The Invisible Hand? – How Market Economies Have Emerged and Declined Since AD 500

Blurb

The Invisible Hand offers a radical departure from the conventional wisdom of economists and economic historians, by showing that "factor markets" and the economies dominated by them - the market economies - are not modern, but have existed at various times in the past. They rise, stagnate, and decline; and consist of very different combinations of institutions embedded in very different societies. These market economies create flexibility and high mobility in the exchange of land, labour, and capital, and initially they generate economic growth, although they also build on existing social structures, as well as existing exchange and allocation systems. The dynamism that results from the rise of factor markets leads to the rise of new market elites who accumulate land and capital, and use wage labour extensively to make their wealth profitable. In the long term, this creates social polarization and a decline of average welfare. As these new elites gradually translate their economic wealth into political leverage, it also creates institutional sclerosis, and finally makes these markets stagnate or decline again. This process is analysed across the three major, pre-industrial examples of successful market economies in western Eurasia: Iraq in the early Middle Ages, Italy in the high Middle Ages, and the Low Countries in the late Middle Ages and the early modern period, and then parallels drawn to England and the United States in the modern period. These areas successively saw a rapid rise of factor markets and the associated dynamism, followed by stagnation, which enables an in-depth investigation of the causes and results of this process.

Comment from our editors:

Is history repeating itself? L'histoire se répète? That is what you might be thinking after reading this monumental book by economic historian Bas van Bavel. For me, it made a lot of puzzle pieces fall together and gave me a new lens of looking at what is happening in our Western societies.

The book is an extensive investigation of the history of the market economy and given that you are most likely part of a market economy, it will help you better understand 'the system' that you are part of. It will allow you to zoom out from 'your life' to the level of 'the societal experiment' that humanity has been running regarding the market economy. It turns out that we've been running this experiment more often than everyone - including economists - thought. This implies there are new lessons to be learnt from the past.

By taking a longer time frame, a macro-perspective and by using empirical analysis of historical data, the book brings to light dynamics that are often outside the scope of regular economic and historic research. Additionally, it shows where economic theory and practice diverged, and it offers a perspective on pathways forward. In case you are interested in reading a summary including an extensive review of the feedback resulting from this work, you can do so here.