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The European economy was fundamentally based on the feudal system, which emerged in the Middle Ages. This social structure was characterized by a hierarchy of lords, vassals, and serfs, where land was the primary source of wealth and power. Lords granted land to vassals in exchange for military service and protection, while serfs worked the land and provided agricultural produce. This system created a localized economy that was largely agrarian and dependent on the relationships between different social classes.

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