Capital-intensive Economy vs. Labour-intensive Economy

I was writing yesterday about startups and the startup ecosystem in Iasi and Romania in general, about the importance of the historical past as a way to understand the present, about Renaissance, Florence, the de Medici family and the importance of capital as a fuel of progress and great art.

This post can be considered as an addendum to my previous one.

I also mentioned yesterday about the feudal system and the feudal hierarchy: peasant, boyar, Voievode, foreign empire (the Voidevode usually being a vassal to some foreign power) with the peasants at the bottom of the chain and being dependent on their landlords. Well, it seems that, as weird as it might sound, one of the catalysts of progress was the Black Death.  Yes, the bubonic plague that caused swollen lymph nodes that turned black, hence the name – Black Death.

An important shift that was caused by the plague was the reverse from rent to wages: since the landlord was the owner of the land, the peasants had to pay a rent in the form of products, work or other kind of duties. The landlord also had some special rights over his subjects such as the le Droit du seigneur or jus primae noctis which allowed the lord to sleep with a woman on her wedding night – there is a scene in the movie Braveheart that depicts how such a right might have been exercised.

william wallace braveheart
william wallace braveheart

“Ironically, the plague may have been one of the sparks that lit the Renaissance, because the shortage of labour shifted income from rents to wages as landlords struggled to find both tenants and employees. With rising wages, some of the surviving peasantry could once more just afford the oriental luxuries and fine cloth that Lombard and Hanseatic merchants supplied. There was a rash of financial innovation: bills of credit to solve the problem of how to pay for goods without transporting silver through bandit country, double-entry book-keeping, insurance. Italian bankers began to appear all across the continent, financing kings and their wars, sometimes at a profit, sometimes at a disastrous loss. The wealth that the Italian trading towns had generated soon found its way into scholarship, art or science, or in the case of Leonardo da Vinci, all three. Per capita income in England was probably higher in 1450 than it would be again before 1820.” The Rational Optimist – Matt Ridley

I don’t know of any kind of similar shift happening in Romania or Eastern Europe happening at the same time, what I know is that serfdom was abolished in Russia in 1861 by Tsar Alexander II and in Romania was abolished in 1746 (in Wallachia) and 1749 (in Moldova) by Constantine Mavrocordatos:

In the aftermath of the Austro-Russian–Turkish War (1735–39), the harsh conditions of the serfs led to depopulation of entire villages or even regions, as serfs fled towards other places, often in the mountains or even in Transylvania. The landlords saw that without a workforce, they could lose everything, so some released their serfs, allowing them to work their land as before, but as free peasants in exchange of a rent. Peasants who had fled were enticed to return by being given special contracts, as were Transylvanians, who were encouraged to settle.

So, what happened here is that after serfdom was abolished, the serfs earned the “right” to pay a rent. No wages yet. We might say that the economic system was characterized by being labour-intensive not capital-intensive, the difference being that capital-intensive economy leads to increased productivity:

“Unlike Mesopotamia, Egypt, India, Mexico, Peru, China and Rome, early modern Europe became capital-intensive, not labour-intensive. That capital was used to get work out of animals, rivers and breezes, rather than people. Europe was, in Joel Mokyr’s words, ‘the first society to build an economy on non-human power rather than on the backs of slaves and coolies’.” The Rational Optimist – Matt Ridley

Let’s see what happened in Japan after it became labour-intensive due to a population boom:

“Where Europeans used animal, water and wind power, the Japanese did the work themselves. What seems to have happened is that some time between 1700 and 1800, the Japanese collectively gave up the plough in favour of the hoe because people were cheaper to hire than draught animals. This was a time of rapid population expansion, made possible by the high productivity of paddy rice, naturally fertilised by nitrogen-fixing cyanobacteria in the water and therefore needing little manure (though human night soil was assiduously collected, carefully stored and diligently applied to the land). With abundant food and a fastidious approach to hygiene, the Japanese population boomed to the point where land was scarce, labour was cheap and it was literally more economic to use human labour to hoe the land than to set aside precious acres for pasture to support oxen or horses to draw a plough.” The Rational Optimist – Matt Ridley

Capital-intesive economy 1 – Labour based serfdom 0