Monday, 11 April 2022

"Wealth invested in beauty": reinterpreting Renaissance Florence and the Little Divergence from GDP estimates of 1427 Tuscany

 Jan Luiten van Zanden and Emanuele Felice

The full paper can be read here

How wealthy, and how unequal, was pre-industrial Europe? And how rich was the South of Europe compared to the North Sea area: did the Little Divergence already start in the late Medieval Period? And if this was the case, what are the reasons for the decline, perhaps starting already in the XV century, of Italy?

These are the main questions we address in this reconstruction of the historical national accounts of Tuscany in 1427. It is based on one of the most detailed, extensive and probably reliable quantitative source available for Medieval Europe, the Florentine Catasto of 1427, which has accurate information on the composition, the occupations and assets of 61,123 households in Tuscany in that year.

According to our estimates, by the early XV century Tuscany was in per capita GDP, in real terms, only slightly above England (maybe less than 20%), and slightly less above Holland (maybe around 13%); this gap is much smaller than the one resulting from the Maddison project (in 1427 Centre-North Italy has a GDP per capita between 70 and 100% higher than Holland and England, in the same period).

In addition, in the process of creating a benchmark estimate of Tuscany’s GDP in 1427, we also learn a lot about the structure of its economy. In fact, our results point at a fundamental institutional difference, between Tuscany on the one side, and England and Holland on the other: the productivity gap between industry and services on the one hand and agriculture on the other hand in Tuscany was much larger than in England and Holland. Furthermore, in Tuscany contrasts between city and countryside are exacerbated by the large income streams from agriculture to the cities (and in particular Florence). This increases the income of the urban elite – which spends it on the conspicuous consumption that gives rise to the Renaissance – and depresses rural incomes.

These findings confirm an institutional explanation of Tuscan economic decline first put forward, in pioneering works, by Stephan Epstein, in the early 1990s, and later corroborated by several studies on the basis of different sources (such as those by Van Bavel, Cohn, Alfani and Ryckbosch, Alfani and Ammannati): Tuscany was characterized by high extractive rates in favor of the elite of capital city, to the detriment of the subdued cities and, most of all, of the countryside. This led to underdeveloped markets for labor and capital in the countryside, which sharply contrasts with what we know about Holland and England, where mobility of labor and capital was much higher. In Tuscany, these blockades to market functioning in turn resulted into very low productivity in agriculture, a high share of labor in agriculture and, arguably, lower economic growth. The high extractive rate by the capital elite also brought about a very high income per head in industry and above all in services, as compared to agriculture: this may also explain why, in spite of a small difference in per capita GDP, Tuscany boasted a much richer material culture with respect to England and Holland, as testified by the florescence of the arts in the capital city at that time: the surplus income was invested in beauty.

The peculiarity of Tuscany’s institutional pattern (with respect also to other Italian territories, such as Lombardy and Sicily) helps to understand the limitation of GDP estimates based on the indirect approach, as are the series available for pre-industrial Centre-North of Italy: these tend to be heavily based on a few sources and for specific sectors and territories. In this case, the real wages of the construction workers from Florence may not be a good proxy of the entire urban sector, for a fragmented economy where labor and capital were immobile as Tuscany was; let alone for the entire Centre-North of Italy. Moreover, when it comes to international comparisons and long-run historical series differences in purchasing power parities must be properly considered, as well as their changes through time.

Our conclusions may be a useful result for other ‘fragmented’ economies as well, and for historical estimates based on a few hypotheses over-extended through time and space: cautiousness is warranted, and should always be complemented by direct evidence when available. But we also point – very indirectly – to the paradox that the beauty of the Renaissance, the unmatched brilliance of its arts, was made possible by the highly uneven distribution of wealth and income that in the long run undermined the vitality of Tuscan economy and society.