The economy of Medieval Europe was based primarily on farming, but as time went by trade and industry became more important, towns grew in number and size, and merchants became more important.
Like all pre-industrial societies, medieval Europe had a predominantly agricultural economy. The basic economic unit was the manor, managed by its lord and his officials. This was, in the early Middle Ages especially, a largely self-sufficient farming estate, with its peasant inhabitants growing their own crops, keeping their own cattle, making their own bread, cheese, beer or wine, and as far as possible making and repairing their own equipment, clothes, cottages, furniture and all the necessities of life.
Surplus produce was sold at the nearest market town, where equipment which could not be made or maintained in the manor workshops, or luxuries unavailable locally, could be purchased. Here craftsmen and shopkeepers such as cobblers, tailors, costermongers, tinkers, smiths and others plied their trades.
Most industry in medieval Europe was carried out on a very small scale and was closely related to farming, either processing its produce or servicing its needs. Much of this was carried out within rural villages rather than in towns. Brewing, milling, baking bread, cheese-making, spinning, weaving, making clothes, tanning leather and making shoes, belts, woodworking, smithying and building and maintaining cottages, barns and other buildings, all were done by the villagers themselves within their own households. Some of this work required skilled specialists, but even these had their own field strips which they worked for much of their time.
Examples of large-scale industrial units were the salt-mines of central Europe, stone quarries in various places, and shipbuilding, especially in the larger ports. At Venice, the Arsenal was a huge complex of shipbuilding and armaments manufacture, employing thousands of workers.
In the centuries after the fall of the Roman empire in the west, long-distance trade routes shrank to a shadow of what they had been. The great Roman roads deteriorated over time, making overland transport difficult and expensive. Towns shrank, and came to serve a more local area than in Roman times. Traders and craftsmen mainly serviced the needs of the local rural populations (including local lords).
Trade in luxury goods between different parts of Europe never completely disappeared, and coinage survived the fall of the empire, though was much rarer than before. Most long-distance trade goods from within and beyond Europe, such as in amber, high quality ceramics, textiles, wines, furs, honey, walrus ivory, spices, gold, slaves and elephant ivory, was carried in the small sailing ships of the day. Trade by sea was much cheaper than by land (and would be until the coming of railways in the 19th century). The coasts and rivers of Europe were the main thoroughfares of the time, and the North Sea, and even more, the Mediterranean Sea, were the main thoroughfares for international commerce.
Trade in the Mediterranean
Trade in the Mediterranean seems to have died down gradually after the fourth century, until in the seventh and eighth centuries there was an abrupt downturn. This was probably associated with the Arab take-over of the Middle East and North Africa, which turned the Mediterranean into a hostile zone for trade. Arab pirates dominated the seas until the 11th century, when the Italian cities of Genoa, Pisa, Amalfi and Venice began aggressively capturing pirate bases and reclaiming the seas for trade. The Crusades completed this process so that by the end of the 12th century Mediterranean trade and travel (even by Muslim pilgrims) was largely in European (mostly Italian) holds.
The north Italian city-states went on to plant trading colonies on the islands and coasts of the Mediterranean, including in Syria and Palestine, the Crimea in the Black Sea, and in Sardinia and Corsica. They had their own merchant quarters in the major cities of Constantinople, Antioch, Alexandria and Cairo. Venice in particular acquired a maritime empire which included parts of Greece, islands in the Adriatic and the Aegean, the large islands of Crete and Cyprus, and many towns along the Dalmatian coast.
Trade in the North Sea and Baltic
The North Sea had for millennia been home to coastal shipping, on a more local scale than in the Mediterranean. After the shock of the first Viking raids in the 8th and 9th centuries, new trade routes opened up, with tentacles stretching out across Russia and eastern Europe to the Black Sea and Middle East. Ireland, Scotland, northern England and Iceland were drawn more into the trading networks of the region, and northern European ships traded westward along the coasts of Europe, down to and into the Mediterranean.
The North Sea and Baltic ports of northern Europe became flourishing centres of commerce, and from the mid-12th century their commercial power was boosted by the foundation of the Hanseatic League. This was primarily a commercial organisation set up to protect and promote the economic interests of the member towns, and, centred on the north German port of Lubeck, it included towns in the Baltic and the North Sea stretching from Russia to England.
In all European waters medieval cargos were carried in stout “round ships”, or “cogs” – deep-drafted, wide-beamed vessels which held the sea well and had deep, capacious holds in which to carry as much cargo as possible. The exception was with the Venetians, who used galleys (fast oared vessels, armed for war) for high values cargos and where speed was an advantage (for example on trade routes between the Mediterranean and northern waters).
From 11th century, more stable conditions began to prevail in western Europe. Population began to increase, the volume of trade expanded, and towns in many parts of Europe multiplied in number and grew in size. On the North Sea coast a particularly dense network of trading towns emerged in Flanders; and in northern Italy an even greater concentration of large urban centres developed. Cities such as Venice, Genoa, Milan and Florence grew wealthy on the growing trade handled by their merchants. Much of this went north-west, up the Po and Rhone valleys into central and northern France, where the trade routes linked up with those coming south west from Flanders and the North Sea. International trade fairs in the towns of Champaign, in north-east France, became a regular feature of the international trading scene where merchants from Italy and Flanders dealt directly with one another.
The rise of banking
The growth of trade led to the rise of banking. At first, banking was in the hands of Jewish moneylenders, who were able to use their links with Jewish communities throughout Europe and the Middle East to handle the money needed for international trade. Given the strategic place of north Italy in international trade, it is no surprise that banking networks tended to be based in northern Italian cities (the word “bank” derives from the Italian word for the tables at which the bankers sat in the market place). In the 13th century indigenous Italian banking houses grew up, with agencies as far afield as London and Paris. The financial centre of London became known as Lombard Street (Lombardy is another name for north Italy).
The Jewish and Italian bankers of medieval Europe pioneered financial instruments which would be vital to the rise of modern global commerce. Limited liability companies, stocks and shares, bills of exchange and letters of credit all developed at this time (although it is quite possible that some or all of these were based on earlier Arabic practices).
Spread of the market economy
The expansion of trade drew more and more rural communities into the market economy, and links between countryside and towns grew stronger. Manors lost a large measure of their self-sufficiency as they participated more in the money economy. These developments stimulated the expansion of towns, of merchant communities, and of coinage.
The Black Death, after great initial disruption, accelerated the spread of the markets in the longer term by creating a shortage of labour and thus boosting the purchasing power of both urban and rural workers. In proportion to the rest of the economy, towns and cities rose in size and influence – indeed many cities had regained their pre-plague populations by 1400. All over western Europe merchants became increasingly wealthy, and politically more powerful. Meanwhile the countryside languished, in levels of population if not in prosperity. In those areas were the influence of large towns and their trade was strongest, in southern England, Flanders and northern Italy, serfdom began to die out.