Why did merchant guilds exist for such a long time in so many different economies? Some argue that they existed because they were efficient, solving economic problems better than any available alternative, creating net benefits. Yet as Chapters 3 and 4 showed, merchant guilds imposed significant costs on the economy. The testimony and behaviour of contemporaries suggests that exclusive guild privileges harmed efficiency: they reduced the overall volume of exchange, stifling the production and consumption that depended on it.

How, then, can we explain why merchant guilds existed so widely for so long? The answer lies in the fact that institutions affect not just efficiency but also distribution. An institution that keeps the economic pie small but distributes large slices to powerful groups can be sustained for centuries by its powerful beneficiaries. Merchant guilds had two powerful beneficiaries – the merchants who belonged to them, and the political authorities who granted their privileges.