An Economic History of Europe by Justin Kisieliauskas

NEWS

II Europe from obscurity to economic recovery

The Dark ages: how dark was it ? Settlements were abandoned and cities lost population and skills; Roads deteriorated because of lack of proper maintenance; Political maps were redrawn and social order was difficult to maintain; Money was scarce and uniform coinage was lacking; Income fell for ordinary people as well as the rich; Traditional trade links had been disrupted;

Where did the light gone? The contour of a new Europe was evolving and the center of gravity of that new Europe was shifting in a northwesterly direction from the Mediterranean basin. Why did income fall? What force economic growth? What will force economic growth in preindustrial economy?

Gains from division of labour Knowledge? Capital? Specialization! Specialization which is division of labour, from learning by doing, and from trade based on regional differences in resource endowments and climate.

An Inquiry into the Nature and Causes of the Wealth of Nations (1776) subdividing production into separate tasks and letting different producers specialize in each will improve the efficiency of all. economies of practice, learning by doing, Since producers improve their skills in what and when they specialize, they acquire an advantage in terms of labour productivity. The basis for exchange is differences in opportunity costs among households once they have started to acquire skills through division of labour and economies of practice.

Mutual gains from specialization The secret in gains from specialization, that is economies of practice and learning by doing, is that you need to give up less and less of the other good as you specialize in what you are getting better at doing.

Insufficient demand The limit for division of labour is the level of aggregate demand* in an economy ; Aggregate income or demand is defined over a geographical unit and can grow by extending the borders within which social and political order reign. In the era of Roman decline, the effective size of economically functioning regions declined. Roads were poorly maintained, political authority was con- tested and taxation systems became fragile. Transport also became less safe owing to robber bands and foreign raiders and trade was therefore restricted.

Division of labour promotes technological change Producers improve efficiency through repetition (economies of practice) each individual producer improves her skills over time but possibly at a decreasing rate. economy will go through a new period of increasing efficiency but will then settle at a stable and higher efficiency level the perfection acquired from practice cannot be transferred from person to person there is also learning by doing new and useful knowledge represents an increase in technological knowledge, and will generate an increase in the output and/or an improvement in the quality of the product given the inputs in production BUT the transfer of this type of knowledge is based on the continuity of production and division of labour. If for some reason a fall in demand occurs, as happened after the decline of the Roman Empire, and production is constrained, parts of the accumulated knowledge will soon disappear.

Virtuous and vicious processes in technological progress/regress

The light? What did Europe needed for growth based on increased division of labour and trade? Social order, Population growth, Transport networks, Markets, and money.

The shadow Europe was lagging behind other civilizations – China, the Byzantine Empire and the Muslim world – in terms of welfare, technology and learning; Money supply in medieval Europe was often erratic; Exchange is direct and balanced bilateral barter of goods; Markets were imperfect; Information flowed slowly and was distorted on the way. Markets worked below their capacity

After the post-Roman crisis: the economic renaissance of the ninth to fifteenth centuries Population Monetary system Transport and trade routes Urbanization Technology

Population Decline caused by epidemics and invasions (-30%); Diseases and political disorder; 800 CE-1300 CE population tripled from to 60 mln CE tripled again to 180 mln.

Restoration of a monetary system Roman money system collapsed; Why did we need money system? Carolingian Empire and silver penny (denarius); Gold coins - international, Silver coins, Cooper coins – daily use; Standard recognition; Increased demand for money>exchange rates (weight and purity of the metal); Money broking lead to banking, Rise of italian cities

Transport and trade routes New ships evolved; Tolls and fees stimulated better roads and bridges; Passages over Alps appeared; S and N Europe were linked by rivers; Trade renewed with Arab world.

Urbanization The ratio of urban population to total population is an approximate guide to the level of per capita income of an economy; WHY? Urban dwellers don’t produce food> non food producers increase in proportion>demand for non necessities increase Income elasticity of demand for food<non-food (Engel’s law) Cities excelled number of: artisans, products, services etc.

Situation of urbanization after Roman crisis Roman empire – urban civilization (25%); Rome and Constantinople held 0.5 mln. inhabitants; De-urbanization after crisis; City quality and quantity fell down; De-specialization set in; Production quality and quantity fell down.

New cities were built near old Roman cities

Trends of urbanization

Production and technology Was there a real decline? Lead emissions layered in the Greenland ice cap say YEAS

What about technology? A number of inventions were transferred from Asia and the Arab civilizations; Animals were used more efficiently (Harness, plough, horse shoe) Land was used more efficiently (three-period rotation system, animal dung, plant selection) Introduction of Water mill/hand mill/wind mill Paper production and printing machine ended the dark age…

Summary Europe went through in the Middle ages. Market size, as measured by aggregate demand, mattered and markets needed a social order that protected traders, ensured that contracts were honoured, and provided the means of payment. There was technological progress, slow but persistent, and there was institutional development in finance that facilitated trade over long distances. There was also an increasing consumption of goods produced outside the agrarian sector, witnessing to the fact that economies were leaving behind the bare subsistence economy of the past.

So was it so dark in the dark ages?

An Economic History of Europe by Justin Kisieliauskas