Note03 - Rise of Europe

2013-03-18
The Rise of Modern Europe

The European Economy, 1350-1750
1. The Collapse of the Feudal System

2. Geographic Expansion of Europe
3. Why Europe, Why Not America or Asia?
4. Economic Nationalism and Shifts of the
European Hegemony
Rise of Modern Europe

Overview of Changes between 1350 and 1750
§ The society and economy in Europe circa 1800 were
much different from the mid-14th century when the
feudal society was at its peak.
§ Some fundamental changes
1. Serfs, the key basis of the feudal system, had been
emancipated in most parts of Europe.
2. Europe greatly expanded geographic horizons.
3. More centralized nation states emerged, which were
characterized by economic nationalism and
imperialism.
4. There were dramatic shifts in the balance of
economic and political power among European
nations.
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Rise of Modern Europe

Questions
§ Why did the feudal system in Europe decline?
§ Why did the patterns of the transitions differ by region?
§ What motivated geographic explorations and
expansions of European nations?
§ What were the consequences of the geographic
expansion?
§ Why Europe? Not Asia?
§ Why did the early leaders such as Spain and Portugal
fail to grow?
§ How did the Netherlands and Britain emerge as new
leading nations in Europe?
§ Did institutional changes between the 15th and 18th
centuries pave the road to industrialization?
The Rise of Modern Europe (1)

The Collapse of the Feudal System
1. How did the feudal system fade away?

2. Why did the patterns of the transition differ by
region?
3. The Marxist view on the transition from feudalism to
capitalism
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The Collapse of the Manorial System (1)

An Overview
Commercialism → Demand for Money Emancipation of Serfs

↘ ↗
Plague → Pop decline → Crisis of Lords’ Income
Climate ↗ ↘
Wars Inflation Strengthened Feudalism
Ecological
Deterioration
↑
Over-population

Commercialism and Changes in the Manorial System

↘ ↗
Climate ↗ ↘
Ecological
Deterioration
↑
Over-population
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Commercialism and Changes in the Manorial System
§ Supply of commodities from cities and abroad: Inflow
of foreign luxurious goods stimulated the desire to
have more money.
§ Lords tried to switch labor services to money rents, by
renting out their demesne to peasants, or by directly
cultivating their demesne hiring wage laborers. The
latter (direct management) was also motivated by the
rise in grain price and fall in wages in the 13th and early
14th centuries (due to population growth)
§ Even before the serfdom was abolished, many peasants
became de facto tenant farmers paying fixed rents.

Decrease in Population - 1: The Bubonic Plague

↘ ↗
Climate ↗ ↘
Ecological
Deterioration
↑
Over-population
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Decrease in Population - 1: The Bubonic Plague
§ The “Black Death”: An epidemic of bubonic plague
reached Europe from Asia, and ravaged the whole of
Europe.
§ For Europe as a whole, the population was probably
reduced by at least one-third. Moreover, the plague
became endemic, with new outbursts every ten or
fifteen years for remainder of the century.
Spread of the Bubonic Plague in Europe
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A Black Death Cemetery at East Smithfield, South of London
§ Population Estimate for

England
1347: 4.5-6 million
1377: 2.5-3 million
à More than 2 million
people (one-third) were
killed.
§ Lists of monks and the
dates of their deaths.
§ Some towns were
completely wiped out.
There was no one left to
bury the dead.
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“Dance of Death”
§ Various lasting impacts
on medieval societies.
1. The power of feudal
ruling classes was
weakened.
2. The authority of the
church was tarnished.
3. People looked for
scapegoats.
4. Practices of self-
denial, such as mass
whipping

Decrease in Population 2: War, Climate, and “Malthus”

↘ ↗
Climate ↗ ↘
Ecological
Deterioration
↑
Over-population
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Decrease in Population 2: War, Climate, and “Malthus”
§ Wars: The Hundred Years War (1338-1453). Byzantine
Empire was finally occupied by the Ottoman Turks.
§ Climate: There is some evidence of climate deterioration
in the 14th century.
§ Overpopulation (perhaps more important):
Deforestation contributed to soil erosion and declining
fertility in some areas. Numerous disputes and violence
occurred over the use of forests. Due to lack of arable
lands, pastures and meadows were converted to arable,
diminishing the supply of livestock (à fewer protein in
diet) and manure (à less fertilizer).
§ In the first half of the 14th century, crop failures and
famine became increasingly frequent and severe.

Consequences of the Population Decline

↘ ↗
Climate ↗ ↘
Ecological
Deterioration
↑
Over-population
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Consequences of the Population Decline
§ Decrease in Price because of decline in demand.
§ Increase in Nominal Wages because of shortage of
labor.
à Real Wages (W/P) rose.
§ Intensified the social tensions and conflicts.
§ The market forces of increased land-labor ratio made
landlords yield to offer more favorable terms to labor.
§ As consequences, the amounts of labor services and
other types of dues diminished, and became more
regular in many parts of Europe.
§ In some cases, peasants gained the status of rent-
paying tenant farmers that could be transferred to off-
springs.

The Emancipation of Serfs
§ The shortage of labor, and its effect on wages and the
terms offered to peasants diminished the incomes of
lords.
§ The decline in the value of coined money decreased the
real value of money rents received by peasants.
§ Peasants were able to accumulate wealth (switching to
a fixed money rent and lightened burden).
§ Peasants purchased their freedom by paying a lump-
sum “emancipation fee.” and became rent-paying
tenant farmers (called “customary tenants” in England,
and “censier” in France).
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Feudalism in eastern Europe

↘ ↗
Climate ↗ ↘
Ecological
Deterioration
↑
Over-population

Feudalism in eastern Europe
§ The response of the ruling class to the crisis of the
feudal system differed by region.
§ Strengthened Feudalism (eastern Europe)
§ Why? Peasants could not take advantage of the
favorable land-labor ratio, and had no alternative to
landlord rule:
1. The population density was much lower.
2. The town was fewer and less populous.
3. Market declined, and the economy reverted to a
subsistence basis.
4. The landlords were unchecked by higher authority.
à Peasants had nowhere to go, and nobody to turn to
when landlords made collusions against them.
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Marxist View (Dobb and Sweezy)
Maurice Dobb vs. Paul Sweezy
City
Commercialism
Money
Feudal
System

Marxist View (Robert Brenner)
Population Change (Economic Change)

(A) ↓
Class Relationship (pop theory)
↓(B)
Economic Institution, System
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Marxist View (Robert Brenner)
§ What caused the decline in population? (A)
à It was not an exogenous change. It was caused by
increased “exploitation” of peasants and by exploitation
of natural resources
à These exploitations were the outcomes of the
features of the feudal system (class relationship).
§ Why did the same demographic (and economic change)
bring different institutional changes
à Differences in the balance of power between classes.
In western Europe, the community of villagers was
better organized and more autonomous.

Geographic Expansion of Europe
1. What caused the great geographic discoveries in

the 15th century?
2. What were the consequences of the geographic
expansion of Europe?
(1) Emergence of Portugal and Spain
(2) Price Revolution
(3) Commercial Revolution
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Geographic Expansion of Europe (1)

Motivations for Explorations: Overview
Trade Deficit
↓
Bullion Hunger Ship, Navigation Instruments
↘ ↓
Gold and Spice Mania → Adventure
↗ ↑ ↑
New Trade Route Prices of Imports Rise of Nation States
↑ ↑
The Fall of Byzantine Empire

Motivations for Explorations: Need and Aspiration
Trade Deficit
↓
↘ ↓
↗ ↑ ↑
↑ ↑
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Motivations for Explorations: Need and Aspiration
§ The most important element of the long-distance
voyage is a courage to take a risk. Technological
factors were of secondary importance à What made
Europeans take adventures?
§ According to F. Braudel, it was motivated by “needs”
and “aspiration,” often characterized by “gold mania,”
or “spice mania.”
§ Several sources of the needs
1. Bullion Hunger à aspiration of finding the
“Eldorado.”
2. Need for new trade routes: Monopoly by Italians.
After Constantinople fell to the Muslims in 1453, the
prices of imported goods rose.

Motivations for Explorations: Navigation Technology
Trade Deficit
↓
↘ ↓
↗ ↑ ↑
↑ ↑
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Motivations for Explorations: Navigation Technology
§ Long-distance voyages were aided by technological
progress in ship design, shipbuilding, and navigational
instruments.
1. Ships became larger, more manageable, and had
greater cargo capacity. Three-, four-, and five-masted
ships, with combination of square and lateen sails
capable of sailing across the wind.
2. The magnetic compass (borrowed from the Chinese
by the way of Arabs) reduced guesswork involved in
navigations.
3. Developments in cartography provided improved
maps and charts.

Motivations for Explorations: Supports of Nation States
Trade Deficit
↓
↘ ↓
↗ ↑ ↑
↑ ↑
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Motivations for Explorations: Supports of Nation States
§ Major projects of geographic explorations were
financially supported by prices of newly emerging
nation states.
§ Prince Henry (1393-1460) of Portugal, called the
Navigator, established a sort of institute, and
sponsored the exploration of the African coasts with
the ultimate objective of reaching the Indian Ocean.
§ King Juan (John) II of Portugal was the patron for the
exploration of Bartholomew Diaz, and that of Vasco da
Gama (1497-1499).
§ Ferdinand and Isabella of Spain accepted the proposal
of Christoforo Colombo (Columbus), and support his
exploration to the West Indies in 1492.
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Prince Henry, the Navigator
King Juan II
Ferdinand and Isabella
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The Columbus Memorial Monument in Sevilla (Spain)
Columbus’ Tomb in Sevilla Cathedral
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The Columbus Memorial Monument in Barcelona
World Voyages of Discovery and Colonized Territories
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Consequences of Geographic Discoveries (1)

Portugal and Spain Emerged as Superpowers - 1
Portugal
§ Portuguese secured trade routes encompassing Africa,
the Indian Ocean, South East Asia, China, and Japan.
§ They pushed out Arabs from the Indian Ocean trade.
In stead of building settlements on in-lands, they
colonized strategically important sea-side areas and
ports to support their trades with the East.
§ Imports of Eastern commodities, especially spices from
Celebes and Moluccas islands paid them off instantly.

Portugal and Spain Emerged as Superpower - 2
Spain
§ Although it was initially less promising, the Spanish
Empire proved to be even more profitable than that of
Portugal.
§ At first, they merely plundered the original inhabitants.
When this source was quickly exhausted, they
introduced European mining methods to the rich silver
mines of Mexico and Andes. à The inflow of gold
and silver made the Habsburg the most powerful
monarchy in Europe.
§ Unlike Portuguese, the Spanish undertook to colonize
and settle the areas they conquered. They brought
slaves from Africa to solve the labor shortage.
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Portugal and Spain Emerged as Superpowers - 3
§ The Treaty of Tordesillas (1494): A “line of
demarcation.” It divides the non-Christian world into
halves for purposes of further explorations, with the
western half reserved for the Spanish, and the eastern
half for the Portuguese.
§ Impacts on the New World
1. The European diseases (smallpox, measles, and
typhus) spread quickly with lethal effect.
2. Europeans attempted to transplant European culture
and religion to the New World, together with
modification and occasional extinction of non-Western
cultures.
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World Voyages of Discovery and Colonized Territories

Line of Demarcation
Price Revolution (1)

Inflation in Europe in the 16th Century
§ Rise in prices during

the 16th century.
§ Variations by region
and by commodity.
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Inflow of Precious Metals and Inflation
§ The Monetarist Hypothesis
§ Fischer Equation
MV = PT
The total value of money spent = total value of goods.
P = M(V/T)
If the velocity (V) of money is stable, there is one-to-
one positive relationship between money stock (M) and price
(P)
§ The flow of gold and especially silver from Spanish
colonies greatly increased Europe’s supply of the
monetary metals.
§ Precious metals spread through Europe as the Spanish
government repaid debts and spent vast amount of
money on military campaigns.
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Inflow of Precious Metals and Inflation - 2
§ Evidence for the Monetary Hypothesis
1. Generally positive relationship between the amount
of precious metals imported and prices, and between
the amount of money minted and prices (both over
time and across regions)
2. Prices rose sooner and higher in Andalusia, whose
ports were the only legal gateway for American gold
and sliver.
§ Evidence against the Monetary Hypothesis
1. Changes in relative prices of different commodities.
2. The timings of monetary changes and price changes
are not perfectly matched.
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Real Shocks in Supply and Demand - 2
§ Negative Supply Shocks: decline in agricultural
productivity, crop failure, and wars à price rose as the
supply curve shifted to the left.
§ Positive Demand Shocks: Rapid population growth and
urbanization increased demand. Also development in
commerce and urbanization increased the velocity of
money (V).
§ Evidence for the Real Economic Shock Hypothesis
1. Prices of foods rose more rapidly.
2. The more highly necessary, the higher the inflation
rate.
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Effects of the Price Revolution
§ The economic effects of the Price Revolution should
not be exaggerated. The magnitude of the inflation
was milder than those of the twentieth century. It is
difficult to find a link between the price revolution and
rise of capitalism, either.
§ It redistributed incomes and wealth across individuals
and social groups. Who gained and who lose?
- manufacturers and merchants
- land owners
- peasants with secure tenure
- wage earners
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Commercial Revolution (1)

Shifts in Commercial Centers - 1
§ Coming of the Age of the Atlantic.
§ Merchants of western Europe were now able to
directly trade with the East by sea.
§ Italian cities’ (perhaps relative) decline started
§ Spain and Portugal emerged as the leading powers of
Europe, and Lisbon replaced Venice as the gateway of
the spice trade.
§ Central, eastern, and northern Europe did not
participate significantly in the commercial prosperity of
the 16th century.

Shifts in Commercial Centers - 2
§ Rise of the Low Countries, England, and (to some
extent) northern France, especially from the 17th
century.
§ England: from a backward, raw material-producing
areas to a major competitor over overseas colonies.
§ The great commercial and financial metropolis within
Flanders: Bruges (until the 15th century) à Antwerp
(the 16th century) à Amsterdam (the 17th – 18th
centuries)
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Winners
Seville Madrid
Winners
London Antwerp
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Losers
Venice Cologne
Losers
Salzburg Munich
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Bruges
(The Middle Age~15th Century)
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Antwerp
(The Sixteenth Century)
Amsterdam
(The Seventeenth Century)
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Increased Volume and Variety of Goods Traded
§ Increase in the volume and variety of goods traded.
§ In the 16th century: gold and silver bullion from
Spanish colonies and spices from Portuguese colonies.
§ Form the 17th century: dyestuffs such as indigo and
cochineal, coffee from Africa, cocoa and tobacco from
America.
§ From luxurious to affordable goods: spices from
Southeast Asia, cotton goods from India, tea from
China, and sugar from America.
§ Newly introduced (though not imported in large
volume) and naturalized: potatoes, tomatoes, string
beans, squash, red peppers, pumpkins, corn (maize),
and turkey from America, and rice from Asia.

The New World Slavery and Slave Trade
§ The slave trade to the New World dates back to 1502.
Until 1860 when the slave trade was completely
terminated, about 10 million Africans had been
transported.
§ 60-70% of slaves in America worked on sugar
plantations, and some worked in mines.
§ Slave trade was carried out by merchants (especially
those of English and Dutch joint-stock companies,
such as Dutch West Indian Company and Royal African
Company) who were granted monopolistic privileges
from the monarchs.
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The First Globalization?
§ O’Rouke and Williamson (2004): “Trade Boom After
Columbus”
§ Trade Boom: The volume of world trade grew by 1.1%
per year from 1500 and 1800. It was an impressive
pace in the standard of the time.
§ Was the trade boom caused by increased integration
of the world market after Columbus?
§ Method: How did “mark-up” (the difference between
the price in producing region and the price in
European market) change over time?
§ Mark-up: It is composed of transportation costs,
monopoly profits of merchants, and risk premium.
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S: supply curve
M: demand curve
t = p – p*: mark-up
Case 1: No change in
supply and demand,
but market integration
à The volume
increases from T0 to T1,
and mark-up
diminishes.
Case 2: Supply and
demand increase, and
no change in market
integration à The
volume increases to T2,
and mark-up remains
unchanged
Spice and Coffee Mark-Ups, 1580-1939
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The First Globalization?
§ There were no long-term declining trends in mark-ups
of various commodities until 1800.
§ The trade boom between 1500 and 1800 was not
produced by integration of the world market.
§ The trade boom resulted from shifts in supply and
demand.
1. 16th century: Supply in Asia increased whereas the
rental incomes in Europe declined à decline in the
relative price of trade goods (supply-driven).
2. 17th century: European rental incomes increased à
rise in the relative price of trade goods (demand-
driven).
3. 18th century: Rise in European incomes account for
most of the increase in the volume of trade.

Institutional Change and Economic Development - 1
Acemoglu et al. (2005): “The Rise of Europe.”
§ The rise of Western Europe after 1500 is due largely to
growth in Atlantic traders. The urbanization rate and
growth rate of income were much faster for Atlantic
traders than for other parts of Europe.
§ The development of the Atlantic traders cannot be
fully explained by the profits or resources generated
by the trade.
§ A more important mechanism was institutional change.
The recipients of the profits from the Atlantic trade
(e.g. merchants) became very rich, and politically and
socially very powerful. à change in the balance of
power à emergence of political institution protecting
merchants
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Urbanization Rates

Institutional Change and Economic Development - 2
Interaction between initial institution and impact of trade
§ The tendency for institutional change to emerge was
stronger in societies with existing checks on royal
power (Britain and the Netherlands) than in countries
with absolutist regime (e.g. France, Portugal and Spain)
and monarchy-controlled trade monopolies.
§ In the latter countries, Atlantic trade did not enrich
and strengthen merchant groups outside the royal
circle as much, and did not disturb the political status
quo.
à This explains why Spain and Portugal declined while
the Netherlands and Britain moved ahead.
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Why Europe? Why Not America or Asia?
1. Questions
2. Guns, Germs, and Steel: The shape of the
continent and economic development.
3. The European Miracle: Geography, Political
Institution, and Economic Growth.
4. The Great Divergence
5. Why Europe? And the West? Why Not China?
The Origin of the Great Divergence

Questions
§ The two worlds: The world’s most developed nations
are concentrated in western Europe and North
America settled mostly by west Europeans.
§ The beginning of the great divergence: The
geographic expansion of Europe in the 15th century.
§ Why were Europeans able to sail to America and Asia,
before Chinese came to Europe.
§ Were the voyage of the Portuguese to Asia and the
discovery of America by Columbus outcomes of the
inherent superiority of western Europe?
§ Were those events just historical accidents that
determined the fates of the two worlds?
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The Shape of the Continent (1)

Guns, Germs, and Steel (J. Diamond)
§ In the 15th century, major world powers with a
potential of developing into a modern economy were
all located in Eurasian continent. Why?
§ The difference between Europeans and original
inhabitants in America is well illustrated by the
incidence that Spain’s Pizarro captured the king of the
Inca.
§ The most intimate factors: Europe’s ships, steel swords,
steel armor, guns, horses, and written language. In the
longer run, European diseases (germs) were major
killers of indigenous Americans.
à Why were these factors that defeated American
Indians developed first in Europe?
The most ultimate factor: The shape of the continent.

Eurasian continent has an east-west axis. à Advantages
in enhancing agricultural productivity and raising
domesticated animals.
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The Shape of the Continent (2)

Guns, Germs, and Steel (J. Diamond)
§ Wider variety of large
domesticated animals
including horses.
§ Animals are major hosts of
pathogens.
§ Settlement and production of
surplus leads to population
growth, urbanization, and
emergence of ruling classes.
§ Urbanization, higher
population density, presence
of rich ruling classes stimulate
technological progress by
increasing division of labor
and human interactions.
Geography and Political Institution (1)

The European Miracle (E. Jones)
§ What made Europe (especially western Europe)
advanced ahead of China?.
§ A more traditional approach is to find some
exogenously determined advantages possessed by
western Europe.
§ Jones: Advantages in geographic environment
1. Fertile plains scattered all over the continent à
Limited growth of large empire and emergence of
smaller nation states. à more competition among
nations and less repression of rulers.
2. Natural disasters are less frequent and milder.
3. The high variety of natural endowments à
favorable for the growth of trade.
4. Few invasions of nomadic tribes.
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Luck and Imperialism

The Great Divergence (K. Pomeranz)
§ The timing of divergence: Until the mid 18th century,
there was no marked divergence between the Chinese
and European cores.
§ Why did England (and subsequently Europe) take the
capital-intensive path of industrial revolution, whereas
China followed the labor-intensive path of the
“industrious revolution,” in spite of the striking
similarities?
1. Coal (located near to industrial centers)
2. Imperialism
§ Not due to any superior characteristics of Europe
(culture, institution, or ecology), but to luck (location
of coal), historical accident (discovery of the New
World), and transfers of resources by force.
Grain Price Correlation and Distance

England and the Yangzi Delta, 1770-94
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Social and Political Structure, and Culture

Why Europe and the West? Why Not China? (Landes)
The First Chance Lost
§ China could have developed labor-saving technologies
that led to the British Industrial Revolution if they tried
to do. But nobody tried. Why?
1. Lack of free market and institutionalized property
rights à State’s interference with private enterprise
and lower social and geographic mobility. à Increase
in risk and the cost of transactions, and chasing talents
from commerce and industry.
2. The larger value of the society: The strict state
controls killed individual initiatives and motivations for
technological progress. The vast size of China (no
competing neighbors) made the monopolistic state
intervention possible.

Why Europe and the West? Why Not China? (Landes)
The Second Chance Lost
§ China could have learned Western science and
technology when it made contacts with Europeans
after the 15th century. But it failed to do so. Why?
1. Intellectual xenophobia based on the “superiority
complex.”
2. Closed, conservative political and social structure.
à China indeed failed, even before it was invaded and
exploited by European imperialists. It was mainly due
to cultural and socio-political factors that made
nobody to try.
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Why Europe and the West? Why Not China? (D. Landes)
How did Europe differ from China?
§ Social and political environments: Competition among
nation states.
§ The role of the Christian church: custodian of
knowledge and school for technicians.
§ Religious values
1. The respect for manual labor.
2. The subordination of nature to man.
3. The sense of linear time: Progressive view prevailed.
§ The role of market: Enterprise was free, innovation
worked and paid, and success bred imitation and
emulation. The power of rulers and vested interests
were restricted.

Economic Nationalism and Shifts of the
European Hegemony
1. Economic Nationalism (Mercantilism)

2. How and why were the economic policies differ
by nation?
3. How did different policies lead to different
economic performances?
(1) Spain
(2) Portugal
(3) France
(4) The Netherlands
(5) Britain
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Economic Nationalism (Mercantilism)

Origins of the Concept
§ Adam Smith: “mercantile system” à It is policies to
create a favorable balance of trade by stimulating
exports and penalizing imports.
§ German historians and economists of the 19th century:
It is a system of policies for “state-making” (G. von
Schmoller), and for “strengthening the national
economy” (F. List).
§ There was no general consensus on either their theory
or policy.
§ There were some common themes of elements of
economic policy, resulting from similarities of needs
and circumstances of the rulers and ruling class in
Europe of the time.

Some Common Elements
§ Bullionism: Each nation attempted to accumulate as
much gold and silver as possible, and to prohibit their
export in preparation for wars. They did so by
acquiring colonies that possessed precious metals, and
through trades.
§ Protection of domestic industries: Foreign
manufacturers were excluded from business, or forced
to pay high protective tariffs.
§ Maintaining large merchant fleet to receive revenues
from shipping service to foreigners, and to encourage
domestic exports by providing cheap transportation.
à Many countries enacted “navigation laws,”
promoted ship building industry, and encouraged
fisheries.
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Differences by Nation and Economic Consequences
§ But there were no good “theory” or “system” that
guided the actions of rulers. In actual practice, the
legislation and other government interventions
consisted of expedients, usually lacking economic
rationale.
§ Each nation had distinctive economic policies derived
from peculiarities of local and national traditions,
geographic circumstances, and, most importantly, the
character of the state it self.
§ In particular, the directions of economic policies
depended on the political structure and characteristics
of the ruler.
§ Differences in policies contributed to determining the
economic success and failure of European countries.
Spain and Spanish America (1)

Why did the Super Power Fail? An Over View
§ In the 16th century, Spain was the envy and the
scourge of the princes in Europe.
§ In spite of these favorable circumstances, the Spanish
economy failed to progress, and, by the mid 16th
century, began to regress. In the 17th century, it went
through declined standards of living, increased
incidence of famine and plague, and ultimately,
depopulation.
§ Why did the leading country in the era of geographic
expansion fail, and fall to a poor, backward nation in
Europe?
à Unreasonable ambitions of it monarchs and the
short-sightedness and perversity of their economic
policies were major elements.
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War and Public Finance
§ Large spending on many impractical wars, motivated
by personal ambitions and religious causes.
§ Spending so much on monumental architecture and
lavish court ceremonies.
§ Heavy taxation, of which burden fell principally on
those least able to pay (artisans, tradesmen, and
especially peasants).
§ Total revenue rarely equaled the vast government
expenditure.
§ The monarchs borrowed from German and Italian
bankers such as the Fuggers.
§ National bankruptcies frequently occurred, causing
financial crisis, tarnished reputation, and increased
interest rates.
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Agricultural Policies
§ Unwise and short-sighted industrial policies,
sometimes motivated by greed for revenues.
§ The government provided the Mesta (the sheep
owners guild) with privileges while sacrificing the
cultivators and, eventually consumers.
§ During the Price Revolution, the government imposed
maximum prices on bread grains. The result was that
arable land was devoted to other purposes than
growing grain, making grain shortage even worse.
§ In response to grain shortage, the government
permitted imports of grains, previously prohibited or
subject to higher tariffs. This further discouraged
cereal cultivations.
à Spain became a regular importer of bread grain.

Industrial Policies
Regulating Export of Wool
§ Conferring on a merchant guild in Burgos (located 100
miles from the nearest port) a monopoly of the export
trade in raw wool. à increased transportation costs.
Regulating Cloth Industry
§ Spain exported fine cloth as well as raw wool at the
beginning of the 16th century.
§ In response to the increase in cloth price during the
Price Revolution, the government permitted foreign
cloth duty free in 1548. In 1552, the export of
domestic cloth was prohibited.
§ The immediate result was a severe depression in the
cloth industry. Spain remained a net importer of cloth
until the 19th century.
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Religious Policies
§ Expulsion of the Jews: Establishment a Holy Office, a
branch of infamous Inquisition. The major target was
Jews who had converted to Catholicism. The climate of
fear led many Jews to emigration, taking them with
their wealth as well as their talents.
§ Expulsion of Moors: The Muslim Moors, who were
allowed to live in the Christian Spain after the Moorish
kingdom of Granada was defeated, began to be
persecuted, and were ordered to leave.
Portugal
Overview
§ Portugal in the 16th century was relatively backward
country with population just over a million.
§ Its success was largely due to good fortunes:
1. The polities in the areas around the Indian Ocean
were unusually weak and divided.
2. A continuing legacy of the work and dedication of
Henry.
§ Why was Portugal unable to continue to develop?
1. It had too few people and ships to manage the
empire it built.
2. It had similar problems as Spain: heavy taxes, fiscal
crisis, and repression of Jews.
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France (1)
Structure of the Government and Public Finance
§ The archetypical example of the absolutist monarchy.
§ Spending too much on wars and conspicuous
consumptions. Borrowing became a permanent
feature of the fiscal system.
§ The system of collecting revenue was highly inefficient.
1. Tax farming: Private enterprise contracted with the
state to pay a lump sum of money in return for the
privilege of collecting certain specified taxes. à Losses
of tax bases and severe burden on tax payers.
2. Sale of offices: This practice strengthened
bureaucracy, and encouraged inefficiency and
corruption.
France (2)
Colbertism
§ “Colbertism”: Jean-Baptiste Colbert was responsible for
making and implementation of policies under the
regime of Louis XIV, as his principal minister for more
than twenty years (1661-1983). His influence was such
that the term “Colbertism” was created, and used as
synonym for mercantilism.
§ Cobert attempted to systemize and rationalize the
state controls over the economy. He created a
comprehensive system of protective tariffs. He wished
to reform tax collecting system and abolish the
internal tariffs and tolls. His efforts failed because the
crown’s need for revenue was too great.
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France (3)
Management of Colonies and Religious Policy
§ It had failed to give them much support to its colonies.
§ A mass of detailed, paternalistic regulation imposed by
the mother country smothered the colonies.
§ Colbert created monopolistic joint-stock companies to
conduct trade with both the East and West Indies.
Unlike their Dutch and English models, the French
companies were in effect government proxies in which
private individuals had been induced or coerced into
investing. Within a few years, they went nowhere.
§ Colbert supported the limited toleration of the
Huguenots granted by the Edict of Nantes. After his
death, however, the edict was revoked, and many
Huguenots moved to more tolerant places such as the
Netherlands.
The Netherlands (1)

Sources of Differences
§ The most successful commercial power of the era.
§ The first to adopt free trade policy.
§ Dutch economic policies differed significantly from
other nation states.
1. The structure of government: The Dutch Republic
was a defensive alliance against Spain. Domestic
matters were largely in the hands of provincial States
and town councils. And wealthier merchants
dominated the politics of chief towns.
2. The Dutch economy depended on international
commerce to a much greater degree.
à The Dutch government was conscious of and
responsive to the needs and desires of merchants.
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The Netherlands (2)

Cornerstones of Mercantile Preeminence
§ Advanced technology and greater specialization (in
relatively high-value products, livestock and dairy
produce) in agriculture
à The modernization of agriculture was intimately
associated with the rise of Dutch commercial
superiority. Without one, the other could not have
occurred.
§ “Mother trades”: Trades that connected the Dutch
ports with others in North Sea, the Baltic, and the
Mediterranean.
§ The herring fishery: It occupied as much as one-
quarter of the population directly and indirectly. It
contributed to the growth of fleets.
The Netherlands (3)

Free Immigration and Commercial Policies
§ Tolerance for other religions and immigrants: It
contributed to the influx of religious refugees and
other migrants. Financial and human capital came in
with immigrants.
§ Freedom in commercial matters: The cities followed
free trade policies. Exports and imports of raw
materials or semi-finished goods were not subject to
tariffs. The trade in precious metals was entirely free,
which contributed to the growth of banking industry
in Amsterdam.
§ Freedom in industry: Although guilds existed, most
major industries operated outside the guild system.
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The Netherlands (4)

Exceptions to Freedom
§ “College of the Fishery”: A regulating body of the
herring fishery. The ships of only five cities were
permitted to take part in it, and it strictly controlled
the quantity and quality to maintain the reputation of
the Dutch herrings.
à It was good as long as the Dutch maintained their
near-monopoly in the European market. But as their
position weakened, the policies contributed to the
stagnation and even decline of the industry.
§ Joint-stock companies in colonies: The Dutch
government gave privately owned joint-stock
companies not only the monopolistic control of trade
but also the powers of the government, in order to
compete with rivals.
England (1)
Structure of the Government
§ “Parliamentary Colbertism” .
§ Royal absolutism declined in England during the 16th
and 17th centuries, and after the Glorious Revolution in
1688, a constitutional monarchy under parliamentary
control was established.
§ Since the fiscal demands of the crown was checked by
the Parliament, the government was in a better
position to pursue consistently a rational policy of
economic development.
§ As a consequence, the English economic policy
responded to the varied and sometime conflicting
interests of a few groups (titled aristocrats, landed
gentry, wealthy merchants, professionals, and courtiers)
who were effectively represented in Parliament.
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England (2)
Modernized Public Finance
§ The Glorious Revolution: The crown admitted that all
new taxes should be approved by the parliament. In
return, the parliament more effectively raised resources
for the sovereign, by modernizing public finance.
§ A more rational system of taxation, and smaller state
bureaucracy. Establishment of a funded debt (debt
backed by specified taxes), the creation of the Bank of
England, a recoinage of the nation’s money, and the
emergence of securities market.
§ The government could borrow money at a lower
interest rate, and over a longer period. This gave
Britain a great advantage when it was engaged in a
series of European and colonial wars.
England (3)
Parliamentary Colbertism
§ The ideal of the British Parliament was still that of a
“regulated economy,” as on the Continent, but the
means of regulation were quite different.
§ Parliamentary control was most effective in economic
relations with the outside world, and Parliament
followed a policy of strict nationalism. à Protection of
woolen industry, and the Navigation Acts.
§ Domestically, although Parliament wished to control
the economy, it generally lacked the ability to do so.
As a result, British entrepreneurs enjoyed a degree of
freedom and opportunity that was virtually unique in
the world.
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England (4)
Protecting Woolen Industry
§ Until the end of Middle Age, England exported raw
wool.
§ After the Black Death, nutrition of English sheep
greatly improved, as much high-quality land were
turned into pastures, and grass replaced corn on it. à
The wool grew to greater length, and long wool was
best suited to making worsted.
§ In the 16th century, the government prohibited export
of raw wool, and imposed high tariffs on woolen cloth.
It also tried to restrict the use of cotton products.
§ England developed into a major exporter of finished
woolen products, and finally drove Italian producers
out.
England (5)
The Navigation Act - 1
§ The Navigation Act was the most famous and effective
of all the policies of Parliamentary Colbertism.
§ Navigation laws were not unique to Britain or to the
17th century, but the law passed in 1651 and
strengthened in 1660 were much effectively enforced.
§ It was intended to protect Britain’s merchant marine
and shipping industry, to manage its colonies to the
mother country’s advantage, and to deprive the Dutch
of their near-monopoly of shipping and fishing.
§ The Navigation Acts did promote the growth of
English merchant marine and maritime trade, as they
intended to do.
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England (5)
The Navigation Act - 2
§ Major terms of the Acts
1. All goods imported to Britain had to be carried in
either British ships (the owner, master, and ¾ of the
crews were British subjects) or ships of the original
exporting country.
2. Ships must be built in Britain.
3. British ships were required to bring goods directly
from the country of origin, rather than from an
intermediate port.
4. The coasting trade and trade with the British
colonies had to be carried in British ships.
5. All colonial imports from foreign countries had to
be landed first in Britain.
6. Enumerated goods (tobacco, sugar, cotton, dyestuff,
etc.) had to be shipped through Britain.
England (6)
Management of Colonies
§ Major Colonies in North America: The West Indies
(Barbados), US South, New England, and Middle
colonies.
§ Colonial industry policies: The colonies were managed
to maximize the gains of the mother country:
producing raw materials and consuming
manufacturing products.
w The woolen Act (1699), the Hat Act (1732), and the Iron Act
(1750): Manufacturing productions in colonies were restricted.
w The first Calico Act (1701): To protect English woolen industry,
the importation of printed cotton cloth from India was prohibited.
à A new industry of printing of imported plain cotton good rose.
w The second Calico Act (1721): The display of consumption of
printed cotton goods from India were prohibited. à This
regulation stimulated the development of domestic cotton textile
production using imported raw cotton.
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Paving the Road to Industrialization (1)

Rural Industry and Organization of Production
§ The textile trade remained the largest industrial
employer, and woolen industry was particularly
important.
§ As the textile, especially woolen, industry moved to
rural areas, guild organization gradually withered away.
§ The rural areas provided freedom of entrepreneurial
activities, supply of cheap labor, and easier access to
raw materials. à “proto-industry,” or “cottage-industry”
§ Organization of Manufacturing Production: “putting-
out-system” The merchant-manufacturer purchased
the raw materials, put them out to spinners, weavers,
and other artisans working in their homes, and
marketed the final products. wool à cleaning à
spinning à weaving à finishing à sale
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Organization of the Firm
§ The Partnership: It was formalized by written contracts
specifying the rights and obligations of each partner.
Its structure became more sophisticated, and a variety
of forms were developed.
§ Joint-Stock Company: It pooled the capital
contributions of the members and placed them under
a common management. Investors received stocks
according to the amount of their investment, and the
profits (or losses) were allocated to investors
proportional to the size of investment.
à 1. Limited Liability and Liquidity: It became much
easier to raise funds from a much broader base.
à 2. Transferability: The firm became a permanent
organization.

Banking and Finance
Amsterdam
§ Amsterdam became the commercial and financial
center of northwestern Europe
§ The banks were mostly private merchant firms, until
Bank of Amsterdam, the first public bank, was found in
1609.
§ Amsterdam stock exchange was established in which
brokers traded stocks and bonds.
London
§ From the 17th century, banking and insurance
industries grew in London. (The Lombard Street)
§ Bank of England was found in 1694, and functioned as
both the central bank and private commercial bank.
§ Integration of international capital markets.
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Note03 - Rise of Europe

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2013-03-18

The Rise of Modern Europe

1. The Collapse of the Feudal System

Rise of Modern Europe

Rise of Modern Europe

The Rise of Modern Europe (1)

1. How did the feudal system fade away?

The Collapse of the Manorial System (1)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (2)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (2)

The Collapse of the Manorial System (3)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (3)

Spread of the Bubonic Plague in Europe

A Black Death Cemetery at East Smithfield, South of London

§ Population Estimate for

The Collapse of the Manorial System (3)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (3)

The Collapse of the Manorial System (4)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (4)

The Collapse of the Manorial System (5)

The Collapse of the Manorial System (6)

Commercialism → Demand for Money Emancipation of Serfs

The Collapse of the Manorial System (6)

The Collapse of the Manorial System (7)

Maurice Dobb vs. Paul Sweezy

The Collapse of the Manorial System (7)

Population Change (Economic Change)

The Collapse of the Manorial System (7)

The Rise of Modern Europe (2)

1. What caused the great geographic discoveries in

Geographic Expansion of Europe (1)

Geographic Expansion of Europe (1)

Geographic Expansion of Europe (2)

Geographic Expansion of Europe (3)

Geographic Expansion of Europe (3)

Geographic Expansion of Europe (4)

Geographic Expansion of Europe (4)

Prince Henry, the Navigator

Ferdinand and Isabella

The Columbus Memorial Monument in Sevilla (Spain)

Columbus’ Tomb in Sevilla Cathedral

The Columbus Memorial Monument in Barcelona

World Voyages of Discovery and Colonized Territories

Consequences of Geographic Discoveries (1)

Consequences of Geographic Discoveries (2)

Consequences of Geographic Discoveries (3)

World Voyages of Discovery and Colonized Territories

Price Revolution (1)

§ Rise in prices during

Price Revolution (2)

Price Revolution (2)

Price Revolution (2)