Two is Company, N is a Crowd? Merchant Guilds and Social Capital

The paper revisits the rationale for the emergence of merchant guilds within a competitive setting accounting for the dynamic incentives of merchants. Di¤erently from previous literature, we focus on the role of local merchant guilds rather than that of alien guilds and investigate a number of hitherto neglected empirical obser-vations concerning their organization. In particular, focusing on the role played by monitoring technologies, instead of capital-constraints, the simple model we develop delivers predictions about guild size, membership restrictions, and their welfare im-plications. As we show, these are consistent with the available historical evidence, and shed new light on the role of the guildssocial capital. Moreover, our analysis also provides a theoretical framework capable of accounting for the basic trade-o¤s involved when a politys ruler faces the choice of granting recognition to a single or multiple guilds. This helps understanding the observed distribution of guilds, and provides a rationale for the establishment of both local and alien merchant guilds. Therefore, the paper reconciles, to some extent, the di¤erent views put forward in the existing literature