It's very rare that new evidence overturns something Adam Smith wrote in the Wealth of Nations or Theory of Moral Sentiments, and a new paper on guilds, to which I was alerted by John Cochrane (read his post on it here), is no exception. Sheilagh Ogilvie's "The Economics of Guilds", in the latest issue of the Journal of Economic Perspectives, lays out a history of European guilds 1000-1800, explains why they rose and fell, and explains how the fit the classic profile of the rent-seeking interest group. In Cochrane's words:
The paper nicely works through all the standard pro-guild and pro-regulation arguments. If you just replace "Guild" with "regulatory agency" it sounds pretty fresh.
Ogilvie shows that guilds neither provided contract enforcement, a guarantee of quality, better training and/or qualifications, or innovation. They eventually declined because globalisation and competition rendered them redundant. She explains that guilds did not exist because they solved market failures but rather because they had obvious, concentrated benefits, and hidden, diffuse costs, and because they could use part of these benefits to bribe authorities.
Guilds were institutions whose total costs were large but were spread over a large number of people—potential entrants, employees, consumers—who faced high transaction costs in resisting a politically entrenched institution. The total benefits of guilds, by contrast, were small, but were concentrated within a small group—guild members, political elites—who faced low costs of organizing alliances to keep them in being. Guilds survived for so long in so many places because of this logic of collective action.
There is nothing new under the sun.