The article was written while the author was at Northwestern University. I am grateful to J. Mokyr, J. Panzar, and W. Rogerson for helpful discussions and encouragement. The detailed remarks of an anonymous referee and the editor enriched this work. I received many stimulating comments from participants at seminars held at Northwestern University, the University of Chicago, the University of Texas at Austin, Stanford University, M.I.T, Yale, the University of Arizona at Tucson, the University of Michigan at Ann Arbor, and Washington University in St. Louis. The research was supported by the Sloan Dissertation Fellowship. The usual caveat applies.Google Scholar

¹ Lopez, R. S., “The Trade of Medieval Europe in the South,” in Postan, M. M. and Miller, E., eds., The Cambridge Economic History of Europe (New York, 1952), vol. 2;Google ScholarLopez, R. S., The Commercial Revolution of the Middle Ages, 950–1350 (New York, 1976).CrossRefGoogle ScholarPirenne, H., Mohammed and Charlemagne (New York, 1939);Google ScholarPirenne, H., A History of Europe (New York, 1956).Google Scholar

² de Roover, R., “The Organization of Trade,” in Postan, M. M., Rich, E. E., and Miller, E., eds., The Cambridge Economic History of Europe (Cambridge, 1963), vol. 3, p. 44;Google ScholarGras, S. B., Business and Capitalism, An Introduction to Business History (New York, 1939);Google ScholarPorter, G., and Livesay, H. C., Merchants and Manufacturers (Baltimore, 1971).Google Scholar

³ The superiority of trading systems that employ agents over those that do not has been shown by many scholars. See, for example, de Roover, “The Organization of Trade,” pp. 43, 45 ff., 70 ff.;Google ScholarPostan, M. M., Medieval Trade and Finance (Cambridge, 1973), pp. 66 ff.;CrossRefGoogle ScholarLopez, R. S., and Raymond, I. W., Medieval Trade in the Mediterranean World (New York, 1955), p. 174.Google Scholar

⁴ Cipolla, C. M., Before the Industrial Revolution (2nd edn., New York, 1980), p. 198.Google Scholar

⁵ Lopez, , The Commercial Revolution; de Roover, “The Organization of Trade”;Google ScholarSombart, W., “Medieval and Modern Commercial Enterprise,” in Lane, F. C. and Riemersa, J. C., eds., Enterprise and Secular Change (Homewood, 1953);Google ScholarRosenberg, N. and Birdzell, L. E. Jr, How the West Grew Rich (New York, 1986);Google ScholarWeber, M., General Economic History, trans. by Knight, F. H. (New York, 1927).Google Scholar

⁶ By self-interested individuals I refer to individuals whose utility function is defined over their effort and money income. On the old debate between sociologists and economists concerning the rational versus the social man, see Simon, H. A., Models of Man, Social and Rational (New York, 1987)Google Scholar and Landa, J. T., “A Theory of the Ethnically Homogeneous Middleman Group: Beyond Markets and Hierarchies,” working paper, The Hoover Institution, Stanford University, 1988, p. 14.Google Scholar For a discussion of cooperation versus free riding, see Dawes, R. M. and Thaler, R. H., “Anomalies: Cooperation,” Journal of Economic Perspectives, 2 (Summer 1988), pp. 187–97.CrossRefGoogle Scholar

⁷ Note that a social control system and ethics mechanisms may constitute such a linkage. These mechanisms can thus be incorporated into the present approach.Google Scholar

⁸ The approach taken here builds upon theoretical developments in the economics of information, contract theory, and transaction-cost economics. See Hart, O. and Holmstrom, B., “The Theory of Contracts,” in Bewley, T. F., ed., Advances in Economic Theory, Fifth World Congress (Cambridge, 1987);Google ScholarWilliamson, O. E., The Economic Institutions of Capitalism (New York, 1985); and others.Google Scholar For a pathbreaking historical application of these developments, see Fenoaltea, S., “Slavery and Supervision in Comparative Perspective: A Model,” this JOURNAL, 44 (09. 1984), pp. 635–68.Google Scholar

⁹ For a general introduction to the geniza documents, see Goitein, S. D., A Mediterranean Society: Economic Foundations (Los Angeles, 1967), introduction;Google Scholar the entry “Geniza” in Houtsma, M. Th., ed., Encyclopedia of Islam (2nd edn., Leyden, 1978), vol. 3, pp. 987–89.Google Scholar

¹⁰ The documents were purchased by various libraries. Documents referred to here are denoted by the library in which they are located and their registration number within that library. When the reader is directed to a specific line or lines within the document, the side (a or b) and the lines are also mentioned. The following abbreviations are used: BM is the British Museum, London; Bodl. is the Bodleian Library, Oxford, England; DK is the David Kaufmann Collection, Hungarian Academy of Science, Budapest; Dropsie is Dropsie College, Philadelphia; ENA is the Elkan N. Adler Collection, Jewish Theological Seminary of America, New York; INA is the Institute Norodov Azii, Leningrad; Mosseri is the private collection of Jack Mosseri; Oxford is the Oxford library, England; TS is the Taylor-Schechter Collection, University Library, Cambridge, England; ULC is the University Library, Cambridge, England (exclusive of the TS collection). Many of the documents have been published by Goitein, Moshe Gil, and others. For published, translated, or quoted documents I cite the published source after the reference to the document. For example, TS xx.xxx, a, II. 24–25, Goitein, Economic Foundations, p. 727 is a reference to document # xx.xxx in the Taylor-Schechter collection, side a, lines 24–25,Google Scholarthat was published in Goitein, Economic Foundations, p. 727.Google Scholar

¹¹ The entry “Fatimids” in Houtsma, , Encyclopedia of Islam. Moshe Gil, Palestine During the First Muslim Period (634–1099) (in Hebrew and Arabic), (Tel Aviv, 1983), vol. 1, pp. 257–58;Google ScholarGoitein, Economic Foundations, pp. 29–35, 266–72;Google ScholarGoitein, S. D., Letters of Medieval Jewish Traders (Princeton, 1973), pp. 10–11;Google Scholar and Lewis, A. R., Naval Power and Trade in the Mediterranean, A.D. 500–1100 (Princeton, 1951), pp. 189 ff.Google Scholar Customs were imposed, but their levels were limited by competition between trade centers. How trade embargoes forced cancellation of a tariif is presented in Greif, A., “Reputation and Coalitions in Medieval Trade: Evidences from the Geniza Documents,” MS, Northwestern University, 1989.Google Scholar

¹² Goitein, Economic Foundations, pp. 309 ff.;Google ScholarGoitein, Letters, p. 112, n. 5;Google ScholarGil, Moshe, “The Jews in Sicily Under the Muslim Rule in the Light of the Geniza Documents,” MS, Tel Aviv University, 1983Google Scholar [also published (in Italian) in Italia Judaica, (Rome, 1983)], p. 27, n. 30; TS 16.7, b, 1. 5.Google Scholar For Europe, where the situation was rather different, see Gras, Business and Capitalism, pp. 40, 43, 76,Google Scholarand de Roover, “The Organization of Trade,” pp. 48, 58 ff. For a discussion of mail delivery, see Goitein, Economic Foundations, pp. 191, 281–95.Google Scholar

¹³ Goitein, Economic Foundations, pp. 157, 187, 192 ff.Google Scholar

¹⁴ Ibid., pp. 273 ff.; termination in Libya instead of Sicily: TS 20.152, a, II. 24–25, Gil, Palestine, vol. 2, p. 727.Google Scholar

¹⁵ See, for example, Bodl. MS Heb. c28, f. 61, a, I. 6–7, Gil, The Jews in Sicily, pp. 126–33. On pilfering, see Bodl. MS Heb. c28, f. 61, a, I. 12–13,Google ScholarGil, The Jews in Sicily, pp. 126–33;Google ScholarGoitein, Economic Foundations, p. 157.Google Scholar On damage, see Bodl. MS Heb. a3, f. 13, Goitein, Letters, p. 122.Google Scholar

¹⁶ Dropsie 389, a, II. 4–5, b, II. 27–28, Gil, The Jews in Sicily, pp. 113–25.Google Scholar See also Goitein, Economic Foundations, pp. 301 ff.Google Scholar

¹⁷ TS Arabic box, 5, f.l, II. 16–17, Goitein, S. D., “Jewish Trade in the Mediterranean in the Beginning of the Eleventh Century (in Hebrew),” Tarbiz, 37 (01. 1968), pp. 168–70.Google Scholar Wheat: INA D-55, No. 13, Goitein, Letters, pp. 163–68.Google ScholarSee discussion in Goitein, Economic Foundations, pp. 200–1.Google Scholar

¹⁸ Goitein, Economic Foundations, pp. 156–59, 186–92;Google ScholarGil, Palestine, vol. I, pp. 200 ff.;Google ScholarGil, Moshe, “The Radhanite Merchants and the Land of the Radahan,” Journal of the Economic and Social History of the Orient, 17 (09 1974), pp. 299–328.Google Scholar

¹⁹ Goitein, Economic Foundations, pp. 214 ff.;Google ScholarGil, Palestine, vol. 1, pp. 200 ff. Goitein argues that middle-class family monthly expenditures were two dinars (Economic Foundations, p. 46), while Gil argues they were about three dinars (The Jews in Sicily, p. 91).Google Scholar

²⁰ Gil, Moshe, The Tustars: The Family and the Sect (Tel Aviv, 1971), pp. 12–15;Google ScholarGil, Palestine, vol. 1, p. 215;Google Scholarand Goitein, Economic Foundations, pp. 30–34, 148, 157.Google Scholar

²¹ “Ashabana”, translated above as “our people,” also means “coreligionists.” It is thus sometime difficult to determine whether the writer of a particular letter meant Jews or Maghribi tradersGoogle Scholar See, for example, Bodl. MS Heb. d 66, f. 12, II. 20–21, Gil, Palestine, vol. 3, p. 318; DK XV, b, I. 15 and TS 12 J 25, I. 39,Google ScholarGil, Palestine, vol. 3, pp. 182, 222. In many letters the meaning is clear.Google Scholar See, for example, DK 13, section G, and F, Goitein, Letters, p. 32;Google ScholarTS Box Misc. 25, f. 106, a, I. 9, Gil, Palestine, vol. 2, p. 734.Google Scholar

²² TS 13 J 26, f. 24, b, II.Google Scholar 3–5 and TS Box Misc 25, f. 106, I. 9, Gil, Palestine, vol. 2, pp. 601, 734.Google Scholar

²³ Sombart, “Medieval and Modern Commercial Enterprise,” p. 36.Google Scholar

²⁴ Gil, Palestine, vol. 1, pp. 219, 450–51. Clearly, when people interact they may get some satisfaction from the interaction itself. Fear of losing this satisfaction may reduce misconduct to some degree.Google ScholarTraders did interact over time and shared a common religion and history (see Gil, Palestine, vol. I, p. 223,Google Scholar and Goitein, Economic Foundations, p. 149). However, the point is that each trader was far away from most of the other traders, had commercial relations with only some of them, and belonged to another social group—the Jewish community.Google Scholar

²⁵ Bodl. MS Heb a3, f. 26, Goitein, Letters, pp. 96 ff.Google Scholar

²⁶ See below for a discussion of forms of business association employed by the Maghribi traders.Google Scholar

²⁷ For diversification over trade centers, see, for example, Bodl. MS Heb. a3, f.26, Goitein, Letters, p. 100. (five different centers); over goods, see, for example, Goitein, Economic Foundations, pp. 153 ff.; over time, see, for example, DK 22, b, I. 13, Gil, The Jews in Sicily, pp. 96–106; TS 12.5r, TS 20.152, Bodl. MS Heb. a3, f. 9, Gil, Palestine, vol. 2, pp. 721 ff. See also Goitein, Economic Foundations, p. 201;Google ScholarStillman, N. A., “East-West Relations in the Islamic Mediterranean in the Early Eleventh Century” (Ph.D. diss., The University of Pennsylvania, 1970);Google ScholarMichael, M., “The Archives of Naharay ben Nissim, Businessman and Public Figure in Eleventh Century Egypt (in Hebrew and Arabic)” (Ph.D. diss., The Hebrew University, Jerusalem, 1965).Google ScholarMerchants also diversified across shipments, see, for example, TS 10 J 19, Il. 7 ff., Goitein, S. D., “Jewish Trade in the Mediterranean in the Beginning of the Eleventh Century (in Hebrew),” Tarbiz, 36 (07 1967), pp. 378–80.Google ScholarFor a story of a Muslim trader who lost all his fortune in a single shipwreck, see Lieber, A. E., “Eastern Business Practices and Medieval European Commerce,” Economic History Review, 21 (08. 1968), p. 231, n. 1.CrossRefGoogle Scholar For business associates' expertise, see Goitein, Economic Foundations, pp. 155 ff.Google Scholar

²⁸ For example, Jacob ben Isma'il of Sicily had at least five partnerships at the same time; see Greif, A., “Sicilian Jews During the Muslim Period (827–1061) (in Hebrew and Arabic)” (M.A. thesis, Tel Aviv University, 1985), p. 133.Google Scholar For a discussion of the risk allocation role of the commenda, see Udovitch, A. L., Partnership and Profit in Medieval Islam (Princeton, 1970),CrossRefGoogle Scholar and Goitein, Economic Foundations, p. 171.Google Scholar

²⁹ See, ULC Or 1080 J 42, Goitein, Letters, pp. 93–94;Google Scholarand Greif, “Sicilian Jews,” pp. 141 ff.Google Scholar

³⁰ See Goitein, Economic Foundations, p. 166.Google Scholar

³¹ DK 22, b, 1. 18, Gil, The Jews in Sicily, pp. 97–106;Google ScholarTS 13 J 25, f. 18, Goitein, Economic Foundations, p. 164.Google Scholar

³² For this conclusion, see, for example, Goitein, Letters, p. 7.Google Scholar

³³ Forms of business association will be discussed below as well as the use of the legal system in supervising the relations between business associates. The only “misconduct” that appears over and over in the documents is late payment of debts. This, however, seems to reflect shortage in liquid assets and was not considered misconduct during the eleventh century. See Gil, Palestine, vol. 1, p. 212.Google Scholar

³⁴ Note that partnerships without agency relations can be established. In such cases, however, all the partners must handle the goods physically and there can be no diversification of capital.Google Scholar

³⁵ In addition to prices, the revenue realization depended upon many other eventualities: the condition of the goods upon arrival; the amount of the bribe given in the port; the cost of delivery; theft; and so forth. See, for example, TS 20.122, b. I. 10. Dropsie 389, a, II. 21–23, Gil, The Jews in Sicily, pp. 113–25; TS 10 J 10, f. 30, II. 11–12, Gil, Palestine, vol. 3, p. 193; and Bodl. MS Heb. a3, f. 26, Goitein, Letters, p. 98, sect. B.Google Scholar

³⁶ For evidence and theoretical justification for the above (implicit) claim that it was optimal for a merchant to obtain a “true report” (where “true” is understood as some optimal deviation from the actual realization), see Greif, “Reputation and Coalitions,” and Greif, A., “Agent's Reputation and the Choice of Optimal Contract,” MS, Northwestern University, 1989.Google Scholar

³⁷ Ben-Porath, Yoram, “The F-Connection: Families, Friends, and Firms and the Organization of Exchange,” Population and Development Review, 6 (03. 1980), p. 4.CrossRefGoogle Scholar

³⁸ According to Jewish law, an agent cannot be sued for “bringing (the merchant) articles worth 1 for 100” (Maimonides, , Mishne Torah, vol. 12, trans. Klein, I., [New Haven, 1951], p. 208).Google ScholarIn 1095 an agent who received 70 dinars reported that he had lost all but 20 dinars. The merchant could not sue, although he was certain he had been cheated. See TS 13 J 2, f. 5, Goitein, Economic Foundations, p. 176.Google Scholar

³⁹ Maimonides, Mishne Torah, p. 210. This inability is also reflected in the geniza. At the beginning of the twelfth century two brokers from Fustat—a father and his son—vanished from the city holding goods worth about two hundred dinars that belonged to Jewish and Muslim traders.Google ScholarGoitein, Economic Foundations, p. 439, n. 39.Google Scholar

⁴⁰ TS 10 J 4, f. 4, published by several scholars, see Greif, “Sicilian Jews,” appendix, pp. 5–7.Google Scholar

⁴¹ Bodl. Ms. Heb. f. 42, Poznanski, S., “Ephraim ben Schemria de Fustat (in French and Hebrew),” Revue des Etudes Juives, 48 (01–03. 1904), pp. 171–72.Google Scholar See also Greif, “Sicilian Jews,” appendix, pp. 66 ff.Google ScholarFor additional examples of the inability of the legal system to provide an efficient solution to the above contractual problem, see TS 20.152 and Bodl. MS Heb. a3 f.9, Gil, Palestine, vol. 2, pp. 724–32.Google ScholarOn the cost of litigation, see Bodl. MS Heb., a3 f.26, Goitein, Letters, p. 97.Google ScholarFor discussion of similar problems in fifteenth-century Italy, see de Roover, “The Organization of Trade,” p. 88.Google ScholarFor the contribution of the legal system in promoting trade, see Gil, Palestine, vol. 1, pp. 210–12, 425–30.Google Scholar

⁴² Williamson, Economic Institutions, pp. 5, 9–10;Google ScholarJoskow, P. L., “Vertical Integration and Long-Term Contracts: The Case of Mine-Mouth Coal Plants,” paper presented in the Economic and Legal Organization Workshop, Massachusetts Institute of Technology, 1984, p. 13.Google Scholar

⁴³ For the prevalence of trust relations, see, for example, Goitein, Letters, introduction.Google Scholar

⁴⁴ Reputation is defined in game theory as “the perception others have of the players' value (utility function, profit function, etc.) which determines its choice of strategies,” see Weigelt, K., and Camerer, C., “Reputations and Corporate Strategy: A Review of Recent Theory and Applications,” Strategic Management Journal, 9 (09–10. 1988), pp. 443–54.CrossRefGoogle Scholar For references to reputation in the transaction-cost literature, see Williamson, Economic Institutions, pp. 121, 138,Google Scholar and Joskow, Vertical Integration, p. 14.Google Scholar For the role of reputation in the market for experience goods where the difference between the two types is reflected, see Nelson, P., “Advertising as Ioation”, Journal of Political Economy, 78 (07–08. 1974), pp. 729–54,CrossRefGoogle Scholar and Klein, B., and Leffier, K., “The Role of Market Forces in Assuring Contractual Performance,” Journal of Political Economy, 89 (08. 1981), pp. 615–41.CrossRefGoogle Scholar For subsequent analysis, see Allen, Franklin, “Reputation and Product Quality,” Rand Journal of Economics, 15 (Autumn 1984), pp. 311–27;Google ScholarRogerson, W. P., “Reputation and Product Quality”, Bell Journal of Economics, 14 (Autumn 1983), pp. 508–616;CrossRefGoogle Scholar and Shapiro, C., “Premiums for High Quality Products as Return to Reputation”, Quarterly Journal of Economics, 98 (11. 1983), pp. 659–79.CrossRefGoogle Scholar

⁴⁵ That is, above the wage that the agent can get elsewhere.Google Scholar

⁴⁶ Note that it is assumed that there is some positive probability that the merchant will be able to detect deviation. See below on the mechanism employed by the Maghribi traders to balance the asymmetric information.Google Scholar

⁴⁷ For a more detailed discussion of this mechanism, see Greif, “Reputation and Coalitions.”Google Scholar

⁴⁸ An improvement means a reduction in the optimal premium—a reduction that has efficiency, in addition to distributional, implications.Google Scholar

⁴⁹ The coalition, however, is not a monopsony in the usual sense of the term since, as described below, a Maghribi trader usually operated as a merchant and an agent at the same time.Google Scholar

⁵⁰ Since it reduces the probability that a cheater will be able to receive the premium somewhere else.Google Scholar

⁵¹ TS 13 J 25, f. 12; TS 12.279; see also TS 8 J 19, f. 23; all published by Gil, Palestine, vol. 3, pp. 218–33.Google Scholar

⁵² Ibid., a, I. 41.

⁵³ Ibid., a, II. 26 ff.

⁵⁴ DK 13, b, II. 12–13, 20–21, Stillman, “East-West Relations,” pp. 267 ff.,Google Scholarand Goitein, Letters, pp. 26 ff.Google Scholar

⁵⁵ Ibid., a, I. 32 and a, I. 43.

⁵⁶ Bodl. MS Heb a 2 f. 17, Sect. D, Goitein, Letters, p. 104.Google Scholar

⁵⁷ Dropsie 389, b, II. 22 ff., Gil, The Jews in Sicily, pp. 113–25.Google ScholarSee also Bodl. MS Heb a3, f. 26 and ULC Or 1080 J 42, Goitein, Letters, pp. 97, 92–95.Google Scholar

⁵⁸ DK 22, b, 1. 5 ff., Gil, The Jews in Sicily, pp. 97–106.Google Scholar

⁵⁹ Bodl. MS Heb. d 66, f. 60, a, margin, ll. 7–9, Gil, Palestine, vol. 3, p. 216.Google Scholar

⁶⁰ Bodl MS Heb a3 f. 13, Goitein, Letters, p. 123.Google Scholar

⁶¹ Ibid.

⁶² In the geniza, sea loans are mentioned only twice. See ENA 3793, f. 7, I. 4, Stillman, “East-West Relations,” p. 262,Google Scholarand Goitein, Economic Foundations, p. 256.Google Scholar For a discussion of the Byzantine and Italian sea loan, see Lopez and Raymond, Medieval Trade, p. 196; Cipolla, Before the Industrial Revolution, p. 197;Google Scholarde Roover, “The Organization of Trade,” pp. 53 ff.;Google Scholarand Krueger, H. K., “The Commercial Relations between Genoa and Northwest Africa in the Twelfth Century” (Ph.D. diss., The University of Wisconsin, Madison, 1932), pp. 73 ff.Google Scholar

⁶³ In Jewish law, the term for the commenda is “eseq.” See Maimonides, Mishne Torah, pp. 299–30. Commenda is the Italian name of a similar form of partnership (collegantia in Venice).Google ScholarI use this name, following Goitein, Economic Foundations. About commenda forms in Italy,Google Scholarsee de Roover, “The Organization of Trade,” pp. 45 ff.,Google Scholarand Lopez and Raymond, Medieval Trade, p. 174.Google ScholarThe Muslim version of the commenda approved by the Jewish legal authorities (qirad algoyim) appears in the geniza. For a discussion of the commenda relations as reflected in the geniza, see Goitein, Economic Foundations, pp. 169–80.Google ScholarFor a discussion of Muslim commenda relations, see Udovitch, Partnership and Profit.Google ScholarFor a discussion of qirad algoyim, see Maimonides, , “Responsa” (in Judeao Arabic and Hebrew), in Blau, J., ed., (Jerusalem, 1957), pp. 45–46.Google ScholarFor a Jewish commenda reflected in the geniza,Google Scholarsee Oxford MS Heb. b.ll, f.8, Mann, Jacob, The Jews in Egypt and in Palestine Under the Fatimid Caliphs (New York, 1970), vol. 2, pp. 29–30. For the relationship among the Western, Muslim, Jewish, and Byzantine commenda,Google Scholarsee Udovitch, A. L., “At the Origins of Western Commenda: Islam, Israel, Byzantium,” Speculum, 37 (04. 1962), pp. 198–207, and Lieber “Eastern Business Practices.”CrossRefGoogle Scholar

⁶⁴ Called “shirka” (“partnership” in Arabic) or shuthafuth (“partnership” in Hebrew); “khulta” (“mixing” in Arabic), “kis wahid” (“one purse” in Arabic), “baynana” (“between us” in Arabic) or “lilwasat” (“into the midst” in Arabic).Google ScholarSee Maimonides, Mishne Torah, p. 220;Google ScholarGoitein, Economic Foundations, p. 173.Google Scholar

⁶⁵ See DK 22, a II. 35–36, margin right, and Dropsie 389, a, I. 30, Gil, The Jews in Sicily, pp. 96 ff.;Google ScholarBodl MS Heb., a2, d 18, II. 11–15, Mann, Jacob, “Responsa of the Babylonian Geonim as a source of Jewish history,” Jewish Quarterly Review, 10 (1919–1920), pp. 139–72.Google ScholarFor discussion, see Goitein, Economic Foundations, p. 172;Google ScholarGreif, “Sicilian Jews,” p. 133.Google Scholar

⁶⁶ In Arabic the relationship was called “suhba” (companionship), “sadaqa” (friendship), or “bida'a” (goods). See Goitein, Economic Foundations, pp. 164–69, 183;Google ScholarGoitein, “Jewish Trade,” pp. 371–72;Google ScholarStillman, “East-West Relations,” p. 388. The term “bida'a”Google Scholaralso appears in Muslim juridical literature, see Udovitch, Partnership and Profit, pp. 101 ff., 134.Google Scholar

⁶⁷ Reciprocal in the sense of the reciprocity theory in anthropology. This theory claims that gift exchange, where each party is obliged to receive a gift and to return one of an equal value, is an ancient form of trade. See Pryor, F. L., The Origins of the Economy: A Comparative Study of Distribution in Primitive and Peasant Economies (New York, 1977), pp. 70 ff.Google Scholar

⁶⁸ This obligation is clear from letters, where traders wrote, “do not withhold from me your letters … and your requirements so that I may deal with them, as my duty and “please buy ‥ in return for my services to you.” TS 13 J 25, f. 18, Goitein, Economic Foundations, pp. 165, 167.Google ScholarSee also Dropsie 389, a, I. 5 ff., b, I. 10–11, Gil, The Jews in Sicily, pp. 113–25.Google ScholarPostan, M. M., “Partnership in English Medieval Commerce,” in Studi in Onore Di Armendo Sapor (Milan, 1957), vol. 1, pp. 532–33, suggests that similar arrangements were used in the Latin medieval world, although there (so he conjectures) an indirect remuneration was given.Google ScholarLopez, The Commercial Revolution, p. 73–74, mentions a similar arrangement, called “rogadia” (by prayer) in early Venetian trade.Google Scholar

⁶⁹ For a discussion of merchants' representatives, see Goitein, Economic Foundations, pp. 186 ff.;Google ScholarGil, Palestine, vol. I, pp. 205, 230;Google ScholarMann, The Jews in Egypt, pp. 29, 112;Google ScholarMichael, “Naharay ben Nissim,” pp. 47ff.Google ScholarFor a discussion of other factors, see Michael, “Naharay ben Nissim,” pp. 47 ff.;Google Scholarand Gil, Palestine, vol. I, p. 503.Google Scholar

⁷⁰ Goitein, S. D., “Mediterranean Trade in the Eleventh Century: Some Facts and Problems,” in Cook, M. A., ed., Studies in the Economic History of the Middle East (London, 1970).Google ScholarGoitein, Letters, 1973, pp. 11 ff.;Google ScholarGill, Palestine, vol. 1, pp. 216 ff.Google Scholar

⁷¹ See, for example, de Roover, “The Organization of Trade.”

⁷² See, for example, the business relations described in Michael, “Naharay ben Nissim,” and Stillman, “East-West Relations”.

⁷³ De Roover, “The Organization of Trade,” pp. 51 ff.;Google ScholarLopez and Raymond, Medieval Trade, pp. 174, 185–86;Google ScholarLane, F. C., “Family Partnerships and Joint Ventures in the Venetian Republic,” this JOURNAL, 4 (11. 1944), pp. 178 ff.;Google Scholarand Sombart, “Medieval and Modern Commercial Enterprise,” pp. 31 ff.Google Scholar

⁷⁴ An agent-merchant may avoid these losses by employing a nonmember agent. This requires a larger premium, however, and implies a reduction in the value of the merchant's capital.

⁷⁵ The cost of an honest agent is lower, the lower his income from his alternative occupation (his reservation utility). The Italian merchants preferred to hire agents without capital and therefore they could not utilize friendships and partnerships in agency relations.

⁷⁶ See Goitein, Letters, p. 60;Google ScholarGoitein, S. D., A Mediterranean Society: The Family (Los Angeles, 1978), pp. 33 ff.Google ScholarGoitein noted (The Family, p. 33) that “… both the government and public opinion were prone to hold a father, or brother, or even more distant relative responsible for a man's commitments, although strict law, both Islamic and Judaic, did not recognize such a claim.”Google Scholar

⁷⁷ Goitein, Economic Foundations, pp. 180 ff.;Google ScholarGoitein, The Family, pp. 40 ff.;Google ScholarGil, Palestine, vol. I, pp. 215 ff.Google Scholar

⁷⁸ Thus increasing the likelihood that the honest agent will receive his long-run gains.

⁷⁹ A family is a natural group and its members are thus honest in their dealings with each other regardless of the organizational form of the family's wealth. That is, agency relations between family members can be conducted when each family member has his own business. My conjecture is that the family aggregated its capital in a family firm to facilitate the establishment of agency relations between the family members and outsiders.

⁸⁰ Goitein, Economic Foundations, pp. 169–70, 178;Google Scholarand Greif, “Sicilian Jews,” p. 133.Google Scholar

⁸¹ In the Italian trade cities, commenda relations were also of short duration (see de Roover, “The Organization of Trade,” p. 49,Google Scholarand Lopez, “The Trade of Medieval Europe,” p. 323).Google ScholarNo satisfactory explanation has been furnished for this phenomenon, however. Lopez, “The Trade of Medieval Europe,” p. 323, conjectured that “the short duration of the commenda contract may have depended originally upon the fact that in the early Middle Ages Catholic merchants were not allowed to reside in Byzantine or Muslim territory.” This explanation would not explain the behavior of the Maghribi traders. Moreover, Lopez himself seems to have been less than fully satisfied with this explanation, noting as an alternative that”… investors were afraid to entrust their money to a travelling merchant for more then one round trip.” The explanation suggested below gives economic meaning to Lopez's intuition.Google Scholar

⁸² Goitein, Economic Foundations, pp. 178, 204 ff.Google Scholar

⁸³ The Maghribi traders' operation in the Far East trade will be described in Goitein's book (forthcoming). See also Goitein, S. D., “The Beginning of the Karim Merchants and the Character of Their Organization,” Journal of Economic and Social History of the Orient, 1 (04. 1958), pp. 175–84;CrossRefGoogle ScholarGoitein, Economic Foundations, pp. 148–49;Google ScholarGil, Palestine, vol. 1, pp. 215 ff.Google Scholar

⁸⁴ The profitability of this trade is reflected in many documents. For example, around 1085 a Maghribi trader reported that he sold brazilwood (a wood grown in India from which red dye was produced) in a Palestinian port to Rum for a 150 percent profit. About twenty years earlier a merchant from Palermo (Sicily) complained that even (!) the Rums were not ready to buy the inferior black ginger that had, therefore, to be sent to another European country in the hope that it would be sold there. BodI. MS Heb. c 28, f. II, 11. 11–13; Dropsie 389, b, II. 6 ff., Goitein, Economic Foundations, p. 45.Google Scholar

⁸⁵ For a discussion of the communal relations and the economic motive, see Goitein, Economic Foundations, pp. 44, 211;Google ScholarGoitein, Studies in the Economic History, p. 55;Google ScholarGreif “Sicilian Jews,” p. 157;Google ScholarTS 12.114, Assaf, Simha, Texts and Studies in Jewish History (in Arabic and Hebrew) (Jerusalem, 1946), pp. 135–37.Google ScholarA Maghribi trader who sailed to Amalfi does not mention any commercial cooperation with local Jews.Google Scholar See TS 8 Ja 1, f. 5, Goitein, Letters, pp. 44–45.Google Scholar

⁸⁶ For example, a Sicilian merchant, Jacob ben Isma'il, had at least five business associates who lived in three different trade centers. See Greif, “Sicilian Jews,” p. 133. An important sedentary merchant like Naharay ben Nissim of Fustat had business relations with dozens of coalition members from Spain to Syria.Google ScholarSee Naharay archive published in Michael, “Naharay ben Nissim,” and letters to him published in Gil, Palestine, vol. 3, pp. 96 ff.Google Scholar

⁸⁷ Trade-related information, including prices, ship arrivals and departures, the general economic and political situation, and so forth, appears in many geniza documents. See, for example, TS 20.76; TS 13 J 15, f. 9, Goitein, Letters, pp. 113–19, 320–22; TS 10 J 11, f. 22, a, 11. 11–12.Google ScholarCompare Goitein, Economic Foundations, pp. 195, 201 ff.,Google Scholarand additional reference in Greif, “Sicilian Jews,” p. 95, n. 60.Google Scholar

⁸⁸ See, for example, Dropsie 389, a, II. 2–4, Gil, The Jews in Sicily, pp. 113–25.Google Scholar

⁸⁹ See, for example, DK 22, a, II. II, ff., Gil, The Jews in Sicily, pp. 97–106, and ULC Or 1080 J 42,Google ScholarGil, Palestine, vol. 3, p. 300.Google Scholar

⁹⁰ According to the theory advanced here, an agent will never cheat. Thus, if monitoring agents is costly, the merchant's claim that he will monitor is not credible. Knowing that the merchants will not monitor, agents will cheat. Anticipating this, a merchant will not employ agents to begin with.

⁹¹ For a discussion of auditing, see Jensen, M. C., and Meckling, W. H., “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics, 3 (10. 1976), pp. 305–60.CrossRefGoogle Scholar For historical survey of auditing practices, see Watts, R. L., and Zimmermann, J. L., “Agency Problems, Auditing and the Theory of the Firm: Some Evidence,” Journal of Law and Economics, 26 (10. 1983), pp. 613–33.CrossRefGoogle ScholarFor the use of witnesses, see, for example, DK 13, Section G; ULC Or 1080 J 48; Bodl. MS Heb. a2 f. 17, all published in Goitein, Letters, pp. 32, 92–93, 103.Google ScholarSee also the discussion in Goitein, Economic Foundations, pp. 168, 196,Google Scholarand Greif, “Sicilian Jews,” p. 143. It should also be noted that eyewitnesses, in certain circumstances, are also required by the Jewish law.Google ScholarSee Maimonides, Mishne Torah, p. 214.Google Scholar

⁹² For this similarity, especially with regard to trade relations and practices, see Goitein, Economic Foundations, pp. 70–74,Google Scholarand Udovitch, Partnership and Profit.Google Scholar

⁹³ Landa, J. T., “A Theory of the Ethnically Homogeneous Middleman Group: Beyond Markets and Hierarchies,” Working Paper, The Hoover Institution, Stanford University, 1988.Google ScholarMacaulay, S., “Noncontractual Relations in Business: A Preliminary Study”, American Sociological Review, 28 (02. 1963), pp. 55–70.CrossRefGoogle Scholar