Re-evaluating the role of voluntary organisations: merchant networks, the Baltic and the expansion of European long-distance trade

Based on a letter book of the London Baltic merchant Michael Mitford dating 1703-1707 this paper argues that the ability of merchant networks to secure property rights in long distance trade must be re-evaluated. Contrary to the argument of the New Institutional Economists, these were not inferior to the nation state in facilitating the expansion of trade and thereby Smithean growth. It is shown that Mitford's network did not limit membership by non-economic criteria but adapted to the needs of trade. It efficiently solved the free-rider problem through a reputation mechanism. As social ties developed parallel to business ties, the shadow of the future was furthermore supported by the threat of ostracism from the community and helped maintain agents' honesty. Members shared a common set of values, including reciprocity, which played an important role in their conduct of business. The network's attempts at expansion were, however, of limited success. This is related to mercantilist policies and ongoing warfare in the region, not to the network's lacking ability. Furthermore it is shown that the network provided the members with contacts and business opportunities and thereby supported their business activities more than political institutions did. The expansion of the nation state actually hindered rather than supported the expansion of trade in the Northern Seas.