Adam Smith and the Role of the Towns in Feudal Europe

Mark Koyama

No 21458, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Adam Smith's account of medieval towns in Book III of The Wealth of Nations remains one of the most influential analyses of how commerce transformed feudal Europe. This paper formalizes Smith's argument as a game between kings, lords, and towns. The king-town alliance emphasized by Adam Smith emerges when towns are wealthy enough to offer fiscal and military support but lords remain a serious threat. However, when kings become excessively predatory, towns may ally with lords (as in the Magna Carta crisis); when towns are too weak to offer substantial support, kings ally with lords instead (as in Eastern Europe). A dynamic extension shows that the king-town equilibrium is self-undermining: commercial growth erodes lordly military power through Smith's ``diamond buckles'' mechanism, eventually enabling royal absolutism. In contrast, the king-lords equilibrium is self-reinforcing, suppressing urban development and preserving feudal institutions. The framework highlights how small differences in initial urban development could generate dramatically different long-run trajectories and illuminates both the brilliance and the limitations of Smith's conjectural history.

Keywords: Institutions; Economic history (search for similar items in EconPapers)
Date: 2026-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21458 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:21458

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21458

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().