Inter‐communal institutions in medieval trade

Abstract This article examines the institutional structure of medieval overseas trade to explain why trade thrived even in the absence of the state. The literature has dealt mainly with intra-coalition or intra-community relations. However, the literature does not answer the question of how institutions could be created that could support interaction between a large number of distant communities and between merchants who did not necessarily know one another. This article presents such an institution that prevailed in the Baltic Sea region in the late middle ages, referred to here as the inter-communal conciliation mechanism. In case of a dispute, conciliation took place between town councils, rather than the merchants involved in the dispute, thus combining individual liability and communal enforcement. Exploration of the documents reveals a task-specific regularity of behaviour, which was the general practice among merchants to turn to the council of their own community when they had problems in a foreign town, instead of being obliged to solve disputes by themselves. This institution provided a permanent, centralized, and relatively impartial enforcement mechanism to respond to breaches. It was therefore well adapted to large, at least partially anonymous markets, such as the Baltic Sea region, with dozens of towns and thousands of merchants.