guild members from producing the low price-quality combinations which poor consumers demanded, in turn affecting the capacity of the industry to address mass markets or to foster a “consumer revolution”. Price floors and output ceilings also deterred innovators inside the guild who, if they invented a new process or product, could only reduce their costs but not expand their market share by cutting prices. To limit output and restrict price competition, many guild ordinances specified production processes in detail. But stipulating precisely how a product was supposed to be made deterred innovation by ossifying production methods and excluding even desirable deviations. To limit supply, guilds imposed ceilings on the number of workshops, stalls, employees, and pieces of equipment each master could have, and also stipulated the amounts of raw materials he could process. But such restrictions deterred innovations requiring larger-scale operations, more vertical integration, or a greater division of labour than guild rules allowed.

Guilds sought to protect their members against changes in production methods that squeezed more output from existing inputs. In doing so, they were actuated by the belief that such changes would flood markets, depress prices, and put guild masters out of work. But in undertaking such protection, guilds inadvertently harmed innovation. They lobbied against new devices and products, forbade members to adopt new processes, blocked imports embodying new ideas, and boycotted wares and workers from places that used forbidden techniques. This in turn denied the benefits of such innovation to the industry, consumers, and the wider economy.

Manipulating Input Markets

Guilds also manipulated markets for inputs such as labour and raw materials. They did so to reduce costs so their members’ profits would be higher. But this had unintended consequences.

As associations of employers, guilds commonly imposed wage ceilings on employees. But this inadvertently harmed product quality. Freelance employees such as spinners responded to guild piece-rate ceilings by working as fast as they could, at the expense of quality control; employers were forbidden to pay higher rates for the fine and regular yarn needed for better fabrics. Journeymen and wage workers responded to guild pay ceilings with strikes, embezzlement, low-quality work, and by quitting without notice, depriving employers of the attentive labour required to maintain product quality.

Guilds depressed raw material costs by imposing price ceilings and restricted supplies to outsiders. This, too, unintentionally harmed product quality. When suppliers were prevented from charging market prices, they reduced the quality of the materials they supplied, whether openly or—worse—covertly. When suppliers were forbidden to sell to non-guild-members, they kept the best raw materials to process themselves in non-guilded settings, offering only the lowest-quality material for sale to guild members. Quality suffered because supplying superior inputs could not be rewarded.

WIDER IMPLICATIONS

We now have answers to three of the four questions with which this chapter started. Guilds did redistribute resources to their members at the expense of everyone else. Guilds did not generate countervailing benefits by solving failures in markets for quality, training, or innovation. And guilds did inflict unintended harm on the wider economy. These findings have far-reaching implications.

First, they illuminate the vital role non-market institutions play in how markets work. Markets are necessary for economies to grow, but are also afflicted by market failures. So institutions that shape markets are central to growth. Guilds, as this book has shown, often intervened in markets. But guild interventions seldom addressed market failures, whether in product quality, skilled training, or technological innovations. Instead, guilds imposed entry barriers, gender discrimination, and market manipulations, exacerbating market failures. By directly changing markets in ways that benefited their own members, guilds indirectly changed markets in ways that harmed everyone else.

Guilds also shed light on the economic impact of social capital. Some scholars believe that closely knit groups such as guilds use their social capital in ways that make markets and governments work better. But the history of guilds illuminates the dark side of social capital. Guilds provided institutional mechanisms enabling their members to organize collusive action in markets by collaborating with governments, even though this harmed society as a whole. Guilds show how closely knit groups can use their social capital to corrupt the state and distort the market.

Guilds also illuminate the economic effects of networks. Guilds had features that intensified the networks linking their members. They controlled entry, so everyone knew who was a member and who was not. They also generated, and often mandated, multi-stranded relationships among their members, intertwining economic, religious, cultural, sociable, and familial links. Networks in which individuals form dense clusters can generate positive externalities by facilitating communication, diffusion, and cooperation that would not take place if individuals transacted independently. But as guilds demonstrate, dense networks can also generate negative externalities via collusion, corruption, and groupthink. The closed and multiplex networks which guilds formed among their members facilitated market collusion, corrupted governments, and reinforced collective prejudices—including, in some instances, anti-Semitism, misogyny, xenophobia, and technophobia. Guilds demonstrate vividly how networks can amplify bad choices as well as good ones.

Guilds also help us understand economic discrimination. As we have seen, they systematically discriminated against women, migrants, Jews, bastards, “dishonourable persons”, foreigners, and members of minority ethnicities, and religions. Some scholars view economic discrimination in general, and the discriminatory behaviour of guilds in particular, as merely a superstructure arising out of more fundamental cultural norms such as sexism, anti-Semitism, xenophobia, and racism. Others argue that economic discrimination by guilds was actually efficient: guild masters refused to employ or train women, Jews, migrants, and minorities because they knew they were likely to act in deviant ways. The evidence on guild discrimination casts doubt on such interpretations. Guilds had to impose prohibitions to stop their members from accepting women, Jews, migrants, or minorities as apprentices, giving them jobs, or doing business with them as colleagues. They had to secure similar regulations from the public authorities to prohibit consumers from buying goods and services from Jews, foreigners, and females. Such regulations were only required because otherwise people would have voluntarily transacted with these proscribed groups. Guilds show that economic discrimination could not be sustained solely on the basis of cultural norms, but depended on institutional enforcement penalizing people who deviated from those norms. Economic discrimination was facilitated, and sometimes entirely fabricated, by rules and enforcement mechanisms imposed by institutions such as guilds.

Guilds also shed light on social exclusion and inequality. As we saw in Chapter 4, guilds enforced restrictions on internal competition which they often justified as a means of maintaining equality among their members. But as Chapters 3 and 5 show, guilds also erected elaborate entry barriers and labour market regulations that reduced the opportunities and earnings of wide swathes of society. This increased social inequality, entrenching and institutionalizing the gap between the small group of privileged guild members and the large population of outsiders. Guilds thus illuminate how different types of institutions affect equality. Generalized institutions such as markets operate in ways that can decrease equality—if, for instance, if there are high returns to scale or high yields to human capital investments.²¹² But particularized institutions such as guilds also operate in ways that can decrease equality. A guild might succeed in restricting internal competition enough to maintain equality among its members, but it also tended to increase inequality—and institutionally entrench it—between its own privileged members and the vast mass of females and disadvantaged males excluded by its entry barriers, exploited by its labour market manipulations, and impoverished by its cartel prices.

Finally, guilds shed light on the sources of economic growth. The first transition to sustained growth, which took place in eighteenth-century Europe, relied on economic transformations in the pre-industrial period, during which guilds were central institutions setting the rules of the game. Where guilds were weaker, as we saw in Chapter 9, economic performance was better and growth was faster. The stronger guilds of German-speaking central Europe, Iberia, and Scandinavia were better able to secure and enforce exclusive rights over particular occupations, barriers to entry, and limits on competition, and to manipulate markets for outputs and inputs; this was associated with lower per capita GDP and slower economic growth. The weaker guilds of the Low Countries and England, especially after c. 1500, were less effective at restricting economic activity, and this was associated with higher per capita GDP and faster economic growth, a phenomenon also observed to some degree in societies with intermediate guilds, such as Italy and France. Guilds were only one component of the institutional framework that affected economic decision-making in pre-modern Europe.²¹³ But the findings of this book show clearly that where guilds were stronger, aggregate economic performance was poorer and economic growth was slower.

WHY DID GUILDS EXIST—AND
WHY DID THEY FINALLY DISAPPEAR?

This leads to a basic question. Given that guilds, on balance, inflicted harm on the economy at large, why did they exist so widely and survive for so long? And then one last question. Why did they finally disappear? This question is important, for if institutions are a basic cause of economic growth, we need to understand what shapes institutions. Guilds generate rich empirical evidence to address this question.

Economists and historians use five main approaches to explaining institutions.²¹⁴ First, there are “stochastic” approaches, which regard institutions as arising and surviving through accidents of personal choices and historical events. Then there are “technological” approaches, which explain institutions in terms of natural endowments and geographical features. Third, there are “cultural” approaches, which explain institutions in terms of values, beliefs, and norms. Fourth, there are “efficiency” approaches, which hold that institutions exist because they are efficient solutions to economic problems, usually market failures. Finally, there are “distributional” approaches, which regard institutions as the outcome of conflict over the distribution of resources.

The “stochastic” approach does not work well in explaining guilds. The idea that institutions result from unpredictable events and accidents is not consistent with the fact that craft guilds arose all over Europe after c. 1100 and survived in most places until nearly 1800. Extraordinary individuals might try to abolish guilds, as Turgot did in France in 1776, but the re-establishment of the French guilds just six months later under ineluctable pressure from the remainder of the French institutional system illustrates the limits of individual action, however heroic. Further doubt is cast on the “stochastic” approach by the fact that guilds also arose in many non-European societies, including (but not limited to) China, the Near East, and India, and that non-European guilds engaged in many of the same activities as European ones. To account for the widespread rise of the same type of institution in such different economies, many of them hardly in contact, suggests that more systematic mechanisms were at work.

At a lower level of aggregation, however, stochastic shocks may have played a role in particular places and times. Political upheavals with a non-trivial stochastic component led to the absence, weakening, or abolition of guilds in important sectors of the economy—in places such as Douai, Nuremberg, and Leiden. Political events also contributed to the final abolition of guilds in France in 1791, as well as in many of the Italian and German territories France subsequently defeated. Stochastic “macro-inventions” could subject guilds to external competition, as when the Venetian glass industry was faced with the French cast-plate method for making large mirrors, or European handloom textile producers were confronted with English textile machines, although how guilds responded to these pressures varied according to their political strength. Accident also contributed to whether European guilds were transplanted to non-European settler economies. North America was largely colonized by Britain in an era when its guilds were already relatively weak and hence were not exported to the colonies, whereas Central and South America were largely colonized by Spain which implanted its relatively strong guilds. Stochastic events such as urban power struggles, national revolutions, technological inventions, and geographical encounters undoubtedly influenced the survival and decline of guilds, but only in interaction with more systematic causal mechanisms.

“Technological” or “geographical” approaches to economic institutions, although they invoke systematic causal mechanisms, unfortunately do not get very far in explaining guilds either. The idea that a particular type of institution arises as a response to endowments that are “natural” confronts the problem that guilds existed in a wide range of geographical conditions. As already mentioned, guilds arose and survived for centuries in many places, European and non-European, from the Arctic Circle to the equator, from huge maritime cities such as Venice and Istanbul to tiny landlocked villages in Bohemia and the Black Forest. The widespread existence of the same type of institution in such different geographical circumstances suggests that exogenous natural endowments did not play a decisive role.

This does not mean that natural or geographical endowments exercised no influence at all. De Munck, Lourens, and Lucassen suggest that the establishment and density of guilds in the Low Countries were influenced by natural factors such as proximity to the sea, as well as by geographical features such as urbanization.²¹⁵ One factor contributing to the highly competitive urban systems of England and the Low Countries was water transport, with long coastlines, dense canal networks, or both, reducing the effective economic distance between towns and competing away guilds’ locational rents. Some scholars also treat urbanization as an exogenous geographical factor that influenced guild strength, although in practice guilds also influenced urbanization, so the relationship is one of two-way causation. Nonetheless, De Munck, Lourens and Lucassen argue that the establishment and density of guilds in the Low Countries were influenced by the degree of urbanization.²¹⁶ Desmet and Parente argue that a major determinant of guild numbers in Italy was city size, which influenced the pool of potential rents motivating guild formation.²¹⁷ But in all these cases the geographical endowment was just one of many factors influencing guild strength and, in the case of urbanization, was itself influenced by guilds. Natural and geographical features influenced the structure of costs and benefits confronting those who sought to establish, maintain, or abolish guilds, but only in interaction with other factors.

Cultural beliefs and values are also sometimes identified as fundamental causes of institutions such as guilds.²¹⁸ Antony Black argues that guilds were unusually strong in Italy and Germany because of the prominence in Italian and German culture of a corporative ethos favouring the values of mutuality, solidarity, fraternity, and friendship. The comparative weakness of guilds in England and the Netherlands, he contends, arose from the widespread embrace of a rival “civil society” model, which valued individual liberty, legal equality, private property, and market competition.²¹⁹ Gary Richardson proposes a different cultural explanation, as we saw in Chapter 6, arguing that guilds were sustained by shared religious beliefs that deterred their members from deviating and free-riding on guild norms. The Protestant Reformation, Richardson argues, weakened guilds in England because they could no longer leverage shared religious norms for economic ends, while the survival of Catholicism in France, Spain, and Italy kept guilds in those countries stronger for longer.²²⁰ From a very different perspective, Avner Greif and Guido Tabellini claim that guilds in Europe were stronger than those in China or the Ottoman Empire, and that this derived from a medieval Christian culture that emphasized the value of nuclear rather than extended families, which in turn is supposed to have generated non-familial trust inside guilds and other corporative organizations.²²¹

The empirical findings, however, cast doubt on these cultural explanations. Guilds were not restricted to Italy, Germany, or even Europe, since they arose in societies with widely differing languages, religions, and value systems, from the Roman Empire to Egypt, India, China, Japan, Persia, Turkey, Europe, and Central and South America. Even within Germany and Italy, as critics of Black’s typology point out, there is little evidence that elite values for corporatism reflected the views of ordinary people, who understood and valued private property, markets, competition, and the existence of individual as well as corporative rights.²²² In a European perspective, as we saw in Chapter 9, Italy had a guild system which was intermediate in strength, and thus did not reflect the strong corporatism which is supposed to have characterized Italian culture. Nor do religious divisions explain differences in guild strength, since after the Reformation there were strong guilds in such Protestant societies as Sweden and Württemberg and intermediate or weak guilds in Catholic societies such as Italy and the Southern Netherlands.²²³ Nor does guild strength follow the distribution of nuclear- and extended-family systems across Europe, since guilds were strong in societies such as Spain and Portugal where extended families predominated, and weaker in societies such as England and the Low Countries where nuclear families were the norm.²²⁴

Cultural theories of institutions also raise deeper epistemological issues. First, it is very hard to pin down what beliefs and values people actually hold: they are formulated inside people’s heads and cannot be observed. Second, it is hard to trace how the categories of elite culture affect the economic decisions of ordinary people. Third, it is difficult to measure the distribution of beliefs and values across heterogeneous individuals and social groups. And finally, it is nearly impossible to find concrete evidence of cultural norms actually at work affecting economic institutions. Until we devise ways to obtain evidence on these key matters, we need to explain as much as possible in terms of observable phenomena rather than making untestable claims about unobservable beliefs and values.

The “efficiency” approach regards institutions as existing to address market failures. Unlike the cultural approach, it does not rely on unobservable events inside people’s heads but can be tested on the basis of observable phenomena. It also surpasses cultural, stochastic, and technological approaches by providing an explanation for institutions that could in principle account for the existence of guilds in so many different times and places.²²⁵

Unfortunately, it fails to do so in practice. As Chapter 6 showed, there is no evidence that guilds were efficient institutions for solving failures in markets for product quality, since alternatives existed and guilds had characteristics that militated against providing the relevant quality level, the one consumers wanted. Nor, as Chapter 7 demonstrated, were guilds either necessary or sufficient for solving failures in markets for human capital investment: other institutions were available and were voluntarily chosen by trainees and trainers; moreover, the net effect of guilds on aggregate human capital investment was negative, since guilds provided training to a privileged few and denied it to the excluded many. Finally, as Chapter 8 showed, guilds were not efficient institutions for solving imperfections in markets for new ideas: they blocked innovations that threatened their members, and innovations were implemented much more readily in weakly guilded Flanders, Holland, and England than in strongly guilded Germany or Iberia. Efficiency approaches cannot explain the historical evidence on guilds.

The “distributional” approach argues that institutions arise and survive as a result of conflicts over the distribution of resources. Those institutions arise and survive that serve the distributional ends of the most powerful individuals and groups, and decline only when the powerful find other institutions that better serve their ends.²²⁶ This approach surpasses other explanations for the rise, survival, and decline of guilds in several ways: it is empirically falsifiable; it accounts for the widespread existence of guilds in many economies; it explains why an institution that caused economic harm nonetheless survived for a long time; and it is supported by abundant empirical findings documenting the pervasive collaboration between guilds and political elites.

The distributional approach explains why guilds existed so widely despite the fact that they acted as cartels of producers, manipulated markets, overcharged customers, underpaid employees, stifled competition, oppressed women, imposed quality standards to please producers rather than consumers, limited access to human capital investment, and blocked innovation. They existed because they benefited powerful and well-organized interest groups. They made the pie smaller, but dished out large slices to established guild masters, with fiscal and regulatory side-benefits to town governments, princes, seigneurs, and other powerful elites.

FIGURE 10.1. A group of guildsmen gather to fill a crack in the walls of their city. The masons’ guild suggests stone, the carpenters’ guild advocates planks, the glassblowers’ guild argues for windows, the blacksmiths’ guild opts for iron bars. The merchants suggest using garbage and mud since this will avoid raising new taxes, supported by the vintners and brewers who see the opportunity to get rid of their dregs. Eventually, the guildsmen fail to agree and the wall remains unrepaired. With this allegory, the author seeks to demonstrate how organized interest groups such as guilds cause conflict and irresolution, threatening the stability and survival of the commonwealth.

Source: “The Guilds and a City,” from Pieter de la Court, Sinryke Fabulen, 1685. Amsterdam University Library, OTM: OK 63–2796. Scanned from reproduction in Weststeijn, A. 2012. Commercial Republicanism in the Dutch Golden Age: the Political Thought of Johan & Pieter de la Court. Leiden / Boston, Brill, p. 290.

Guilds illustrate the long historical interdependence between economic and political institutions in regulating markets. Guilds could sustain their members’ collective monopoly against internal free-riding and external competition only by gaining the support of political authorities in exchange for a share of the monopoly profits. Pre-modern urban and royal governments drew on multiple sources of taxes, loans, and political support. But special-interest groups such as guilds offered attractive bribes, gifts, loans, fiscal services, and regulatory collaboration that enabled rulers and officials to obtain funds in advance of tax receipts, induce merchants and craftsmen to reveal information about business conditions through their bids for privileges, put pressure on businessmen to make higher loans than would otherwise have been forthcoming, benefit from businessmen’s knowledge and expertise in collecting industrial and commercial taxes, and mobilize political support from the bourgeoisie. Guilds were institutions whose total costs were substantial, but were spread over a large number of people—potential entrants, employees, and consumers—who faced high transaction costs in resisting a politically entrenched institution. The total benefits of guilds, by contrast, were small, but were concentrated within a small group—guild members and political elites—who faced low costs of organizing alliances. Guilds survived for so long in so many places because of this logic of collective action.

The mutually reinforcing exchange of favours between guilds and governments in medieval and early modern Europe prefigured an equilibrium still widespread in modern developing economies. Governments grant entry barriers to entrenched producers, giving them market power which enables them to extract rents from customers. Part of these rents are then confiscated by governments as fees and taxes levied in return for their granting and enforcing of the entry barriers. This reduces governments’ administrative costs and increases their short-term tax revenues, but distorts resource allocation and stifles long-term growth. Entry barriers expand the informal sector, where risks are higher and producers cannot be taxed. Entry barriers also give formal-sector producers market power, enabling them to increase prices, reducing exchange and consumer surplus.²²⁷ In this way, developing economies, whether historical or modern, can find themselves burdened enduringly by institutions that are bad for society at large but good for political and economic elites who cooperate to keep them in being.

Why did guilds ever disappear? Even in the guilds’ medieval and early modern heyday, there were enclaves—in Douai, Hondschoote, Nuremberg, Leiden, Vicenza, Krefeld, Normandy, Birmingham, Manchester, the Zaanstreek—where businessmen and governments primarily used generalized rather than particularized institutions. The period after c. 1500 saw a widening divergence across Europe in the relationship between governments and guilds. In societies such as the Low Countries and England, political authorities gradually ceased to grant and enforce guilds’ privileges, while in “corporatist-absolutist” European states, such as France, Spain, Austria, Scandinavia, and the German territories, political elites continued to profit from their particularistic bargain with guilds for much longer.

The reasons for the gradual breakdown of the coalition between guilds and governments in some parts of western Europe are still a matter of lively debate. But current scholarship suggests a complex of factors that created a new equilibrium in which both the political authorities and the owners of industrial and commercial businesses gradually discovered they could do better for themselves by departing from the particularist path and beginning to use more generalized institutional mechanisms. These factors included stronger representative institutions (parliaments) that increasingly constrained how rulers could raise revenues and grant privileges to special interest-groups; a more highly diversified urban system in which towns did not act in concert, but rather competed and limited each other’s ability to secure privileges from the public authorities; a more variegated social structure that included prosperous, articulate, and politically influential individuals who wanted to practise trade and industry and objected to its being monopolized by members of exclusive organizations; and governments that gradually made taxation more generalized and developed markets for public borrowing, reducing the attractiveness of short-term fiscal expedients such as selling privileges to special-interest groups.

In the “corporative-absolutist” societies of central, Nordic, southern and eastern Europe, by contrast, the distributional coalition between guilds and governments only broke down through political conflict, always bitter and sometimes violent. France only abolished its guilds in 1791 after a national revolution, and then imposed this institutional reform as it conquered neighboring polities such as the Southern Netherlands (modern Belgium and Luxembourg), the Northern Netherlands, many Italian states, and parts of Germany. But there were also many European societies—Austria, Hungary, Portugal, Spain, the Scandinavian countries, and numerous German states—that did not abolish guilds until the 1850s or even later, in most cases only after long and bitter sociopolitical conflict. Even in their process of decline, therefore, guilds provide strong support for the view that institutions arise and survive for centuries not because they are efficient but because they serve the distributional interests of powerful groups.

SUMMARY

It’s time to sum up. Contrary to what one might conclude from their sponsors at the time or their champions in some recent scholarship, guilds were not the solution to market and state failures that stifled economic growth. Rather, guilds were part of the problem. In practice, markets are never perfect and states are never impartial, and this was indubitably true of the markets and states of pre-modern Europe. But guilds made little contribution to correcting market or state failures. Information asymmetries concerning product quality, opportunism in vocational training relationships, and public goods problems in inventing and diffusing innovations were left unsolved—and were sometimes exacerbated—by the widespread prevalence of occupational guilds. By seeking rents for their own members, guilds intensified market failures, sometimes deliberately, sometimes inadvertently. They also contributed to making governments even more corrupt than they already were by offering an effective institutional mechanism whereby two powerful groups, guild members and political elites, could collaborate in capturing a larger share of resources at the expense of the rest of the economy.

Economic growth requires well-functioning markets that are supported by impartial public institutions. Developing economies suffer from both market failures and state failures. Closed professional associations such as guilds might have been able to generate a social capital of trust and collective action that made markets and states work better. Unfortunately, however, guilds manipulated markets and corrupted governments. Guilds might in theory have been a solution to failures in markets and states, but in practice they were part of the problem.

²¹¹ Ogilvie and Carus 2014.

²¹² For arguments that markets inherently increase inequality in more profound and unavoidable ways, see Piketty 2014; Van Bavel 2016.

²¹³ On the implications for historical economic growth of analyzing institutions as components of wider institutional frameworks, see Ogilvie and Carus 2014, esp. 461–69.

²¹⁴ For a survey of these approaches in the context of European economic development between the Dark Ages and the Industrial Revolution, see Ogilvie 2007 [Whatever]; Ogilvie 2011, esp. 415–18; Ogilvie and Carus 2014, esp. 469–73.

²¹⁵ De Munck, Lourens, and Lucassen 2006, 64–65.

²¹⁶ De Munck, Lourens, and Lucassen 2006, 64–65.

²¹⁷ Desmet and Parente 2014.

²¹⁸ Some prominent efficiency theorists have shifted in recent years to cultural or “cultural efficiency” accounts of institutions: see, e.g., North 1990; North, Wallis and Weingast 2006; Greif 2006 [Institutions]. See the discussion of these approaches in Ogilvie 2007 [Whatever], sections IV and XI.

²¹⁹ Black 1984, xi, 117–18, 237–39.

²²⁰ Richardson 2005, 143–45, 152, 159–60, 163, 180; Richardson and McBride 2009.

²²¹ Greif 2006 [Family Structure], 311; Greif and Tabellini 2010, 137.

²²² See, for instance, Najemy 1986. For evidence that the concepts of individual advantage, profit, competition, and markets were understood by poor, eastern-central European serfs in the sixteenth and seventeenth centuries, see Ogilvie 2001.

²²³ On Württemberg, see Ogilvie 1997, 341. On the Württemberg-ruled, Lutheran enclave of Mömpelgardt (Montbéliard), see Faivre 1949, 59. On Sweden, see Edgren 1997 [Craftsmen], esp. 144.

²²⁴ Dennison and Ogilvie 2014.

²²⁵ Epstein 1998, 684; Epstein 2008, 156, 171.

²²⁶ Acemoglu, Johnson, and Robinson 2005, esp. 389–95, 427–28; Ogilvie 2007 [Whatever]; Ogilvie 2011; Ogilvie and Carus 2014.

²²⁷ Auriol and Warlters 2005, 635–40.