Bonds of Trade (PDF)

Pre-modern, long-distance trade was conducted in a highly complex and uncertain environment. Aside from the lack of personal security, trade was characterized by slow communication, asymmetric information, and limited contract enforceability. There was no state, in the modern sense, to protect merchants. Despite these overwhelming problems, trade, and even overseas trade, flourished in medieval and early modern Europe. This book explores this paradox: how could trade thrive and the economy expand under uncertainties of many kinds?Over the past two or three decades, enormous advances have been made in explaining how institutions support the economy. This book contributes to the intense discussion about institutions and institutional change. It builds on the careful examination of long-distance trade in the Baltic Sea region over a long period of time and presents a new method to identify past institutions. It challenges previous attempts to explain the pre-modern expansion of trade by institutions that governed intra-group relations. Mika Kallioinen argues that the fundamental problem of institutional development was how to create institutions that could advance a regularity of behavior between a large number of distant communities and between merchants who did not necessarily know one another. The question was how to provide security and enhance trust when trading crossed the geographical, cultural, and political boundaries that separated communities. This book extends the limits of our understanding of such inter-community institutions and their implications for later economic development.