For individuals to enter mutually beneficial exchange relationships they have to recognise them as such and they have to be able to commit to fulfil their contractual obligations. The ways in which a society's institutions mitigate this fundamental problem of exchange determine its efficiency and distribution. This article calls attention to the need, ability, and promise of studying the historical evolution of institutions that mitigated the fundamental problem of exchange. It elaborates on the essence of this problem and the related institutions, and demonstrates the ability and importance of studying them by drawing on various studies of historical institutions. Our understanding of the different economic performances and evolutions of various societies over time can be greatly enhanced by studying how they mitigated the fundamental problem of exchange.

Before 1880, the British soda industry dominated world export markets and held a substantial share of the German domestic market. After 1880, the German soda industry displaced British imports and then became a leading exporter. We investigate the contribution to these developments of German tariffs, particularly the decline in tariffs on soda in 1873 and the increase in 1880. We develop a model, based on developments in the ‘new trade theory’, of oligopolistic competition in the German soda market, we calibrate this model using historical data, and we then apply the calibrated model in simulating the effects of counterfactual tariff rates. Results show that the 1880 tariff increase promoted, but was not decisive for, the rise of the German industry. More important were the decline in German input prices and the shift to the ammonia process for producing soda.

This article addresses two issues that feature prominently in the recent historiography. First, how does the Habsburg Empire's economic performance compare to the record for other European economies in terms of levels and growth of national income? Second, to what extent was the Austrian economy subject to prolonged stagnation after 1873? These questions are examined on the basis of new annual estimates of GDP for Austria and Hungary for 1870 to 1913. The article argues, first, that over the whole period under review Austrian per capita income failed to expand at a pace broadly commensurate with the country's relative income position. The Austrian economy did not catch up with the leaders and failed to keep pace with other ‘followers’. Second, the Hungarian economy recorded a markedly higher rate of per capita income growth, placing it about mid-range in a European growth comparison. Third, the new evidence supports the notion of a ‘great depression’ in the western half of the empire (Austria) after 1873. The distinct periodicity and differential rates of Austrian and Hungarian growth are consistent with the argument that the outflow of Austrian capital to Hungary after the 1873 Vienna stock market crash was crucial in prolonging economic stagnation in Austria, whilst fuelling the first widespread wave of industrialisation in Hungary. The reversal of this capital outflow in the early 1890s was associated with an increase in Austrian economic growth and a decrease in Hungary's rate of expansion.

Recent research on the Great Depression has concluded that a worldwide decline in aggregate demand, emanating from the United States, was propagated into a fall in real activity through sticky nominal wages. The question remains: Why were nominal wages so sticky? Based on a wide range of evidence for Sweden, I argue that the 1930s depression is compatible with a coordination failure in wage setting, as first suggested by Keynes.

This article constructs nominal and real multilateral effective exchange rates for Britain, France, Germany and the US during the period of the classical Gold Standard, 1879–1913. The new data indicate that the major industrial countries saw trend variations in their nominal effective rates, which appear to have been stochastic in nature, and reflected a significant exchange rate variation with non-gold countries. The movements of nominal effective rates display common trend patterns across the major industrial countries, reflecting similar trading structures in the pre-1914 period. In contrast, the movements of the real effective rates reflect national-specific influences. The implications of the new data with regard to business cycles and the international adjustment mechanism under the Gold Standard are considered.