The Great Depression of the 14th Century

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This article
is excerpted from An
Austrian Perspective on the History of Economic Thought, vol. 1,
Economic Thought Before Adam Smith
.

Most people
– historians not excepted – are tempted to think of economic
and cultural progress as being continuous: in every century people
are better off than in the one preceding. This comforting assumption
had to be given up quite early when the Dark Ages ensued after the
collapse of the Roman Empire. But it was generally held that after
the "renaissance" of the 11th century, progress in western
Europe was pretty well linear and continuous from that point to
the present day. It took heroic efforts over many decades for economic
historians like Professors Armando Sapori and Robert Sabatino Lopez
to finally convince the historical profession that there was a grave
secular decline in most of western Europe from approximately 1300
to the middle of the 15th century; a period which might be called
the Late Middle Ages or the Early Renaissance. This secular decline,
mistitled a "depression," permeated most parts of western
Europe with the exception of a few Italian city-states.

The economic
decline was marked by a severe drop in population. Since the 11th
century, economic growth and prosperity had pulled up population
figures. Total population in western Europe, estimated at 24 million
in the year 1000 AD, had vaulted to 54 million by the year 1340.
In little over a century, from 1340 to 1450, however, the western
European population fell from 54 million to 37 million, a 31 percent
drop in only a century.

The successful
battle to establish the fact of the great decline has done little,
however, to establish the cause or causes of this debacle. Focus
on the devastation caused by outbreaks of the Black Death in the
mid-14th century is partially correct, but superficial, for these
outbreaks were themselves partly caused by an economic breakdown
and fall in living standards which began earlier in the century.
The causes of the great depression of western Europe can be summed
up in one stark phrase: the newly imposed domination of the State.
During the medieval synthesis of the High Middle Ages there was
a balance between the power of Church and State, with the Church
slightly more powerful. In the 14th century that balance was broken,
and the nation-state came to hold sway, breaking the power of the
Church, taxing, regulating, controlling and wreaking devastation
through virtually continuous war for over a century (the Hundred
Years’ War, from 1337 to 1453).1

The first and
critically most important step in the rise in the power of the State
at the expense of crippling the economy was the destruction of the
fairs of Champagne. During the High Middle Ages, the fairs of Champagne
were the main mart for international trade, and the hub of local
and international commerce. These fairs had been carefully nurtured
by being made free zones, untaxed or unregulated by the French kings
or nobles, while justice was swiftly and efficiently meted out by
competing private and merchants’ courts. The fairs of Champagne
reached their peak during the 13th century, and provided the center
for land-based trade over the Alps from northern Italy, bearing
goods from afar.

Then, in the
early 14th century, Philip IV, the Fair, king of France (1285–1314),
moved to tax, plunder, and effectively destroy the vitally important
fairs of Champagne. To finance his perpetual dynastic wars, Philip
levied a stiff sales tax on the Champagne fairs. He also destroyed
domestic capital and finance by repeated confiscatory levies on
groups or organizations with money. In 1308, he destroyed the wealthy
Order of the Templars, confiscating their funds for the royal treasury.
Philip then turned to impose a series of crippling levies and confiscations
on Jews and northern Italians ("Lombard’s") prominent
at the fairs: in 1306, 1311, 1315, 1320 and 1321. Furthermore, at
war with the Flemings, Philip broke the long-time custom that all
merchants were welcome at the fairs, and decreed the exclusion of
the Flemings. The result of these measures was a rapid and permanent
decline of the fairs of Champagne and of the trading route over
the Alps. Desperately, the Italian city-states began to reconstitute
trade routes and sail around the Straits of Gibraltar to Bruges,
which began to flourish even though the rest of Flanders was in
decay.

It was particularly
fateful that Philip the Fair inaugurated the system of regular taxation
in France. Before then, there were no regular taxes. In the medieval
era, while the king was supposed to be all-powerful in his own sphere,
that sphere was restricted by the sanctity of private property.
The king was supposed to be an armed enforcer and upholder of the
law, and his revenues were supposed to derive from rents on royal
lands, feudal dues and tolls. There was nothing that we would call
regular taxation. In an emergency, such as an invasion or the launching
of a crusade, the prince, in addition to invoking the feudal duty
of fighting on his behalf, might ask his vassals for a subsidy;
but that aid would be requested rather than ordered, and be limited
in duration to the emergency period.

The perpetual
wars of the 14th and the first half of the 15th centuries began
in the 1290s, when Philip the Fair, taking advantage of King Edward
I of England’s war with Scotland and Wales, seized the province
of Gascony from England. This launched a continuing warfare between
England and Flanders on the one side, and France on the other, and
led to a desperate need for funds by both the English and the French
Crowns.

The merchants
and capitalists at the fairs of Champagne might have money, but
the largest and most tempting source for royal plunder was the Catholic
Church. Both the English and French monarchs proceeded to tax the
Church, which brought them into a collision course with the pope.
Pope Boniface VIII (1294–1303) stoutly resisted this new form
of pillage, and prohibited the monarchs from taxing the Church.
King Edward reacted by denying justice in the royal courts to the
Church, while Philip was more militant by prohibiting the transfer
of Church revenue from France to Rome. Boniface was forced to retreat
and to allow the tax, but his bull Unam Sanctam (1302) insisted
that temporal authority must be subordinate to the spiritual. That
was enough for Philip, who boldly seized the pope in Italy and prepared
to try him for heresy, a trial only cut off by the death of the
aged Boniface. At this point Philip the Fair seized the papacy itself,
and brought the seat of the Roman Catholic Church from Rome to Avignon,
where he proceeded to designate the pope himself. For virtually
the entire 14th century, the pope, in his "Babylonian captivity,"
was an abject tool of the French king; the pope only returned to
Italy in the early 15th century.

In this way,
the once mighty Catholic Church, dominant power and spiritual authority
during the High Middle Ages, had been brought low and made a virtual
vassal of the royal plunderer of France.

The decline
of Church authority, then, was matched by the rise in the power
of the absolute State. Not content with confiscating, plundering,
taxing, crushing the fairs of Champagne, and bringing the Catholic
Church under his heel, Philip the Fair also obtained revenue for
his eternal wars by debasement of the coinage and thereby generated
a secular inflation.

The
wars of the 14th century did not cause a great deal of direct
devastation: armies were small and hostilities were intermittent.
The main devastation came from the heavy taxes and from the monetary
inflation and borrowing to finance the eternal royal adventures.
The enormous increase of taxation was the most crippling aspect
of the wars. The expenses of war: recruitment of the modestly sized
army; payments of its wages; supplies; and fortifications –
all cost from two- to fourfold the ordinary expenses of the Crown.
Add to that the high costs of tax assessment and enforcement and
the cost of the loans, and the crippling burden of war taxation
becomes all too clear.

The new taxes
were everywhere. We have seen the grave effect of taxes on the Church;
on a large monastic farm, they often absorbed over 40 percent of
the net profits of the farm. A uniform poll tax of one shilling,
levied by the English Crown in 1380, inflicted great hardship on
peasants and craftsmen. The tax amounted to one month’s wages for
agricultural workers and one week’s wages for urban laborers; moreover,
since many poor workers and peasants were paid in kind rather than
money, amassing the money to pay the tax was particularly difficult.

Other new taxes
levied were ad valorem on all transactions; taxes on wholesale
and retail beverages; and levies on salt and wool. To combat evasion
of the tax, the governments established monopoly markets for the
sale of salt in France and "staple points" for English
wool. The taxes restricted supply and raised prices, crippling the
critical English wool trade. Production and trade were hampered
further by massive requisitions levied by the kings, thus causing
a drastic fall of income and wealth, as well as bankruptcies among
the producers. In short, consumers suffered from artificially high
prices and producers from low returns, with the king bleeding the
economy of the differential. Government borrowing was scarcely more
helpful, leading to repeated defaults by the kings and consequent
heavy losses and bankruptcies among the private bankers unwise enough
to lend to the government.

Originating
as a response to wartime "emergency," the new taxes tended
to become permanent: not only because the warfare lasted for over
a century, but because the State, always on the lookout for an increase
in its income and power, seized upon the golden opportunity to convert
wartime taxes into a permanent part of the national heritage.

From the middle
to the end of the 14th century, Europe was struck with the devastating
pandemic of the Black Death – the bubonic plague – which
in the short span of 1348–1350 wiped out fully one-third of
the population. The Black Death was largely the consequence of people’s
lowered living standards caused by the great depression and the
resulting loss of resistance to disease. The plague continued to
recur, though not in such virulent form, in every decade of the
century.

Such are the
great recuperative powers of the human race that this enormous tragedy
caused virtually no lasting catastrophic social or psychological
effects among the European population. In a sense, the longest-lasting
ill effect from the Black Death was the response of the English
Crown in imposing permanent maximum wage control and compulsory
labor rationing upon English society. The sudden decline of population
and consequent doubling of wage rates was met by the government’s
severe imposition of maximum wage control in the Ordinance of 1349
and the Statue of Labourers of 1351. Maximum wage control was established
at the behest of the employing classes: large, middle, and small
landlords, and master craftsmen, the former groups in particular
alarmed at the rise of agricultural wage rates. The ordinance and
the statute defied economic law by attempting to enforce maximum
wage control at the old pre-plague levels. The inevitable result,
however, was a grave shortage of labor, since at the statutory maximum
wage the demand for labor was enormously greater than the newly
scarce supply.

Every government
intervention creates new problems in the course of vain attempts
to solve the old. The government is then confronted with the choice:
pile on new interventions to solve the inexplicable new problems,
or repeal the original intervention. Government’s instinct, of course,
is to maximize its wealth and power by adding new interventions.
So did the English Statute of Labourers – which imposed forced
labor at the old wage rates for all men in England under the age
of 60, restricted the mobility of labor, declaring that the lord
of a particular territory had first claim on a man’s labor, and
made it a criminal offence for an employer to hire a worker who
had left a former master. In that way, the English government engaged
in labor rationing to try to freeze laborers at their pre-plague
occupations at pre-plague wages.

This forced
rationing of labor cut against the natural inclination of men to
leave for more employment at better wages, and so the inevitable
rise of black markets for labor made enforcement of the statutes
difficult. The desperate English Crown tried once again, in the
Cambridge Statute of 1388, to make the rationing more rigorous.
Labor mobility of any sort was prohibited without written permission
from local justices, and compulsory child labor was imposed in agriculture.
But there was continual evasion of this compulsory buyers’ cartel,
especially by large employers, who were particularly eager and able
to pay higher wage rates. The cumbersome English judicial machinery
was totally ineffective in enforcing the legislation, although the
monopolistic urban guilds (monopolies enforced by government) were
able to partially enforce wage control in the cities.

Notes

  1. The population
    decline was roughly uniform throughout western Europe, with the
    Italian population falling from 10 to 7.5 million, France and
    the Netherlands from 19 to 12 million, Germany and Scandinavia
    from 11.5 to 7.5 million, and Spain from 9 to 7 million. The largest
    percentage drop was in Great Britain, where the number of inhabitants
    fell from 5 to 3 million in this period.

This appeared
on Mises.org.

Murray
N. Rothbard
(1926–1995) was the author of Man,
Economy, and State
, Conceived
in Liberty
, What
Has Government Done to Our Money
, For
a New Liberty
, The
Case Against the Fed
, and many
other books and articles
.
He was also the editor – with Lew Rockwell – of
The
Rothbard-Rockwell Report
, and academic vice president
of the Ludwig von Mises Institute.

The
Best of Murray Rothbard

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