The author uses the example of occupational guilds, popular in the Middle Ages, to discuss the role of institutions in the process of economic growth. In particular, she presents examples of how institutions interact with the general economy, what their purpose is, and what the conditions are for their survival. She attempts to prove that the existence of such institutions is a result of political conflicts over benefit–cost distribution. It appears that inequality in these two areas can destroy even the most efficient institutions. But balancing costs and benefits and distributing both of them evenly across multiple groups of interest can increase the usefulness of a given institution to the economy and society as well as strengthen its chances for survival.

A guild is an association formed by people who share certain characteristics (e.g., the same type of occupation) and want to achieve similar goals. Even during the height of their popularity, guilds comprised only a small fraction of the population because of the exclusion of women and specific ethnic groups.

Institutions generate trust and social capital. Because of their closed character, European guilds created only particularized trust among their insiders. Broader economic growth requires a generalized trust that encourages people to conduct business between themselves and also with strangers. The key conclusion the author makes is that particularized trust leads to rent-seeking behavior. In the days of guilds, part of this rent was transferred out of the guild, mostly to secure support from political elites.

Moreover, the existence of social networks that foster a particularized trust can block the rise of more productive arrangements—for example, impersonal markets and impartial states. Henceforth, the guilds generated huge social costs (by spreading among a large number of people, including potential entrants and customers) but minimal benefits available only to members.

This research should interest policymakers and researchers whose key area of focus regards the role of institutions in the state and in the economy. Even though guilds may appear to be an item of the distant past, the mechanisms that existed inside and outside them may still serve as an excellent example and source of ideas that would rationalize relationships between institutions and the general economy.

The author reviews studies and concepts concerning guilds and has a primary goal of using them as an example of the role of institutions in the economy.

The guilds were most prolific in the Middle Ages, although their existence extends from about 1000 to past 1800. The author assesses that by the 13th century, merchant, trading, and craftsman guilds could be found in most European countries. Starting around 1500, the guilds began to weaken, with the emergence and development of nonassociated individual entrepreneurship, dispersion of trade across multiple locations (instead of centralized trade in single towns), and political decisions to abolish guilds.

The author discusses the role of guilds in the economy from five perspectives. First is their negative impact on the level of competition; only the guild members had the privilege of engaging in certain occupations. Second is their supportive role to society in ensuring security and contract execution. Third is their provision of some kind of quality standard assurance through the regulation of materials, processes, training, and output characteristics. Fourth is their contribution to education and training through their imposition of a certain educational path and required training on current and future members. Fifth is their negative influence on technological innovation, with stronger attention paid to the limits on potential changes in technology that would threaten rents paid to guild participants.

There is an ongoing debate on the reasons why the guilds disappeared. The author considers the rise of the new, parallel equilibrium involving both politicians and entrepreneurs who found benefits from forming generalized institutional mechanisms.

My initial feelings about the research were mixed because I had some trouble putting it into a modern context. After a careful reading, I discovered that even though the main research subject dates back to the Middle Ages, it can serve as a great example for today’s decision makers. The key message is that institutions arise and survive for centuries not because of their efficiency but because of their openness to benefiting multiple and diversified interest groups. Based on that, I assess the research as very good.