The economic landscape of Europe between 1648 and 1815 underwent significant transformations, influenced by agricultural innovations, shifts in commercial practices, and the emergence of new financial systems. The rise of England, Spain, and the Netherlands in the 17th century reflected these changes, as they developed into leading colonial empires with vast global trade networks. By this period, economic power had shifted from the Mediterranean to the more dynamic markets of northwestern Europe, especially in Britain, the Netherlands, and France.
The Agricultural Revolution and Its Impact
Increased Agricultural Output
The Agricultural Revolution in the 16th and 17th centuries had a profound impact on European economies. The most notable changes occurred in Britain and the Netherlands, where new techniques dramatically boosted agricultural productivity.
- Crop Rotation: The introduction of the four-field rotation system was pivotal, as it allowed for more efficient use of land and better soil fertility, replacing the older two-field system that had dominated medieval farming.
- Land Reclamation: The Dutch exemplified innovation in land management by reclaiming large areas of land from the sea, transforming previously unproductive regions into fertile farmland.
- New Crops: The introduction of crops from the Americas, like potatoes and maize, significantly improved food security and fueled population growth across Europe.
The rise in food production led to increased population growth, which in turn generated greater demand for goods and labor. This created a feedback loop that further stimulated both agricultural and industrial development.
Commercialization of Agriculture
The increase in agricultural output was accompanied by shifts in rural economies. Pastoral and arable land was expanded, and peasants, particularly in the Netherlands and England, adapted new farming techniques to meet the growing demand for food.
Enclosure Movement: In England, the enclosure of common lands into privately owned farms became a significant development. This shift made farming more efficient but also displaced many peasants, contributing to urban migration and the hierarchical Land Lord Society.
In addition to agricultural expansion, population growth also provided labor for small-scale manufacturing, especially in the textile industry, which was integral to the cottage industry:
The Cottage Industry was a precursor to the Industrial Revolution and immensely grew the workforce, lowering poverty and increasing quality of life.
This system allowed rural families to produce textiles in their homes, which were later sent to manufacturers for finishing. This system was an early example of industrialized production and played a crucial role in developing capitalist economies.
The Commercial Revolution and the Rise of Capitalism
Global Trade Expansion
The expansion of trade routes and the establishment of overseas colonies in the Americas and Asia played a key role in shifting Europe toward a more interconnected global economy. The Commercial Revolution saw the transition from medieval guild-based economies to larger, nation-centered economies.
- Merchant Capitalism: Merchant capitalists, such as the Medici family in Italy and the Fuggers in Germany, became prominent figures in financing overseas ventures, and their wealth laid the foundation for early modern banking systems.
- Joint-Stock Companies: The development of joint-stock companies, such as the Virginia Company, enabled large-scale investment in colonial ventures and helped establish permanent European settlements, like Jamestown in the Americas.
Trade with the Americas introduced new goods like sugar, tobacco, and precious metals, creating a new consumer market that further fueled European economies. The increase in global trade also led to the growth of industries like shipbuilding and the production of military goods, such as cannons and muskets.
Shifting Economic Power in Europe
As trade routes shifted, the economic centers of Europe gradually moved from the Mediterranean to the Atlantic. The Italian city-states, like Venice, lost their monopoly on trade with Asia as new overseas routes were established.
- Rise of Northwest Europe: The Netherlands, Britain, and France emerged as dominant trading powers, driven by their access to global markets and colonial resources.
- Impact of Capitalism: The rise of capitalism, which was facilitated by new financial instruments like bills of exchange, allowed for the expansion of credit and investment. This contributed to the creation of a growing middle class (the bourgeoisie) who became influential in both economic and political affairs.
The Financial Revolution and the Changing Role of Banking
Development of Financial Institutions
The late 17th and early 18th centuries marked the beginning of what would become known as the ==Financial Revolution, a period in which new banking practices and financial institutions emerged to meet the growing needs of European economies.==
- Central Banks and Public Debt: The establishment of central banks, most notably the Bank of Amsterdam in 1609 & the Bank of England in 1694, revolutionized the financial system by providing a stable currency and facilitating the management of national debt.
- Stock Markets and Bond Trading: The development of stock markets and bond trading allowed governments and companies to raise capital for ventures, both domestic and overseas. This era also saw the introduction of new financial instruments that allowed for more efficient investments in long-term projects like colonial expansion and infrastructure development.
The rise of these financial systems supported the expansion of Europe’s global empire by enabling large-scale investments and facilitating the accumulation of wealth from overseas colonies.
Inflation and Economic Disparity
The expansion of global trade and the influx of precious metals, particularly from the Americas, led to inflation across Europe, a phenomenon known as the Price Revolution. The increased supply of gold and silver drove prices up, which disproportionately affected the poor and led to economic instability.
⭐ Spanish Empire's Decline: Spain, in particular, suffered from the effects of inflation, which contributed to the decline of its empire by the late 17th century. The country’s reliance on silver and gold imports from the Americas resulted in a weakened economy and contributed to Spain’s diminished power in European affairs.
🎥 Watch: AP European History - Economics & Society (1450-1789)
Vocabulary
The following words are mentioned explicitly in the College Board Course and Exam Description for this topic.
| Term | Definition |
|---|---|
| Agricultural Revolution | The 18th-century transformation in farming practices and productivity that increased food supply, reduced famines, and enabled population growth. |
| Bank of England | A major banking institution established to support financial practices and provide venture capital for commercial development in early modern Europe. |
| banking institutions | Financial organizations that converted private savings into venture capital to fund commercial and economic enterprises. |
| commodities | Raw materials and agricultural products that are bought and sold in trade, such as goods imported from the Americas. |
| cottage industry | Small-scale manufacturing production carried out by laborers in their homes or workshops, typically organized through merchant intermediaries. |
| insurance | A financial practice that provided protection against commercial risks and losses in early modern trade and commerce. |
| market economy | An economic system in which goods and services are produced and distributed through supply and demand in competitive markets rather than by state direction. |
| merchant intermediaries | Merchants who served as middlemen between producers and consumers, organizing production and distribution of goods in the putting-out system. |
| property rights | Legal protections that defined ownership and prevented confiscation of property and commercial assets in the developing market economy. |
| putting-out system | An economic system in which merchants or workshop owners supplied raw materials to laborers working in their homes or small workshops, who then produced finished goods for market sale. |
| venture capital | Funds invested by banking institutions in commercial enterprises and economic ventures. |
Frequently Asked Questions
What is the Agricultural Revolution and why was it important in Europe?
The Agricultural Revolution was a series of changes in farming (17th–18th centuries) that raised productivity: crop rotation, selective breeding, the enclosure movement (consolidating common lands), and adoption of New World crops like potatoes and maize via the Columbian Exchange. These raised food supply, lowered grain prices, and helped Europe’s population grow. Its importance: more food freed labor for the putting-out system and proto-industrialization, encouraged migration to towns, and pushed development of a market economy with new financial institutions (banks, joint-stock companies)—all foundations for Europe’s expanding commercial role. On the AP exam you might be asked to “explain changes and continuities” (Unit 3 LO C), so link agricultural innovations to population growth, enclosure, proto-industrialization, and emerging markets. For more review see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and practice questions (https://library.fiveable.me/practice/ap-european-history).
How did crops from the Americas change European food supply between 1648-1815?
Crops from the Americas—especially potatoes and maize—changed European food supply between 1648 and 1815 by raising yields, diversifying diets, and reducing the risk of famine. Potatoes produced more calories per acre than many traditional grains and could grow in poorer soils and cooler climates, so they expanded productive land and supported larger rural populations. Maize added another high-yield staple in regions like Spain and parts of Italy. These New World crops helped drive the Agricultural Revolution (higher productivity, enclosure-driven commercialization) and supported proto-industrialization by freeing labor for the putting-out system. On the AP exam, use this as evidence for KC-2.2.II.D and link it to population/farm productivity changes in short-answer or LEQ contextualization. For a focused review, see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and try practice questions (https://library.fiveable.me/practice/ap-european-history).
What's the difference between the putting-out system and traditional guild system?
The putting-out system (cottage industry) and the traditional guild system differed in organization, control, and market orientation. Guilds were urban, corporative organizations that regulated who could produce a craft (apprenticeship, quality rules, fixed prices), limiting competition and keeping production local. The putting-out system had rural or home-based producers paid by merchant intermediaries who supplied raw materials and then collected finished goods for market sale. That meant production was decentralized, more flexible, and tied to a growing market economy rather than guild rules. Putting-out helped proto-industrialization by expanding rural work, undermining guild monopolies, and increasing production for wider markets—key changes in Topic 3.3 (CED: KC-2.2.I.C and KC-2.2.I.A). For AP prep, this shows continuity (handmade production) and change (shift from corporative regulation to market-driven, merchant-capital organization). Review the Unit 3 study guide for more examples (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and try practice questions (https://library.fiveable.me/practice/ap-european-history).
Why did governments start removing restrictions on trade and labor during this period?
They removed trade and labor restrictions because rulers and merchants wanted a more dynamic market economy that raised productivity and state revenue. The Agricultural Revolution (enclosures, New World crops) increased food supply and pushed rural workers into proto-industrial putting-out work, so loosening guild rules and labor restrictions let goods move faster and wages respond to demand (CED: KC-2.2.I.A, KC-2.2.I.B, putting-out system). States also needed credit and investment for wars and infrastructure, so they backed new financial institutions (banks, joint-stock companies, marine insurance, Bank of England) and protected property rights to attract capital (KC-2.2.I.D). Intellectual shifts (commercial liberalism) and merchant pressure weakened mercantilist controls. For AP exam framing, explain this as a change that helped create an early modern market economy (Unit 3 LO C). For more on this topic, see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and try practice questions (https://library.fiveable.me/practice/ap-european-history).
I'm confused about how the market economy developed - can someone explain it simply?
Think of the market economy as a shift from local, household-focused production to goods and money moving through wider markets. Key changes 1648–1815: - Agriculture: The Agricultural Revolution (crop rotation, potato/maize from the Columbian Exchange, and enclosure of common land) raised productivity and pushed labor into markets. - Production: The putting-out (cottage) system and proto-industrialization had rural workers making goods for merchant-buyers instead of just for their own use. - Markets & finance: Trade and wage labor were freed from many old restrictions, so merchants used joint-stock companies, bills of exchange, marine insurance, banks (e.g., Bank of England), and stock trading to pool capital and manage risk. - Social/economic effects: A growing consumer revolution and clearer property rights encouraged investment and gave Europe a global economic role. On the exam, this topic shows up in short-answer and LEQ/DBQ prompts—use specific examples (enclosure, putting-out, Bank of England) and link cause/effect (agri productivity → labor shift → proto-industry → financial innovation). For this topic study guide, see Fiveable (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ). For extra practice, try Fiveable’s question bank (https://library.fiveable.me/practice/ap-european-history).
What caused Europe to move away from traditional economic restrictions?
Mostly economic and social changes made traditional restrictions less practical. Rising agricultural productivity (Agricultural Revolution, New World crops like potatoes/maize) increased food supply and freed labor for market work. Proto-industrialization and the putting-out (cottage) system moved production into homes and workshops, bypassing guild controls. Growing international trade, joint-stock companies, marine insurance, bills of exchange, and banks (e.g., Bank of England) created credit, venture capital, and new property protections—all incentives to loosen state/corporate limits on labor and trade. Enlightenment ideas and legal shifts protecting property rights also undercut older privileges. Together these developments built a market economy that reduced reliance on traditional restrictions (CED KC-2.2.I.A, I.C, I.D). For the AP exam, connect these causes to continuity/change from 1648–1815 (Unit 3, LO C). For a quick topic review see the Fiveable study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and try practice problems (https://library.fiveable.me/practice/ap-european-history).
How did the putting-out system actually work and who benefited from it?
The putting-out system (cottage industry) worked like this: merchant intermediaries supplied raw materials (like wool or flax) to rural households, families or small workshops did the spinning, weaving, or other steps at home, then returned finished or semi-finished goods to the merchant who sold them in regional or international markets. It let landlords and rural laborers earn extra income without moving to cities—a form of proto-industrialization that expanded production before factories. Who benefited? Merchants gained control of supply chains and profits with low overhead; rural households got supplemental wages and more market access; and landlords sometimes profited from rents and increased local productivity. Guilds and urban artisans often lost influence because production moved outside traditional urban controls (CED: putting-out system, merchant intermediaries, proto-industrialization, cottage industry). This topic can show up on SAQs or LEQs about economic change 1648–1815—review the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and practice questions (https://library.fiveable.me/practice/ap-european-history).
What were the main new financial institutions that developed during this time period?
The big new financial institutions/practices between 1648–1815 were: joint-stock companies (which pooled capital for long voyages and colonies), banks that turned private savings into venture capital (e.g., central and commercial banks), the Bank of England (as a model of public debt and state finance), modern insurance—especially marine insurance—and markets for credit like bills of exchange and the emerging London Stock Exchange. Alongside these were legal changes: clearer property rights and protections against confiscation that made investment less risky. These innovations supported the putting-out system, global trade, and mercantilist/market economies and show up often as evidence on AP short answers or LEQs about economic change (use them to explain continuity vs. change). For review, see the Topic 3.3 Fiveable study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and Unit 3 overview (https://library.fiveable.me/ap-european-history/unit-3). For practice, try the problems (https://library.fiveable.me/practice/ap-european-history).
How do I write a DBQ essay about economic changes in early modern Europe?
Start with a clear, timed plan: 15 minutes reading/planning, 45 minutes writing. For a DBQ on economic changes (1648–1815) your thesis should make a specific claim about continuity/change (e.g., “From 1648–1815 Europe experienced significant commercialization and proto-industrial growth while agrarian social relations mostly continued, though transformed by enclosure and new property rights”). Put that thesis in intro or conclusion. Contextualize briefly: mention the Agricultural Revolution, Columbian Exchange (potato/maize), mercantilism, and rise of market institutions (banking, joint-stock, marine insurance, Bank of England). Use at least four documents to support your line of reasoning and explicitly tie each document to your argument. For two documents, explain sourcing—whose POV, purpose, or audience and why that matters. Bring in 1+ specific outside fact (e.g., enclosure movement, putting-out system, London Stock Exchange) as required. End with a synthesis or complexity: show multiple causes/effects or continuity + change (e.g., finance and consumer demand grew, but rural peasant hardship persisted). Use the Topic 3.3 study guide for examples and evidence (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ). For broader review and 1000+ practice questions, check unit resources (https://library.fiveable.me/ap-european-history/unit-3) and practice problems (https://library.fiveable.me/practice/ap-european-history).
What's the Bank of England and why was it so important?
The Bank of England (founded 1694) was England’s central bank: a government-chartered institution that accepted deposits, issued banknotes, and—critically—lent large sums to the state. It turned private savings into reliable public credit by issuing transferable notes and managing the national debt, which let England finance long wars and imperial expansion without constant tax hikes. That innovation helped create a liquid market for government bonds (an early stock/bond market), encouraged joint-stock investment, and stabilized the money supply—key steps in the development of a modern market economy, marine insurance, and the London financial center. Why it matters for AP Euro: the Bank of England is an illustrative example of new financial institutions that supported commercial growth and state power (CED KC-2.2.I.D). It’s the kind of evidence you can use in SAQs or LEQs about economic change 1648–1815. For a focused review see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and the Unit 3 overview (https://library.fiveable.me/ap-european-history/unit-3). For more practice, Fiveable has tons of AP questions (https://library.fiveable.me/practice/ap-european-history).
How did new property rights help the economy grow?
New property-rights regimes (clear ownership, legal protections against arbitrary confiscation) made people more willing to invest in land, factories, and trade. If you knew your land or capital couldn’t be seized, you’d pay for improvements (enclosures, drainage, crop rotation) that raised productivity—part of the Agricultural Revolution—and landlords and entrepreneurs felt safer using savings as venture capital. Secure property also made credit and financial institutions work better: banks, joint-stock companies, bills of exchange, and marine insurance could mobilize capital because lenders trusted legal recourse. That growth of credit and investment expanded the putting-out system, proto-industrialization, and overseas trade—key changes in Topic 3.3 (1648–1815). For the AP exam, tie this to continuity/change in commercial development and cite examples like joint-stock companies and the Bank of England. Review this Topic 3.3 study guide for more examples (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and practice with 1,000+ questions (https://library.fiveable.me/practice/ap-european-history).
What were the effects of the Agricultural Revolution on European society?
The Agricultural Revolution boosted food productivity (new crops from the Columbian Exchange like potatoes and maize + improved crop rotation and selective breeding), which helped Europe’s population grow and lowered real food prices. Enclosure and commercialization of land raised efficiency but also displaced smallholders, creating a pool of wage laborers and pushing many people toward towns—fueling proto-industrialization and growth of the putting-out (cottage) system. That shift helped expand market demand (the Consumer Revolution) and encouraged new financial institutions and property-rights protections (banking, joint-stock, insurance) that supported a developing market economy. Socially, class patterns hardened: wealthier landowners gained influence while many rural poor faced precarious livelihoods, setting the stage for later industrial change. For AP review, connect these changes to Learning Objective C (explain continuities/changes 1648–1815)—see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and practice questions (https://library.fiveable.me/practice/ap-european-history).
How did cottage industry change the way people worked?
Cottage industry (the putting-out system) changed work by moving production out of guild-controlled urban workshops into peasants’ homes or small rural shops. Merchants provided raw materials, paid families by piece or output, and collected finished goods for market—so people worked for wages or piece-rates rather than under guild rules. That meant more flexible hours, family labor (women and children worked more), greater specialization of tasks, and a stronger market orientation in rural areas (proto-industrialization). It weakened traditional corporate restrictions, increased commercial ties between countryside and towns, and created a pool of wage labor that later fed industrialization. For AP Euro, this is a key economic change in Topic 3.3 (putting-out system, proto-industrialization) you can use as evidence in SAQs or LEQs about economic development 1648–1815. For a quick focused review, see the Topic 3.3 study guide on Fiveable (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and try practice questions at (https://library.fiveable.me/practice/ap-european-history).
I missed class - what's the connection between agricultural changes and market economy development?
Short answer: Agricultural changes (Agricultural Revolution, enclosure, and New World crops like potatoes and maize) raised productivity and food supply, which lowered food prices and supported population growth. That pushed people off small plots into wage labor, freeing labor from old restrictions and expanding the putting-out system (proto-industrialization). More production for markets created demand for credit, insurance, joint-stock firms, and new property-right protections (e.g., Bank of England, bills of exchange, marine insurance). Together these shifts turned local barter into a wider market economy—key change in Unit 3. On the AP exam, you’d frame this as causation and change over time (CCOT): show how agricultural productivity enabled labor specialization and new financial institutions that underpinned Europe’s global commercial role. For a focused review, see the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ) and practice questions (https://library.fiveable.me/practice/ap-european-history).
Compare the economic systems before and after 1648 in Europe
Before 1648: European economies were still shaped by mercantilism, guild controls, and agrarian, subsistence practices—landowners and state policies controlled trade, tariffs, and colonies to enrich the state. Urban guilds and legal restrictions limited labor mobility and manufacturing. The Columbian Exchange had started shifting food supplies, but proto-industrialization was limited. After 1648 (post-Westphalia to 1815): You see clear changes toward a market economy—enclosure and the Agricultural Revolution raised productivity; the putting-out (cottage) system and proto-industrialization expanded; joint-stock companies, banks, marine insurance, bills of exchange, and institutions like the Bank of England supported capital and global trade. Mercantilism persisted in state policy, but labor and trade gradually freed from old corporate and guild constraints, fueling consumer revolutions and triangular trade. Continuity: states still guided economic policy; change: growth of financial institutions and market relations. For AP exam prep, focus on continuity/change over time using CED keywords (enclosure, putting-out, Bank of England). See the Topic 3.3 study guide (https://library.fiveable.me/ap-european-history/unit-3/continuities-changes-economic-practices-1648-1815/study-guide/PqMlEPpAiKTH6HBHZIWJ), the Unit 3 overview (https://library.fiveable.me/ap-european-history/unit-3), and practice questions (https://library.fiveable.me/practice/ap-european-history).