Elio Cerrito

Guilds and Economic Growth (Eleventh-eighteenth Centuries). Returns to Scale, Demand, Pareto-optimality

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Abstract

This essay concludes a series of three unitary contributions on corporatism and economic growth. The contemporary ideology of perfect competition and of the competitive society postulates decreasing returns to scale. The literature reveals a historical context of increasing returns since the Middle Ages, invalidating most contemporary conventional wisdom on competition. The success of expanding secondary activities, the search for expanding demand, the growth in size of firms belonging to guilds, and the expansion of towns provide evidence of the prevalence of increasing returns to scale. Division of labour, centralization, improvement of quality, new techniques, and natural energy sources are the determinants of such a trend. The extent of demand appears to be one of the main limits to economic growth. Competition intrinsically engenders a risk of failure of some firms, and hence of non-Pareto-optimality. Guilds attempt to counter non-Pareto-optimality mainly by "ex ante" norms that provide insurance against fatal losses of revenue by their members, but hinder efficient allocation of resources. Nineteenth-century forerunners of modern corporative economic thought first formulate the outlines of a social insurance that intervenes after efficient resource allocation. Justice and insurance goods are actually seen as crucial components of the concept of economic development.

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