Evolution of the Market Pattern [ 67 ]
within the organization of the town must come as another shock to
the evolutionist, with whom things always seem so easily to grow into
one another. And yet this peculiar fact forms the key to the social his-
tory of urban life in Western Europe. It strongly tends to support our
assertion in respect to the origin of markets which we inferred from
conditions in primitive economies. The sharp distinction drawn be-
tween local and long-distance trade might have seemed too rigid, es-
pecially as it led us to the somewhat surprising conclusion that neither
long-distance trade nor local trade was the parent of the internal trade
of modern times—thus apparently leaving no alternative but to turn
for an explanation to the deus ex machina of state intervention. We
will see presently that in this respect also recent investigations bear out
our conclusions. But let us first give a bare outline of the history of ur-
ban civilization as it was shaped by the peculiar severance of local and
long-distance trade within the confines of the medieval town.
This severance was, indeed, at the heart of the institution of medi-
eval urban centres.* The town was an organization of the burgesses.
They alone had right of citizenship and on the distinction between the
burgess and the non-burgess the system rested. Neither the peasants of
the countryside nor the merchants from other towns were, of course,
burgesses. But while the military and political influence of the town
made it possible to deal with the peasants of the surroundings, in re-
spect to the foreign merchant such authority could not be exerted.
Consequently, the burgesses found themselves in an entirely different
position in respect to local trade and long-distance trade.
As to food supplies, regulation involved the application of such
methods as enforced publicity of transactions and exclusion of mid-
dlemen, in order to control trade and provide against high prices. But
such regulation was effective only in respect to trade carried on be-
tween the town and its immediate surroundings. In respect to long-
distance trade the position was entirely different. Spices, salted fish, or
wine had to be transported from a long distance and were thus the do-
main of the foreign merchant and his capitalistic wholesale trade
methods. This type of trade escaped local regulation and all that could
be done was to exclude it as far as possible from the local market. The
complete prohibition of retail sale by foreign merchants was designed
to achieve this end. The more the volume of capitalistic wholesale
* Our presentation follows H. Pirenne's well-known works.
[ 68 ] The Great Transformation
trade grew, the more strictly was its exclusion from the local markets
enforced as far as imports were concerned.
In respect to industrial wares, the separation of local and long-
distance trade cut even deeper, as in this case the whole organization
of production for export was affected. The reason for this lay in the na-
ture of the craft guilds, in which industrial production was organized.
On the local market, production was regulated according to the needs
of the producers, thus restricting production to a remunerative level.
This principle would naturally not apply to exports, where the inter-
ests of the producers set no limits to production. Consequently, while
local trade was strictly regulated, production for export was only for-
mally controlled by corporations of crafts. The dominating export in-
dustry of the age, the cloth trade, was actually organized on the capi-
talistic basis of wage labor.
An increasingly strict separation of local trade from export trade
was the reaction of urban life to the threat of mobile capital to disinte-
grate the institutions of the town. The typical medieval town did not
try to avoid the danger by bridging the gap between the controllable
local market and the vagaries of an uncontrollable long-distance
trade, but, on the contrary, met the peril squarely by enforcing with
the utmost rigor that policy of exclusion and protection which was the
rationale of its existence.
In practice this meant that the towns raised every possible obstacle
to the formation of that national or internal market for which the cap-
italist wholesaler was pressing. By maintaining the principle of a non-
competitive local trade and an equally noncompetitive long-distance
trade carried on from town to town, the burgesses hampered by all
means at their disposal the inclusion of the countryside into the com-
pass of trade and the opening up of indiscriminate trade between the
towns of the country. It was this development which forced the terri-
torial state to the fore as the instrument of the "nationalization" of the
market and the creator of internal commerce.
Deliberate action of the state in the fifteenth and sixteenth centu-
ries foisted the mercantile system on the fiercely protectionist towns
and principalities. Mercantilism destroyed the outworn particularism
of local and intermunicipal trading by breaking down the barriers
separating these two types of noncompetitive commerce and thus
clearing the way for a national market which increasingly ignored the
Evolution of the Market Pattern [ 69 ]
distinction between town and countryside as well as that between the
various towns and provinces.
The mercantile system was, in effect, a response to many chal-
lenges. Politically, the centralized state was a new creation called forth
by the Commercial Revolution which had shifted the center of gravity
of the Western world from the Mediterranean to the Atlantic seaboard
and thus compelled the backward peoples of larger agrarian countries
to organize for commerce and trade. In external politics the setting up
of sovereign power was the need of the day; accordingly, mercantilist
statecraft involved the marshalling of the resources of the whole na-
tional territory to the purposes of power in foreign affairs. In internal
politics, unification of the countries atomized by feudal and munici-
pal particularism was the necessary by-product of such an endeavour.
Economically, the instrument of unification was capital, i.e., private
resources available in form of money hoards and thus peculiarly suit-
able for the development of commerce. Finally the administrative
technique underlying the economic policy of the central government
was supplied by the extension of the traditional municipal system to
the larger territory of the state. In France, where the craft guilds
tended to become state organs, the guild system was uniformly ex-
tended over the whole territory of the country; in England, where the
decay of the walled towns had weakened that system fatally, the coun-
tryside was industrialized without the supervision of the guilds, while
in both countries trade and commerce spread over the whole territory
of the nation and became the dominating form of economic activity.
This also accounts for the often puzzling domestic trade policy of
mercantilism.
State intervention, which had freed trade from the confines of the
privileged town, was now called to deal with two closely connected
dangers which the town had successfully met, namely, monopoly and
competition. That competition must ultimately lead to monopoly was
a truth well understood at the time, while monopoly was feared even
more than later as it often concerned the necessaries of life and thus
easily waxed into a peril to the community. All-round regulation of
economic life, only this time on a national, no more on a merely mu-
nicipal, scale was the given remedy. What to the modern mind may
easily appear as a shortsighted exclusion of competition was in reality
the means of safeguarding the functioning of markets under the given
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