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The Law of Primogeniture and the Transition from
Landed Aristocracy to Industrial Democracy∗
Graziella Bertocchi
Universita’ di Modena e Reggio Emilia, CEPR and IZA
January 2006
Forthcoming in the Journal of Economic Growth
∗
I would like to thank Matthias Doepke, Oded Galor, Thorvaldur Gylfason, Andy Mountford, Mike
Spagat, Yong Wang, Fabrizio Zilibotti, and workshop and seminar participants at ESSIM, SED, SET,
NBER Summer Institute, the Workshop on Intergenerational risk sharing and contracts, the CEPR Conference on Dynamic Aspects of Policy Reforms, ASSET, the Winter and the Summer Meetings of the
Econometric Society, the Workshop on Economic Growth over the Very Long Run, and the University of
Modena, for helpful comments and suggestions. All errors remain of course mine. Financial support from
the Italian University Ministry and the European Commission is gratefully acknowledged. Author’s address: Dipartimento di Economia Politica, Universita’ di Modena e Reggio Emilia, Viale Berengario, 51,
I-41100 Modena, Italy, phone 39 059 2056856, fax 39 059 2056947, e-mail [email protected],
web http://www.economia.unimore.it/Bertocchi Graziella/.
0
ABSTRACT
We study the connection between inheritance systems and the historical evolution of the
relationship between a society’s economic structure and its political system, with a focus on
Europe from feudal times. The model predicts that, in an early agrarian phase, aristocratic
political systems prevail, while democracies tend to emerge with industrialization. At the
same time, as indivisible landed estates are replaced by capital as the primary source of
wealth, the inheritance system evolves endogenously from primogeniture to partition. The
dynamics of output, distribution, class structure and political participation are in turn reinforced by the system of intergenerational wealth transmission, with primogeniture tending
to concentration and partition to equalization.
JEL Classification Numbers: O40, P10, J12 , N10 , K19, Q15.
Key Words: Primogeniture, land, aristocracy, industrialization, democracy.
1
“But the law of inheritance was the last step to equality.”
Alexis de Tocqueville, Democracy in America (1835).
1
Introduction
Back in the Middle Age, Europe was a predominantly agrarian economy ruled by a feudal
aristocracy which based its power on the land. Several centuries later, Europe’s societies
are now democracies which have completed, and passed, their industrialization process. Few
attempts have been made to explain the long-term determinants of wealth distribution,
class structure and political participation and their connection with the process of structural
reallocation from agriculture to manufacturing. This paper fills this gap by focusing on the
role of the system of intergenerational transmission of wealth as a crucial link between a
society’s economic structure and its political system.
We start from the observation that, at least in the European experience during the past
ten centuries, agrarian societies tend to be inherently aristocratic, while industrialized societies, as capital replaces land, tend to move into the direction of democratization. At the
same time, we observe an evolution in the legal system regulating the intergenerational transfers of property rights, with primogeniture prevailing in agrarian aristocracies and partible
inheritance gaining ground as industrialization and democratization advance. Our conjecture is that the source of this association is to be found in the fact that feudal estates were
subject to a politico-economic indivisibility constraint while capital, being reproducible and
divisible, could be easily partitioned from the beginning of the accumulation process. With
wealth at the roots of political power, when there is a change in the primary source of wealth
political power will shift as well, and the effect is amplified if land and capital are subject
to different rules of intergenerational transmission, with primogeniture reinforcing wealth
inequality in aristocracies and partition promoting equalization in democracies.
Our main focus is on the period running from 1300 to 1800, which witnessed the transition
from feudalism to early forms of capitalism, starting from the decline of the primarily agrarian
and aristocratic society of the 14th century and ending with the emergence of manufacturing
2
and the establishment of bourgeois political power. Nevertheless, our investigation contains
implications also for subsequent economic and political developments.
The agrarian basis of Europe’s political order dates back to the introduction of feudalism
at the turn of the first millennium. Feudalism consisted of the following set of arrangements.
First of all, feudal lords were granted by kings the income from great estates, in return for
military service and for the local administration of justice. Indivisibility of the estates was
crucial to generate sufficient income and was enforced through a system of legal provisions.
The nature of maintenance costs evolved over the centuries, but they always remained very
large. Initially, military costs prevailed, while the costs of supporting a court and sustaining
high living standard for reasons of prestige became more substantial later on.
Another crucial characteristic of feudalism was the imposition of feudal rights on peasants,
in the form of a variety of services and dues. Despite the fact that agrarian relationships were
often conflictual, the feudal organization also accomplished the goal of providing peasants a
safe and stable environment. The organizational form of the landlords-peasants relationship
evolved over time The organizational form of this relationship has changed over time, as first
documented by Smith ([1776] 1937), who described how serfdom was initially replaced by
sharecropping contracts and then by leases involving a rent plus other serviced performed
by small farmers for the benefit of the landlord. Cross-country comparisons indicate that
modernization occurred first in England, while Continental Europe only joined in after the
French revolution. Generally speaking, as manufacturing and urbanization developed, feudal
lords started to lose control on workers’ mobility.
Finally, class structure in the feudal society was based on the distinction between lords
and peasants, with the nobility formally involved in the exercise of exclusive political power.
The first challenge against aristocratic power was represented by enriched merchants demanding freedom from feudal control on society. The bourgeois revolutions in England and
France established the role of a newly-formed socioeconomic group opening the way for the
supremacy of democratic capitalism over agrarian elitism.
In this framework, primogeniture emerged around the 13th century as a reaction to intensified demographic pressure and kept spreading across Europe up to the 17th century.
3
Despite marked regional differentiations, for centuries it remained the rule among the nobility, and whenever land constituted a dominant portion of wealth, because of a need to keep
large estates together. The French revolution abolished entails, but it is only with the 19th
century that most European countries finally outlawed them, despite all the controversies
and the fact that the demographic, social and economic reasons for them to emerge were
already changing much earlier.
Eminent economists and political and social scientists contributed to the debate on primogeniture, which spread from Europe to colonial America. The relevance of the inheritance
law is witnessed for instance by Smith ([1776] 1937), who writes: “When land was considered
as the means, not of subsistence merely, but of power and protection, it was thought better
that it should descend undivided to one (...). The security of a landed estate (...) depended
upon its greatness. To divide it was to ruin it, and to expose every part of it to be oppressed
and swallowed up by the incursions of its neighbors (...).” While from de Tocqueville ([1835]
1956) we read: “But the law of inheritance was the last step to equality (...). When framed
in a particular manner, this law unites, draws together, and vests property and power in
a few hands; it causes an aristocracy, so to speak, to spring out of the ground. If formed
on opposite principles, its action is still more rapid; it divides, distributes, and disperses
both property and power.” Marx and Engels ([1844-45], 1975) also remarked how one of the
victories of the bourgeoisie was the one of the “division of land over primogeniture”.
The goal of this paper is to establish how the evolution of the law of inheritance is
connected with the growth path of the economy, the sectoral composition of aggregate output,
class structure, wealth inequality, and political participation. To achieve this goal, the
paper embeds the above-mentioned features - indivisibility of landed estate, feudal rights
on agricultural production, wealth as the basis of political power, primogeniture over the
land - within an otherwise standard specific-factor model with an agricultural sector and
a manufacturing sector. There are two groups in the population, landlords and landless
workers. Workers can migrate from agriculture to manufacturing. The analysis is framed
within an overlapping-generations model with an altruistic bequest motive. The model’s
innovations are founded on the following three assumptions, which are further justified in
4
Section 6 on the basis of the available historical evidence.
First, there exists a politico-economic constraint on the minimum size of landed estates,
dictated by the need to raise sufficient income to ensure their protection and maintenance.
As an implication, land cannot be alienated and primogeniture emerges as the efficient
way to regulate the intergenerational transmission of property rights on land. Since no
indivisibility constraint is imposed on capital, equal partition among all children instead
regulates transmission of this component of society’s wealth.
Second, political power is determined by wealth. Land ownership immediately entitles
the aristocracy to political power, while there exists a minimum capital requirement for
active participation of landless workers in the political process. We assume majority voting
with restricted suffrage as a simple device to capture the idea that the aristocracy begins
with all the power but gradually loses it as the economy develops. Specifically, individuals
vote on the removal of feudal privileges, with the median voter deciding the outcome.
Third, feudal privileges take the form of the appropriation of a portion of the agriculture
product by the landlords. This organizational form implies non-competitive agricultural
wages, while in the manufacturing sector the labor market is competitive.
Without these three assumptions the model would generate a transition from agriculture
to manufacturing driven purely by capital accumulation, as in standard dual growth models.
Under our assumptions, however, the model generates much richer dynamics, with structural
transformation interacting with the political balance of power.
In the initial, primarily agrarian phase, land is the main form of wealth, so that landlords hold all political power and can impose feudal rights on peasants. As capital accumulates, workers start migrating towards the manufacturing sector, while the agricultural
sector shrinks. As the workers’ capital bequests increase with accumulation, the process of
democratization begins by allowing active political participation. Once a majority formed
by the richest workers reaches the minimum wealth requirement, the distortive feudal rights
are abolished. As a result of this political choice, capital accumulation and income growth
accelerate, so that wealth equalization and democratization further progress.
Throughout the process just described, primogeniture over the land emerges as the ra-
5
tional choice of altruistic parents subject to a politico-economic indivisibility constraint,
while capital can be partitioned freely among all children. However, since the importance of
land as a portion of total wealth declines with capital accumulation, we observe over time a
reduction of the incidence of primogeniture. Thus, the mechanism that generates the transition towards an industrial democracy is reinforced, since primogeniture preserves wealth
concentration while partition promotes its dispersion.
To sum up, the model establishes a connection between the evolution of society from
an aristocratic political system into a democracy, the process of capital accumulation and
sectoral reallocation from agriculture into manufacturing, and the economic impact of primogeniture, thus generating a theory of endogenous determination of the inheritance system
based on the evolution of wealth composition.
The rest of the paper is organized as follows. Section 2 explains how the paper relates to
the literature. Section 3 describes the basic model. Section 4 analyzes the model and derives
the main results. Section 5 considers a number of extensions of the basic model. Section 6
looks at the historical evidence and provides for it an interpretation in light of our results.
Section 7 draws some conclusions and indicates lines for future research.
2
Related literature
This work is primarily connected with the research program which has focussed on the
connection between growth, development and institutions in a long-term perspective. Early
examples from this literature are North (1981), Engerman and Sokoloff (1997), Acemoglu
and Robinson (2002), Bourguignon and Verdier (2000), and Bertocchi and Spagat (2004),
who study the behavior of elites in the face of economic and institutional developments. The
joint evolution of the economic and political system is modeled, among others, by Justman
and Gradstein (1999) and Cervellati et al. (2005), while a specific stream of this literature has
focused on franchise extension (see Acemoglu and Robinson (2000), Bertocchi and Spagat
(2001), Lizzeri and Persico (2004), and Llavador and Oxoby (2005)). Closely connected,
another research body has built a unified theory that captures the historical evolution of
population, technology and output from Malthusian stagnation to Solowian growth (see
6
Galor and Weil (2000) and Hansen and Prescott (2002)). Galor and Moav (2004, 2006)
and Doepke and Zilibotti (2005) are also closely related for their analysis of the long-term
evolution of class structure. We contribute to this literature by showing the connection
between politico-economic evolution and intergenerational wealth transmission.
There is also a literature on inheritance rules and the family, with some contributions
attempting at finding an endogenous explanation of primogeniture and family structure, for
which Becker (1981) provides a general introduction. Chu (1991) and Bergstrom (1994)
develop a lineage survival approach, where primogeniture can emerge as an optimal dynastic
policy to minimize the probability of extinction, while Faith and Tollison (2001) motivate
partition as a device to minimize rent seeking among children. Ekelund et al. (2002), within
their analysis of the Protestant Reformation, treat primogeniture as a proxy for stability of
wealth distribution, which was higher in countries with strong feudal elites, lower economic
growth and less-developed entrepreneurial activity.1 Nobody however has yet looked at the
primary source of wealth - land vs. capital - as an explanation of the prevailing law of
inheritance.
On the role of land in dynamic models, we were inspired by the dual growth tradition
initiated by Lewis (1954), and in particular by the work of Eaton (1987) and Drazen and
Eckstein (1988), from whom we take the basic structure of the model although they assume
constant population. Laitner (2000), in a similar setup, allows for population growth but
not for capital accumulation. Sectoral shifts of the labor force from agriculture to manufacturing are at the basis of the Kuznets (1955) inverted-U relationship between income
inequality and income. Recent work on the role of agriculture in development includes
Caselli and Coleman (2001), who focus on regional growth patterns in the U.S. during the
past century, and Gollin et al. (2002), who stress the role of agricultural productivity in
explaining cross-country income disparities. Different patterns of agrarian production organization are studied by Conning (2002) and Mookerjee and Ray (2002), while the adverse
impact of landowners’ interests for education reform is explored by Galor et al. (2002) and
Falkinger and Grossmann (2004). Boix and Garicano (2001) stress the relevance of country1
Botticini and Siow (2003) study the optimal joint determination of bequests for sons and dowries for
daughters, while Bernheim and Severinov (2003) compare differences in division rules for gifts and bequests.
7
specific wealth, of which land is the most typical and extreme example, in delaying the
democratization process.2 None of these papers however explicitly analyzes the role of the
intergenerational transmission of property rights on land within a neoclassical growth model
with capital, population growth and technological progress.
3
The model
At some point in the development process, a combination of events initiated the transition
from a static agrarian economy to a dynamic two-sector economy with manufacturing. The
new political and economic order established through feudalism had permitted the expansion
and the improvement of cultivated land and therefore the emergence of technical progress in
agriculture. The resulting wage and consumption dynamics had pushed towards a permanent
increase in the rate of population growth and the accumulation of an agricultural surplus
sufficient to start the process of capital accumulation.
We start modeling our economy once the above process has been completed. The newlydetermined economic conditions, characterized by technical progress in agriculture, population growth, and capital accumulation, are fully embedded in our basic framework. The
model is also designed to capture the gradual decline of feudalism and the associated loss of
control on workers’ mobility under the competition of the growing modern sector.
3.1
Production
The economy displays two specific-factor technologies producing an agricultural good and a
manufacturing good using three factors: land, capital, and labor. Land is in fixed supply,
and equal to L. At time t, production of the agricultural good, YtA , uses labor NAt and land
L, according to
YtA = (Gt L)α NAt 1−α
2
(3.1)
On the related issue of land reform, see Horowitz (1993), Grossman (1994) and Conning and Robinson
(2005).
8
where 0 < α < 1, Gt is the level of technological progress in the agricultural sector and
Gt+1 = (1 + g)Gt . The quantity of effective land is therefore given by Lt = Gt L. Production
of the manufacturing good, YtM , uses labor NMt and capital Kt according to
YtM = Ktα NMt 1−α
(3.2)
The agricultural good is not storable and can be used only for consumption, while the
manufacturing good can either be used for consumption or bequeathed to children, who will
in turn employ it as capital in the manufacturing sector. Labor is perfectly mobile between
sectors at no cost, consistently with our goal to describe the declining phase of strict feudal
control.3
3.2
Population
We consider an overlapping-generations model with bequests where individuals live for two
periods. Total population grows at a rate n and consists of two groups: landlords Lt and
landless workers Wt .4 At time 0, the size of the landlords’ group, L0 , is small if compared
to the size of the workers’ group. When our story starts each landlord owns an equal share
e of the total amount of land L, where e represents the minimal size of an estate. The size
of the estate cannot fall below e because the costs of protection and administration, to be
covered out of the agricultural rents, are assumed to be infinite if its size is smaller than e.
For simplicity we can set costs to 0 for any estate equal or larger than e.5 Since eL0 = L,
setting e = 1 we obtain L0 = L. Land is passed on from parents to children. Since land is
not allowed to be put for sale, there exists no market for land. Given our assumption on
minimal estate size, land is passed on to one child only (unigeniture). This implies that the
size of the landlords’ group cannot increase over time. Therefore, Lt = L, for any t. It is
3
Frictions determined by the landlords’ ability to retain a partial degree of control could be easily added
to the analysis, without modifying the main results.
4
While population growth is assumed to be exogenous, it could be endogenized as a positive function of
income, so that landlords would have higher fertility than workers. This would reinforce the process we are
about to describe.
5
More realistic assumptions about estate costs would complicate but not affect the results.
9
natural to assume that the heir of the estate is always the first child (primogeniture).6 We
assume that all individuals, including landlords, receive a labor endowment. The landlords’
younger, landless children - the cadets - become part of the workers’ group.
Each individual also receives a capital bequest. As standard, being a reproducible, divisible resource, capital can be divided up among all children in equal parts without restrictions
(partition) even among the landlords’ class.7 Without loss of generality, we assume that all
individuals start with an identical level of initial capital bequest, b0 , and that the relative
size of e is larger than b0 , so that at the start capital represents a negligible portion of the
landlords’ wealth. Moreover, the aggregate size of the initial capital bequests is also small,
so that aggregate initial wealth in the economy is composed mostly of land.
While from the above analysis we have obtained a constant size of the landlords’ group,
t
the workers’ group grows over time at a rate ñt ≡ n NN
> n because of the inflows of cadets.
t −L
The workers’ group is internally stratified since it includes, beside the descendants of the
original workers, first-generation workers, i.e., cadets just coming from the aristocracy, as
well as previous-generation workers, i.e., children of cadets who came from the aristocracy at
earlier times. Figure 1 maps the pattern of population growth for each group, for t = 0, 1, 2,
and for the simple case of n = 1 and only one individual per group at t = 0, a landlord l0
and a worker w0. . The subscript indicates the period in which each individual is born, while
the superscript is introduced only for individuals during whose family history a change of
group has occurred.8
6
While the model does not explicitly predict that primogeniture would prevail over unigeniture, traditional
arguments - such as the advantages of the first born in providing for the old and/or taking care of the land
- can be invoked to explain the prevalence of the former in actual practice.
7
Our results would hold even under the assumption of unequal division for capital as well, as long as
the degree of indivisibility for land remains higher than for capital. In an extension in Subsection 5.1 we
introduce the possibility of compensatory capital bequests for cadets.
8
The difference between the subscript and the superscript indicates how many generations have past since
the change occurred so, for example, w10 denotes a worker born at time 1 whose father was a landlord (i.e.,
w10 is the the second born of the landlord), while w20 denotes a worker born at time 2 whose grand-father
was a landlord.
10
Figure 1: The inheritance tree
3.3
Political system
In this model, political power is acquired through wealth. Landed property is therefore a
source of political power, and in fact the only one in the early phase of the development
process. In this early phase, the landlords therefore constitute an aristocracy i.e., literally,
a political system that exclusively assigns power to a few. Accordingly, as we shall see, they
are in a position to impose feudal rights on the peasants, i.e., the workers in the agricultural
sector. Initially, capital plays no role in the political equilibrium of the model since we
assume there is a minimum wealth requirement, eb > b0 , for participation of workers in the
political process. The wealth threshold is not to be interpreted as a rule specified by the
voting mechanism and thus chosen by the elite in power, but as a parameter meant to capture
the broad fact that a minimum, exogenously-determined socioeconomic status in necessary
to permit political activism.9
It is only when all workers reach a level of wealth eb that the political system turns into
a full democracy, i.e., literally, a political system that assigns power to all the people, on
a one-person-one-vote basis. However, for workers to play a role in the political process, a
9
Our wealth threshold therefore differs from the formal wealth, income, and education requirements which
were later introduced in the 19th century legislation concerning suffrage, as the expression of a choice by the
elite.
11
partial degree of democratization will suffice. And, since we assume that decisions are made
through majority voting, workers will be in a position to determine the political outcome
as soon as enfranchised workers outnumber the members of the aristocracy. As we shall
see, enfranchisement in this model will be gradual and will progress at an endogenouslydetermined speed, even if all workers start with an identical initial capital bequest.
The analysis will prove that a landlords’ and a workers’ majority express different policies.
In particular, under aristocracy, landlords’ privileges consist of the imposition of feudal rights
on agriculture, which are abolished once the median voter is a worker. We assume that, once
feudal rights are abolished, they can never be reinstated. In the following discussion, even
though in this historical phase the structure of the political system is rudimentary, and our
tax simply proxies for more complex feudal relations, we shall refer to “voting” and “tax
policies” to indicate the means and the outcomes of the political process.
3.4
Preferences
In the first period of life, individuals are born with one unit of labor that they supply
inelastically, and they receive their land and capital bequests, which are employed in the
production processes together with their labor. Only the first born of the aristocracy receive
a land inheritance. Production takes one period to be completed, so during their second
period individuals receive their wage, interest, and rental income. Rental income only accrues
to the landlords. In the second period individuals optimally choose their level of consumption
and a capital bequest for their children. The landlords also bequeath their estate. SecondM
A
period consumption of an individual born at t is given by ct+1 = cA
t+1 + ct+1 , where ct+1
and cM
t+1 are the individual consumption levels of the agricultural and of the manufacturing
goods, respectively. The agricultural and the manufacturing goods are assumed to be perfect
substitutes in consumption, i.e., their relative prices are fixed and set equal to 1. Preferences
are given by
uit = δ log cit+1 + (1 − δ) log bit+1 + et+1
12
(3.3)
for i = L, W , where δ is a preference parameter, with 0 < δ < 1, cit+1 is consumption, and
bit+1 and et+1 are the capital and the land bequests to the children, respectively.10 To be noticed is that we have assumed an identical utility function for landlords and workers, so that
primogeniture is not to be attributable to different preferences. We have also assumed identical labor and capital endowments for all individuals, so the only exogenous heterogeneity
in the economic fundamentals of the model has to do with land endowments.
3.5
Factor prices
We shall now focus on the implication of feudalism for the landlords-peasants relationship.
To capture its non-competitive nature, we assume that peasants do not receive their marginal
product, but an average of what is left after landlords appropriate a fraction λ of the total
agricultural product, with 0 < λ < 1. We assume that subsistence is always guaranteed,
and that λ is exogenously determined as the result of a landlords-peasants conflict so that
its value increases in the relative strength of the landlords.11 In this setup each landlord
receives from his estate a rent which is given by
ρt = λGαt (
NAt 1−α
)
L
(3.4)
and is increasing in the level of employment in agriculture and in the level of technological
progress.12 Note that, were land partitioned among all the landlords’ children, the appropriate denominator Lt would also grow over time eroding this component of landlords’ income,
but this is prevented by primogeniture. The individual wage is
ωAt = (1 − λ) (
Gt L α
)
NAt
(3.5)
Even though feudal rights represent, by their nature, the appropriation of a fraction of
total output, it is instructive to derive their impact on individual wages by introducing a
parameter τ such that λ = [α + τ (1 − α)]. It follows that factor prices can be written as
10
11
A non-linear functional form for the land bequest component et+1 would not affect any result.
In a bargaining framework, λ would be equivalent to the exponent of the landlord’s payoff in the expres-
sion for the Nash product. Mookerjee and Ray (2002) fully develop a bargaining framework to determining
landowners’ taxes on workers’ wealth accumulation.
12
NAt 1−α
In terms of land units, the rent received by each landlord is instead given by λ( G
)
.
tL
13
ρt = [1 +
τ (1 − α)
NAt 1−α
]αGαt (
)
α
L
ωAt = (1 − τ ) (1 − α) (
Gt L α
)
NAt
(3.6)
(3.7)
where λ > α for τ > 0. Therefore, for τ = 0 factor prices coincide with their respective
competitive levels and the feudal “tax” τ can be interpreted as a measure of the degree to
which agrarian relations depart from competition.13
Maximization of (3.6) subject to the choice of τ reveals that the relationship between rents
and feudal rights is humped-shaped, which implies the existence of an optimal level of the
tax from the landlords’ vantage point. However, to keep the following analysis manageable,
we assume that the level of the tax rate τ (or, equivalently, λ) is an exogenous parameter of
the model, set lower or equal than the maximum rate at which the rent with tax is equal to
the rent without tax. For future reference, we highlight this condition as follows.
Assumption 1. At any t the individual rent in the presence of feudal rights is higher than
the individual rent in their absence.
Under the above setting, tax policy will simply be given by the choice over two possible
tax levels, either a fixed τ > 0, or 0.
In the manufacturing sector both the capital and the labor market are competitive.
Indeed even in its early phase the manufacturing sector has been characterized historically
by a totally different structure of property rights and organizational forms, if compared
to agriculture. This justifies a different modeling strategy, in keeps with the development
literature previously cited. Assuming perfect competition in the manufacturing labor market
is an extreme assumption. However, our results are robust to the introduction of a tax
imposed by capitalists on manufacturing wages as long as this tax is lower than the one
on agricultural wages, a reasonable assumption to make since the level of the tax depends
on the relative strength of the groups involved, and manufacturing workers were certainly
stronger and better organized than peasants.
13
NAt 1−α
The competitive rent for each unit of effective land Lt is given by α( G
)
.
tL
14
Profit maximization yields the following wage and interest rate:
ωMt = (1 − α) (
rt = α(
Kt α
)
NMt
NMt 1−α
)
Kt
(3.8)
(3.9)
The capital stock is subject to full depreciation. Migration ensures the equality of the
wage between the two sectors, i.e., ωAt = ωMt ≡ ωt . Equating (3.7) and (3.8), we obtain the
following expression for NAt :
1
NAt = Gt L(1 − τ ) α
NMt
Kt
(3.10)
which shows that, as expected, the number of workers in agriculture is a decreasing function
of the level of the capital stock.14 More interestingly, (3.10) also shows that employment in
agriculture decreases in the intensity of feudal rights. This is consistent with the fact that,
once the development process has opened up new opportunities and control over mobility
has been relaxed, whenever landlords-peasants relations are less favorable towards peasants
the rural system suffers more keenly the competition of the growing modern sector, which is
characterized by very different organizational forms.
Figure 2 illustrates wage and employment determination in each sector at any t. When the
tax is in place, the demand for labor in agriculture shifts to the left, implying a wage ω T lower
than the fully-competitive level ω C , lower agricultural employment and higher manufacturing
employment. As we shall see, over time the demand for labor in manufacturing will shift
up and to the left, pushing up the wage level and absorbing more workers.
We use the notation yit , i = L, W, to denote individual i0 s total income inclusive of capital
inheritance but exclusive of land inheritance at time t. Therefore we have yLt = bLt rt + ρt +ωt
and yW t = bW t rt + ωt .
14
Were the two technologies characterized by a lower labor share in agriculture, as widely accepted, equa-
tion (3.10) would predict a smaller size of agricultural employment and output, relative to manufacturing.
15
Figure 2: Wage and employment determination in the two sectors
16
4
Analysis of the model
4.1
Utility maximization
Each individual maximizes utility (3.3) subject to the constraints
(i) cit+1 + bit+1 ≤ yit
(ii) et+1 ≥ 1
P
(iii) j bjit+1 = (1 + n) bjit+1
for i = L, W, where bjit+1 is the individual capital bequest received by child j. The first
constraint simply states that the individual’s consumption and capital bequest have to be
less or equal to total income inclusive of the capital bequest received by the individual. Note
that, independently on which sector individuals receive their income from, they can consume
any good since they can trade intragenerationally at the unit price. The second constraint
captures the indivisibility of estates due to our assumptions about maintenance costs, where
1 represents the normalized minimum estate size. The third constraint imposes identical
capital bequests to all children, i.e., rules out compensatory capital bequests.
The solution is cit+1 = δyit , bit+1 = (1 − δ)yit , bjit+1 =
bit+1
,
1+n
for i = L, W, and et+1 = 1.
The last expression implies that bequeathing land to a single child is not an assumption or
the expression of parents’ preferences, but is the rational response of altruistic parents to
the indivisibility of landed estates.
In their first period, those individuals whose capital holdings are higher than eb vote on
the tax policy which will affect their remunerations at t + 1.
4.2
Market clearing
Given the above results, the market-clearing condition for the capital market is
Kt+1 = (1 − δ)yLt L + (1 − δ)yW t Wt
(4.1)
Aggregating over individual incomes, we obtain
Kt+1 = (1 − δ)(YtA + YtM )
17
(4.2)
where employment in each sector is given by (3.10) and by the following condition for market
clearing in the labor market:
NAt + NMt = Nt
(4.3)
Note that at the aggregate level the unit price assumption, together with our preferences,
implies that some manufacturing goods must be consumed, otherwise the price of the manufacturing good would have to be higher than the price of the agricultural good. In other
words, Kt+1 < YtM and the saving rate, given by (1 − δ) =
Kt+1
,
Yt
is bounded above by
YtM
,
Yt
where Yt = YtA + YtM .
The agricultural and the manufacturing goods markets must also be cleared at each t,
implying
A
YtA = cA
Lt L + cW t Wt
(4.4)
M
YtM = cM
Lt L + cW t Wt + Kt+1
(4.5)
M
where cA
it and cit , for i = L, W , are the individual consumption levels of the agricultural and
of the manufacturing goods for the currently old.
As previously explained, no market for land exists since land is never put for sale. Another
feature of the model is that, while the saving rate is constant over time, the portion of
the manufacturing output which is invested at each t must vary, being given by
(1 − δ)(1 +
YtA
YtM
4.3
YtA
)
YtM
Kt+1
YtM
=
which is larger than (1 − δ) and, as we shall show, decreases over time as
declines.
Political-economic equilibrium
Definition 1 A perfect-foresight political-economic equilibrium is a sequence
A
M M
A
M
∞
{cA
Lt , cW t , cLt , cW t , Kt , Yt , Yt , Gt , NAt , NMt }t=0 such that at each t utility and profits are
maximized, all markets clear, and tax policy is set by the median voter, starting from given
initial values of K0 , N0 , and G0 , and given the set of parameters n, g, α, δ, L, τ and eb.
18
The equilibrium path solves simultaneously equations (3.6)-(3.9) and (4.2)-(4.5), plus the
wage-equalization condition (3.10).
4.4
The output-maximizing tax rate
From (3.10) and (4.3) we can derive the following expression for total output at each t:
Yt = {[ψ(τ, Kt )]1−α Ktα + [1 − ψ(τ, Kt )]1−α (Gt L)α }Nt1−α
where ψ(τ, Kt ) ≡
Kt
1
Kt +Gt L(1−τ ) α
(4.6)
. Output maximization by choice of the sectoral allocation
of labor yields a tax rate equal to 0, with ψ(0, Kt ) ≡
Kt
.
Kt +Gt L
It follows that the level of
employment in agriculture increases with tax abolition. Therefore, a change in tax policy
positively affects the process of capital accumulation and income growth by removing the
distortion on sectoral labor allocation. This is summarized by the following proposition.
Proposition 1 (i) At each t, the level of output for τ = 0 is higher than the level of output
under a positive tax; (ii) at each t, employment in agriculture (manufacturing) for τ = 0 is
higher (lower) than employment in agriculture (manufacturing) under a positive tax.
For τ = 0, the agricultural sector is characterized by a new, competitive organizational
form, so that the process of structural adjustment is temporarily slowed down with a reallocation of workers towards agriculture. However, as we shall clarify below, this return to the
land is only temporary and does not prevent the industrialization process.
4.5
The balanced-growth path
The dynamic evolution of the system can be analyzed using the capital market clearing
condition (4.2), starting from an initial condition K0 , where K0 is assumed to be small.
Along the equilibrium path, workers migrate to the manufacturing sector as the capital
stock grows, while the agricultural sector shrinks. Therefore, the agriculture share of output varies inversely with the level of development. In the long run, the dynamical system
evolves towards a unique and stable balanced-growth path, where all the relevant variables,
19
and in particular Kt , Lt and Yt , must grow at a rate n.15 The rate of growth of technological
progress in agriculture, g, has to be equal to n in order to sustain such a path with an
appropriate expansion of the quantity of effective land since, with land as a fixed factor,
population growth has to be balanced by an identical growth of effective land. In other
words, despite the presence of technological progress, in this model a balanced-growth path
involves constant land-labor and capital-labor ratios. Moreover, as implied by Proposition 1,
the higher the intensity of feudal power, the lower capital, output and agricultural employment, the higher manufacturing employment. After the abolition of the tax, the process of
structural adjustment progresses at a higher speed leading to higher balanced-growth levels
of Kt and Yt . We can therefore state the following.
Proposition 2 (i) In the long run the economy reaches a balanced-growth path if and only
if g = n; (ii) in balanced growth, the capital-labor ratio and the output-labor ratio for τ = 0
are higher than their respective levels under a positive tax.
Figure 3 illustrates the evolution of the capital-labor ratio kt ≡
(1 − δ)yt , where yt ≡
Yt
.
Nt
Kt
,
Nt
given by kt+1 =
The highest trajectory describes the evolution of kt for τ = 0,
i.e., under competitive factor prices in agriculture. The corresponding balanced-growth
level of the capital-labor ratio is kC . The lowest trajectory is drawn under the hypothesis
of ψ(τ, Kt ) = 1, i.e., as if the entire labor force were employed in manufacturing so that
yt = ytM , with ytM ≡
YtM
.
Nt
The intermediate trajectory finally describes the evolution of
kt when the tax is in place and the capital-labor ratio converges to kT .16 The effect of the
tax is to shift the competitive trajectory down by compressing employment in agriculture.
The higher the tax, the stronger the effect and thus the discrepancy between kC and kT .
Starting from an initial situation in which the tax is in place, the economy moves along the
intermediate trajectory until the time at which the tax is abolished, and then jumps on the
15
16
See Eaton (1987) for a formal proof.
Since all sources of income accrue to individuals in the same period of life, the impact of feudal rights
on accumulation depends on sectoral reallocation and not on intergenerational redistribution as in Drazen
and Eckstein (1988).
20
Figure 3: The evolution of the capital-labor ratio
21
highest.17
4.6
Evolution of income and wealth distribution
We shall keep track of the evolution of factor prices, income and wealth accumulation as
time goes and sectoral reallocation progresses, taking into account the impact of a change
in tax policy. From (3.7) and (3.8) the evolution of wages can be expressed as
ωt+1
1+n α
Kt+1 /Kt α
=(
) =(
)
A
ωt
1 + nt
1 + nM
t
(4.7)
M
where nA
t and nt are the rates of growth of employment in agriculture and manufacturing,
A
respectively. Before the system converges to the balanced-growth path, nA
t < n since nt < 0,
and capital grows more than employment in manufacturing, so wages increase over time. In
balanced growth they will be constant, since employment in the two sectors grow at the
same rate as population and capital. Examine now the evolution of the interest rate, which
is given by
rt+1
1 + nM
n
=(
)1−α
rt
Kt+1 /Kt
(4.8)
which implies declining rates until they settle at a constant balanced-growth level. Rents
A
t 1−α
per unit of effective land show a similar pattern, given by( 1+n
) . However, what matters
1+n
for each individual landlord is the evolution of actual rent per estate, i.e., their individual
rent, which is given by
¡
¢1−α
ρt+1
= (1 + n)α 1 + nA
t
ρt
(4.9)
with individual rents declining less than effective rents - or possibly growing depending on
the relative size of n and nA
t - before balanced growth is reached, and growing at a rate
17
Balanced growth can be reached before or after the tax is abolished. In the former case, if the economy
has already settled at kT , tax abolition constitutes a permanent shock that causes the system to move to
the new, upper path leading to a new balanced-growth equilibrium, k C .
22
n = g in balanced growth. Therefore, as the size of the landlords’ group is kept constant by
primogeniture, the actual rental income of each landlord grows.18
Let us turn now to the between-classes differential evolution of income and wealth. Outside balanced growth, income grows for each individual - albeit at different rates. In balanced
growth, the wage and interest rates are constant, while the rent component of landlords’ income keeps growing indefinitely following agricultural productivity. The difference between
the level of income of a landlord and a worker is given by yLt − yW t = (bLt − bW t )rt + ρt .
Clearly the gap is always positive even if we start with the same initial capital. Once balanced
growth is reached, the rent component keeps increasing while everything else is constant,
implying an increasing differential.19 The capital bequest of the landlords will always be
higher than the capital bequest of the workers. Thus the aristocracy will retain its economic
supremacy (even though, as we shall see, not its political supremacy) not only because of its
additional source of income through land ownership, but also because of its diversification
into capital and manufacturing. In fact, since land as a source of income becomes negligible if compared to capital, the second factor plays a decisive role in this process. When
considering the distribution of total wealth, the weight of land will also be declining, since
before balanced growth is reached capital is growing more than effective land. This implies
a reduced impact of primogeniture on the intergenerational transmission of the economy’s
wealth, that further dilutes wealth concentration. So the economic importance of primogeniture declines with capital accumulation and sectoral reallocation towards manufacturing. In
the long run, partition regulates intergenerational transfers for most of existing wealth and
for most families.
We shall now examine the impact of the feudal rights. By substituting (4.3) and (3.10)
into the expressions for the factor prices (3.6)-(3.9), we obtain their equilibrium values as
follows:
18
Were primogeniture replaced by partition, the rate of growth of rent per landlord would be lower, and
1−α
(1+n)α (1+nA
α
t )
given by a factor of
, which reduces to (1 + n) in balanced growth.
1−α
(1+n)
19
In balanced growth the aggregate rent of the landlords’ group grows at n = g like the other aggregates.
23
1
Kt + Gt L(1 − τ ) α α
ωt = (1 − α) (
)
Nt
rt = α(
ρt = [1 +
Nt
Kt + Gt L(1 − τ )
1
α
)1−α
1−α
τ (1 − α)
Nt
1−α
](1 − τ ) α αGt (
1 )
α
α
Kt + Gt L(1 − τ )
(4.10)
(4.11)
(4.12)
While the wage increases with tax abolition, the interest rate decreases, and so does the
rent under Assumption 1. We collect the above results in the following proposition.
Proposition 3 (i) The landlords’ individual income and capital bequest are always larger
than the workers’ individual income and capital bequest; (ii) over time the proportion of land
out of total wealth declines, and so does the incidence of primogeniture; (iii) the abolition
of the tax has a positive effect on the wage rate and a negative effect on the interest and
individual rental rates.
4.7
Evolution of class structure
A crucial implication of primogeniture is the fact that the model endogenously creates multiple income and wealth classes, as new cadet lines are created at each t. By cadet lines,
we mean generations of younger children of the aristocracy that at each t are excluded from
land ownership and join the workers’ class, starting with a capital bequest which differs from
that of the original worker lines, as well as from that of the previously-created cadet lines.
In other words even assuming, as we did, identical initial capital bequests, at each time t we
observe t + 2 types of individuals defined by the different level of the bequest they receive.
The first type, with the highest bequest, are the first born of the aristocracy who also receive
a land bequest (at each t, we have a line of landlords, i.e., of first born at each previous t of
the original landlords, for each original landlord). A second type is represented by landlords’
second born, who receive a capital bequest equal to that of the first born, but no land. A
third type, with the lowest bequest, characterizes individuals who come from the original
workers (again, we have a line of “pure” workers, expanding at the rate n, for each original
24
worker). Individuals of this third type are the most numerous. The remaining, intermediate
t − 1 types come from subsequent generations of cadets who are expelled from the landlords’
class at each t, with larger bequests for the more recently created cadet lines. For example,
as in Figure 1 assume that n = 1 and that at t = 0 we have only one landlord and one
worker, with bL0 > bW 0 . At t = 1, there will be one first born of the landlord, receiving a
certain capital bequest plus land, a landless second born of the landlord, receiving an identical capital bequest but moving into the workers’ group, and two children of the original
worker, receiving an identical bequest. So indeed at t = 1 there are three types of bequests
being received. We can therefore state the following proposition.
Proposition 4 At any t there exist t + 2 types of individuals characterized by the bequests
they receive, t + 1 of which belonging to the workers’ group.
Given the stratification of bequests within the workers’ group, we shall indicate as the
“middle class” those workers who have received a sufficiently large bequest to achieve political
participation. By excluding younger children from landed property, primogeniture plays a
crucial role in affecting the composition of the emerging middle class and its chances of
upward social and political mobility. Moreover, capital accumulation and thus the growing
incidence of partition will intensify the pressure towards wealth redistribution.
4.8
Evolution of political participation
We shall refer to the extension of political participation as “democratization”. From the
above discussion, it is clear that most recent generations of cadets will always be at the
top of the wealth distribution within the workers’ group, so that they will be the first to
cross the wealth threshold eb. When the process of democratization begins, the number of
the new voters is simply nL, so for n < 1 the newly enfranchised will be outnumbered
by the landlords and will not be able to affect tax policy. Period after period, however,
additional relatively wealthy cadet lines join the workers’ group and add to the middle class,
and at some point political participation will also be obtained by the rest of the workers,
with previous-generations cadets still coming first. Gradually, all individuals will be able
25
to participate into the political process, so full democratization eventually prevails for a
sufficiently low eb.
However, for tax policy to be affected, it is sufficient that a majority of the enfranchised
is constituted by workers, so that a worker is the median voter, provided that indeed workers
prefer tax abolition and landlords prefer its retention. This is ensured under the conditions
spelled by the following lemma.20
Lemma 1. Under Assumption 1, for any bLt and bW t such that bLt > bW t , workers prefer
tax abolition and landlords tax retention if and only if the following conditions hold at any
t:
(i) bW t < βW t , and
(ii) bLt > βLt ,
where βW t ≡
α
(1−α)(Σα
t −Γt )
α−1
α−1 ,
αNt (Γt −Σt )
1−α
βLt ≡ {Gt
1
[1+ τ (1−α)
](1−τ ) α Γt 1−α −Σt 1−α
α
(Γt Σt )1−α (Γt α−1 −Σt α−1 )
−
(1−α)(Γt α −Σt α )
},
αNt (Γt α−1 −Σt α−1 )
Γt ≡
Kt + Gt L and Σt ≡ Kt + Gt L(1 − τ ) α .
Proof: See the Appendix.
Lemma 1 establishes conditions under which indeed the abolition of the feudal rights
benefits the workers and hurts the landlords, so that it will be implemented only when the
median voter is a worker. Conditions (i) and (ii) have an intuitive interpretation. Notice
that, while the wage component of income increases with tax abolition, the interest rate
decreases, and so does the rent under Assumption 1. For conflicting preferences over tax
policy to arise, we need that, when the tax is abolished, landlords’ income goes down while
workers’ income goes up. The issue is not trivial because both workers and landlords own
capital and supply labor.21 So for workers the loss from capital holdings must be smaller than
the gain from labor remuneration, while for landlords the rental loss must not be compensated
by an increase in the labor-plus-interest income. Condition (i) ensures that workers’ capital
20
Despite the heterogeneity of income and bequest levels among workers, with a slight abuse of notation
we shall still denote them by yW t and bW t without introducing any additional indexing.
21
Early two-class models in the tradition of Kaldor (1955) avoided this issue by assuming that workers
only receive labor income and do not save, while the elite only receives property income and invest it. This
simplification implies a set of highly ad hoc assumptions regarding preferences and distribution.
26
holdings are indeed small enough not to compensate with an interest-income loss the wage
gain. Condition (ii) in turn ensures that landlords’ capital holdings are large enough that
their labor-plus-interest income does not grow more than the rental loss or, equivalently,
that the combined decline of rent and interest income is larger than the wage gain. Note
also that Assumption 1 per se would not ensure that (ii) holds true, while it implies that
the capital threshold for landlords is smaller than for workers, i.e., βLt < βW t . To sum up,
Lemma 1 requires that workers must hold a relatively small amount of capital, while the
opposite must be true for landlords, in order to obtain conflicting preferences over tax policy
with workers voting for abolition. Given that accumulation is faster for landlords than for
workers, the conditions imposed in Lemma 1 are mild ones.
A corollary of Lemma 1 implies that each generation of cadets joining the working group
must hold a bequest in (βLt , βW t ). The bequest must be below βW t for these individuals,
once turned workers, to prefer abolition, but since the bequest is identical to that of the first
born, it also must be above βLt for their landowning siblings to prefer retention.22
In the following analysis we assume that the conditions established for Lemma 1 are
satisfied for landlords and for all workers. The following lemma establishes a condition for
workers to translate their preferences into actual political power.
Lemma 2. The feudal tax is abolished when a number of workers larger than L holds a
bequest in [eb, βW t ).
Proof: See the Appendix.
Lemma 2 restricts the size of the workers’ bequest to an interval over which they prefer
abolition and at the same time they can express their preference through voting. A number
of workers larger than the number of landlords must hold a bequest in this interval for
workers to set tax policy. A corollary of Lemma 2 is that eb must be smaller than βW t for any
worker to be able to vote. Under the assumptions spelled by Lemma 1 and 2 we can finally
derive the following proposition.
22
A cadet richer than βW t would instead ally with the aristocracy in retaining the tax. An extension
explores this possibility in more detail.
27
Proposition 5 (i) The process of democratization is a gradual one; (ii) the tax is abolished
once the median voter is a worker; (iii) tax abolition can occur before full democratization
obtains.
The process of enfranchisement will therefore begin gradually, with cadets voting first,
and will be followed initially by the abolition of feudal rights and then by full democratization, i.e., by full participation of the entire workers’ mass to the political process, with the
timing depending on n, L, eb and the technology parameters. For some parameter constella-
tions, abolition can actually occur only when the entire mass of original workers’ children is
enfranchised. If instead it occurs earlier, democratization will be accelerated once the middle class has conquered political power and feudal rights in agriculture have been abolished.
From the previous analysis, we know that the abolition of feudal rights by a workers’ majority reduces the income gap between landlords and workers and also affects the subsequent
evolution of bequests and wealth distribution.
4.9
Summary
To sum up, the model evolves from an initial aristocratic stage, where landlords hold all
political power and exploit their feudal privileges. As capital accumulates, workers start
migrating towards the manufacturing sector, while the agricultural sector shrinks. The tax
leads workers to leave agriculture but also depresses the economy-wide wage rate, putting
the economy on a lower balanced-growth path and thereby delaying the establishment of a
democratic majority to abolish feudal taxation. As the workers’ capital bequests increase,
the richest workers will reach eb, marking the emergence of a bourgeoisie, and the process of
democratization begins. Once the tax is abolished sectoral reallocation will proceed, with
an acceleration of capital accumulation and income growth because of the removal of the
distortion, so that wealth equalization and democratization further progress. Throughout the
process, the importance of land as a portion of total wealth declines implying a reduction
of the incidence of primogeniture and further equalizing pressure. Therefore, we observe
an association among the evolution of society from an aristocratic political system into a
democracy, sectoral reallocation from agriculture into manufacturing and, as land is replaced
28
by capital in the composition of society’s wealth, a shift from primogeniture to partition. It
should be stresses that, while primogeniture over the land follows directly from our estate
indivisibility assumption, the evolution of the principal mode of transmission of the whole
of society’s wealth is an endogenous outcome of the model. We can therefore conclude with
the following main proposition.
Proposition 6 There exists an association among sectoral allocation in production, type of
political system, and system of inheritance. This association is founded on the nature of
the primary source of wealth, with agrarian economies being organized as aristocracies where
primogeniture prevails, and industrializing economies evolving towards democratization and
equal partition.
5
Extensions
5.1
Compensatory bequests
The historical literature documents the widespread use of non-land, at least partially compensatory bequests for cadets, as well as dowries for daughters. In the present model, these
provisions would amount to a distribution of the capital bequests among children in an
unequal way, with the first born getting a smaller share, in order to compensate his primogeniture on the land.23 Compensatory bequests reduce wealth inequality between landlords
and cadets and increase it between cadets and workers. Under the maintained conditions
for Proposition 1, this implies a process of democratization which starts relatively soon even
though it will proceeds relatively slowly. However, if cadets turn out to be sufficiently rich
(i.e., condition (i) of Lemma 1 is not satisfied) it will be in their interest to side with the
aristocracy. It is well known that many of the cadets were actually entering the clergy or
the military, and therefore constituted a well-defined, separate social group whose interests
23
A rigorous comparison between land and capital would require to consider the price of the two assets,
given by the present discounted value of the income accruing to each asset, i.e., effective rents and interests,
respectively. Since they both decline through time, we can abstract from their explicit consideration without
affecting the qualitative results.
29
were often closer to the aristocracy’s own. In this case, the workers’ struggle against the
aristocracy and its allies will inevitably be a longer one.24
5.2
An agrarian aristocracy
To capture a widely-shared, but only partially-verified perception of the aristocracy as a
group that did not contribute to industrialization, and remained attached to the landed
estates as its only source of wealth, consider the following variant of the basic model, which
can capture the late latifundia economies of Southern Europe. Landlords have no initial
capital b0 , only workers do. Moreover, to reflect restrictions that were enforced in some
historical circumstances, the aristocracy is prevented from entering activities other than
agriculture by purchasing capital at later dates, so that it can simply consume its entire
rental and labor income. This implies that cadets are left with their own labor to supply,
and no capital, so they will always enter the workers’ class from the bottom. Therefore, the
children of the original workers will be the first to reach political voice and will immediately
outnumber the members of the aristocracy. The predictions of this variant of the model are
an early conspicuous consumption for the aristocracy, its relative impoverishment due to
lack of diversification, and the emergence of a middle class consisting of individuals of low
social extraction who will be able to reverse tax policy as soon as democratization begins.25
6
Historical evidence
The main purpose of this section is to justify on the basis of the available historical evidence
the main assumptions on which our model rests. In particular, we provide support for
the assumption that aristocratic power was based on the land, and that primogeniture was
common practice among the aristocracy because of a need to keep large estates together. We
also provide information on the role of cadets, the nature of feudal rights and the evolution
24
Bertocchi and Spagat (2001) analyze the case of a middle class that is co-opted by the elite against the
lower classes within a divide-and-rule strategy.
25
Doepke and Zilibotti (2005) offer an alternative theory of the demise of the aristocracy, according to
which the rural aristocracy proved too impatient to invest in the new industrial technologies.
30
of class structure and political power within the relevant time framework. We indicate
how geographical differentiation and time variations may have influenced different areas of
Europe. The evidence we bring also confirms the main results of the model concerning the
process of growth and sectoral reallocation, the evolution of feudal rents, the dynamics of
class structure and the diminishing relevance of primogeniture.
6.1
The time framework
Up to the year 1000, after the fall of the Roman Empire and continuing through the phase
of the barbaric invasions, Europe went through a deep economic and political crisis. Income
and population stagnated. Things turned for the better in the next millennium, in part
thanks to the introduction of feudalism in the 9th century. Maddison (2001) provides longterm data on population and GDP growth for Western Europe. Population stagnated until
the year 1000, and started growing in the 1000-1500 period (at an average annual rate of
0.16%, despite the occurrence of natural catastrophes such as Black Death). Population
growth intensified in 1500-1820 (+0.26%) and took off after 1820. Per capita GDP growth
in Western Europe is estimated to grow at an average annual rate of 0.13% in the 10001500 period, 0.14% in 1500-1600 and 0.15% in 1600-1820, to jump to 1.51% in 1820-1998.26
So the period we are interested in witnessed a slow but steady process of development,
which accelerated only towards the end. Together with the sizeable increase in population,
the 1000-1500 period came with an expansion of the area of rural settlement and with
the gradual incorporation of technological changes that raised land productivity. The 12th
century is commonly viewed as the golden age of the feudal economic and political system.
Afterwards, agriculture started its transformation, trade began its development, urban
growth slowly accelerated. The impact of these phenomena implied a deterioration of the
feudal organization of society, which reached a deep crisis in the 14th century, preluding to
the transition towards mercantile capitalism. In extreme synthesis, in turn during the 17th
26
For Eastern Europe, the pattern is quite similar, with average annual population rates of 0.15%, 0.31%
and 0.72% in 1000-1500, 1500-1820 and 1820-1913, respectively, and per capita GDP growth at 0.04% in
1000-1500, 0.10% in 1500-1820, and 1.06% in 1820-1998.
31
century mercantile capitalism entered a crisis leading to the rise of industrial capitalism.
In fact, the most important difference between the preindustrial and the modern industrial
societies rested on the greatly diminished role of agriculture in the latter, following the
progressive rise of manufacturing which started, at least in Britain, at the beginning of the
18th century. Accordingly, urbanization rates in Western Europe are estimated by Maddison
(2001) at 6.1 in 1500, 7.8 in 1600, 9.9 in 1700, 10.6 in 1800 and 31.3 in 1890. Nevertheless,
the influence of feudalism on the economy and society did not fade until the 19th century
(Pirenne (1925, 1963), Goldstone (1991)).
Overall, our focus is on the period running from 1300 to 1800, which witnessed the
transition from feudalism to capitalism, i.e., started from the decline of the primarily agrarian
and aristocratic society of the 14th century and ended with the emergence of industrial
capitalism and the establishment of bourgeois political power. Of course the presence of
cyclical patterns and marked geographic differentiation makes it difficult to trace a simple
historical trend and will force us to unavoidable generalizations.27
6.2
The aristocracy and the land
In the critical scenario of Middle-Age Western Europe, feudalism was introduced by the
Frankish kings in the 9th century as a system of military and political relationships aimed
at maintaining external security and domestic order. In order to guarantee a stable flow of
income to support military expenses and an organized bureaucracy, the feudal lords were
granted the income from great estates in return for military service and for the local administration of justice (Pirenne (1963)). By bringing political and economic stability, feudalism
contributed to the solution of Europe’s crisis. At the same time, it established the agrarian
basis of Europe’s political order and the roots of aristocratic power. Despite regional differentiations but with substantial homogeneity within Europe, at least until the end of the
18th century the nobility remained a ruling social elite whose economic power was based on
27
For example, the demise of the feudal organization occurred as early as in the 12th century where trade
grew faster, i.e., in Lombardy, Tuscany, Northern France, and Flanders, while it manifested itself only in
the 13th century in Germany and England. On the other hand, the subsequent phase of technological
improvement was faster in Northern France and Southern Britain, slower in the Mediterranean area.
32
the land and that exercised exclusive military and political power (Labatut (1978)). In some
countries, for example Russia and Poland, literally all the land was in the hands of the nobility, while this was not true for example in Sweden or France. In England the nobility held
a portion of the land much higher than in the rest of Europe (Dewald (1996)). Nevertheless,
the control of the land by the aristocracy was preponderant overall.
In the first few centuries of the modern age the European nobility faced a series of
transformations linked to the advent of capitalism and its impact on the agricultural sector.
While in the beginning land was the basis of the nobility’s wealth, diversification occurred
even at a relatively early stage. In 1500 land was still the only form of investment, and
in fact it was forbidden for a nobleman to become engaged in commerce or industry, but
progressively this rule was relaxed. For example, France in 1669 allowed the nobility to be
involved with maritime trade. Manufacturing and banking were also allowed by 1767. In
England the nobility was deeply involved in mining and trade (Labatut (1978)). Therefore,
despite the incontrovertible decline of the landed basis of aristocratic power, at the same time
the nobility was able to adapt to the changing economic conditions and, with the gradual
loss of importance of agriculture, we observe a progressive diversification of its wealth, with
involvement in commercial and industrial activities (Dewald (1996)). This process intensified
after the 17th century and by mid-18th century many members of the nobility invested in
commercial and financial activities (Lindert (1986)).
To conclude, the evidence confirms the role of land as the basis of aristocratic power
and, on the other hand, the ability of the aristocracy to diversify its wealth into trade and
manufacturing as land loses its central role.
6.3
The land and primogeniture
During the 13th century, primogeniture emerged as a reaction to the intensified demographic
pressure and the consequent inefficient partition of land. It kept spreading across Europe
up to the 16th and the 17th century, although marked differentiations in the local laws
and in the actual customs were present. Generally speaking, however, for many centuries
it remained most common among the nobility and whenever land constituted a dominant
33
portion of wealth. In particular, primogeniture was linked to feudal tenure, where it was
favoured for military reasons and generalized control and it was also supported by Church
and State (Goody et al. (1976)).
One should be aware that the regulation of inheritance may be based on the laws, the
customs or the actual practices, which need not correspond. Moreover, customary systems
of law continued to change even after the customs were codified. Nevertheless, and despite
the presence of variations within Europe, the broad similarities within which these variations
occurred allow to offer a unified picture of these developments. In the period between the
15th and the 18th centuries, the descent of land among great landowners was indeed regulated
by male primogeniture, settled by a system of entails which forbid alienation of the family
land (Goody et al. (1976)). Entails were introduced to preserve the property and name of
great houses who were founded on landed wealth (Werner (1998)).
Primogeniture is a distinctive feature of Western European society, practically unknown
to antiquity, which also emerged in other societies, such as Japan, where wealth distribution
was largely determined by land concentration. Conversely, where most wealth belonged to
traders and nomads and was therefore easily moved and partitioned, as in ancient Western
Arabia, egalitarian principles prevailed. Kuran (2003) reports how the Qur’an prohibits exclusionary practices for Islam. Similarly, Platteau and Baland (2001) document how partible
inheritance always prevailed in pre-agricultural SubSaharan Africa.
If we focus on Europe in 1500-1700, a map of the customs of inheritance shows primogeniture predominating in England, Scandinavia and parts of France and Eastern Europe.28
Castilla also adopted it later through the so-called mayorazgo. Partition was prevalent in
trade-oriented 14th century’s Italy, where fideicommissary entails subsequently spread due
to Spanish domination, and gained ground as the country turned into a primarily agrarian
28
Ekelund et al. (2002) acknowledge the existence of a controversy among historians regarding the preva-
lence of primogeniture in England. They argue that after the Normans introduced it, it was systematically
avoided through a number of devices, until the Statute of Wills of 1540 de facto abolished it (see Spring
(1993)), in accordance with the needs of a dynamic economy subject to market forces. However, if this
is generally true for aggregate wealth, landed estates were and still often are subject to primogeniture in
England.
34
economy.29 A differentiation in the customs even existed within two areas of 16th-century
France, with primogeniture (preciput) prevailing in the South and in the Walloon and partition in the West.30 In Germany the tradition in favor of partitioning estates had been strong
in the Middle Ages, but primogeniture gained ground in the 16th and early 17th centuries.
It was, however, never adopted in Russia, where the nobility was never in a position of power
in the face of the Tzars’ absolutism (Goody et al. (1976)), so that partition was employed
as an effective policy to keep it in a weak position. The consequences of primogeniture on
younger children were often harsh. However, it should be noticed that cadets were always
taken care of somehow (Labatut (1978)). The exclusion of younger siblings was rarely if
ever total, and meant in most cases only exclusion from the land, with provisions in money
(alimenta) as a partial compensation.31
The predominance of primogeniture throughout the centuries occurred despite all the
controversies that it provoked, and the fact that the demographic, social and economic
reasons for it to emerge were already changing by 1800. As de Tocqueville ([1835] 1956) well
understood, it is the law of inheritance that produces aristocracies, since the inheritance laws
based on primogeniture were able to protect the cohesion of the family wealth on which the
political stability of monarchies was founded, while partible inheritance would undo them and
promote social mobility. With the Enlightenment the maintenance of a wider distribution of
property started to be viewed instead as the foundation of political stability and the French
29
Among the Venetian nobility fideicommissa became general after 1550. They were not accompanied by
primogeniture and simply prohibited alienation but, since usually only one brother married, the result was
the same as under primogeniture. As a consequence the Venetian nobility was on the verge of extinction by
the 17th century. Habakkuk (1955) discusses the link between law of inheritance and population growth.
30
However even if the law did not allow entails, still de facto entails were used to set up rules of succession
for great families. In addition, again in the actual practice only one son used to marry.
31
A distinction between laws of inheritance can also be observed for social groups below the nobility, with
primogeniture always being associated with land holdings. In early 16th-century England primogeniture was
noticeably extending among the gentry and by the 19th century it was adopted even by the middle classes.
German peasants in regions characterized by large land holdings were also practicing primogeniture, while
for centuries in the British Midlands there existed a clear relationship between type of inheritance and nature
of wealth, with only reproducible resources such as fishing and forestry being subject to partition (Goody et
al. (1976)).
35
revolution eventually abolished entails. In the middle of the 18th century, fideicommissary
entails were outlawed in Piedmont and Tuscany and soon afterwords England witnessed
attacks on strict settlements and the campaigns for free trade in land. But it is only with the
19th century that most European countries outlawed primogeniture, with some exceptions
like Germany and with parents’ discretion still surviving in certain cases as Britain.32
Overall, the historical evidence confirms the link between land and primogeniture, and
therefore between aristocratic power and primogeniture.
6.4
Feudal privileges
As previously mentioned, the organizational form of the landlords-peasants relationship has
evolved over time and varied across countries. In the present model the complexity of feudal rights are captured by the tax parameter, which proxies for the variety of services and
other dues imposed on peasants (Pirenne (1963), Binswanger et al. (1995)). Geographical
differences were present, with Eastern Europe showing harsher conditions for peasants than
elsewhere (Labatut (1978)). The presence of feudal rents is identified by historians as a
growth-retarding factor, as confirmed by the performances of Russia as an extreme case33
(Dewald (1996)), but also of France if compared to England (Moore (1966)). Over time we
observe an evolution of feudal rents. Serfdom was slowly abolished after the 12th century,
but feudal dues persisted much longer. Following the initial crisis of feudalism many nobles, being unable to adapt to the new situation, became heavily indebted and eventually
ruined (Pirenne (1963)). However, the largest landowners were able to survive by initiating
a process of reorganization of production towards more efficiency. After the 17th century
with the decline of feudalism land did not provide a large income any longer, in part because of the tendency towards a progressive relaxation of the servile relationships, which
32
The controversy on inheritance laws spread from Europe to colonial America. Virginia formally adopted
primogeniture, while the Massachusetts legislature adopted partible inheritance though it gave the elder
son a double share, an idea coming from Biblical sources. See Alston and Schapiro (1984) for a description
of inheritance laws in the colonies and De Long (2003) for a comparison with Europe.
33
A stricter enforcement of serfdom, disallowing migration out of agriculture, constituted an additional
growth-retarding factor for Russia.
36
intensified towards the end of the 18th century. The removal of feudal rights occurred first
in England, where the nobility reacted with a successful attempt to make the land more
productive. During the 17th and 18th centuries the methods of cultivation were modernized, and enclosures of the landed properties was introduced.34 It was the French revolution
that notoriously completed the process of removal of residual feudal rights in agriculture,
with effects spreading with Napoleon from France to most of Continental Europe (despite
exceptions surviving in the latifundia of Spain and Southern Italy).
Therefore, consistently with the predictions of the model, feudal rents constituted a
growth-retarding factor, while the income of the nobility remained relatively high during the
first centuries of the modern age, despite regional and individual variations. In addition,
feudal power was abolished earlier in countries with more developed commerce and industry,
and therefore with smaller residual agricultural employment. At the same time the removal
of distortions made agriculture more efficient retarding its decline.
6.5
Estate costs
Turning to estate maintenance costs, over the centuries there was an evolution in their
nature even though they always consistently remained large (Pirenne (1963)). European
society at the close of the Dark Ages was characterized by pervasive military insecurity that
was caused on the one hand by the wars among the successors of Charlemagne, and on the
other by the incursions of Vikings, Magyars, and Moslems. This insecurity gave rise to an
extremely high demand for military protection (Volckart (2000)). The military revolution
of the 16th century dramatically increased the cost of war by changing its scale (Goldstone
(1991)). The costs of maintaining a court were another crucial component. Especially
after the 17th century, the mere standard of living also became extremely expensive for the
nobility which became more and more inclined to spend (Labatut (1978)). Religious reasons
were especially important in Spain, while elsewhere it was burdened with services due to the
State, and everywhere enormous sums were used for countryhouses and gardens. Finally, the
34
Indeed O’Rourke and Williamson (2005) show that in England the ratio of wages to land rents started
rising only with the initial industrialization phase around 1850.
37
development of the market economy with the 17th century exposed the nobility to growing
needs of cash to sustain its living standards and social status.
In the face of these considerations, captured by our indivisibility constraint, for centuries fragmentation of property was viewed as extremely dangerous for the preservation
of aristocratic wealth and power and, more generally, for political stability in aristocratic
systems.
6.6
Class structure and political power
Class structure in the early rural society was based on the distinction between lords and
peasants, with the clergy somehow in between. The nobility was formally involved in the
exercise of political power and the administration of the State. The first challenge against
aristocratic power was represented by rebellions starting in the 11th century within the cities
(Pirenne (1925)), led by enriched merchants demanding freedom from feudal control on society. Later on, the civil war in England and the French revolution were two examples of
bourgeois revolutions under different circumstances, but characterized by a common decisive factor, the formation of a social group with an independent economic basis which was
able to remove the obstacles that the agrarian heritage represented for the development of
democratic capitalism (Moore (1966)). This is consistent with our model’s assumptions and
results. More specifically, in England the rural elite played a leading role in the process
of promotion of modern organizational forms in agriculture, industrialization and political
evolution, and thus survived these developments with an osmosis between landed aristocracy
and capitalistic bourgeoisie that caused an early removal of feudal rights but at the same
time allowed the aristocracy to retain economic and political control. In France the lack of
independence of the nobility from the king and its reluctance to adapt led to a delayed but
more abrupt defeat of feudal power, guided by the capitalistic bourgeoisie that at the end
of the 18th century ended the ancien regime (Pirenne (1925)).
Overall the industrial revolution had little impact on the political role of the aristocracy
(Dewald (1996)). Still up until Waterloo the landed aristocracy kept its power, and up until
the middle of the 19th century the richest were still the landed aristocrats. Consistently
38
with the model’s predictions, the abolition of feudal rights and democratization did not
remove the nobility’s control of most of the economic, political and cultural life, at least
until the end of the same century. This supremacy, however, was challenged by the growing
middle class which, by mid-19th century, reached the political and economic leadership
in Western Europe (and, by the end of the same century, in most of Central Europe as
well). This middle class had made its appearance between the nobility and the workers
with the start of industrialization, and was further differentiated internally, including at
least two components, one closer to the lower aristocracy and the other to the working
class. In England, for instance, the early growth of capitalism caused the cadets to play a
particularly dynamic role within the middle class (Goody et al. (1976)). The revolutionary
potential of the disinherited offsprings of the aristocracy, pushed towards the army or the
clergy, is stressed also by Goldstone (1991) and Pirenne (1963), while on the other hand
Pirenne (1925) speculates that younger sons of peasants, who also were eradicated from the
land their families were attached to, may have originated within medieval cities the class of
merchants and artisans.
Finally, even though this model best captures the transition from feudalism to the triumph of bourgeois power at the beginning of the 19th century, before formal suffrage legislation was introduced, our prediction of gradual but continuing democratization is confirmed
by subsequent political developments, with the process of formal extension of the franchise
starting in the 1830’s in England and France, a decade later in Germany (Bendix (1978)). By
the end of the same century mass democratization extended to the lower strata the political
voice that the bourgeoisie had gained earlier on.
7
Conclusion
This paper has established a connection between the transition of society from an aristocratic political system into a democracy, the process of capital accumulation and sectoral
reallocation from agriculture into manufacturing, and the evolution of the system of intergenerational transmission of property rights. The model replicates the historical stylized
facts of output growth, its sectoral composition and wealth distribution. It also provides a
39
framework to understand the evolution of class structure, the demise of landed property as
the sole source of power, and the emergence of the middle class.
Our model is based on the assumption of indivisibility of landed estates, which indeed
characterized Western Europe for several centuries. In the present paper, we do not yet
consider the eventual impact of democratization on this politico-economic constraint, which
will tend to lose its significance as a new polity, the modern nation-state, takes over the
tasks of external protection and internal administration. Once the political and economic
justification for primogeniture is removed, the breakup of great estates due to partition and
alienation will produce a fragmented ownership structure, promoting income and wealth
equalization. Eventually, the economy will evolve towards a standard factor-specific model
where the dynamics are determined by capital and the price of land, an altruistic bequest
motive induces partition of all the family’s wealth, and class stratification defined on the
specificity of wealth holdings disappears. The pressure of urbanization on land prices, the
expansion of capitalistic farming and the emergence of technological progress in manufacturing through innovation and education would constitute the next ingredients for future
investigation. Still, our present contribution can already help to capture the distinctive
agrarian roots of European civilization, which kept manifesting themselves until and even
after the advent of industrialization. The disproportional political weight of the agricultural
lobbies in the current European policy debate can only be understood within a framework
which explicitly considers the historical role of land and its rents.
APPENDIX
Proof of Lemma 1.
Note first of all that each individual’s indirect utility is monotonic in his income. Also
note that bLt > bW t has been established by Proposition 3, part (i). Finally, using expression
(4.12) for the equilibrium rent, Assumption 1 implies
[1 +
1−α
Σt
τ (1 − α)
](1 − τ ) α > ( )1−α
α
Γt
40
(A.1)
By plugging the equilibrium expressions for factor prices (4.10)-(4.12) into yW t and yLt ,
we can derive the following condition that ensures that yW t increases as the tax is abolished:
(1 − α)(Σαt − Γt α )
αNt (Γα−1
− Σα−1
)
t
t
to decrease as the tax is abolished we need
bW t <
while for yLt
bLt > (Γt
α−1
− Σt
α−1 −1
) {Gt
[1 +
(A.2)
1−α
τ (1−α)
](1
α
− τ ) α Γt 1−α − Σt 1−α (1 − α)(Γt α − Σt α )
−
}
(Γt Σt )1−α
αNt
(A.3)
Define as βW t and βLt the levels of capital holding at which workers and landlords are
indifferent to tax policy, i.e., expressions (A.2) and (A.3) hold as equalities for bW t = βW t
and for bLt = βLt , respectively. Comparing (A.2) and (A.3) it follows that when (A.1) holds
then βLt < βW t . This implies that, for any bLt > bW t , conflicting tax preferences arise when
(A.2) and (A.3) hold, with workers preferring abolition and landlords retention.
Note that violation of either condition (i) or (ii) implies unanimity, with violation of
(i) implying that everybody loses from abolition and violation of (ii) implying that everybody gains from it. If both are violated, we would have a “degenerate” form of conflicting
preferences, with workers losing and landlords gaining from abolition. ¤
Proof of Lemma 2.
From Lemma 1 we know that bW t < βW t is a condition for workers to prefer abolition.
But bW t > eb is also needed for them to vote. L + 1 workers need to vote to beat the L
members of the aristocracy. ¤
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