Inequality and Insurance in Medieval England

Next week Clyde Reed of Simon Frazer university is presenting a fascinating looking working paper in Oxford. I say this despite the paper's foreboding title: `Distributional Dynamics in a Stochastic Environment with Tradable Assets: Medieval English Land Markets'.  It focuses on the relationship between inequality and insurance.   

The Need for Insurance

A long-running theme in the work of Reed and co-author Cliff Bekar is the idea that capital markets in the middle ages didn't exist or worked very poorly.  In this case, how did medieval peasants smooth consumption and spread risk?   The argument they presented in an older paper was that peasants who suffered negative shocks could smooth their consumption by selling small amounts of land.  The land market substituted for the capital market. In this paper they connect this argument with the data they have on inequality in medieval England.

Medieval Inequality

Between the Domesday survey of 1086 and the late thirteenth century, the number of landless peasants dramatically increased.  English society became more unequal. Specifically, the distribution of land holding. Economic historians attribute a lot of importance to both these factors in explaining the subsequent development of the English economy.  They explain it in terms of population growth or commercialization. Bekar and Reed view these explanations as inadequate.

How Stochastic Shocks Effect Distributional Dynamics

Instead, to address the problem, Reed and Bekar have borrowed some ideas from development economics on insurance with - particularly the work of Marcel Fafchamps.  Fafchamps argues that 'asset markets in which the asset is in finite supply naturally generate inequality'.  They do some simulations and find that:

`While very small scale land sales constituted one of the most effective risk coping mechanisms available to the medieval peasantry, those same land sales contributed far more than any other factor to the increased downward mobility of middle holders' [ p20]

The take-away message is: increased capital mobility can led to increased inequality. As a result contra-Greg Clark, 'the offspring of rich peasants were simply luckly, that previous generations, granted high income draws, had accumulated land from less fortunate peasants' [p 21].