Historical Economic Detective Work: Uncovering Europe's Financial Past

June 2021

The Treasure Trove of Historical Economics

When modern economists want to understand long-term economic trends—like how England became the first industrialized nation or why Spain's colonial wealth didn't translate to sustained prosperity—they need data stretching back hundreds of years. But official GDP statistics weren't even calculated until the 20th century!

Instead, economic historians use creative methods to reconstruct the economic past from fragmentary evidence:

• Tax records: Kingdoms may not have tracked GDP, but they certainly tracked taxes! Records of alcabalas (sales taxes) in Spain or wool export taxes in England tell us about commercial activity.

• Mint records: The amount of coin production reveals monetary conditions and often correlates with economic activity.

• Trade ledgers: Customs records of imports and exports offer windows into international commerce.

• Wage and price data: Records of builders' wages or wheat prices help track living standards over time.

England: A Millennium of Economic Data

Perhaps the most impressive achievement in historical economics is the Bank of England's dataset covering English economic activity all the way back to 1086! Starting with the Domesday Book (William the Conqueror's great land survey), researchers have constructed continuous series for:

• Government revenues from the 13th century

• Cloth exports from the 14th century

• Wool prices from the 13th century

• Wages dating back to 1209

• Mint output since 1220

England's uniquely preserved records allow us to trace the country's transformation from a relatively minor European kingdom to the world's first industrial power.

The Spanish Empire's Financial Roller Coaster

Spain offers one of history's most dramatic economic stories. The data reveals how the conquest of the Americas created a sudden influx of wealth, primarily through silver mines. Spanish treasure imports show a massive surge in the 16th and early 17th centuries.

Fascinatingly, the records also reveal the sophisticated financial instruments that developed alongside this wealth. The Spanish crown relied on complex banking arrangements called "asientos" (loans) from Portuguese, Genoese, and other bankers to finance its military endeavors. Records show some years when the crown borrowed over a million ducats through these arrangements—enormous sums for the time.

The crown also developed an early version of government bonds called "juros." Interest rates on these juros dropped from 10% in the early 1500s to about 5% later in the century, revealing how European finance evolved.

Yet all this wealth didn't translate to sustained economic growth. The Spanish data reveals why: the crown spent enormous sums on military ventures rather than productive investments, and the inflation caused by American silver eroded the competitive position of domestic producers.

Reconstructing French Prosperity

France presents a different challenge. As the most populous European country for much of history, understanding its economic development is crucial, yet its records are more scattered than England's.

Recent research by economic historian Leonardo Ridolfi has constructed French economic data back to 1280. The data reveals economic shocks like the devastating impact of the Black Death, the economic toll of the Hundred Years War, and the gradual recovery during the early modern period.

Fascinatingly, French mint records show massive fluctuations in coin production, with some years in the 18th century seeing production 200 times higher than in medieval periods. These fluctuations often corresponded with warfare and state finance needs rather than organic economic growth.

Portugal: The First Global Economy

Portugal established the first truly global trading empire, connecting Europe, Africa, Asia, and later Brazil. Records of Portugal's royal expenditure reveal how this small kingdom managed to finance its overseas expansion.

The data shows extraordinary expenditures for military campaigns like the 1415 conquest of Ceuta (North Africa) and later naval expeditions. Royal accounts reveal how Portugal's rulers imposed extraordinary taxes to fund these ambitious ventures, sometimes collecting 60 million reais (the Portuguese currency) in a single tax campaign.

These investments ultimately paid off spectacularly when Portugal established lucrative trade routes to India and the Far East, though Dutch and English competition eventually eroded Portugal's commercial advantage.

Holland's Golden Age in Numbers

Perhaps the most remarkable economic success story in early modern Europe was the Dutch Republic, particularly its core province of Holland. Despite limited natural resources and a relatively small population, Holland achieved the highest living standards in the world during its 17th-century Golden Age.

The data compiled by van Zanden and van Leeuwen shows Holland's per capita GDP rising dramatically between 1500 and 1650, nearly tripling to levels that wouldn't be seen elsewhere in Europe until the 19th century. This economic miracle was built on maritime trade, financial innovation, and remarkable agricultural productivity.

Detailed trade records reveal how Dutch prosperity was built: shipbuilding, herring fishing, Baltic grain trade, and eventually global commerce through the Dutch East India Company all contributed to this small nation's outsized economic impact.

Why Historical Economics Matters Today

These historical economic reconstructions aren't just academic curiosities. They provide crucial insights into some of the biggest questions in economics:

1. The Great Divergence: When and why did Western Europe pull ahead of other advanced civilizations in Asia?

2. The Industrial Revolution: What conditions in England made it the first nation to industrialize?

3. Development Economics: What factors enable sustained economic growth rather than temporary booms?

4. Economic Inequality: How have wealth distributions changed over centuries?

The next time you hear about GDP growth statistics in the news, remember that behind these modern numbers lies a rich tradition of economic detective work, piecing together the financial stories of centuries past from tax records, mint outputs, and wage data. These historical insights continue to shape our understanding of what drives prosperity and what leads to economic decline.

History isn't just written in chronicles and monuments—it's also written in account books, tax registers, and price lists. And those economic records tell a story every bit as dramatic as the tales of kings and battles that dominate our history books.

Looking for more on historical economics? Check out the "Maddison Project Database" which aims to track GDP estimates for 169 countries over the longest possible timelines, or explore the European State Finance Database (ESFDB) for detailed fiscal records of early modern European states. 

Note: ESFDB dataset is currently down but there are other depositories of these data online! Feel free to e-mail me if you need help finding their database.