746 JOURNAL OF POLITICAL ECONOMY cient coercive power to do these things also has the power to withhold protection or confiscate private wealth,undermining the foundations of the market economy.In the particular case of medieval cities, these threats were sometimes realized,discouraging trade by foreign merchants to the mutual disadvantage of the ruler and the mer- chants.It is our thesis that merchant guilds emerged with the encour- agement of the rulers of trading centers to be a countervailing power, enhancing the ruler's ability to commit and laying an important insti- tutional foundation for the growing trade of that period. European economic growth between the tenth and the fourteenth centuries was facilitated by the "Commercial Revolution of the Mid- dle Ages"-the reemergence of Mediterranean and European long- distance trade after an extended period of decline(e.g.,Lopez 1976). For this commercial expansion to be possible,institutions had to be created to mitigate the many kinds of contractual problems associated with long-distance trade.Assessing the significance of these institu- tions requires a subtle analysis.Indeed,the effectiveness of institu- tions for punishing contract violations is sometimes best judged like that of peacetime armies:by how little they must be used.Thus,when one reads the historical record to determine whether a major role of merchant institutions was to ensure contract compliance,the number of instances of enforcement is not a useful indicator.Instead,one must ask,What were the things that threatened,and on occasion thwarted,efficient trading?Can the powers and organizational details of merchant institutions be explained as responses to those threats? Did failures of enforcement trigger major changes in these institu- tions? A comprehensive analysis of a contract enforcement institution must consider why the institution was needed,what sanctions were to be used to deter undesirable behavior,who was to apply the sanc- tions,how the sanctioners learned or decided what sanctions to apply, why they did not shirk from their duty,and why the offender did not flee to avoid the sanction.Some analyses meeting these criteria have been developed.One is Greif's (1989,1993a)analysis of the contractual relations between merchants and their overseas agents in eleventh-century Mediterranean trade.To reap the benefit of em- ploying overseas agents,an institution was required to enable the agents to commit to act on behalf of the merchants.One group of merchants known as the "Maghribi traders"managed their agency relations by forming a coalition whose members ostracized and retali- ated against agents who violated their commercial code.Interrelated contractual arrangements motivated merchants to participate in the collective retaliation against agents who had cheated,and close com- munity ties assured that each member had the necessary information746 JOURNAL OF POLITICAL ECONOMY cient coercive power to do these things also has the power to withhold protection or confiscate private wealth, undermining the foundations of the market economy. In the particular case of medieval cities, these threats were sometimes realized, discouraging trade by foreign merchants to the mutual disadvantage of the ruler and the mer￾chants. It is our thesis that merchant guilds emerged with the encour￾agement of the rulers of trading centers to be a countervailing power, enhancing the ruler's ability to commit and laying an important insti￾tutional foundation for the growing trade of that period. European economic growth between the tenth and the fourteenth centuries was facilitated by the "Commercial Revolution of the Mid￾dle Ages"-the reemergence of Mediterranean and European long￾distance trade after an extended period of decline (e.g., Lopez 1976). For this commercial expansion to be possible, institutions had to be created to mitigate the many kinds of contractual problems associated with long-distance trade. Assessing the significance of these institu￾tions requires a subtle analysis. Indeed, the effectiveness of institu￾tions for punishing contract violations is sometimes best judged like that of peacetime armies: by how little they must be used. Thus, when one reads the historical record to determine whether a major role of merchant institutions was to ensure contract compliance, the number of instances of enforcement is not a useful indicator. Instead, one must ask, What were the things that threatened, and on occasion thwarted, efficient trading? Can the powers and organizational details of merchant institutions be explained as responses to those threats? Did failures of enforcement trigger major changes in these institu￾tions? A comprehensive analysis of a contract enforcement institution must consider why the institution was needed, what sanctions were to be used to deter undesirable behavior, who was to apply the sanc￾tions, how the sanctioners learned or decided what sanctions to apply, why they did not shirk from their duty, and why the offender did not flee to avoid the sanction. Some analyses meeting these criteria have been developed. One is Greif's (1989, 1993a) analysis of the contractual relations between merchants and their overseas agents in eleventh-century Mediterranean trade. To reap the benefit of em￾ploying overseas agents, an institution was required to enable the agents to commit to act on behalf of the merchants. One group of merchants known as the "Maghribi traders" managed their agency relations by forming a coalition whose members ostracized and retali￾ated against agents who violated their commercial code. Interrelated contractual arrangements motivated merchants to participate in the collective retaliation against agents who had cheated, and close com￾munity ties assured that each member had the necessary information