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The road to the Industrial Revolution: hypotheses and conjectures about the medieval origins of the ‘European Miracle’

  • Jan Luiten van Zanden (a1)

Abstract

The article uses various ways of measuring the efficiency of institutions regulating market exchange, such as interest rates, the skill premium, and the level of market integration, to try to answer the question about the quality of institutions in the different parts of Eurasia in the centuries before the ‘Great Divergence’. It appears that Western Europe, from as early as the late medieval period, had a relatively well-developed set of institutions. By contrast, South and Southeast Asian institutions were much less geared towards well-functioning markets. However, Japan and China in the seventeenth and eighteenth centuries developed institutions that were relatively efficient, and resulted in relatively high levels of commercial exchange. A number of hypotheses are then reviewed that may help to explain a European head start dating from the late Middle Ages.

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1 Angus, Maddison, The world economy: a millennial perspective, Paris: Development Centre of the OECD, 2001.

2 Mark, Elvin, The pattern of the Chinese past: a social and economic interpretation, Stanford, CA: Stanford University Press, 1973.

3 Ken, Pomeranz, The Great Divergence: China, Europe and the making of the modern world economy, Princeton, NJ: Princeton University Press, 2000.

4 Eric, Jones, The European miracle: environments, economies and geopolitics in the history of Europe and Asia, Cambridge: Cambridge University Press, 1981; Maddison, The world economy; David S. Landes, The wealth and poverty of nations: why some are so rich and some so poor, New York: Norton, 1998.

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6 Sheilagh, Ogilvie, ‘“Whatever is, is right”? Economic institutions in pre-industrial Europe’, Economic History Review, 60, 4, 2007, pp. 649–84.

7 Douglass C. North and Barry W. Weingast, ‘The evolution of institutions governing public choice in seventeenth-century England’, Journal of Economic History, 49, 4, 1989, pp. 803–32. For a contrasting view, see Gregory, Clark, A farewell to alms: a brief economic history of the world, Princeton, NJ: Princeton University Press, 2007.

8 See Daron Acemoglu and Simon Johnson, ‘Unbundling institutions’, Journal of Political Economy, 113, 5, 2005, pp. 949–95, for various indicators of the efficiency of current institutions, which can not, however, easily be applied to historical research.

9 A fourth approach to measuring the efficiency of various kinds of institutions, also making it possible to distinguish between horizontal and vertical institutions, is developed in Maarten Bosker, Eltjo Buringh, and Jan Luiten van Zanden, From Baghdad to London: the dynamics of urban growth in Europe and the Arab world, 800–1800, London: Centre for Economic Policy Research, 2008.

10 North, Douglass C., Structure and change in economic history, New York: Norton, 1981; North and Weingast, ‘Evolution of institutions’; Hernando de Soto, The mystery of capital: why capitalism triumphs in the West and fails everywhere else, New York: Basic Books, 2000; Ricardo Reis and Mark W. Watson, Relative goods’ prices and pure inflation, London: Centre for Economic Policy Research, 2007.

11 The McCloskey and Nash hypothesis is that the higher the interest rate, the more expensive it will be to store (for example) grains after the harvest, and the larger the seasonal variation in grain prices will be; in fact, the price of these grains in month t+1 will be the price in month t plus the monthly interest rate plus additional storage costs. See Donald N. McCloskey and John Nash, ‘Corn at interest: the extent and cost of grain storage in medieval England’, American Economic Review, 74, 1, 1984, pp. 174–87. See also Nicholas Poynder, ‘Grain storage in theory and history’, paper for the Third Conference of the European Historical Economics Society, Lisbon, 1999, available at http://www.iisg.nl/hpw/poynder.pdf (consulted 28 August 2008).

12 Roman, Studer, ‘India and the Great Divergence: assessing the efficiency of grain markets in eighteenth- and nineteenth-century India’, Journal of Economic History, 68, 2, 2008, pp. 393437.

13 For example, on the eighteenth century: Larry, Neal, The rise of financial capitalism: international capital markets in the Age of Reason, Cambridge: Cambridge University Press, 1990.

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16 See the contributions to David Henley and Peter Boomgaard, eds., Credit and debt in Indonesia, 860–1930: from peonage to pawnshop, from kongsi to cooperative, Singapore: ISEAS, 2008.

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18 McCloskey and Nash, ‘Corn at interest’; Poynder, ‘Grain storage’.

19 The figure is based on the data collected and analysed in Cornelis J. Zuijderduijn, Medieval capital markets: markets for renten between state formation and private investment in Holland (1300–1550), PhD thesis, Utrecht University, 2007. The number of observations before 1250 is limited, owing to the fact that the capital market was rather thin at that time, but this does not affect the main point of Figure 1: that is, that, during the thirteenth century, a capital market emerged with already relatively low interest rates. See the almost identical figure in Clark, Farewell to alms, p. 169.

20 Adam Smith, The wealth of nations, Harmondsworth: Penguin, 1974 (first published 1776), p. 198.

21 Henley and Boomgaard, Credit and debt.

22 Peter Boomgaard, ‘Buitenzorg in 1805: the role of money and credit in a colonial frontier society’, Modern Asian Studies, 20, 1, 1986, pp. 33–58. See also Jan Luiten, van Zanden, ‘On the efficiency of markets for agricultural products: rice prices and capital markets, 1823–1853’, Journal of Economic History, 64, 4, 2004, pp. 1028–55.

23 Peter Boomgaard, ‘Geld, krediet, rente en Europeanen in Zuid- en Zuidoost-Azië in de zeventiende eeuw’, in C. A. Davids, W. Fritschy, and L. A. van der Valk, eds., Kapitaal, ondernemerschap en beleid, Amsterdam: NEHA, 1996, pp. 483–511.

24 Divekar, V. D., Prices and wages in Pune region in a period of transition, 1805–1830, Pune: Gokhale Institute of Politics and Economics, 1989, p. 44.

25 Pomeranz, The Great Divergence; Bozhong, Li, Agricultural development in Jiangnan, 1620–1850, New York: St Martin’s Press, 1998.

26 James C. Shih, Chinese rural society in transition: a case study of the Lake Tai area, 1368–1800, Berkeley, CA: Institute of East Asian Studies, University of California, 1992, p. 29. Before 1367, a ‘normal’ rate of 4% per month is quoted, although the statutory ceiling was 3% per month (pp. 46, 271, n. 44). Shih also mentions a number of interest rates for the late Ming that are lower: for example, 24% per year (pp. 59–60).

27 Michael, Marmé, Suzhou, where the goods of all the provinces converge, Stanford, CA: Stanford University Press, 2005, p. 145.

28 Antonia, Finnane, Speaking of Yangzhou: a Chinese city, 1550–1850, Cambridge, MA: Harvard University Press, 2004, p. 121.

29 Paul A. van Dyke, The Canton trade: life and enterprise on the China coast, 1700–1845, Hong Kong: Hong Kong University Press, 2005, pp. 154–6.

30 Seong H. Jun and James B. Lewis, ‘Labour costs, land prices, land rent, and interest rates in the southern region of Korea (1700 to 1900)’, paper for ‘Towards a Global History of Prices and Wages’ conference, Utrecht, 19–21 August 2004, available at http://www.iisg.nl/hpw/globalhistory.php (consulted 28 August 2008).

31 Crawcour, E. S., ‘The development of a credit system in seventeenth-century Japan’, Journal of Economic History, 21, 1961, pp. 342–60.

32 Osamu Saito and Tokihiko Settsu, ‘Factor markets and their institutions in traditional Japan: a note on capital markets’, paper for ‘The Rise, Organization, and Institutional Framework of Factor Markets’ conference, Utrecht, 23–25 June 2005, available at http://www.iisg.nl/hpw/factormarkets.php (consulted 28 August 2008).

33 This is a summary of a more detailed paper on this topic: Jan Luiten van Zanden, ‘The skill premium and the Great Divergence’, to be published by European Review of Economic History.

34 Johan Söderberg, ‘Prices in the medieval Near East and Europe’, paper for ‘Towards a Global History of Prices and Wages’ conference, Utrecht, 19–21 August 2004, available at http://www.iisg.nl/hpw/globalhistory.php (consulted 28 August 2008).

35 Persson, Karl G., Pre-industrial economic growth: social organization and technological progress in Europe, Oxford: Blackwell, 1988. See also David, Jacks, ‘Market integration in the North and Baltic Seas, 1500–1800’, Journal of European Economic History, 33, 3, 2004, pp. 285329; Victoria N. Bateman, ‘The evolution of markets in early modern Europe, 1350–1800: a study of grain prices’, Economics Series Working Papers, University of Oxford, 2007, available at http://ideas.repec.org/p/oxf/wpaper/350.html (consulted 28 August 2008).

36 Van Zanden, ‘The skill premium’.

37 Carol H. Shiue and Wolfgang Keller, ‘Markets in China and Europe on the eve of the Industrial Revolution’, American Economic Review, 97, 4, 2007, pp. 1189–1216; Studer, ‘India and the Great Divergence’.

38 The price data have been made available on the website of the Global Price and Income History Group at UCDavis, http://gpih.ucdavis.edu/ (consulted 28 August 2008); I thank Osamu Saito for his kind assistance in interpreting the price data. The source is Masaru Iwahashi, Kinsei Nippon Bukka-shi no Kenkyu, Tokyo: Ohara Shinseisha, 1981, pp. 460–5. The Indonesian price data are from the Colonial Reports of 1878–1896 (Koloniaal Verslag, included in Handelingen der Staten Generaal, Den Haag: Landsdrukkerij, 1878–1896).

39 Studer, ‘India and the Great Divergence’, p. 407.

40 Bateman, ‘Evolution of markets’.

41 Christopher, Dyer, Standard of living in the later Middle Ages, Cambridge: Cambridge University Press, 1998; B. J. P. van Bavel, ‘Rural wage labour in the sixteenth-century Low Countries: an assessment of the importance and nature of wage labour in the countryside of Holland, Guelders and Flanders, Continuity and Change, 21, 2006, pp. 37–72.

42 Tine de Moor and Jan Luiten van Zanden, ‘Girlpower: the European marriage pattern (EMP) and labour markets in the North Sea region in the late medieval and early modern period’, paper for ‘The Rise, Organization, and Institutional Framework of Factor Markets’ conference, Amsterdam, 23–25 June 2005, available at http://www.iisg.nl/hpw/factormarkets.php (consulted 28 August 2008).

43 For Japan, see Saito and Settsu, ‘Factor markets’. For Southeast Asia, see Peter, Boomgaard, ‘Why work for wages? Free labour in Java, 1600–1900’, Economic and Social History in the Netherlands, 2, 1990, pp. 3757.

44 Dixin, Xu and Wu, Chengming, Chinese capitalism, 1522–1840, Basingstoke: Macmillan, 1998, p. 37.

45 The ‘democratization’ of the capital market was stimulated by the splitting up of ownership in land, houses, and ships into very small parts (as little as one-124th of a house or ship could be owned) and the widespread use of these assets as collateral for loans; other factors stimulating the capital market were low interest rates and the widespread use of written documents.

46 Boomgaard, ‘Buitenzorg in 1805’.

47 Boomgaard, ‘Why work for wages?’; Jan Lucassen, ‘Proletarianization in Western Europe and India: concepts and methods’, paper for ‘The Rise, Organization, and Institutional Framework of Factor Markets’ conference, Utrecht, 23–25 June 2005, available at http://www.iisg.nl/hpw/factormarkets.php (consulted 28 August 2008).

48 Timothy, Brook, The confusions of pleasure: commerce and culture in Ming China, Berkeley, CA: University of California Press, 1998; Christine Moll-Murata, ‘Working for the state: the Chinese labour market for manufacture and construction, 1000–1900’, paper for ‘The Rise, Organization, and Institutional Framework of Factor Markets’ conference, Utrecht, 23–25 June 2005, available at http://www.iisg.nl/hpw/factormarkets.php (consulted 28 August 2008).

49 Akira Hayami, ‘Introduction’, in Akira Hayami, Osamu Saito, and Ronald P. Toby, The economic history of Japan, 1600–1990, volume 1: emergence of economic society in Japan, 1600–1859, Oxford: Oxford University Press, 2004, pp. 1–36.

50 Christine Moll-Murata, ‘Chinese guilds in the Qing Dynasty (1644–1911): an overview’, paper for ‘The Return of the Guilds’ conference, Utrecht, 5–7 October 2006, available at http://www.iisg.nl/hpw/papers/guilds-mollmurata.pdf (consulted 28 August 2008); Mary Louise Nagata, ‘Brotherhoods and stock societies: guilds in pre-modern Japan’, paper for the same conference, available at http://www.iisg.nl/hpw/papers/guilds-nagata.pdf (consulted 28 August 2008). Both papers to be published in International Review of Social History, 2008.

51 Clark, ‘The cost of capital’; Epstein, Freedom and growth; Zuijderduijn, Medieval capital markets.

52 Dyer, Standard of living, p. 102.

53 Bosker, Buringh, and van Zanden, From Baghdad to London, p. 40, table A2.

54 But income redistribution favouring low-income earners may have annulled some of this effect: real wages, for example, more or less doubled, whereas incomes from land and from capital fell relative to those from other sources.

55 De Moor and van Zanden, ‘Girlpower’, p. 23.

56 Michael, Mann, The sources of social power, volume 1: a history of power from the beginning to A.D. 1760, Cambridge: Cambridge University Press, 1986; Harold, Berman, Law and revolution: the formation of the Western legal tradition, Cambridge, MA: Harvard University Press, 1983.

57 Greif, Institutions; Tine de Moor, ‘The silent revolution: the emergence of commons, guilds and other forms of corporate collective action in Western Europe from a new perspective’, paper for ‘The Return of the Guilds’ conference, Utrecht, 5–7 October 2006, to be published in International Review of Social History, 2008, also available at http://www.iisg.nl/hpw/papers/guilds-demoor.pdf (consulted 28 August 2008).

58 North, Structure and change.

59 See, for example, Peter, Stein, Roman law in European history, Cambridge: Cambridge University Press, 1999.

60 Berman, Law and revolution.

61 Ghislaine Lydon, ‘A “paper economy of faith” without faith in paper: a contribution to understanding the roots of Islamic institutional stagnation’, paper for ‘Law and Economic Development’ conference, Utrecht, September 2007, available at http://www.iisg.nl/hpw/papers/law-lydon.pdf (consulted 28 August 2008).

62 Michael T. Clanchy, From memory to written record: England 1066–1307, London: Edward Arnold, 1979.

63 Susan, Reynolds, Kingdoms and communities in Western Europe, 900–1300, Oxford: Clarendon Press, 1984, pp. 68–70, 158–66.

64 Philip, Jones, The Italian city-state: from commune to signoria, Oxford: Clarendon Press, 1997, p. 131.

65 Ibid., p. 134.

66 John K. Hyde, Society and politics in medieval Italy: the evolution of the civil life 1000–1350, London: Macmillan, 1973, pp. 49–53.

67 Ibid., p. 54.

68 Edward Coleman, ‘Cities and communes’, in David Abulafia ed., Italy in the central Middle Ages, 1000–1300, Oxford: Oxford University Press, 2004, p. 41.

69 Reynolds, Kingdoms and communities, p. 176; Carl, Stephenson, Borough and town: a study of urban origins in England, Cambridge, MA: The Medieval Academy of America, 1933, pp. 27–42; Verhulst, Adriaan E., The rise of cities in north-west Europe, Cambridge: Cambridge University Press, 1999, pp. 125–7.

70 Reynolds, Kingdoms and communities, pp. 173–7.

71 Jones, Italian city-state, p. 229. See also Hyde, Society and politics, pp. 73–4.

72 Reynolds, Kingdoms and communities, pp. 165–7; Verhulst, Rise of cities, pp. 123–5.

73 Richard H. Britnell, The commercialisation of English society, 1000–1500, Manchester: Manchester University Press, 1996, pp. 27–8.

74 Brian Tierney, as cited in Toby E. Huff, The rise of early modern science: Islam, China and the West, Cambridge: Cambridge University Press, 1993, p. 134.

75 Timur, Kuran, ‘The provision of public goods under Islamic law: origins, impact, and limitations of the waqf system’, Law and Society Review 35, 4, 2001, pp. 841–97.

76 Greif, Institutions.

77 Jan Luiten van Zanden and Maarten Prak, ‘Towards an economic interpretation of citizenship: the Dutch Republic between medieval communes and modern nation states’, European Review of Economic History, 10, 2, 2006, 111–47. On the process of state formation, see Charles, Tilly, Coercion, capital, and European states, AD 990–1990, Cambridge, MA: Basil Blackwell, 1990.

78 Jan de Vries and Ad van der Woude, The first modern economy: success, failure, and perseverance of the Dutch economy, 1500–1815, Cambridge: Cambridge University Press, 1997.

79 Daron, Acemoglu, Johnson, S., and James, Robinson, ‘The rise of Europe: Atlantic trade, institutional change, and economic growth, American Economic Review, 95, 3, 2005, pp. 546–79.

80 Peter Lindert et al., ‘Preliminary global price comparisons, 1500–1872’, paper for ‘World Living Standards since Thirteenth Century’ session, Thirteenth Economic History Congress, Buenos Aires, 2002, available at http://www.iisg.nl/hpw/papers/lindert.pdf (consulted 28 August 2008).

81 Phil Hoffman, ‘Why is that Europeans ended up conquering the rest of the globe? Prices, the military revolution, and western Europe’s comparative advantage in violence’, paper for ‘Towards a Global History of Prices and Wages’ conference, Utrecht, 19–21 August 2004, available at http://www.iisg.nl/hpw/papers/hoffman2.pdf (consulted 28 August 2008).

82 Robert C. Allen, Jean-Pascal Bassino, Debin Ma, Christine Moll-Murata, and Jan Luiten van Zanden, ‘Wages, prices, and livings standards in China, Japan, and Europe, 1738–1925’, paper for ‘The Rise, Organization, and Institutional Framework of Factor Markets’ conference, Utrecht, 19–21 June 2005, available at http://www.iisg.nl/research/jvz-wages_prices.pdf (consulted 28 August 2008).

83 Robert C. Allen, ‘Science, economics and the British Industrial Revolution’, paper for the Global Economic History Network conference, Leiden, 2004.

84 See also Stephen, Broadberry and Bishnupriya, Gupta, ‘The early modern Great Divergence: wages, prices and economic development in Europe and Asia, 1500–1800’ Economic History Review, 59, 1, 2006, pp. 231.

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