The West gained an economic advantage over the rest of the world during the High Middle Ages. Somehow, the political and business environment helped to propagate a successful economy. It resulted in prolonged economic growth in the West, an advantage they held for centuries. But how?
The answer is competition. Competition between towns resulted in economic flourishing. Due to the structure of towns, citizens were free to leave under any circumstances. If they were dissatisfied for any reason, they could move to another town. Moreover, the close proximity between towns made travel even easier. That made it critical for town leaders to promote economic policies that resulted in prosperity. If a citizen was dissatisfied with the town, they would leave, shrinking the town’s tax base. Above all, towns needed to promote policies that helped free trade and economic prosperity.
As classical and Austrian economic theory suggests, there was a direct relationship between freedom and wealth in a town. Places with more economic freedom inevitably created more wealth. That wealth attracted more people, allowing that wealth to compound. Seeing the direct correlation between freedom and wealth, towns attempted to replicate the success they saw their competition engaging in. This phenomenon is called the demonstration effect. By using the basic logic of cause and effect, towns promoted more freedom within their jurisdictions to replicate the wealth that it created in other towns.
Decentralization also had a critical role in promoting prolonged economic growth. After Alaric burned Rome, there was no other continent-wide empire. The Byzantine Empire in Constantinople and Charlemagne’s empire were large in power, but their scope of influence was dwarfed by the Roman Empire. Nothing during the Middle Ages was comparable to the old Empire. Their size was limited. Though monarchies longed to recreate the power that existed under Rome, the decentralization in the West was a blessing in disguise because the various smaller governments protected the entire West from collapsing if one nation was invaded. In a way, decentralization in the West gave kingdoms safety in numbers. To quote Tom Woods, “The political fragmentation of Western Europe prevented single-stroke conquest.” If one kingdom fell, it had a minimal impact on the rest of the West. Though war was not uncommon, the overarching ramifications of war were mitigated by decentralization, enabling the West as a whole to continue engaging in free trade.
To conclude, three factors encouraged and sustained the abnormally long economic growth in the West: (1) Competition, (2) freedom, and (3) state decentralization. The prosperity the West experienced was the result of competition, freedom, and state decentralization. Modern policymakers would be keen to take note.
Asher Sisneros 