Freedom and Growth

The Rise of States and Markets in Europe, 1300-1750

Stephan R Epstein, S.R. Epstein

• Publisher: Taylor & Francis
• Year: 2000
• eBook ISBN: 9781134744558
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In discussions on European pre-modern economic growth, the role of individual freedom and of the state has loomed large. This book examines whether different kinds of 'freedoms' (absolutist, parliamentary and republican) caused different economic outcomes, and shows the effect of different political regimes on long term development. It thus offers

1 Introduction

States and markets

Things happen when they have to, usually at the wrong time.

Nairn 1997: 16

Economic history has three major narrative themes: the transition from autarky to market society (or market integration), the development of technology or productive forces, and the extension of manufactory in a fundamentally agrarian world. Its central questions are why past growth was so slow and intermittent, and why economic performance differs between differently structured societies over time. This book addresses the question of what caused historical growth by examining the creation of markets and the consequences of market integration in late medieval and early modern Europe: pre-modern Europe for short.¹

Until quite recently most historians would have considered such questions nonsensical. The prevailing Ricardo-Malthusian view of premodern societies was deeply pessimistic.² With static technology and little knowledge among the peasantry to control population size, pre-modern economic growth was a contradiction in terms. Diminishing returns were inescapable, and demand inevitably and regularly outran supply. In the terms popularised by the historians associated with the Annales, Fernand Braudel’s longue durée, the nearly unchanging substratum of everyday life became conceptually interchangeable with Emmanuel Le Roy Ladurie’s histoire immobile, the eternal return of the ‘Malthusian cycle’ of overpopulation and agrarian involution. The neo-Malthusian model derived its popularity from its theoretical parsimony, its consistency with most of the known facts, and its appeal to the nineteenth-century Romantic belief in the profoundly conservative and ‘anti-capitalist’ mentality of the peasantry. But the model’s simplicity was also the source of its major weaknesses, namely that it could explain neither how late eighteenth- and nineteenth-century ‘modernisation’ could arise from such a conservative economy and society, nor why economic performance differed between countries and regions.

Criticisms of these failings came to a head in the 1970s, when four major essays appeared proposing alternative reinterpretations of the rise of European capitalism and world economic hegemony. Each model concentrated on a single, driving factor of economic growth and development. Franklin Mendels (1972) built an entire theory of social, cultural and demographic modernisation upon the centrality of industry in the countryside, Immanuel Wallerstein (1974) adopted and modified Braudel’s belief in the primacy of long-distance trade, Robert Brenner (1976) emphasised class struggle and property rights to land, and Douglass North (North and Thomas 1973) focused on transaction costs and the state.

The theory of protoindustrialisation developed by Mendels, Kriedte, Medick and Schlumbohm was the most complex and also the most precise of the four. The theory was distinguished from Marxism by its emphasis on slow, cumulative change rather than on overt and subterranean conflict over property rights and resources; and it was distinguished from neo-classical models of growth by its emphasis on supply-side demographic change rather than on technology or price and income effects. Protoindustrial theory claimed that the diffusion of industry in the countryside after the mid-seventeenth century changed the incentive structure of rural labour. It drew peasants into the marketplace which they had formerly shunned; it freed them from the traditional constraints on family size posed by the limited supply of land; it undermined ‘traditional’ or feudal urban institutions, in particular the technologically conservative and industrially restrictive craft guilds; it created a dispossessed labour force that prefigured the industrial proletariat; and it provided the accumulation of capital needed for factory industry.

The clarity of the model’s predictions made the latter easy to test and, after a quarter of a century of detailed research, little of the original theory is left standing. It is now clear that protoindustry was not always associated with a fall in the age at marriage and a rise in birth rates, and that one finds similar demographic patterns in regions with no protoindustry; that protoindustrialisation did not cause the downfall of the urban craft guilds, because the latter employed skilled labour that protoindustry lacked; and most importantly, that protoindustry was only occasionally the harbinger of modern industry. On the other hand, it is also established that protoindustry was one of the main agencies of pre-modern, market-led or Smithian growth. Protoindustry drew off excess labour from the fields while offering a reservoir of wage labour at times of peak demand at the grain and wine harvests, it supplied pre-machine economies with low-cost cloth and metalwork, and it stimulated inter-regional trade in victuals and consumer goods. But protoindustry did not fundamentally change the structure of pre-modern economies, and there was no inherent reason why it should give rise to modern factory industry if commercial or other conditions changed. Perhaps the strongest evidence to this effect is the fact that seventeenth- and eighteenth-century protoindustry was the continuation of a process of specialisation that had begun after the Black Death of 1347–50; a further reason to question the revolutionary character of protoindustry was its strong dependence on the technological and labour market externalities of ‘traditional’, craft-based urban industry. I discuss both points in Chapter 6 of this book.

Wallerstein’s argument that a ‘capitalist world system’ emerged in Europe by about 1500 presupposes that the economies of Europe and its overseas colonies were part of a single, integrated system with a complex division of labour between ‘centre’, ‘semi-periphery’, and ‘periphery’, and that the profits from overseas trade determined the continent’s economic trajectory. The thesis raises two empirical objections. The first, put forward by O’Brien, is that the volume of overseas trade in the eighteenth century, which was considerably larger than in the sixteenth, was still far too small to be of more than marginal relevance for the British and Continental European economies.³ The second objection comes from evidence of medieval and early modern market integration (Chapters 3, 7), which shows that national markets in the most widely traded pre-modern commodity, wheat, did not develop for the most part before the late eighteenth century, and that the rise of an integrated European and Atlantic market occurred only after the introduction of railways and steamships in the nineteenth century.⁴ To posit an integrated ‘world system’ already consisting of specialised national units by 1500 is therefore a 300-year anachronism.

In his original essay of 1976, which was particularly concerned with the economic consequences of the so-called ‘late medieval crisis’ – a period of demographic collapse and economic, social and political upheaval lasting from approximately 1300 to 1475 – Brenner made the largely untestable claim that the outcome of the crisis was determined by distributional conflicts (class struggle) between peasants and lords. Subsequently he argued that what really mattered for the pattern and outcome of the crisis in different countries were property rights to land, which set strict and near immovable constraints on market activities and technological innovation, and therefore determined contrasting growth paths.⁵ Following Marc Bloch, Maurice Dobb, and Barrington Moore Jr., Brenner argued that European agriculture between 1200 and 1800 was either ‘feudal’ or ‘capitalist’.⁶ Under feudalism, the peasantry owned its means of production, was self-sufficient for food, and was forced by military and legal force to pay a surplus to feudal lords (including state and church). The peasantry had no incentive to specialise for the market or to innovate because specialisation and innovation were excessively risky, while feudal lords increased their income by encouraging population growth and labour intensification on the land, and through warfare and pillage. Feudal property rights to land therefore created disincentives that were redistributive and anti-market. Under capitalist agrarian relations, on the other hand, the peasantry was replaced by tenants and labourers who were forced to compete productively on the market. However, agrarian capitalism emerged only in England because it was the only country where the peasantry was evicted from the land; elsewhere in Europe, the peasantry clung on and feudal property rights survived. Whether or not this constitutes an accurate account of agrarian developments in pre-modern Europe, Brenner’s combination of neo-Malthusian pessimism and property-rights determinism seemed to offer a solution to the conundrum of the contrasting rates of growth of English and Continental agriculture.⁷ At the same time it gave theoretical support to the widespread belief that until the end of the Middle Ages ‘markets played no important part in the economic system [of Europe]; other institutional patterns prevailed’.⁸

The nature of market relations under feudalism is indeed critical to any explanation of economic change and it is on that account that Brenner’s theory fails. First, Brenner argues that the reason why peasants under feudalism could resist market pressures was that they were selfsufficient for food.⁹ In fact, over half the peasant population in late thirteenth-century England did not have enough land to live on and was forced to seek additional income from manufacture, trade and wage employment, and the proportion of ‘self-sufficient’ peasants is unlikely to have been any higher in Continental Europe, where urbanisation, markets and specialisation were equally or more advanced.¹⁰ Second, Brenner argues that peasants were technologically less innovative than landlords but, again, evidence discussed in Chapter 3 suggests the opposite conclusion. Third, he claims that agriculture displayed economies of scale, which required the consolidation of peasant smallholdings; however, there is little empirical evidence to support this.¹¹

Fourth, he predicts that if peasants were evicted from the land the productivity of labour in agriculture would rise sharply. In Italy, however, where serfdom was virtually abolished by 1300, peasant communities were weak, and ‘bourgeois’ ownership was prevalent – where in other words peasants had been ‘evicted’ from land-ownership far earlier than in England – labour productivity after 1500 stagnated.¹² Empirical studies of modern developing countries also confirm what the example of pre-modern Italy appears to imply, that systems of land ownership and the choice of agrarian contract do not directly determine agricultural performance.¹³

Brenner’s interpretation suffers from the combination of a narrow form of ‘property rights romanticism’, whereby property rights to land determine the existence of markets and the path of technological change, and of ‘typological essentialism’, which defines the feudal economy in terms of only one characteristic (property rights to land) deemed to represent its essential qualities. Brenner’s problems stem from his excessively narrow definition of feudal property rights – that is, of enforced rights to income streams – in terms of property to land, which excludes all the ‘extra-economic’ rights of lords to extract rents from transactions (production and trade), and which therefore deprives his model of an endogenous source of change and short-circuits the question of how markets in feudalism actually arose. Significantly, Brenner never discusses the emergence of markets in either feudalism or capitalism, appearing simply to assume that capitalist markets followed the emergence of new property rights to land with the expulsion of the peasantry.¹⁴ These problems can be solved by identifying transactional or tributary rights as the main source of endogenous change in the feudal economy, a position I defend in Chapter 3.

The hypotheses developed by Douglass North and the New Institutional Economics school (NIE), modified to account for institutional sclerosis and rent-seeking, are both remarkably akin to classical Marxism and offer a more plausible model of institutional change.¹⁵ By focusing on the formal social rules and the exchange relations which allocate resources and constrain individual choice, NIE offers a synthesis between Marx’s techno-institutional determinism and the neoclassical concern with the allocative functions of markets. NIE’s hypothesis that formal markets arise when property rights are secured, and that they develop as transaction costs (agency problems) decline, solves the false dichotomy between feudalism and competitive markets shared by Brenner, Wallerstein and Mendels, makes the existence and nature of markets in non-capitalist societies a question to be assessed empirically rather than deductively, and offers a way of comparing the historical growth of markets across time and space.¹⁶ Last but not least, it turns the state from a fringe actor into a major protagonist of economic growth and development.

NIE’s scope and ambition have nevertheless restricted its usefulness in explaining macro-economic performance in the past. Four problems have proved to be particularly intractable. First, transaction costs can be invoked to explain both economic failure and success; to avoid circularity there is a need for a theory of institutional change that NIE has so far not provided. Second, transaction costs are hard to measure in pre-statistical societies, raising the possibility that an unmeasurable quantity is being assigned spurious causation. Third, it is not a priori clear what economically efficient political arrangements should look like. For example, a point frequently made in defence of democratic politics is that conditions that might be sub-optimal at one point in time may be more dynamic in the long run; equally, the claim that a strong state finds it easier to overcome rent-seeking activities seems just as plausible as the statement that a weak state finds it harder to enforce the rent seekers’ claims. Fourth and most importantly, NIE consistently attributes the existence of sub-optimal or inefficient institutions to state policy, more specifically to the actions of naturally ‘predatory’ rulers who, by maximising revenue from their subjects, undermine property rights and incentives to investment and trade. NIE therefore assumes, as Margaret Levi has put it, that “rulers rule. That is, they stand at the head of the institutions that determine and implement state policies and regulations affecting a given polity and the state’s provision of collective goods”.¹⁷

Although this book is concerned with measuring and comparing the effects of different political institutions, my view of pre-modern states and of their economic consequences is very different from that presented by NIE theorists. The latter project backwards in time a form of centralised sovereignty and jurisdictional integration that was first achieved in Continental Europe during the nineteenth century; they therefore fundamentally misrepresent the character of pre-modern states. One basic difference between modern and pre-modern states, which had significant economic consequences, is the fact that membership of pre-modern states was not universal, or more precisely, that membership rights were distinguished by corporate status and dispensed as privileges or ‘freedoms’. Because they lacked centralised, sovereign jurisdictions, pre-modern polities were also not comparable to modern federations, in which “competition among jurisdictions allows citizens to sort themselves and match their preferences with a particular menu of local public goods”, because federalism, by contrast with pre-modern ‘composite’ states, functions through a centralised, sovereign power which binds all lower jurisdictions together and co-ordinates between them.¹⁸ By applying an anachronistic model of the state, NIE misunderstands the main institutional causes of pre-modern economic performance.

Although Mendels, Wallerstein, Brenner and North agree that institutions, whether property rights to land, market structures, or the power of the state, mattered for economic growth, their explanations have either failed empirically or have not been put to the test. Protoindustry and property rights to land, which Mendels and Brenner identified as independent causes of growth, appear instead to be dependent variables, while Wallerstein and North project nineteenth- and twentieth-century conditions onto the pre-modern past. The purpose of this book is to consider what is lacking from previous interpretat...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Acknowledgements
• Abbreviations
• 1 Introduction
• 2 Freedom, Freedoms and Growth
• 3 The Late Medieval Crisis as an ‘Integration Crisis’
• 4 States and Fairs
• 5 Cities and the Rise of Italian Territorial States
• 6 The Origins of Protoindustry, c.1300–c.1550
• 7 Markets and States, c.1300–c.1550
• 8 Conclusion
• Bibliography