Title: The Long Road to the Industrial Revolution: The European Economy in a Global Perspective, 1000-1800
Author: Jan Luiten van Zanden
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Readability: 4 stars
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Topic of Book
Van Zanden studies the ultimate causes of the Industrial Revolution and shows that the late medieval and early modern period was ‘a long runway’ to the ‘take off’ of the Industrial Revolution.
If you would like to learn more about the origins of the Industrial Revolution and modern economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.
- The causes of the Industrial Revolution went far back into Medieval and Early Modern history.
- Northwest Europe had far more efficient economic institutions than the rest of the world. This laid the foundation for the Industrial Revolution.
- Between 950 and 1300 Northwest Europe went from being a marginal part of the Eurasian continent to the most economically efficient region in the world.
- Interest rates dropped to 5-6% as early as the 15th Century. Rates were much higher in the rest of Eurasia.
- Labor force participation rates were 30-60% in England and Netherlands compared to 1% in Ming China.
- Prices were more uniform across geography and seasons in England and Netherlands meaning that they had efficient markets.
- Northwest Europe also had far higher rates of literacy and produced dramatically more books than the rest of Eurasia.
- High labor force participation, particularly among young women, gave Northwest Europe a unique family structure based upon voluntary marriage by young people after they had separately spent time in employment outside the family.
- Teens of both genders in England and Netherlands regularly left home to become servants or apprentices in cities before later getting married. This greatly increased participation in the market.
Important Quotes from Book
This book studies the ‘deep’, or ultimate causes of the Industrial Revolution, and aims to show that the late medieval and early modern period was ‘a long runway’ to the ‘take off’ of the Industrial Revolution. In fact, I conclude that in many respects the medieval period was more dynamic than the three centuries from 1500 to 1800. During the major boom from 900 to 1300, growth occurred on a pan-European scale, with strong population growth and long-term increases in real income per capita going hand in hand. From 1500 to 1800, on the other hand, growth was restricted to the North Sea region – to Flanders in the sixteenth century, the Netherlands during its Golden Age, and England (and Scotland) in the period after about 1610 – while per capita income in the rest of Western Europe was constant at best. One of the aims of this book will be to explain this change in growth pattern from pan- European expansion before 1300 to a concentration in the North Sea region after 1400.
As this study hopes to demonstrate, Western Europe from the late Middle Ages onwards was exceptional (but not by definition superior) in all three aspects (institutions, human capital formation and economic performance). From the late Middle Ages onwards, in particular the North Sea region (the Low Countries and England) stands out in all these respects. Therefore, this book will devote particular attention to this region of Western Europe. But the success of the economies of Flanders, Brabant, Holland, and England in the late medieval and early modern periods was rooted in institutions that emerged in the High Middle Ages, the crucial transformative period when Western Europe emerged as a dynamic, innovative economy.
We propose here is to develop specific comprehensive measurements to assess the quality of the institutional framework of a society, and use these measurements to determine how efficient institutions in Western Europe were, and how they compared with institutional frameworks elsewhere. There are three groups of elements that can shed light on institutional efficiency.2
The first group consists of elements that can measure the extent to which institutions guarantee property rights and promote trust:
- Interest rates
- The skill premium, the difference between the wage of a skilled laborer and that of an unskilled labourer
- Seasonal variation in grain prices
A second group aims to measure the extent of market integration in
- Annual variability in prices
- Convergence of prices.
Theoretically, all these criteria would be expected to point in approximately the same direction: once institutions are efficient and transaction costs are low, institutional economics predicts low interest rates, high levels of market integration, and dense markets.
With this list of criteria for institutional efficiency we can try to answer the question: how efficient were European institutions before the Industrial Revolution?
Interest rates are a good starting point. Studies by Clark (1988, 2007) and Epstein (2000) have demonstrated that in Western Europe interest rates declined significantly during the late medieval period and reached a level of 5 to 6% as early as the fifteenth century. This level of interest I still normal today.
The transition to an economy characterized by relatively low interest rates occurred in Western Europe during the fourteenth and fifteenth centuries.
The literature on the development of the labour market in Northwest Europe suggests however that as early as the fourteenth or fifteenth century a large part of the population – ranging from one-quarter to one-half, and in some cases even more – was active in the labour market at least for part of the year (Dyer, 1989; Van Bavel, 2003, 2006). Over the life cycle, the extent of the labour market participation may even have been larger than that; in their teens and (early) twenties much more than half the population engaged in wage labour (or as servants or apprentices), and wage employment was a normal aspect of the life cycle for almost everyone living in either the countryside or the towns of England and the Low Countries.
The only estimate in the literature is that in late Ming (sixteenth century) China, perhaps 1% of the rural population engaged in wage labour – a figure that is very different from the 30 to 60% estimated for England and the Netherlands.
The only estimate in the literature is that in late Ming (sixteenth century) China, perhaps 1% of the rural population engaged in wage labour – a figure that is very different from the 30 to 60% estimated for England and the Netherlands. The conclusion that emerges from this survey of the various measurements of institutional efficiency is that from the late medieval period Western Europe already had a relatively efficient set of institutions, which led to low transaction costs, large-scale involvement of households in factor (and product) markets, and a high degree of market integration. In particular, the very low interest rates suggest that property rights were well respected, and that a relatively high level of trust was common in Western Europe, which was especially important for the development of labour and capital markets. The comparison of levels of market integration suggests that Europe did not perform better than Japan and China in that respect. The relative advantage of Europe was therefore probably related to the quality of its ‘vertical’ institutions, regulating the relationships between state and citizens; ‘horizontal’ contracting institutions may have been equally efficient in eighteenth century China and Japan.
In other words, the genesis of ‘modern economic growth’ in Western Europe was not accidental, but the result of the relatively efficient institutions that were characteristic of the region from at least the fifteenth century onwards.
By all measures the institutional efficiency of Western Europe contrasts sharply with the poor performance of institutions in south and south-east Asia (India and Indonesia in particular), where markets were much less integrated, interest rates were high, and also the skill premium was much higher than anywhere else.
Moreover, since (at least) the same level of institutional maturity had already been realized by Western Europe in the century following 1350, this implied that Europe had a head start of at least a few hundred years. Looking at interest rates and capital market efficiency alone, the leading position of Western Europe was completely unchallenged: no part of the world had interest rates as low as 3 to 5%, as were by then usual in seventeenth and eighteenth-century Netherlands and England.
Around 1000 Western Europe was an economically underdeveloped and marginal part of the Eurasian continent. It was undeniably backward when compared to the flourishing societies of Sung China and the Arab world, which both experienced a period of brilliant expansion in these years. The Latin West, as the region was oft en called at the time, was also relatively small compared to its close and distant rivals.
Moreover, Europe was sparsely populated; both Sung China and the Islamic world had a much larger number of inhabitants. More importantly, Europe was principally agricultural, with a low level of urbanization (this was true even in Italy, the urban centre of the region before 500), backward technology, low levels of commercialization and market exchange (again, compared to China and the Middle East), and a predominantly illiterate population.
All this changed radically in the course of the High Middle Ages. During the long period of prosperity that lasted from about 950 to 1300, Western Europe probably became the most highly urbanized region in the world.
During the ‘big boom’ of the Middle Ages, Europe’s population increased by 100 to 150%. Moreover, the Western European economy became very dynamic and innovative, both by importing new technology from abroad (mainly from the Middle East) and by developing its own new techniques. In short, a veritable economic revolution occurred, which also established the basis for the future economic development of the subcontinent in the centuries after 1300.
What is especially striking is that this transformation of the European economy occurred in a period of political fragmentation. The number of states in continental Western Europe increased from fewer than 10 in 800 – when Europe was dominated by the giant empire of Charlemagne – to more than 200 in 1300.
From 1072 to 1150, a systematic set of laws was created, regulating not only the governance of the Church, but also large parts of social and economic (and political) life. In response to these claims by the Church for a decisive influence in secular affairs, the emerging states of Western Europe began to develop their own legal systems. The increased attention to law that resulted from this competition between Church and state, in combination with the rediscovery of Roman Law, led to a rapid increase of interest in legal systems, their development and (in)consistencies.9 Legal scholarship was born, taught, and practiced in the new universities that sprang up throughout Europe in the following century.
The written word itself acquired a special significance. Laws were only valid if written down, and written evidence acquired a privileged position in court proceedings that was deemed superior to oral testimony based on memory.
So the net result of these two forces – the movement that started with the monasteries to write down property rights in charters and the much broader changes in the defi nition of power that resulted from the Papal Revolution – was that power became constitutionalized, defi ned and restricted by the written word, and negotiable. It was potentially a subject of negotiations between the parties involved, and therefore also partable (as the Pope and the Emperor had been able to share the investiture of bishops). Th is conception of power was fundamentally diff erent from what obtained in most non-European societies.
A second, independent centre of the communal movement was Northern France and neighbouring Flanders, where, from the 1070s onwards, starting in Le Mans (1070) and Cambrai (1077), the communal movement began to spread to large (and small) cities in northwestern Europe.
A related argument for the importance of these corporate bodies – whether communes, merchants guilds, craft guilds, or commons – is that these universitates were relatively efficient modes for developing new institutions. The rapid growth of market exchange during the eleventh-thirteenth centuries meant that new rules had to be invented and implemented for regulating the market.
But, and this is perhaps more striking, the two processes described here – the revolutions from above and below – together produced a process of homogenization of European rules and practices. The same institutional models – communes, merchant and craft guilds, fraternities, religious and knightly orders, charters, markets, and fairs – were copied throughout the Latin West. The ease with which these models travelled within Europe – how the model of the commune, the self governing town, for example, was copied and adapted in the most distant corners of the subcontinent – testifies to the cultural homogeneity characteristic of these centuries.
The core of an efficient set of institutions is therefore that counterbalances are created against the ‘natural’ inclination of the wealthy and the powerful to use this power for their own purposes – at the expense of those without power. This requires the ‘right’ legal ideas, and the ‘right’ (legal) practices. Th ese legal ideas were supplied by the legal revolution of the eleventh and twelft h centuries, which established, at least in principle, the ‘rule of law’, and created the basis of the Western European legal tradition. Th is is the ‘idealistic’ part of the story, but that is not enough: the powerless need to have the instruments to enforce these ideas. A powerful instrument, developed by the monasteries to protect their property rights, was the concept of the superiority of the written word.
The three movements discussed above also set in motion a process of state formation that rested on two foundations: 1) cities in which there was close and relatively harmonious relationships between rulers and ruled and 2) territorial states which gradually transformed the feudal relationships between lords and peasants into more modern relationships between princes and subjects.. this led to two trajectories of state formation that dominated the process from 990 to the beginning of the nineteenth century: a capital intensive one, characteristic of the city-states and the urban belt of Western Europe, and a coercion intensive one in the rest of the sub-continent. It also accounted for a particular combination of political fragmentation and economic dynamism that was characteristic of Western Europe in the centuries from 1000 onwards: the competitive state system of the subcontinent, which has been identified as one of the crucial factors explaining the success of the West, emerged from 950 to 1300.
This book has demonstrated how from 900 to 1300 economic growth was a pan-European phenomenon, characterized by significant increases in population, urbanization levels, and real income almost everywhere on the sub-continent. Europe changed from an economic periphery into a dynamic centre of growth and innovation. The European boom from 900 to 1300 may have arguably been its most remarkable period of expansion before the industrialization of the Europe in the nineteenth century.
By the early modern period (1500–1800), however, the situation was very different. Growth was now largely concentrated in a relatively small part of Western Europe: in the Low Countries and the British Isles… In the sixteenth century growth was probably concentrated in the southern Netherlands; in the seventeenth century Holland and the rest of the Dutch Republic became the focal point of expansion, and in the eighteenth century England and Scotland took the lead. At the same time, northern Italy went into decline: it had probably reached its peak GDP per capita during the fifteenth century.
The hypothesis of this chapter is that the European Marriage Pattern (EMP) is characterized by power balances between man and wife and between parents and children which are very different from common forms of marriage and household formation in other societies. In the EMP women have a relatively large say in marriage itself, because it is based on the consent of both spouses, and the position of children, in particular when they start to contribute to the income of the household, is also relatively strong. The particular features of the EMP – late and non-universal marriage – are the result of its relatively democratic character.
The EMP was an institutional adaptation of marriage, and more generally of human reproductive behaviour, to a situation of rapidly expanding employment opportunities and relatively high remunerations in the century after the Black Death.
Among these strategies were increased investment in formal schooling, in training as apprentices or as servants in other households, and in social capital to ameliorate the problems attendant on old age or single parenthood. The result was a society in which 30 to 60% of the population was partly or completely dependent on wage labour (men, women, and children), in which markets permeated all aspects of economic life, and in which small, conjugal households became increasingly interwoven with a social infrastructure which sustained their reproduction. This society emerged in the late Middle Ages in the North Sea region, in England and the Low Countries in particular. It was, we claim, the long-term dynamism of this structure which helps explain the long-term success of this region in the world economy of the early modern period.
But it was the rise of labour markets in Europe at the time that gave men and women such as Janne Heyndericx the practical means to assert their independence vis-a-vis their parents.
We therefore hypothesize that the labour market for women played a key role in the genesis of the EMP.
This strong increase in nominal and real wages of women after 1348, also pointing out that women were almost always paid the same as men for the same kind of work – another remarkable feature of the labour market in the North Sea region.
Wage labour became a key stage in the life cycle, starting with the work girls did as servants or boys did as apprentices in their teens, during which they also acquired the skills and savings to set up their own household. The process of leaving the parental household at the age of 12 or 14 created a very mobile and flexible labour force that migrated to cities when job opportunities increased, or moved to other regions or jobs when prospects seemed better somewhere else.
We conclude that the emergence of the EMP was the result of the interplay of three factors: ideology (the teachings of the Church), the developing labour market (in particular, after 1348), and a specific system of intergenerational transfers favouring (wage) labour by women.
Because it was based on consensus, marriage under the EMP was the result of a search process that could only be undertaken by young men and women who were mature enough to select their own partner. Hence, an average age at marriage of 18–20 was the lower limit. By contrast, systems of arranged marriages are characterized by much younger average ages, especially for girls.
The European behavioural patterns were based on a large degree of mutual trust: young people from the age of 10 or 12 (and sometimes even younger) were entrusted to the households of other individuals, the search process for a future spouse was entrusted to young adolescents, and women (and men) could actively engage in wage labour and the social interaction that accompanied it, oft en in places distant from their homes, without damaging their reputation.
Part of the life cycle that emerged in the later Middle Ages, and which would not change fundamentally until the nineteenth (and perhaps even the twentieth) century was an extended period of ‘on-the-job’ training and education. In this way the EMP was interwoven with the system of apprenticeship that had emerged mainly in the guilds in medieval Europe, and with patterns of ‘circulating’ servants, maids, and journeymen. These greatly increased the part of the life cycle taken up by training and education.
The important point here is that the Industrial Revolution of the second half of the eighteenth century is not the beginning of modern economic growth, but a second stage in a process that had begun much earlier.
The crucial steps identified are:
A. The Industrial Revolution did not just suddenly appear, but was the result of a process of growth and structural transformation that had begun in the first decades of the seventeenth century, a process that also took place in other parts of the North Sea region, in particular the Netherlands.
B. The driving force behind this first phase of modern economic growth was the world market that emerged in the sixteenth century. Both the Netherlands and England expanded rapidly because they managed to capture increasingly large shares of international services (trade, transport, and finance) and enlarged their share of key export industries.
C. They managed to do this because they had efficient institutions, resulting in low interest rates, a large supply of skilled and unskilled labour, and high levels of human capital formation. Both countries also experienced the emergence of a ‘fiscal-military’ state, modelled after the medieval city state. They used the power of the state to enhance the interests of the commercial elite. The new states arose from conflicts between absolutist monarchs and their elites, during the Dutch Revolt and the English Civil War.
If you would like to learn more about the origins of the Industrial Revolution and modern economic growth, read my book From Poverty to Progress: How Humans Invented Progress, and How We Can Keep It Going.