An Emendation of Adam Smith’s “Luxury Hypothesis”

Abstract

Smith’s “luxury hypothesis” seems to assert that the endless violence of the feudal era ended with the appearance of luxury goods. This view holds that feudal lords had nothing to do with their wealth but to wage war—no other markets were available to them. As luxury goods became available, the lords dropped their weapons and disbanded their armies so that they could buy more luxury goods. The traditional account has causality going from the appearance of luxury goods to the lords disbanding their armies. On my approach, ubiquitous violence under feudalism implies that the causal logic in this account goes from the logic of violence to the gradual and sequential appearance of luxury goods to ending violence near the towns and cities, but not in the agrarian hinterland.

“Having sold their birth-right, not like Esau for a mess of pottage in time of hunger and necessity, but in the wantonness of plenty, for trinkets and baubles, fitter to be the play-things of children than the serious pursuits of men, [the great proprietors] became as insignificant as any substantial burgher or tradesman in a city.”

—Adam Smith (WN III.iv.15)

“[T]he cities generally became independent republicks, and conquered all the nobility in their neighbourhood; obliging them to pull down their castles in the country, and to live, like other peaceable inhabitants.”

—Adam Smith (WN III.iii.10)

Introduction

Adam Smith argues that the violent, no-growth feudal equilibrium lasted for centuries. In addition to providing a theoretical account of this stability, Smith explains its demise. Central to his account of the collapse of feudal Europe is a sequential pattern associated with the rise of luxury goods. As Christopher Berry recounts, ¹ the history of the luxury debate from ancient times to the present is multifaceted. The part that animates this essay is the role of luxury in the demise of feudalism and the rise of commercial society.

The principal question I ask is: Why did the Barons give up their armies, stop fighting with each other, and allow elements (and sometimes all) of liberty to arise in parts of the countryside? To address these phenomena, the literature on Smith nearly unanimously appeals to what I call the “luxury hypothesis.” According to this hypothesis, the only thing that feudal barons could spend their money on was retainers and fighting. No other markets existed. Once luxury goods appeared, then suddenly the barons traded their retainers for fancy baubles, buckles for their shoes, and other such trinkets (WN III.iv.10). ² As the fighting ended and feudalism fell apart, the nobles effectively but unknowingly traded their political power for fancy trinkets, a Smithian example of unintended effects.

In this essay I take a fresh look at this debate and suggest that the standard account in the literature is incomplete. Scholars writing on this topic too often misunderstand the nature of Smith’s causal argument. The standard account rests on two factors. The first factor involves the preference of the great lords for luxury goods and the emerging availability of these goods. To pursue violence, these lords maintained many retainers. ³ This situation changed once luxury goods became available: the lords dropped their retainers so that they could consume more luxury. It is as if the absence of consumer goods led the great lords to wonder, “What shall we spend our money on?” The second factor is that given no other markets exist, all they can do is fight. This setting generates a particular logic: If you might attack me, survival requires that I must, in turn, prepare to defend myself and my property. This setting reflects the logic of an arms race. To the extent that other lords devote effort to defending themselves as well as to waging aggressive attacks on other lords, each great lord had incentives to devote as much of his resources as possible to the projection of force. Failing to do so risked defeat. The logic of the arms race demonstrates why the feudal era was an equilibrium. As we will see, this logic implies that, from an economic standpoint, everyone must be poor. Causality on the traditional view thus runs from the availability of luxury goods to the great lords disbanding their retainers, and hence the end of feudalism.

In contrast, causality on my view runs from violence to expenditures on luxury goods, hence lords’ disbanding their armies leading to the unforeseen demise of the nobility. This process was sequential and gradual. The principal idea of this essay is that not all lords had the same ability to exploit the appearance of luxury goods. Some lived close to the towns, while others lived in the agrarian hinterland (see, for example, WN III.iii.13). As I show below, Smith says that the appearance of luxury goods undid the nobility. But he also suggests that the process was gradual. What could Smith mean by gradual? Few in the literature suggest an answer. On my account, a town’s military superiority allowed it to defeat local lords, but not all lords. Lords within a town’s gradually expanding security umbrella were subdued, while those outside of this umbrella were not.

As I show, Smith’s account is easily muddled—if we fail to read him carefully. To understand Smith explanation of economic, political, and social change, we must begin with his explanation of the stability of the feudal system, which was stable for many centuries, what I call the feudal equilibrium. The demise of feudalism must be seen as a comparative-statics argument about how the equilibrium changes in response to various exogenous parameters. Specifically, the feudal equilibrium rests on violence and the inability of anyone, the king included, to provide order across his domain and prevent constant violence among the lords.

As violence continued for many centuries, the feudal equilibrium proved remarkably stable. Smith suggests that although individuals would come and go, the system remained the same. The main change occurred with the rise of towns and their ability to defend themselves from local lords and maintain security, protecting the town, the countryside surrounding the town, and the town’s port—and hence its long-distance trade. Local lords in this portion of the countryside were subdued. These lords could afford to let go of their armies, whereas those lords well beyond the towns (and those beyond the reach of the towns’ security umbrellas) continued to be violent. These lords were therefore forced to maintain their retainers, to continue the long-term feudal pattern of production and fighting, and to forgo hope of purchasing any significant quantities of luxury goods. The traditional account fails to build on Smith’s logic of the stability of the feudal equilibrium, and so it misses this subtle distinction between lords within and those outside of the towns’ security umbrella.

I develop my argument as follows. The next section briefly discusses the feudal equilibrium and recounts the standard version of the luxury hypothesis. The section after that analyzes Smith’s account and shows how it differs from the standard wisdom. In the final section, I return to my main findings, drawing out the difference between my approach and the traditional one.

The traditional account of luxury and the demise of feudalism

I now summarize Smith’s view of the feudal era based on the discussion of equilibrium and comparative-statics view developed by Glory Liu and me. ⁴ To restate the principal question asked at the outset: How did the feudal equilibrium fall apart? Understanding this process requires that we first describe the stability of the equilibrium.

The logic of violence and the stability of the feudal equilibrium

To understand Smith’s view of the feudal equilibrium, we must begin with the logic of violence. ⁵ As Smith suggests, violence was a foundational problem of the feudal era. The great lords were constantly fighting each other and sometimes the king. Violence occurred at all levels of society: among the great lords, between lords and their retainers, among the lords, between lords and their vassals, and between the lords and the masses (and those whom Smith called slaves).

Smith emphasizes that if an individual within the masses began to improve his situation by investing and accumulating some wealth, he would stand out as a target: “’[M]en in this defenceless state naturally content themselves with their necessary subsistence; because to acquire more might only tempt the injustice of their oppressors” (WN III.iii.12). Indeed, Smith concludes that a “person who can acquire no property, can have no other interest but to eat as much, and to labor as little as possible” (WN III.ii.9). In contrast to the incentives of the feudal equilibrium, those of commercial society differ considerably. ⁶

I observe that the standard account has one small but essential piece missing: Why did (some of) the lords stop fighting? Without this piece, the luxury hypothesis makes no sense. As mentioned above, the violence resulted from a “violence trap,” ⁷ which took the form of an “arms race.” If one lord converted his annual surplus to support a large army, so too must all the other lords who the first lord might attack. As Smith suggests, the result was that everyone was very poor. Although a great lord might support a large number of retainers, he had little else on which to spend his money. This is not an exogenous condition, but an endogenous one, meaning that markets did not exist for a wide range of possible consumer goods, because spending part of the great lords’ surplus on such goods would lessen their ability to defend their estates and to project force when the circumstances arose.

As this short summary suggests, incentives created by the omnipresent violence hindered not only the ability of individuals to accumulate wealth, but also hindered long-term political and economic development. The lords constantly fought each other. To survive in that environment, lords had to turn their surplus into military might in the form of vassals. Failing to do so left a lord vulnerable to the plunder of other, more powerful lords. As Smith characterizes the era, the great lords “were always at war with each other and often with the king, their whole power depended on the service of their retainers and tenents,” that is, on their ability to project violence (LJA iv.126–27). ⁸

The form of property rights in the feudal equilibrium reflected the maintenance of political bargaining power. Relying on a similar logic, Smith shows why the feudal lords adopted an extremely restrictive code of property rights. As the dominant economic asset during the Middle Ages, land represented not only economic, but also political and military power in this period; the feudal system’s form of property rights was central to its survival. ⁹ Smith explains how problems of security required that the form of property rights in land differ from those optimally suited for a market economy. Lords who deviated from the feudal system’s property rights were worse off. Similarly, peasants, living at subsistence, had no incentive to work hard, save, or invest. To do so risked, as noted above, becoming a target of their superiors.

Primogeniture, for example, became a central institution that severely restricted property rights and the ability to alienate land during feudalism. ¹⁰ Because it prohibited a landholder from devising property to anyone but his first-born son, this form of rights precluded both the equal division of an estate among all sons and, more generally, the ability of the landholder to devise his property by will.

In a commercial economy, primogeniture laws significantly hinder economic growth, but in the feudal environment of Europe, it was indispensable to guaranteeing political security. Land was considered “as the means, not of subsistence merely, but power and protection,” and as such, the security of a landed estate constituted the owner’s ability to protect his political power. As Smith continues in writing about land, “[t]o divide it was to ruin it, and to expose every part of it to be oppressed and swallowed up by the incursions of its neighbours” (WN III.ii.3). ¹¹ From another context, Smith’s sentiment about investing in navigation applies here too: “As defence … is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England” (WN IV.ii.30).

The logic of Smith’s claim forms an equilibrium argument. Given the constant violence, to invest and improve was to become a target of predation. Individuals had few incentives to invest in capital improvements or new productive techniques because to do so risked being plundered or having its value appropriated by a lord. The ever-present threat of violence determined a form of political exchange that was based on landholding; a particular form of land rights thus emerged to facilitate local lords’ ability to provide local security, even at the expense of long-term economic growth. ¹² In Smith’s system, the feudal world was violent and poor, but stable. In modern terms, we variously characterize this equilibrium of violence as a “vicious circle of poverty.” ¹³ The agrarian feudal system failed to develop, and no one in the feudal system had an incentive to deviate unilaterally from their choices.

The emergence of towns

Smith’s explanation of how the towns of Western Europe escaped the feudal order and reached a new equilibrium—that of commercial society—is inseparable from his explanation of how the feudal order sustained itself. If understanding the no- or low-growth feudal society required an equilibrium argument, then Smith employs a comparative-statics one to explain why this new order emerged and how it was sustained.

Initially, towns were small and lacked power. Moreover, the townsmen were often subject to the violence and plunder of local lords and king alike. The local lords plundered the traders “without mercy or remorse” (WN III.iii.8). The feudal equilibrium, with its constant threat of violence, prevented traders from investing and expanding trade. This environment fostered a political exchange between the town and the king, enabling the towns to escape the feudal equilibrium of violence and low growth in exchange for revenue that strengthened the king relative to the local lords. In exchange for taxes and military support for the king against their common enemies, the local lords, the king granted the town rights to political independence. This independence allowed a non-incremental revolution by which the towns secured their own laws and justice, to build walls and defend themselves, and to expand greatly long-distance trade (WN III.iii.8–9). The rise of towns outside of the dominion of the local lords and the king reflected a new mode of political bargaining, creating a new kind of state.

The towns’ independence, growth, and ability to collaborate with the king rested on their ability to provide security through local military superiority. ¹⁴ Absent local military superiority, the towns would have succumbed to the plunder of the local lords rather than escaping the violence and low growth of feudalism. Long-distance trade afforded revenue to the towns to increase their military capacity, in turn allowing the towns to extend their political, economic, and military reach into the local countryside. ¹⁵ The political exchange between king and town also enabled a revolution in liberty, commerce, and security, which Smith famously describes as the establishment of “[o]rder and good government, and along with them the liberty and security of individuals” in the towns and the cities (WN III.iii.12).

Smith explains how Europe escaped the feudal order and reached a new equilibrium, that of commercial society. This explanation is inseparable from the logic of how the feudal order sustained itself and how it fell apart.

As I suggested above, Smith’s discussion of the transition from the low-growth feudal order to the stage of commercial society—with high growth and political security—takes the form of a comparative-statics argument. Two parameters are of interest for Smith’s comparative-statics argument about the emergence of commerce: violence and the new circumstances of political bargaining between king and town. ¹⁶ Although Smith tends not to provide us with many dates, it seems logical that this system developed long before the emergence of luxury goods.

Smith also explains how during the transition to commercial society, the form of property rights in land changed from one equilibrium (feudalism) to another (commercial society). Commercial societies generated wealth through commerce rather than largely through land, and they provided security in a very different manner from feudal obligations based on a political exchange of land for military (and other) services. In commercial economy, primogeniture, entail, and wardship were costly while producing few benefits. ¹⁷ Smith’s comparative statics leads to the conclusion that, as the mode of subsistence changes from agriculture to commerce, so too did the optimal rules governing property.

The political exchange between king and town provided the basis for the town’s local military superiority. This military superiority underpinned the town’s escape from the violence trap. It also allowed a growing sphere of commerce, higher levels of the division of labor, and long-distance trade, all fostering the town’s economic growth. Whereas investment by individuals living under local lords was subject to plunder, investments by those living in towns were protected by the towns’ military security and liberty. In the presence of a stable order and security, economic growth of the towns accompanied the advancing division of labor and economic integration. The expanding sphere of security, in turn, raised the expected rewards from investment and made greater division of labor and economic integration less risky. ¹⁸ The simultaneous and non-incremental changes in liberty, commerce, and security allowed the towns to grow and become more powerful. On Smith’s view, the rise of towns was critical for the development of Europe and, especially, the emergence of liberty. ¹⁹

The failure of political exchange and contractual problems with slavery

Smith discusses several other aspects of the problem of moving to a new equilibrium. The issue of Smith’s views on slavery has been central to the literature on Smith. My argument about Smith’s views on enslaved people, though, explores a different account of the persistence of slavery than the dominant view in the literature.

Smith does not analyze the implicit problem in detail, but it is important to explain it, however briefly, for the larger question of this essay. As with the exchange between town and king, here, both the king and the ecclesiastical lords sought to weaken their mutual enemies, namely, the secular lords. ²⁰ By freeing the slaves, they further weakened the power of the nobility. This outcome, as with that of the more explicit political exchange that created the towns, helped move the process toward the emergence of absolute states.

Freeing the slaves posed a thorny political-economic problem, one that Smith does not completely analyze. First, how would the lords be compensated for freeing their slaves? And how would the lords be made whole for their loss of income if they were to agree to uncompensated emancipation? Indeed, because the great lords held political power, they could have used their comparative advantage in violence to forestall action by others. Also, why did the king and the Church work together to help end slavery at this moment, but not several centuries earlier? Smith does not say.

The fall of the feudal equilibrium

Smith identifies three forces bringing about the demise of the feudal equilibrium. As we will see, his argument involves a sequential process more complex than the simple one-step traditional luxury hypothesis:

1. 1. First, the logic of violence in which the towns made critical political exchanges with their kings allowed them to defeat local lords who could otherwise threaten them.

2. 2. Second, there is the role of the king and the Church in freeing the “slaves,” that is, people tied to land who could not capture the fruits of their labor.

3. 3. Third, there is the advent of luxury goods near the towns located almost exclusively on the coastal and riverine areas, but not elsewhere. As these towns grew, so too would the area in which the towns would subdue local lords. This process would therefore have gradually led to the self-destruction of the power of the great lords.

To an important degree, Smith’s analysis of the second thesis is far less interesting, and he devotes only a short discussion to it. I will therefore discuss the first and third theses. (A complete linking of these two to the second thesis must await another occasion.)

The luxury hypothesis redux

Now we come to the luxury hypothesis itself. First, it appears that Smith makes three or four different arguments about why the feudal system fell apart. I have deliberately placed the third set of arguments last, in part to suggest that we must see these ideas as part of Smith’s larger system. I begin with Smith’s account, which, of course, provides the standard interpretation of the luxury hypothesis:

But what all the violence of the feudal institutions could never have effected, the silent and insensible operation of foreign commerce and manufactures gradually brought about. These gradually furnished the great proprietors with something for which they could exchange the whole surplus produce of their lands, and which they could consume themselves without sharing it either with tenants or retainers. … As soon, therefore, as they could find a method of consuming the whole value of their rents themselves … [f]or a pair of diamond buckles perhaps, or for something as frivolous and useless, they exchanged the maintenance, or what is the same thing, the price of the maintenance of a thousand men for a year, and with it the whole weight and authority which it could give them. The buckles, however, were to be all their own, and no other human creature was to have any share of them; whereas in the more antient method of expence they must have shared with at least a thousand people … and thus, for the gratification of the most childish, the meanest and the most sordid of all vanities, they gradually bartered their whole power and authority. (WN III.iv.10, emphasis added) ²¹

Notice that the italicized portion of text implies gradualism, a topic that I return to below. Most scholars writing on this topic make an argument similar to Jerry Evensky and Maria Paganelli. ²² Evensky adds an important subtlety when he observes that “[i]t was this invasion by markets and the fineries that those markets brought that ultimately made possible the development of secure independence among the country workers that workers in the towns were already enjoying.” ²³ As I suggest below, markets arose around the towns within the towns’ security umbrellas but not uniformly across Europe. ²⁴ As further evidence, consider the causal structure in the following passage from Evensky:

To buy in the [luxury] market, the lords needed to produce for the market. This transformed the relationship between the lord and his tenants. The lord needed to use his accumulation for productive rather than unproductive labor and this meant supporting fewer tenants working larger plots of land… . Always seeking to better his condition, the lord desired ever greater rents from these larger farms so that he could buy more baubles. ²⁵

This passage reflects the logic of the traditional account: the rise of markets for luxury goods transformed the choices available to the lords.

Finally, I quote Smith’s account of the luxury hypothesis. He begins with a contingency: “In a country where there is no foreign commerce, nor any of the finer manufactures, a man of ten thousand a year cannot well employ his revenue in any other way than in maintaining, perhaps, a thousand families, who are all of them necessarily at his command” (WN III.iv.11, emphasis added). ²⁶ Smith’s contingency is easy to miss. Nonetheless, several important scholars emphasize this contingent nature of Smith’s claims even as they miss my larger argument. First, Smith clearly suggests that markets grew gradually. So too, therefore, must have the availability of luxury goods. Second, Smith’s long paragraph quoted above emphasizes the gradualism involved with the way in which luxury goods penetrated the countryside. Third, Smith’s argument seems reasonably clear: where no markets existed, no luxury items could be found.

The emendation

A great many problems plague the standard version of the luxury hypothesis. First, Smith’s contingency and his emphasis on the gradual development of markets imply that towns in the coastal and riverine areas would have been the first areas in which luxury goods would appear. ²⁷ The towns and cities are located nearly exclusively in these regions to support their participation in long-distance trade. It is here, in the coastal and riverine areas, that luxury goods first became available. Traveling merchants attempting to bring these goods into the hinterland would be easy prey. Away from their fortified cites, they would be at the mercy of the lords and barons as well as everyday bandits. This setting effectively put merchants back in circumstances antedating the political exchange between king and town. Therefore, in the hinterlands in the interior of England and, especially, France, far from the commercial towns, probably not much changed, possibly for a couple of centuries. Acting alone, the barons in these areas could not dismantle their systems of retainers because their neighbors did not. Given the arms race nature of military competition, the security problem remained. Therefore, not all barons could afford to get rid of their retainers.

Second, the local military advantage of the towns implies that the barons whose fiefs were near the towns would be the first to dismantle their system of retainers to take advantage of the availability of luxury goods. ²⁸ They let go of their retainers because they no longer needed them for security. This observation is critical for the town’s sequential elimination of the great lords who might attack them.

Third, the standard version of the luxury hypothesis makes no economic sense. The idea that demand exists only for a single good is difficult to fathom. Could the castles of the barons be made more elaborate and, perhaps, tinged with gold? Could the liveries become more elaborate? Why not employ more dressmakers to make fancier as well as a larger number and variety of dresses for different occasions? More fireplaces to keep warm? This list of possible markets could be extended.

Fourth, because the economics underlying the standard luxury hypothesis makes no sense, it fails to explain Smith’s argument for how liberty gradually became extended to the countryside (WN III.iv). As the towns could subdue local lords, they created liberty in the local countryside, not the entire countryside.

Finally, the standard version of the hypothesis does not explain why Western Europe, experiencing centuries of violence, would seemingly suddenly stop fighting. Would every baron lay down their arms at once? If not, the standard hypothesis faces a potentially difficult problem. What if one baron were to fail to put down his arms while all the other barons did so? Nothing would prevent this individual from taking over the other’s lands, a source of income with which to buy baubles. Knowing that this logic was a possibility, the only rational strategy for an individual lord would be to maintain his arms. Again, because the standard hypothesis has no explanation for the centuries of violence under the feudal equilibrium, this reasoning implies that the traditional account also lacks an explanation for which groups of lords were likely to take advantage of the new availability of luxury goods.

The presence and availability of luxury goods was not the reason the lords let go of their retainers. The reason was security, which affected different locations differently. As we saw above, lords living within the gradually expanding security umbrella near the towns and cities were most likely to get rid of their retainers.

Additional changes followed from this logic of violence and security. First, local lords, now living under the protective umbrella of the towns, no longer needed their retainers for protection, so they—and not every baron or lord—could trade retainers for luxury goods and social status. Second, as Smith explains, rich merchants in the towns brought their administrative expertise to the countryside, producing specialized agriculture to capture the gains from increasing the size of the market in the countryside and hence a larger division of labor. This process included local peasants who could now join the market by producing food and raw materials for the towns. Also consistent with this view is Istvan Hont’s point that, from a development perspective, the towns were two centuries ahead of the feudal countryside. ²⁹ Indeed, it would take railroads to bring markets, liberty, and specialization to many areas in the French hinterland. All these processes are inconsistent with kings’ bringing liberty to the countryside. Again, we see Smith emphasize gradualism:

The personal expence of the great proprietors, having in this manner gradually increased, it was impossible that the number of their retainers should not as gradually diminish, till they were at last dismissed altogether. The same cause gradually led them to dismiss the unnecessary part of their tenants. Farms were enlarged. … By the removal of the unnecessary mouths, and by exacting from the farmer the full value of the farm, a greater surplus, or what is the same thing, the price of a greater surplus, was obtained for the proprietor, which the merchants and manufacturers soon furnished him with a method of spending upon his own person in the same manner as he had done the rest. (WN III.iv.13, emphases added)

Smith then explains how long leases made the tenants independent of the proprietors. He continues: “But if [the tenant] has a lease for a long term of years, he is altogether independent; and his landlord must not expect from him even the most trifling service beyond what is either expressly stipulated in the lease, or imposed upon him by the common and known law of the country” (WN III.iv.14).

Recall two aspects of Smith’s argument in An Inquiry into the Nature and Causes of the Wealth of Nations (III.iv). First, the title of chapter 4 makes a critical point: “How the Commerce of the Towns Contributed to the Improvement of the Country.” In this chapter, Smith explores a series of ways in which the countryside benefited from the proximity of the towns and cities. Second, Smith famously comments about the relationship between the town’s construction of liberty and how liberty benefited individuals in the country around the towns and not just those within the towns. We will see below a critical aspect of Smith’s argument about the rise of luxury and the demise of the power of the great lords:

[C]ommerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours, and of servile dependency upon their superiors. This, though it has been the least observed, is by far the most important of all their effects. (WN III.iv.4, emphasis added) ³⁰

As the towns expanded their security and legal umbrella, a “regular government was established in the country as well as in the city, nobody having sufficient power to disturb its operations in the one, any more than in the other” (WN III.iv.15). ³¹

Conclusions

In this essay, I addressed the effect of luxury on the end of feudalism. I take issue with the traditional approach for three reasons. The first is methodological. To explain a major social change such as the end of feudalism with its implied decline of the power of the nobility, we need a comparative-static result. A comparative-static result, in turn, depends on a prior equilibrium: In the case of this essay, the many centuries of the feudal equilibrium, which Smith explains in Book III of the Wealth of Nations.

The second is violence in general. Students of Smith, both in political science and in economics, fail to take violence as a first-order effect. As we have seen, violence is a major source of persistent economic inefficiency. This is why many countries, in Smith’s time as in ours, fail to develop. I argue at greater length elsewhere that violence and the associated absence of credible commitments help explain a range of issues with respect to Smith’s works. For example, I argue that Smith discusses how the violence of the slave system was maintained, including an explanation for why slaves in medieval Europe had no incentive to work hard, save, and invest. Doing so risked the violence of their superiors who might plunder such a slave. ³² Several other features of the medieval economy had the same effect. Here, I note the form of property rights governing land; why long-term contracts between slaveholders and slaves were unenforceable, thereby precluding compensated emancipation; why the medieval Church favored policies that failed to produce growth and development; and the main point of this essay, namely, that the absence of markets for any consumable goods, including luxury goods, was endogenous to the system of violence.

I argued above that the violence in this world, where an attack could come at any moment and in which the lords were always fighting one another, created the incentive structure of an arms race. For our purposes, this system has two implications for us. First, it meant that if one or more of a lord’s neighbors accumulated high amounts of violence potential, so too must the first lord, lest he be caught unawares, risking his property and lives. This generated the endogenous effect that prevented markets from arising. In this setting, a lord who spent money on luxury goods, for example, risked insufficient accumulation of power, in turn lowering his ability to project violence or defend himself. Scholars writing in the traditional luxury-hypothesis literature tend to see the absence of markets as exogenous.

Another piece of evidence is the gradualism emphasized by Smith. Proponents of the traditional luxury hypothesis seem not to have noticed this emphasis. Gradualism is evidence of the idea that the first places for lords to put down their arms as well as disband their tenants and vassals were those nearest the towns and cities. This point suggests not only a gradual change, but also a sequential one. As the towns expanded their security umbrellas across more and more territory, lords increasingly further away could begin to indulge in luxury.

Finally, I discussed the implications of my approach for the larger question asked in the introduction: Why did the feudal nobility collapse? My answer is that a comparative advantage in violence is critical to understanding the answer to this question. Per the traditional luxury hypothesis, the appearance of luxury goods is a central feature of my answer. But as I have suggested many times, this was not an exogenous feature of medieval society. Put another way, it did not just happen at a particular moment. Rather, it arose endogenously. Why were there too few markets for consumer goods? Because of violence in the form of an arms race summarized above: If your neighbor devotes all his resources to violence, then protection and security means that you must as well. Gradualism meant that the demise of the nobility occurred over a long period of time in a gradual and sequential manner.