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Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders' Coalition
Abstract
This paper presents an economic institution which enabled eleventh-century traders to benefit from employing overseas agents despite the commitment problem inherent in these relations. Agency relations were governed by a coalition--an economic institution in which expectations, implicit contractual relations, and a specific information-transmission mechanism supported the operation of a reputation mechanism. Historical records and a simple game-theoretical model are used to examine this institution. The study highlights the interaction between social and economic institutions, the determinants of business practices, the nature of the merchants' law, and the interrelations between market and nonmarket institutions. Copyright 1993 by American Economic Association.
For a flourishing society, it is necessary to settle and pay transactions with money, created by banks doing their regular business of taking deposits and making loans. Roman banking already went beyond money exchange in the beginning of the first millennium and also Middle East early medieval trade banking could inspire later bankers, whereas rather the Knights Templar, a congregation of monks supporting the Crusades, developed much useful practices. The Templars stretched the view of the Church on taking interest by way of service fee, but went under in a dispute with the French King. Banking went on like this. We view it in terms of a power game between bankers and rulers, during which “banking secrets” by way of individual leading bank innovations helped to further practices.
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