Brand Names Before the Industrial Revolution

Douglass North demonstrated the importance high transaction costs played in shaping trade before the industrial revolution. The cost of transporting goods, particularly over land meant that most trade was local. Contractual enforcement by the state was sporadic. Information could travel no faster than a man on a horse.

As a result, markets must have been plagued by problems of adverse selection, poor matching and just plain cheating. Economic historians are still struggling to understand the character of pre-industrial trade for precisely there reasons. How did impersonal, large-scale trade emerge? Why did it emerge in some places rather than in others? 

Some economists like Arnold Kling (see his latest post on this topic here) doubt that we can describe any society before 1800 as a market economy. But evidence contradicting this claim is emerging all of the time. Consider this recent NBER paper by Gary Richardson.  It argues that medieval guilds were able to surmount many of the problems posed by high transaction costs in the middle ages by developing the medieval equivalent of `brand names'.

Richardson focuses on the growth of consumer durables in the Commercial Revolution. He argues that guilds controlled quality and sold goods with 'conspicuous characteristics'. This enabled sellers to overcome problems of high transaction costs.

'The phrases with which medieval men referred to products with conspicuous characteristics were the brand names before the Industrial Revolution' (5)

As a result the market for lemons problem identified by George Akerlof was largely overcome. The guilds therefore helped to drive the expansion of impersonal trade during  a period were technology was largely static.  Counterfeiting was another problem. In a world without intellectual property right protection, the guilds were able to keep control of industrial secrets.

`Since the law did little to protect guilds' reputation, guilds had to defend their own good name. The principle defence was making merchandise that was difficult to duplicate.'

In the rest of the paper Richardson explains why sellers couldn't offer warranties, why consumer durables made up such a large proportion of both the wages of medieval workers and the volume of medieval trade, and demonstrates how particular craftsmen and guilds could build reputations for selling high quality products. Thus he concludes: 

`By mitigating adverse selection and fostering commerce, guilds encouraged economic progress' (27)
It is worth noting that this view of medieval guilds differs greatly from the views of many historians. It also corresponds to an `efficient institutions' view that I have criticised.