An Economic History of Europe: Knowledge, Institutions and Growth, 600 to the Present – 2nd Edition Cambridge University Press, 2015

by Paul Sharp (University of Southern Denmark)

The purchase price of this book is discounted by 20 per cent until the 7th of June if bought online here

p5An Economic History of Europe by Karl Gunnar Persson and Paul Sharp is a textbook on European economic history, designed to be taught over one semester, and aimed mostly at economics undergraduates. The second edition is a substantial revision of the first from 2010 with updates to reflect changes since the global financial crisis as well as the latest research. Although it is primarily aimed at students, it is also accessible to wider audiences looking for an easy introduction to the story of European economic development.

Economic history is first defined as the study of how mankind has used resources to create goods and services to meet human needs over time. As the subtitle suggests, the efficiency with which this is done depends on knowledge, i.e. the ability to produce more efficiently based on education and experience and embodied in technology, and institutions, which can both promote and obstruct the efficient use of resources. Thirteen propositions are laid out in the introductory chapter, the first of which sets the scene, proposing that economies that are richly endowed with resources are not necessarily rich but that economies which use resources efficiently are almost always rich irrespective of their resource endowment. Persson and Sharp then give a definition of Europe, noting (as illustrated in maps 1.1-1.3) that there has been a surprising continuity of the economic region of Europe from Roman times, through the Carolingian Empire of the ninth century, and to the present day European Union. It is argued that this is due to trade.

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The subsequent chapters argue that the slow record of economic growth which lasted for some centuries after the collapse of the Roman Empire and until the Industrial Revolution was based on a conflict between rival ‘Smithian’ and ‘Malthusian’ forces, as illustrated in figure 4.1. The latter describes the tendency of increases in economic productivity to be eaten away by population growth due to the constraints of an approximately fixed supply of land in a largely agricultural economy. However, as important institutions such as political order, money and markets re-established themselves in medieval Europe, increased population and urbanization led to division of labour, or specialization, promoting a slow growth of welfare based on skill perfection and learning by doing, giving slow technological progress. It was only with the birth of science that the pace of innovation speeded up sufficiently to allow for the demographic transition.

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Some countries moved to modern economic growth faster than others, however, and much of the reason for this is attributed to differences between institutions. Among copious examples of both ‘good’ and ‘bad’ institutions, it is emphasized that the length of time an institution has been present is not necessarily related to its benefits for economic performance more generally: bad institutions can linger due to the interests of a small, powerful minority. Money and banks get a chapter of their own. Their importance for a well-functioning economy is explored, although the risk involved with the use of fractional reserves (by which banks only have in reserve a fraction of their liabilities in terms of deposits) is also acknowledged, with periodic banking crises, such as during the recent Global Financial Crisis thus somewhat inevitable.

A major theme, with considerable relevance given the climate of today, is the importance of openness. This might be in terms of trade or ideas, although the two are often interrelated. It was fast technology transfer with the opening of world economies after 1850 that led to a process of economic convergence between countries which continues until today, although with setbacks during periods of protectionism and ‘globalization backlash’ in the 1930s in particular. The possibility of such catch up relies, however, on having an appropriate educational and institutional infrastructure. Moreover, it is also acknowledged that although trade will bring net gains, there will be winners and losers, and often during bad times, small groups lobby successfully for protectionist policies.

The remainder of the book examines such diverse themes as the choice of monetary policy regime (fixed versus flexible exchange rates) from the nineteenth century until today, arguing that widespread democracy seems to be difficult to reconcile with a fixed exchange rate policy because such a policy constrains domestic economic policy options. There is a discussion of the recent troubles within the Eurozone. The emergence and working of the Welfare State and the ultimate failure of the Eastern European planned economies are also touched on in the context of the death of the nineteenth century liberal economy after the Great Depression. It is speculated that world income inequality has probably peaked, and (with the rise of large developing countries such as China and India) will most likely now begin to decline, as more nations get the institutional infrastructure needed for technology transfer. Finally, the challenges of globalization are taken up.

 

Karl Gunnar Persson sadly passed away in 2016, but his former PhD student Paul Sharp is working on a third edition of the textbook.

To contact the author: pauls@sam.sdu.dk