The development of pre-industrial Europe was driven by the expansion of trade. This paper describes the patterns of trade and shows how they can be understood in terms of differences in trading costs. It discusses how the different levels of trade-from local to transoceanic-contributed, both quantitatively and qualitatively, to the process of growth. The pattern of trade in pre-industrial European was largely determined by trading costs. The rise of trading costs with distance imposed a sort of

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... hierarchy of trade. At the lowest level of the hierarchy-at the shortest distances where trading costs were lowestcame local and regional trade; next, at greater distances and higher trading costs, came inter-regional trade within the two great zones of European commerce-the Mediterranean and Northwest Europe; and at the top of the hierarchy, where distances were greatest and trading costs highest, came trade between the two zones of Europe and between these and other zones in Asia, Africa, and the Americas. This hierarchy of trade reflected a gradient of decreasing volume and increasing margins. At the local and regional level, where trading costs were lowest, the volume of trade was high and the range of goods broad. Trade encompassed lower-margin goodsbulky commodities, such as salt and grain, and inexpensive manufactures, such as cheap textiles and utensils. As distance and trading costs rose, the volume of trade decreased and the range of goods traded grew narrower, encompassing only those offering a margin great enough to cover the higher costs of trade. At the top of the hierarchy, inter-zone trade was largely limited to high-margin goods with a high ratio of value to weightgoods such as spices, bullion, and luxury textiles. The specific goods that were the objects of trade at the various levels reflected the nature of the pre-industrial economy-the composition of its expenditure and its output. Their composition was very different from what it is today, both because income was so much lower and because it was so unequally distributed. In pre-industrial Europe, food accounted for roughly half of total expenditure (in the advanced economies today, it is perhaps a fifth). Of total expenditure on food, as much as half was on bread: average per capita consumption of grain exceeded a pound a day. 1 The well-to-do devoted 10-30% of their budget to clothing; for others it was a luxury. 2 Little was left for anything beyond food, clothing, and shelter. The highly unequal distribution of income meant that the demand of the wealthy-princes, nobles, clergy, and merchants-was of disproportionate importance. This was especially true for luxury goods, such as the spices and quality 1 Braudel (1972) estimates annual per capita consumption at over two quintals (200Kg); Masschaele (1997) estimates one quarter of wheat (nearly 400lbs) as necessary for subsistence. 2 The numbers are from Cipolla (1994). 1/8/01 3 manufactures that were the mainstay of inter-zone trade. 3 However, as the period progressed, the demand of the middle class-bourgeoisie and gentry-and even of richer peasants and artisans grew in importance and supported an increasing trade in foodstuffs and simple manufactures. The output of the pre-industrial economy reflected the pattern of expenditure. Production was overwhelmingly agricultural: mainly of food, but also of natural raw materials for the production of clothing. The principal manufacturing industry was textiles. The expansion of trade was the driving force of economic growth in the pre-industrial economy. How did the different levels of trade compare in terms of their contribution to this process? Quantitatively, local and regional trade were certainly the largest; interregional trade within the two zones was much smaller; and inter-zone trade was, in comparison, almost negligible. However, as we shall see, in terms of their effect on economic growth, inter-regional trade and inter-zone trade played a far more important role. Each in its own way made important qualitative contributions. Together, they helped to transform both the technology of trade and the technology of production. LOCAL AND REGIONAL TRADE In pre-industrial Europe, people produced themselves much of what they consumed: many grew their own food, made their own clothing, and built their own homes. It was not only the rural population that grew much of its own food: townsmen kept pigs and chickens, tended vegetable gardens, and frequently owned agricultural land outside the city walls. And it was not only the poor who produced much of what they consumed: the aristocracy relied for much of its food on the cultivation of demesne lands and on the receipt of rents in kind. 4 For example, grain was the most important commodity, accounting for perhaps 40% of total output. However, only something like 10% of it was actually traded: the rest was consumed directly by producers and landowners. 5 Trade was initially marginal, especially for the overwhelming rural majority. It was a way to raise money for taxes and rents and to obtain the few goods that could not be produced at 3 "To a degree that is difficult for modern men to grasp, orders for industrial products came from the great princes and still more from the Church..." p722 Nef (1987). 4 Demesne lands were lands that feudal lords retained under their own direct control. 5 These are Braudel's estimates for the Mediterranean zone in the sixteenth century (Braudel (1972) ).