Definition
Guilds were associations of craftsmen and merchants — chartered by towns or sovereigns — that controlled who could practice a given trade, how long they had to apprentice, and on what terms they could sell. Smith treats them as the canonical example of how producers organize to restrict competition while presenting the restriction as a guarantee of quality.
The institutional form is medieval, but Smith's argument generalizes. Any organization that controls entry to a profession or industry — whether by statute, license, certification, or unwritten gatekeeping — performs the same economic function as a guild, with the same costs.
Why it matters
How it works
A guild's core lever is the apprenticeship statute. By requiring seven years' apprenticeship before a worker can practice a trade, the guild artificially limits the number of practitioners. Limited supply at any given demand raises both prices and the wages of those already inside. The justification offered is quality assurance — only a properly trained craftsman can be trusted with the work. Smith's response is that an inexpert craftsman in a free market loses his customers and goes out of business; quality is policed by demand, not by the guild.
The deeper damage is dynamic. A trade that cannot be entered by capable newcomers ossifies. Innovation slows because the people who would have introduced new methods are kept out. The price of the good rises and stays high. Adjacent trades that depend on the restricted one bear the cost.
Smith generalizes to all settlement laws, monopolies, and chartered companies. Whenever an institution restricts entry on behalf of incumbents, the same triangle appears: higher producer income, higher consumer prices, slower aggregate growth. The contemporary equivalents — taxi medallions, certificate-of-need rules, professional licensing in trades with no clear safety stake — operate by the same logic he identified two and a half centuries ago.