In recent years, certainly since the publication of Avner Greif's fascinating and influential book, Institutions and the Path to the Modern Economy: Lessons from Medieval Trade (Cambridge: Cambridge University Press, 2006), a consensus has grown among economists and economic historians. They have agreed, as Greif puts it, that “organizations—mainly in the form of corporations—were vital to Europe's political and economic institutions during the late medieval growth period as well as the modern growth period” (p. 26), that they “facilitated the expansion of trade” (p. 94). Merchant guilds enjoyed a ubiquitous and durable existence, predicated upon an economic and cultural efficiency that promoted economic development and fostered social capital.

In support of this neoinstitutionalist conclusion stands an impressive array of theoretical and mathematical proofs and models. Everything from rational choice and game theory to maximum likelihood estimation, as appears in a recently published essay by Oscar Gelderblom and Regina Grafe, has been mobilized to demonstrate that “the importance of merchant guilds for the commercial development of Europe is beyond doubt” (“The Rise and Fall of Merchant Guilds: Rethinking the Comparative Study of Commercial Institutions in Premodern Europe.” Journal of Interdisciplinary History 40, no. 4 (2010): 477–511). And, in every instance, the merchants themselves as well as the associations they created, their local circumstances and their particular function, disappear, submerged in a set of a priori, classical, or neoclassical economic assumptions that human economic behavior is always consistent and predictable, e.g., merchants act “only [sic] when they can expect a positive return” (p. 477). Thus, once again, human beings are reduced to the mindless vectors of inhuman forces.

Sheilagh Ogilvie subjects this abstract model to close analysis and effectively demolishes it. It is not that she, formally trained in economics, objects to the fundamental assumptions of theory. Rather, it is the simple fact that she does not lose sight of the varieties of context and circumstance. Across Europe, merchant guilds were neither efficient nor beneficent. They did not consistently solve problems, e.g., commercial security, contract enforcement, principal-agent relations, information sharing, or price stability, for which there were no alternative solutions. They did not serve to promote the growth of commerce as a whole. Rather, they were monopolies, rent-seeking institutions whose continued existence must be attributed not to efficiency effects but rather to distributional effects. They persisted so long as they served to distribute a disproportionate share of economic goods to their members and their rulers.

Ogilvie's book makes a significant intervention, therefore, in a misguided historiography. The vast majority of scholars, who have written about merchant guilds in the last half century, have argued in terms of their efficiency. She shows their conclusions to have been based upon a serious misunderstanding of the economic consequences of monopolistic institutions and practices and upon a no less serious misreading of the historical literature. Though she refers repeatedly to her evidence as “empirical,” the term applies only indirectly. Institutions and European Trade is based on no new, original research in primary documents. Rather, Ogilvie has mined an astonishingly broad secondary literature for facts and figures about these organizations. The resulting logical and historiographical deconstruction constitutes nothing less than a devastating proof of the inefficiency and malignancy of merchant guilds.

The book's organization is logical, proceeding from a discussion of the debate to a definition of terms and an examination of functions. As a result, its argument is accessible as well as convincing.

The last chapter, however, strikes me as particularly original and important. In it Ogilvie moves away from dismantling the current scholarship to suggest new directions of inquiry. She calls for a broader assessment of economic institutions: one that includes the entire range of their non-economic as well as economic functions in their broader institutional contexts. She also contributes an original refinement to the discussion of social capital by distinguishing between particularized and generalized trust as well as between differential and uniform trust. As she concludes, merchant guilds promoted particularized and differential trust, trust offered only to persons of known characteristics and to institutions that practice closure, not the generalized and uniform kinds of trust associated with social capital. As a result, the continued existence of merchant guilds may have prevented the rise of more productive social arrangements, such as impersonal markets and states.

This somewhat whiggish conclusion brings me to the book's discontents. After all, the current financial crisis should cast some doubt upon the degree to which markets and states are or have ever been impersonal or impartial. First, whatever her unease with the conclusions of the neoinstitutionalists, Ogilvie does not entirely reject their methods. Her analysis of the existence of merchant guilds still resides on an unexamined assumption of economic rationality. Substituting distribution effects for efficiency effects convinces me thoroughly, but both assume that the economic agents involved, i.e., merchants and rulers, always pursue their own utility. Other possible explanations remain unexamined and unconsidered. Like the scholars whose hypotheses she rejects, she turns to the past not to discover historically operative attitudes about economic activity but rather to prove a set of modern economic principles. Second, the works upon which Ogilvie relies are themselves open to question. Some of them are superannuated. Some of them were written to examine theories other than economic efficiency or social capital. Some of them are close studies of individual guilds or corporations. The evidentiary basis of this book remains anecdotal. Despite the fact that her evidence is drawn from a multiplicity of individual unique cases, the author writes repeatedly of merchant guilds as though they were all alike. One may be forgiven for wondering, whether it is justifiable to construct an ideal type on the basis of local organizations, each with its own local context.

Such caviling notwithstanding, Ogilvie's book is a singular and splendid achievement. It hoists institutional economics and institutional economic history on its own petard by taking seriously the dictum of Douglass C. North that “history matters” (Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press, 1990, vii). Put another way, the local and idiosyncratic cannot be discounted or disregarded for the sake of general theories and mathematical models. Her argument will force economic historians to reexamine their assumptions, their evidence, and their methods. That gives Institutions and European Trade true gravitas.