How Pre-Modern Economies Worked

The basic features of economies before industrialisation - farming, slow growth, limited trade and powerful elites - and why living standards changed so little for centuries.

For most of human history, economies looked very different from today.

Farming everywhere

In most pre-modern societies, the large majority of people, often 80 to 90 percent, worked in agriculture. Most families grew much of their own food. Surpluses were small.

Slow growth

Economic historians estimate that average incomes grew extremely slowly for thousands of years. A farmer in 1700 might not have lived much better than one in ancient Rome. Growth in output was mostly absorbed by population growth.

Elites and taxes

Rulers, priests and landowners took a large share of the surplus through taxes, rents and tribute.
This funded armies, temples, palaces and cities.

Trade

Long-distance trade existed but was mostly in luxury goods such as spices, silk, gold and ivory, since transport was slow and costly.
Most trade was local, in village markets.

Money and credit

Many transactions used barter or commodity money.
Coins, credit and banking developed in different places and times, as this module shows.

Risk

Famines, epidemics and wars could devastate populations.
Families relied on kin networks and stored grain for insurance.

Why study this?

Understanding pre-modern economies helps explain why modern growth, starting around 1800 in parts of Europe, was so extraordinary, and why institutions like money, markets and law took centuries to develop.

The village year

A farming family in 1300 grows grain, keeps a few animals and gives part of the harvest to the landlord and the church. In a good year they have a little to sell at the market; in a bad year they go hungry.

Thinking living standards always rose steadily

For most of history, average living standards changed very little over centuries.

Key takeaways

Most people in pre-modern economies were farmers.
Average incomes grew extremely slowly for thousands of years.
Elites took much of the surplus through taxes and rents.
Trade was mostly local, with long-distance trade in luxuries.