The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

In sum, political consolidation led to economic integration. When combined with maritime technological innovation that allowed trade with more distant land, producers could now exploit economies of scale. European pro-duction of crafts and manufactured goods, centered in towns and cities, expanded. And as markets delivered all manner of goods, the manor too specialised, with some focusing on cash crops like grapes, transformed into wine, instead of the earlier emphasis on necessities like cereals – for cereals could now be bought with the money obtained from selling wine.30 The increase in production and trade played an important role in weakening the case against usury. A master craftsman or merchant wanting to borrow to finance an expansion in his business or trade was not in the sympathetic position of an illiterate peasant living at the margin of starvation. As the community turned from consumption loans to small production or trade loans, public attitudes toward usury became more favourable. After all, it seemed only fair that those who sought commercial loans to make profits should pay a share of their profit out as interest.

Political consolidation led to economic prosperity