Contemporary lessons from an early economy

I’m reading The Merchant of Prato, by Iris Origo. Written in 1957, there are no doubt more up-to-date treatments of the the Medieval European economy. But as it was written by a non-economist, it portrays the every-day life of Francesco di Marco Datini, 1335 – 1410, as well as the economic scene of the time; its economics, politics, religion, and personal life all rolled into one. As such, it’s a much better read than most economic histories, but still has plenty to tell.

First, there was plenty of trade going on the 14th Century, all over Europe and the Mediterranean. All manner of inputs and finished goods are traded, from the the Baltic and Scotland to the Levant and Balkans, North Africa, the Black Sea, and of course spices and other such goods coming from farther afield. A vast network of trading houses and merchant companies, with firms having representation in many major cities, exists to support the acquisition of inputs and sale of finished products. (More money is made and trade conducted in luxury goods, but one does find commodities such as wheat moving around.)

Production is carried out by extreme specialization, requiring inputs and intermediate products to change hands many times. In the production of cloth, wool is carded, fulled, sheared and cut multiple times, spun, woven, measured, dyed, and many, many other steps, all by different people. Some production is shared out to peasant households, such as weaving.

Most of this production is organized by guilds…the guilds are the center of economic life. Merchants organize production as individual agents, but the steps they must take, the rules they must follow, the who-does-what, is all determined by guild rules. The guilds  provide two main functions: establish some monopoly power, by all their rules and requirements, and create trust and reciprocity (because any bad dealings mean getting kicked out of the guild, which means going out of business); like all institutions, they seek to reduce uncertainty in what, by many measures, is a very, very uncertain time.  The guilds establish voluminous sets of rules for how things are to be done, where and how things can be sold, limited points of entry and exit, and lots of penalties if the rules are broken.

The economic system can thus be characterized as some kind of market feudalism.  Markets are very present, but entry to them is highly restricted, and price is determined at least as much by custom (in the form of guild restrictions and numerous taxes levied by sovereigns or municipal or guild authorities) as by supply and demand.  Access to economic resources such as mills is highly restricted and taxed.The feudal state controls the ultimate means of production (land and labor combining in agriculture), but merchants are acquiring massive wealth without the control of these factors of production. The economic fate of people is tied not only to weather (the biggest variable in agricultural production), but the fortunes of war, piracy, and pestilence , all as a result of the increased opportunities and perils of trade.

Risk is everywhere: all travel has to happen with heavy arms and escorts (A surprising amount of transportation of goods happens overland, via mules.). Plagues can shut down a city and its trade, meaning orders for inputs do not get filled, and finished goods do not get sold, with disastrous results for merchants. Monarchs borrow money to fight wars, then default, leading to chains of bankruptcies. Wars between cities states, religious feuds, and travelling bands of mercenaries all can shut down trade. It can take upwards of 3 ½ years to go from ordering wool at the point of shearing to the sale of fine dyed cloth.

Most of the finished products are destined for the rich…who pay very dear prices to cloth themselves in the finest cloth, decorate their houses with drapery, art, carved and inlaid furniture, etc. They must pay for all of this, which means value is being appropriated  from somewhere: the peasants of course. Great wealth is still available from the usual feudal sources, but add to this the growing wealth of the merchant class, who also want fine clothes and goods.

Basically, the merchants provide a new means for the nobility to display wealth…prior to all this trade, being nobility meant having the best local stuff, but now it means having the best stuff from the far corners of the world…a process which enriches the merchants (though plenty of merchants lose their shirts, too). So we have two wealthy classes, with all this wealth ultimately being produced by the peasantry and an army of craftspeople in between. Some of this new wealth is due to subtle improvements in the technology in production, but a lot of it probably just comes from comparative advantage…furs that are a dime a dozen in the Baltic fetch high prices in Italy. The greatest technological development is probably in the mechanisms of commerce, e.g. letters of credit, double entry accounting, etc.

Already the merchant class takes no interest in the affairs of state other than as they relate to trade….everything is about trade, with religious salvation (and hence, good works, charity, etc) taking a back seat, with civic duty and virtue a very, very distant last place.

Already the fate of the peasantry is tied to this global economy. Riots and insurrections occur when business conditions are poor, for example when merchants aren’t ordering enough wool to be shorn, processed, and woven. (e.g. a peasant revolt in Florence with demands that a minimum amount of cloth be ordered, to keep the peasants employed in cloth production and not starving). When Richard of England defaults on his loans, huge merchant/banking houses go bankrupt, leading to cascading chains of defaults of smaller houses, leading to starvation in the countryside.

In the end, everyone gains, to some degree or another, by this trade system; those who stand to gain the most also stand to lose the most, at least in raw financial terms. Even the peasant gains, as s/he realizes that a paltry, mean existence of scratching out existance by agriculture under the thumb of the ruling feudal system can be improved upon by taking in a little wool for weaving. This can stay at a small scale and provide a small amount of additional income, but it could also perhaps eventually lead for this peasant to the formation of a new guild, and thus moving from peasant farmer to craftsperson, with a bit more comfort in life. (It’s not clear what percentage of peasants are engaged in non-agricultural side activities.) But the specialization that is involved means those involved become more dependent on others, and on events in distant lands. To gain, we must become slaves.