In the Middle Ages, Schmallenberg was a town of craftsmen and merchants; at the same time, however, all of its inhabitants also practiced agriculture and kept livestock. Bakers, tailors, shoemakers and wool weavers were active here; there is evidence that forges existed in the town as early as 1273 and 1292. Outside the town mills were operated (since 1416 the fulling mill "Auf der Lake", in the east of the Lenne since the 11th century the monastery mill, the town mill further upstream as well as other mills). In 1560, the town council and mayor issued a "Kauf- und Wandhausordnung", according to which the town demanded a tax from the proceeds of moved textiles. Shortly before, the merchants had built their "Kauff- und Wandthaus" at the market. In 1625 the clothiers and tailors gave themselves their own guild statutes.Also in the 16th century, water-powered iron hammers were built on the Lenne, which produced sickles, scythes, weapons, straw knives, hoes and scoops. This production reached its peak at the beginning of the 19th century. Around 1800, Schmallenberg had 16 ironworks and iron hammers, making it second only to Olpe in the Duchy of Westfalen. In 1847, only 11 iron and metal works were still active. The reasons for this decline were the growing competition from the Sauerland region in the Mark Brandenburg, the high cost of raw materials and the emergence of new processing techniques.
The town developed into a center of local market trade, since holding a market was a municipal prerogative. The inhabitants of the surrounding villages were not allowed to trade or carry on any business. Originally there were seven, later (1575) three annual fairs in Schmallenberg. The craftsmen and merchants played an important role as suppliers for the long-distance trade of the middle and large cities: Schmallenberg belonged to the Hanseatic League as a town facing the Hanseatic League. For the 14th century, there is evidence of a not inconsiderable long-distance trade in the Sauerland, which, however, declined in the 15th century. The first source documents of a likewise not insignificant itinerant trade date back to the 16th century. Trade goods, with which the merchants went on wanderings, were locally produced wood, iron and textile goods. While the neighboring towns of Medebach and Hallenberg developed into agrarian towns, there was a continuity of trade in Schmallenberg and Winterberg. One reason lies in the comparatively poor agricultural conditions in this area. If itinerant trade had reached a considerable scale in the middle of the 18th century, it disappeared almost completely by the beginning of the 20th century.