CHAPTER 2

THE PRE-INDUSTRIAL ECONOMY

Rey Juan Carlos University
Instructor Benito Cadenas
PRE-INDUSTRIAL ECONOMY
LEARNING OBJETIVES
 Analyze the population and the Demographic Tendency

 Explain the Economic Structure

Understand the limits of the demand and the supply, plus the the roll
of the State
PRE-INDUSTRIAL ECONOMY
OLD DEMOGRAPHIC REGIME
• High levels in death and birth rates

• Existence of some mechanisms that regulated the natural growth

 Malthusians limitations. (Famines, Wars y diseases).

 POPULATION AND THE DEMOGRAPHIC
TENDENCY
• Epidemic diseases. Black Death 1347- 1352

• Wars. War of the 100 years

• Famines
OLD DEMOGRAPHIC REGIME
• During the XVth century population in Europe was 70 millions,
reaching 105 millons in XVII.

• This increase in the population was not uniform

• Which was the reason for this uniqual growth?

OLD DEMOGRAPHIC REGIME
• Population moved from rural areas to the cities

• This was a difficult situation for certain groups

• Decrease in real wages

THOMAS ROBERT MALTHUS (1766-
1834)
• Essay on the Principle of Population (1798)

• Earth resources would not satisfy the demands of a growing

population

• This presure over the limited resources, would mantain human beings
in subsistence levels
MALTHUS LAWS OF NATURE
• FIRST LAW: Population tends to increase geometrically

• SECOND LAW: Food production (resources) tends to increase only

arithmetically

• Which would be the combination of the two laws?

FEATURES OF THE PRE- INDUSTRIAL
ECONOMIES

• Agriculture as the main sector

• Economies with low productivity

• The weight of the industry was small

• National markets were underdeveloped.

ECONOMIC STRUCTURE AND
STRUCTURAL CHANGE
Economic Structure deals with the relationship among the various
sectors of the economy

Primary
Secondary
Tertiary
ECONOMIC STRUCTURE % of GDP WORLD
BANK 2013

GDP per capita Agriculture Industry Services

USA 50.610 1 20 79

GERMANY 41.890 1 28 71

CHINA 9.060 10 47 43

ETIOPIA 1140 46 11 43
ECONOMIC STRUCTURE AND
STRUCTURAL CHANGE

• Until less than a century agriculture was the principal occupation, this
was because of the low productivity.

• Structural change is the shift in the proportion of labor force

employed and of income originated.

• What explains this structural change?

AGRICULTURAL TECHNOLOGY AND
PRODUCTIVITY
• Existence of regional diversity

• Manual labor was by far the most important factor of production

• Productivity is measured by units of land or labor

THE CASE OF THE NETHERLANDS
• First economy with a modern agriculture

• The key for this success was because of the specialization

• Why didn’t the neighbours do the same?

INDUSTRIAL TECHNOLOGY AND
PRODUCTIVITY

• Innovation took place continuously, but a very slow pace

• Greater market orientation in the industry than in agriculture.

• There were many obstacles to innovation

LAND OWNERSHIP
• In Spain land was owned by fiew. They hired the parcels for a short
period of time

• In other parts of Europe the ownership of the land changed

• Leases for long periods, where peasants took there own decisions
(different levels)
WEAKNESS OF THE DEMAND AND THE
SUPPLY
• The low levels of production in the agriculture and industry was
because of underdevelopment of the factors

• Types fo energy and social structure didn’t help

• The main cause for the weak demand was the low income and the
unequal distribution
SOME RELATED DATAS
• XV-XVII, 7-10% of the population of some cities had 53-66% of the
wealth (Andreu et al.2008).

• 5% to 20% of the population was composed by beggars

• 80% of the income was used for food.

THE ROLE OF THE STATE
• Did the State promote economic growth in the Middle and Modern
Age?

Libertarians

 Government intervention
THE ROLE OF THE STATE
• Hintze and Heckscher (1929). Consecuences of the rivality between
States.

• Rostow et al. 1980. The concurrence of the States was essental for the
economic development in Europe

• North y Thomas.They focused on issues related with property rights

and exchange
THE ROLE OF THE STATE
• The weight of the State was small in the Preindustrial era if we
compare it with the XIX century, but increasing.

- As a regulator of the economy and tax collector

- As an applicant and offerer of goods and services

References

Cameron and Neal (2003): A concise Economic History of the World. Oxford University
Press.

Mark Skousen (2009): The Making of Modern Economics. The Lives and the Ideas of
the Great Thinkers. Armonk, New York 2nd ed.

Robert C. Allen (2011): Global Economic History. A very Short Introduction. Oxford
University Press

Todaro, M. Smith, S. (2009): Economic Development. Addison Wesley