Since Douglass C. North (Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press, 1991) famously defined “institutions” as the “rules of the games” for human interaction, any socially imposed constraints on human behavior that permit certain expectations of what others will do in a given circumstance, economists and economic historians have embraced their study with real enthusiasm. To the fast growing literature, Oscar Gelderblom has now contributed a fresh perspective. In Cities of Commerce, he argues “…the very problem of Europe's political and legal fragmentation also produced its solution, in the form of competition between urban governments that tried to attract trade through the continuous adaptation of their legal, commercial, and financial institutions” (p. 3). Civic authorities in the Netherlands understood that they must innovate or fail.

The scholarly value of Gelderblom's book resides at least in part in its uniqueness. There are very few English-language studies of the economic rise and fall of Bruges, Antwerp, and Amsterdam, crucial economic entrepôts that “succeeded one another as main hubs of long-distance trade in Europe” (p. 15). It opens with the competition that drove the adaptation of institutional arrangements to meet the needs of international traders. It then moves to what Gelderblom sees as the cities’ creation of spot markets for transactions. As foreign merchants settled permanently in trading centers, particularly in Antwerp and Amsterdam, they relied less on local hostelers as agents, brokers, and guarantors of international transactions and more on permanent factors and agents, who relied in turn upon civic institutions for commercial information. In the hands of foreign merchants and resident agents, international commerce required extensive networks of communication. Gelderblom argues that civic authorities fostered cross-border communications and transactions by registering sales and shipments and by regularizing legal standards and procedures. Principal-agent problems remained commonplace, however, necessitating reliable legal procedures to defend property rights and to settle contract disputes. Civic authorities responded by allowing foreign merchants to settle conflicts according to their own laws, encouraging the use of arbiters in cases where multiple, conflicting legal standards might apply and, finally in Amsterdam, establishing “open access institutions” (p. 2). The final two chapters of the book turn to the “footloose” (p. 13) character of premodern merchants as the pretext for urban competition. Because they could take their commerce elsewhere, if local conditions proved unwelcoming to trade, merchants compelled political authorities to protect trade and traders. The value of Gelderblom's analysis, apart from its uniqueness, resides therefore also in his narrative of purposeful and “continuous adaptation of the commercial infrastructure to changes in international trade” (p. 74). Institutions do not simply exist, a fact often overlooked in institutional histories, but are self-consciously created and altered over time.

Yet, despite dynamism, problems persist. The focus on economic institutions—not unlike the current fascination with social networks—tends to reify them. Institutions become fixed and concrete, cease to be ephemeral and, above all, instrumental. They cease to be responses to economic actions that seek to channel those actions into more profitable or, better, more legitimate channels. Taking on a life of their own, they determine those actions. Indeed, they displace human behaviors as the object of study. Institutions become, not the consequence, but the cause, of commerce.

Gelderblom makes a compelling case for the role of the magistracy, which obscures the simple fact that many, if not all, the initiatives and adaptations attributed to them, whether spot markets, business organizations, or conflict resolutions, actually emerged as private-order solutions to commercial problems. He is alert to this fact, noting “legislation from below” (p. 99) and reasoning that “the explicit aim of the local magistrates was to complement private order solutions” (p. 101). The “public-embeddedness” (p. 103) of private-order institutions does not resolve the larger ambiguity, however. Economic institutions arise to improve market function; they are not the markets themselves. Again, Gelderblom makes repeated reference to “well-functioning markets,” but insists that these cities and their magistrates “create” (pp. 1, 76, etc.) them. Classical economists since Adam Smith have agreed that markets are any structures that allow buyers and sellers to exchange goods, services, and information. They come into existence as a result of exchange activities. Political actions can, at best, contribute to their smooth operation, and it is by no means certain that these contributions were absolutely necessary.

Historians and economists insist with near unanimity that institutions improve market function in the first place by preventing opportunism in economic relations. Rather than demonstrate empirically that institutions of any sort, whether private- or public-order, in fact effectively prevent expedient behaviors guided by self-interested motives, however, they argue on the basis of game theory that the mere possibility that institutions might penalize opportunism so raised its associated risks and costs that rational agents would elect to abide by the “rules of the game.” The prescription of the law becomes thus the description of behavior.

Gelderblom falls into the same trap. He observes on the one hand that opportunism flourished: “It was difficult to suppress illegal mediation because for merchants it did not really matter who put them in touch with potential buyers and sellers, as long as they made a profit” (p. 73). Yet, he argues throughout the book that the mere existence and modification of institutions prevented opportunism: “The histories of Bruges, Antwerp, and Amsterdam, cities that for a very long time stood at the top of the urban hierarchy, offer compelling evidence that the ongoing process of institutional adaptation reduced transactions costs” (p. 207). In other words, mercantile behavior conformed largely to institutional prescripts. Unfortunately, he offers little analysis of those court documents and merchant correspondence that reveal the quotidian calculation of interests or negotiation of agreements. My research on bankruptcy in the sixteenth and seventeenth centuries, for example, demonstrates beyond any doubt that opportunism, far from ever being deterred, remained the daily fare of market life, influenced but not determined by prevalent institutions. Traders of all sorts and stripes obeyed or violated the dictates of institutions, whether private- or public-order, according to their own interests and with surprising impunity.

Finally, the fascination with institutions has much to do with their purported connection to questions of economic development and comparative advantage. “The West grew rich,” so the institutional explanation, because of its early resort to open-access, public-order institutions, whether state-based (North) or corporative (Greif). Gelderblom wants to make a similar, albeit more modest argument about leading commercial cities. The issues turns on two related, but separate, questions: Do institutions create commercial markets; do institutions effectively determine commercial behaviors? The answers to both await more directed research and analysis. Institutions alone cannot explain why certain cities succeeded, while others failed. Certainly, economic policies and innovations that stabilized markets and promoted exchange played a distinct role. Given the option, merchants prefer to trade where the costs of doing business are lower. The option is not always given, however. Other factors, such as geographic advantage, material constraint, resource distribution, and industrial organization also contribute to commercial decisions. Merchants do not simply exercise their “footloose” option. Rather, they hedge their bets and consider their opportunities. To understand why cities and economies rise and fall, scholars need to think of opportunism as widespread, normal rather than aberrant. They need to recall Hirschman as well as North, consider the interests as well as the institutions. Gelderblom's book is a step, but only a step, in this direction.