Title:

Comparing inter-urban transaction costs: capital and wheat markets north and south of the Alps, 1350-1800

Abstract:

How did inter-urban transaction costs evolve in pre-modern Europe? This paper answers this question with a focus on Italy and the Holy Roman Empire. For New Institutional Economics low transaction costs are the root cause of economic growth. High inter-urban transaction costs are often seen as a key cause of the economic decline of city-states vis-à-vis territorial states in pre-modern Europe. However, transaction costs are difficult to measure and so far research has mainly relied on the cost of public of borrowing as a proxy. Our previous paper (Chilosi, Schulze and Volckart 2018) found that differences in yields on urban debts were much larger within Italy than within the Holy Roman Empire. This paper extends the scope to cover the whole of Europe and the real economy. It looks at price gaps in wheat markets “cleansed” from transport costs and compare them with yields’ gaps. The data-set of yields include nearly 30,000 observations. The wheat prices are from over 300 cities. The preliminary analysis finds that for wheat prices inter-urban transaction costs both in Italy and the Holy Roman Empire were in line with the European norm. Across Europe transaction costs converged towards the British level in the late middle ages. These findings imply that urban autonomy falls short of explaining Italy’s long decline and did not prevent parts of the Holy Roman Empire to share in north Europe’s fortune during the second commercial revolution. Nevertheless, state formation can help explain why Italy and the Holy Roman Empire fell behind Britain, whose cost advantage for wheat prices (unlike yields) was rooted in the commercial economy of the middle ages. Comparison between wheat and capital markets cautions against extrapolating from financial markets to the real economy: we find no association between transaction costs in the two markets. We suggest two hypotheses: trade barriers were commodity-specific, and while monitoring costs were comparatively high in capital markets, the costs of discovering prices were particularly high in wheat markets.

Key words: transaction costs, capital and commodity markets, pre-modern economy, Europe

References: Chilosi, D., Schulze, M.S. and Volckart, O. 2018. Benefits of empire? Capital market integration north and south of the Alps, 1350-1800. Journal of Economic History.

Socioeconomics Research Seminar WS 2019/20