Economic medieval expansion: how it was possible economic growth during feudalism?

During the medium age there is an important growth (most of the cities founded during this period are the ones that we nowadays know).

What are the main reasons that produce this growth during this period?

Demographic expansion: along the IX and X centuries, the population has no growth, nevertheless during the centuries X to XIV the growth was higher.  Although this growth was difference if we take into consideration the country or area of study.

From the X century on, the peasant started to work in new lands.  Colonization enterprises were created by the lords to the detriment of hunting; law of diminishing returns explain this need to expand the land cultivated.

Agricultural expansion: to increase the agricultural production, it is needed an increase of the land, to be cultivated, trough the colonization.

There were three types of colonization:

• Enlargement of the land cultivated inside the area of the lords with major diversification of the goods, but the peasants must assume the cost of tilling the field (including the fallow).

• Foundation of new lands (Flandes, North of Italy, UK, Normandie,..).  New places, of hard access, are occupied by new enterprises, always funded by the Lords with the finality of collect the incomes from the work of peasants.

• Frontiers.  New lands are occupied beyond of current properties.  This fact allows to compensate diminishing returns and to increase the trading because of the excedent.

Technological change:

Introduction of heavy plow that allows a better and deeper furrow. Besides, the use of heavy plough makes that the land extracted is put out the furrow.  Another important introduction was the use of horses in detriment of oxes.

The culture system changes from a biennial rotation to a triennial rotation (wheat, legumes, fallow). The legumes allows that the land are not overusing (legumes have nutrients good for the land).

Both modifications allow an increase of the land productivity: the land cultivated is bigger and the farmers has the chance to organize the production in two periods of time: winter and spring.  Both periods allows too a better organization, and diversification of the land cultivated (it reduces the risk associated to bad crops).

The consequence of this change is well known: the population increase mean that the scarce resource, as labour, becomes abundant and the abundant resource, as the land, becomes scarce.  

The Lords are the owner of the lands, as consequence any excedent will be property of the people who has the lands, and not the ones who works in that lands.

Bibliography:

CAMERON, R. (1992): Historia Económica Mundial, Alianza (Madrid), caps. 1, 3, 5-10 y 12.

Preindustrial Europe: institutional framework

The middle age is characterized by the feudalism.  The economic organization is independent and autonomous with little relationship with exterior.  In this system the serfs must pay rents to the lord including their work.



During the feudalism existance, it developed several problems regarding the economic organization:

• The first one is the poor productivity; a bad year must be sufficient to cover the subsistence level, but in a good year the problem with the warehousing means spoiled of the foods.  As consequence the level production is the minimal to avoid any waste of resources.  According to George Duby's study:

 "A great change in productivity, the only one in history until the great advances of the 18th and 19th centuries, occurred in Western Europe between the Carolingian period and the dawn of the 13th century", 

Before of that the waste of resources was inexistent, so the reason is the poor productivity.

• Another problem of this system is the vigilance.  If the serfs are not under control, they will work as less as possible: "there is no supervision, there is no control, as consequence poor productivity".

In other words, the incomes of the lord depend of the work of the serfs.  The lord offers protection in exchange of the work of the serfs, because the work is a limited resource and the land is an abundant resource.



The mankind starts to realize about the importance of the labour in the economic organization.

Bibliography:

CAMERON, R. (1992): Historia Económica Mundial, Alianza (Madrid), caps. 1, 3, 5-10 y 12.

Causes of economic growth: little review of four models.

What we currently have, mainly depends of the economic growth of the past. The difference amongst the life levels is showed through the national income or the Gross National Product per capita.  The level of this magnitude is caused by the past of a country.

What are the causes of the growth?

Mokyr determines a key ingredient (but no essential): the technologic creativity.

As we have seen if the society is under the PFF the life level is lowest than the one we can wait (by that this situation is named inefficiency).

This autor determines that the growth depends of four factors regarding four authors:

• Investment: where the work productivity is directly related to the quality of the tools and the equipments as well as the quantity.  When the capital rythm of increase is bigger than the work force, there is economical growht; this growth is also known as "Robert Solow's growth".

• Expansion of the trading because of the interchange of goods, services and production factors. This is known as "Adam Smith's growth".  The trade determines the work division through the specialization.  The capacity to make specific labours means an increase of productivity.

• Scale economies: if there is a population increase it could be possible to increase the income per habitant where the regions are little.  The increase population allows to this region the speciality and the production increase (North and Thomas).  Besides that some public goods are only available when the population is big.  However the population increase does not mean economic growth, because that increase could lead to greater pressure on food

• Increase of knowledge: technical progress and institutions development.  The previous concepts are regarding the "Schumpeter's growth" where the capital expansion allows a continuos increase of innovation financed by the credits of the banks.

All of this growth models are perfectly compatibles among them.

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

Jones E.L. (1990). El milagro europeo. Alianza. Madrid. Introducción y cap. 12.

Mokyr. J. (1987).  La revolución industrial y la Nueva Historia Económica", "Revista de Historia Económica".  Vol. 2. pp 203-41; vol 3, pp 441-82.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Development through the exploitation

Many of the current developed countries had been exploiting to other countries in the past, because of the control of natural resources, trading areas or cheap hand labour.

Is the development of one country the cause of underdevelopment of other country?

What is true, is that the trading expands favoring some countries and harming some others.

According to Inmanuel Wallerstein (1930) "our richness depends to the poorness of others".

All the economies in the world depend of a global system (mainly established by the capitalism rules). The market transfers the resources from one countries to others.  The central economies exploits to peripherical ones.  The exploitation happens because:

• The central countries have free hand labour and salaried, besides, these countries export finish goods and import raw materials.  
• However the peripherical countries the hand labour is not free and these countries export raw materials and import finish goods.

https://littleusgoneglobal.wordpress.com/2015/03/18/119/

This situation make that the balance of payments is always negative in a permanent state of dependency.  There is an unequal interchange.

It is argued that rich nations have exploited many poor nations by buying up their natural resources and the food crops they produce at very low prices, and the using these resources to produce goods and services which they then export back to the same less developed countries at much higher prices. Further, many rich countries have protected their own mining and agricultural industries by paying them subsidies.  These subsidies have increased the global supply of these products and forced down world prices.  Producers in less developed countries have not been able to compete as a result, they have lost sales, incomes and jobs.

The international trade has actually increased the ga between rich and poor countries because multinational firms and consumers from rich, developed economies dominate global markets.  As a result they are able to force producers of materials and goods in less developed countries to accept low prices.

The main critique to the arguments of Wallerstein is that the peripherical countries will adquire the cualification of central with the capital investments and the technology diffusion.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

Jones E.L. (1990). El milagro europeo. Alianza. Madrid. Introducción y cap. 12.

Mokyr. J. (1987).  La revolución industrial y la Nueva Historia Económica", "Revista de Historia Económica".  Vol. 2. pp 203-41; vol 3, pp 441-82.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Technological change: how technology relates to economic change

New inventions, better production techniques than produce more efficiently, better organization and management of firms, better training, better transport and communications all come under the banner of technical progress.

All these things allow a country to increase output.  Progress and investments often go together when old machines are replaced by new, more sophisticated machines that can work faster.

However, is the technological change able to explain the economical change? is it the more importante factor?

Joel Mokyr (1946) states that the technological change is a very important factor but not the decisive one.  The institutional framework is the fundamental factor of technological change through the incentives.

The technological change, according to this author, is any change in the use of the information, regarding to the production, with the end to increase the efficacy.  The consequence of this process is to produce more with less resources or the production of new and better goods (innovation; concept that Mokyr links up with diffusion).

When the institutional framework allows the flow of information, the diffusion is posible.  According to Mokyr the invention is an exogenous factor; if the diffusion exists, the innovation is posible because the invention has been diffused.

Lynn White (1907 - 1987) treats to explain how the stirrup invention is caused by the feudalism.  In many occasions the invention already exists, however there is no application for it, as consequence there is no technological change because there is no diffusion.

http://licn.typepad.com/my_weblog/2012/09/technical-progress-john-dunn-consultant-ambertec-pe-pc.html

During the feudalism because of costs maintenance of the defence, the feudal lords decided to use the stirrup because the cost of horse rider maintenance is lower than a soldier; this is mainly because of the quantity of them to defence the lands, it is needed less horse riders than soldiers.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Population: cause or consequence of economic change?

There are some theories to explain how the population is related to the economic change. We are going to expose two theories: the pessimist, from Malthus, and the optimist, from Boserup.

Thomas Malthus (1766 - 1834): the main ideas about their theory are included on "an essay on the principle of population" where the malthusian trap is the base of his principles:

"Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. A slight acquaintance with numbers will shew the immensity of the first power in comparison of the second."

The population grows steadily whenever there are resources, however the productivity could be increased whenever the law of diminishing returns allows it.

To explain this, the author uses two factors: land and work.

The main critique to this theory is that the author does not take into consideration neither the technology nor the demographic changes that could have any kind of consequence on technology or production.

Ester Boserup (1910 - 1999): The production could be increased as an answer to a demographic growing.  In a following step, the jump from a small society to another big one will be determined by resources increase, at consequence, the population could increase more.

Her arguments are defended through the scale economics that appears when the population grows. The scale economics allows to develop the specialization and the trade.

However with this growth, it appears a unequal distribution of incomes.  There is more habitants by area.  As consequence the value of the land will be increased, and the propietaries of land will have more incomes.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Theories of economic change: environment.

Regarding to theories of economic change the problems of the environment can be focused on: differences among the regions and how the environment changes affects to the development of a country.



Different authors have written about the environment and the economical change.  Let us see three opinions.

Karl August Wittfogel (1896 - 1988): he analyzed the ancient and modern era. His conclusions are related to the development of different cultures around rivers and deltas needed to make it work the irrigation systems.  These kind of systems brought about a centralization where the autor based his ideas about the oriental despotism. The one who has the control of the irrigation systems has the control of the economy.

The environment factors determine the kind of economic organization. This organization affects to the results of an economy.

The main critique to this theory is that the factors are independent each others, that is to say, for the develop of the despotism, it does not suggest the existence of irrigation systems and vice versa. Besides, at the old chinese empire, the peasants organized their own irrigation systems, without any control of the goverment.

     

Eric Jones (1936): he analyzes and explains the origin of the industrial revolution in Europe.  The differences in the XIV century between Europe and Asia were not very big, however, different environmental factors make this differences started to be relevant:

Europe has the luck of to own fertile and separated areas by natural barriers, that it did not allow contact among them. This fact means to develop a decentralized power (unlike that Asia where the population was concentrated around the deltas).  The european natural disasters kept untouched the physical capital.  It had the consequence to develop an increase of productivity and per capita income.  

The demographic european model is different from the asiatic (It easiest to recover than the asiatic).

The climate is much more varied in Europe than in Asia.  The consequence for Europe is more oportunnities regarding natural resources.

Finally, the physical european situation allow to this continent, to be isolated from invasions (mongols and turks). 

Jones considers countries as enterprises. These countries competed among them with the end to achieve the richness of each others.

Besides the countries started to developed a kind of organization where the goverments supplied defense and justice in exchange for a tax.  This situation allows to develop scale economics (the largest the population, the lower the cost associated to this population).  However there is a point where the increase of this population is negative.  This point is negative proportional to technology (how much more is invested in technology later this point appear.

There is another theories that try to explain the economic change regarding the environment by the climates change. However this theories are not adequate because of the lack of predictive.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Market as the key of growth.

One of several theories that try to explain the growth was developed by Adam Smith (1723 - 1790).

According to this economist (1723 - 1790), the key of growth is related to the market expansion.

The market accomplishes three functions: 

• It gives incentives to people to increase their productivity. 

• Any efficiency of production in any place of the market is immediately known for the rest (flawless information).

• The concentration of the demand allows to increase the specialization linked to the idea of trade.  People deals with that goods which have more productivity.

Smith considered that the growth of market had some limits.  For example, regarding technology he said that from XIX century on, it would not be more progress.  It means that the PPF could not be improve and the progress could be stopped.

The main critique to this theory is the non consideration of the technology.  Anothe critique is that the existence of a market does not warrant growth.

One of the contributions of Adam Smith was the "invisible hand". This "hand" means that the individual interest, that explains certain behavior of people, are guided, unwittingly, to contribute to the maximun wellness of population.

Bibliography:

Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.

North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

Offer and Demand factors

We can not undersantd the economic development in historical perspective without the mention of offer and demand factors (population, capital, natural resources, organization, incomes,... and so on).

Offer factors:

• Population: when the population is growing the offer of the work market is also increasing. Apart of this, we have take into consideration other factors:

• Demographic structure: developed countries have less young population that undeveloped countries.  This issue affects to the amount of active population.

• Employed population structure: it is regarding the amount of people working in primary sector, secondary or tertiary.

• Capital - investments:  the investment depends of savings.  In pre-industrial countries the accumulation of capital is small.  Regarding the capital we must distinguish two kind of capital: fixed capital (it is normally used during the production: machinery) and changeable capital which is used only one time (for example the raw materials, the existences or the surplus or excedents).  Inside the investment, we have to take into consideration the human capital investment, to adquire more skills, knowing or capacitations.

• Natural resources: it depends of the demand, the technology used to extract them, respect for sustainable development, etc.

• Technology: it is included next to capital and shows us the way that the production is achieved. Inside the technology we must distinguish innovation from invention: 

• invention is the development of something new or different, meanwhile
• the innovation is the difusion of the new technology or invent something.

• Economical organization: the organization gives an incentive structure.  This structure allows people to produce, more and better, or less and worse, or the same level.

Demand factors:

• Population: the amount of population produces an increase of demand.  This demand produces also an increase of the offer.  As consequence, more quantity produced induces a decrease in the prices at the long term.

• Per capita income: an income increase produces a demand increase.  When the richness is growing the consequence is a decrease of primary products and an increase of secondary products (for example luxury goods): "the smaller is disposable income, the higher the proportion spent on food"(Engel's law).

• Distribution of income: for example if the income is equally distributed and the population is not very rich, the savings are smaller.

• Savings-Investments: in undeveloped countries the interest type is higher than in developed countries, because of the lack of savings and high demand. If saving flows into investing the financial system will work properly.

• Market organization: the emergence of cities entails the concentration of the population, and thus the existence of physical markets where trading (at the begginig of Industrial Revolution London concentrated the 10% of the consumption).

Bibliography:
Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.
North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.

The economic development in historical perspective

Through the following two points we are going to introduce the economic development in historical perspective.

• Economic History.
• Growth and development.

Economic History.  Purpose.

"Explain the structure, operation and the outcome of the economies" (Douglas North)

An economist is worried about the general characteristics of a society (structure), studies the institutional working (families and state), the technology operation, ideology of society and the preferences (institutional scope of oportunities and restrictions).

There is not only a concern about the economic performance but also about the factors needed for the economic growth and development (because of the existence of countries rich and poor).

The classical economy stablished a tripartite classification of the production factors: land, work and capital.  The total production of a economy is determined by the quantity of this factors used.

            

Growth and development.

The growth is possible thanks to the technology application because of capital investments.  These investments can be:

• Extensive: when the investments is made over more than one particular factor (land, work and capital).
• Intensive: when  the resources are used in a more effective way (that is to say, we have the same resources, but we are able to use better).

By other hand the development is the economic growth with a structural change.  This changes are substantial regarding to the structure and the organization of the economy.

Growth and development are not the same concepts.  As a rule, in countries where the industrialization is being born, to a certain extent, there is a big change in the Economy (development), while the growth is only starting to emerge (for example in UK during the first step of its industrialization).

The progress is linked to the development.  The growth of the economy is a reversible process, that is to say, the decadency could follow to this growth.  However when we speak about development and progress of economy, unfrequently it appears a regresive cycle wherein a country is able to lose out structures or organizations created in the past.

By other hand the progres (according to Cameron) is related to moral or subjective issues, unlike the growth and development which correspond to objective issues.

To understand the difference between growth and efficiency we will use the support of the production-possibility frontier example:

Bibliography:
Cameron R. (1992).  Historia Económica Mundial.  Alianza.  Capítulo 1.
North, D.C.,  y Tomas, R.P. (1989).  El nacimiento del mundo occidental.  Una nueva historia económica (900-1700).  Capítulos 1 y 2.