Grantham G. (1999) Contra Ricardo: unexpected growth

Grantham George (1999) “Contra Ricardo: On the macroeconomics of pre-industrial economies”, European Review of Economic History, 2/2, 199-232.


The Classical Approach (Ricardian trap): “The narrative line of [European] history is driven by a sequence of exogenous productivity and mortality shocks that worked themselves out in time through the feedbacks between living standards and population density, in which periods of growth were succeeded by periods of contraction induced” by declining labour productivity.”

But what if: “far from being a consequence of persistent supply shocks, the long swings in Europe’s pre-industrial history can be plausibly represented as the result of endogenous fluctuations in the degree of market integration” (p.200).

Much more than expected

A number of elements allow the author to doubt that the pre-modern agricultural production capacities were as limited as it is often assumed by historian. On the contrary, supply seems to have been fairly elastic, demand on the other hand appear to be the issue (p.206).

An example : “The oxen were probably employed on large specialised farms and in road haulage. When the late Roman economy collapsed after 450, the market for large animals also collapsed, to the point where it no longer paid to breed them. In time heavy animals disappeared, to be replaced by smaller, less effective, but nevertheless economical stock suitable to the less commercialised circumstances of the ninth and tenth centuries” (p.207).

“The chief issue with respect to the canonical representation of European economic history in the agrarian age, then, is whether trade and scale economies were extensive enough to sustain large and persisting swings in production and productivity, and if so, whether the elasticity of agricultural supply was large enough to permit them to occur” (p.208).

Urban-rural linkage

“Lee (1993) finds that the real wage data do not support the hypothesis of a rapid homeostatic demographic response to random shocks in mortality and productivity. Instead of showing a pattern of relatively rapid movements in population damping the movement in real wages, the data instead reveal small movements in population and large swings in wages, which implies that the English agrarian economy was not dominated by Malthus’ positive checks.”

For instance, French and English farms before the 18th century sometimes reached a yield of 2 and punctually 3 tonnes per hectare (p.210). Theoretically, a much more important average productivity was well in reach of European farmers before 1750. Adoption of best practice could have sustained a much larger population (p.211). Betterment was labour- and capital-intensive, but accessible in terms of know-how. “The techniques had been around since the iron age” (p.212).

Market opportunities

Enhanced demand may have convinced the farmers to go the extra mile (capital and labour investment). Incentive may have originated in cities. The urban growth in Italy and Flanders implies a 0.25 productivity rise per year, or +100% from 1000 to 1300 (p.213). Urban demand could also trigger more specialized productions (pelts and high-quality barley in East Anglia). Clearly productivity was a function of the state of the market. Aggregate demand offered investment opportunities to farmers (p.214). “In short, even if they knew how to lower costs by expanding output, farmers in isolated districts were unlikely to take advantage of this knowledge because it was unlikely to be commercially profitable”.

Being next to a city: “Consider by contrast farmers endowed with the same technology but situated near a large town. Because they sell in the same market, the individual demand curves facing them are highly elastic. A farmer can thus sell as much as he can produce at prices that are unaffected by how much he supplies to the market. The pooling effect of a common market for regional food producers eliminates the impediment to growth imposed by imperfect competition. To the extent that the level of demand warrants, farmers can invest in better livestock, larger buildings, more intensive crop rotations, and even in legal proceedings undertaken to rearrange property rights and holdings in the interest of greater efficiency. Learning by doing of the kind hypothesised by Persson is also likely to be greater. The result is higher factor productivity.”

The advantages of specialization

Moreover, dense urban areas make for less volatile markets than sparsely populated regions. Compact farm localization also allowed to pool investments in infrastructure (an incremental process which could be sustained for several centuries and reach massive proportion, cf. Flanders) (p.216). In the developed parts of the continent, 1300 land transport costs were close from 18th century standards.

The level of specialization was essential to a region’s productivity; it also ensured the thickening of a given market (trade is easier and thus there were more buyers and more sellers) as a result densities increased. As these equilibria were self-sustaining, an economy could whether settle in a low level of specialization/low density equilibrium or in a high level of specialization/high density one (p.218-221).

This option between a high and a low equilibrium explains the high returns obtained at several periods (150 AD, 1300, 1750). At times, impressive industrial outputs were also reached. In the same way, massive trading networks developed over the years but were also absent for long periods (p.224).


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