ABSTRACT
Social relationships are crucial to successful commerce. They are able to overcome the two factors that most contribute to the success of trade: good information and the prevention of cheating. These two criteria, together with the possibility of profit, determine if repeated transactions occur. Social embeddedness theories of trade answer why a merchant would trust another merchant whose actions might be beyond direct control or punishment. In the early modern period, the world did not have an integrated market and information travelled slowly. Trade did not yet shape the world, but was embedded in a society arranged on personal ties such as kinship or religious affiliation. Social ties and cultural norms and values were shared. In such a familiar world, a trader could reasonably predict commercial behaviour of another merchant. The fact that modern commerce was based on impersonal market exchange seems to suggest that the social embeddedness thesis is only valid for pre-industrial times. Historians have come up with institutions that were invented to replace social relationships in commerce, relying on the pursuit of self-interest by the rational individual.
