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The 'New Institutional Economics' and the Changing Fortunes of Fairs in Medieval and Early Modern Europe: the Textile Trades, Warfare, and Transaction Costs

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  • Munro, John H.
Abstract
This paper revisits, modifies, and combines elements of three major ‘institutional’ international-trade models, none of which has yet fully received the attention that it deserves, to provide a new explanation for the growth, decline, and then rebirth of internationally-oriented fairs in the European economy, serving financial as well as commercial functions, from the 12th to late 16th centuries. The three distinguished models that provided the major inspiration for this paper are, in the chronological order of their publication: (1) the Van der Wee thesis (1970) on the macro-economic impact of the major shifts, first, from continental, overland-trade to maritime-based routes, and then back to continental-overland trade routes, over this same four-century era; (2) the North-Milgrom-Weingast ‘institutional’ model (1990) on the role of law-merchant courts and judges in reducing incentives to cheat or renege on contracts in fair-oriented trade amongst ‘unacquainted’ participants (i.e. in the Champagne Fairs), and thus in reducing transaction costs in international trade; and (3) the Epstein model (1994) on the various ways in which the later-medieval regional fairs further reduced transaction costs in commerce (even if his model implicitly contradicts elements of my own favoured Van der Wee model). The central theses of this paper are that: (1) the changing intensities, scope, and nature of late-medieval and early modern-warfare played the decisive role in determining the fate of international fairs: (a) in that the consequences of such warfare fatally undermined the economic viability of the earlier medieval fairs (English, French), by raising to a prohibitive level the transportation and other transaction costs involved in overland-continental trade, and more particularly in the mass-market trade in cheap, light textiles, on which these fairs had fundamentally depended; and thus conversely (b) that a restoration of relative security combined with other factors that reduced both transportation and transaction costs led (in accordance with the Van der Wee model) to a revival of continental, overland-trade, to a revival and even more dramatic growth in international trade in cheap textiles, and to a rebirth and renewed pre-eminence of international fairs in early modern European commerce; and (2) that the financial role of fairs was as important as their commercial role; and thus that another major factor in the pre-eminence of early-modern international fairs were financial innovations that led to full negotiability of both private and public forms of credit – especially the rentes, innovations developing chiefly out of fair-based law merchant courts (thus leading us back to the North-Milgrom-Weingast model). The chief criticisms of these models, or parts of them, lie in their inadequate or wrongly formulated explanations for the decline of the Champagne and English fairs, either by adducing incorrect arguments (North-Milgrom-Weingast) and/or by neglecting the very major adverse consequences of the spreading stain of chronic, debilitating, and ever so disruptive European and Mediterranean-wide warfare from the 1290s – and not from the Hundred Years’ War era, consequences that also fatally undermined the international trade in, and thus the production of, the cheap light textiles, over the next two centuries. Such analysis is extended to criticize other favoured models to explain the decline and fall of the Champagne Fairs: the De Roover ‘commercial revolution’ thesis on Italian branch–plant firms with their use of bills-of-exchange; the Bautier-Verlinden model on the ‘industrialization of 14th century Italy’; and the most favoured one of all – the establishment of the Italian galley route, the direct sea-route, to NW Europe. One merely has to point out the dramatic impact of the revival of overland, continental trade routes and of so many international, fairs from the 15th century, to see why these three latter theories lack credibility in explaining a general commercial-financial phenomenon on the supposed ‘decline of fairs’ in the international economy.

Suggested Citation

  • Munro, John H., 2000. "The 'New Institutional Economics' and the Changing Fortunes of Fairs in Medieval and Early Modern Europe: the Textile Trades, Warfare, and Transaction Costs," MPRA Paper 11029, University Library of Munich, Germany, revised Feb 2001.
    • Handle: RePEc:pra:mprapa:11029
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    References listed on IDEAS

    as
    1. Paul R. Milgrom & Douglass C. North & Barry R. Weingast*, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, March.
    2. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 857-882, December.
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    5. John H. Munro, 1998. "Textiles as Articles of Consumption in Flemish Towns, 1330 - 1575," Working Papers munro-98-04, University of Toronto, Department of Economics.
    6. John H. Munro, 1999. "The Low Countries' Export Trade in Textiles with the Mediterranean Basin, 1200-1600: A Cost-Benefit Analysis of Comparative Advantages in Overland and Maritime Trade Routes," Working Papers munro-99-01, University of Toronto, Department of Economics.
    7. James Masschaele, 1993. "Transport costs in medieval England," Economic History Review, Economic History Society, vol. 46(2), pages 266-279, May.
    8. John H. Munro, 1998. "The 'Industrial Crisis' of the English Textile Towns, c.1290 - c.1330," Working Papers munro-98-02, University of Toronto, Department of Economics.
    9. Munro, John H., 1998. "The symbiosis of towns and textiles: urban institutions and the changing fortunes of cloth manufacturing in the Low Countries and England, 1270 - 1570," MPRA Paper 11266, University Library of Munich, Germany, revised Sep 1998.
    10. North, Douglass C., 1984. "Government and the Cost of Exchange in History," The Journal of Economic History, Cambridge University Press, vol. 44(2), pages 255-264, June.
    11. Reed, Clyde G., 1973. "Transactions Costs and Differential Growth in Seventeenth Century Western Europe," The Journal of Economic History, Cambridge University Press, vol. 33(1), pages 177-190, March.
    12. de Roover, Raymond, 1967. "The Scholastics, Usury, and Foreign Exchange," Business History Review, Cambridge University Press, vol. 41(3), pages 257-271, October.
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    Cited by:

    1. Bart Ballaux & Bruno Blondé, 2018. "Road transport productivity in the sixteenth‐century Low Countries: the case of Brabant, 1450–1650," Economic History Review, Economic History Society, vol. 71(3), pages 707-726, August.
    2. Edwards, Jeremy & Ogilvie, Sheilagh, 2012. "What lessons for economic development can we draw from the Champagne fairs?," Explorations in Economic History, Elsevier, vol. 49(2), pages 131-148.
    3. John Munro, 2005. "Spanish merino wools and the nouvelles draperies: an industrial transformation in the late medieval Low Countries," Economic History Review, Economic History Society, vol. 58(3), pages 431-484, August.
    4. Munro, John H., 2006. "South German silver, European textiles, and Venetian trade with the Levant and Ottoman Empire, c. 1370 to c. 1720: a non-Mercantilist approach to the balance of payments problem, in Relazione economic," MPRA Paper 11013, University Library of Munich, Germany, revised Jul 2006.
    5. Chilosi, David & Volckart, Oliver, 2010. "Good or bad money?: debasement, society and the state in the late Middle Ages," Economic History Working Papers 27946, London School of Economics and Political Science, Department of Economic History.
    6. Ogilvie, Sheilagh & Carus, A.W., 2014. "Institutions and Economic Growth in Historical Perspective," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 403-513, Elsevier.
    7. Sheilagh Ogilvie & Jeremy Edwards, 2011. "What lessons can we draw from the Champagne Fairs?," Working Papers 11007, Economic History Society.
    8. Richardson, Gary, 2004. "Guilds, laws, and markets for manufactured merchandise in late-medieval England," Explorations in Economic History, Elsevier, vol. 41(1), pages 1-25, January.
    9. Munro, John H., 2002. "The medieval origins of the 'Financial Revolution': usury, rentes, and negotiablity," MPRA Paper 10925, University Library of Munich, Germany, revised Sep 2002.
    10. John H. Munro, 2008. "Necessities and Luxuries in Early-Modern Textile Consumption: Real Values of Worsted Says and Fine Woollens in the Sixteenth-Century Low Countries," Working Papers tecipa-323, University of Toronto, Department of Economics.
    11. Chilosi, David & Volckart, Oliver, 2010. "Books or bullion? Printing, mining and financial integration in Central Europe from the 1460s," Economic History Working Papers 28986, London School of Economics and Political Science, Department of Economic History.
    12. repec:hum:wpaper:sfb649dp2007-007 is not listed on IDEAS
    13. Munro, John H., 2005. "I panni di lana: Nascita, espansione e declino dell’industria tessile di lana italiana, 1100-1730 [The woollen cloth industry in Italy: The rise, expansion, and decline of the Italian cloth industr," MPRA Paper 11038, University Library of Munich, Germany, revised Sep 2006.
    14. Chilosi, David & Volckart, Oliver, 2009. "Money, states and empire: financial integration cycles and institutional change in Central Europe, 1400-1520," Economic History Working Papers 27884, London School of Economics and Political Science, Department of Economic History.
    15. Munro, John H., 2002. "Industrial energy from water-mills in the European economy, 5th to 18th Centuries: the limitations of power," MPRA Paper 11027, University Library of Munich, Germany, revised Jun 2002.
    16. Volckart, Oliver, 2007. "Rules, discretion or reputation? Monetary policies and the efficiency of financial markets in Germany, 14th to 16th centuries," SFB 649 Discussion Papers 2007-007, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    17. Guha, Brishti, 2012. "Who will monitor the monitors? Informal law enforcement and collusion at Champagne," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 261-277.
    18. Volckart, Oliver, 2018. "The dear old holy Roman realm. How does it hold together? Monetary policies, cross-cutting cleavages and political cohesion in the age of reformation," Economic History Working Papers 90503, London School of Economics and Political Science, Department of Economic History.

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    More about this item

    Keywords

    warfare; transaction costs; overland transport; fairs; Champagne Fairs; Frankfurt Fairs; Geneva Fairs; Brabant Fairs; Venice; Italy; South Germany; Rhine; Low Countries; England; Antwerp; London; Law-Merchant; texties; woollen cloth industries; sayetteries; ships; shipbuilding; galleys; carracks; North-Weingast-Milgrom model; negotiability; bills of exchange; promissory notes;
    All these keywords.

    JEL classification:

    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
    • F10 - International Economics - - Trade - - - General
    • N73 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: Pre-1913
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913

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