Oligarchy and Growth: Lessons From Europe's Autonomous Cities

The history of European city development provides an important opportunity to examine the e¤ect of political oligarchy on economic growth. Since at least the time of Max We- ber, scholars have claimed that the presence of politically autonomous cities in medieval Europe, which tended to be controlled by merchant oligarchies, helped lead to its eco- nomic rise when compared with other regions. But there also exists an alternative, and equally long standing claim - autonomous cities were a hindrance to growth because the merchant oligarchies that governed them created barriers to entry that stifled innovation and trade. I present new evidence and a new interpretation that reconciles these two contrasting views. Using evidence from growth in city populations, I show that politi- cally autonomous cities tended to initially have higher growth rates than non-autonomous cities, but over time this situation reversed itself as politically autonomous cities became stagnant. However, even with stagnant economies, autonomous cities were able to main- tain their independence because their institutions and the oligarchies that controlled them provided for abundant access to credit in times of war. My evidence regarding the growth path of autonomous cities is consistent with several recent theoretical models of oligarchy and growth, and most directly Acemoglu (2008). It also suggests more generally that Europe's particular political institutions, which are so often said to have secured property rights and favored growth, sometimes had more ambiguous e¤ects.