2/3. The Pre-Industrial Economy

Question 1

General picture of the “slow motion” world

Answer 1

• Geographical discoveries led to an early modern globalization closer interaction between Europe and the rest of the world
• The discoveries had distributive effects not all countries benefited the same way
• Economic power shifted from the Mediterranean to the northwest
• European countries that benefited most were England, the Netherlands, northern France
• previously flourishing regions in Europe entered a period of relative decline, stagnation, or even absolute decline: northern Italy; east, central, and northern Europe; Switzerland and south Germany

Question 2

The rise of the West (linked to slow motion world)

Answer 2

• Middle ages

– Europe was the periphery not the centre

– The dark middle ages witnessed massive loss of human knowledge, not regained until 14th century.

– Science and technology more developed in China, Japan, Arab world

– Most wanted products imported from the East

• Early modern period

– Europe conquers much of the world and makes trade global

– Northwest Europeans most educated and most productive

– England, a medieval backwater, becomes first industrial nation

– Europe conquers much of the world and makes trade global

– Northwest Europeans most educated and most productive

– England, a medieval backwater, becomes first industrial nation

Question 3

Proximate sources of growth

Answer 3

• Increase in resources
  
  • Population growth, territorial expansion
  • Capital formation (physical or human)
• Increase in efficiency
  
  • Better use of existing technologies
  • Technical change: new tools and/or know-how

Question 4

Ultimate sources of growth

Answer 4

– Geography (natural resources, climate, topography)

– Culture (religion, collective attitudes, etc.)

– Institutions (social, political, etc.)

Question 5

What does modern economic growth mean?

Answer 5

• Wealth of nations
  
  • Has little to do with the distribution of natural resources
    
    • Land abundant economies can be poor
    • Resource rich countries often have inefficient institutions
  • Capital and technological progress matter more
    
    • Typically the richest countries have the best trained workforce
    • They also have more and beSer machines
• Growing rich
  
  • Modern economic growth driven by capital accumulation and technological progress

Question 6

Premodern vs modern growth

Answer 6

• Premodern growth
  
  • Slow accumulation of capital and knowledge
  • Piecemeal technical progress with episodes of technological reverse
  • Little improvement in productivity or living standards
• Modern economic growth
  
  • High savings => fast accumulation of capital
  • Rapid growth in scientific knowledge
  • Fast and continuous technological progress

Question 7

Cities at apex of economic prosperity

Answer 7

• Antwerp (Flanders), enjoyed a period of continental leadership in commerce and trade in the first half of 16th century
• Genoa enjoyed a short‐lived rejuvenation in the second half of the 16th century
• Amsterdam took over as a major international emporium and financial centre from late 16th throughout the 17th century
• Finally, in the 18th century London acquired world economic and financial leadership and retained it until 1914

Question 8

General pic of pre-industrial economy

Answer 8

• The 15th‐17th centuries do not stand out for technological innovation
• no radical innovations but rather incremental improvements of existing technologies
• The industries most affected by innovation were
  
  • shipbuilding
  • arms
  • metallurgy
• Agriculture also recorded little productivity increases thanks to minor innovations in techniques and crops and/or marketization, except the vast improvement by British and Dutch in 17th and 18th cent

Question 9

Malthus’ model

Answer 9

best description of pre‐industrial demographic behaviour

laid out in his Essay on the principle of population (1798)

• He maintained that
  
  • resources – land in the first place – are finite
  • as income per capita increases, population grows
  • population grows faster than food supplies
  • technological change is non‐existent
• Put differently, in Malthus’s model the availability of resources constrains pop growth
• In the long run, pop growth ⟶ lower living standards ⟶ pop growth comes down to zero or turns negative; resource constraint keeps pop at the subsistence level (equilibrium)
• The process was cyclical and there was no escape, hence the Malthusian ‘trap’

Question 10

If Malthus was right, why do we see pop increase during the pre‐industrial era ?

Answer 10

1. Productivity gains arising from technological progress or division of labour
   * with higher productivity came greater output, hence more people
2. Behavioural strategies to reduce fertility (= nr of children per woman)

• less women getting married
• women marrying at an older age

Increased productivity coming w the industrial revolution allowed to break free of the Malthusian trap ‘demographic transition’

Question 11

Cycles of growth in European demography (4)

Answer 11

In European demography there have been four long cycles of growth and stagnation

• 9th to mid‐14th century
• mid‐15th to 17th century
• mid‐18th to first half of 20th century
• second half of 20th century onwards

Question 12

General trends in European population from the mid 15th century

Answer 12

1. Growth from mid‐15 century to 1600 ca., then stagnation or decline
2. Urban pop growing faster than total pop
   
   • result of migrations from rural areas becoming overpopulated
   • paradoxically, mortality in cities was way higher than in rural areas due to poor hygiene and low living standards
3. Pop growth is higher in areas where economic growth is faster ⟶ in northwest rather than south, central, and east Europe. Same applies to cities.
4. Pop density is higher where agricultural productivity is also higher this is because of the resource constraint
5. Sometime around mid‐16th century, pop growth ran into the resource constraint which caused increase in food prices ⟶ decline in real wages ⟶ lower living standards ⟶ demographic stagnation

Question 13

Pre-industrial geographic discoveries causes

Answer 13

• The geographical discoveries of the late 15th and early 16th century were the result of Europe’s technological superiority in
  
  • shipbuilding
  • guns
• Ships and cannons
  
  • allowed conquest and international trade to develop fast
  • helped Europe to overtake China
  • triggered a huge inflow of wealth (silver) to Europe

Question 14

Early empires and geographical discoveries

Answer 14

• Portugal and Spain first exploited the opportunities of the new sea routes and created vast empires
• The imperial policy of the two countries differed substantially
• The Portuguese
  
  • basically founded trade outposts along the main sea routes to Asia aiming to secure control of the spice trade
  • they were not able to effectively colonise most Indian and African areas
• TheSpanish
  • settled the Americas, exported crops, techniques, equipment, institutions
  • by the end of the 16th century, they effectively ruled over vast regions of South, Central, and southern North America

Question 15

International trade as a consequence of geographical discovery

Answer 15

• The discoveries of the late 15th‐early 16th centuries laid the ground for a remarkable increase in
  
  • trade volume
  • the variety of exchanged goods
• A good reason for such increase is that entirely new goods now entered international trade Columbian exchange
  
  • spices, dyestuffs, coffee and cocoa, tea, sugar, cotton, tobacco, porcelain, and a variety of foodstuffs…
  • gold and silver

Question 16

What’s the price revolution?

Answer 16

• The price revolution refers to the increase in prices by a factor of 3 to 4 that occurred in the 16th century
• Not all goods were affected in the same way, nor were regions either
• Among the commodities most severely hit were foodstuffs that formed the staple diet of the population: grains
• This widespread inflation episode had a negative impact on real wages, as the cost of living rose faster than nominal wages
• It ensued a substantial redistribution of income and wealth

Question 17

Effects of price revolution

Answer 17

• Redistribution left almost unscathed those who lived off sources of income quickly adapting to changes in prices
  
  • merchants
  • manufacturers
  • landowning farmers
  • farmers who produced for the market
• Most affected were
  
  • wage earners
  • fixed‐rent receivers
  • pensioners

Question 18

Causes of price revolution

Answer 18

When discussing the causes of the price revolution, 2 elements stand out

1. inflow of precious metals from Africa and the Americas leading to an increase in the money supply
2. population growing faster than agricultural output

The latter phenomenon – though independent of 1) – contributed to the price increase

Question 19

How to categorize the economy in pre‐industrial Europe?

Answer 19

• agriculture
• industry
• trade

Question 20

3 common characteristics of European agriculture during pre-industrial econ

Answer 20

1. agriculture was the largest employer in the economy, accounting for between 66% and 95% of the workforce in each country
   
   • ⟶ The performance of the agricultural sector was key to the economy and to improvement in living standards
2. The most important input of production in agriculture was labour
   
   • capital equipment consisted of very simple tools
   • land and climate conditions were almost fixed
   • ⟶ absent technological innovation, there was little chance of improving productivity
3. Average productivity in European agriculture peaked in the 16th century, declined in the 17th century
   
   • agricultural productivity did not grow as fast as population: indeed it stagnated or declined
   • as a result, living standards worsened and pop growth ground to a halt

Question 21

Reasons for the productivity decline

Answer 21

• As pop grew in the 16 century, more and more labour was applied to land and more and more land was put under cultivation (wasteland, marshes, mountainous areas, etc.) but this caused the sector to run against the wall of diminishing returns
• Mind the trade‐offs btw alternative land uses, esp. farming vs. pasture and woods
  
  • conversion of pastures, woods to arable land ⟶ less livestock, less fertilizers, less animal power, less timber, poorer diet, etc.

Question 22

Factors affecting the performance of the agricultural sector

Answer 22

1. technology - More advanced techniques and equipment ⟶ higher productivity
2. land tenures
   
   • Long leases⟶incentive to improve land
   • Capitalist farming better than sharecropping
   • Share cropping better than serfdom (status of many peasants under feudalism, specifically relating to manorialism. It was a condition of debt bondage)
   • Private property better than open‐fields
3.  size of land holdings
   
   • Larger holdings make for higher productivity
   • Large estates under extensive exploitation have lower productivity
4. social structures - vertical, polarized structures are associated with lower productivity
5.  marketization - Closer interaction with markets ⟶ higher specialization, higher productivity

Question 23

Spain - extreme downfall of agriculture

Answer 23

• The expulsion of the moors and Jews by 1492, later on of Moriscos (1609), meant a net loss of technological knowledge (⟶ irrigation techniques, craftsmanship)
• Land ownership became highly concentrated in the hands of the nobility and the church
  
  • in these large estates sharecropping and short leases discouraged land improvements
  • many peasants were impoverished and nearly enslaved
• Competition between farming and breeding was detrimental to agriculture
  
  • Mesta – powerful lobby of sheep masters – obtained privileges from the crown in exchange for higher taxes
  • as a result, across a vast region sheep were allowed to graze on common lands at the expense of crops
• Ceilings on wheat prices during the ‘price revolution’ further inhibited productivity increases ⟶ dependence on imports
• Brief, the institutional and social setting provided the wrong incentives ⟶ agricultural productivity was among the lowest in Europe

Question 24

Netherlands - extreme prosperity of agriculture

Answer 24

• Since the late middle ages the Low Countries had been among the regions with the highest productivity in Europe
• In the 16th and 17th centuries a major transformation occurred, based on:
  
  • specialisation - Production of high unit value goods ⟶ cheese, livestock, flowers, non‐food crops, etc.
  • urbanization - Fast‐growing cities provided demand for variety of goods
  • commercialization - Dutch commercial organization and
• shipping industry allowed intense marketing of agr. produce in domestic and foreign markets
• Substantial investment made to reclaim low‐lands and wastelands
• Rising agricultural prices boosted investment
• Wealthy non‐farmers Dutchmen took part in funding reclamation projects

Question 25

General picture of industry in pre-industrial econ.

Answer 25

• There had been major innovations in the 15th century
  
  • clocks and watches
  • gunpowder and firearms
  • printing
• However, innovation was rather resisted than welcome by:
  
  • the social environment - authorities feared that new technologies would create unemployment
  • the institutional setting - trade guilds were averse to competition and regarded innovations mostly as a threat to their monopoly over production
• Power and poor building materials constituted a constraint on substantial increases in productivity

Question 26

Overview of textile industry

Answer 26

• It was the largest industrial employer and experienced product innovation
  
  • new draperies’ – woollen fabric introduced by the Flemish in the 15th century and subsequently spread to England
  • cotton textiles spread from Italy to Switzerland, south Germany, Flanders, and England
• In the 16th century textile production moved away from Italy to north European regions
• England became a large producer and exporter increasingly selling finished products

Question 27

Guilds system in textile industry

Answer 27

• Exercised in cities
• Guilds (trade organizations) were synonym of regulation
• They controlled product, labour, and technology markets by setting
  
  • product prices, quantity, and quality standards
  • working hours, wages, career paths and skills of apprentices, etc.
  • production techniques

Question 28

Putting out system in textile industry

Answer 28

• Outside of cities, production was organised as a decentralised process named ‘putting‐out system’
• The merchant‐entrepreneur was the central figure in this system
  
  • provided domestic producers in the countryside with raw materials
  • took semi‐finished goods to other producers specialising in the final stages of production
  • sold finished goods to consumers in distant markets
  • did not own capital equipment
• Rural producers
  
  • most often worked seasonally or part time
  • were made up of women and children
  • owned the tools (spinning wheels, looms) needed in the production process
  • were paid on a piece‐rate basis

Question 29

Guild vs. putting out

Answer 29

From an economic perspective, the putting‐out system made a lot of sense

• a response to the rigidities of the guild system
• offered advantages in terms of lower labour costs and quality standards
• matched the cost‐reduction and income‐integration needs of its constituents

Question 30

Shipbuilding industry

Answer 30

• Industry leadership in Europe belonged to the Dutch, who
  
  • exploited the rising demand for ships and shipping services caused by increased trade
  • introduced important innovations in the form of
    
    • rudimentary mass production techniques (⟶ interchangeable parts)
    • use of wind as a source of power
    • product design (⟶fluyt, cargo vessel enabling cost‐effective transport of bulky low‐value commodities)
• By the mid‐17th century, the Dutch had the largest fleet in Europe and exported both ships and shipping services

Question 31

Other peripheral industry in the period

Answer 31

Metallurgy
• introduction of the blast furnace – a more effective process to obtain pig iron – and use of water‐powered bellows

Guns
• improved firearms and cannons (also mounted on warships)

Timber

• in high demand for constructions, shipbuilding, metallurgy and domestic heating, became ever more scarce in the 17th century and drove tighter integration of Nordic countries in the northwest European economy

Question 32

Overview of commerce industry

Answer 32

• Was the most dynamic sector of the economy well into the 18th century
• The most important changes occurring btw the 15th and 18th centuries affected
  
  • maritime commercial leadership
  • composition of international trade
  • commercial organization

Question 33

Maritime commercial leadership

Answer 33

• In the course of the 16th century, Spain and Portugal lost their preeminence to the Netherlands and Britain
• Their focus on controlling imports along the new sea routes made them less concerned with the distribution of goods in Europe
• In the 17th century, this task was taken over by the Dutch in several steps
  
  • control of the bulk of trade in the Baltic Sea
  • control of Portuguese exports to Europe
  • monopoly over spice trade through the Dutch East India Company (1602)
• British, Dutch, and French settlements in the Americas and in the East in the 17th century boosted trade btw the motherland and the new colonies

Question 34

Composition of international trade

Answer 34

• Increasingly, better ships of higher cargo capacity allowed cost‐effective transport of bulky goods of low unit value (⟶ timber, grain, ores, etc.)
• Change affected intra‐European trade in the first place, later on applied to intercontinental trade as well, esp. across the Atlantic

Question 35

Commercial organisations

Answer 35

• Most of intra‐European trade was carried on by merchants establishing networks in the most important commercial cities
  
  • networks were based on correspondents, agents, or partners
  • richest merchants often started banking activities
• A big novelty is represented by chartered companies, joint‐stock companies with special privileges awarded by the crown (⟶ monopoly over certain goods or trade routes)
• They represented
  
  • a way of stimulating trade flows and developing a national shipping industry
  • an efficient way of organizing long‐distance trade, which required substantial capital and involved high risk
• Chartered companies spread from the mid‐16th century
  
  • in Britain: Muscovy Company, Levant Company, Spanish Company, Baltic Company, East India Company, etc.
  • in the Netherlands: Dutch East India Company

Question 36

Commercial organisations comparison: Portugal, Spain and Belgium and Netherlands

Answer 36

• In Portugal and Spain, colonial trade was a crown monopoly
  
  • in Portugal: Casa da India (spice trade)
  • in Spain: Casa de Contratacion (Seville; trade with the Americas)
  • but these monopolies were not very effective, indeed they left plenty of room for contraband
• Large international entrepôts like Antwerp, Amsterdam, London
  
  • result of market expansion and increased volume of international trade
  • markets, though, were not widespread enough to allow the coexistence of 2 or more such emporia