The decline of Milan and the other Italian cities in the seventeenth century has been ascribed to the inelasticity of urban society and the economy. In the face of competition from the new Atlantic powers, and after the European crisis of 1619-22, the economy of the Italian cities, dominated by the archaic guild hierarchies, would suddenly stagnate and begin a progressive decline. This article argues that Milan's inability to compete with the stronger northern European powers during the seventeenth century was not due to an inefficient and outmoded economic organization. In fact the process of transformation of the urban socio-economic structures, concentrated in the difficult years 1585-95, was less traumatic than postulated and in reality extremely successful. By the end of the sixteenth century the productive system, which had previously been based on craft guilds and artisan workshops, had been replaced by an efficient putting-out system, and the regional economy could already count on a very strong group of merchant-bankers who were free to organize production according to market demand within a developed system of urban and rural manufacturing.