From Springer's Public Choice journal, June 2, 2026:
Abstract
Adam Smith’s account of medieval towns in Book III of The Wealth of Nations remains one of the most influential analyses of how commerce transformed feudal Europe. This paper formalizes Smith’s argument as a game between kings, lords, and towns. The king-town alliance emphasized by Adam Smith emerges when towns are wealthy enough to offer fiscal and military support but lords remain a serious threat. However, when kings become excessively predatory, towns may ally with lords (as in the Magna Carta crisis); when towns are too weak to offer substantial support, kings ally with lords instead (as in Eastern Europe). A dynamic extension shows that the king-town equilibrium is self-undermining: commercial growth erodes lordly military power through Smith’s “diamond buckles” mechanism, eventually enabling royal absolutism. In contrast, the king-lords equilibrium is self-reinforcing, suppressing urban development and preserving feudal institutions. The framework highlights how small differences in initial urban development could generate dramatically different long-run trajectories and illuminates both the brilliance and the limitations of Smith’s conjectural history.1 Introduction
How did the towns drive political and economic development in medieval Europe? This is one of the questions that Adam Smith sought to answer in his celebrated and influential account of how the towns contributed to the development of Europe in Book III of The Wealth of Nations.
The feudal period saw the revival of Europe’s cities and towns. City life had almost disappeared in Western Europe following the Fall of the Roman Empire. But it revived dramatically after around 1000 AD. Many of these cities were commercial hubs rather than the capitals of powerful rulers. As Jones (1997, 211) observes: “To an extent unknown or unimaginable in Roman antiquity urban development obeyed the dictates of trade”.
Book III of The Wealth of Nations is a conjectural history of the kind made famous by Scottish Enlightenment thinkers including Smith’s contemporaries David Hume and Adam Ferguson. Smith saw towns as “islands of commerce” in a feudal “sea”. In particular, Smith identified a three-way relationship between kings, lords, and towns that he saw as driving political development throughout medieval Europe, leading to the rise of increasingly powerful monarchies....
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