Medieval Real Estate: Lessons for Today

I continue to plod my way through Adam Smith's epic The Wealth of Nations.  In the 535 pages I have read so far I have discovered a treasure trove of wisdom.  Now, only 712 more pages to go.  I highly recommend you pick up a copy. 

One of the most recent topics I have been reading about has to do with the rise of towns in medieval Europe.  The natural course of development occurs in stages.  First, agriculture is cultivated and developed, then towns arise as excess farm production allows people the freedom to pursue manufacturing goods in a more centralized urban center, and finally the excess production of the towns allows for further development through trade with other regions or countries.  This is the natural course that America has followed.

Interestingly, Europe developed in a very unnatural way in this progression.  The usurpation of land by barons and lords during the feudal era stymied the cultivation of agriculture as Europe entered a period of almost perpetual violence while competing barons and lords attempted to conquer the land of their neighbors.  Serfs were slaves of the manor beholden to the land which was beholden to the lord.  Towns arose almost by accident as a result of lords emancipating their serfs in exchange for this new class of "burghers" renting land from the lord at a fixed rate for a long period.

Nevertheless, the lords and barons accumulated a lot of land.  Land was kept in families over hundreds of years and laws prevented the estates from being broken up.  As the population grew, available land became more in demand but the market supply did not increase to accommodate the population growth.  So, by the time Adam Smith was writing The Wealth of Nations in 1776, he observed that land was a loosing investment because the prices were so extremely high.  He compared a parcel in the countryside of England fetching 3,000 pounds while the equivalent American parcel could be purchased with 40.  Is it any wonder why people immigrated to America?

Anyhow, there are several things that I got from this illustration:

1.  Artificially dictating who can and cannot own land is a detriment to all of society.
2.  Manipulating supply of real estate has a real tangible effect on the price it will command.
3.  Land is best valued for what it produces and not as a source of power or security.

The question we have to ask ourselves is how is society affected by our current economic predicament.  Does our system exclude some while rewarding others?  I can think of credit worthy people who ought to be able to purchase property who are shut out of the system while unworthy credit individuals are given incentives to purchase property.  Also, banks right now hold a huge amount of REO property on their books.  However,  the rate of their release to the market is extremely slow.  We see in suburban areas where REO homes receive multiple offers and where purchasing the homes as an investment is simply out of the question.  It commands too great a price to be profitable as an investment.  Finally, let us hope we never return to a feudal system of government where security and power, instead of farm production and utility, was the ultimate purpose of land.  I know I wouldn't do to well as a serf.