How does a new form of knowledge enter the public sphere and what are the consequences for economic activity? Today, thousands of students are pursuing university degrees in biotechnologies and computer sciences in order to enter the high-tech labour force or to become entrepreneurs. Do the institutions that train them generate economic growth? What roles can governments play in establishing educational institutions and supporting investments in the new forms of human capital they produce?
The 1,000-year-old debate
These are not new issues: around 100 years ago, the modern American research university – often supported by public funds – was taking shape, training scientists and engineers who were employed in the burgeoning industries of the early 20th century (Goldin and Katz 1999). Perhaps surprisingly, by going even further back in history – all the way to medieval Europe – we can learn important lessons about the relationships among public policy, educational institutions, educational content, and economic development.
The late Middle Ages saw a resurgence of economic activity in Europe (Lopez 1976). New cities were founded; old cities grew; the volume and the scope of trade expanded and reached new heights, both at the local level and across the continent (Figure 1 presents indicators of economic change in medieval Europe). Ultimately, this economic expansion changed Europe from a rural backwater (relative to Asia and the Islamic world) into an urban and commercial continent, arguably setting the stage for the subsequent projection of European domination across the oceans.
Around the same time, Europe’s first universities were established. In Bologna, in the 11th century, individuals from across Europe began to study the newly ‘rediscovered’ Justinian Code of Roman law. Soon, Roman law (among other subjects) was studied in dozens of newly-established universities. Graduates went on to work in secular and Church administrative roles, developing Europe’s legal and administrative institutions (Berman 1983) and strengthening the state’s capacity to tax and govern (Besley and Persson 1999).
New light on the Middle Ages
In our recent work (Cantoni and Yuchtman 2012a), we ask whether the emergence of a new institution of higher education – the university – played a key, causal role in generating the economic development of Europe in the Middle Ages. We also consider the role of new educational content – legal training – in this process.
To identify universities’ causal effect, we exploit a ‘natural experiment’ in university establishment: the Papal Schism of the 14th century. The Schism resulted from the election of two claimants to the title of “Pope”: Urban VI, who resided in Rome and had the support of the Northern Italian states and most of the Holy Roman Empire; and, Clement VII, who resided in Avignon, France, and had the support of the King of France. The split in allegiances led to the expulsion of students and faculty from the Holy Roman Empire who were based in French universities. This was a significant number: there were no universities in the region that is modern Germany prior to the Schism, so students and faculty from Germany often went to France.
The return of German students and faculty resulted in the establishment of three universities within a 6-year time period. Importantly, this dramatically reduced the cost of attending a university for Germans; equally importantly, the timing of the increased access to a university was not a result of any underlying economic change, but due to a political event within the Church.
Using data on grants to cities of the right to hold a market – a medieval measure of commercial activity – we test whether market grants increased following the new universities’ establishment in Germany. Indeed, the trend rate of market establishment broke sharply upward just when universities are established. This effect is concentrated in cities experiencing the greatest increase in access to a university; cities experiencing only a small change in distance to a university do not experience big effects on economic activity (see Figures 2 and 3). It is important to note that cities experiencing big changes in distance to a university had trend rates of market establishment similar to those experiencing a small change prior to university establishment. Ex ante differences do not appear to be driving the differential change in trends.1
Increased access to university training seems to have been associated with increased economic activity. Through what channel did this effect arise? We argue that training in the law was likely crucial. Roman law was a broad, and arguably 'scientific' system of legal knowledge that could be used across jurisdictions. It represented a considerable improvement over existing systems of customary law: the latter were often local, not written, based on notions of kinship, honour, or superstition. From the biographies of university graduates of the Middle Ages, we know that Roman legal knowledge was a skill strongly sought after by the rulers of the time. Jurists worked as chancellors, judges, arbitrators, or envoys, thereby modernising bureaucracies, enhancing tax collection, promoting trade, and strengthening state capacity.
Enlightenment not inevitable
The case of medieval Europe makes for pleasant reading – especially for academics. A new form of human capital (legal training) was discovered, elites supported investments in it by establishing universities and giving students privileges (effectively subsidising training); then, secular and spiritual lords hired the legally-trained to work as administrators, and supported contexts in which legal training was valuable (e.g., markets). However, the fact that Roman legal knowledge spread and was ultimately accepted throughout Europe should not be taken for granted. It was not inevitable.
- First, a focal point for all students and scholars interested in learning and teaching about Roman law had to emerge; this coordination problem was solved with the rise of Bologna as the preeminent location of legal teaching.
- Second, teachers and students of law needed state protection: in the Middle Ages, foreign students’ and faculty’s legal rights were poorly-defined and left them open to expropriation; they needed protection from townspeople; they needed the right to travel. The establishment and protection of university students’ and faculty’s legal rights was a policy choice made by secular and Church lords. Famously, Emperor Frederick I Barbarossa’s Authentica Habita of 1155 granted a range of privileges and protections to students and faculty.
- Finally, and perhaps most importantly, Roman and Canon Law had to be accepted by the rulers of the time as their tool of choice to adjudicate cases and manage an administration.2 Without this form of elite support, choosing to study Roman law might have had too low an expected return for students to invest in the training. In addition, had elites found the study of Roman law useless, they may not have supported it by protecting students – indeed, they might have discouraged it if they found legal study threatening to their positions.
Policy choices made by the ‘states’ of the time – both in the education sector per se, and in the labour market – were thus crucial to the success of the first universities, and the investments made in the new form of human capital that they produced. This pattern was repeated in the public support for many of America’s research universities in the 19th and 20th centuries, and it bears remembering in the 21st century.
Harold Berman (1983). Law and Revolution: The Formation of the Western Legal Tradition, Cambridge, MA: Harvard University Press.
Timothy Besley and Torsten Persson (2009). “The Origins of State Capacity: Property Rights, Taxation, and Politics,” American Economic Review, 2009, 99 (4), pp. 1218–44.
Davide Cantoni and Noam Yuchtman (2012a). “Medieval Universities, Legal Institutions, and the Commercial Revolution,” NBER Working Paper 17979.
Davide Cantoni and Noam Yuchtman (2012b). “Educational Content, Educational Institutions and Economic Development: Lessons from History,” University of Munich Discussion Paper 12691.
Claudia Goldin and Lawrence F. Katz (1999). “The Shaping of Higher Education: The Formative Years in the United States, 1890 to 1940,” Journal of Economic Perspectives,13(1), pp. 37-62.
Robert S. Lopez (1976). The Commercial Revolution of the Middle Ages, Cambridge: Cambridge University Press.
1For a detailed discussion of concerns about the endogeneity of the timing of university establishment, the endogeneity of university location, and the possibility that the Schism had consequences other than university establishment, please refer to the working paper.
2Canon law was taught alongside Roman law in the universities of the Middle Ages and was very much complementary to Roman law. It was used to govern the late medieval Catholic Church, and also to adjudicate disputes. We discuss its importance in more detail in the working paper.