Indeed, one might suspect that the Low Countries case that van Bavel has researched so deeply was the motivating example behind the book (and it is indeed a good example). For these cases, the data and secondary sources are much more complete and the narratives are quite compelling. Similar evidence is provided for the cases of northern Italy during and after the Commercial Revolution and the Low Countries in the late medieval and early modern periods. Indeed, van Bavel presents data indicating that the Gini coefficient on wealth inequality in tenth century Iraq was a startling 0.99, making it one of the most unequal societies in world history. Although the evidence is scanter than it is for the others cases, van Bavel makes a strong case that the development of markets in labor, capital, finance, and especially land (and land lease) played an important role in the region’s growth, while the accumulation of these factors of production in a small number of hands ended up stifling growth and, ultimately, the very markets that spurred growth in the first place. Van Bavel convincingly points to the rise and decline of factor markets as a culprit. Indeed, in 800 the population of Baghdad was greater than the top thirteen Christian cities of Western Europe combined! Yet, it clearly started to fall behind at some point well before the Mongol invasion crushed what remained of the Abbasid Empire in 1258. Iraq of the Abbasid period was probably the wealthiest and most advanced region of the world. And indeed, the cases work quite well for the theory. Van Bavel must be commended for picking these three cases: few scholars have the breadth of knowledge to dig so deeply into three such vastly disparate cases. These are not randomly plucked cases: one could make the case that they represent the world’s (or, at a minimum, western Eurasia’s) economic frontier from about 750 to 1700. Perhaps the most ambitious aspect of The Invisible Hand? is the cases to which van Bavel applies the theory: early Islamic Iraq, Commercial Revolution Italy, and the late medieval and early modern Low Countries.
The decline that van Bavel proposes is therefore endogenous to the very processes that contributed to the rise in the first place. This precipitates the economic decline of the society, as vested interests squeeze the little remaining productive power out of the economy, leaving little for the rest of society. As those who own the factors of production gain more political power, they use this power to dominate the markets for land, labor, and capital, as well as financial markets, making these markets less free in the process. However, with factor market growth comes inequality - both economic and political. In the process, a positive feedback loop occurs in which underutilized resources are more productively used, specialization and division of labor arise, economic growth results, which results in greater use of factor markets, and so on. In societies with some sufficiently high level of personal and economic freedom as well as some degree of prosperity (due to non-market mechanisms of exchange for land, labor, and capital) factor markets are likely to emerge. Van Bavel’s argument can be summarized as follows. This is a fairly significant departure from conventional economic history accounts, which largely view the development of market economies as more of a linear process. In other words, the growth of factor markets is a self-undermining process. The (somewhat neo-Marxian) argument suggests that economic decline is a natural consequence of the type of economic growth that happens via factor markets. Van Bavel’s framework can be conceptualized as an economics counterpart to Ibn Khaldun’s political cyclical theory of empires. 1000-1500), and the late medieval and early modern Low Countries (c. 500-1100), high medieval northern Italy (c. In this book, van Bavel proposes a theory of cyclical economic growth and decline, and he supports this theory with three case studies: early medieval Iraq (c. What are the key drivers of economic prosperity? Why do societies that were at one point world economic leaders often end up falling behind? What role do factor markets play in this process? These are the questions addressed in Bas van Bavel’s fascinating entry into the “big think” literature, The Invisible Hand? How Market Economies Have Emerged and Declined since AD 500. Reviewed for EH.Net by Jared Rubin, Department of Economics, Chapman University. The Invisible Hand? How Market Economies Have Emerged and Declined since AD 500 Author(s):īas van Bavel, The Invisible Hand? How Market Economies Have Emerged and Declined since AD 500.
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