Pre-Market Societies

Pre-Market societies
How was exchange organized in pre-market societies?

The market organization in which people voluntarily trades goods, given certain prices, is not the only way of commerce that exists, and certainly was not the preeminent system in the past.
Market allows for anonymous trade to take place, which means that it is not necessary for the agents to previously know each otherin order for the exchange to take place.
The conditions for the anonymous trade were presented by Adam Smith in his Wealth of the Nations. First, people should be allowed to be selfish; as a community only activated by the self-interest will be a community of ruthless profiteers then it appears the competition as a regulator, it is the conflict of the self-interested actors in the market. Theselfish motives of men are transmuted by interaction to yield the most unexpected of results: social harmony. And the other basic assumption is that prices and quantities are available for all, they function as visible signals. This model is self-curing, meaning that high prices can´t persist because of competition causes production to increase, and self-regulating, meaning that it is its ownguardian. If output or prices or certain kinds of remuneration stray away from their socially ordained levels, forces are set into motion to bring them back into the fold.
Before the first industrial revolution and the market-based-societies these conditions (specifically the visible signs and competition) were not satisfied by most of the commerce and exchange that took place.
This reveals us thequestion of non-anonymity and exclusion, which directly attack the lack of visible signs and competition respectively.
Non-anonymity requires a certain amount of trust between the economic agents, or another form of enforceability. Exclusion like in a cartel or club consists on making it difficult to enter and exit the group, and it requires inducing a cost for breakout; that can be done by variousmethods, mainly: legal, social, physical or economic.
I´ll focus the exposition to an institution utilized during the eleventh century to facilitate complex trade characterized by asymmetric information and limited legal contract enforceability, namely the Maghribi Traders.
The trade between two regions overseas depended, to a large extent, in the trader’s ability to employ agents abroad. Alarge efficiency gain could be achieved by employing overseas agents rather than traveling the merchant himself.
The problem could not be resolved by the legal system neither anonymous markets, the traders faced an organizational problem: cooperation leads to efficiency gains that the anonymous market for agents fails to capture because an unknown agent could easily disappear with all the capitalabroad.
Here is where the trust problem emerges: different kind of solutions there are. The role of ethics and social control systems arise, and of course the “natural links” such as family, tribes and clans.
Avner Grief observes that trust acts a reputation mechanism among economic self-interested individuals. “By establishing ex ante a linkage between past conduct and a future utility stream, anagent could acquire a reputation as honest, that is, he could credibly commit himself ex ante not to breach a contract ex post.”
The reputation mechanism was established as a peer organization that may be referred as a coalition. Members of the coalition provided each other with agency services that increased the value of a member’s capital. Obtaining the benefits of coalition membership dependedupon proper conduct in the past, while the short-run gain from cheating today was less than the long-run benefit an honest coalition member could obtain.
Maghribi Traders’ coalition was integrated by Jewish merchants, and although they incorporated to the Jewish communities of the cities where they arrived, they also retained a strong sense of identity and solidarity among themselves, but they...