G. Chaloupek, 'City and Country in 18th and 19th Century Economic Theory

Town and Country ESHET 2011 Seite 1

City and country in 18th

and 19th

century economic theory

Paper presented to the 15th

Annual ESHET Conference, Istanbul, May 19-22, 2011

Gnther Chaloupek, Chamber of Labour, Vienna

[email protected] FIRST DRAFT

The distribution of economic activity between city/town and country occupied a prominent

place in many important works of economic theory of the 18th

and 19th

century. This paper

reviews the contributions of some of the most prominent authors and characterizes their

different approaches to the subject, with some reflections on the place of the aspect of spatial

distribution of economic activity in the history of economic thought.

1. Cantillon

According to Joseph Schumpeter, Richard Cantillons Essai sur la nature de commerce en

general of 1734 deserves praise as first systematic realization of the subject of economics1.

If Cantillon was the first economist who integrated the previously disconnected elements of

analysis such as theory of prices and wages, value theory, population theory, theory of money,

foreign trade and mercantilist economic policies, the secondary literature more or less ignores

the fact that Cantillons Essay starts with a discussion of the nature of wealth (land is the

source or matter from whence all wealth is produced, p. 5) from which it proceeds to a

scheme of social classes, and from there directly to a theory of the origin of villages, towns

and capital cities. The distribution of the population between these different forms of human

settlement is not only dealt with in detail in the following Chapters III to VI, but remains an

important aspect throughout part one of the book2.

Cantillon briefly sketches a theory of the history of society according to which in more

settled societies the population is divided between a small number of proprietors of land and

farmers/labourers who cultivate the land. In the first instance, the produce of the land must be

used for maintenance and food for those who work on it, while the overplus of the land is

1 Schumpeter 1914, p. 32. Cantillon (1697-1734) wrote his essay in English, but only a French translation

survived when he died in a fire of his house in 1734. The French manuscript was published in London in 1755. It took almost 180 years until Cantillons Essay was translated into English and German (1931). The rediscovery of Cantillons seminal work by historians of economic thought started with Jevons esaay of 1881 (reprinted in Cantillon 1931a). 2 Remarkably, neither the introduction of Henry Higgs to the English translation nor F.A. Hayeks introduction to

the German translation of the Essay pay attention to Cantillons location theory.


at the disposition of the owner (p. 6f). Thereafter, he distinguishes between four types of

settlement: villages, towns, cities and capital cities.

The population engaged in the cultivation of land lives in villages which also house a certain

number of farriers and wheelwrights who produce he necessary instruments. The size of a

village is naturally proportioned in number of inhabitants to what the land dependent on it

required for daily work (p. 7), and also on the number of proprietors living in a village: If

one or more of the owners ... reside there the number of inhabitants will be greater in

proportion to the domestic servants and artisans drawn thither, and inns will be established

there for the convenience of domestic servants and workmen who are maintained by the

landlords. (p. 8)

According to Cantillons market theory of towns (Schumpeter 1954, p. 219), towns evolve

out of trading places of the products of land. The size of the market town is naturally

proportioned to the numbers of farmers and labourers needed to cultivate the lands dependent

on it, and to the numbers of artisans and small merchants that the villages bordering on the

market town employ with their assistants and horses, and finally to the number of persons

who the landowner resident there support. (p.9)

As a higher category of settlements, cities are places where the owners of large estates live

whose income is high enough to pay for the cost of transport of the produce of land from

more distant areas. For their service, they attract a large number of servants, artisans, and

people of all sorts of professions. As all these artisans and undertakers serve each other as

well as the nobility it is overlooked that the upkeep of them all falls ultimately on the nobles

and landowners. It is not perceived that all the little houses in a city ... depend upon and

subsist at the expense of the great houses. (p.10) In addition, there is another cause of city

growth: If in this same city workshops and manufactories be set up apart from home

consumption for export and sale abroad, the city will be large in proportion to the workmen

and artisans who live ther at the expense of the foreigner. (ibidem)

At the top of the hierarchy of settlement we find the Capital City where the king or supreme

government spend the government revenue, where the supreme court resides, etc. The capital

city is the centre of fashions which all the provinces take for a mode. [A]ll the lands in the

state contribute more or less to maintain those who dwell in the capital. Great cities are

usually built on the seacoast or on the banks of large rivers for the convenience of transport.

(p. 11)


Cantillon refers to estimates according to which one half of the population of a country live in

cities and towns. (p. 22) These estimates appear grossly exaggerated in the light of figures

calculated by modern economic history: even in the economically most advance countries

such as England and the Netherlands the proportion of the urban population hardly exceeds 20

percent between 1700 and 1750, with much smaller percentages on the continent. (Wrigley

1987, p. 157ff)

2. Adam Smith

Adam Smith discusses the relationship between city and country in Book 3 of The Wealth of

Nations Of the different progress of opulence in different nations, and also in Book 2 Of

the nature, accumulation, and employment of stock. Smiths basic proposition is that the

great commerce of every civilized society is carried on between the inhabitants of the town

and those of the country. If the town may be very properly be said to gain its whole wealth

and subsistence from the country, this does not imply that the gains of the town are the loss

of the country. The gains of both are mutual and reciprocal, and the division of labour is in

this, as in all other cases, advantageous to all the different persons employed in the different

occupations into which it is subdivided. Wealth and opulence increase with the expansion of

markets which is driven by the interaction between agricultural production on the country and

trade and industry in the town: The greater the number and revenue of the inhabitants of the

town, the more extensive is the market which it affords to the country; and the more extensive

that market, it is always the more advantageous to a great number. (Smith 1776/1974, p.

479).

In his sketch of philosophical secular history, Smith attributes the failure to realize the

potential from the progressive interaction between economic activity on the country and in the

towns during the Middle Ages to the particular system of land tenure imposed after the fall of

the Roman empire through which improvements in agricultural production were discouraged

and, as a consequence, the driving forces of growth of towns remained weak.

Smith also adheres to the market theory of medieval towns which were originally inhabited

by tradesmen and mechanics. How servile their dependant status may have been, they

arrived at liberty and independency much earlier than the occupiers of the country. (pp. 496f)

Progress of commerce and industry in towns and cities were further promoted by order and

good government which was, along with liberty and security of individuals ... established in


cities at a time when the occupiers of land in the country were exposed to every sort of

violence. (p. 502)

If cities derive their subsistence, and the whole of materials and means of their industry,

from the country, the growth of a city is facilitated by its possibilities to overcome the

constraints imposed on the country by natural conditions or by institutional impediments to

increase its production capacities. Therefore, during the long period of gradual re-emergence

of cities, such places were in a more favourable position which are situated near the sea coast

or the banks of a navigable river and may draw their supplies of food and raw materials

from the most remote corners of the world, either in exchange of manufactured produce of

their own industry, or by performing the office of carriers between distant countries and

exchanging the produce of one for that of another. (ibidem) Yet, the land that surrounds such

cities and the country as a whole benefit from the growth of such cities only to the extent to

which the impediments that inhibit the growth of agricultural production are removed.

Policies of the latter kind created the agricultural basis of manufacturing towns such as Leeds,

Halifax, Sheffield, Birmingham and Wolverhampton. The corn and, even more

importantly perhaps: wool and other raw materials which could with difficulty have been

carried abroad in its own shape, is in this manner virtually exported in that of thre complete

manufacture, and may be sent tom the remotest corners of the world. (p. 506)

What is essential in that context is that the increase and the riches of commercial and

manufacturing towns contribute to the improvement and cultivation of the land. Smith

mentions three forms of interaction between economic activities in cities and on the country

which promotes economic growth of the nation as a whole: the expanding market for products

of the land; profits from commerce and manufacturing are invested in the improvement of

land when merchants who are generally the best of all improvers purchase land and engage

in agriculture; and, finally, good order and government, and with them the liberty and

security of individuals is established also among the inhabitants of the countryside. (p. 507f)

It is thus that through the greater part of Europe the commerce and manufactures of cities,

instead of being the effect3, have been the cause and the occasion of the improvement and

cultivation of the country. (p. 515)

Cities, therefore, occupy a central place in the Smiths theory of economic growth. Cities are

growth poles, the shift of the population from the country to commercial and industrial cities

3 As was the case in the North American colonies, to which Smith devotes great attention.


is the spatial consequence of the growth of total production in volume and per capita as well.

But this holds only for a specific type of cities, the commercial and industrial city. Smith is

full of scorn for the other type of great city, whose great size depends primarily on the

expenditure of revenue of the court and of the nobility. In this context, Smiths distinction

between productive and unproductive labour comes into play. Income from profit or rent can

be spent for the employment either of productive or unproductive hands. In the first case, it

is employed by the owner as capital which is expected to be replaced to him with a profit.

... Whenever he employs any part of it in maintaining unproductive hands of any kind, that

part is, from that moment, withdrawn from his capital and placed in his stock reserved for

immediate consumption. (p. 432) In the great capitals of the continent, in Paris, Madrid and

Vienna, very little more capital seems to be employed than what is necessary for their own

consumption. (p. 436) Great cities of this type do not function as growth poles of the national

economy, but as a drain of resources which could be better used to enhance the productive

potential. Since the proportion between capital and revenue ... everywhere seems to regulate

the proportion between industry and idleness, the growth of such cities diminishes the real

wealth and revenue of all the countries inhabitants. (p. 437)

It must be re-emphasized that in Smiths view it is above all other uses the employment of

revenue from any source as capital in the agricultural sector that promotes economic growth.

Therefore, he devoted two books (book 3 and 4) of his magnum opus to explain what

circumstances in the policy of Europe have given the trades which are carried on in towns so

great an advantage over that which is carried on in the country, that private persons find it

frequently more to their advantage to employ their capitals in the most distant carrying trades

of Asia and America, than in the improvement and cultivation of the most fertile fields in

their own neighbourhood (p.475); and how the actual course of history could for more than a

millennium divert from a pattern of evolution which he considered natural4.

3. The German Historical School: from Roscher to Sombart

Whereas the relationship between city and country is paid little attention by the British

economists after Adam Smith, the subject occupies an important place in the work of the

authors of the German Historical School throughout from Roscher to Sombart.

3.1. Wilhelm Roscher (1817-1894)

4 Naive Version von Smith Oppenheimer !


Roscher, who is the main representative of the schools first generation, takes up the subject

in the third volume of his System der Volkswirtschaft which was used as a textbook for

courses in economics at German universities for half a century. In the opening chapter of

Nationalkonomik des Handels und desGewerbefleies5 Roscher presents a natural doctrine

of cities in general (aus der Naturlehre des Stdtewesens im Allgemeinen) in which he

equates the economics of trade and industry with the economy of towns and cities.

The development of cities is an index for the development of economy and society as a whole.

Signs of ascent or decline of nations appear first in its cities before they appear in the country,

because industry has a much greater capacity for growth than agriculture. Therefore, in

growing nations urban populations gain much faster in numbers than the rural population.

Roscher 1881, p. 22)

Roschers investigates the relationship between city and country mainly in the historical

context of the different paths of development of cities in the German Empire and in Italy and

France. If, in the latter two countries, formation of cities was facilitated by a modest degree

of continuity with municipalities of the defunct Roman Empire, in Germany cities reappeared

much later and had their first phase of vigorous expansion only in the late middle ages, with

growth of handicraft production organized in gilds and long distance trade as main sources.

Like Smith Roscher points to the importance of the cities pioneering role for the creation of

legal and political conditions for the growth of industries and for political emancipation from

the structures of feudalism in general.

Yet, in the German empire the early period of prosperity of cities and towns in the 15th

century was followed by three centuries (until 1800) of stagnation and decline. In this period,

Roscher observes, only cities gained in population that were places of residence of princes

and kings. He explains stagnation both by exogenous and endogenous factor. Among the

former the redirection of intercontinental and interregional trade in Europe from East to West

was the most important. But more important was the failure of most cities (with a few

exceptions only, such as Nuremberg and the Hansa cities) to rid themselves of the superior

powers of the territorial rulers in the fragmented political structure of the Empire. Within

cities, the gilds system turned increasingly into a straitjacket which imposed insurmountable

impediments for innovation and growth. (ibidem, pp. 611f)

5I am referring to the first edition of the third volume.


Roscher draws a distinction between great cities (Grostdte) and towns, with the former

emerging only at a higher stage of evolution of the division of labour. Such cities require a

territory of considerable size to supply the city with foodstuffs and raw materials for which

the city pays with products of industry and personal services. Roscher also mentions income

from agricultural rent and capital interest as elements of the economic base of the city,

without going into any further details of the interrelationship between the different factors of

city growth and its effects on the country. Roscher thus contents himself with the finding that

nations and the population of cities grow and decline in parallel, for which he presents many

historical examples.

In the general context of the economy of cities Roscher mentions only two authors: J. Botero

and his book Delle cause dalla grandezza della citt (1589) and Vaughans The age of

grate cities (1843), while Smith and Cantillon6 are not referred to.

3.2.Gustav Schmoller (1838-1917)

For his general treatment of the subject of city and country Gustav Schmoller, the most

eminent representative of the middle (second) generation of the Historical School, can draw

on extensive own research on medieval towns in the German Empire. He devotes a special

chapter on Stadt und Land in the first volume of his Grundriss der Allgemeinen

Volkswirtschaftslehre7. Villages, towns and cities are the intermediate stage of social

organization, between family as the most elementary stage, and the state resp. the national

economy. In Germany towns have a variety of origins: they form around castles or a bishops

residence, they emerge from market places, often they are established by decree of the

territorial ruler who provides them with local monopolies (e.g. customs duties, emporium,

mint) by granting them such privileges.

Schmoller attributes the rising prosperity of German towns and cities in the late middle ages

to the growth of long distance trade as well as to the decline of the power of the central

authority. (Schmoller 1901, p. 266) Cities obtained a certain autonomy which they exploited

to promote their industry and trade through various instruments of economic policy,

especially by extending their political control over the surrounding country within circles that

6 Despite the fact that Roscher appreciated Cantillons contribution to economic theory in his book on the

history of economics in Germany. (Hayeks introduction to Cantillon 1931b, p. XIV) 7 Schmollers textbook Grundrisse is intended to present a summary of the generalized teachings oft he

Historical School. Yet the book was much less successfull than Roschers System der Volkswirtschaft which continued to be used until after Wird War I.


ranged between 10 and 50 miles. The economic policy of cities was mercantilistic in content,

e.g. by at will-prohibition of imports or exports of this or that commodity each month, by

prohibiting exports of precious metal, prohibiting traffic and trade with other cities, etc.

(ibidem, p. 296)

The growth of cities creates the basis for the development of the institutions of economic and

personal freedom, in particular the gratia emendi et vendendi, free exchange on the market,

the right of assistance from the city in doing business outside of the city, access to city

jurisdiction, etc. Schmoller emphasizes that these rights were not universal, but tied to

franchise with a specific city which imposed restrictions on external marriage and duties in

case of emigration. (p. 295)

Schmoller points to the increase of economic freedom as an important factor of the

endogenous dynamics of economic growth of cities. But in his view, co-operative spirits of

citizens and orientation at the common weal are no less important for a citys prosperity.

Schmoller criticized Adam Smiths treatment of the economy of cities, which he considers

one of the weakest parts in Smiths work. To assume that the best way to promote the

common weal is to rely on the self interest of the individual is a form of naive optimism

which leads to the wrong conclusions with respect to the development of cities in medieval

and pre-capitalist periods. Schmollers criticism applies to Smiths analysis of the detrimental

effects of the feudal system of land ownership as well as to the latters thesis that

development of cities mostly occurred spontaneously. Each city is a complicated organism

which can prosper only if restrictions and regulations necessary for the common interest are

established in order to impose limits on the pursuit of self interest of the individual and to

guide it on the right path. (p. 274)

Schmollers own historical research on city development is confined to the small and medium

sized German cities in pre-industrial times. He does not deal with great cities in the pre-

industrial period. Unlike Cantillon and Smith, he does not provide a typology of cities. He

pursues the question as to what are the conditions and determinants of long-term city growth

only in the context of the stagnation and decline of German cities from 1500 to 1800. If

Cologne which was the most populous city by the end of the middle ages, its further

expansion was impeded by its incomplete emancipation from the territorial ruler (the

archbishop), and also by restrictions imposed upon the citys most important export industry

by the council for fear that wool weavers might obtain political control. (Schmoller 1922, pp.


62f) After 1500, only a few cities succeeded in maintaining a strong economic position (e.g.

Nuremberg) by obtaining political control over the surrounding territory.

Schmoller counts the following as general determinants for economic growth of cities:

relations o the surrounding territory, relations to neighbouring cities as competitors, relations

to the landed aristocracy and to the prince. (ibidem, p. 100) Schmoller does not look more

closely into the dynamics of city growth based on long distance trade with foreign or own

products and its repercussions on the surrounding country which was the main focus of Adam

Smith.

3.3.Karl Bcher (1847-1930)

Karl Bchers most well-known book Die Entstehung der Volkswirtschaft is a collection of

essays of which several take up the subject of city and country under various aspects. Most

important in the context of this paper is the essay on types of great cities from ancient to

present times. The histories of ancient Greece and of the Roman Empire are essentially a

history of cities. In that period the inhabitants of cities were also owners and cultivators of

land, even if work there was done by slaves or bondmen. The great metropolis such as Athens

or Rome has other functions too like trade -, but the support of their inhabitants depends on

the imperial status of the capital and its revenues from tax and property, while it did not have

export industries. (Bcher 1917, pp. 378f)

The difference in the relationship between city and country marks the difference between

economic systems of antiquity and the middle ages. In the latter, there is a division of

functions between city and country. The country provides raw materials and foodstuffs,

whereas the city processes the raw materials and procures goods from distant regions.

Citizens and peasants exchange their products on the citys markets. Therefore, medieval

cities are not central places of consumption of idle loafer. Instead, the city has become the

place of gainful productive activity where work is the citizens pride Arbeit ist des Brgers

Zierde. (pp. 380f)

As a consequence of the division of labour between city and country a large number of towns

and cities which are small or even very small by modern standards are dispersed across the

country, with villages of varying size in between, on average 30 to 40 such villages attached

to each city. This pattern of settlement constitutes a distinct social order for which Bcher

coined the phrase Stadtwirtschaft (city economy).


The city economy is the intermediate stage of three principal stages of long-term socio-

economic evolution from the economy of the house (Hauswirtschaft) to the national

economy (Volkswirtschaft). Bcher (together with Schmoller) thus became the father of stage

theory of economic development (Stufentheorie) an approach followed in a different form

by W.W. Rostow in the last century. At the stage of Stadtwirtschaft cities participate only

marginally in interregional and international exchange. With its dependent villages each city

represents one of a great number of more or less autonomous economic communities. (Bcher

1914, p. 13) In this respect Bchers city economy foreshadows Niklas Luhmanns model of

segmented society (segmantre Gesellschaft) which is characterized by a form of social

differentiation in which society is organized in partial sub-units which ar reciprocal

environment for each other. (Luhmann 1997, p. 634)

In the German Empire, the particular form of relationship between city and country

established in the middle ages remained essentially stable during several centuries. In

contrast, the predominance of the city over the country in ancient times had the effect that the

country was swallowed by the city to the severe detriment of productivity of the ancient

economy as a whole. (Bcher 1917, p. 380) In a similar vein, ruthless exploitation of the

country by urban capital led to stagnation of the economy in medieval and early modern Italy.

It is a paradox that in Germany and in France the evolution from the stage of city economy to

national economy was facilitated by the weakness of their cities. In contrast, in Italy the fully

developed city economy produced a number of city states whose political autonomy delayed

the formation of a national economy. (ibidem, p. 134)

Bcher notes that at the stage of city economy only capitals of large territories with a strong

central power could grow to the size of metropolis. Hence, the formation of a great city in the

true sense was impossible under the conditions prevailing in Germany in medieval and early

modern times. (p. 382) He des not analyze the pre-industrial metropolis in detail.

It is only industrialization which produces a growing number of great cities. Industrialization

is based on an extensive division of labour with a strong central political power as its

precondition which eliminates the obstacles resulting from medieval particularism. Even more

important is the improvement of technologies for transport and traffic. The transformation of

the division of labour towards a national economy brings with it a permanent shift of

population to the cities and thus an urbanization of human civilization. (p. 386) Traditional


characteristics which mark the difference between city and country become progressively

insignificant.

3.4.Werner Sombart (1863-1941)

Like the other economists of the Historical School, Werner Sombart deals extensively with

the relationship between city and country in the course of long term economic development.

Being the most eminent member of the third (and last) generation of the school, Sombart

sharply criticizes his predecessors, especially Roscher, for lack of theoretical clarity. If the

school as a whole suffers from this kind of shortcoming, Sombart wants to remove it by

opening each section of his book Der moderne Kapitalismus with a exposition of the

theoretical framework to be used subsequently to investigate the different aspects of economic

development.

As a model of theoretical analysis of the economy of city and county, Sombart quotes Adam

Smiths proposition that the city derives its subsistence from the county and that, therefore, its

growth depends on the increase of the surplus of the country. (Sombart 1916, Vol. I/1, p. 130)

Sombart includes a brief survey of theories of the city economy in the first edition of Modern

Capitalism where he mentions also Cantillon, Quesnay, Beccaria, Stewart and Botero.

(Sombart 1902, Vol.2, pp. 224f)

Sombart deduces the following propositions from Smiths basic statement with respect to the

determinants of the size of a city, which depends on

the size of its area of support;

the size of its share of the product of the supporting area;

this product itself depends on the fertility of the soil and on the stat of technologies

used for its cultivation;

the spatial extension of the area of support depends on the location of the city

(especially for trading centres) and on its political status (capitals), and also an the

development of transport technologies. (Sombart 1916, Vol. I/1, p. 130)

The central piece of Sombarts theory of the city economy is his distinction between subject

and objects of the formation of the city. (ibidem, pp. 131f) Subjects are the founder of the

city, they play the active, primary in its formation. The founders can channel the surplus of

the land into the city on the basis of legal or status privileges, from which they receive

revenues or income from taxes or interest, or they can pay for the surplus with the return of


their exports of goods and services. Sombart calls the other inhabitants of the city the

Stdtefller - city fillers - who are mere objects of city formation. They derive their income

from the class of the founders. Among them Sombart distinguishes secondary fillers who

directly depend on the founders, tertiary fillers, who derive their income from secondary

fillers, etc. Note that Sombart at this point describes an multiplier of consumption

expenditure or exports in the context of the city economy, without using that term. This

deserves credit as a pioneering effort for which Sombart seldom has received due

recognition. (Betz 1996, p. ...)8

On the basis of his analysis of city formation Sombart introduces the explicit distinction

between two types of great cites:

the consumption city, which does not pay for the support of its livelihood with

products of its own, because the founders of then city derive their income from a

legal title which does not require any equivalent in exchange-. (Sombart 1916, Vol.

I/1, p. 142) The consumption city (Konsumtionsstadt) is the model of all great cities

or the periods of pre- and early capitalism.

The other type is the trading city (Handelsstadt) or industrial city which obtains

the goods of its support of living through exchange of its goods and services.

In his history of modern capitalism Sombart emphasizes the essential role of the consumption

city of the early period of capitalism in the evolution towards fully developed capitalism.

During the middle ages great cities did not originate from trade or from exports of their

industrial products. It was consumption, especially consumption of luxuries which was

principal driving force of the formation of those cities. Significant impulses for the unleashing

of the dynamics of the economy of luxury production and consumption came from political

centralization in the course of formation of great territorial states. The increase in the demand

for consumption goods was financed from tax revenues and further augmented by the

attraction the wealthiest parts of the landed aristocracy to the capital.

Sombart argued that even under conditions of high capitalism consumption out of non-wage

income was still an important factor for the population increase of great cities. In this context,

Sombart treated income from profit especially dividends and interest from government

bonds as of the same category as land revenue. To the extent that profits are consumed or

8 Betz quotes two essays (Krumme 1968 and Reulecke 1978) that have taken note of Sombarts discovery of the

multiplier which appers to hebe been preceded by Cantillons analysis of the consumption city.


not consumed in a city, Sombart distinguishes between partially industrial city and fully

industrial city. (Betz 1996, p. ..) Especially the great metropoles are not purely industrial

cities since consumption financed from income out of external profits, salaries and pensions

of civil servants also contribute to their population size.

4. Comparative evaluation and conclusions

Cantillons analysis of the different modes of functioning of different types of cities still

impressive for its penetrating insight is the by-product of his physiocratic theory of value. If

land is the only source from whence all wealth is produced, and all the classes and

inhabitants of a state live at he expense of the proprietors of land (Cantillon 1931, p.10), the

consequence is that the size of a city depends on the amount of revenue spent there by the

recipients of revenues from land. Great cities are therefore the result of the concentration of

the expenditure from great revenues of landowners. Note that Cantillon was aware of the fact

that this expenditure not only attracts a number of dependants to serve the recipients of

revenue, but beyond that it attracts additional workers to serve the needs of those dependants,

etc. The capital city exceeds the other cities in size because that part of the revenue which is

appropriated by the king by way of taxation augments the expenditure in the capital city

whose prestige attracts the wealthiest landowners as residents. Cantillon shows that the

distribution of revenue results in a certain pattern of settlement and produces a hierarchy of

cities. Great cities are places where the wealthy classes consume their revenues which of

necessity brings about luxury and idleness. If land were distributed evenly among small

farmers there would hardly be any cities. The people would be more numerous and the state

very rich if every proprietor employed on some useful work the inhabitants supported on his

land. (p. 41).

For Adam Smith, the central question is how an increase in national wealth and income can be

brought about. Therefore he is interested in the growth of cities primarily in the context of

their contribution to economic growth of the nation. If labour - and not land is the principal

source of wealth, it follows that wealth (and the level of real income) does not only increase if

more products of land are produced, but that more products of industry typically produced in

cities also contribute to the increase of a nations wealth. Still, the country must provide the

surplus on which the cities subsist. But Smith sees the industrial city as growth point where

the profits are generated which should be invested primarily in improvements of the land,

which would in turn increase the surplus of the land available for investment both in the city


economy and in the rural economy. Industrial cities thus function as growth poles9 of the

national economy. Furthermore, it follows that the consumption city as described by Cantillon

acts as a drag on its nations wealth where revenue from land, interest or taxes is used for the

purchase of childish luxuries and unproductive services.

When abstract analysis began to dominate the economic thinking of classical economists after

Adam Smith, spatial distribution of economic activity was neglected as an economic

phenomenon, with few exceptions only (especially Thnen). Karl Marx wrote that the

relationship between city and country was an aspect of principal importance since social

development as such is reflected by the changes in that relationship (Das Kapital), but he did

not further elaborate on the issue. The neglect of the spatial aspect was re-enforced by

neoclassical economic theorizing of any kind. Only in the second half of the last century this

aspect reappeared in the new branch of regional economics. (Richardson 1969, pp. 13f)

About 100 years after Smith the economists of the German Historical School revived the

question of Stadt und Land. According to the empirical-historical approach of the authors of

the school their investigations concentrated on the historical development of the relationship

between city and country. The research of Roscher, Schmoller and Bcher was exclusively or

primarily focussed on the towns and cities of the German Empire. With respect to the origin

of cities, they emphasized the importance of institutional factors (foundation by the prince,

privileges), in contrast to Cantillon and Smith who both adhered to a market theory of origin

of cities. Schmoller emphasized the role of collective action and cooperation in the

development of the medieval city. The Germans were especially interested in the decline of

cities in the German Empire after the middle ages for which they proposed a variety of

different political and economic explanations. Bchers observation of a certain pattern of

distribution of town and cities across the territory of the empire perhaps foreshadows

Christallers model of central places. (Christaller 1933) Of course, the authors had an idea that

growth of cities and economic growth and prosperity of a nation are closely related, but their

explanations remain sketchy and vague in this respect, they fall far short to those of Smith and

even Cantillon. The value of these writings consists in their detailed investigations of

economic history.

It was Werner Sombart who overcame the shortcomings of the authors of the first two

generations of the Historical School. He based his detailed historical studies on Stadt und

9 Poles de croissance was the term originally introduced by Francois Perroux (1955).


Land on an explicit theoretical framework which draws substantially on Cantillon and Adam

Smith. Yet Sombarts characterization of the medieval citys economy which identified the

handicraft economy (Handwerkssystem) as an economic system of its own is in sharp

contrast with Adam Smiths views. Likewise, Sombart enjoys the paradox that the growth of

consumption and production of luxuries for which Smith expressed so much scorn was an

important factor in the commercialization of the urban economy which was a precondition for

the Industrial Revolution.

Sombarts approach to the relationship of city and country was essentially that of theoretical

historicism, and therefore not well suited as a starting point for modern regional economics.


Literature

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europische Wirtschaftsleben im Zeitalter des Frhkapitalismus, Duncker & Humblot

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Documents

G. Chaloupek, 'City and Country in 18th and 19th Century Economic Theory