Last time we saw that ancient societies were defined by the interactions of various social groups and the networks they created. Such groups, usually based on the family/kinship structure, were created to overcome the limitations which arose from the lack of government institutions that we take for granted in our modern, market-oriented societies. In pre-modern society, business was conducted mainly “by reputation.” This presented certain problems, as Randall Collins notes in Sociological Insight:
…the fact is that successful business contracts are a relatively recent innovation. Business dealings in traditional societies were carried out either in a highly ceremonial and distinctly noneconomic fashion or else with a high level of suspicion.
On the one hand, there were traditional systems of trade between particular families, or ceremonial objects, which circulated among different tribes in a prescribed manner. Here there was plenty of trust but little real economic calculation. A certain household had to deliver a basket of yams to their in-laws on a certain festival day and received a basket of fish upon the birth of a child.
It was this sort of tradition that made up much of tribal economics and not really buying and selling; there was no encouragement at all to increase productivity or devise new products.
On the other hand, in societies like medieval Europe or China, there were real economic transactions. Long-distance traders would arrive with goods that were produced not for subsistence but in order to make a profit.
This constituted a real market; but since the partners to transactions were strangers to one another, they carried out their dealings with a high degree of suspicion on both sides. Everyone wanted to have goods in hand before they delivered the cash, and no one in their right mind would have extended any kind of credit without taking extreme precautions. It is for this reason that ancient and medieval societies around the world could not produce a modern-style capitalist society. [1]
The word company gives us an idea of this. We previously noted the power of sharing a common meal. The word company comes from the Italian com + pagnia, meaning literally “with bread.” That is, the company was the people you broke bread—i.e. shared a meal—with. Outside of that narrow circle of familial relationships, the bonds of trust were just too weak to conduct large-scale business operations in the ancient world.
Groups such as guilds were created as a means of overcoming these limitations. While Hans the individual merchant might be irresponsible, the word of the merchant guild is unassailable. While Lars the cobbler’s credit might be shaky, the credit of the Banco di Rialto is solid and credible. This allowed medieval commerce to take place at much larger scales, as Felix Martin notes when describing Bills of Exchange:
…there was, by definition, no sovereign authority to coordinate commerce between countries, and no sovereign money with which to transact. So it was here, in the international sphere, that banking’s potential to accelerate the commercial revolution was first fully realised. The central innovation was the perfection, by the mid-sixteenth century, of the system of “exchange by bills”: a procedure for financing international trade using monetary credit issued by the clique of pan-European merchant bankers, denominated in their own abstract unit of account, recorded in bills of exchange, and cleared at the quarterly fair of Lyons…
An Italian merchant wishing to import goods from a supplier in the Low Countries could purchase a credit note known as a bill of exchange from one of the great Florentine merchant houses. He might pay for this note either in the local sovereign money or on credit. By buying such a bill of exchange, the Italian merchant…transformed an IOU backed by only his own puny word for one issued by a larger, more creditworthy house, which would be accepted across Europe. He transformed his private credit into money…[2]
We previously saw that there were four different types of guilds, the two most important ones being the merchant guild and the craft guild. So what caused the downfall of the guild system? Well, from what I can tell, there were several major decisive factors which came to head in the sixteenth century:
1) The needs of long distance trade and the development of transnational markets and banks. That is, guilds could not scale. The scale of commerce in the later Middle Ages became trans-national, even global. Merchant guilds, by contrast, were confined to a single territory specified in their charter. When you have a large volume of goods flowing to-and-fro all over the European continent and beyond, there is just no way a single craft or merchant guild can assert control over such an international trade. Just like today, the free mobility of capital undermined local labor solidarity. As historian Henri Pirenne put it, “It is capital which rules in inter-local commerce, which determines the forms of credit, and which, fastening itself on all the industries which produce not for the city market but for exportation, hinders them from being controlled, as the others are, by the minute regulations which in innumerable ways cramp the activity of the craftsmen.”
A new range of financial instruments came into being making this possible, as we saw above with bills of exchange.
A number of significant innovations in business methods, developed in medieval Italy–commercial credit, double-entry bookkeeping, maritime insurance, the transfer of funds by bills of exchange and letters of credit–were by the beginning of the sixteenth century united in a powerful combination that bankers and businessmen could use to forge enterprises on a scale previously unheard of.
In certain industries the old guild organization had long since lost its original character. Even in the Middle Ages the weavers of Flanders, subject to the putting-out system, were little more than factory workers whose “factory”-their own hovels-was scattered through the town. The proprietors of such “factories” held in their hands the direction of both the production and commercial sides of the business. [3]
The major commodity traded over long distances was cloth. Of the three major necessities: food, clothing and shelter; only cloth was nonperishable and easily transportable (save for a few foodstuffs like wine and cheese). Thus, while most markets in the Middle Ages were local, cloth quickly developed into the first international market, with England playing a central part in it due to its highly-desired wool exports.
The history of English wool and cloth has a two-fold interest: it explains the origin of the wealth of England, and it illustrates, with peculiar clearness, the development of industry.
In the latter middle ages wool was the one important article of export from England, an article of which that country practically enjoyed the monopoly, so that its control formed a most powerful weapon of diplomacy, and its taxation was an easy resource for our kings.
But England was not content, thus, to furnish Europe with the raw material; its government made continuous and strenuous efforts to gain for it the manufacture also, and its measures succeeded. Cloth became “the basis of our wealth; “and at the end of the seventeenth century, woollen goods were “two-thirds of England’s exports.”
Still more interesting is the woollen industry from the point of view of the economist. Food and clothes are the two primary necessaries of human life, and play a correspondingly important part in social history. It is significant that the bakers and weavers stand side by side in the earliest notices of craft guilds in England. No one who is acquainted with mediaeval legislation needs be reminded of the care with which the public authorities supervised the sale of corn and bread.
But bread could only be made in comparatively small quantities; it could not be made for a distant or for a far-future market. This, of course, was equally true of all articles of food, before the creation of modem means of rapid transit; and since the division of labor is limited by the extent of the market, it was not in food that any considerable manufacturing development could take place.
With clothing material it was far different. A necessary, but a necessary which would “keep,” it was the very first article for the manufacture of which a special body of craftsmen came into existence. And from the first, a strong tendency towards further specialization showed itself among those employed in the industry. Wherever the conditions were favorable, especially in the supply of the raw material, the manufacture soon came to supply a more than merely local demand; and this not only encouraged that division of processes which had been early seen to be advantageous, but tended also to create a class of dealers as distinguished from the actual makers.
To these causes it was due that the woollen manufacture was the first to take the form of the guild, and the first to break through its limits; that it became the most widely spread of the “domestic” industries, and therefore that in which the factory system gained its most hardly-won and signal victory. [3]
As noted above, in cloth manufacture there were many, many steps between the procurement of the raw material (wool, cotton, linen, flax, silk, etc.) and the finished product. Thus, the concept of a single master craftsman making a bespoke item from scratch, and then selling and marketing that same product himself, was quite impossible in that industry. Which leads to the next blow to the guilds: 2.) The increasing division of labor. It was here, in the cloth industry, that the relationship between workers and employers first achieved something like it’s modern form – wages paid in cash for a specific amount of work in a specific amount of time, specified by the owner of the product.
This was best exemplified by the “putting out,” or domestic system of manufacture (Verlaggsystem). These were the first “independent contractors”—the ancestors of today’s Uber drivers. While labor was out in the fields, women were often at home tending to children inside the cottages. To earn extra money, they kept a loom in their quarters and spun cloth. In the down season of winter, often both sexes worked from the home for a cloth merchant for money wages. In the tug-of-war between the craft guilds and the merchant guilds, the merchant guilds—in the cloth trade, anyway—gained the upper hand.
Despite the outward rigidity of its economic system, the… Middle Ages proved extraordinarily dynamic and capable ….of growth. The merchant guilds, formed to represent…the purely trading classes, exhibited an aggressive vitality that led to their absorption or domination of the craft guilds that produced the merchandise they sold. Masters in many guilds grew rich and despite the guild regulations succeeded in controlling sizable manufacturing operations.
The outstanding example of this tendency toward big business in a world formally dedicated to small business is the development of the putting out system of textile production, especially in the wool-cloth manufacturing region of Flanders. Wool cloth was one of the great staples, almost the great staple, of medieval long-distance commerce…Perhaps beginning as a fill-in method of utilizing peasants’ time during winter months and other periods when field labor was slack, the putting-out system grew into an urban industry centered in Flemish towns that by the twelfth century had grown large and rich: Ghent, Bruges, Ypres, Arras, Lille, and others.
The Flemish wool manufacturer bought his fleece, usually from England, and ”put it out” to a weaver, who in his own house, with the aid of his family, spun and wove it into cloth and returned it to the manufacturer, who then either fulled and dyed it in his own establishment or sold it to be finished elsewhere. The form of putting out was a sale and a resale; the manufacturer sold the fleece to the weaver, and the weaver sold the cloth back to the manufacturer. In reality, however, the manufacturer enjoyed a highly advantageous position. He made a profit on the fleece sold to the weaver even if he never saw it again; if war interrupted the flow of commerce he was under no obligation to buy back the wearer’s finished cloth, or could buy it back at a low price. Though they worked at home, at their own pace, without being subjected to factory discipline, the weavers were as much at the mercy of the cloth merchants as if they were employees, and it is not surprising that history’s first strike was by the weavers of Douai, one of the principal Flemish towns, in 1245 [4]
With their international operations and dispersed employee base, the cloth traders became the first modern capitalists.
Yet the putting-out system represented a significant advance in the organization of production. The large quantities of cloth manufactured under it formed one of the main elements in the long-distance commerce between northwest Europe and the Mediterranean that flourished throughout the high Middle Ages. An international division of labor grew up by which undyed Flemish cloth, woven from English fleece, was sold to Italians who took it home to Florence and other cities to be finished and dyed and sold it in the Muslim ones of the Mediterranean. The Florentine wool finishers guild, the Arte di Calimala, named for Calimala Street in Florence where the craft centered, became renowned throughout the western world for the beauty and excellence of its products. The craftsmen of Calimala Street did no spinning or weaving whatsoever; the cloth came into their hands already woven, but mere wool cloth, and left Calimala Street a luxury commodity and a work of art.
Though Italy itself grew fleece, the sheep of the rocky Italian countryside did not compare with the longfleeced animals belonging to the great Cistercian monasteries in England’s Cotswold hills and Lincolnshire, which supplied the weavers of Ghent and Ypres. The Italians therefore preferred to buy the Flemish cloth, which formed the basis of the great Fair of Champagne, a year-round international market held almost continuously at one or another of four towns in the French province of Champagne, east of Paris. Thus, medieval Europe’s best export was a thoroughly international product involving English shepherds, Belgian weavers, a French trading center, and Italian merchants, dyers, finishers, and navigators.
There were many variations in putting out, and the old peasant household production. Putting out, and the old peasant household production survived in many places, but the great Flemish cloth ones developed a distinct industrial system dominated by a wealthy entrepreneurial class that in many respects foreshadowed the capitalist entrepreneurs of the Industrial Revolution. A sort of pre-industrial revolution was in fact effected by them, in which the craftsmen were subordinated to the control of men who acted solely as merchants and managers of production. [5]
The growing power of the international merchant turned workers, even guild-members, into employees dependent on large amount of capital for survival, as historian Fernand Braudel writes:
In the heyday of the guilds, they controlled the bulk of trade, labour and production. When economic life and the market developed, and the division of labour required new creations and distinctions to be made, there were of course many demarcation disputes. But the number of guilds nevertheless increased, in order to keep up with developments. There were 101 in Paris in 1260, under the strict supervision of the Provost of merchants, and the fact that there were a hundred trades indicates that there was already a high degree of specialization. New sub-divisions later appeared…The same process occurred in Ghent, Strasbourg, Frankfurt and Florence, where the woollen industry as elsewhere, became a collection of trades. In fact it would be true to say that the boom of the thirteenth century arose out of this newly-created division of labour as it proliferated.
But the economic upturn It brought was soon to threaten the very structure of the guilds, now endangered by the triumph of the merchants. From this violent opposition… there naturally emerged a civil war for control of power within the city…But the age of violent clashes was comparatively short and in the undeclared war that was to follow, the merchant eventually emerged victor. Collaboration between merchant and guild could never be conducted on a completely equal footing, since what was at stake here was the conquest of the labour market and economic domination by the merchant, not to say by capitalism.
The purpose of the guilds was to bring together the members of a single trade which they defended against all others, in quarrels that were often petty but which had an impact on everyday life. The eagle eye of the guilds was trained above all on the town’s market, of which every trade wanted its fair share. This meant security of employment and profit and ‘liberties’ in the sense of privileges. But money, the money economy and external trade – in other words the merchant – were now beginning to intervene in a process that was never simple….There were clear distinctions between different trades, between rich and poor within a given trade, and also between ‘mean streets’ often wretchedly poor, and certain others unusually privileged.Above the mass rose the profile of a whole community of money-lenders and merchants, Milanese, Venetian, Genoese and Florentine…one could hardly claim that this combination of merchants and shopkeeping tradesmen (shoemakers, grocers, mercers, drapers, upholsterers, coopers etc.) was already producing some form of micro-capitalism at its upper levels, but this seems quite probable.
The money was certainly there at any rate, showing that it could be accumulated, and that once accumulated it could play its role. The unequal struggle had begun: some guilds were to become rich; others, the majority, remained modest. In Florence, they were openly distinguished: the Arti maggiori and the Arti minori– already there was il popolo grasso and il popolo magro. Everywhere differences and disparities became more marked. The Arti maggiori progressively fell into the hands of the wealthy merchants, as the Arti system became no more than a way of controlling the labour market. The organization it concealed was the system known to historians as the Verlaggsystem or putting-out system. A new age had dawned.
In this system, there is a Verleger, a merchant who ‘puts out’ work: he provides the artisan with the raw materials and a part-wage, the remainder being paid on delivery of the finished product. The system appeared very early – much earlier than is usually reckoned and certainly by the time of the thirteenth century boom.
In the putting-out system, the master of a guild was often himself a wage, earner too. He was dependent on the merchant who provided raw materials, often imported from abroad, and who would afterwards handle the sale and export of the doth, fustians, or silks he had woven. In this way, all the sectors of craft life were touched, and the guild system was gradually being destroyed, although outward appearances were maintained. By obliging the craftsmen to accept his services, the merchant was imposing his choice of activity, whether in iron-work, textiles or ship building…[6]
The fact that wool production was so central to the English economy would actually determine the course of later economic history. With the weakening of feudal bonds after the Black Death, the international cloth trade beckoned to many as a much much more attractive proposition than being a serf. If one could flee to a town, where international trade was centered, and live there for a year and a day, all feudal bonds would be dissolved. Of course, familial bonds were dissolved as well, hence the “surrogate family” nature of the various guilds.
It seems that about the time of Henry VIII, England’s began to adopt what we today call an industrial policy–they wanted to develop a domestic cloth manufacturing industry instead of just being a raw materials exporter for French and Flemish merchants where the real money was made. In turn, a lot of native English merchants who did manage to make a pile of money in the cloth trade began to reinvest it back into the expansion of the raising of sheep for wool to ensure sufficient supplies of raw material. With the dissolution of the monasteries, Henry VIII unwittingly introduced a real-estate market, and a lot of that new real estate was subsequently bought up by merchants and turned into sheep runs. In turn, established landowners throughout England saw that growing wool for export was potentially more profitable than growing grain for the domestic market, especially since their were much less restrictions on the export and sale of wool than of grain. New farming techniques also made it more efficient, lessening the need for manual labor.
A lot of those deracinated farmers ended right back in the cloth industry, but this time, instead of weaving it in the comfort of their cottages alongside their familes part-time, they now worked in the new factories that were springing up alongside fast-flowing streams where water could drive the increasingly mechanized production process. So the putting out system eventually gave way to workers who became wage labor—the first proletariat. In time these factories would increasingly turn to cotton production for export markets, with cotton imported first from Egypt and India, and then later from the thirteen colonies and Dixie in the southern United States.
…despite the undoubted advantages possessed by capitalists even in the early eighteenth century, especially in directing manufacture to meet the special needs of the different markets, the domestic workers might have held their own for some time longer, for they were accustomed to eke out their industrial earnings in many cases by tilling a patch of ground in their leisure moments. But three blows fell upon them in rapid succession: the Agricultural Revolution introduced a new system of farming, and the rapid growth of enclosures deprived many of them of their patches of land and free pasture; the Mechanical Revolution during the latter part of the eighteenth century ruined first the spinners and then the weavers under the domestic system, who were able neither to compete with the cheaper machine-made products nor to buy the new machinery; finally, the French Revolution led to a long period of war, during which the domestic workers suffered from the resulting industrial crises, and, in common with the lower classes generally, were demoralised by the cruel charity of a badly administered poor law. [7]
3.) Over time, guilds became increasingly self-serving and oligarchical. While initially anyone could join, eventually the “ladder was pulled up” and the costs to join the guilds became onerous. Guilds became more about keeping people out of the trades than facilitating them. The guilds merged with the town governments and enacted burdensome rules and regulations to help themselves and handicap others (sound familiar?). This created a “two-tier” job market similar to today, but instead of protected union workers versus everyone else, it was guild members versus the industrial workers. And as more economic activity became done by “everyone else,” this lead to widespread resentment against the guilds and their privileges, even by the common folk. Even sources sympathetic to the guilds acknowledge that they eventually became increasingly corrupt, greedy, and self-serving, contributing to their downfall (as indeed happens to just about every human institution over time). In fact, it seems they may have been a victim of their own success:
In the fourteenth century the craft guilds of Europe may be said to have attained the height of their prosperity. But the privileges they had won by their mighty contests with the aristocracy were not destined to continue long in their possession. Supremacy weakened instead of strengthening them. When fighting the common enemy there was universal cohesion among the crafts. When victory perched upon their banners, disintegration began.
Many causes may be, and have been, assigned for the loss of the liberties they had gained. Internal dissensions may have assisted in their downfall. Their lack of appreciation for the necessity of their existence may have tended to their gradual decline. Numbers may have made them unwieldy and difficult to govern. Their desire to accomplish too much may have prevented them from accomplishing anything. But over all, and above all other causes the corrupting influence of money and power led to their final disintegration and gradual decline.
The overbearing spirit of the old craft guilds is everywhere apparent in the fifteenth and sixteenth centuries. It became common to require from an apprentice an oath that when his apprenticeship was ended he would not carry on his trade on his own account without the consent of the master. Large sums of money were exacted for purchasing the freedom of the guilds. The price exacted by the guild for binding an apprentice at length became so exorbitant that only the rich could afford to pay it. It increased from 10 to 20, 40, 60, 100, and finally, in 1720, 800 was demanded by the guildmasters for the freedom of the guilds. [8]
For example, in French guilds:
There was an aristocracy among workmen as unyielding as among the nobles against whom they waged a ceaseless warfare. The young artisan, anxious to turn his hand to a trade which promised him support and advancement, found his first step hampered by a host of preliminary conditions which were established by the union for the very purpose of discouraging young candidates. A ‘prentice, wishing to become a master workman, must first fabricate and present to the guild his chef-d’oevre, which was a completed article of the class manufactured by the workmen of the order to which he desired entrance. Sundry and other tests were required of the aspirants, all of which were int themselves just and proper, but the great injustice of the whole system lay in the fact that sons of members were absolved from any preliminary tests and were members by virtue of their parentage. Thus did the workmen in their own organizations reproduce the worst feature of an hereditary aristocracy which, as practiced by the nobles, they roundly denounced. [9]
There are, of course, parallels with the downfall of labor unions in our contemporary world. Unions became increasingly oligarchical and self-serving over time, with their leaders more and more concerned with their own benefits and status rather than their duties to members of the wider society, leaving themselves vulnerable to attack from capitalists determined to undermine them in the name of higher profits and more control over labor conditions.
I am also reminded of professional associations today with their ever-greater and more onerous requirements to enter the various skilled professions. Consider the AMA, the ABA, or my own association, the AIA. Every profession erects barriers to entry, insulating themselves from competition by scrappy upstarts. This usually starts for a logical reason—keeping incompetent practitioners out to protect the public, for example—but over time becomes self-serving and corrupt. Professions that used to open to everyone now require Masters degrees from expensive universities, for example. In the above paragraph one certainly sees the shades of “legacy” admissions to elite colleges and universities for the privileged and well-connected. Note that the “Classical Liberals” were not against government, nor against rules or regulations per se, but against corrupt rules and cronyism. This is all too often forgotten.
What this meant was that more and more work would inevitably end up being done outside the guild system, removing its relevance and making it an outmoded institution. Eventually, new products and methods led to the guilds’ irrelevance, and it just withered away. In a few trades—most prominently building and construction—guilds would morph into the earliest trade unions, but that’s another story.
This history can be generalized to a simple rule: if labor is divided, and the capitalists are united, the capitalists will always be able to break up labor solidarity, and with it, undermine working conditions. This was as true in fifteenth-century France as nineteenth century England as twenty-first century America.
4.) Much later came the mechanization of labor. Once labor was alienated from any particular craft, that labor could then be mechanized. This was the final death-blow to guilds, but it came much later in the process, long after guilds had already lost much of their membership and influence. And once again, the place this happened first was in the cloth industry. This meant that England was once again well-positioned to take the leading edge of the changes.
The spinning jenny and power loom heralded the way toward mechanization of production on an unprecedented scale. Those farmers displaced in favor of sheep-raising ended up working for wages in a factory owned by a capitalist. Once the genie of mechanization was out of the bottle, it took over more and more industries. As markets expanded, labor became more specialized. This culminated in the factory system of the production line and interchangeable parts.
The application of machinery to the arts of spinning and weaving revolutionised English industrial life. The textile industries had long been established in England, but neither the weaving of woollen cloth nor the more recent cotton and linen industries had undergone any striking development down to the middle of the eighteenth century. The wool used was largely of home production, but the cotton wholly and the linen largely came from other countries. The cotton cloth in earlier days was woven with a linen or woollen warp, for the cotton yarn spun by hand was too weak for the purpose. As has been already explained, the textile industries were largely carried on under the domestic system by the peasantry, but their hand labour was slow and the product not always of the best quality. The “spinner,” often the unmarried woman of the family (hence the word spinster), found it difficult to supply enough yarn for the weaver’s needs, and the problem was aggravated by John Hay’s invention of the “flying shuttle,” a contrivance which enabled one weaver to do the work of the two who were formerly required to weave the wider cloths.
The earlier mechanical inventions were more popular in the cotton trade, which being established around the unincorporated market-town of Manchester, was not so bound down by conservative traditions. The climate of Lancashire by its very humidity was the natural home of the cotton industry, and, despite its exotic character, the latter steadily drove out the earlier State-favoured woollen industry. However, Elay’s invention, which dated from 1738, was not widely used till it had been improved by his son Robert in 1760. A few years later James Hargreaves of Blackburn invented his famous “spinning-jenny,” by which a number of spindles could be worked at the same time by means of a belt and a treadle. Now the spinners could produce more yarn than the weavers could use, and at first they suffered from periodic spells of unemployment, until the cheapness of their product created the demand that could absorb the supply. In the meantime Hargreaves was so unpopular that he had to leave the district, and his machines were often destroyed by mobs.
However, his fate did not discourage others, and in 1769 Richard Arkwright, a Bolton barber, improved on an earlier suggestion and invented an improved spinning machine — the water-frame — worked by water power at first and later by steam. He too had to face unpopularity and the burning of his mill, but he persevered and by cleverly utilising and improving the ideas of others he made a fortune. One of his contemporaries was Samuel Crompton, who combined the inventions of Hargreaves and Arkwright in a machine called the “mule,” which enabled him to spin a much finer and stronger thread than before ; the thread produced by Crompton and Arkwright was now strong enough to be used for the warp, and pure cotton cloth became a possibility.
Fortunately for Lancashire, new supplies of raw cotton became available as required. Formerly cotton was imported from India and the East and to some extent from the West Indies. However, during the American War of Independence the Southern States had begun the cultivation of cotton on a large scale, and the output increased with the demand, thanks to the use of slave labour and abundance of land. In 1792 Eli Whitney invented a cotton gin which rendered it much easier to remove the seeds from the “ wool.” Down to the end of the nineteenth century it seemed that despite the abolition of slavery the United States would be able to supply Lancashire’s needs, but rival spinners sprang up in European countries, especially in Germany, and finally in India and Japan and the United States. The world’s cotton crop was also decreased by the ravages of the “boll-weevil” and other pests, while improved machinery increased the demand for raw material. In consequence a British Empire Cotton-growing Association has been formed under State patronage to increase the production of cotton, especially in the British African territories.
It is curious that the application of power to weaving was neither so early nor so successful. Dr. Edmund Cartwright invented the power loom in 1787, but even when two years later it could be driven by steam it made headway only by slow degrees. One reason was that steam engines were as yet few in number, but perhaps the more important reason was the fact that the labour supply made available by the improvements in tillage had already been attracted into the hand-loom weaving industry since improvements in spinning had made yarn more plentiful. The competition for work during the war kept wages at so low a rate that it was not profitable to introduce the expensive power loom. The latter certainly had advantages over the hand loom as to speed, ease of work, and uniformity of quality, but it had the disadvantage of not being suitable at first for weaving the finer kinds of cloth. It has been estimated that in 1813 there were only 2,400 power looms in use: by 1820 the number had increased to 14,000, but they probably employed not more than 7,000 girls as compared with the 240,000 workers at hand looms. However, during the nineteenth century the power loom was steadily improved, till at last the hand loom disappeared, except for a few special kinds of work. [10]
5.) As for where the merchant guilds first lost their influence, a new paper makes the case that the conditions came from a confluence of particular factors. Where they overlapped, the guild system was managed by contractual agreements among strangers rather than organized by craft and merchant guilds. Those factors were 1.) Access to the north Atlantic trade, 2.) Access to books due to the printing press, and 3.) Access to a reliable postal system. Where all of these factors first came together, the guild system was supplanted by local officials in favor of the growing power of international merchants and “free trade”:
…in the sixteenth century, the merchant guild system began to lose its significance as more impersonal markets, where traders could directly trade without the need of an affiliation, began to emerge and rulers stopped granting privileges to merchant guilds. The traders began to rely less on networked and collective institutions like merchant guilds, and directly initiated partnerships with traders who they may not have known well. For example, in Antwerp the domination of intermediaries (called hostellers) who would connect foreign traders declined. Instead, the foreign traders began to conduct such trades directly with each other in facilities like bourses…
For example, one of the first permanent commodity bourses was established in Antwerp in 1531, the first stock exchange emerged in Amsterdam in 1602, and joint stock companies became a promising form of organizing business in London in the late sixteenth century. The sixteenth century transformation was followed by the seventeenth century Dutch Golden Age, and the eighteenth century English Industrial Revolution. What made the Northwest region of Europe so different?
While the Northwest European region didn’t have a particular advantage over other regions in postal communication, it had an advantage in early diffusion of printed books. The Northwest European region was close to Mainz, the city where Johannes Gutenberg invented the movable time printing press in the mid fifteenth century…Such a high penetration of printed material reduced information barriers and improved business practices. I find that all cities where guild privileges declined or merchant guilds underwent reform in the sixteenth century enjoyed high penetration of printed material in the fifteenth century. Among cities within a 150km distance from a sea port, cities where merchant guilds declined or reformed had more than twice the number of diffused books per capita than cities where merchant guilds continued to dominate…
The combination of both the commercial revolution along the sea coast, especially the Atlantic coast, and the communication revolution, especially near Mainz, uniquely benefited Northwest Europe, as it began to attract traders who favored impersonal market-based exchange over exchange conducted via guild networks. Rulers began to disfavor privileged monopolies when they realized the feasibility of impersonal exchange and that they could have superior sources of revenue from impersonal markets. In the region, trade democratized, as more people could participate in business.
Regions like Spain and Portugal that benefited only from the commercial revolution of trade through the sea to Asia and Americas had low levels of printing penetration. In contrast, regions like Germany, Italy, and France benefited from the communication and print revolution but didn’t enjoy a bustling Atlantic coast. Thus, no other region enjoyed the unique combination of both benefits of the commercial and communication revolution.
How Markets in Europe Opened Up as Guild Monopolies Declined in the Sixteenth Century (ProMarket)
This Explains Why Modern Markets Developed Where They Did (Odd Lots Podcast)
The contrast between the German ports cities Hamberg and Lübeck is an exemplar of this:
Times became rocky for the Hanseatic system in the fifteenth century. This was in part due to the rise of the Dutch, who were once beneficiaries of trade with the Hanseatic but were now the league’s seafaring competitors. Before the arrival of the Dutch, almost all trade to and from the Baltic passed through Lübeck. Likewise, Hamburg benefited from being the sole major Atlantic port of the Hanseatic. The link between Lübeck and Hamburg was a crucial route for trade in the north. However, the Dutch began to trade with the Baltic by navigating around the Jutland peninsula and through the Sound (Øresund). Thus, the Dutch soon began to reach the Baltic shores without the need to visit Hamburg and/or Lübeck. This competition from the Dutch disrupted the two cities’ centuries-old domination over trade between the Atlantic and the Baltic.
How did the two cities respond? Differently. Lübeck responded to this competition with the Dutch by giving more privileges to its own merchants and by leading a persistent attempt to disrupt the Dutch trade through the Sound (which included taking part in the Dano Hanseatic War of 1426-35 and the Dutch Hanseatic War of 1438-41). In contrast, while Hamburg initially was an ally to Lübeck in its resistance to the Dutch (including in the two wars), it eventually began to diverge from its partner in the sixteenth century. Hamburg opened trade to all locals and non-locals, and instead of resisting this rising Dutch trade, it “adapted itself perfectly to the changing situation” and moved toward an open system of trade that welcomed diverse merchants. Thus, Hamburg internally reformed, and the centuries-old privileges that a few of its merchants enjoyed declined, especially in the sixteenth century. This made a difference…
A Tale of Two Cities: Hamburg and Lübeck (ProMarket)
Thus, it was here in Northwestern Europe and the Atlantic that old, tested rhythms of life were overthrown and the “Great Transformation” took place: money and self-regulating markets would come to control every aspect of everyday life:
…It took the creation of new bonds of trust to make [a modern contractual economy] possible. The rise of capitalism was certainly a shift away from the ultrasuspicious dealing of the Middle Ages. Businesspeople began to emphasize a slow, steady accumulation of small profits, repeated over and over again across many transactions, and that meant living up to the terms of their contracts. Long-term contracts began to replace the shady bargaining and one-shot deals of the medieval merchants.
It was this that made mass production practical. What good is it to have machinery turning out large numbers of items if there is no way of selling them? It is not industrial technology that made possible the modern economy, then, but this shift in the way in which business was carried out that made possible the technological developments of the industrial revolution. [11]
[1] Sociological Insight, pp. 19-20
[2] Money: The Unauthorized Biography, pp. 105-106
[3] Three phases of cooperation in the West p. 319
https://archive.org/details/threephasescoop01warngoog/page/n319
[4] Melvin Kranzberg & Joseph Gies; By the Sweat of Thy Brow, pp. 68-71
[5] Melvin Kranzberg & Joseph Gies; By the Sweat of Thy Brow, pp. 68-71
[6] Fernand Braudel; The Wheels of Commerce: Civilization & Capitalism Vol 2, pp. 315-317
[7] A Social History Of England Ed. 2 p. 249
https://archive.org/details/in.ernet.dli.2015.38292/page/n255
[8] The story of manual labor in all lands and ages p. 599
https://archive.org/details/storyofmanuallab00simouoft/page/n605
[9] The Story of Manual Labor, p. 206
https://archive.org/details/storyofmanuallab00simouoft/page/206
[10] A Social History Of England Ed. 2 pp. 260-262
https://archive.org/details/in.ernet.dli.2015.38292/page/n265
[11] Sociological Insight, pp. 20-21