Universitat Pompeu Fabra

Economic and Business History

LESSON 2:
RURAL FIRMS, TRADE, FINANCES
AND MANUFACTURING IN THE
PREINDUSTRIAL AGE
Anna Sol
 Contents
Agriculture
Trade and finances in the preindustrial age:
Functioning of markets
New financial instruments
Changes in the organization of manufacturing
activities:
Guilds
Putting out system
Centralized production
Technology and organization of industrial activity
 Agriculture
Self-sufficient agriculture.
Productivity was constrained by the pressure
of the feudal obligations.
Agrarian family firm:
Diversity of activities
Low division of labour
Self consumption
 Agriculture
Some transformations in the North of Europe
and the United Kingdom (17th and 18th
century):
Technological transformations: new crops, capital
investment
Structural transformations: transformations in
property of land and exploitation.
British agrarian revolution: market agriculture,
elimination of fallow, enclosures.
 Trade and finances
If transactions costs are too high, markets
dont work.
To ensure exchange it is necessary to
guarantee:
Availability of information.
Coordination of decisions: participants must be
able to meet and negotiate without coercion or
violence.
Enforcement: agreements must be fulfilled and
fraud must be punished.
 Trade
Fairs:
Annual meeting between producers and consumers.
Capital goods and durable goods.
Markets:
Place for ordinary purchases.
Held once or twice a week.
Rules, limits, and precise regulations applied.
Presence of some authority.
Shops:
Continuity between supply and demand.
Artisans or salesmen.
 Trade
Expansion of maritime trade: one of the major
originators of European economic dynamism.
Contact with areas endowed with diverse
production factors.
Increase in European maritime exchanges after
the 10th century.
The success of oceanic trade was a decisive
change: the first worldwide revolution.
Widening of contacts and circulation of goods.
 Innovations in exchange
Techniques of transport:
Improvements in navigation. Increase in
productivity in oceanic transport
Money:
Developments in business techniques:
Increase in monetary base and velocity of monetary
circulation. Devaluation to solve the problem of money
shortages.
Introduction of means of credit.
Systems o accounting.
Creation of legal institutions.
Commercial companies.
 Commercial firms types
Free trade: Individual traders and mercantile
associations.
Privileged trade: Privileged companies
(monopolies):
Diversification.
Risk.
Limited liability.
 Workshops
Artisan production in workshops:
Master.
Apprentice.
High added value activities.
Urban regions.
Luxury demand.
The master and the workshop were members
of the guild, a more complex institution based
on a specific type of job.
 Guild system
Roles of the guild:
Organize labour and capital.
Regulate crafts activities.
Quality control (reduction of information costs).
Restrict entry to the labour market (control of the
training process).
Provide rudimentary social services.
Low degree of specialization.
Guilds acted as a monopoly.
Restricted production and demand by
maintaining high prices.
Innovation was discouraged.
 Guild system
At the end of the 18th century guilds were
threatened from two directions:
The absolutist state, jealous of its sovereignty,
sought to limit the independence of guilds and to
bring them under its direct authority.
Development of an industry working for the
market outside the control of the guild. As town
merchants sought out cheap country labour, free
of any limitation as to number, wages or
conditions, the guild workers found their jobs
disappearing.
 Putting-out system
Merchant-entrepreneur:
Employed some cottage workers.
Owned the raw materials (circulating capital).
Determined the characteristics of the product and the
delivery deadline.
Organized all the production chain: internalized
intermediate markets.
Important diffusion of industry to the
countryside:
Easy an labour intensive stages of production
processes were moved to the countryside.
Guild obstacles were avoided.
Relatively cheap labour.
 Putting-out system
Clearer separation of roles and division of
labour.
Advantages:
Low wages.
Flexibility.
Low investments (low risk).
Problems:
Low labour control.
High transport and vigilance costs.
There was a limit in production increase (transport
and vigilance costs, labour cost).
 Centralized industry
Activity carried out by paid workers
concentrated in one place under the direction
of a supervisor.
Centralization emerged because:
Uniqueness of the product (ship, church).
Single source of materials (mine).
Necessity of constant surveillance of the
workforce (use of valuable raw materials).
Separation of roles.
 Centralized industry
Activities often protected by royal patents and
operated as a monopoly.
For the most part, centralized organizations
were complementary to the prevailing pattern
of diffuse industry rather than a
fundamentally different way of coordinating
capital, resources, and labour.
Industrial technology and organization
Limited employment of capital, especially
fixed capital, and wide employment of labour.
Production process in industry was labour
intensive (nowadays it is capital intensive).
Materials: use of wood, stone, brick and plant
fibre (little use of metal).
Production organization: the main innovations
was the spread of textile production in the
countryside.
Attempt of entrepreneurs to contain costs.
Industrial technology and organization
Industrious revolution
Labour intensification:
Necessity of meeting with declining labour
productivity and wages.
or
Commercial incentives (changes in relative prices
and reduced transaction costs)
Proto-industrialization (preparation for 19th
century industrialization?)