Proposal preview

The institutional foundations of long-distance trade before industrialization

Ever since the days of Adam Smith, it has been recognized that an enhanced ability to exchange promotes economic growth. Yet we know surprisingly little about how distinct institutional systems, each conformed by a plurality of elements, such as beliefs, values, rules and organizations, can theoretically and did historically govern the fundamental problem of exchange — one will not enter into an objectively profitable exchange relationship unless the other party can credibly commit ex-ante not to breach his contractual obligations ex-post. Furthermore, we are equally ignorant about how these distinct institutional systems, each with different efficiency and distributional implications, emerged and evolved reflecting broader social, political and cultural processes of which they were an integral part.

This session will explore the nature and the dynamics of the various institutions for contract enforcement that supported trade expansion before industrialization. Rooted on a comparative and historical analysis, it seeks to understand institutional diversity and change. It aims to examine empirically how and to what degree of effectiveness diverse institutional systems and elements (public and private, formal and informal, legal and extra-legal) mitigated opportunism and information asymmetry across regions and over time. It also aims to explore how past institutions shaped a society’s rate and direction of change, and hence historically explain the diversity in economic development we observe on a global scale.

We will have short presentations, and leave more time for the discussion of the pre-circulated papers. The order of presentation will be decided closer to the event.

Organizer(s)

  • Daniel Strum University of São Paulo danistrum@gmail.com Brazil
  • Yadira González-de-Lara University of Valencia yadira.gonzalezdelara@gmail.com Spain
  • Esther Sahle University of Bremen sahle@uni-bremen.de Germany

Session members

  • Yadira González-de-Lara, University of Valencia
  • Daniel Strum, University of São Paulo
  • Esther Sahle, University of Bremen
  • Regina Grafe, European University Institute
  • Georg Christ, University of Manchester
  • Hunter Harris, University of Michigan
  • Cyril Milhaud, Paris School of Economics 

Discussant(s)

  • Francesca Trivellato Yale University francesca.trivellato@yale.edu
  • Avinash Dixit Princeton University dixitak@princeton.edu

Papers

Panel abstract

This session will explore the nature and the dynamics of the various institutions for contract enforcement that supported trade expansion before industrialization. Rooted on a comparative and historical analysis, it seeks to understand institutional diversity and change. It aims to examine empirically how and to what degree of effectiveness diverse institutional systems and elements (public and private, formal and informal, legal and extra-legal) mitigated opportunism and information asymmetry across regions and over time. It also aims to explore how past institutions shaped a society’s rate and direction of change, and hence historically explain the diversity in economic development we observe on a global scale.

1st half

Institutional Development and Contractual Innovation in Late Medieval Venice: The Financing of Long-Distance Trade through Commenda Contracts

Yadira González de Lara

In late-medieval Venice the state regulated the ex-ante operation of trading voyages in a manner that facilitated the ex-post verification of merchants' reports. Specifically, colonial governors, convoy admirals, ship scribes, tax collectors and various other officials monitored merchants at all times, thereby producing information which investors could present as evidence in support of their claims to the court. Formal monitoring thus enhanced the legal protection of investors from expropriation by controlling merchants and eased the transition from the debt-like sea loan to the equity-like commenda contract. This paper investigates the distinctive nature of the Venetian institutions for contract enforcement, their efficiency and distributional implications, and their evolution over time.

In late-medieval Venice the state regulated the ex-ante operation of trading voyages in a manner that facilitated the ex-post verification of merchants' reports. Specifically, colonial governors, convoy admirals, ship scribes, tax collectors and various other officials monitored merchants at all times, thereby producing information which investors could present as evidence in support of their claims to the court. Formal monitoring thus enhanced the legal protection of investors from expropriation by controlling merchants and eased the transition from the debt-like sea loan to the equity-like commenda contract. This paper investigates the distinctive nature of the Venetian institutions for contract enforcement, their efficiency and distributional implications, and their evolution over time.

Litigation as a designed second-order contract enforcement mechanism: cases involving Portuguese Jews and conversos in the sixteenth and early seventeenth century Brazil, Portugal and Netherlands

Daniel Strum

This paper argues that coercive and reputational mechanisms institutions coevolved interdependently. It demonstrates that in the late sixteenth and early seventeenth centuries, the legal system solved commercial disputes among traders – including about agency services – across wide distance and different political units, even during wartime. Yet sources indicate that merchants filed only a handful of commercial lawsuits in a lifetime on average. Infrequency suggests that merchants resorted to litigation after less costly reputational mechanisms failed and compensated the latter enforcement limitations. Hence, the legal system was not ineffective but rather designed to be a second-order mechanism. Sources referring to litigation by merchants of Jewish origin plying the sugar trade route, which allegedly constituted a cohesive trading diaspora, provide direct and indirect evidence to support those hypotheses.

This paper argues that coercive and reputational mechanisms institutions coevolved interdependently. It demonstrates that in the late sixteenth and early seventeenth centuries, the legal system solved commercial disputes among traders – including about agency services – across wide distance and different political units, even during wartime. Yet sources indicate that merchants filed only a handful of commercial lawsuits in a lifetime on average. Infrequency suggests that merchants resorted to litigation after less costly reputational mechanisms failed and compensated the latter enforcement limitations. Hence, the legal system was not ineffective but rather designed to be a second-order mechanism. Sources referring to litigation by merchants of Jewish origin plying the sugar trade route, which allegedly constituted a cohesive trading diaspora, provide direct and indirect evidence to support those hypotheses.

“Acting on the usual principles of Business:” Customary practices and the expansion of British trade in eighteenth-century India

Hunter Harris

This paper addresses the relationship between institutions and long- distance trade through a study of the practices of British merchants in mid- eighteenth century Bengal. I show how merchants from one part of the globe developed an ad-hoc system of local customs to govern their behavior in the absence of appropriate formal rules or institutions. The weakness of formal institutions and the particularities of local customs combined to create a hybrid system that incorporated local norms into the practices of British merchants and became a new, localized standard practice. I further suggest explanations for this reliance on customs and gives examples of how customs were created and enforced. The significance of this argument for understanding the relationship between institutions and the growth of long- distance trade is that it shows one path by which merchants from one part of the world were able to successfully conduct trade in another.

This paper addresses the relationship between institutions and long- distance trade through a study of the practices of British merchants in mid- eighteenth century Bengal. I show how merchants from one part of the globe developed an ad-hoc system of local customs to govern their behavior in the absence of appropriate formal rules or institutions. The weakness of formal institutions and the particularities of local customs combined to create a hybrid system that incorporated local norms into the practices of British merchants and became a new, localized standard practice. I further suggest explanations for this reliance on customs and gives examples of how customs were created and enforced. The significance of this argument for understanding the relationship between institutions and the growth of long- distance trade is that it shows one path by which merchants from one part of the world were able to successfully conduct trade in another.

“Piezas de Indias” and asientos. Regulating the trade in enslaved Africans to early modern Spanish America

Regina Grafe

In terms of absolute numbers of arrivals of enslaved Africans Spanish America was second to only Brazil. Nevertheless, slavery in and the trade in enslaved people to Spanish America have only recently attracted more intense scholarly attention in the Hispanic World, in part because Spanish participation in the active trade was limited until the late 18th century. The contractual arrangements that before then underpinned the trade of a large number of inter-imperial actors active in the trata, generally known as asientos, have likewise mostly been studied as part of the English or French or Portuguese involvement rather than a long-term commercial tool of Atlantic relevance. This paper traces the development of the asientos as an institutional link that structured inter-imperial collaboration and competition over several centuries.

In terms of absolute numbers of arrivals of enslaved Africans Spanish America was second to only Brazil. Nevertheless, slavery in and the trade in enslaved people to Spanish America have only recently attracted more intense scholarly attention in the Hispanic World, in part because Spanish participation in the active trade was limited until the late 18th century. The contractual arrangements that before then underpinned the trade of a large number of inter-imperial actors active in the trata, generally known as asientos, have likewise mostly been studied as part of the English or French or Portuguese involvement rather than a long-term commercial tool of Atlantic relevance. This paper traces the development of the asientos as an institutional link that structured inter-imperial collaboration and competition over several centuries.

Veneto-Mamluk Trade in Alexandria – A Hinge of the Pre-Modern Silk Road (14th - 15th c.)

Georg Christ

This paper analyses the imbrication of Venetian and Mamluk subsystems of the pre-modern Maritime Silk Road in Alexandria. It focuses on institutions mitigating information asymmetries and enforcing contracts around the Mamluk customs in the wider sense, i.e. including market and tribunal. The interests of the Mamluk customs inspector, the emir also responsible for foreign communities and the sultan’s merchants in charge of the state’s pepper trade will be contrasted with the Venetian institutions including the Council of Twelve, councillors and the consul attempting to negotiate some sort of demand monopoly (or rather Stackelberg leader position) using a communal business intelligence service and threat of recourse to Venice and the sultan. These institutions will not only be analysed on a micro-level but also contextualized in the macro-level imbrication of the Venetian and Mamluk systems through the symbolic and ambiguous inclusion of Venice into the Mamluk Empire.

This paper analyses the imbrication of Venetian and Mamluk subsystems of the pre-modern Maritime Silk Road in Alexandria. It focuses on institutions mitigating information asymmetries and enforcing contracts around the Mamluk customs in the wider sense, i.e. including market and tribunal. The interests of the Mamluk customs inspector, the emir also responsible for foreign communities and the sultan’s merchants in charge of the state’s pepper trade will be contrasted with the Venetian institutions including the Council of Twelve, councillors and the consul attempting to negotiate some sort of demand monopoly (or rather Stackelberg leader position) using a communal business intelligence service and threat of recourse to Venice and the sultan. These institutions will not only be analysed on a micro-level but also contextualized in the macro-level imbrication of the Venetian and Mamluk systems through the symbolic and ambiguous inclusion of Venice into the Mamluk Empire.

Gospel Order and Growth in America: Quaker Institutions and Commerce in Colonial Philadelphia.

Esther Sahle

During the seventeenth century, public order institutions in the American colonies were weak, debt collection notoriously difficult. Yet, trade in the Atlantic expanded greatly. Economic Historians have attributed this growth to new institutions for contract enforcement. Details of this development however remain unclear. Based on extensive evidence this paper argues that the answer lies in the realm of faith: The Philadelphia Quaker meeting developed an alternative legal forum, which solved commercial disputes through arbitration. This practice was not an inherent part of Quakerism but emerged in response to Pennsylvania’s weak institutional environment. Importantly, the meeting enforced its awards informally. It gathered and verified information about disputes and the parties involved therein and disseminated this locally and across the Atlantic world through the Society of Friends’ formal organisation of meetings. Thereby it re- enforced reputation mechanisms. The institution lost its power as non-Quaker migration to Pennsylvania grew in the early eighteenth...

During the seventeenth century, public order institutions in the American colonies were weak, debt collection notoriously difficult. Yet, trade in the Atlantic expanded greatly. Economic Historians have attributed this growth to new institutions for contract enforcement. Details of this development however remain unclear. Based on extensive evidence this paper argues that the answer lies in the realm of faith: The Philadelphia Quaker meeting developed an alternative legal forum, which solved commercial disputes through arbitration. This practice was not an inherent part of Quakerism but emerged in response to Pennsylvania’s weak institutional environment. Importantly, the meeting enforced its awards informally. It gathered and verified information about disputes and the parties involved therein and disseminated this locally and across the Atlantic world through the Society of Friends’ formal organisation of meetings. Thereby it re- enforced reputation mechanisms. The institution lost its power as non-Quaker migration to Pennsylvania grew in the early eighteenth century.

2nd half