1
DEMAND
TYPE OF ANALYSIS
The functioning of any economic system can be looked at from two points of view, that of demand and that of supply. The two perspectives are intimately linked and reflect the same reality. When one describes them, however, the need to analyze first one and then the other tends arbitrarily to accentuate the distinction between them.
POPULATION
From the point of view of demand, the first point to consider is population. If there were no people there would be no human wants. And if there were no human wants there would be no demand.
The study of population presupposes the collection of demographic data. Venice took censuses of its population as long ago as 1509. In the Grand Duchy of Tuscany censuses covering the whole state were taken in 1552, 1562, 1622, 1632, 1642, and several times thereafter. However, at national levels, reasonably accurate figures about the size as well as the structure of a population are not available before the nineteenth century, with the exception of Scandinavia, for which accurate data are available for the eighteenth century. In Spain a national census was completed in 1789 and was particularly excellent: technically a model of its kind. It found the population of the entire country to number 10,409,879 inhabitants. Other nationwide censuses soon followed: in the United States (1790), in England (1801) and in France (1801) but they were all qualitatively inferior to the Spanish census of 1789.
For the period before 1800, demographic historians have tried to overcome the dearth of data by estimating population on the basis of indirect and heterogeneous information from fields as disparate as archaeology, botany, and toponymy, as well as from written records of the most diverse kind, such as inventories of manors, lists of men liable for military service, and accounts of hearth taxes or poll taxes. Table 1.1 shows estimates of total population for the major areas of Europe. Such figures can be taken only as rough approximations.
The figures for the columns relating to the eleventh and fourteenth centuries are the product of rough hypotheses. Their margin of error is fairly high, not less than 20 percent and perhaps higher. Although the figures in the last two columns are more reliable, they also must not be taken as precise. More reliable figures are available for selected cities (see Appendix Table A.1), but they too are affected by large margins of error and must be taken only as estimates.
However rough, all the figures in Table 1.1 do consistently indicate that up until the eighteenth century the population of Europe remained relatively small. For long periods it did not grow at all, and when it did, the rate of increase was always very low. Few cities ever numbered more than one hundred thousand inhabitants (see Appendix Table A.1). Any city of fifty thousand inhabitants or more was considered a metropolis. The preindustrial world remained a world of numerically small societies.
If a population does not increase or increases only slightly, in the absence of sizable migratory movements, the reason lies either in low fertility or high mortality or both. In preindustrial Europe fertility varied from period to period and from area to area, so that any generalization must be taken with more than a pinch of salt. Celibacy was always fairly widespread, and when people married they generally did so at a relatively advanced age. These facts tended to reduce fertility; however, prevailing birth rates were still very high, always above the 30-per-thousand level (see Appendix Table A.2). While fertility rarely reached the biological maximum, it was nearer to this maximum than to levels prevailing in developed countries of the twentieth century. If the population of preindustrial Europe remained relatively small, the reason lay less in low fertility than in high mortality. We shall return to this point below, in Chapter 5.
Table 1.1 Approximate population of the major European countries, 1000â1700 (in millions)
It is worth distinguishing between normal and catastrophic mortality. The distinction is arbitrary and somewhat artificial, but it has the merit of facilitating description. We can broadly define normal mortality as the mortality prevailing in normal yearsâthat is, years free from calamities like wars, famines, epidemics. As a rule normal mortality was below current fertility. Catastrophic mortality is the mortality of calamitous years and as a rule far exceeded current fertility. In years of normal mortality, the natural balance of the population (namely, the difference between the number of births and the number of deaths) was generally positive. In years of catastrophic mortality, the natural balance of population was always highly negative. Owing to recurrent ravages of catastrophic mortality linked to famines, wars, and plagues, the populations of the various areas of preindustrial Europe were constantly subject to drastic fluctuations which, in their turn, were a source of instability for the economic system severely affecting both supply and demand.
NEEDS, WANTS, AND EFFECTIVE DEMAND
All members of a society have âneeds.â The quantity and quality of these needs vary enormously in relation to numerous circumstances. Even those needs which seem most inelastic, like the physiological need for nourishment, vary considerably from person to person according to gender, age, climate, and type of work. In general, one can say that the quantity and quality of a societyâs needs depend on:
- population size
- the structure of the population by age, gender, and occupation
- geographical and physical factors
- sociocultural factors
The first point requires no comment. As to the second, it seems unnecessary to explain that old people and children do not have exactly the same needs, nor do men and women. As for the third, it should be obvious that a man living in Sweden or Siberia has many needs that are totally different from those of a man living in Sicily or Portugal. The relationship between needs and sociocultural conditions is more subtle.
In preindustrial England people were convinced that vegetables âingender ylle humours and be oftetymes the cause of putrified fevers,â melancholy, and flatulence. As a consequence of these ideas there was little demand for fruit and vegetables and the population lived in a prescorbutic state.1 On the other hand, while many people refused to drink fresh cowâs milk, many well-off adults paid wet nurses for the opportunity to suckle milk directly at their breasts. Old Dr Caius maintained that his character changed according to the character of the wet nurse who breast-fed him. Whether his changes of disposition depended primarily on the quality of the milk or on his own hormonal secretions is not a question which should concern us here. The point is that there was a sustained demand for wet nurses not only to feed infants.
Other cultural factors can have an equally determining influence on needs, their nature, and their structure. For centuries Catholics made it a duty to eat fish on Fridays, while the men of the Solomon Islands forbade their women to eat certain types of fish. The Muslim religion forbids its followers to drink wine, while the Catholic religion created in all religious communities a need for wine to celebrate Mass. Extravagant ideas also contributed to the formation of needs held to be indispensable. The Galenic theory of humours created for centuries a widespread need for leeches.
These last examples have actually been chosen to prove that economists have good reason for distrusting the word needs. The word implies âlack of substitutes,â and is thus seriously misleading in economic analysis. One must also consider that the line of demarcation between the necessary and the superfluous is difficult to define. While daily bread clearly seems necessary and a trip to the Bahamas superfluous, between bread and a trip to the Bahamas there is a vast number of goods and services whose classification is problematic. Obviously the definition of need cannot be limited to the minimum amount of food required to sustain life. But as soon as the criterion is extended beyond that limit to include other items, it is difficult to say where the line between the necessary and the superfluous should fall. Is one steak per week a need? Or is only one steak a month really necessary? We feel we need bathtubs, central heating, and handkerchiefs, but three hundred years ago in Europe these things were luxuries that no one would have dreamed of describing as needs. Someone once wrote that we regard as necessary what we consume and as superfluous what other people consume.
As long as a person is free to demand what he wants, what counts on the market are not real needs but wants. A man may need vitamins but may want cigarettes instead. The distinction is important, not only from the point of view of the individual, but also from the point of view of the society. A society may need more hospitals and more schools, but the members of that society may want more swimming pools, more theaters, or more freeways. There may also be dictators who impose or feed specific wants for military conquest, political prestige, or religious exaltation. For the market, what counts is not the objective needâ which in any case no one can define except at minimum levels of subsistenceâbut the want as it is expressed by both the individual and the society.
In practice our wants are unlimited. Unfortunately, both as individuals and as a society, we only have limited resources at our disposal. As a result, we are continually forced to make choices, imposing on our wants an order of priorities that we derive from a battery of economic as well as political, religious, ethical, and social considerations.
Wants are one thing, effective demand is another. To count on the market, wants must be backed by purchasing power. A starving individual may want food with excruciating intensity, but if he has no purchasing power to back up his want, the market will simply ignore both him and his want. Only when expressed in terms of purchasing power do wants become effective demand, registered by the market.
Since purchasing power depends on income, it follows that, given a certain mass of wants, both private and public, and given a certain scale of priorities, the level and the structure of effective demand are determined by:
- level of income
- the distribution of income (among individuals as well as institutions, and between the public and private sectors)2
- level and structure of prices
INCOME AND ITS DISTRIBUTION
The mass of incomes can be divided into three broad categories:
- wages
- profits
- interest and rents
These different kinds of income correspond to different ways of participating in the productive process. Income gives individuals as well as institutions the power to express their wants on the market in the form of effective demand. Obviously the person who earns and receives income spends it not only on himself but also on those he supports. In other words, the head of the family, who works and receives a wage, spends it to maintain not only himself or herself but also a spouse, children, and perhaps also an old mother or father. The earner of income, therefore, translates into effective demand not only his own personal wants, but also those of his own dependants. In other words, the income of the âactive populationâ converts to effective demand the wants of the total population (active population plus dependent population).
Over the centuries, for the mass of the people, income was represented by wages (and in the agricultural sector by shares of the crops). Up to the Industrial Revolution one can say that, given the low productivity of labor (see below) and other institutional factors, wages were extremely low in relation to prices; that is, real wages were extremely low. Turning this on its head, we can say that current prices of goods were too high for current wages. In practical terms we would be saying the same thing, but we would be emphasizing that the basic problem was scarcity.
European society was fundamentally poor, but in every corner of Europe there were gradations of poverty and wealth. There were poor and very poor, and alongside them there were some rich and some very rich. Among the poorest, the peasants were overrepresented, yet even among them one would have found the very poor, the poor, and the not so poor. Differences were not only clearly visible at single places or within well-defined areas but also broadly across the borders. Early in the seventeenth century, a well-informed English traveler recorded:
As for the poore paisant [in France], he fareth very hardly and feedeth most upon bread and fruits, but yet he may comfort himselfe with this, and though his fare be nothing so good as the ploughmans and poore artificers in England, yet it is much better than that of the villano in Italy.3
As to craftsmen, many shared the fate of the seventeenth-century artisans of the parish of Saint-Reim in Bordeaux who, according to the local parson, survived only because they received from time to time the charity of the dames de charité.4 Theartisans of more developed cities like Florence or Nuremberg, however, managed to lead a life which, if not comfortable, was at least not completely wretched. It was not unusual for an artisan in Nuremberg in the sixteenth century to have meat on his table more than once a week.5 Several Florentine artisans were able to put aside small savings or to accumulate dowries for their daughters.6 As always, reality can not be painted in black and white. However, it is undeniable that one of the main characteristics of preindustrial Europe, as with all traditional agricultural societies, was a striking contrast between the abject misery of the mass and the affluence and magnificence of a limited number of very rich people. If with the aid of slides one could display the golden mosaics of the monastery of Monreale (Sicily) alongside the hovel of a Sicilian peasant of the time, no words would be needed to describe the phenomenon. While it is worth keeping this image in mind, one has to go further and supplement that picture with a few measurements. Unfortunately, there is little available data and what there is is not very reliable. According to the fiscal assessments of the time in Florence (Italy) in 1427 and in Lyon (France) in 1545, estimated wealth was distributed as shown in Tables 1.2 and 1.3 respectively. If the assessments were correct, 10 percent of the population controlled more than 50 per...