Department of Economics University of Toronto 150 St. George Street Toronto, Ontario M5S 3G7 Canada The Rise, Expansion, and Decline of the Italian Wool-Based Textile Industries, ca. 1100 - 1730: a study in international competition, transaction costs, and comparative advantage Working Paper no. 440 by John Munro 17 October 2011 Revised 24 October 2011 Revised 30 December 2011 Copyright © by John Munro 2011 Department of Economics University of Toronto Author's e-mail: [email protected] http://www.economics.utoronto.ca/munro5 On-line version: http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/440 Keywords: wools; woollens; worsteds; serges; rascie; dyestuffs; scarlets; transaction costs; comparative advantage; Florence; Tuscany; Lombardy; Venetia; Venice; Ottoman Empire; Old Draperies; New Draperies; Spain; merino wools; Enclosures; Levant Company; naval power JEL Classifications: D23; D43; E32; F10; F12-14; H25; J11; J21; L14; L23; L79; L91; N63; N73 Abstract: This much revised study seeks to examine the rise, expansion, and ultimate decline of the Italian wool-based textile industries over a period of six centuries (from ca. 1100 to ca. 1730). An international trade model combining transaction costs and comparative advantage is employed to explain the changing fortunes of the Italian cloth industries over these six centuries, in competition with their major northern rivals, in the Low Countries and England. The transaction costs model is used to explain in particular which branches of this textile industry fared better and which fared worse during the Commercial Revolution era (ca. 1100-ca.1320), the so-called “Great Depression era” (ca. 1320-ca. 1460), the ensuing economic recovery and Price Revolution era (ca. 1460-ca. 1620), the “General Crisis” of the seventeenth and early eighteenth centuries (ca. 1620-ca.1740), to the eve of the Industrial Revolution era. One of the major errors in the literature is the failure to distinguish between the two main branches of the wool-based cloth industries, the technology of their industrial production, their relative prices, and markets, and the impact of transaction costs in international trade. For much of this era, the leading branch was the luxury-oriented woollens industry (Old Draperies), based on very fine, short-stapled English and then Spanish merino wools, producing fulled, heavy-weight, and generally high priced cloths. In the earlier and later periods, the other branch prevailed (New Draperies): the lighter-weight (unfulled), generally coarser and cheaper fabrics that were either full worsteds (cheap, coarse, long-stapled wools) or serges (hybrids with worsted warps and woollen wefts). The transition from a predominance of the lighter, worsted-style fabrics to the heavy-weight woollens, throughout western Europe, took place from the 1290s, with a rapid rise in transaction costs that were the direct and indirect result of a spreading stain of international warfare, especially injurious to overland trade routes, combined with a drastic fall in population, that engulfed most of Europe and the Mediterranean basin until the 1460s. That rise in transportation and transaction costs (determined by market scale economies) set a cost-price floor below which international trade in cheaper textiles became unprofitable: so much so that most West European wool-based industries re-oriented their production towards luxury markets, with far higher prices sustained by “price-making” monopolistic competition better able to withstand the rise of such costs, an impossible solution for those marketing cheap textiles as “price-takers” in Mediterranean markets. Such problems were less severe for the Italian industries, whose markets were chiefly in the Mediterranean; and thus the transition to luxury production was far less complete than in the north. The comparative advantage model is based on the price that woollen-cloth producers in both the Low Countries and Italy had to pay in that luxury re-orientation: a total dependence on the finest English wools as the prime component of luxury quality. From the late 1330s, English monarchs took advantage of that dependence by imposing exorbitant taxes on wool-exports, with even higher taxes imposed on Italian merchants, ultimately depriving them of almost all such wools by the early fifteenth century. At the same time, English clothiers were able to weave luxury-quality cloths from the very same wools, but free of any such taxes, giving them an almost insuperable cost advantage over all foreign woollen manufacturers. But England’s comparative advantage in its wool supply, though finally giving them mastery of northern markets for luxury woollens, was undermined, during the later fifteenth, early sixteenth century, by the development of fine but much cheaper merino wools in Spain, which Italians could acquire with lower transport costs. The other change undermining the supremacy of English and other woollens industry was the sharp fall in transaction costs by the late fifteenth, early sixteenth centuries: with the decline in warfare, the recovery and growth of population, and with technological advances in both ocean and land transport, especially the latter with a major transition in long-distance trade from maritime to overland continental routes. Along with that decline in costs came a revival and expansion of the lighter, cheaper textile industries, though chiefly in the Low Countries and England, more so than in Italy, despite the continued predominance of Mediterranean markets. For woollens, the Italian industries, especially the Venetian, gained the comparative advantage in wools: with much cheaper access to (now more expensive) Spanish merinos. But in the Mediterranean and especially Ottoman markets the English finally gained supremacy over both the Florentine and Venetian woollens industries, by the later seventeenth century, from a new comparative advantage, in capital formation: from superior business organization (the new joint stock companies) and naval power (large, heavily gunned, swift carracks). The so-called “General Crisis” era of the later seventeenth century had again favoured maritime routes, and thus sea-power, over land routes. At the same time the Tudor-Stuart enclosure movements, in transforming English sheep -- from small sheep with fine short-stapled to larger (meatier) sheep with coarser, long-stapled fleeces, gave England’s worsted-style New Draperies a comparative advantage in wool supplies over all its continental rivals, including the Italian; and by the 1730s, both branches of the Italian wool-based textile industries had succumbed to foreign competition, and become moribund. JEL Classifications: D23; D43; E32; F10; F12-14; H25; J11; J21; L14; L23; L79; L91; N63; N73 The Rise, Expansion, and Decline of the Italian Wool-Based Cloth Industries, 1100 - 1730: a study in international competition, transaction costs, and comparative advantage 1 by John H. Munro (University of Toronto) ********************************** Introduction: Italy and Textiles in the European Economy In the history of the West European economy from the twelfth to the eighteenth centuries, wool-based textiles constituted the single most important manufactured commodity to enter both regional and international trade. For this reason such textiles proved to be vitally important for Italian economic development and for Italy’s economic pre-eminence during many these many centuries, especially up to the sixteenth. Italy was in fact one of the three most important regions that supplied good to high quality wool- based textiles to much of Christian Europe and to the Islamic world in the Mediterranean basin and the Near East during the medieval and early-modern eras.2 Their chief rivals, during these centuries, were, above all, the Low Countries (Flanders, Brabant, Holland) and England.3 This study is not a mere descriptive narrative in European economic history, but an analysis of the role of international competition, transaction costs, and comparative advantage in determining how the Italian textile industries fared during these centuries, and which Italian regions prospered or declined because of their textile trades. While the Low Countries were clearly the pre-eminent European leader in wool-based textiles from the twelfth to the fifteenth centuries, England in fact proved to be the more important region influencing the development of the Italian textile industries: first, as the producer of the very finest wools on which the Italian industry came to be so dependent for the production of luxury woolens, at least until the fifteenth century; but second as the region that came to pose the most powerful threat to Italian international commerce in wool-based textiles, from the sixteenth to the eighteenth centuries. Although this study will demonstrate that, particularly for higher grade woolen cloths, wool was the primary determinant of textile quality, production costs, and retail prices, the final English threat no longer had anything to do with England’s own wools. For, by the sixteenth century England had lost its primacy in producing the world’s best wools to Spain – to the extent, indeed, that the English cloth industry itself, along with all other European producers of fine woolen cloths, came to be dependent on imported Spanish wools, for which the Italian industries had closer and cheaper access. Instead, England’s overwhelming comparative advantage in the Mediterranean cloth trade – in the very region in