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.

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.

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.