Published by EH.NET (February 2003)
S. R. Epstein, Freedom and Growth: The Rise of States and Markets in Europe,
1300-1750. London: Routledge, 2000. 223 pp. $100 (hardcover), ISBN:
0-415-15208-9.
Reviewed for EH.NET by Karl Gunnar Persson, Institute of Economics, University
of Copenhagen.
Freedom and Growth is a carefully and densely argued book which
delivers new and important insights on the political conditions for
pre-industrial economic growth and the nature and historical evolution of an
efficient and modern state. The author, S.R. (Larry) Epstein is professor of
economic history at the London School of Economics. As a medievalist and early
modern scholar he works within a comparative approach and is free from the
constraints of ‘foreign language illiteracy’ sometimes found at British and US
universities. The book relies both on original research based on primary
sources and on an impressive list of secondary sources. The forty-page
bibliography lists everything worth looking at in the English, French and
Italian literature and a fair share of the German discussion.
Epstein’s new book is a contribution to a relatively new approach in
pre-industrial studies taking an explicit anti-Ricardian view. Recognizing that
the large regional income differentials in late medieval Europe and onwards
cannot be ascribed to differences in resource endowments and land constraints,
this new literature singles out rent-seeking, market imperfections and
coordination failures as an explanation for backwardness. It is suggested that
many economies operated below their capacity for long stretches of time.
Freedom and Growth offers a more sophisticated view of the impact of
political constitutions on solving coordination problems and permitting
‘Smithian’ growth, that is growth dependent on efficiency gains from spatial
specialization and division of labor. The outline of the book is presented in
Chapter 1.
In Chapter 2 Epstein takes issue with the prevailing ‘Whig’ interpretation of
political constitutions, which suggests that economic freedom and limited
government are the keys to economic growth. Not so, says Epstein: Good
government is not necessarily small government. The essential element for
growth is undisputed jurisdictional sovereignty over the realm both of economic
and political spheres. Smithian growth requires extension of and free entry to
markets but many pre-modern states, with parliamentary checks and balances or
not, were instead characterized by jurisdictional fragmentation. Regions and
cities, feudal lords and corporations asked for and obtained privileges. That
made tax collection difficult and costly and made barriers to trade pervasive.
Chapter 3 develops the critique of the Ricardian and Malthusian interpretation
of the medieval crisis suggesting instead that it was an ‘integration crisis.’
The main problems were the high costs of trade due to institutional regulation
and tariffs and the absence of social order due to endemic conflicts and
warfare. Political centralization was the response and the late medieval period
witnessed attempts to standardize coinage and measures facilitating trade. One
aspect of the regeneration of trade is explored in Chapter 4, which deals with
regional fairs. Epstein believes that this innovation was an efficient response
undermining established and privileged trading networks. The argument fits into
his general idea that the main problem of pre-industrial constitutions was the
debilitating impact of particular interests, but it is framed in a simplistic
functional form. The author suggests that the stability of the institutional
innovation is a proof of its efficiency but that argument cannot be generalized
to all stable institutions in the pre-modern period.
In Chapters 5 through 7 the focus narrows to different aspects of Italian
city-state relationships. Here Epstein relies on his own research. The
diversity of the Italian political landscape after the Black Death makes a
comparative analysis useful and the development of Lombardy, Sicily and the
Florentine republic are closely monitored. The Italian city-republics often had
accountable governments, which contributed to low interest rates of public debt
and, in general, a sophisticated financial system kept interest rates low for
the general public as well. By and large there was a declining trend in price
volatility of grain in Europe from 1300 to 1600, which in Epstein’s view stems
from political centralization that stimulated market integration. However, the
thesis that political integration precedes market integration must be
qualified, says Epstein. The relationship between a dominant city, say
Florence, and the other cities in the republic mattered. The city of Florence
acquired a privileged position in the food supply network of Tuscany which
delayed market integration compared to other regions, such as Lombardy. I am
not fully convinced that Epstein’s empirical evidence suggests a significant
difference between these two Italian provinces, however.
Chapter 8 concludes: “Prisoner’s dilemmas caused by decentralised rent-seeking
and co-ordination failures caused by jurisdictional fragmentation, posed the
most significant constraint on pre-modern growth.” Furthermore Epstein argues
that modern individualism developed with the modern state — that is a state
with a clear separation between the legislative, executive and judicial
functions and with full sovereignty.
Freedom and Growth will, I believe, have a lasting impact on the
analysis of early modern economic growth because it convincingly shows that the
economics of growth must incorporate the political economy of growth.
Karl Gunnar Persson’s most recent paper is “Mind the Gap! Transport Costs and
Price Convergence in the Nineteenth-Century Atlantic Economy,” (Discussion
Paper from the Institute of Economics, University of Copenhagen, 02-2002). His
most recent book is Grain Markets in Europe, 1500-1900, Cambridge
University Press, 1999.