Was Feudalism Wasteful?

By Thomas E. Lambert

A look at the economics of feudalism can reveal a major fault of this system – the failure to put surplus earnings to productive uses.

Much has been written about the causes of the demise of feudalism and its replacement by capitalism as the dominant economic system of Western Europe. Historians and other scholars have noted how frequent food shortages and famines due to population growth outstripping food production because of a dwindling supply of arable land and because of plagues such as the Black Death which wiped out large percentages of the workforce helped to lead to feudalism’s unraveling. The resulting shortage of people working, especially after the Black Death ravaged Europe, lead to more peasants eventually having to be paid more money for those who were laborers for hire or being allowed to keep more of their agricultural output for resale to others rather than having to work strictly for a lord as a vassal. The old demesne arrangement of feudalism began to fall apart as some serfs became entrepreneurs and small landowners.


As decades passed from the 14th to the 17th centuries, property rights and greater rights to keep profits, rents, and other earnings by yeoman farmers, urban manufacturers, trading companies, and merchants gave rise to a new and emerging class of capitalists who eventually matched or surpassed the descendants of feudal nobility in income and wealth. Although capitalism in one form or another had started under the long shadow of feudalism during the late medieval period (for example in Venice and Genoa), it had replaced feudalism in many parts of Europe no later than by the time of the British Industrial Revolution in the 18th century.

The preceding description of events is a brief synopsis of some of the usual and major explanations for feudalism’s decline in Western Europe. Additionally, non-traditional economists and political economists such as Karl Marx and Friedrich Engels, Thorstein Veblen, and Paul Baran among others have emphasized that feudalism suffered from non-productive and wasteful spending on the part of its upper classes. That is, extra money earned by the upper-class aristocracy in the form of income, rents, or taxes is not spent, or “invested” from a capitalist point of view, into techniques and tools that would have helped to increase labor productivity which in turn would have helped a society to advance and prosper through greater economic output and better standards of living over the long run.


Both mainstream and non-mainstream economists recognize that there are no incentives under a feudalistic system for the upper or lower classes to invest because of a lack of well-defined property rights. Because of this, rewards for investment and work are not always secure enough to take risks. Yet despite this, and regardless of property rights, the upper classes still have enormous resources that are spent on large cathedrals, huge palaces, festivals for holy days, minstrels, court jesters, church clergy and staff, and wars that may provide short-term employment for some subjects but basically do nothing for long term economic growth. Even without property rights, the aristocracy could have chosen to spend their surplus earnings in ways beneficial to their societies’ long-term advancement, yet they do not.  Their spending on cathedrals, palaces, church clergy, military, etc. is seen as a way of maintaining a societal status quo which could be seen as an investment in a societal stability which mostly favors them.

Feudalism is characterized by a long-term trend of an average of zero economic growth over time where each period of economic prosperity is offset by one of bust. This is the concept of Malthusian growth. As Figure 1 shows, estimates of real (inflation-adjusted) English and British net national income do not change that much from the 13th to the 16th century. It is not until the 18th century that real income begins to increase, and then it accelerates in the 18th and 19th centuries. On a real per capita basis, which is a usual measurement for gauging living standards for any society, Figure 2 displays fluctuations in real, net national income per capita with higher levels of income per capita in the 14th, 15th, and 16th centuries mostly due to labor shortages after the Black Death and then strong growth from around the second half of the 18th Century.  Property rights are well established in Britain before the 18th century, so there must be more to the Industrial Revolution and dramatic increases in income per capita than just property rights alone.

In two papers I have written (see Further Readings), I have used recently published estimates of other writers as well as my own to illustrate and reinforce the idea that it is the level of investment out of a society’s domestic economic surplus–its sum of domestic capital income, land rents, house rents, and taxes–that is significant to a society’s long-term economic growth. This is especially the case when the investment is for productive or productivity-enhancing activities such as new or better tools, new or better production techniques (e.g., replacing oxen with horses in farming) or investment in turnpikes, canals, and bridges which help with the shipment of goods and help to expand markets.

The ratio of an economy’s investment expenditures to its economic surplus is a concept developed by Zhun Xu and is called the Baran Ratio in honor of the economist Paul Baran who advanced the concept of the economic surplus. As Figure 3 notes, the Baran Ratio begins to increase consistently and substantially around 1770 which is about the time that the Industrial Revolution supposedly kicks into high gear in Britain. The existence of property rights are incentives in a capitalistic system for investment to take place, but it is the high level and consistency of investment out of the surplus that allows for rapid societal investment.


Feudalism’s downfall is not so much about a lack of economic surplus as it is about using the surplus for long-term growth through investment in productive activities and techniques. Using Clark’s estimates, I show that the level of real economic surplus per capita in Britain is at its highest in the 13th century when looking at the 13th through 19th centuries. It is during the 18th and 19th centuries that economic surplus per capita starts getting close to this previous level. The 13th-century level probably comes entirely at the expense of peasant labor with the aristocracy accumulating the greatest amount of national income. That of the 18th and 19th centuries are also due to labor exploitation but also due to increases in output per laborer. We see the standards of living for most people improving during this time versus that of the medieval period despite writings about tough conditions for the Victorian-era working class. Building cathedrals and palaces or conducting wars is a way to use societal resources, but they usually do little to increase the aggregate output of a nation’s labor force as is done when there is investment in new technologies or tools used in producing goods and services that help to increase output per worker or hour.

As Xu argues, the slow growth of many economies in modern times is because of less and less investment from their economic surpluses into productive activities. Their Baran Ratios have declined over time. Perhaps the case of medieval spending patterns offers a parallel example in that poor use of the economic surplus in turn probably leads to a Malthusian growth pattern.  Investment in productive activities rather than so much spent on unproductive ones such as advertising, militarism, and administrative bureaucracies in modern times according to Baran would be better to ensure long-term economic growth.

Thomas E. Lambert is Assistant Professor of Practice, Economics at the University of Louisville. Click here to visit his university webpage.


Further Readings:

Lambert, Thomas E. 2020. “Paul Baran’s Economic Surplus, the Baran Ratio, and the Decline of Feudalism.” Monthly Review 72(7): 34-49.

Lambert, Thomas E. 2022. “The Baran Ratio, Investment, and British Economic Growth and Development.” Journal of Post-Keynesian Economics