Escape From Rome

by Walter Scheidel

  The convergence of all these conditions, which was arguably unique to Western Europe from the fifteenth century onward, fueled enduring competition and continual upgrades that boosted military productivity and commitment of resources, which in turn prompted and enabled European expansion overseas, the topic of chapter 11. In Europe itself, these massive exertions left an even deeper mark: the painful transition from weak and fragmented medieval polities to more centralized and increasingly capable early modern states was in large part driven by warfare.62

  Military affairs grew to an immense scale as mobilization rates eventually rose to heights not seen since the days of the Roman Republic. Campaigns that involved ever-larger numbers of soldiers and navies absorbed huge financial resources: by the end of the eighteenth century, several hundred thousand trained sailors were employed by the Atlantic states alone. At the same time, balancing maintained the state system even as warfare kept expanding. Competition thus ensured the persistence of international fragmentation while sustaining the momentum of performance enhancement: it rewarded innovation as a means to survive an ongoing arms race.63

  Taxes and Credit

  Escalating warfare consumed unprecedented amounts of money. Overcoming prolonged fiscal weakness, the reconstitution of centralized governmental power created fiscal-military states. Military demand for funding was systemic: unlike hegemonic empires that might relax their efforts with impunity (as we will see below), Europe’s states were locked into relentless competition. As the Great Elector memorably put it in the middle of the seventeenth century, “The military preparations of all our neighbors compel us to follow their example.” His neighbors, needless to say, would have seen it exactly the same way.64

  Tax yield per capita rose dramatically in response to these pressures: between 1500 and the 1780s, it went up to almost five times the previous level in Spain, to fifteen times in France, and to thirty times in England in silver terms, and to three times in Spain, five times in France, and ten times in England in real terms (relative to certain urban wages). As troop numbers soared and technological change—the spread of firearms, warships, and more elaborate fortifications—kept pushing up cost, some 70–90 percent of state budgets was committed to the military.65

  Smaller polities had to raise more revenue per capita or succumb to larger territorial states. Venice and especially the Netherlands and England rose to the challenge. As naval powers, their funding requirements were particularly heavy but met by effective collection programs. Measured in gold and silver, by 1700, the Netherlands and England boasted the highest per capita tax rates in Europe—and as far as we can tell anywhere in the world.66

  State size continued to be correlated with regime type: smaller states with functioning representative institutions were able to impose higher tax rates than larger absolutist states. The former were more enterprising in terms of what and how to tax, and pioneered long-term debt and debt markets. More generally, the need for higher revenue and credit helped keep medieval arrangements alive, as rulers needed to consult and compromise with elites to achieve their funding goals. Thus, while fragmentation among sovereign states sustained military conflict, residual fragmented sovereignty within states to varying degrees protected “voice” and facilitated coordination in favor of taxation of commerce, which boosted state support for the latter.67

  The price was high. Warfare was certainly capable of hurting economic development by prompting overspending, unsustainable debt loads, and excessive taxation that led to stagnation: Spain and later even the Netherlands are among the best-known examples. Yet at the same time, it influenced the evolution of financial institutions in ways that benefited the private sector. The expansion of warfare raised both the scale and sophistication of credit markets, which came to feature unsecured loans between individuals, commercial debt, and collaterized debt as well as public-sector debt that was taken on by cities, the church, and sovereigns.

  The large scale of public borrowing provided the strongest impetus for innovation: credit needed for war gave rise to central banks, long-term bonds, bond markets, and debt-for-equity swaps. Intermediaries who covered the short-term needs of rulers were backed by markets for trading long-term bonds. Such financiers then expanded their activities into the private sector where they helped fund new ventures up to industrialization.68

  More capable fiscal systems did not merely pay for external security, internal stability, and the legal and institutional frameworks that undergirded market expansion and integration. They also helped secure public credit that allowed government to operate smoothly by covering shortfalls without having to resort to predation. At the time, these arrangements were unique to Europe.69

  The North Sea Economy and the Little Divergence

  In the seventeenth and eighteenth centuries, European states became less diverse as state power grew at the expense of local elites. In many cases, fiscally fragmented regimes gave way to more absolutist styles of government. Relying on a mixture of repression and indoctrination, state-centered imperatives built what Thomas Hobbes called the “Leviathan.” This in turn intensified international disunity as states grew more homogeneous and Europe as a whole less so.70

  Religious ruptures contributed to this process. The Reformation ended the hegemonic status of the Catholic Church and fostered closer linkages between religious establishments and states. Henry VIII’s separation from the church in 1534 as well as the Peace of Augsburg in 1555 and the Peace of Westphalia in 1648, both of which acknowledged rulers’ rights to determine their state religion, were symbolic milestones.

  In this more sharply fractured environment, state formation, institutional development, and economic growth proceeded in tandem. According to a variety of metrics, the economies of the North Sea region performed best.71

  Urban real wages offer some of the most robust evidence. In the Late Middle Ages, the purchasing power and living standards of workers had markedly improved as a result of the shift in the ratio of capital to labor brought about by the Black Death: mass mortality raised the price of labor relative to that of fixed assets. Yet once the plague had abated, renewed demographic growth put downward pressure on real wages. From the sixteenth through the eighteenth centuries, the consumption levels of workers in much of Europe gradually slid back down to what had been very low pre-plague standards. By contrast, real incomes soon recovered and broadly stabilized in the principal urban centers of the Low Countries and England (figure 10.2).72

  Overall economic output is much more difficult to estimate, and any reconstruction must be handled with caution. Only occasionally do we encounter trends that are so clear as to exceed any reasonable margins of error. This is the case here. There can be no doubt that Dutch per capita GDP took off in the sixteenth and seventeenth centuries. England followed suit, catching up in the eighteenth century, while continental Europe stagnated (figure 10.3).73

  This impression of divergent development meshes well with information concerning urbanization and sectoral distribution. The proportion of the urban population, a rough indicator of economic development, rapidly expanded in seventeenth- and eighteenth-century England to rise far above the European average. In fact, thanks to secular stagnation on the continent, a large and growing share of the net increase in overall European urbanization during this period took place in England (figure 10.4).74

  Likewise, between 1500 and 1800, the share of the population not engaged in agriculture rose much faster in the Low Countries and especially in England than it did in other parts of Europe (figure 10.5).75

  FIGURE 10.2   Real wages of urban unskilled workers in different parts of Europe, 1500–1780 CE. Source: Based on the dataset underlying Pamuk 2007: 297, fig. 2 (data not weighted for population size).

  FIGURE 10.3   Per capita GDP in different parts of Europe, 1500–1800 CE. Source: Maddison Project Database 2018 (data not weighted for population size).

  FIGURE 10.4   Urbanization rates in England and Europe and the E
nglish share in the increase of the European urbanization rate, 1600–1800 CE. Source: Wrigley 2016: 47, table 4.1.

  Literacy improved in a similarly uneven manner: by the seventeenth century, the Netherlands and Britain were greatly advancing (figure 10.6).76

  Taken together, their weaknesses being offset by their consistency, these guesstimates unambiguously point to a regional divergence in economic growth and human welfare that favored the North Sea region. Known as the “Little Divergence,” this parting of trends allowed certain northwestern European economies that faced the North Sea to pull ahead of others long before the Industrial Revolution began.77

  A number of factors contributed to this process. Access to world markets—an issue discussed in chapter 11—disproportionately benefited small countries such as the Netherlands and England that managed to capture large shares of international services in trade, transport, and finance and established growing export industries. These societies were large and wealthy enough to hold their own against larger military competitors but also small enough for growth in specific sectors such as trade and finance to make a palpable difference overall.

  FIGURE 10.5   The share of the urban and nonagricultural rural population in different parts of Europe, 1500 and 1800 CE. Source: R. Allen 2003: 408, table 1.

  Moderate size was a direct function of interstate competition: England had failed to take over France during the Hundred Years’ War of the Late Middle Ages, and the United Provinces were the only portion of the Low Countries to escape from Spanish rule. Their ability to provide protection rested on fiscal resources that in turn depended on the state’s ability to mobilize them for collective action.

  FIGURE 10.6   Adult literacy rates in different parts of Europe, late fifteenth to eighteenth century CE. Source: Van Zanden 2009: 193, table 8 (data not weighted for population size).

  In this respect, it made a difference that the North Sea region was alone in preserving medieval decentralized political structures and communitarian legacies and building on them during the Reformation while more authoritarian monarchies rose across much of the continent—what Jan Luiten van Zanden deems “an unbroken democratic tradition” from the communal movement of the High Middle Ages to the Dutch Revolt and England’s Glorious Revolution. Both geographical advantages—the marshy terrain of the Netherlands and Britain’s island position—and access to foreign and commercial resources favored the survival and elaboration of constitutionalism and representative institutions that elsewhere proved vulnerable to the centralizing pressures of war.78

  As a result, developmental states arose that openly favored merchants and commerce. Literacy and the low cost of capital and skills sustained not only urban and economic growth but also the fiscal and military assets that protected it and helped expand trade, shipping, and attendant services. Structural transformation away from farming both depended on and promoted productivity in the latter. All these features were inextricably intertwined. Absolutist government, by contrast, was associated with lower economic growth. Alongside the quality of geographic access to Atlantic trade, the rise of absolutism in Italy, Spain, France, and Austria and its failure in the Netherlands and England have been viewed as decisive factors in economic development.79

  This difference was reflected in the evolution of parliaments. After they had generally become more prominent up to the fifteenth century, trajectories diverged. The frequency of meetings went up (mostly) in northwestern Europe (in England, Scotland, the Netherlands, and Sweden, as well as in Switzerland) but declined in southern and central Europe. These trends were correlated with economic progress proxied by urban growth. Moreover, domestic conflict over rights was often driven by parliaments: in the Netherlands in the 1570s, Bohemia in 1618, Spain in 1640, England in the 1640s and 1688, America in the 1770s, and France in 1789. Outcomes differed depending on whether parliaments failed or carried the day.80

  The Netherlands was the trailblazer of the North Sea economy. By scaling up institutions first developed in Italian city-states, it created a flourishing credit market that soon shifted from Habsburg Bruges and Antwerp to free Amsterdam. Innovations such as letters obligatory (IOUs) and deposit banking coupled with falling interest rates made it easier to obtain and apply capital. Deeply entrenched traditions of urban citizenship that had grown out of medieval communalism provided a template for national citizenship and engendered trust, ensured tax compliance, and supported high levels of public debt.81

  Thus able to raise loans at lower rates than less trustworthy monarchs, the Dutch spent lavishly on the military for the sake of securing the interests of a commercial elite that dominated politics. They introduced mercantilist protections that were later emulated by England. From the late sixteenth century, economic growth was high by premodern standards, recurrent warfare notwithstanding. In fact, the frequency of conflict was strongly and positively associated with the urbanization rate and per capita GDP. At least for a while, the Netherlands was able to fight and get rich at the same time.82

  Yet in the end, smallness had its drawbacks. Early pioneers of economic development such as Venice and Genoa had boasted textile export industries, novel financial institutions, and integration into international markets, but in the long run proved incapable of competing with more powerful neighbors. In due course, Flanders lost out to the Netherlands, which was in turn eclipsed by England. Having held the latter at bay in a series of wars from the 1650s to the 1670s, the Dutch began to fall behind just as they had drawn England into their orbit in 1688.

  In the following years, they struggled—at punishing cost—to contain an increasingly domineering France. The abiding power of their cities, which prevented the formation of a unified ruling class, ultimately made it hard to adapt to changing circumstances. Meanwhile Britain, endowed with a more secure geographic position and a larger population than the Netherlands and united in a relatively homogeneous territorial state (de facto from 1603 and formally from 1707), took over as the North Sea region’s engine of growth.83

  “A Nation That Is Governed by Shopkeepers”

  POLITICS

  Many different factors conspired to turn England into the cradle of the Industrial Revolution. In chapters 11 and 12, I consider the significance of overseas trade and resources and the formation and application of human capital. Here, in keeping with the institutional focus of this chapter, I want to highlight three crucial and closely interrelated elements of the English and then British experience in the early modern period: law and politics, war, and mercantilist protectionism. Together, they created an environment that was singularly conducive to productive experimentation and sustainable economic development.84

  Independence—embodied in formal sovereignty as well as institutional autonomy—was paramount: without it, none of these three elements would have been present in a comparable manner. England successfully avoided absorption into larger imperial projects within Europe: the Carolingians never reached across the Channel, French intervention in 1216–1217 failed, and thanks to the Armada’s later defeat Philip II’s short-lived tenure as king of England (by virtue of his marriage to Queen Mary I from 1554 to 1558) remained inconsequential. The one time an invasion did succeed—by the Dutch in 1688—it ushered in more enlightened and business-friendly governance.

  England managed to escape Rome in three different ways. As we have seen, the fact that England had escaped most thoroughly from Roman imperial traditions helped it establish durable local units of government and political representation. Later, the break with papal Rome under Henry VIII made England a pioneer in creating a national church.

  In addition, England largely escaped from the renewal of the Roman legal tradition. In the Middle Ages it had shared in the spread of canon law. Yet from the sixteenth century onward, the monarch was the head of the church, and the standing of common law, as a collection of wisdom derived from earlier arbitration, was strengthened. In this context, the contrast between common law traditions, in which judg
es refereed among competing lawyers and layman juries, and continental courts, dominated by expert judges and prone to enhance top-down control by the central state, is worth noting.85

  As a safe haven, England benefited from receiving persecuted and often particularly skilled groups that exited rival polities on the continent. Financial innovation was boosted by successive waves of émigrés: starting with the expulsion of Sephardic Jews from Granada in 1492, this inflow peaked in the 1680s with the Huguenot exodus from France that was closely followed by the emigration of Dutch Jews and Protestant dissidents. Members of these communities had long been key players in international finance.86

  Sovereignty also helped England protect other features that arguably contributed to economic development, such as the superior physical and cognitive condition of workers that owed much to improvements in nutrition sustained by rising agricultural productivity, to job training, and to Poor Laws that helped feed the labor force. Independence ensured that all these benefits accrued to the English population: there were no countervailing modes of coercive redistribution—such as transfers to a distant imperial center—that could have interfered.87

  Thanks to its long history of post-Roman political integration, England was relatively cohesive and its elite, centered on a national representative assembly, was likewise fairly unified. For a long time, this cohesion and political focus restrained rulers and facilitated collective action. England was an outlier in that its elected assembly did not merely survive the Middle Ages but grew stronger over time and more adept at balancing royal power. So did its corporate institutions.88

  The representation of merchant interest in the English Parliament played a crucial role in limiting royal power and expanding the protection of property rights. In the High Middle Ages, agency and information problems that beset royal revenue collection led to mutually beneficial agreements (“farm grants”) whereby merchant towns obtained the right of self-administered tax collection and enforcement. Such grants became stepping-stones toward representation once Parliament had been set up at the end of the thirteenth century.