Middle Age Economy
The economy mostly seen in the early middle ages was feudalism, Europes form of government
in the Middle Ages, was developed in the fifth century to meet the changing needs of the time. It
was based heavily on the honor system. The king had overall power, then the lord, then the
vassals, or landowners, and finally down to the peasants, known then as the villeins. The fiefs, or
estates, could be rented out to one vassal who would then rent portions of the fief to three more,
and so on. Each person would give their peer a fee (called the guild) and goods in return for
protection. As an old medieval saying states, “No land without the lord, no lord without the
land.” The system became outdated in the 1400s.
During the eleventh and twelfth centuries, Europe enjoyed an economic and
agricultural boom. A slight warming of the climate and improved agricultural techniques allowed
lands that had previously been marginal or even infertile to become fully productive. In the late
twelfth and early thirteenth centuries, however, the climate once again began to cool and
agricultural innovations could not maintain the productivity of frontier lands that again became
marginal or were abandoned entirely. The decreased agricultural output could no longer support
the same level of economic activity and, as early as the middle of the thirteenth century, the
economy was beginning to weaken. By early in the fourteenth century and continuing well into
that century, a declining population, shrinking markets, a decrease in arable land and a general
mood of pessimism were evidence of deteriorating economic conditions. This trend was far from
universal and it was certainly less severe in northern Italy. Also, north of the Alps, some
communities quickly rebounded and thrived on their commercial and manufacturing ventures.
Coventry, England, for example, flourished with its woolen cloth industry while Bruges, in
modern-day Belgium, was one of the major commercial centers of the North. In the early
fourteenth century, Florence’s textile industry and banking catapulted the city-state into the
forefront of European enterprise and, eventually, into the Italian Renaissance. Significant private
international banking and commercial ventures provided the foundation for many fortunes but
even they succumbed to the recession that began in the fourteenth century
With the increased economic activity of the Middle Ages, there was a growing need for money
exchange and the conversion of coins. Money changers were soon holding and transferring large
sums of money and extending loans to merchants. As the demand increased, so did the number
of services. Common financial activities came to include granting loans, investing, as well as
most of the deposit, credit and transfer functions of a modern bank.
A major obstacle to the growth of banks in the Middle Ages was the Church’s prohibition of
usury, the charging of interest on loans. As economic activity expanded, however, the papacy
became one of the first to insist that interest should be paid on investments made at a risk.
Because they were forbidden to hold land or engage in more “acceptable” sources of economic
enterprise, money changers in the Middle Ages were typically Jews. After the shift in Church
policy regarding usury, it became more acceptable to be a financier and attempts were made to
expel Jews from their commercial role.
The international luxury trade was centered in Rome during the Middle Ages. By the end of the
thirteenth century, Florentines, as papal treasurers and tax collectors, spurred Florence to become
the banking centre of Europe. Large numbers of families invested capital in commercial and
industrial developments. In the 1290’s, the Bardi and Peruzzi families had established branches
in England and were the main European bankers by the 1320’s. By 1338, there were more than
eighty banking houses in Florence with operations across Europe. The financial success of
Florentine banking activities led others to break the monopoly. During the fifteenth century,
municipal banks became established, including one at Barcelona in 1401 and one a few years
later at Valencia. One of the longest and most stable banks was the Bank of Saint George in
Genoa, established in 1407 by state creditors and run by a board of directors.
The greatest danger to Medieval banking was in granting loans to European monarchs to finance
wars. The use of mercenary armies and field artillery increased the costs of mounting military
operations. To finance these activities, rulers were often willing to repay loans at extremely high
rates of interest sometimes as high as 45 to 60 percent. Yet if they were unable to repay the
loans, they simply did not. Most of the bank failures of the late Middle Ages and Renaissance
were the result of large loans to rulers who refused to pay their debts. The Bardi and Peruzzi
banks suffered greatly when England’s monarchs refused to pay for loans acquired to finance the
Hundred Years’ War.
The first half of the fourteenth century saw Europe burdened by overpopulation and the
agricultural enterprises of northern Europe had reached the limits of their productivity. A
lowered standard of living for the peasantry resulted from the ongoing subdivision of their land
holdings or expansion into marginally productive areas. Poor weather in the early 1300’s created
meager harvests and mass starvation was the result in some areas, eliminating as much as 15
percent of the population. Warfare had been virtually continuous and pauses in major
international conflicts, such as the hundred years war were replaced with local confrontations.
The expansion of long-distance trade and commerce seen in the twelfth and thirteenth centuries
also began to dwindle at the end of the Middle Ages although some trade links, especially those
in the Mediterranean and in northern Europe, had become sufficiently well established to resist
shrinking markets. Trade continued across the Mediterranean from Venice, Florence and Genoa.
Italian trade diasporas also existed in the Byzantine Empire as well as dotting North Africa and
the Middle East. In northern Europe, the Hanseatic league dominated trade around the Baltic
and North Seas from the late fourteenth century. Innovations in commercial accounting also
continued to develop and double-entry bookkeeping spread from Genoa in the early fourteenth
century. While the arrival of the Black Death through ports and major trade centres tended to
restrict commercial contacts, trade links were not entirely severed.
The first sweep of the black death struck in 1347-1349, eliminating between one-third
and one-half of Europe’s population. Economic and social institutions were crippled by the
severe depopulation. The immense loss of life cut across all levels of society and had a profound
emotional effect on the survivors as outbreaks continued well into the seventeenth century.
The devastation wrought by the Black Death on the people of Europe created a severe shortage
of labour. Where land had previously been overworked in order to support large populations,
there was now an abundance of land for the survivors. The peasant and working classes were no
longer populous and were able to demand higher wages. Landlords, faced with the prospect of
crops rotting in the fields or idle machinery, had no choice but to pay the increased prices.
Caught between rising production costs and falling grain prices, many landlords rented out their
lands and, as more serfs became tenant farmers, manorialism came to an end. In the cities of
Europe, urban populations tended to recover more quickly from the plague than rural
communities. This led to large migrations into cities after plague outbreaks but many of these
immigrants remained unemployed. The gap between the rich and the poor widened as the elite
closed ranks to protect their holdings and positions. Close-knit and exclusive guilds were
organized by occupation to regulate workers and eliminate outside competition.
Attempts by the nobility and mercantile elite to legislate the wages and services of the
peasantry and to protect their market monopolies led to violent revolts that were often ruthlessly
suppressed. The French Jaquerie of 1358 was followed by the Florentine Ciompi revolt in 1378
and the English peasants revolt in 1381. Similar popular uprisings occurred in Germany, Spain
and the Netherlands. Still, the ruling classes managed to maintain their power. Slowly, the
economy began to recover from the devastations of the late 1300’s and early 1400’s, and by 1500,
the economic crisis had passed, setting the stage for the flourishing of the Renaissance.