ABSTRACT
The pre-modern economy is marked by comparatively high risks and generally higher transaction costs compared to the intrinsic value of the goods. This article explores how economic actors coped with these risks. We use examples from agriculture, (long-distance) trade, and the financial system to show that many pre-modern economic actors cooperated to create informal and formal institutions in order to reduce economic risks and thus transactions costs. Our argument is that they did so because they shared a common perception of these risks, and rather than taking these as God-given, used their minds to cooperate; i.e., they adhered to common mindsets, or, in economics speak, “models,” and intended to act model-consistently. We are reluctant to postulate that their economic behavior should be termed rational in the sense of modern economic theory because this concept requires that (incalculable) uncertainty might to a sufficient degree be transformed into (calculable) risk. Such an understanding of rationality does not appreciate the degree to which pre-modern economic activity remained incalculable. We rather argue that many pre-modern actors used their experiences to form sensible (in the sense of unideological) or model-consistent expectations about the future and acted according to a sensible, model-consistent purpose-means ratio, just as they do today.
