Institutions - the social and political "rules of the game" - are widely viewed as central to economic growth. But what kind of institution makes an economy work better for everyone, and what kind mainly serves the interests of privileged groups? In many European economies, guilds ruled crafts and trades from the Middle Ages to the lndustrial Revolution. Did the benefits of guilds outweigh their costs?
This lecture explores these questions using over 17,000 observations of guilds in 23 European economies from 1000 to 1880. Although guilds sometimes provided important services, their overall effect was harmful. Their main objective was to benefit their members, so they acted like cartels. They excluded competitors, overcharged consumers, exploited workers, and resisted innovation. Guilds persisted not because they served the whole economy but because they benefited two powerful groups-entrenched businessmen and powerful elites. Examining why this malignant collaboration was stronger in some societies than others can help us understand the long historical roots of economic growth and divergence.