ECONOMIC CRISES
ECONOMIC CRISES. Historians have identified many types of economic crises in the early modern or preindustrial period: financial, general long-term crises, regional, the permanent crises of lower-class poverty, and short-term crises of famine or of famine combined with temporary unemployment. The financial crises, often set off by governmental bankruptcies, destroyed banking houses but rarely caused generalized distress unless they coincided with other troubles. The Spanish bankruptcy of 1559 ruined the Fuggers of Augsburg, and the bankruptcy of 1575 destroyed Genoese bankers, while the Spanish bankruptcies during the Thirty
Years' War (1618–1648) amplified the economic dislocations that flowed from the war itself, the 1630 plague, and so on.
Historians once argued that preindustrial western Europe experienced at least two general economic crises, the first in the fourteenth and early fifteenth centuries in the era of the Black Death, and the second in the seventeenth century. These periods of economic dislocation, stagnation, and even contraction alternated, so it seemed, with eras of rapid and generalized demographic and economic growth in the thirteenth, the sixteenth, and the eighteenth centuries. Thomas Malthus, in An Essay on the Principle of Population (1798), expressed a common view when he stated that population tended to outstrip the available food supply and was brought back into balance only by war, famine, and disease.
It now seems clear that rather than alternating between periods of growth and periods of crisis in the centuries from 1300 to 1800, the economy of western Europe as a whole experienced a self-reinforcing process of growth in agricultural and industrial production, in commerce, in transportation, in banking, and in capital accumulation. There were significant technological improvements in shipping and in textile production, cost savings through division of labor in all sectors of the economy, very significant growth in total agricultural production, and so forth. The results were certainly not uniformly distributed across all of Europe, nor even within individual countries. There were marked regional contrasts. The cities of the densely urbanized and economically advanced Netherlands imported grain from less economically advanced and diversified regions such as northern France, Prussia, and
Poland. The cities of northern Italy imported grain from southern Italy, Sicily, and North Africa. Wine flowed to northern Europe from the Mediterranean, while grain and salted fish flowed to southern Europe from the Baltic and the North Sea. For centuries, England supplied the more advanced textile cities of the Netherlands with wool, just as Spain supplied the textile cities of northern Italy. But there were also very backward areas in virtually every region of Europe that had at most modest local trade. Peasant villages in much of the French Massif Central often lived in virtual economic isolation even in the eighteenth century.
International trade linked together not only areas with different agricultural capacities, but also areas with significant differences in technology, wages, labor productivity, and general levels of development. Changes in textile production and commercial leadership in international trade shifted quite suddenly and produced dramatic regional crises of economic dislocation and adjustment. The prosperous cities of Flanders that produced luxury textiles collapsed in the early fourteenth century. A more diversified textile industry developed farther east, near Antwerp. Antwerp and Brabant developed into a powerhouse of international trade and finance in the fifteenth and sixteenth centuries, but collapsed during the Dutch Revolt in the 1580s. Antwerp fell from the foremost city of trade and finance in northern Europe to a virtual ghost town overnight in 1585. Leadership passed to Amsterdam. Likewise, the implosion of the economy of the cities of northern Italy during the Thirty Years' War led to massive deindustrialization and even refeudalization. At the end of the seventeenth and the beginning of the eighteenth century, Amsterdam and the Dutch provinces lost ground to England. In every instance there were multiple causes for these economic crises: warfare, rigid guild restrictions, technological changes in textile production, wage differences, the costs of transportation, changes in the makeup of the market, and others. The collapse of areas that had long enjoyed prosperity ushered in times of painful change. It was these extremely difficult phases of regional economic adjustment that historians once mistook for generalized crises in the fourteenth and seventeenth centuries.
Whether a given country or region was at the forefront of economic performance, toward the bottom, or somewhere in between, all experienced to a greater or lesser degree the intractable problems of unemployment, underemployment, periodic famines, and food riots. Preindustrial Europe lived in a state of permanent economic crisis that was rooted in generalized and massive lower-class poverty. There was no necessary correlation in Europe in the centuries from 1300 to 1800 between increases and decreases in population, in agricultural production, and in employment opportunities at living wages. Although progressive and self-reinforcing trends stimulated economic growth and development, these progressive forces were not sufficient to guarantee all a comfortable existence.
Those who lived in preindustrial Europe were well aware that something was amiss, and not just in the times of major economic crisis. Population, food, and jobs never seemed to be in balance even when times were good. The cities of northern Italy, most notably Florence, Milan, Venice, and Genoa, took on the financially and administratively onerous task of public food supply in the full flush of prosperity between 1280 and 1340 because markets left to themselves did not provide sufficient food at affordable prices. Public municipal granaries with the full array of price controls, public purchase, and stocking of grain were permanent features of urban life in northern Italy between 1300 and 1800, in good times and in bad. Cologne, Strasbourg, Nuremberg, and Frankfurt am Main established their municipal granaries in the fifteenth century and maintained them thereafter. The municipalities of Castile expanded and consolidated their elaborate food supply systems in Spain's Golden Age, the sixteenth century. The kingdom of Prussia established its public granaries in the eighteenth century.
In the first half of the sixteenth century, municipal governments in Catholic and Protestant states, driven by fear, compassion, and the supreme necessity of maintaining order, aggressively organized charitable institutions to care for the poor and the hungry. In England, Queen Elizabeth regularized a national system of welfare at the end of the sixteenth and the beginning of the seventeenth century that made each parish responsible for its own poor and authorized a system of local taxes, the poor rates, to finance charity. In the wake of a particularly wrenching era of famine, disease, and unemployment that coincided with the Fronde (1648–1653), the monarchy
in France established general hospitals to incarcerate the incorrigible poor. A little more than a century later, in the 1760s and 1770s, in far better economic times, the French monarchy established charity workshops for the able-bodied unemployed and poorhouses for the incorrigibles. Even a country as economically dynamic as England in the century before the industrial revolution, 1650–1750, still had at least a quarter of its total population mired in irremediable poverty.
To ensure public order, something had to be done to provide jobs and to secure food at affordable prices. The debates grew shrill, and governments became desperate. No matter what they did between 1300 and 1800, the problems would not go away. From the middle of the seventeenth century, mercantilist writers in England and cameralists in Germany encouraged governments to intervene in the economy with state-owned factories, subsidies, monopolies, and other mechanisms to increase national wealth and to provide work for the poor. Everywhere governments regulated the supply and the sale of basic grains and bread. After a century of experimenting with controls of all sorts to no avail, learned opinion swung in the opposite direction. From the mid-eighteenth century, the Physiocrats in France lashed out against mercantilist controls and coined the phrase "laissez faire." In the British Isles, Adam Smith launched a full-scale attack on mercantilism in his free-trade classic, Inquiry into the Nature and Causes of the Wealth of Nations (1776). But the experiment in free trade failed to solve the food supply problem, just as it failed to provide adequate jobs for the poor. Grain riots broke out all over Europe in the 1760s and 1770s. In 1788–1789, the collapse of the monarchy in France coincided with a famine and a general depression in employment in the textile industry. The French Revolution began with the most extensive wave of municipal bread riots and rural uprisings in French history. From the 1790s, most governments returned to food supply controls and employment schemes.
The most wrenching and volatile economic crises of the preindustrial period were famines, and especially the famines that occurred in the midst of commercial and industrial depressions. Famines came in the wake of bad weather that significantly reduced crops. They occurred at every level of population and agricultural development, in economically advanced as well as economically backward areas, in regions that regularly exported grain as well as in areas that regularly imported it. The crises of the 1340s, 1360s, and 1430s, as well as the crises of the 1590s, 1648–1652, the 1690s, the 1760s, and the 1770s revealed permanent, structural imbalances in preindustrial economies and societies, not just weaknesses in agriculture.
The fundamental problems were those of widespread poverty and economic underdevelopment, compounded by insufficiently advanced governments. Labor productivity among the semiskilled and unskilled workers was very low because of low levels of technology in the jobs the masses performed. Low labor productivity meant low wages. The numbers of landless, working poor increased dramatically between 1500 and 1800, and the sheer numbers of available workers depressed wages further. The entire preindustrial economy depended on the low-wage labor of the working poor. In good times, the working poor spent 60 percent or more of their incomes on basic foodstuffs, typically cheap bread, beans, peas, maize, buckwheat, and, increasingly, potatoes. Average or effective demand for these basic foodstuffs moved up and down with long-term trends in population and income but changed little in the short term. In the event of a significant crop failure, prices rose dramatically, less in the eighteenth century than earlier, thanks to improvements in administration and transportation, but still enough to make food unaffordable for the working poor. If the famine coincided with a downturn in the textile industry, additional millions had no income at all. Municipal governments did a better job than central governments in securing adequate supplies at affordable prices. Often rural areas were stripped of food supplies, and their inhabitants were left to riot and starve.
Governments did not understand fully the economic mechanisms at work. They addressed the immediate problems by attempting to secure adequate supplies at subsidized prices and by moving vigorously to restore order. More generally, they encouraged agricultural improvement and did what they could to promote employment and discourage idleness. The results were invariably disappointing.
The only way out was through generalized economic development. Across-the-board technological innovations raised labor productivity and eventually raised wages for the lower classes. With higher wages, the working poor improved their diet. The consequent changes in effective demand transformed agricultural production. Cheap breads grew to be less important in lower-class diets, and food expenditures bulked less large in budgets. Eventually, a significant shortfall in grain production caused only minor inconveniences. In short, the way out of famine and poverty was the industrial revolution.
