The process of ethnogenesis (i.e. the formation of new ethnic groups) can be considered equivalent to the production of "governance goods" in situation of statelessness. The process of ethnogenesis is a response to the problem of social distance between heterogeneous groups which is a barrier to trade. As an investment in governance, ethnogenesis reduces this trade barrier and expands the scope for specialization. To argue the case, this paper relies on two examples of peaceful and productive relations between Native Indians and European settlers in Canada before the mid-19th century. The emergence of "hybrid" cultural groups and identities fostered peaceful relations and permitted trade to occur in borderlands areas where state rule was virtually nonexistent. This in turn facilitated the transatlantic fur trade. Both these examples suggest that cultural processes can be endogenous responses to the production of governance.