Markets and Growth in Early Modern Europe

Victoria N Bateman

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781848932586
• eBook ISBN: 9781317321729
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This is the first study to analyze a wide spread of price data to determine whether market development led to economic growth in the early modern period.

1 MARKETS IN HISTORY: A SURVEY

As we have seen, markets are central to the explanations that have been put forward for the sustained economic growth that began with the British Industrial Revolution and continues to the present day. Having great influence over the formation of this market-led view is a particular vision of life in Europe before the Industrial Revolution. The economy is seen as backward commercially and, as a consequence, technologically, leaving little room for growth. Whilst in the modern world people come into contact with the market every day of their lives – through the goods they buy, the daily work they undertake for businesses and the banks that look after their money – people of the past are often seen as having had minimal contact with goods, labour and financial markets. We might not quite all have been living as hermits in wooden huts, subsisting on our own patch of land, but something not far from this is probably a fair depiction of what many people have in mind. This all supposedly changed in the seventeenth and eighteenth centuries, preparing the way for the Industrial Revolution. It is on this understanding of the past that the poor economies of today are told that liberalizing markets will result in them catching up with the rich west. By taking a chronological journey through history from Roman times towards the present day, this chapter questions the historical understanding on which this advice is given. It knits together the economic history of the different periods, helping to identify where and when markets developed. Rather than finding poorly developed markets in history, we will see that waves of integration and disintegration have existed across time. Markets are certainly not a modern invention – they have been present for thousands of years. Taken together with the fact that sustained economic growth is a recent phenomenon, this suggests that whilst markets may be necessary for economic growth, they are certainly not sufficient.

The chronology begins in a period in which much of Europe was dominated by Roman power. Augustus had not long gained his status as Emperor after defeating Antony and Cleopatra at the Battle of Actium in 31 BC, and Britain was ripe for its invasion in AD 42. By the second century AD, the Roman Empire had expanded so successfully that it ‘stretched from Hadrian’s Wall in drizzlesoaked northern England to the sunbaked banks of the Euphrates in Syria’.¹ In many ways, the achievements of Roman times are truly impressive, particularly when it comes to the construction and architecture of such still-famous buildings as the Colosseum, and more generally the temples, villas and engineering feats such as the aqueducts and road system. However, despite its great size and visible achievements, the general belief of older scholars, such as Finley, was that the economies of the ancient world were ‘primitive’ and ‘backward’, marking them out as different to those of the modern day.² Whilst some present day authors still subscribe to this view,³ others present a revisionist account, identifying ‘good’ institutions which they argue supported the market and enabled it to develop, thereby raising standards of living in the economy.⁴ The well-developed and unified Roman state – covering an extensive area – had a number of significant advantages for the development of markets.⁵ Merchants trading in far-flung parts of the Empire did not face uncertainty with regard to the legal regime, taxation or a multitude of weights and measures and were relatively free from the threat of physical harm or discrimination. The centralized tax system was able to fund the well-known transport infrastructure of the age, enabling merchants to travel at reasonably low cost. The stable and trusted coinage meant that the economy could develop beyond barter, supporting transactions between anonymous buyers and sellers and a higher level of specialization in the marketplace. The legal system and capital markets were also well enough developed to support markets. In a recent survey of research, Silver notes how ‘Roman law recognized bargaining and freedom of contract’, that Romans ‘knew deposit banking and fractional reserves’ and that there is ‘evidence that Roman banks and other visibly active credit intermediaries made loans to businesses’.⁶ Given such institutions, it seems plausible that markets were able to function reasonably well in the Roman economy. Archaeological evidence supports this notion, finding ceramics that were ‘distributed very widely’ and that ‘the percentage of imported pottery, as opposed to local wares, is impressively high’,⁷ indicating a reasonable degree of long-distance trade. The abundance of Roman coins which are always found in archaeological digs throughout Europe similarly suggests the existence of a highly commercialized economy. At a more technical level, Temin argues that prices from Roman times display the statistical properties that one would expect from relatively well-developed markets.⁸

Given the extensive potential market in the Roman world, one would expect to find a high degree of specialization leading to technological developments which helped to support a high standard of living. Perhaps unsurprisingly to the visitors of museums and archaeological sites, historians and archaeologists are revising upwards their views of the wealth and levels of development achieved in the Roman economy.⁹ Whilst estimates of income are clearly open to error, we do find evidence of rising consumption of luxury goods (such as meat and wine) an accepted indicator of rising incomes.¹⁰ Population growth and urbanization in the period could also be interpreted similarly.¹¹ We also know that the Romans were relatively literate and had an understanding of key mathematical concepts (such as geometry), built water wheels, which provided mechanical energy, and made manufactured goods such as cloth and glass.¹² Taken together, the co-existence of markets and economic advance early on in history is certainly consistent with the idea that markets are a necessary feature of a successful economy. However, why the Roman economy did not go on to industrialize becomes a more difficult question to answer; markets may not have been enough.

By the fourth century AD, the western part of the Roman Empire was starting to disintegrate. In response, Emperor Constantine shifted his capital to the more stable eastern part of the Empire, to the city he named Constantinople (modern day Istanbul).¹³ By the death of Emperor Theodosius in the fifth century, the Empire was completely divided between two sons: Honorius in the west and Arcadius in the east. Perhaps it was the former who drew the short straw as it was in the east – not west – that the economy was flourishing. Whilst the western part of the Empire was crumbling, the east survived and carried forward the mantle of knowledge left over from the ancient world. Trade links were developed with the Orient, which was the technological leader of the world of the time.¹⁴ Along the Silk Road from China flowed not only exotic goods but also skills and new knowledge.¹⁵ Becoming known as the Byzantine (later Ottoman) Empire, the region housed the largest cities in Europe and remained the wealthiest part of the old Roman Empire for centuries to come.¹⁶ Islamic expansion and conquest in the seventh to ninth centuries united the region further: Muslims were keen learners and further advanced the knowledge left over from the Ancient world and through their contacts with the Orient.¹⁷ At least until the thirteenth century, Muslim Europe was far more advanced technologically and educationally than Christian Europe and housed all the great European centers of industry.¹⁸

In contrast to the vibrancy found in the Byzantine world, western Europe fell into what has become known as the Dark Ages.¹⁹ Lacking the unity of the east, rule became increasingly fragmented. Following Barbarian attacks in the fifth century, a number of early dark-age kingdoms emerged, including the Visgoths in Spain (484–711), Lombards in Italy (568–774) and Merovingians in Gaul (511–751).²⁰ Moreover, upon the death of a king, inheritance was divided between sons, leading to increased fragmentation and conflict.²¹ Control was increasingly localized, and peace was continually interrupted by local conflict and invaders (including the infamous Vikings), who could take advantage of the poor state of defence. The reduction in law and order lowered population and led to a retreat from markets. Selling produce outside of the local area was more expensive as there was no central law to uphold the rights of buyers and sellers, together with deteriorating transport infrastructure and the lack of a uniform and stable coinage.²² Using the market also became riskier – not only was there a threat to physical security from robbers, invaders and strangers but with the fall in population one could no longer guarantee being able to sell one’s specialist goods in the marketplace and in return purchase the vital requisites for subsistence. Hence, individuals had an incentive to move away from specializing and instead produce everything they needed for themselves. As Wickham comments, this ‘was not a period in which the structures of exchange were reliable enough to overcome much subsistence risk in the West’.²³ As individuals turned away from markets, the goods on offer and reliability of the market further deteriorated, progressively lowering the benefits of using them and so encouraging others to turn away. A process of de-specialization and falling trade followed; Rome halved in size and many cities were completely deserted.²⁴ From ad 400–700, population fell from 36 million to 22 million.²⁵ With a lesser degree of specialization, techniques became more rudimentary and the technologies and learning of Roman times faded into the past:²⁶ the economy was caught in a vicious circle.²⁷ Whilst revisionist accounts have recently tried to argue that there was more light in the dark ages than we have traditionally thought,²⁸ seeing it as a period of restructuring as opposed to simple decline, it is still difficult to imagine how the period can be seen in a distinctly positive light.²⁹

Many have argued that the real death-blow to the western Roman world came with the Arab conquests of the seventh to ninth centuries.³⁰ Not only did these conquests swallow up the land of the Byzantine Empire and the entirety of the coastal regions of North Africa, they also absorbed Iberia and the tip of the Italian peninsula (including Sicily). According to Pirenne, the Christian and Arab world became cut off from one another and the west was forced to re-centre itself north of the Alps, away from its traditional focus around the Mediterranean. However, evidence is that significant contact between the two regions still took place: using accounts of 669 travellers (including pilgrims and diplomats), together with evidence of the movement of coins and slaves, McCormick argues that contact between the two regions actually increased in the period from the eighth to the tenth century compared with the earlier post-Roman years. He contends that this was to the benefit of the west, providing ‘the wealth and markets which would fire the first rise of western Europe’ in the late eighth century,³¹ a large part of which is attributable to the sales of European slaves to the Arab world. According to McCormick, the result was actually a new-found strength for the Frankish King, Charlemagne, who in ad 800 was crowned Holy Roman Emperor over the lands covering modern day France, the Low Countries, Germany and northern Italy. Whilst the states he unified were disparate and often remained at war, he is commonly seen as providing a degree of harmony and so is sometimes referred to as the founding father of Europe. The greater political order and stability meant that market exchange was now both less costly and less risky compared to the time of ‘Barbarian’ invasion, helping to bring about a recovery in markets. Local, regional and even some interregional trade increased and cities started to redevelop.³²

In 843, the Treaty of Verdun divided the Carolingian Empire into three regions – one which provided the basis for the development of a French state, another which resembles modern day Germany, although reaching further south, with the third a strip in between, which ran from modern day Netherlands south to the upper half of Italy. Whilst this return to the ‘bad old days’ of fragmentation was not ideal for markets, many historians have in fact argued that it proved helpful for technological diffusion and development. Being behind the Muslim and Orient lands, and having forgotten a lot of the knowledge built up in the classical world, Europe had a lot to learn. This included techniques for the manufacture of glass, paper, chemicals and cloth, together with the mathematical methods that supported the development of finance. The fact that Europe was composed of disparate states, all of whom were in competition with each other, meant, according to some historians, that they could not afford to ‘rest on their laurels’. As knowledge and technology started to move westwards, often first appearing in Venice, the hub for contact with the east, there was a great incentive to learn about and adopt it in order to avoid falling behind competitors in Europe. Furthermore, division meant that there was no single state who could ‘turn off the lights’. If any one province did so, knowledge and skills could simply move to another part of Europe, thereby sustaining technological advancement. Mokyr argues that it was because the onus of technological change was on private individuals (as opposed to a strong state) and because it was undertaken in a ‘decentralized, politically competitive setting’ that it could thrive, develop and be sustained.³³ Whilst this may be an advantage of division, if such division simultaneously proves unfavourable for markets, limiting specialization and eroding the incentives to adopt better technologies, it is difficult to imagine how these benefits would be realized. Fortuitously, out of the fragmentation emerged a set of institutions which acted as a substitute for an overarching and strong state, supporting markets and enabling a continued commercial – and technological – expansion well into the second millennium.

The most well-known institution on the rise at the time was that of serfdom (or feudalism). With the lack of a strong state and more geographically fragmented political power than in Roman times, knights and lords had strong power at the local level. The knights maintained themselves and their castle by extracting dues from local peasants (or serfs). The peasants generally possessed their own means of production but had limited geographical mobility and freedom. Their forfeit of freedom can be interpreted as a voluntary payment for the security and protection provided by the knight and his castle in a time of diminished law and order. More sceptically, of course, it can be seen as a consequence of the enhanced power of landowners. Following the population decline that came with the Roman break-up, land was plentiful and labour scarce. Landowners therefore commanded low market rents whilst labourers could demand high real wages. By restricting the mobility of peasants, serfdom prevented labourers from exploiting their bargaining power and gave landlords a means of extracting dues, sustaining a luxurious lifestyle for the elite.³⁴ According to Duby, this rather dark cloud had a silver lining; it encouraged the recovery of trade as lords improved order and set up and licensed markets (encouraged by the tax income they brought to the manor). It also created a demand for ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures and Tables
• Acknowledgements
• Preface
• Introduction
• 1 Markets in History: A Survey
• 2 The Course of Early Modern Market Integration: Country-Level Results
• 3 The Course of Early Modern Market Integration: The Mediterranean and the North-West Region
• 4 Early Modern Market Integration in a Longer Run Perspective
• 5 The Causes of Early Modern Market Integration and Disintegration
• 6 The Consequences of Early Modern Markets: An Examination of the Relationship between Markets and Economic Growth
• 7 Conclusions and Implications for Economic Policy and the Modern Day
• Notes
• Works Cited
• Index