The economic historian Professor Sheilagh Ogilvie is an intellectual heroine of modern classical liberalism. Her work on the operation of proto-industries such as woollens manufacture in sixteenth century Baden Wurttenburg may seem esoteric but its study has a remarkable amount to offer our understanding of modern political economy. Ogilvie’s latest book Institutions and European Trade, (Cambridge University Press: 2011) presents a magnificent history of the economic role of merchant guilds between 1000 and 1800. The guilds were legally privileged associations whose members secured from the state exclusive rights to trade in particular commodities or industrial sectors and were the forerunners of modern trades unions and the cartelised business associations found in ‘corporatist’ regimes. There are three themes that emerge from Ogilvie’s work to which all should pay heed.

First, Ogilvie documents the historic responsiveness of individuals to economic incentives. Using a vast array of sources she offers compelling evidence that serfs, peasant producers and early merchants were highly responsive to changes in relative prices and thus that ‘incentives matter’ when trying to understand what lead to or prevented economic development in different historical periods. By drawing attention to this evidence Ogilvie’s work drives yet another nail in the coffin of those who claim, a la Karl Polanyi (see my post last week ‘Down with Karl Polanyi’ on this) that price responsive behaviour is merely a ‘social construction’ reflecting the obsession of contemporary economists with rational actor modelling.

Read the article on the Pileus website.

Mark Pennington is the author of Robust Political Economy: Classical Liberalism and the Future of Public Policy