If we define feudalism as the entire system of obligation between lords, clergy, and peasants, including military obligations and manorialism as the narrower set of economic relations between the peasants (or serfs) who worked the land and the lords who owned the land, both systems were challenged and undermined by the growth of towns in the Middle Ages.

In the early Middle Ages as the authority of the central Roman government collapsed, towns disappeared. Later, as society stabilized, towns began to reappear. Since they were associations of merchants who made their living by trade rather than agriculture, they were not dependent on land or a feudal system. In Italy especially, but all across Europe, towns broke away and became independent of the local lord. Towns such as Venice, Florence and Pisa grew very, very wealthy and, by medieval standards, very large, due to trade. Guilds settled there and grew wealthy through producing high quality items, such as glass or objects crafted from precious metals. Peasants moved there when they could for greater economic opportunity. Rather than barter their labor for food and protection, merchants engaged in a cash or money-based economy and purchased food and other goods from their cash profits.

While the feudal lords remained very powerful throughout the Middle Ages, the growth of an alternative economic system challenged and eroded the power of the aristocracy, leading to the rise of a wealthy middle class and with that pressure for middle-class political power.

The rise of towns tended to weaken both feudalism and manorialism. The inhabitants of towns that became wealthy through trade came to resent being dominated by feudal lords, especially when lords levied taxes on their incomes. Merchants, lawyers, and other towndwellers often refused to acknowledge the feudal bonds that theoretically placed them under the rule of lords, usually turning to monarchs to protect their autonomy through special charters. So the rise of towns weakened lords even as, generally speaking, it strengthened kings. Towns weakened manorialism by supplying serfs and peasants with a way to escape their lot in life. Many went to towns to work as wage laborers, thus depriving manors of crucial labor and creating a more fluid workforce in Europe.