North, Rise of W. World

8/13/2019 North, Rise of W. World

1/21

T H E R I S E O F T H EW E S T E R N W O R L D

A N e w E c o n o m i c H i s t o r y

D O U G L A S S C . N O R T H A N DR O B E R T P A U L T H O M A S

II

C A M B R I D G EU N I V E R S I T Y P R E S S


2/21

S O

PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGEThePittBuilding,TrumpingtonStreet,Cambridge, United KingdomCAMBRIDGE UNIVERSITY PRESSTheEdinburgh Building, CambridgeCB2 2RU, UK http: //www.cup.cam.ac.uk40West20th Street, New York, NY10011-4211,USA http://www.cup.org10StamfordRoad, Oakleigh,Melbourne3166,AustraliaCambridge UniversityPress1973ThisbookisincopyrightSubjecttostatutory exceptionandto theprovisions of relevant collective licensing agreements,noreproduction ofanypartmaytake place withoutthewritten permission ofCambridgeUniversity Press.Firstpublished 1973Reprinted 1976, 1977, 1979, 1980, 1982, 1984, 1985, 1988, 1989, 1992,1993, 1995, 1996, 1999Printedin theUnitedStatesofAmericaTypesetinPlantinA cataloguerecord orthis book isavailablefrom the British LibraryLibraryofCongress Cataloguing-in-Publication Data is availableISBN0-521-29099-6 paperback

C O N T E N T S

PrefaceP A R T O N E T H E O R Y A N D O V E R V I E WThe IssueAn OverviewP A R T T WO 900-1500Property Rights in Land and ManEconomic Conditions at the End of the Early Middle AgesThe High Middle Ages: A Frontier MovementThirteenth-Century EuropeThe Fourteenth and Fifteenth CenturiesP A R T T H R E E 1 5 00 -1 7 00Fiscal Policy and Property RightsThe Early Modern Period

10 France and Spain - T he Also-RansII The Netherlands and Successful Economic Growth

EnglandEpilogueBibliographyIndex

I2

34567

89

12

VU

I

9

19253346719i

102120132146157159169
http://www.cup.cam.ac.uk/http://www.cup.org/http://www.cup.cam.ac.uk/http://www.cup.org/


3/21

^RPrefaceS E E S W h i C? ^ b 0 k P S s i b I e - W e * * & % acknowledge ourmdebtedness for the continuing interest and support of the FoundationA special thanksi sdue to Mar ion Impola who has managed to translateour complicatedand conflicting prose into readable and literate W alsoto Joanne Olson for similar efforts.r e ^ ? ^ 8 ^ 0 ? 1 1 ^ STe S c h 0 l a r s w e h a v e f e l t * * A e continuity andfor t , ^ v , * ' b kuC 0U ld bCpt0Ved * h a v i f lg a g e n e ^ Bo fsouses'for each chapter at the end of the book and confining the footnotes tocitauons that refer to direct quotations or involve explanatory asSS

vui

PART ONET H E O R Y A N D O V E R V I E W

1 . T H E I S S U E

T h e affluence of Western man is a new and unique phenomenon. In thepast several centuries he has broken loose from the shackles of a worldbound by abject poverty and recurring famine and has realized a quality oflife which is made possible only by relative abundance. T his book explainsthat unique historical achievement, the rise of the Western W orld.Our arguments central to this book are straightforward. Efficient econo-mic organization is the key to growth; the development of an efficienteconomic organization in Weste rn Euro pe accounts for the rise of the W est.Efficient organization entails the establ ishme nt of institu tional ar range -ments and property rights that create an incentive to channel individualeconomic effort into activities that bring the private rate of return close tothe social rate of return. 1In su bsequent chapters we shall develop and applya relevant model and then describe the parameter shifts which induce theinstitutional change. But first we must set out, in simplified form, the essen-tial conditions for achieving economic growth and examine t he differencebetween private and social costs and benefits.In speaking of economic grow th, we refer to aper capitalong-run rise inincome. True economic growth thus impliesthatthe total income of societymus t increase more rapidly than population. A stationary state, on the otherhand, produces no sustained rise inper capita income even though averageincome may rise and fall during cycles of quite long duration.

A stationary state will result when th ere is no inducement for individualsin the society to undertake those activities that lead to economic growth.Grante d that individuals in the society may choose to ignore such positiveincentives, and that in all societies some are content with their presentsituation; yet casual empiricism suggeststhatmost people prefer mo re goodsto fewer goods and act accordingly. Economic growth requires only thatsome part of the populace be acquisitive.We therefore fall back on the explanation that if a society does not grow1The private rate of return is the sum of the net receipts which the economic unitreceives from undertaking an activity. The social rate of return is the total net benefit(positive or negative) thatsocietygains from the same activity. It is the private rate ofreturn plus the net effect of theactivityuponeveryone else in the society.


4/21

Theory and Overviewi t is because no incentives are provided for economic init iative. Let usexamine what this means. First we must isolate the type of growth ofincome which results from increases in the inputs of productive factors(land, labor, capital). Such direct increments lead to overall (extensive)growth but not necessarily to increases in income per person. Two situa-tions can precipitate the latter sort of per capita improvement which wedesignate as true economic growth. On the one hand, the actualquantit ies of the per capita factors of production may increase. On theother, an increase in efficiency on the part of one or more of the factors ofproduction will result in growth. Such increase of productivity can comeabout thro ugh realization of economies of scale, because of improvem entsin the quali ty of the factors of production (better educated labor, capitalembodying new technology), or because of a reduction in those marketimperfections that result from uncertainty and information costs, or as aresult of organizational changes that remov e market imperfections.

In the past , most economic historians have heralded technologicalchange as the major source of Western economic growth; indeed Europeaneconomic history pivots around the industrial revolution. More recently,others have stressed investment in human capital as the major source ofgrowth. Sti l l more currently, scholars have begun to explore the growtheffects of the reduction in costs of market information. There can be nodoubt that each of these elements has contributed notably to growth inoutput. So have economies of scale, based on production for larger andlarger markets. For that reason, and since we are concerned entirely withgrowth per capita, the expansion of population i tself adds st i l l anotherdimension to our determination of 'true' economic growth. A

Th e previous paragraph reflects w hat economic historians and economistshave almost universally cited as determinants of economic growth in theirdiagnoses of the past performance of economies. Yet the explanation clearlyhas a hole in i t. We are left wonder ing: if all that is required for economicgrowth is investment and innovation, why have some societies missed thisdesirable outcome?The answer, we contend, brings us back to the original thesis. Thefactors we have listed (innovation, economies of scale, education, capital

accumulation, etc.) are not causes of growth; they aregrowth. This bookfocuses on what causes economic growth. Growth will simply not occurunless the existing economic organization is efficient, individuals must belured by incentives to undertake the socially desirable activities. Somemechanism m ust be devised to brin g social and private rates of return intocloser parity. Private benefits or costs are the gains or losses to an indi-vidual participant in any economic transaction. Social costs or benefitsare those affecting the whole society. A discrepancy between private andsocial benefits or costs means that some third party or parties, without

The Issuetheir consent, will receive some of the benefits or incur some of the costs.Such a difference occurs whenever property rights are poorly defined,or are not enforced. If the private costs exceed the private benefits,individuals ordinarily will not be will ing to undertake the activity eventhough it is socially profitable. Some of the historical issues to be dealtwith in this book il lustrate each of the si tuations with regard to propertyrights.

Take the case of ocean shipping and international trade. A majorobstacle to its development was the inability of navigators to determine theirtrue location. This requires a knowledge of twoco-ordinates: lati tude andlongitude. Th e abil i ty to determine lati tude was early discovered and onlyrequired measuring the alt i tude of the Pole star; but in southern lati tudesthis l ies below the horizon. Searching for a substi tute method, PrinceHenry of Portugal convened a group of mathematical experts who dis-covered that the determination of meridian solar alt i tude, when coupledwith tables of the sun's declination, could yield the needed information onlat i tude. The determination of longitude, however, was more difficultsince it required a t imepiece which would rem ain accurate for the durationof long ocean voyages. Phillip I I of Spa in first offered a prize ofiooocrownsfor the invention of such a t imepiece. Holland raised the prize to 100,000florins, and the British finally offered a prize ranging from 10,000 to-20,000 depending on the chronometer's accuracy. This prize hung insuspension until the eighteenth century when it was finally won by JohnHarris on, who devoted the greater par t of his l ifetime to the solution. T hebenefits to society of accurately determ ining a ship's po sit ion were imm ensein terms of reducing ship losses and lowering the costs of trade. Ho w mu chsooner might the breakthrough have occurred, had there been propertyrights to assure an inventor some of the increased income resultant o n the.saving of ships and t ime? (He would also, of course, have had to bear thehigh costs of research and the uncertainty of finding a solution.) Thepayments to mathematicians and the proferred prizes were art ificialdevices to stimulate effort, whereas a more general incentive could have beenprovided by a law assigning exclusive rights to intellectual property in-cluding new ideas, inventions, and innovations. In the absence of suchproperty rights, few would risk private resources for social gains.

As to means of enforcing property rights, this too can be illustrated bythe case of ocean shipping. For centuries pirates and privateers were un-welcome but ubiquitous beneficiaries of trade. The threat of piracy raisedthe costs of commerce and reduced i ts extent. One solution was to paybribes, and the English forestalled the depredations of North Africanpirates in the Mediterranean for many years by that forthright tactic .Bribery was 'efficient' because the income gains from trading freely in theMediterran ean w ere sufficiently greater than th e bribes to leave the n ation


5/21

Theory and Overviewbetter off, on balance, and the solution was for a time less expensive thannaval protect ion.

Other nat ions during this era protected shipping by convoy, while s t i l lothers deployed naval squadrons. Ult imately piracy disappeared because ofthe internat ional enforcement of property rights by navies.Our third i l lustrat ion, deal ing with imperfect ly s t ipulated propertyrights , comes from land pol icy in early modern Spain. As land became

scarce with growing populat ion, the social rate of return on improving theefficiency of agricul ture rose, but the private return did not , because theCrown ha d previously granted to the shepher ds ' gui ld (the Mesta) exclusiverights to drive their sheep across Spain in their accustomed manner. Alandowner who careful ly prepared and grew a crop might expect at anymoment to have i t eaten or t rampled by flocks of migrat ing sheep. In thiscase the ostensible owner did not have exclusive rights to his land.These i l lustrat ions probably wil l have raised more quest ions than solu-t ions for the curious read er. W hy d idn't societ ies develop property rights-over intel lectual prope rty earl ier? W hy were pirates ever al lowed headwa y?Why d idn ' t t he k ing of Spain abrogate the privi leges of the Mesta and.permit fee-simple absolute ownership of land?In the fi rs t example, two possible answers occur. Ei ther n o way had beendevised to make each shipowner pay to the inventor his share of the^gainsfrom inc reased safety at sea (a 'technological' lim itation), or. it appeare d atthe t ime that the costs ofcollection would exceed the benefits to be expec-ted from a potent ial invention.In the second case, bribery was ini t ial ly bet ter than piracy since thenat ion profi ted even after making the payment . Convoying was frequentlyfound to be a s t i l l bet ter solut ion. However, with the expansion of t radei t ul t imately became evident that the c omplete el iminat ion of piracy was thecheapest al ternat ive.In answer to the third quest ion, the king of Spain derived a substantialpart of his revenue from th e Mesta , and i t was not clear that he could gainfrom abrogat ing their rights . Although the income of society would have

been increased by such a change, i t would appear that the Crown's ownrevenue from land taxes, reduced by the costs of reorganizing propertyrights and col lect ing the levies, would not , at least in the short run, haveequal led the t radi t ional revenues from the Mesta. Might the beleagueredproperty owners then have fol lowed B ri t ish pol icy by bribing the she pherdsnot to cross their lands? The difficul ty here is the 'free-rider ' problem ofeconomics. Ral lying al l property owners to support such a project wouldinvolve costs greater than the expected benefits, since each individualwould avoid contribut ing to the bribe, hoping to benefit from the contri -but ions of al l the others .We then discover two general reasons why, his torical ly, property rights

The Issuejfcve not evolved to bring private returns into pari ty with social returns,l)Techniq ue may be lacking to counteract the free-rider and/or to compel|ghird part ies to bear their share of the costs of a t ransact ion. For example,%,'tliecosts of protect ing individual overland traders from depre dat ions bylords ensconced in castles overlooking the routes originally made it cheaperto bribe or pay tolls than to at tempt to circumvent them, but the advent ofgunpowder and the cannon eventual ly mad e such fortresses vulnerable andreduced the costs of enforcing these property rights . Right to the presentday, technical problems have made it similarly difficult, and thereforecostly, to develop arid enforce p rope rty rights in ideas, inven tions, an dinnovat ions and in some natural resources like air and water. To bring theprivate return closer to the social return, secrecy, rewards, prizes, copy-rights and patent laws have been devised at various t imes; but the tech-niques of excluding outsiders from the benefits continue to this day toremain cosdy and imperfect .

(2) The costs of creat ing or enforcing property rights may exceed thebenefits to any group or individual . The i l lustrat ions above provide casesin point . Th e losses from pirates or privateers may ha ve been less than th ecosts of convoying or of naval at tack. Similarly, in abrogat ing the Mesta'sprivi leges, establ ishing private property in land, and enact ing taxes on i tsincome, the king of Spain would ha ve faced not only the uncertainty of theul t imate revenue, but known costs of reorganizat ion and col lect ion, thatexceeded the gains of undertaking such reforms.

If exclusiveness and the enforcement of accompanying property rightscould be freely assured - that is, in the,absence of transac tions costs - th eachievement of growth would be s imple indeed. Everyone would reap thebenefits or bear the costs of his act ions. If the innovat ion of new tec hniques,methods or organizat ional improvements to increase output imposed costson others , the innovator could, indeed must , compensate the losers . If hecould do this and still be better off, it wouldbe a t rue social improvement .However, once we return to the real world of positive transactions costs,the problems of achieving growth are more complicated, and they becomest i l l more uncertain when we recognize that adjustments must inevi tablyoccur between the ini t ial creation ofa set of property rights and the opera-t ion of the system once those rights have been establ ished. Property rightsare always embedded in the inst i tut ional s t ructure of a society, and thecreat ion of new property rights demands n ew inst i tut ional arrangem ents todefine and specify the way by which economic uni ts can co-operate andcompete.

We shal l be part icularly interested in those institutional arrangementswhich enable units to realize economies of scale (joint stock companies,corporat ions), to encourage innovat ion (prizes, patent laws), to improve theefficiency of factor markets (enclosures, bills of exchange, the abolition of


6/21

Theory and Overviewserfdom), or to reduce market imperfections (insurance companies). Suchinsti tutional arrangements have served to increase efficiency. Some couldbe created without changing existing property rights, others involved thecreation of new property rights; some were accomplished by government,others by voluntary organization.

The establishment of organization, whether governmental or voluntary,involves real costs. These tend to vary directly with the number of partiespants who must be brought into agreement. In the case of the voluntaryorganizations, withdrawal is also voluntary, but in the case of governmentalorganization, withdrawal can be accomplished only by migration outsidethe politicalunit. That is, a partner in a joint stock company who comes todisagree with i ts policies can sell his partnership and form a new jointstock company; but if he joins with others in enacting a zoning ordinance,the uses to which he can put his property are restricted, and he is not atl iberty to withdraw from its provisions so long as he holds that prop erty, orhe must change the law - i tself a costly proposit ion.

In view of such real costs, new insti tutional arrangements will not beset up unless the private benefits of their creation promise to exceed thecosts. We sho uld note right away two important aspects to thisformulation,(i ) Devising new insti tutional arrangements takes t ime, thought and effort(i.e., it is costly) but since everyone can copy the new insti tutional formwi thout compensa t ing the individual(s) who devised the new arrange-ment, there will be a substantial difference between private and socialbenefits and costs; (2) governmental solutions entail the additional costof being stuck with the decision in the future - that is, withdrawal costsare higher than tho se related to voluntary organizations. Both these caveatslead us to a further discussion of government and it s role in economicorganization.

We can,asa first approximation , view governmen t simply as an organiza-tion that provides protection and justice in return for revenue: That is, wepay government to establish and enforce property rights. While we canenvisage that voluntary groups might protect property rights on a narrowscale, i t would be hard to imagine a generalized enforcement withoutgovernmental authority. C onsider th e reason. Ever since noma dism gaveway to agricultural sett lements, man has found two ways to acquire goodsand services. He could produce them, on the one hand, or steal them fromsomeone else on the other. In th e latter case, coercion was a tool to redistri-bute wealth and income. Threatened by marauders, the producers of goodsand servicesresponded by investing in mili tary defense. But the buildingof afortress and the en listment of soldiers immediately raised the specter ofthe free-rider. Since the fortress and troops could hardly protect somevillagers without protecting all , i t was to each man's advantage to let hisneighbor do the paying if contributions were on a voluntary basis. Thus

The Issuedefense, as a classic case of a public good, 2 involves the problem of exclud-ing third parties from the benefits. The most effective solution was, andcontinues to be, the forming of governmental authorit ies and taxing of allbeneficiaries.

Justice and the enforcement of property rights are simply anotherexample of a public good publicly funded. These requisites of an orderedsociety are typically embodied in a.set of writ ten or unwritten rules of thegame. The customs of the manor, which we shall examine in the contextof the medieval world, prevailed by precedent alone; writ ten consti tutionshave evolved more recently. But historically such arrangements haveroamed the whole spec t rum from the most rudimenta ry .(in which anabsolutist ruler prevails) to detailed consti tutions with clear separation ofpowers such as that created in 1787 in Philadelphia. The se fundamen talinsti tutions reduce uncertainty by providing the basic ground rulesunderlying the specific or secondary insti tutional arrangements, which arethe particular Jaws, rules and customs of a society.

In general , we shall observe that governments were able to define andenforce property rights at a lower cost than could voluntary groups, andthat these gains became even more pronounced as markets expanded.Therefore, voluntary groups had an incentive (additional to the 'free-rider'problem) to t raderevenue (taxes) in return for the rigorous definit ion andenforcement of property rights by government.

However, there is no guarantee that the government will find i t to be inits interest to protect those property rights which encourage efficiency(i .e . , raise the private rates of return on economic activit ies towards thesocial rate) as against those in which the property rights protected maythwart growth altogether. We have already seen an instance of this in thecase of the Spanish Mesta. As a parallel , a prince may find short-runadvantage in sell ing exclusive monopoly rights w hich may thwart innovationand factor mobili ty (and, therefore, growth) because he can obtain morerevenu e immediately from such a sale than from any other source - t hat is,the transaction costs of reorganizing the economic structure would exceedthe im mediate benefits. We shall explore the theoretical aspects of this issuein Ch apter 8, since the differential success of European economies after thedemise of feudalism depended on th e relationships between the nationstate 's fiscal policy and property rights. We shall have prior occasion toexplore the grad ual evolution of the tax stru cture in the earlier years(thirteenth to fifteenth centuries) since the origins of the nation state andits pressing fiscal dilemma are to be found in those cen turies.

2 Apublicgood is one which,once produced, people cannot be excluded fromenjoying.Ifyou protectavillage, forexample,you cannotavoidprotectingall thevillagers. Knowingthis, each villager has an incentive to avoid paying for the village's defense. This situationis known as the free-rider problem.


7/21

Theory and OverviewLet us sum marize what has been said. Economic growth occurs if outputgrows faster than population. Given the described assumptions about theway people behave, economic growth will occur if property rights make itworthwhile to undertake socially productive activity. The creating, speci-fying and enacting ofsuchproper ty rights are cosd y, in a degree affected bythe state of technology and organization. As the potential grows for privategains to exceed transaction costs, efforts will be made to establish suchproperty rights. Governments takeover the protection and enforcement of

property rights because they can do so at a lower cost than private volunteergroups. Howe ver, the fiscal needs of government may indu ce the protectionof certain property rights which hinder rather than promote growth;therefore we have no guarantee that productive institutional arrangementswill emerge.We have yet to answer the question why property rights which cannotprofitably be established at one point in time will later be economicallyjustified. Obviously the benefits from developing new institutions andproperty rights must have risen relative to costs so that it became profitableto innovate. Therefore an analysis of those parameters w hich influence therelationships between benefits and costs becomes critical to our study. T hepredominant parameter shift which induced the institutional innovations

that account for the rise of the Western World was population growth. Letus see how it worked historically.

2 . A N O V E R V I E W

We must step into history at some moment of time and in the process doviolence to its essential continuity. We choose the tenth century - follow-ing the decay of the Carolingian Em pire, when feudalism and manorialismshaped the society of much of Western Europe. Since the key to ourstory is the evolution of institutional arrangements it is worthwhile todescribe feudalism as precisely but as accurately as possible by way ofthe following exposition from the Shorter Cambridge Medieval History,p p. 418-19.

Although full-grown feudalism was largely the result of the breakdownof older government and law, it both inherited law from the past andcreated it by a rapid growth of custom based on present fact. In onesense it may be denned asan arrangem ent of society based on contract,expressed or implied. The status of a person depended in every way onhis position on the land, and on the other hand land-tenure determinedpolitical r ights and duties. T he acts constituting the feudal contract werecalled homagean d investiture. The tenant or vassal knelt before the lordsurrounded by his court curia),placing his folded hands between thoseof the lord, and thus became his 'man' (homme, whence the wordhomage). He also took an oath of fealty fidelitas) of special obligation.Thi s of course was the ancient ceremony of commendation developed andspecialized. The lord in his turn responded by 'investiture', handing tohis vassal a banner, a staff, a clod of earth, a charter, or other symbol ofthe property or office conceded,the fief feodum orLehn)as it was termed,while the older wordbeneficewent gradually out of use. This w as the freeand honourable tenure characterized by military service, but thepeasant, whether free or serf, equally swore a form of fealty and wasinvested with the tenement he held of his lord. The feudal nexus thuscreated essentially involved reciprocity.Economic activity, however, centered around the manor, and again the

Shorter Ca mbridge Medieval History provides for the complexity of thisinstitution a concise description, pp. 424-5.


8/21

Theory and OverviewTh e most characterist ic version of the manorial vil lage, although nar row-est in i ts distribution, was the English 'manor', which became the mostclosely organized and most durable of the type. It consisted of two oncedistinct elements, the economic and the administrative, and thus strovetowards two intimately connected aims, the subsistence of the vil lagers,and the lord's profit and authority. The vil lage community lay at thebasis of the whole. I n a brief description only an average account, subjectto countless irregularit ies, can be given. The normal vil lager villanusvillein) would hold ayardland or virgate of thirty acres (or its half, abovate),distrib uted in scattered acre-strips in the three or two open fieldsof the mano r, which mig ht coincide with the vil lage or be only a part of i t .He followed the manor routine (i ts 'custom') in the cult ivation, theploughing, sowing, and reaping, of his strips; independent husbandrywas barely possible in the open fields. In each year one field in rotationout of the two or three (as the case might be) was left fallow and unen-closed for beasts to graze in; the cultivated field or fields were fencedround. His own livestock up to a stated number were free to pasture inthe 'waste '; he had his share of the hay-meadow. Intermingled with thetenants ' strips in the open fields lay the strips kept by the lord of themanor in h i s own hands , h i s demesne. There was a s t rong tendency,however, to isolate the demesne in a home-f arm. In this connexion arosethe greater part of the labour services which the vil lager owed for histenement. Each vil lein household owed week-work (one labourer) ofusually three days a week on the demesne farm, w hich included i ts shar eof the ploughs, oxen, and implements for all kinds of work and cartage.T h e cottars, whose holdings were much smaller, owed of course lesslabour. At the peak periods of mowing and reaping, boon-work of allkinds was required in addition, and in this the freemen, socagers andothers, who occupied their tenements for a rent or other terms implyingfree contract, took their part . A freeman, however, might hold land onvillein tenur e, andvice versa.T h eassarts,or reclamations from th e waste,were commonly less burdened with the heavy dues of vil leinage. Dues ofall kinds, indeed, pressed on both vil lein and freeman of;the manor,render of hens, eggs, special payments, etc . The vil lein, besides beingtied to the soil, was subject to the servile fine oimerchet (formariage) onhis daughter's marriage and to the exaction of his best beast as heriot(mainmorte) on his death; he paid the money levy of tallage at the lord'swill ; his corn was grou nd in the lord's m ill ; in France the lord's oven an dhis winepress were seigneurial monopolies. The vil lein might be selectedas reeve or other p etty official of rural manorial econom y. His condition,however, was mitigated by the growth of the custom of the manor, whichat any rate fixed the exactions he laboured under and secured him in hishereditary holding. Like the freeman he attended the manorial court ,10

An Overviewwhich declared the custom of the manor and i ts working. The lord ofmany manors would send round steward or bail iff to receive his profitsand collect produce for his support in those in which he periodicallyresided. Besides the subsistence of the vil lagers, in short , their labourwas to provide that of the warrior governing class and the all ied ecclesi-astical dignitaries, to both of wh om th ey owed as a rule what l i t t lepeace,justice, and enlightenment they had.Th us th e cus toms of the manor became the unw ri t ten 'cons t i tu t ion ' , or

the fundamental insti tutional arrangement of an essentially anarchicworld, most properly viewed as small isolated sett lements, frequently in thelee of a fortified place and surrou nded by wilderness. Th e wooden or earthcastle, the knig ht, and the relatively self-sufficient m anor h ad emer ged as themost viable response to the collapse of order and the recurrent invasions ofNor seme n, Moslem s, and Magyars. While the terror of foreign maraud ershad declined by the middle of the tenth century, the land seethed withcontinual warfare and brigandage, as the power of local lords waxed andwaned. Feudalism provided a measure of stabil i ty and order in this frag-mented world. Where security prevailed, population began once more toincrease. If growing num bers threaten ed to crowd a mano r uncom fortably,there was always new land to be cleared and cult ivated within the protectionof a new lord. Spreading out north and west over Europe, the waves ofmigran ts gradually engulfed the wilderness, leaving less space for b rigandsto hide and bringing more and more area under the protection of lords andtheir vassals. True, they fought amongst themselves; but gradually, verygradually, the chaos gave way, the strife declined.

Commerce between different parts of Europe had always been potenti-ally of mutu al benefit , since the variety of resources and climatic conditionsinduce d differentiation of crops and l ivestock. But trade had been sporadicbecause so many dangers w ithin the wilderness beset the traveling me rchant.As peace and security now revived, so did the profitabil i ty of exchangingvaried products. In response, towns were taking form in the more denselysett led areas either under the protection of a lord or as independententit ies with their ow n walls, governm ent, and mili tary defense. He re skil lsand crafts flourished, providin g 'man ufacture d' good s to trade for the neededfood and raw materials from the countryside.

Such a shift away from self-sufficiency toward more specialization andincreasing trade undermined the efficiency of the old feudal and manorialrelationship. Where the great lords had once been happy to claim thedefensive services of a number of knights for forty days a year from theirvassals, they now chose to receive a money payment scutage) whichenabled them to hire mercenary troops as needed. The vassal too couldspecialize with more efficiency when freed of the stringent requirement of

I I


9/21

Theory and Overviewarmed labor services. On the manor, both lord and serf gained flexibilityin consumption and transactions when a money payment commutation)replaced labor services.Th e revival of trade and comm erce in the eleventh and twelfth centuriesled not only to the proliferation of towns but to a host of institutionalarrangements designed to reduce market imperfections. As new townsdeveloped their own governments for administration and.protection, theynecessarily evolved bodies of law to adjudicate disputes arising from thesenew conditions. The towns of northern Italy, central Germany, andFlanders became thriving centers of commerce, as population and tradecontinued to grow.

But by the thirteenth century a change was becoming evident. The bestland had all been taken up, and new settlement now had to rely on poorerquality land or work the existing cultivated land more intensively. Ayounglaborer could no longer produce as much as did his forebears because hecould not command as much land. Prices for those goods which it requireda great deal of land to produce - agricultural products - rose relative toother goods. In contrast, since labor had grown relatively more abundant,labor-intensive goods fell in price relative to land-intensive goods. Thecustomary feudal and manorial contractual arrangements, already alteredby trade and by the growth ofamoney economy, now met further incentivefor change. Since land had become much more valuable, both lord andpeasant had reason to seek more exclusive use of land and to place morerestrictions on its use by others. Similarly, because he now producedrelatively less, the earnings of the peasant laborer declined. The customsof the manor limited the changes that could be made, but these newconditions did lead to efforts to modify existing contractual arrangements topermit more exclusive use of land. Th e new economic conditions gave thelord greater 'bargaining' strength in negotiating new contractual arrange-ments with the serf. The effect of a relative increase in the quantity oflabor, predictably, was a fall in the living standard of the worker. Foodbecame more expensive. Real earnings declined.

While the thirteenth century witnessed an inexorable decline in thestandard of life of the peasant, it unfolded a pageant of expansion in tradeand commerce. Led by Venice, Italian cities stretched their trade routesthroughout the Mediterranean and reached ever farther along the AtlanticCoast, even to Britain. The Champagne Fair in France, the Flemish wooltrade, and the German mining and commercial centers all participated in agrowing commerce w hich induced improvements in banking andcommercialinstitutional arrangements.Throughout the century, because of diminishing returns to labor inagriculture, population growthcontinued to outstrip the growth in output.The first evident consequence was the widespread famine of 1315-17. But12

An Overviewfar more deadly and persistent was the plague, both bubonic and pneu-monic, which spread over Europe between 1347a nd 1351. Thereafter, thepestilence became endemic, and successive epidemics continued to deci-mate towns and countryside.

No accurate figures cite the extent of the population decline, but itappears to have continued for a century. Th e result was a reversal inrelative product and factor values. Once again land had become relativelyabundant and labor scarcer and more valuable. The marginal lands every-where went out of production, and som e land was shifted away from cropsto the raising of livestock which requires larger expanses of land. Realwages rose everywhere in spite of political efforts to curb them. For thefirst time, rudimentary statistics begin to emerge to show the economicconditions that prevailed.1 Based on them, Fig. 2.1 pictures the period'srelative decline in agricultural prices, the rise in Wages,and the consequentrise in real wages.Falling rents made the landlord worse off at the same time that thescarcity of labor improved the bargaining strength of the worker. Underthis influence the master-servant aspect of manorialism gradually fellaway. Leases were lengthened, and the villein began to acquire exclusiverights to his land. Only where the lords could effectively collude rather than

compete for labor, as in Eastern Europe, could they thwart the changingstatus (and income) of their former vassals.While the bonds of manorialism were dissolving in the countryside, thesame force of declining population was adversely affecting trade andcommerce. Contracting markets lessened the incentive to reduce marketimperfections. With the exception of Italian banking, where the greatMedici bank in Florence was flourishing, the institutional arrangementsnow being devised were more 'defensive' in nature, designed chiefly tomaintain existing markets, to monopolize trade, and to prevent entry (andcompetition). The Hanseatic League, a group of trading cities, appears tohave been such a defensive arrangement on an international level, and therise of craft guilds in towns reflected the same trend locally.By the time that population again began to grow in the last half of thefifteenth century, the basic structure of a feudal society had given way. Itserosion was to be completed by the next cycle of population expansion andMalthusian pressure on resources. Figs. 2.2 and 2.3 show the contours ofrising agricultural prices and falling real wages in the sixteenth centurywhich in these respects replicated th e thirteen th. But crucial differencesnow appeared. Improvements in ships and navigation led to explorations1 We would caution the reader that not only are the quantitative data sparse and ofuneven quality but usually they relate to anarrow geographicarea. Wehave used the dataPrimarily asillustrative ofbf oad'tfends over larger geographic units whenwefeel confidentthat such quantitative information does in fact mirror more general tendencies.

13


10/21

Theory and Overview An Overview

400

350.

300-\

250-\

150-\

1

5 H

4 -J

3 H

rentsagricultural pricesgeneral price level--- industrial prices money wages

wages(agricultural)real wages(agricultural)wheat~T 1

Fig.2.1. Thewagesof laborand the priceof wheat inEngland: 1200-1500.Sources: wheat, J. E. Thorold Rogers,AHistoryofAgriculture and Pricesi nEngland:1261-1400,vol. 1 (1400-1500),p.245, vol. 4, p.292;wages,LordBeveridge,'WestminsterWages in the M anorial Er a',The Economic History Review,8, no. I (August1955).Note:missing observations wereille byinterpolation.14

Rg.2.2. Indices ofrents,agricultural prices, the general pricelevel,industrial prices andmoneywages for England:1500-1600.Sources: JoanThirskv77ieAgrarian History ofEngland and Wales,vol. 4, 1500-1640(Cambridge University Press, 1967),pp .862, 865;EricKerridge, 'The Movement ofRent,1540-1640',The Economic History Review,2nd series,6(August1953),25.15

F*


11/21

Theory and Overview

6-\

4H

termsof tradereal wagesrelativefactorprices

Fig. 2.3. Index of real wages, the terms of trade and relative factor prices for England:1500-1600.Sources: E.H . Phelps-Brown andSheila V.Hopkins, 'Wage-Ratesand Prices:Evidencefor Population Pressure in the Sixteenth Century',Economica,24, no. 96, p. 306; and'Seven Centuries of the Prices of Consumables, Compared with Builders' Wage-Rates',Economica,23, no. 92, pp.311-14.which culminated in discoveries and settlements in the New World. Theevolving structure of property rights (particularly in Hollandand England)became a fundamental framework within which productive institutionalarrangements took form. As a result, the Malthusian reaction in the seven-teenth century was far less catastrophic than in the fourteenth, since bothimmigration to the New World and productivity increases were mitigatingthe diminishing returns in agriculture.

But we have gone ahead of our story. Rising agricultural prices and theconsequent more rapid rise in rents had led to renewed efforts to eliminatethe vestiges of common ownership of land. England inaugurated an era of

16

An Overviewenclosures supported by basic statutes providing for easier transfer ofproperty and protection of the peasant.

The sixteenth century was equally an age of commercial expansion.Trad e was encouraged by the growing differentiation in factor endow ments,since the lands of Eastern Eu rope were still abundant relative to popu lation,whereas the burgeoning towns and cities of Western Europe ha d becomecenters of skilled tradesand'manufactures. Treasure from the New World,pouring in a silver flood through such cities as Lisbon, Cadiz, Bordeaux,Rouen, Antwerp, Amsterdam, Bristol and London, additionally nourishedthis growing international market. The consequence was the innovationand proliferation of a host of arrangements such as joint stock companiesand institutions designed to reduce market imperfection by coping withproblems of financing and.risk. Another logical step then followed: a bodyof laws developed to provide more efficient property rights in the owner-ship and exchange of intangible assets.

To a modern reader this progression may sound inevitably simple. I twas far from that. An d in light of the previous chapter, one should be alreadyprepared for the widely divergent experiments and false starts that in factemerged during this period in different regions.Basic to all other ch anges was, the form of the evolving nation-s tate i n-duced by the expanding market economy. In the fragmented world offeudal society, the fixed castle and the knight in armor had been thechessmen in the game of defense. As these gave way before new militarytechnology (the crossbow, longbow, pike and gunpowder) the optimalsize of the most efficient m ilitary unit gradually increased. Th e ma nor hadto grow for efficiency into a community, a state; and, to survive, the statehad to achieve far greater fiscal revenues than could be obtained fromtraditional feudal sources. Trade had to be encouraged, increased,extended, to bring in tax revenues to the head of state. And whereas thefeudal castle had been unable to provide sufficient protection for long-distance trade, the larger political units or coalitions that emerged nowwere capable of sheltering more effectively the routes needed for the growth

of commerce.An increase in such trade became the overriding concern of everysovereign in Europe. Intrigues, coalition, betrayal, confiscations, treaties,ingenious and ingenuous tax impositions, all entered the patchwork ofendeavors which transformed feudal society ultimately into the nation-states. And the sort of state that emerged was determined by the strengtha monarch could exert in claiming the monopoly powers of government,which in turn left an imprint on the structure of the developing economy.In France and Spain the monarchy gradually wrested power away fromrepresentative bodies and developed a system (and level) of taxation wh ichpromoted local and regional monopoly,stif ledinn ovationandfactorm obility,

17


12/21

Theory and Overviewand led to a decline in productive economic activity which was relative inthe case of France and absolute in the case of Spain. 2 In Holland, thechanging conditions led to an oligarchy of merchants; in England, afteryears of strife , to the ascendancy of parliament over the Crow n. And in both,to sustained econom ic grow th, result ing from a hospitable environm entfor the evolution of a body of prop erty rights which prom oted insti tu-tional arrangements, leading to fee-simple absolute own ership in land, freelabor, the protection of privately owned goods, patent laws and otherencouragements to ow nership of intellectual property, and a hostof insti tu-t ional arrangements to reduce market imperfections in product and capitalmarkets.

Our story ends with the beginning of the eighteenth century. By thenthe essential conditions had been created for bringing the private rate ofreturn close enough to the social rate , so that productivity increase wasbuilt into the system in Holland andEngland(as well as in the New World).Over the next century these conditions in-theseareas induced a revolutionin technology which gradually spread over much of the rest of Europe andsatellite colonies overseas as well.2 Because the price series varied between nations during the seventeenth century, wepostpone our discussion of them to C hapter 9 below.

18

PART TWO9 0 0 - 1 5 0 0

3. P R O P E R T Y R I G H T S I N L A N DA N D M A N

Before we explore these six centuries in more detail, it is well to specifymuch more precisely the explanatory theory implicit in the previouschapters.Th e pressu re to change prope rty righ ts emerges only as a resourcebecomes increasingly scarce relative to society's wants. In th e world of thetenth century, at the point where we entered into i t , land was abundan t an dtherefore not worth the cost of devising exclusive rights to i ts use. When

one piece of land was taken up, more was always available. Because thecountryside lay under constant threat of ravage by marauding bands ofVikings, Moslems, Magyars or even of native brigands, greater valueattached to any areas protected by a fortification and skilled soldiers. Suchland, from the very beginning of the manorial system, was never a com-pletely 'common-property' resource in the sense that economists use thatphrase. Customs and precedents l imited i ts usage to preclude overgrazingand other hazards implicit in common use. 1We shall see later that manorialregulations grew more restrictive as land became scarce.

Two other basic elements entered into the manorial economy; the func-tions of protection, and the role of labor. In the matter of protection, thefortified castle and armored knights on horseback, having specialized skillsin warfare, provided local security which could never be equalled by anygroup of peasants i l l-armed with primitive weapons and lacking mili taryskills. Moreover, against such an enemy as roving bands of raiders (whetherby sea or land), a local lord and castle were more imm ediate and comfortinga safeguard tha n a distant king and army. T he chaos of the period, coupledwith the character of military technology, made the feudal unit the efficientmode of protection. Th e lord and his knights, who specialized in produ cingprotection and justice, depended on serfs for what they consumed. Analternative often pursued by the early Vikings, Magyars and Moslems

1In the case ofacommon-property resource each user has an incentive to exploit theresource without regard to other users, w hich results in a continual deterioration of theresource. Ov ergrazing of the land and overfishing of theseasareclassic examples. Sincenoone ownstheresource there is noincentivetoconservetheresource orto improveefficiencyin its use.19


13/21

9 . T H E E A R L Y M O D E R N P E R I O D

The year 1500is widely recognized by historians as the watershed betweenthe medieval world and the modern world. The fi rs t two centuries of thisnewer epoch contained much of his torical importance, spanning suchwidely varied events as a price revolution, a commercial revolution, areformation, a renaissance, voyages of discovery, the colonization of theNew W orld, the development of world t rade and the emergence of nat ionalstates as the dominant form of political organization in Europe.The nature of historical scholarship in part explains the deplorable lackof any consistent explanat ion for the mome ntous occurrences in these twocrucial centuries. Most professional historians share a fashionable tendencyto spurn generalizations, preferring to devote highly specialized attentionto one area during one period of time. Thus few professional scholars haveever attempted a systematically cosmic look at so large a topic as Europeduring the s ixteenth and seventeenth centuries .One significant exception to this last statement and possibly to the pre-ceding ones is provided by the Marxist historians, whose theory of historyruns into t rouble with these two centuries . According to their credo,feudalism is succeeded by capitalism. The problem is that feudalism inWestern Europe was buried by 1500, but capitalism as it is known todaywas not yet born and the industrial revolution was fully two-and-a-halfcenturies into the future. Thus 'nascent capi tal ism' or 'commercial capi-talism' has been invented to fill this time span, as a stage of economicorganizat ion complete with Marxian dynamics - a period of expansion

during the s ixteenth century and a cris is (contract ion) during the seven-teenth ce ntury, which led into capi tal ism and the industrial revolut ion. Nosuch pro blem of hiatus exists for our explanation. Som etime in the fifteenthcentury a new Malthusian cycle began. New growth in populat ion made upthe losses of the fourteenth century, until eventually diminishing returnswere again encountered. Many of the economic factors of the thirteenthcentury were apparent ly repeated during the s ixteenth, and some of theproblems of the fourteenth century recurred during the seventeenth. Thist ime, however, a new phenomenon happened: al though in the s ixteenthcentury populat ion was growing al l over Europe, the subsequent 'cris is ' ,102

The Early Modern Periodwhich might have been expected to be equal ly ubiqui tous, was, in fact ,geographically spotty. Some areas and nations proved able to adjust andeven to continue to grow, both extensively and intensively, while othersemulated the general contract ion of the fourteenth century and decl ined.The closing years of the seventeenth century revealed winners l ikeHolland and England, 'also rans ' l ike France, and clear losers such asSpain, Italy and Germany. For the fi rs t t ime in history, some regions andnat ions had been able to escape the i ron teeth of the Malthusian t rap,while others had fai led. Wh at ma de the crucial difference?

Let u s briefly examine the overal l economic performance of the econom iesof Western Europe during these two centuries . When the populat ion ofEurope began to recover from the Malthusian checks of the fourteenthcentury is notknown,ind irect evidence in the case of England suggests thedecades 1460-80. It is clear, however, that during the s ixteenth centurypopulat ion everywhere in Europe was growing.Sometime in that period the populat ion of Western Euro pe overtook thelevel achieved before the Black Death, a l though exact ly when this occu rred

is obscuredbythe pauci ty of evidence surviving from both proto-statisticalperiods. Historians at tempting to construct est imates of the total populat ionof Europe general ly agree that by 1600 population had regained the levelsTABLE 9.1 The Populationo fEurope 1300-1600(in millions)

1300135014001450150015501600

M Ks Bennett73514566697889

134814001450150015501600

Russell

54435 4

45 7

Source: Slicher van Bath,The Agrarian HistoryofWestern Europe,p.80.existing in 1300, al though, as shown in Table 9.1, one source sees this asoccurring prior to 1550 and another at about that date.

Th e general consensus is that the s ixteenth century witnessed sustaineddemographic expansion throughout Western Europe. Despi te the absenceof hard statistical evidence, the conclusion of a noted historian is reassur-ing:But while individual figures may be suspect , the overal l picture whichemerges from a synopsis of 16th century sources is perfectly clear in

103


14/21

iSoo-ijooits outlines: all the evidence, statistical and other, points to a pro-nounced secular upswing in Europe's populat ion.1

The absence of plague during the s ixteenth century is perhaps a part ialexplanat ion for this phenomenon. Famines were not of major importance,at least when compared to those in the next century. Wars, on the otherhand, were so prevalent that only twenty-five years of the sixteenth centurywere free of large-scale conflict somewhere in Europe. Nevertheless,populat ion seemingly blossomed everywhere.As the s ize of the total populace grew, so did the numb ers of Europeansresiding in ci t ies . During the century the major ci t ies of Western Europeoutpaced any previous development . It is doubtful , however, that urban iza-tion - or the percentage of the population living in cities - actually in -creased. Indeed, i t more probably decl ined throughout the century. Theexpansion of large urban places was at the expense of the small markettowns of the previous century.While general populat ion increase was typical of the entire sixteenthcentury, the seventeenth was subject to reverses. For Western Europe thiswas a grim epoch of wars, famine, and pestilence, each of which tookits toll.Unlike the checks of the fourteenth century, however, the messengers ofdeath during the seventeenth century visi ted the countries of Western

Europe with differing severity and with differential results. Certain coun-tries were terribly vulnerable to their vis i ts, others were able to ward themoff.Germany, the Spanish Low Countries , Spain and perhaps Portugal lostpopulat ion during the seventeenth century. The Thirty Years War (1618-48) devasted Germany. It was accompanied by dysentery, typhus, small-pox, plague and famine. Estimates of the fall in population (perhapsexaggerated when placed at almost 40 percent) seem to indicate thatGermany's losses exceeded those of any other country.Spain, and perhaps Portugal , suffered such populat ion reverses, due tofamine and plague, that Spain is estimated to have lost one-quarter of itspopulat ion between 1600 and 1700. The Spanish Netherlands provided afavori te bat t leground for warring European nat ions during the century, so

that Bra bant , for example, had only a few more inhabitants at the end of thecentury than i t had in 1526. The rest of the Spanish Netherlands probablyfared as badly. It is interesting that most of the population decline occurredin the countryside; urban places were so little affected that Ghent actuallygrew in numbers, as did Liege. Reversing i ts spectacular decline in the1570sa nd 1580s, Antwerp resumed a s teady growth.Apart from those countries suffering clear losses, a number of others at1 Karl F. H elleiner, 'The Population of Europe from the Black Death to the Eve oftheVital Revolution',Cambridge Economic History,vol. 4, pp. 22-3.IO4

The Early Modern Periodbest s tagnated during the period, Italy and France being the most notableof these. Again the Malthusian checks of famine and plague were respon-sible. Like the Spanish Netherlands, Italy was a continual bat t leground;famines there became com monplace, and the plagues of1630-1a nd 1656-7were so devastat ing that the popu lat ion of Italy in 1700was no greater thani t had been in 1600.

T h e seventeenth-century French populat ion also endured famines,plagues, or both during 1628^38,1646-52,1674-5a nd 1679,and in 1693-4a famine so severe as to be termed 'great ' . The nat ion additionally lost175,000 Protestants who fled for religious reasons. After the first quarter ofthe century, which may have brought some increase, the t rend in Frenchpopulat ion appears to have been downhil l unt i l at the end of the ce ntury i twas probably no higher than during the fi rs t quarter.

While France and Italy were s tagnat ing, the Dutch Republic and Eng-land were actual ly experiencing an expansion of populat ion. The UnitedProvinces of the Netherlands, unl ike the Spanish-dominated Low Coun-tries , were notably successful in repel l ing human invaders , al though theirdefenses fell before the onslaught of plague, which struck there in 1623-5,1635-7, x654-5 an d 1663-4. Also t r i e bi t ter s t ruggle against the French,part icularly in 1672,resul ted in some terri torial devastat ion. N evertheless ,recovery was quick and it is generally believed that the population of theUnited Provinces grew substant ial ly during th e century. Part of this growthwas due to a positive natural rate of increase, but part also was due to ahospi table at t i tude toward immigrat ion, as the Dutc h opened up their doorsto foreigners - not only to fellow Protestants, but also to Iberian Jews.Urbanizat ion grew even faster, unt i l in Holland (the most urbanized of theprovinces) 60 percent of the population were townspeople as early as 1622.Dutch ci t ies throve and expanded throughout most of the century.

The other important country which gained populat ion during theseventeenth century was England, despi te the onslaught of plagues, such asthose that s t ruck London in 1603, 1625, 1636-7 and in 1665. Their totalimpact proved less severe than the two Ital ian epidemics, and the popula-tion of England and Wales had doubtless grown larger by 1700 than it wasin 1600. For i l lustrat ive purposes, one popular est imate for the Englishpopulat ion durin g the seventeenth century shows an increase of25 percentduring the century. The populat ion of 1600 is estimated to have been 4.8mil l ion; in 1630,5.6 million; in 1670,5.8mil l ion; and in1700, 6.1 million,although these figures are probably too high.

In summary then, i t appears that populat ion everywhere in Europe grewduring the s ixteenth century, but that the picture changed sharply duringthe second century of the modern era. The Dutch United Provinces andEngland and Wales continued to gain populat ion during the seventeenthcentury, but the populat ions of Italy and France stagnated during that105

i


15/21

II

1500 ijoocentury and those of the Spanish Netherlands, Spain, perhaps Portugaland Germany actually declined.IIThe history of prices parallels the history of population. The sixteenthcentury witnessed d ramatic increases in the level and changes in th e patternof prices everywhere in Western Europe. So significant was the increase inth eabsolute levelof pricesand in the lag ofwages behind other prices thatthis era is known as the price revolution . Inflation swept-throughoutWestern Europe with the general price level climbing 200 to 300 percenthigher in 1600than it had been in 1500.Prices in Spain, for example, at theend of the century were 3.4 times higher than at the beginning; in France2.2 times; England 2.6; in Leyden, the Dutch textile city, 3.0; and inAlsace, Italy and Sweden prices had approximately doubled. Suc h a

600 -.

rentsprice index (PB&H)price index (Thiisk)money wages (Thirsk)

1500-9 10-19 80-9 90-9Fig. 9.1. The aggregate price index and indicesofrentsandwages in England: 1500-1600.Sources: Thirsk, The Agrarian History ofEngland an dWales, vol. 4, pp. 862,865;Phelps-Brown and Hopkins, 'Wage-rates andPrices:Evidence for Population Pressure inthe Sixteenth Century , p. 306; Kerridge,'The Movement ofRent, 1540-1640 ,p. 25.I06

The arly Modern Period

400-] Base: 1510-19=100

200-

IOO-' *-'-4U. ^s^ ---''""."

1 1 1 1 1 1 1 1 11500-9 10-19 2-9 30-9 40-9 50-9 60-9 70-9 80-9 90-9Fig., 9.2a. Price indices of agricultural and industrial goods and real wages in Englan d:1500-1600.Source: Thirsk,The Agrarian HistoryofEngland and Wales,vol.4, pp . 862, 865.Fig.9.26. Price indices of agricultural and industrial goods and real wages in Englan d:1500-1600.Sources:Phelps-Brown and Hopkins, 'Wage-Rates andPrices:Evidence for PopulationPressure in the Sixteenth Century',p. 306; and 'Seven Centuries of the Prices of Con-sumables, Compared with Builders' Wage-Rates', pp. 311-14.

IO7


16/21

Hi

1500-ijoogeneral increase in the level of prices appears mor e dram atic than in fact i twas, since the annual rate of increase which will allow the price level todouble in one century is only 0.72 percent . This would appear by modernstandards a very mild inflat ion indeed. During the seventeenth century thegeneral inflation ended and the price level generally exhibited no trend.

The inflat ion of the s ixteenth century did not raise al l prices equal ly.Fig .9.1 shows that in England an index of rents increased most rapidly ofal l , ris ing over 500 percent . Prices of agricul tural products (see Figs. 9.2aand 9.26) were next highest , whereas wages and prices of industrial pro-ducts rose far less.

The terms of t rade shown in Fig. 9.3a shifted in favor of agricul turalproducts - many more uni ts of industrial goods were needed to buy oneunit of agricul tural products a t the end of the century than at the beginning.That the prices of goods consumed by labor rose more than wages isreflected in the sharp decl ine in real wages, an index which pinpoints thestandard of l iving of the great mass of persons. Since rents rose mo st of al land wages least (Fig. 9.1), relative factor prices (Fig. 9.36) obviously tooka sharp turn in favor of landowners.

No r were these changes in relat ive factor and produc t prices uniqu e to

1

Base: 1510-19=100 (PB & H)

1500-9 10-19Fig. 9.3a. The terms of trade between agriculture and industrial prices in England:1500-1660.Sources: Thirsk, TheAgrarian History ofEngland andWales, vol. 4, pp. 862,865jPhelps-Brown and Hopkins, 'Wage-rates andPrices:Evidence for Population Pressure inthe Sixteenth Century',p.306.Fig. 9.76. The ratio between wages and rents in England:1500-1600.Sources: Thirsk, Th eAgrarian History ofEngland andWales,vol. 4, pp. 862,865;Kerridge,'The Movement of Rent,1540-1640',p. 25.

108

The Early Modern PeriodEngland, for which the best quanti tat ive information is avai lable. Theevidence reproduced in Figs. 9.4 and 9.5 shows that the changes occurringin England were general throughout Western Europe. In Germany,France and Spain the terms of t rade also shifted in favor of agricul ture,while real wages declined significantly, and the changes in relative factorprices seem everywhere to have been similar. Rents in France appear tohave risen 380 percent during th e course of the century, while the wages oflabor increased only 130 percent .

In sum, the general rise in price level during the s ixteenth century wasuniversal. Relative product and factor prices also changed in similarpat terns. The prices of agricul tural goods increased relat ive to manu-factured goods and rents of land increased more rapidly than wages. Thereal wages of labor declined significantly.IllThe similar pat terns we have just pointed out were matched by otherphenomena common to al l of Western Europe during the s ixteenth cen-tury. For one thing, the volume of t rade expanded everywhere, especial lyin the flourishing internat ional com merce of Northern Europe. Europe anvessels in increasing numbers moved along the t radi t ional water routes,voyaging to the Mediterranean and most dramatical ly venturing into thegreat oceans to traffic with the alien continents of Asia and the New World.At the beginning of the century, the center of this commerce was st i l lconcentrated in Northern Italy, where the ci ty-states of Milan, Florence,Genoa and Venice and their lesser neighbors special ized in manufacturingand trade. Fro m these ci t ies the rest of Europ e ini tial ly drew their suppliesof Mediterranean goods and valuable commodit ies from the East . In thisarea a lively and expanding traffic was maintained in grain, salt and saltedfoods (mainly fish), as well as in oil, wine and cheese. Other ships wereladen with wool , raw si lk and leather dest ined for manufactured goods. T hetrade in minerals was of minor, but growing, importance as a demandappeared for alum, coral , i ron and copper. The Mediterranean thus borerich and varied cargoes throughout the s ixteenth century.

Historical ly, however, the most vi tal Med iterranean trade was not of localorigin, but came through a long chain of overland commercial exchangesfrom India, Ceylon and Indonesia. In the fabled spice t rade, pepper out-ranked even nu tmeg and cloves in importanc e. Bales of Chinese and Persiansi lks, Indian cot tons, Chinese rhubarb and precious s tones supplementedthe exotic traffic which aroused the envy of all Europe and made Venice,where the t rade centered, one of the world 's great seaports .

The geographical monopoly over this luxury t rade, held during theMiddle Ages by Mediterranean merchants , was chal lenged early in the109


17/21

1500 1700 ~

termsof tradereal wagesBase: 1526-50=100

FranceI T1501-25 1526-50Base: 1521-30=100I 11551-75 1576-1600

AlsaceBase: 1521-30=100

ValenciaBase: 1521-30=100

ViennaBase: 1521-30=100

Augsburgr i 1 1\ 1 1 1 1I50I-IO 11-20 21-30 31-40 41-50 5I-&3 6I-7O 71-80 81-90 9I-I600Fig. 9.4. Indicesofreal wagesandtermsoftradeforseveralEuropeanregions: 1500-1600.Sources:Phelps-Brown and Hopkins, 'Wage-Rates andPrices:Evidence for PopulationPressure in the Sixteenth Centuryl, pp. 305-6; and 'Builders' Wage-Rates, Prices andPopulation: Some Further Evidence',Economica,26, no.101,pp. 35-8.

110

The arly Modern Period

Fig. 9.5. Indices of real wages during the sixteenth century for England, Spain, Franceand Alsace.Source: Phelps-Brown and Hopkins, 'Builders' Wage-Rates and Population: SomeFurther Evidence', pp.18-38.Ill


18/21

mIt ll

IIll4m

1500-1700sixteenth century by Portugal . Pushing through the Atlant ic waters toIndia, the Portuguese seamen attempted to divert the trade away fromtraditional routes by military force. This early attempt failed, and itremained for the Dutch in the seventeenth century to destroy the pre-eminence of Venice in the luxury t rade, not by violence, but by pricecompetition resulting from more efficiency in both ships and economicorganization.

Th e sixteenth-century commerce of North ern Europe , connect ingEngland, France, Portugal , Spain, the Low Countries and the Balt ic, wasini t ial ly a smaller cousin to the t rade of the Mediterranean. As the Medi-terranean region boosted the product ive ci ty-states of Italy, so NorthernEuro pe depended on a manufa cturing-tradin g center in the Low CountriesofHolland and Flanders .

While Northern Europe st i l l had no urban places to compare withVenice or Genoa, it did give rise to two groups of cities, which, at thebeginning of the s ixteenth century, special ized in sea t rade. T hese were thetowns of the North German Hanse and the ports of the Netherlands. TheNetherlands ' ci ty of Antwerp, gradual ly gaining dominance as the harborof Bruges s i l ted up, had become the chief commercial port of NorthernEurope during the s ixteenth century, unt i l i t was destroyed in the changingfortunes of war. By the end of the century i t had been replaced in im-portance by Amsterdam, a few miles up the coast .The major t rades of Northern Europe were in the hardy, cold-zoneproducts of grain, salt and salted fish, in woolen cloth, furs, iron andtimber. T he grain t rade was a regular exchange between the importers -Spain, Portugal and the industrialized regions of the Netherland s - and theexporters , France a nd the B alt ic. Th e t rade developed sufficient ly duringthe century to permit supplies to go also to some other areas sufferingtemporary dearth. The scope of expansion of the grain t rade in part icularand of Northern European trade in general is shown by the rise in thenumber of vessels passing through the Baltic Sea. From an average of 1300a year at the beginning of the century the count had grown to over 5000 bythe end. Since the average size of ships had also increased during thisperiod, the comparison actual ly understates the expansion of Bal t ic com-merce. At the beginning of the century Northern Europe had dependedwholly on the Baltic to supply one vital article of food - salt fish and,part icularly, sal t herring. Now, as the Du tch developed new fishing g roundsin the North Sea, the importance of the Baltic trade declined relatively.

The most important manufactured commodity t raded in NorthernEurope was woolen cloth and the major centers of manufacture (besidesNorthern Italy) were in Northern France, Flanders , Brabant , Holland andEastern E ngland. Flanders was far and away the most outstanding of these,with its trade centered at Antwerp for the first three-quarters of the cen-112

> tl

The Early Modern Periodtury. Raw wool to be woven in Flanders was imported most ly from Spainand England, but England also exported woven cloth on a large scale toAntwerp and to the Baltic. These, however, were chiefly undyed andunfinished fabrics which had to be further processed by the importers.Meanw hile, an independent t rade was thriving along the Atlant ic C oast ,where Spain, En gland, France and th e Netherlands w ere engaging in briskexchanges of wool , cloth, wine and sal t . During the century this t radetended to join together the greater commercial loops of the Mediterrane anand the Baltic regions until the three links became one chain of commerce.Th e establ ishment of a regular t rade between Europe and the rest of theinhabited world was a major achievement of the sixteenth century. Onceviewed primarily as a sourceoffish, by the end of the sixteenth century theocean had become a king's highway, where voyages between Lisbon andIndia, or Seville and the West Indies were almost commonplace. Clearly,the most important of the oceanic t rades was between Spain and the NewWorld, following the mid-century discovery of the world's richest silvermines, whose weal th could endow not only Spain, but al l of Europe.

IVWe have reached a point now where our earlier sketches of the sixteenthcentury 's populat ion, prices and commerce can be brought together toshow the dominant pat terns of economic development for that century,The fact that in Western Europe the trend in absolute and relative pricesand in populat ion growth was everywhere the same makes our task rela-tively simple and emphasizes that growth in population, both geographi-cally and temporally, was the key. Population grew and, early in the centurydiminishing returns to additional'laborerswere encountered. As p opulat ioncontinued to expand, the wages of labor fell relative to the price of land.Agricultural goods rose in price relative to industrial goods, because agri-culture used relatively large amounts of the increasingly expensive factor,land.

In the monetary field, the rise in all prices, both of products and offactors, was due partly to the increased quantity of money coined fromnewly developed European mines and the importation of silver from theNew World and part ly to the quickened commercial pace. The Spanishmonopoly of this import also led to an increased volume of internationaltrade, since the rise in bullion imports to Spain increased prices there andmade it an attractive place to sell goods and services and a relativelyunat tract ive place to purchase goods. Armies, weapons and luxury goodswere purchased by the Spanish, who settled accounts by exporting to theother countries of Europe their hoards of silver from the New World.How much this stimulated international trade is difficult to assess, for

113

I


19/21

1500-1700New World t reasure was accompanied by another (perhaps more impor-tant) factor - the general growth in s ixteenth-century populat ion, whichreduced the costs of using the market to al locate resources. As a con-sequence of this availability of the market, new secondary institutionalarrangements sprang up, which al lowed special izat ion in product ion andexchange while reinforcing the different comparative advantages ofdifferent regions. In such fertile soil, foreign trade flourished and blossomedin every branch, nourished part icularly by such fast-growing urban marketsas Antwerp and London. Meanwhile, smaller local and regional markets ,unable to compete with their more efficient rivals, were in a state of decline.

Th e rise of a few major markets is explained by the nature of the marketi tself. In the process of producing transact ions, a market generates informa-tion about the prices at which exchanges can be made. Since these pricesare available to all who are pre sent, any one can decide wh ether to buy or sell,and this one source of product ivi ty gain is probably paramount among al lthe obvious advantages of a s ingle market . During periods of expandingtrade the larger markets are the more efficient because of economies of scaleinvolved in t ransact ions. Thu s central ly located urba n places gained at theexpense of their less fortunately situated rivals in the intra-market com-petition for traders.The introduction into our analysis of a transaction sector Unking the

agricultural and industrial sectors with each other and with the finalconsumer com plicates any statement we can make about consumer welfareduring the sixteenth century. It is clear that the direct influence of popula-t ion growth under condit ions of diminishing returns was to reducethe overall efficiency of the ec onom y, leading to a decline in per capitaincome everywhere. Indirect ly, however, populat ion growth wouldhave also exerted the opposite effect, of raising productivity and increasingper capita income, because in widening the market i t s t imulated t rade andcommerce.The increased efficiency of the transaction sector influenced relative pro-duct prices and the terms of trade in exactly the same way as did a growingpopulation. The consumer prices of agricultural goods would fall less,relative to the prices of the factors of production, than would those of

industrial products , which w ere perfectly elast ic in supply. Thu s the termsof trade recorded in the market would shift in favor of farm products. Therelative increase in farm prices was due both to a decline in agriculturalproductivity, which lowered incomes, and to an increase in efficiency inexchanging farm products , which tended to raise incomes. The welfare ofthe society would depend upon which effect dominated in any given time orsituation.In sum, the balance sheet for the sixteenth century shows a decline in

product ivi ty in agricul ture, constant product ivi ty in manufacture and114

Th eEarly Modern Periodincreasing product ivi ty in the t ransact ion sector of the market . Thematerial well-being of Western Europe de pended on whether the increasingefficiency of the market could offset the productivity declines in agri-cul ture due to diminishing returns. General ly, the outcome was not happy ,diminishing returns dominated and Western Europe moved into the seven-teenth century suffering from Malthusian checks. Famines and plaguesonce more swept the nat ions of Europe.

As we have seen in our earl ier discussion of populat ion, the seventeenth-century impact of these disasters was selective, unlike the devastation in thefourteenth Century. Some areas, such as England, emerged relativelyunscathed, while others, like Spain, were decimated. It is fair to assumethat the efficiency of economic organization played a large part in determin-ing the effectiveness of the Malthusian checks. This is the significantdifference between the fourteenth century, w hen the economies of WesternEurope were al l organized qui te uniformly, and the seventeenth century,by which t im e inst i tut ions and property rights within the emerging nat ion-states had been taking divergent paths for 100 or 200 years.During the s ixteenth century the commerce of Western Europe evolved

not within a peaceful, orderly, free-trade world, but against all the obstaclesthat could be reared by war, hostility, and jealousy between the rival nation-states. The heads of state were certain that they could extend their influenceonly at the expense of some other sovereign, and they were equal ly per-suaded that an economy could extend i ts comm erce only at the expense ofanother nat ion. One prime example of this phi losophy was the abort iveat tempt of the Portuguese to divert the spice t rade by force of arms. Otherpolitical units attempted by more or less overt means to regulate bothinternal and external economic relat ions. From the urgent need to providethe revenues required to engage in the great national struggles of the earlymodern era was born the age of mercant i l ism.Th e key to mercanti l ism comprised the factors described in the previouschapter. Th e resul ts were highly diverse pol icies , which led to sharply

different consequences in the seventeenth century. T he economic events ofthis century therefore must (to some extent at least) be examined accordingto national boundaries. No longer will a single population model explainthe major economic developments occurring in Europe.By the beginning of the seventeenth century populat ion change hadbecome but one of the important para meters influencing economic growth.The emergence and nature of any given nat ion-state and the extent andefficiency of its market all assumed vital roles as co-determining factors.Th e nat ions of Western Europe w ere ambivalent in their relat ions one with

115


20/21

1500^1700another, drawn together by the hope of gains from mutual t rading, yetdivided by the desire of each state to dominate.Against such a background of tension let us briefly consider how pricesfared during the seventeenth century in the Netherlands, England, Franceand Spain - the four rival giants among European nations. We shall bepart icularly interested in the course of real wages and in determining whichfactors dominated changes in their levels. While the evidence we presenthere is immensely bet ter than that extant for earl ier centuries , our con-clusions must still be considered tentative.Th e seven northern provinces of the Low C ountries were uni ted into theDutch Republic after the successful conclusion of an agonizing eighty years.(1568-1648) of revolt against Spain. Even du ring that t ime the D utch hadprospered. Real wages (Fig. 9.6a), declining in the sixteenth century as

carpenters wagesmasonshelper

150-

5

mason s wagesmasons laborers wages

Base=1501-10

Fig. 9.6a. Indices of real wages in the Low Countries:1500-1700.Sources: H. van derWee,The Growthofthe Antwerp Market and the European Economy(MartinusNijhoff, 1963),vol.1,p. 543; N. W. Posthumus,Lakenhandel,vol.2, pp. 217,1014-17.116

The Early Modern Period150 -1

50 -Base=1600-09 gaps in data

kFig. 9.66. An index ofrealwages in England:1600-1700.Source: Phelps-Brown and Hopkins, 'Seven Centuries of the Prices of Consumables,Compared with Builders' Wage-Rates',296-314.everywhere, revived during the seventeenth century and increased approxi-mately 50 percent during its last three quarters. It is possible that betterwage data (especially for the period 1600 to 1625) might show the rise inreal wages as even more spectacular. Moreover, the improvem ent occurreddespite a steady increase in population. In England too, recovery from thenadir of the sixteenth century began during the seventeenth. Real wages inEngland (Fig. 9.6b) increased by 36.5 percent between the two periods1601-10 an d 1711-20. Real income per capita doubtless increased duringthe century at the same t ime that populat ion grew.

For perhaps the fi rs t t ime in the history of Western Europe, both theDutch and the British economies had succeeded in increasing the per capitaincome of a growing populat ion despi te the continued pre ssure of diminish-ing returns in agriculture. Clearly, productivity was growing more rapidlyin some or al l sectors than was populat ion. This phenomenon wil l beexamined in Chapters 10a nd n .It is apparent that the French were not as successful as either the Dutchor the English. An index of real wages in France fell from an average levelof 44 (Fig. 9.6c) during 1551-75to 34 during 1576-1600; it then revived to42 during the first quarter of the seventeenth century and fluctuated aroundan average of41 for the entire century. France was riot able significantly to

117


21/21

n

w

n

i fi

1500-1700

150 (A) Base=1501-10(B) Base=145 -75

5

Documents

North, Rise of W. World