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Capitalism and the Jews

Author(s):Muller, Jerry Z.
Reviewer(s):Temin, Peter

Published by EH.NET (March 2010)

Jerry Z. Muller, Capitalism and the Jews. Princeton, NJ: Princeton University Press, 2010. v + 267 pp. $25 (hardcover), ISBN: 978-0-691-14478-8.

Reviewed for EH.NET by Peter Temin, Department of Economics, MIT.

This small book is in the currently popular form of a lecture series. The book stretches the concept as the lectures were not given as a unit, but delivered at various conferences. They were close enough in subject to be grouped together, but they have less coherence than the format suggests. Muller, a historian at Catholic University, has given us four lectures on economics aspects of Jewish life in the modern world. The lectures are based on secondary sources, so it is not new research. Instead they are thoughtful and occasionally insightful essays of specialized interest.

The first essay is a history of the concept of usury from Aristotle to Osama bin Laden with attention to the role of Jews in money lending. The second essay is a refutation of a remark by Milton Freidman asserting that Jews were in debt to capitalism but opposed to it. Muller notes that Jews were successful in business in Western Europe and champions of socialist equality in Eastern Europe. The third essay is a survey of Jewish communists in several countries and times, concluding that most Jews were not communists and most communists were not Jews. The final essay argues that Zionism is a form of nationalism which was in turn a result of capitalism; it is an exposition of the views of Ernest Gellner.

The first essay is the longest and most interesting. It asks why the concept of usury has been so tenacious, as opposed to asking the more usual question of what effect usury laws have. Muller argues that the concept ?provides one of the most long-lived paradigms for the condemnation of market activity? (p. 17). In its restricted sense, usury refers to a specific activity, the lending of money. The more ?radical? use of the term is as a condemnation of all commerce. The opposition to trade and interest comes in turn from seeing resources as fixed. Readers will recognize this view that all wealth comes from land as the source of the Physiocratic view in the late eighteenth century and Henry George?s single-tax proposals a century later. Muller argues that the condemnation of usury went underground in the eighteenth century, only to reappear in more abstract expressions.

In his most startling assertion, Muller argues that Marx?s labor theory of value was just such an underground expression of the opposition to usury. It is a return to Aristotle in its denial of the value of commerce, and it also is a denial of Marx?s Jewish heritage ? which is how it appears in this book. This claim that Marx?s personal history determined his core economic beliefs is asserted but hardly proved. It derives indirect support from Cuddihy?s analysis in The Ordeal of Civility of how several seminal modern thinkers were influenced and troubled by their Jewish heritage. Cuddihy argues that Marx in particular was prone to using euphemisms to refer to Jews. Marx?s condemnation of usury would rank as just such a euphemism, albeit one that had damaging effects on communist policies.

Muller unhappily did not inquire more deeply into this aspect of Marxian theory. Was Marx denying his heritage? Or was he trying to preserve a non-toxic place for Jews in socialism? Was he aware of the strong effect of his Jewish background on his abstract theory? These are fascinating questions stimulated by Muller?s discussion but not pursued in this book.


John Murray Cuddihy, The Ordeal of Civility: Freud, Marx, Levi-Strauss, and the Jewish Struggle with Modernity, New York: Basic Books, 1974.

Ernest Gellner, Nations and Nationalism, Oxford: Blackwell, 1983.

Peter Temin is the Gray Professor Emeritus of Economics at the Massachusetts Institute of Technology (MIT). He is the author of ?An Elite Minority: Jews among the Richest 400 Americans,? in David Eltis, Frank Lewis and Kenneth Sokoloff, editors, Human Capital and Institutions: A Long Run View, Cambridge University Press, 2009.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Human Capital and Institutions: A Long Run View

Author(s):Eltis, David
Lewis, Frank D.
Sokoloff, Kenneth L.
Reviewer(s):Mitch, David

Published by EH.NET (February 2010)

David Eltis, Frank D. Lewis, and Kenneth L. Sokoloff, editors, Human Capital and Institutions: A Long Run View. New York: Cambridge University Press, 2009. ix + 342 pp. $85 (hardcover), ISBN: 978-0-521-76958-7.

Reviewed for EH.NET by David Mitch, Department of Economics, University of Maryland ? Baltimore County.

The Cliometric movement is now a half century old and throughout its existence Stanley Engerman has been one of its leading lights. Thus it is no surprise that this volume based on papers from a festschrift conference in honor of Engerman offers some exceptionally strong scholarship. However, it also bears some of the characteristics peculiar to festschrift volumes. The human capital and institutions theme suggested by the title has been applied quite broadly and loosely in order to incorporate all the contributions in this volume. Only three of its ten contributions deal with this theme directly; of the rest, two are anthropometric, one deals with employment and income stability, two with human talent, one with legal standing of labor contracts and one with usury laws. And while about half of the contributions are based ? as best I can tell ? on fresh research, the other half are largely reprises in varying degrees of work published elsewhere. Moreover, the book?s status as a festschrift in honor of Engerman is obscured by two aspects. The same editors, David Eltis (Emory University), Frank Lewis (Queens University), and Kenneth Sokoloff (late of UCLA), put together Slavery in the Development of the Americas published in 2004 which also honors Engerman and it is that earlier volume which has the usual introductory tributes and concluding bibliography of published work of the honoree. And in addition, one of the editors, Kenneth Sokoloff, died before the volume under review was completed and this current volume begins with a two page memoriam to Sokoloff while the editor?s introduction gives as much mention to Sokoloff as to Engerman. All the same, given his contributions to economic history, one can hardly begrudge Engerman at least a second festschrift volume and I suspect that at least one memorialschrift to Sokoloff is in the works. Having now actually read the chapters of this volume, I found that their cumulative quality more than offset any lack of cohesiveness, freshness or clarity on festschrift status. In fact, the diversity of topics was a plus in at least one respect; I found a definite merit of this book as an edited volume to be the opportunity it provided to sample the range of approaches currently undertaken by some of the senior practitioners of economic history.

The essays in the volume are grouped into four parts. The first part deals with ?health and living standards.? Two of the essays in this section are anthropometric: Robert Fogel?s survey of his work on biotechnology and what he calls the technophysio evolution and its implications for current health care policy along with Richard Steckel?s overview of his project on using skeletal remains to examine very long run trends in health and nutrition. It is these two essays which truly offer long run perspectives spanning in the case of Fogel?s project several centuries and in the case of Steckel some millennia. Although both these essays stem from much larger research projects, I found each informative as overviews of the authors? work. The third essay in the section is by George Boyer on income and employment instability in Victorian and Edwardian England. Boyer extends previous work with Timothy Hatton on unemployment estimates in substantial new ways with careful marshalling of evidence from diverse sources to argue that important but not fully appreciated changes occurred between the late eighteenth and early twentieth centuries in how British society coped with income and employment insecurity. Boyer argues that provision for poverty ?was not a ?unilinear progression in collective benevolence? from poor relief to national insurance? (p. 83). Instead, compared to what came before or after, the Victorian era was dominated by the role of self-help, friendly societies and other forms of mutual assistance rather than government-funded poor relief.

The second part of the volume is the one that directly addresses the topic of human capital and institutions. While two of the chapters in this part are based on work published elsewhere, they are both fundamental contributions and thus worth bringing together in one volume. One of these chapters is Stanley Engerman, Elisa Mariscal, and Kenneth Sokoloff?s piece on the evolution of schooling in the Americas. It is a slightly revised version of Mariscal and Sokoloff (2000). In this chapter, the authors build on the now influential Engerman/Sokoloff thesis on the importance of resource endowments in shaping long run institutional change. They attribute the much more advanced state of schooling North America over Central and Southern America to the more equal distributions of land and wealth in the former area. This chapter is a model of careful comparative argument and is also valuable for its collection of schooling data for various dates for a wide range of North and South American countries. In their contribution, Claudia Goldin and Lawrence Katz, like the Engerman et al chapter, consider the comparative question of why the U.S. led in education over other countries of the world. However, they address this question by looking at variation across U.S. states throughout the early twentieth century and they focus on secondary education. Like Engerman et al, they attribute much of the advance to social homogeneity in U.S. communities but in contrast to the previous study they give less consideration to the franchise. To their credit, the authors are quite clear in opening notes on how their chapter builds on previous working papers and also on material taken up in greater depth in their recent book The Race between Schooling and Technology. And they provide a sense of the care taken in compiling their data. They thus nicely offer readers ?Goldin and Katz Concise? rather than ?Goldin and Katz Lite.? The remaining chapter in this part reports Michael Edelstein?s new time series estimates of engineering graduates in the State of New York over the nineteenth and twentieth centuries. Edelstein does a thorough job of explaining his choices in compiling his numbers and the significance of his findings on trends in a profession that he argues convincingly has been central to modern economic growth.

The third part is titled ?human capital outliers? and consists of chapters on artists and very rich Jews. In their chapter, David Galenson and Robert Jensen revisit work Galenson has been doing for about a decade on the life cycle of artists based on a distinction between incremental, experimental innovators and conceptual innovators. They provide examples of artists in each category and then some empirical support by showing fitted profiles of prices of artworks on age in each case. Edward Tufte (2006, pp. 148-50) has objected to this modus operandi of displaying fitted curves without displaying the underlying auction price data ? and that the dichotomy in creative types may over-simplify. Still the exposition is lucid and the price-age profiles are intriguing. The other chapter in this part is Peter Temin?s study of why there have been a disproportionate number of very wealthy Jews. After providing a quite cogent formulation of the problem, Temin argues that Jews attaining great wealth were able to do so not as is sometimes suggested because discrimination in large business corporations spurred their entrepreneurial endeavors but rather because of the social networks they could draw on due to their clearly defined religious and ethnic identity. He supports his argument with simulations showing contagion effects. Despite this volume?s title, neither Galenson and Jensen nor Temin give much attention to the role of institutions in shaping and influencing the factors they consider although Galenson has done so elsewhere (see for example Galenson (2001)). I was surprised that Temin did not reference Andrew Godley?s (2001) comparison of Russian immigrant Jews in London versus New York City as a way of ascertaining the role of institutional environment in influencing the promotion of entrepreneurship for groups with a common Jewish heritage.

The final part of the volume takes up the theme of constraints. Robert Steinfeld?s chapter takes up constraints in the labor market. His point of departure is the Fogel and Engerman finding in Time on the Cross that slave labor was not necessarily less efficient than free labor. He then argues that the emergence of free labor contracting and in particular the reform of the Masters and Servants Act in Victorian England was not due to market forces or the perception by employers that free labor was more efficient than coerced or constrained labor but rather to the extension of the franchise with the Reform Bill of 1867 and related political factors. Steinfeld?s is the only non-cliometric chapter in the volume making minimal use of quantification and with no tables or figures.

Hugh Rockoff?s concluding chapter deals with the non-human resource issue of usury laws in the North American British colonies and U.S. He has compiled evidence on the evolution of usury laws in the North American colonies and the U.S. He argues for the importance of both intellectual attitudes as well as competitive market forces in influencing imposition and relaxation of usury laws. Until I read his chapter, I am not sure I fully appreciated that Adam Smith had actually advocated usury restrictions in The Wealth of Nations, albeit with moderation. Rockoff gives careful attention to the usury provision of the National Currency Act of 1863, arguing that concern for promoting the flow of capital to Western states implied provisions allowing national banks in a given state to charge the highest allowed interest in that state rather than some lower uniform national level. Rockoff?s weighing of the evidence leads him to conclude that on balance usury laws in the U.S. did have an impact on capital markets, though he leaves it as an issue for future research to assess its magnitude. Interestingly, Rockoff admits (p. 313, note 36) that compared with Bodenhorn and Rockoff (1992), his current work on usury laws implies somewhat less regionally integrated capital markets in the nineteenth century U.S.

To use David Galenson?s distinction, the cliometric movement was initially perceived by many as making a conceptual breakthrough in the practice of economic history; however, this volume raises the issue of whether many of the founding cliometricians should in retrospect be classified as experimental innovators. Comparing the second section of this volume with the human capital section of the manifesto of the cliometric movement, The Reinterpretation of American Economic History (Fogel and Engerman 1972), one is certainly struck by the variety of incremental advances both conceptually and in data collection that have occurred in the interim. The current volume also highlights at least some of the interdisciplinary directions in which cliometrics has proceeded over the last 40 years. This is particularly evident in the anthropometric work of Fogel and Steckel. As Galenson (2009, p. 2) has recently acknowledged, efforts to extend quantification to art history have met with definite resistance by art historians. All the same, the use of quantification in this volume while certainly abundant is generally worn lightly and in a nuanced manner as would seem fitting for the honoree?s intellectual style. While Steinfeld?s is the only non-quantitative chapter, only three of the remaining nine chapters by my reckoning explicitly report econometric results.

It is certainly a tribute to the breadth of both Engerman?s and Sokoloff?s work as well as the reach of cliometrics that this volume features just one aspect of their endeavors. One can turn to Slavery in the Development of the Americas for an entirely different dimension of Engerman?s contributions and I would anticipate at least one Sokoloff memorialschrift dealing extensively with his work on technological innovation and other topics barely touched on in this volume.


Howard Bodenhorn and Hugh Rockoff (1992), ?Regional Interest Rates in Antebellum America? in Claudia Goldin and Hugh Rockoff eds. Strategic Factors in Nineteenth Century American Economic History, A Volume to Honor Robert W. Fogel (Chicago: University of Chicago Press).

David Eltis, Frank D. Lewis, and Kenneth L. Sokoloff, editors (2004), Slavery in the Development of the Americas (Cambridge University Press).

Robert Fogel and Stanley Engerman (1972), The Reinterpretation of American Economic History (New York: Harper and Row).

David Galenson (2001), Painting Outside the Lines (Cambridge, MA: Harvard University Press).

David Galenson (2009), Conceptual Revolutions in Twentieth-Century Art (Cambridge University Press).

Andrew Godley (2001), Jewish Immigrant Entrepreneurs in New York and London, 1880-1914 (New York: Palgrave).

Claudia Goldin and Lawrence Katz (2008), The Race between Education and Technology (Cambridge, MA: Harvard University Press).

Elisa Mariscal and Kenneth L. Sokoloff (2000), ?Schooling, Suffrage, and the Persistence of Inequality in the Americas, 1800-1945? in Stephen Haber ed. Political Institutions and Economic Growth in Latin America (Stanford: Hoover Institution Press).

Edward Tufte (2006), Beautiful Evidence (Cheshire, CT: Graphics Press LLC).

David Mitch is Professor of Economics at the University of Maryland, Baltimore County. His chapter ?Chicago and Economic History? is forthcoming (2010) in Ross Emmett ed., The Elgar Companion to the Chicago School of Economics. Email:

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):General or Comparative

The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present

Author(s):Vries, Jan de
Reviewer(s):Voth, Hans-Joachim

Published by EH.NET (May 2009)

Jan de Vries, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present. Cambridge: Cambridge University Press, 2008. xii + 327 pp., $23 (paperback), ISBN: 978-0-521-71925-4.

Reviewed for EH.NET by Hans-Joachim Voth, Department of Economics, Universitat Pompeu Fabra, Barcelona.

This is an impossible book. Had someone told me a few years back that somebody ? anybody ? was trying to write a book so short, yet so ambitious in scope, I would have laughed and filed it under ?impossible and pretentious?– and I would have been wrong. In his latest book, Jan de Vries sets out to examine the “Industrious Revolution,” following on from his Economic History Association Presidential Address (published in the Journal of Economic History in 1994). The final result is closer to a comprehensive overview of work, consumption, and well-being in Europe and North America, from the early modern period to the present. It is written from a particular vantage point: that of the household. The book represents a tremendous accomplishment: it is staggeringly erudite, insightful, stimulating, and on all the main points, convincing.

De Vries examines how households interacted with the evolving opportunities in the labor market and the changing range of goods and services. The intellectual starting point is emphatically Beckerian: households first convert part of their available time into labor income. Money is then combined with more time in the household to produce “Z-commodities” that satisfy our wants. Enjoying these Z-goods is what leisure time is for. To take an everyday example: Labor income buys edible produce; then, the meal is cooked, using non-market time; consuming it claims more of the residual time available. Gradually, households accumulate Z-capital ? the ability to produce or appreciate Z-goods. Generating this kind of capital takes time, energy, and money ? think Sebastian and Charles in “Brideshead Revisited,” teaching themselves about wine while slowly emptying the dynasty’s cellar, or the discerning palates of EUI students and faculty after a few years under the Tuscan sun. From this point of view, the ultimate budget constraint facing us all is time, not money ? it’s literally all we have to spend.

Over the last five hundred years, total hours of work ? both in the household and outside ? have shifted dramatically. To Marx, it was in the nature of capitalism itself that the lower classes ended up working more and harder. De Vries traces the rise of industriousness, defined as a combination of long hours of market work for adult males, and wide-spread participation in the labor market by women and children, to its peak in the nineteenth century. Then, for a period of less than a century, the “male breadwinner household” took over. While men worked long and hard, women became homemakers. Children started going to school.

De Vries locates his Industrious Revolution in the long eighteenth century. In the first chapter, he summarizes the theory on how work and leisure combine to satisfy desires. The second chapter fuses observations from the history of economic thought with social history, and explains how ?luxury? became acceptable ? having long been regarded as suspect in many societies, and heavily curtailed through sumptuary laws banning conspicuous consumption. Holland led the way. The burghers of the newly independent state invented a new type of luxury. While Old Luxury had a distinctly aristocratic and somewhat decadent air to it, aimed at communicating grandeur and taste, the New Luxury emphasized usefulness in the form of domestic comfort.

The next two chapters explore the supply of labor, as well as the consumer demand into which the newly-acceptable desire for practical luxury was translated. Undoubtedly, annual working hours for fully employed males had become very long by 1850 or so ? some 3,500 or so ? scarcely imaginable for workers today who often work 1,600 to 1,900 hours in most developed countries. Women and children often worked side-by-side with the men. When did hours get so long? To say anything of substance about actual hours worked before 1800 is not for the faint-hearted; existing data is staggeringly scarce [Voth 2001]. De Vries does a good job surveying the existing literature, and making a strong case for a universal rise of hours among the middling and lower sorts in Northwestern Europe at some point during the early modern period.

Why did so many Europeans start working more regularly, perhaps harder, and definitely much longer, at some point in the early modern period? De Vries essentially argues that by 1800, there were many ?new goods? to work for. Consumption baskets for the sixteenth century show that beer and bread were consumed in staggering quantities (182 liters and 182 kg per annum according to Allen 1992). While we mostly evaluate consumption in later centuries with no more than a slightly modified consumption basket, there were many other things to spend one’s money on. De Vries details the interrelated rise of fashion and of “breakable” goods; the rise and fall of hard liquor consumption, such as the gin craze; and the growing use and availability of furniture, of cutlery, ceramics, bed linens, underwear, pokers, playing cards, etc. It is the striking difference between largely stagnant day wages on the one hand, and rising consumption as reflected in probate inventories on the other, that is one of the best bits of evidence in favor of the ?Industrious Revolution.? Thus, what I have elsewhere called the “sirens of consumption” (Voth 1998) lead households to work more, and harder.

The process did eventually go into reverse. Hours per full employee have fallen precipitously. Before that happened on a large scale, women and children exited the labor force. Having developed a taste of goods over home-made services, why did the industrious households of the seventeenth and eighteenth century give way to the male-breadwinner household of the Victorian period? De Vries? answer to some extent is health. As knowledge about what made people sick spread, cleanliness became more important. Wages rose, and much of the gain was transmuted into keeping wife and children at home ? the former making the beds, cleaning the stove, mending the socks, and the latter learning in school. Feminists and ?progressive? critics have long seen the women’s exit from the labor force (at least after marriage) as a sign of male domination ? ?patriarchy? in short. De Vries begs to differ. Far from a sign of male suppression, the male breadwinner household gave ample power to women. Men handed over their pay packets, and got a warm, clean home, well-behaved children, plus some pocket money in exchange. As De Vries argues: ?The contemporary vestiges of the breadwinner-homemaker household suffer the condescension of contemporary historians and other social scientists, who often suppose themselves to be liberated from a structure of Western society as long lasting as it was suffocating. It deserves a more serious scholarly treatment. Far from eternal, it was literally a moment in Western family history. Far from suffocating, it was, in its prime, a powerful vehicle of modernization and economic advance. It was the indispensable producer of many of the final consumption commodities that we … associate with the finest achievements of modern society.?

A reviewer of Gerald D. Feldman’s monumental history of the hyperinflation [Feldman 1997] compared the prodigious production of the author with the output of the Reichsbanks’ printing presses. (I think it was meant as a compliment, despite the obvious thought that Reichsbank paper by 1923 was almost completely worthless.) In a similar vein, I thought of calling Jan de Vries’ latest work a true Stakhanovite accomplishment, but then remembered that Alexey Grigoryevich Stakhanov’s widely-praised “production miracles” in Stalinist Russia were later found to have been staged. The sheer amount of hard work that went into every aspect of these chapters is hard to convey. Surveying the rise of consumer items through the prism of probate inventories shows the author confidently mastering the abundant historical literature in four or five languages. De Vries’ reconstruction of Europeans’ increasing consumption of ?colonial luxuries? ? sugar, tea, and coffee ? alone is going to be useful for all scholars working in the area. (While this phrase is beloved by reviewers, this one put his pen where his praise was ? and immediately re-wrote a draft of his paper called “Sweet Diversity” [Hersh and Voth 2009].)

The book will be an invaluable reference for anyone working in early modern economic history. I also expect to see it used as a textbook in advanced undergraduate classes. If there is a fly in the ointment ? and every conscientious reviewer is expected to find one ? it is the almost complete disconnect with behavioral economics. The households making decisions in De Vries? world are of the sturdy Dutch burgher type depicted on the cover; work and consuming is a sober, serious business for them. They have preferences, income, and a range of choices, and then make decisions without too many further complications. De Vries, by allowing for a bit of endogenous preference formation, is departing to some extent from the more rigid basics of household decision-making models. Yet there is no struggle here of ?present selves? with ?future selves,? no hyperbolic discounting, no perennially unfulfilled desire to start saving … tomorrow (for an overview, see Mullainathan and Thaler 2001). This is not quite how some early modern observers saw (in particular) lower class consumers. Sir Frederick Eden (1797), in his The State of the Poor, was highly critical of the dietary choices made by Southern English families. He argued that choosing the quick kick of sugar and tea over more substantial fare was welfare-reducing. From his point of view, the incomes of the poor were not the issue; it was their consumption patterns. Of course, rigorous economic analysis is on shaky ground already when we allow for changing tastes (Becker and Stigler 1977); perhaps, a more detailed analysis of consumers in their full, often self-contradictory glory would have made this a truly impossible book. The profession will be grateful for the one it got.


Robert C. Allen, 2001, ?The Great Divergence in European Wages and Prices from the Middle Ages to the First World War,? Explorations in Economic History 38(4): 411-47.

Gary Becker and George Stigler, 1997, ?De Gustibus Non Est Disputandum,? American Economic Review 67(2): 76-90.

Frederick Eden, 1797, The State of the Poor, London.

Gerald D. Feldman, 1997, The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914-1924, Oxford: Oxford University Press.

Jonathan Hersh and Hans-Joachim Voth, 2009, ?Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492?, Available at SSRN:

Sendhil Mullainathan and Richard H. Thaler, 2001, ?Behavioral Economics,? in N. J. Smelser and P. B. Baltes, editors, _International Encyclopedia of the Social and Behavioral Sciences, New York: Elsevier:1094?1100.

Hans-Joachim Voth, 1998, ?Work and the Sirens of Consumption in Eighteenth-Century London,? in: M. Bianchi, editor, The Active Consumer. Novelty and Surprise in Consumer Choice, London: Routledge.

Hans-Joachim Voth, 2001, Time and Work in England, 1750-1830, Oxford: Oxford University Press.

Hans-Joachim Voth is ICREA Research Professor of Economics at Universitat Pompeu Fabra, Barcelona, a Research Affiliate at CREI (Barcelona), and a Research Fellow in the International Macro Program at the CEPR, London. His latest publications include ?Betting on Hitler: The Value of Political Connections in Nazi Germany? [with Thomas Ferguson], Quarterly Journal of Economics (2008); ?Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714? [with Peter Temin], Economic Journal (2007); and ?Why England? Demographic Factors, Structural Change and Physical Capital Accumulation during the Industrial Revolution? [with Nico Voigtlaender], Journal of Economic Growth (2006).

Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

L??conomie morale, pauvret?, cr?dit et confiance dans l?Europe pr?industrielle

Author(s):Fontaine, Laurence
Reviewer(s):Hautcoeur, Pierre-Cyrille

Published by EH.NET (January 2009)

Laurence Fontaine, L??conomie morale, pauvret?, cr?dit et confiance dans l?Europe pr?industrielle. Paris: Gallimard, 2008. 439 pp, ?20 (paperback), ISBN: 978-2-0707-8577-3.

Reviewed for EH.NET by Pierre-Cyrille Hautcoeur, Ecole des Hautes Etudes en Sciences Sociales and Paris School of Economics.

Economic history frequently suffers a tension between a purely economic approach that considers homo economicus as invariable through time and space, and a relativist approach that refuses any broad comparison because of the supposed incommensurability of human activities experienced in different settings. The influence of anthropologists, especially in the tradition of Karl Polanyi, has contributed in particular to the idea held by many historians that Ancien R?gime societies were qualitatively different from modern ones, and that their economies cannot be studied in the same terms because economic activity was embedded in social life. Furthermore, this statement is sometimes reintroduced in today?s policy debates in a more normative way, when it is argued that the markets should be submitted to social institutions and needs as was the case up to the Industrial Revolution.

Laurence Fontaine ? an economic historian at Centre national de la recherche scientifique in Paris ? helps us to clarify these questions in a particularly interesting way since, as a social historian, she insists on the importance of social relationships in the provision of credit in early modern Europe, but she also, and indistinguishably, emphasizes the role of the market as allowing the poor, and especially women, to escape the constraints and limitations that result from their social position. To that extent, her book is not only a good one for those wanting to better understand the economies ? and particularly the credit markets ? of early modern Europe, but it also provides a way out of that enduring epistemological debate.

Although I have chosen to open this review by insisting on that epistemological contribution, the book is not centered on these issues, which appear mostly in the conclusion. Most of the book actually discusses the provision of credit in the Ancien R?gime economy. It chooses to study it ?from below,? that is from the point of view of economic agents and not from that of institutions, governments or economic theorists (even if all of these appear sparsely). The focus is on the ordinary agents: the poor and lower middle class, in contrast to the most-studied bourgeoisie. Because of these choices, the book is based mostly on qualitative sources, such as diaries, letters, death inventories, small firms? accounting books, and prison records, with some attempts at quantifying the questions under study, but only at an individual or local level and for relatively short periods. A few chapters build on an insightful use of contemporary novels and theater. If unsystematic, the documentation is abundant: examples are taken from all over Europe from the fifteenth to the eighteenth centuries. The book is organized in a thematic order (with chapters on the poor, the peasantry, the elite, urban micro-credit, women, pawnshops, usury, mentalities, exchange practices and the construction of trust). This organization brings a strong sense of the fact that most economies inearly modern Europe faced similar problems, even if the variety of traditions or the different choices that were taken by governments when creating or regulating institutions are frequently mentioned. It downplays long-term change, even if some particular transformations are mentioned.

As is typical of any book dealing with such a large period and space, it is mostly based on a large ? indeed impressive ? bibliographical base (30 pages of references, mostly in English, French and Italian, with occasional Dutch, German and Spanish). It is, perhaps more importantly, based on Fontaine?s experience studying the poor and migrants (especially peddlers) of early modern Dauphin? and Savoie.

The first important result of the book is to show that credit was not only developed among the well-to-do in early modern Europe (as shown for example by Hoffman, Postel-Vinay and Rosenthal in Priceless Markets). It was a daily part of the ?survival strategy? of the poor, more important, indeed, than the help provided by charitable institutions. Most of the working poor needed credit in order to start or to keep their small businesses running in the face of accidents, delays, illness, and life-cycle events ? and this was true as much in the countryside as in the cities. Fontaine shows that the few remaining traces suggest that oral credit was ubiquitous, that written credit was much more frequent than what is observed in notaries? archives (because of the cost and delay of their certification), and that a majority in the population died with negative assets ? that is, unpaid debts superior to their belongings.

Credit was organized in various circles, starting from the closest relatives (the family and neighbors), social authorities (the lord, notables), institutions (guilds, pawnshops) and, lastly, foreigners ? as most moneylenders were considered (either Lombard, Savoyard or Jew). Except for very small amounts, credit among equals (or relatives) ? was rarely much of a resource for the truly poor … because their relatives were poor too, and also because even ?family solidarity is everything but natural? (p. 36). Actually, such solidarity could only result from a well-organized community, which was able to constrain the borrower. Therefore most of the credit to the poor came from notables, institutions and moneylenders.

Among these, the lords were probably those with the most specific behavior in the Ancien r?gime. They frequently lent substantial amounts to their vassals, especially to their farmers. These debts were seldom reimbursed, and mostly implied yearly payments (which could be in kind). They could be restructured when either the lender or the borrower left or died, and parts of them could even be abandoned gracefully in periods of hardship. Fontaine argues that these debts were part of a broader social relationship, which explain both that the lords had to lend in order to maintain status and reputation even when reimbursement was anticipated as almost impossible, and how they were able to force payments for long periods, thanks to their local power.

Aristocrats actually reciprocated downward the relationships based on political dependence they suffered towards the princes to whom they forcefully lent and asked for privileges or rents as payments. When in debt (and they were frequently so), they dismissed and ill-treated their moneylenders (who always suffered bad treatment if they tried to obtain payment through legal means), except those who had been able to access some personal secrets, as was frequently the case when wives pawned their jewelry to old women lenders (the marchandes ? la toilette made famous by novelists down to Balzac). On the other hand, aristocrats considered their gambling debts as the only serious ones because they were purely personal, among equals, and a symbol of their lives? dedication to risk and gratuitousness.

At the opposite end of the social spectrum, poor women had no power and a precarious status. Fontaine shows that the legal position of women mostly deteriorated in much of Europe in the early modern period, obliging them to participate in the most informal and unsecured credit markets. However, her conclusion is not that the market was dangerous to women, but quite the opposite, since where women started participating in markets, they ended up not only surviving, but even obtaining some recognition, as merchants if not as wives: ?Everywhere and since the Middle Ages, the development of markets boosted the legal autonomy of women? (p.144).

Credit was then not limited to the world of the merchants, as often described, but penetrated, although unevenly, all classes of society. As early as the first half of the sixteenth century, Rabelais could write that ?nature created man only to lend and borrow.? Usury laws were unable to restrict the ubiquity of credit, as the Church actually abandoned applying them as early as the sixteenth century. At that time, the states took over the issue and maintained or reinforced usury laws, but let develop a jurisprudence which allowed for many exceptions and by-paths.

Credit was ubiquitous and diverse, but Fontaine argues that its diversity can be better understood using a bipolar lens. Step by step, her book builds a representation of the credit market that distinguishes two ideal-types of credit relationships. These two ideal-types are clearly delineated in chapter 8 thanks to the use of Shakespeare (Timon of Athens and The Merchant of Venice), Moli?re and the Tableau de Paris by Louis-S?bastien Mercier. The first one is ?aristocratic? the second one ?merchant.?

In the aristocratic world, credit relationships are embedded in social relationships and religious imperatives: interest is frequently hidden or in kind, or even disguised in voluntary gifts, debts have no definite term or can be prolonged indefinitely, the relationship between debtor and creditor is statutory or personal. In the merchant world on the other hand, the contract is precisely defined and respected thanks to strong guarantees, and the relationship is impersonal or among equals thanks to a strong role of the law. If this distinction is similar to the one usual among anthropologists, Fontaine?s claim is actually very different: first because she argues both types of relationships co-existed permanently (even if their relative importance varied) and most people could enter both types of relationships, choosing with whom to contract. Second because the market was not intrinsically less humane than the personal relationship: if less open to credit restructuring for personal reasons, it was more rule-based and thus more protected against the creditor?s power. So individuals chose both what type of relationship they wanted to enter and with whom to enter it. They, usually, had some choice, and the social environment, although constraining, was also a space of opportunities.

Even more important, Fontaine shows that the aristocratic and the merchant economies not only conflicted but also penetrated each other. Chapter 6 is very illuminating in that respect, showing that pawnshops (monte di pieta) were invented in the early fifteenth century by Franciscans wanting credit to become a complement to charity, one through which the poor could get more autonomy and capacity to exert their talents, although escaping the dangers of usury and over-indebtedness.

The last chapter on the social construction of credit provides the reverse example: while Franciscans accepted the role of credit markets in helping the poor, merchants never entirely rejected some ?aristocratic? dimension of credit. Analyzing bankruptcies and the relationships among merchants in hard times, Fontaine shows that they appealed to the community to which they belonged, and obtained help as long as they were truly integrated into it, much like in the aristocratic economy.

The book then concludes that both market and personal relationships were always present in early-modern credit, but focuses mostly on the role of the market in allowing the emancipation of the poor and the development of their capabilities, in an explicit reference to Amartya Sen. Although I had great pleasure in reading this convincing and powerful book, a few critical remarks must be added. First, although the book?s approach encompasses many topics, some important ones are missing. The practices and culture of credit among merchants is given little place. This is certainly intended as a necessary correction in view of its excessive place in the previous literature, but the correction is probably also excessive. Public credit is also absent, to some extent in contradiction with the author?s very views on the relationships between princes and some of their aristocratic creditors. Maybe most importantly, this is a history with little historical change. As mentioned earlier, some changes are mentioned in various chapters, but no answer is given to the most important question: if there was a substantial change in the way credit markets worked from the sixteenth to the nineteenth centuries, what was that change and where did it come from? The author could have linked the emancipation towards the power element in aristocratic relationships with the development of legal and representative institutions; nevertheless, law is little present except in the chapter on women, and politics is altogether absent. Finally, contemporary economic thought and modern theory are absent. Both have nevertheless proved to be useful in order to understand early modern economies (see e.g. Grenier?s L??conomie d?Ancien R?gime as an attempt based on contemporaries). Fontaine actually uses some concepts from imperfect information theory, but quite clumsily. These remarks suggest that an even broader synthesis would be welcome in order to provide a truly comprehensive view of early modern credit.

Some of the book?s arguments are not well presented, and would have gained from better writing. The author frequently makes the point that personal debts were extended for long periods, but does not relate this clearly to the annuities model which was so dominant in farming and public debt in the period. Over-indebtedness is forcefully asserted, but insufficiently demonstrated in economic terms, since payment flows should be related to incomes rather than volumes of debts to assets. More seriously, the author argues that the fact that the poor invested all their income in clothes or jewelry reflected a ?preference for illiquidity? (e.g., p. 132), when actually these goods were chosen because they were highly liquid (thanks to the pawnshops the author describes so well), and were given preference over money because of the riskiness of money that could be stolen or be forcefully borrowed by relatives.

Other remarks are more formal. Although the book is quite beautiful, it is not well edited. Chapter two is somewhat repetitive of chapter one, some developments (e.g. on women?s legal status on pp. 134-56) are too long and are not well integrated into the general story. A more careful reading by the publisher would also have avoided the repetition of entire sentences (pp. 164 and 165, pp. 185, 186 and 189, pp. 244 and 265) or quotes badly cut (p. 172).

In spite of these small shortcomings, this book remains an impressive synthesis and a brilliant essay. One should hope that it will be rapidly translated into English in order to get the wider readership it deserves.

References: Jean-Yves Grenier, L??conomie d?Ancien R?gime: un monde de l??change et de l?incertitude, Paris, Albin Michel, 1996. Philip T. Hoffman, Gilles Postel-Vinay, and Jean-Laurent Rosenthal, Priceless Markets: The Political Economy of Credit Markets in Paris, 1660-1870, University of Chicago Press, 2001.

Pierre-Cyrille Hautcoeur is Professor of economics at Ecole des Hautes Etudes en Sciences Sociales and Paris School of Economics, Paris. His recent publications include Le march? financier fran?ais au 19e si?cle, Paris, Publications de la Sorbonne, 2007, the edition of a special issue of Histoire et Mesure on bankruptcies, “Bankruptcy Law and Practice in 19th Century France,” in Insolvency and Bankruptcy Laws: Issues and Perspectives (JAI University Press, 2008) and “Why Didn’t France Follow the British Stabilization after World War One?” (with M. Bordo), _European Review of Economic History, 2007.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):Medieval

Trade in Classical Antiquity

Author(s):Morley, Neville
Reviewer(s):Temin, Peter

Published by EH.NET (June 2008)

Neville Morley, Trade in Classical Antiquity. Cambridge: Cambridge University Press, 2007. xiv + 118 pp. $30 (paperback), ISBN: 978-0-521-63416-8.

Reviewed for EH.NET by Peter Temin, Department of Economics, MIT.

This book is one of Cambridge University Press’s series of Key Themes in Ancient History. These brief books are designed to introduce various topics of ancient history to graduate students and interested laypeople alike. They presuppose little professional knowledge of the topic and provide an overview of the state of knowledge. The books have single authors, and they express the opinions of the authors more than a typical text.

Morley is a distinguished ancient historian, and this book fits the general pattern. It provides a summary view of trade in the ancient world, but the average economic historian needs a reader’s guide to extract this information. The problem is that Morley feels obliged to introduce his book with two chapters on methodology that easily will put off the non-ancient historian. In his words, “The aim of this book is not to offer a chronological history of the development of trade and commerce or to draw up lists of the goods that were traded between regions, but to identify the different structures ? physical, social, ideological ? that shaped the distribution of goods and the practices of exchange across the ancient world” (p. 15).

My advice to readers of this review is to skip the first two chapters and start reading at Chapter 3. The rest of the book will repay a careful read. Morley argues in Chapter 3 that the distinction between luxuries and necessities is culturally determined. You cannot decide which is which without knowing the culture of the trading people. Since ancient peoples of whom we know lived above biological subsistence, part of their consumption was devoted to culturally-determined goods, that is, goods that established their place in the local hierarchy. Chapter 4 is devoted to the institutions of trade, revealing the impact that Doug North has had on ancient history. This material is covered also in Kessler and Temin (2007), which apparently was not visible to Morley.

Morley confronts the morality of traders in Chapter 5. He argues that most ancient traders and office holders were law abiding in the modern sense. Just as today most contracts are honored without the intervention of a court, so Morley says ancient people dealt with each other on a trusting basis. Since law enforcement is expensive, this is a very important point, and Morley raises but does not answer the question of where this morality comes from. Perhaps that should be the topic of another book in this series. In the sixth and final chapter, Morley assesses the extent of what he calls “ancient globalization.”

One problem for the modern economic historian is Morley’s practice of hopping back and forth between Classical Greece and Republican Rome. These two venues were separated by time and ? more importantly ? scale. In modern terms, Athens was a small open economy, while Rome was the largest economy in the ancient world. Small and large countries differ even today, and we might infer that there were differences then too. This question does not appear to have occurred to Morley.

Another problem is Morley’s ambivalent attitude toward globalization. On the one hand, he says, “Farmers were never wholly isolated from society or wholly divorced from the market” (p. 45). On the other hand, he argues in Chapter 6 that globalization was severely limited by poor technology in transportation and information transmission. Morley does not appear to have a way to resolve this issue. Fortunately, two recent papers help to resolve this puzzle. Both papers were the outcomes of Harvard senior theses in economics.

Geraghty (2007) argues that the extension of Roman trade across the Mediterranean led Roman farmers to shift out of wheat into wine and truck farming for the neighboring city of Rome. This paper complements and extends Morley’s analysis of Roman farming in his 1996 book. Kessler and Temin (2008) show that Roman trade was so extensive that there was a single monetary system and a single wheat market across the whole Mediterranean Sea. Wheat prices were highest in the center of consumption, the city of Rome, and fell with the distance from Rome. While Morley’s new book is a worthy addition to the Key Themes series, I recommend that readers of this review start with the articles I have mentioned here and continue on to Morley if they want more evidence.


Geraghty, Ryan M., “The Impact of Globalization in the Roman Empire, 200 BC – AD 100,” Journal of Economic History 67 (December 2007): 1036-61.

Kessler, David, and Peter Temin, “The Organization of the Grain Trade in the Early Roman Empire,” Economic History Review 60 (May 2007): 313-32.

Kessler, David, and Peter Temin, “Money and Prices in the Early Roman Empire” in William V. Harris, editor, The Monetary Systems of the Greeks and Romans (Oxford: Oxford University Press, 2008): 137-59.

Morley, Neville, Metropolis and Hinterland: The City of Rome and the Italian Economy, 200 BC – AD 200 (Cambridge: Cambridge University Press, 1996).

Recent articles by Peter Temin include “The Economy of the Early Roman Empire,” Journal of Economic Perspectives (2006); “Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714″ (with Joachim Voth), Economic Journal, forthcoming; and “The German Crisis of 1931: Evidence and Tradition,” Cliometrica, forthcoming.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Middle East
Time Period(s):Ancient

Pricing Theory, Financing of International Organisations and Monetary History

Author(s):Officer, Lawrence H.
Reviewer(s):Sylla, Richard

Published by EH.NET (November 2007)

Lawrence H. Officer, Pricing Theory, Financing of International Organisations and Monetary History. London: Routledge, 2007. xii + 324 pp. $135 (cloth), ISBN: 978-0-415-77065-1.

Reviewed for EH.NET by Richard Sylla, Department of Economics, Stern School of Business, New York University.

“As they contemplate mortality and immortality,” the late Charles Kindleberger (1985, 1) once wrote, “many economists … think it useful to gather their scattered academic detritus into packages, organized either chronologically or by subject.” Kindleberger was a master of the genre, producing several such packages, which he described as exercises in tidying up things for one’s literary executor. In case you hadn’t guessed from the title of Lawrence Officer’s new book, it is a recent addition to the genre.

Officer, Professor of Economics at the University of Illinois at Chicago, is probably best known to economic historians for his work on purchasing power parity, the operation of the gold standard, and dollar-sterling exchange rates, all of which are treated in an earlier book (Officer, 1996). The current collection, written over the forty years 1966 to 2005, deals mostly with different but sometimes related topics, the three mentioned in the book’s title, and a final brief one entitled “Gold.” Each of the four parts ends with an afterword reflecting on and extending the papers collected under that topic. The first section, “Pricing Theory,” contains four papers, all written more than three decades ago, dealing with “firm and market behavior under conditions of joint supply” and developing “a multidimensional approach to pricing.” These are contributions to microeconomics, but probably will be of limited interest to economic historians.

“Financing of International Organizations,” part II, contains three papers on how the IMF sets its quotas of contributions and drawing rights for member nations, how the UN assessed member states to cover its expenses, and how both organizations might have done a better job of allocating their costs and benefits. Officer’s focus is on the tensions between developed and developing countries over the costs and benefits. Both international organizations tended to base their charges on members’ relative GDPs, made comparable by exchange-rate conversions. Such conversions tend to make developing countries appear smaller, economically, relative to developed countries than would purchasing-power-parity (PPP) comparisons. In the case of the UN, the developing countries liked this method because it resulted in lower assessments. But as regards the IMF, the method reduced the drawing rights of the developing countries compared to alternative methods of determining quotas, so it was less acceptable to them. Such is the stuff of political economy. Officer’s discussion is remindful of the debates over slavery at the U.S. constitutional convention, in which the northern-state delegates argued that slaves ought to be counted for purposes of taxation but not representation, and the southern delegates argued for just the opposite ? or of the debates between Britain and its colonies in the heyday of the empire, in which the British wanted the colonies to be economically independent but politically dependent, whereas the colonies wanted just the opposite. Officer’s treatment of the IMF and UN financing issues is as thorough as one is likely to find anywhere.

Economic historians, or at least financial historians, are likely to gravitate toward part III on “Monetary History,” which contains three fine papers published between 2000 and 2005. One is on the long British episode of sterling inconvertibility ? the paper pound of 1797-1821 ? and the related, so-called bullionist controversy. In that debate, which Officer terms “the most famous monetary debate in the history of economic thought,” the bullionists, forerunners of later monetarists, argued that excessive note issues by the Bank of England led to price-level inflation, a deteriorating exchange rate, and a premium on gold. On the other side, the anti-bullionists argued for a balance-of-payments theory of the exchange rate, in which Napoleonic-War trade interferences, British military spending outside of Britain, and poor wheat harvests led to a deteriorating exchange rate and the gold premium, higher import prices, and general price inflation, whereupon the Bank of England rather passively printed more notes to accommodate supplies of and demands for bills of exchange at the 5 percent usury limit. Officer models and tests both theories with improved data he painstakingly constructed (not included in the original paper, but included in the book in the afterword to part III), using up-to-date econometric techniques. The results are fairly decisively in favor of the anti-bullionist position. Officer ends the chapter on a thoughtful note worth quoting:

Monetarism sees its origin in the bullionist model; and the antibullionist approach to the exchange rate (a flow theory) and monetary policy (passive, and accommodating to the price level) has gone out of fashion. It may be humbling to the macroeconomist that these theoretical developments are contravened by the preponderance of empirical results for the Bank Restriction Period (178).

Chapter 11, “The U.S. Specie Standard, 1792-1932: Some Monetarist Arithmetic,” is one that intrigued me when it first appeared in 2002, and it still does. Among other things, careful data work ? a mark of all of Officer’s scholarship ? produces “a monetary base series that is consistent, complete in coverage, and continuous over a long period of time” (185). One intriguing argument of the chapter is that the two Banks of the United States (BUS) in early U.S. history were indeed central banks; Officer points to substantial evidence that BUS note and deposit liabilities were held as reserves by state and other banks. This is in contrast with analyses by Temin (1969) and others, which view the monetary base as specie (gold and silver) and the BUSs as very large banks but in other respects just like all the other banks in the system. Whether the two BUSs were central banks adding to the monetary base or ordinary banks operating on a specie base obviously bears on how one might model the U.S. money supply and its proximate determinants. It is safe to say that future work in this area will have to build on, or at least contend with, Officer’s data and insights. Officer himself uses the data to study eight different regimes during the 140 years covered in the study, and concludes that the classical gold standard regime (1879-1913) was superior to the others in most respects. One oddity of Officer’s monetary base series is that it grows by 64 percent in 1874, the first of several consecutive years of price deflation. Perhaps this is another triumph of non-monetarists over monetarists.

But wait. In Chapter 12, “The Quantity Theory in New England, 1703-1749: New Data to Analyze an Old Question,” Officer demonstrates that both the classical quantity theory of money and Milton Friedman’s modern version of the quantity theory test out quite well. For Officer, various economic theories are tools to be applied, not articles of faith, and that is rather refreshing. The afterword to part III is full of substance, extensions, and wise commentary on the three provocative papers preceding it.

The short part IV on Gold contains a guide to various documentary collections relating to that subject, and study of reserve-asset preferences of countries when the Bretton Woods System was moving into its crisis period of 1958-1967. In the latter, Officer develops a political-power approach to the proportions of reserve assets consisting of dollars and gold various countries maintained. The United States wanted countries to hold dollars, of course, and used its clout in attempts to achieve that objective. Officer’s political-power model works to his satisfaction, and perhaps even better than standard alternative approaches based on portfolio-management concepts. Bretton Woods was a different world from our current one with market-determined exchange rates for the principal countries. But it seems the United States still has problems getting others to hold all the dollars out there at a non-depreciating exchange rate. Officer’s essay, written a third of century ago and republished here, indirectly sheds some light on a problem that has not gone away.

As one who has been stimulated by Officer’s work and who has relied on some of it in my own, I welcome this collection of articles from a researcher who richly deserves the accolade, “a scholar’s scholar.”


Kindleberger, Charles P. 1985. Keynesianism vs. Monetarism, and Other Essays in Financial History. London: George Allen & Unwin.

Officer, Lawrence H. 1996. Between the Dollar-Sterling Gold Points. Cambridge: Cambridge University Press.

Temin, Peter. 1969. The Jacksonian Economy. New York: Norton.

Richard Sylla is Henry Kaufman Professor of the History of Financial Institutions and Markets and Professor of Economics, Stern School of Business, New York University. His article, “Integration of Trans-Atlantic Capital Markets, 1790-1845,” co-authored with Jack W. Wilson and Robert E. Wright, was published in Review of Finance 10 (2006).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Money, Markets and Trade in Late Medieval Europe: Essays in Honour of John H.A. Munro

Author(s):Armstrong, Lawrin
Elbl, Ivana
Elbl, Martin M.
Reviewer(s):Beek, Karine van der

Published by EH.NET (September 2007)

Lawrin Armstrong, Ivana Elbl, and Martin M. Elbl, editors, Money, Markets and Trade in Late Medieval Europe: Essays in Honour of John H.A. Munro. Leiden: Brill, 2007. xx + 648 pp. $201 (hardcover), ISBN: 978-90-04-15633-3.

Reviewed for EH.NET by Karine van der Beek, Universitat Pompeu Fabra, Barcelona.

This volume, edited by Lawrin Armstrong, Ivana Elbl, and Martin M. Elbl, the first in Brill’s peer-reviewed series Later Medieval Europe, is a Festschrift for the eminent economic historian John H.A. Munro on the occasion of his retirement from the University of Toronto in 2003. Munro’s remarkable academic achievements and extraordinary qualities of character are clearly reflected in the warm preface by Herman van der Wee, in the introduction by the editors, and in the numerous references to him and to his work in the various essays.

The essays, which mostly consist of original work, discuss various aspects of the late medieval economy. They are divided into seven sections ? Money and Ethics, Taxation and Revenue, Expenditure and War, Land and Labor, Market Integration, Long-Distance Trade and Markets, and Regional and Local Markets ? representing the broad range of academic interests embodied in Munro’s work (of which the volume includes a full bibliography).

The share of studies dealing with fiscal policy is quite surprising. The essays can be divided into those focusing on the relationship between public finance and public expenditure, the effect of public finance on markets, and the effects of public expenditure and war on markets. Among the studies that fit in the first category is a paper by Jeffrey Fynn-Paul on the introduction of civic debt in the Catalan city of Manresa in the 1340s. Although the historical evidence he presents is intriguing, the connection he makes between the introduction of civic debt and the subsequent civic unrest is not very convincing. Other essays in this category are by Susannah C. Humble Ferreira, pointing out administrative changes in royal finance that allowed a significant expansion of royal households both in sixteenth-century England and Portugal, and a captivating paper by Kelly De Vries on the effects of warfare finance on war strategies and tactics, concentrating on two critical failed Burgundian sieges during the Hundred Years War.

The effects of political fragmentation on trade are very well demonstrated in two studies. James Masschaele offers an informative overview of the tolls levied in medieval England. He suggests that although the widespread medieval tolls had the potential to undermine trade, “they were prevented from doing so by an effective assertion of public authority” provided by the crown, which managed “to establish relatively narrow limits within which uncertainty fluctuated.” This view is further strengthened by Mark Aloisio’s description of the political mechanisms and regulations that governed the fifteenth-century Maltese grain markets, which precluded their integration into those of the kingdom of Sicily.

Ivana Elbl’s study touches on the question of efficiency of public ownership in a fascinating account of the Portuguese African enterprise. She offers convincing arguments to prove that the enterprise was badly managed, though she does not provide any evidence to support her rather odd claim that the Portuguese crown, “did not necessarily aim at maximizing revenue, but rather at achieving an acceptable and sustainable cash flow.” Last within this category of fiscal policy, Maryanne Kowaleski, in a delightful essay, turns our attention to ways in which the Hundred Years War promoted the development of English merchant shipping and port towns, owing primarily to privileges and increasing naval activity granted by the crown.

Most of the other studies in the book are concerned with the operation of local, regional, interregional, and even intercontinental late-medieval markets. I found particularly intriguing the essays by Martha Carlin and Charlotte Masemann, both of whom used very original types of sources. Carlin utilized three texts that “used discussions of urban occupations, shops and shopping to instruct students in Latin vocabulary and the art of writing business letters,” to provide a vivid and detailed description of street sellers, negotiating techniques, and mainly the variety of goods that was available in the markets of thirteenth-century English towns and in Paris. Masemann’s study combines archaeological (botanical) evidence on consumption in L?beck, a northern German town, with evidence from written records documenting the city’s urban gardens to prove that what was grown in these gardens was consumed within the city.

Masemann’s finding is in line with Richard Unger’s work, in which he presents data on prices of various grains in southeast England, Flanders, Brabant, and Holland (from the late fourteenth century to 1600) indicating that while urban grain markets within these regions were highly integrated in the fifteenth century, their demand seems to have been supplied entirely by nearby rural areas, and that this tended to limit town size until such time as distant trade became less costly. Also concentrating on the Low Countries, David Nicholas analyzes the financial role of Ypres in the region during the thirteenth century based on debt recognitions contracted before the echevins of the city. Francesco Guidi Bruscoli and James Bolton summarize the first findings of their notable Borromei Bank Research Project ? a micro-study based on two surviving ledgers of the family’s companies in Bruges and London between 1436 and 1439, which adds to our understanding of long-distance exchange operations in general and among England, the Low Countries, and Italy in particular.

Ian Blanchard and Martin Elbl both offer detailed pictures of late-medieval intercontinental specie market operation. Blanchard describes the significant role played by Egypt’s crisis in monetary and specie markets, which he believes was responsible for two-thirds of the rise in gold prices between 1375 and 1425. Elbl focuses on the Maghrib, using the abundant Datini records (for the period 1394-1410), preserved in the Datini archive in Prato, to fill in the gap in the literature on the Venetian/Balearic trans-Saharan copper trade.

Lawrin Armstrong and Lutz Kaelber deal with the ethical aspect of medieval financial markets. Armstrong offers an insightful discussion on the tension that existed between canonists and theologians (thus, law and ethics) regarding the problem of usury, and Kaelber’s essay addresses the development of Max Weber’s view on usury.

Finally, the volume also includes studies that focus on institutional and legal aspects of late-medieval market operation. John Drendel’s essay argues that personal servitude, which appeared in northern Francia during the tenth century, never existed in Provence. Francesco Galassi examines the patterns of diffusion of different terms in sharecropping contract in Italy to identify the transmission mechanism that underlies institutional change. Lastly, Martha Howell provides an instructive and comprehensive examination of legal and social aspects of property law in late-medieval Ghent, which points out the political interests that were at work in the process of shaping the law.

To conclude, this Festschrift in honor of the revered John Munro contains original and remarkable work, and while I admit that I found some of the studies to be more appealing than others, they are all characterized by a notable wealth of historical evidence, references, and sources. Given the scope of topics and the diversity of approaches, the volume should be of great interest to a wide range of scholars in diverse fields.

Karine van der Beek is a Post-Doctoral Fellow at Universitat Pompeu Fabra, Barcelona. Her research focuses on early European growth and on the effects of political structures on institutional formation, market organization, and productivity. Recent papers include: “Political Fragmentation and Technology Adoption: Watermill Construction in Feudal France,” and, “Political Fragmentation and Investment Decisions: The Milling Industry in Feudal France (1150-1250).”

Subject(s):Military and War
Geographic Area(s):Europe
Time Period(s):Medieval

Surviving Large Losses: Financial Crises, the Middle Class, and the Development of Financial Markets

Author(s):Hoffman, Philip T.
Postel-Vinay, Gilles
Rosenthal, Jean-Laurent
Reviewer(s):Bodenhorn, Howard

Published by EH.NET (July 2007)

Philip T. Hoffman, Gilles Postel-Vinay and Jean-Laurent Rosenthal, Surviving Large Losses: Financial Crises, the Middle Class, and the Development of Financial Markets. Cambridge, MA: Harvard University Press, 2007. viii + 263 pp. $28 (hardcover), ISBN: 978-0-674-02469-4.

Reviewed for EH.NET by Howard Bodenhorn, Department of Economics, Lafayette College.

Those of us who knew some financial history were not surprised by the Enron and WorldCom collapses in 2001 and 2002. We may have been taken aback by the magnitude of the losses and empathized with Enron employees who saw comfortable retirements evaporate before their eyes, but I can recall more than one dire prediction as Y2K approached and not because anyone really believed that confused computers would turn out the lights. Rather, some of us had genuine concerns that the equity market mania in 1999 resembled that of 1929 and hoped that the Fed would get it right the second time around. Optimism reigned at cocktail parties, however, and statements about unsustainably high equity prices were casually dismissed as just one more example of economists’ collectively predicting 11 of the past 10 recessions. History warned us that the collapse was not a matter of “if.” It was a matter of “when.” While this sense of inevitability now sounds like so much “I-told-you-so” hindsight, Surviving Large Losses makes a case that the then minority opinion was reasonable. The book makes the case that financial crises are inevitable. What is not inevitable is how societies respond as the pieces are picked up after the crisis.

Philip T. Hoffman (Caltech), Gilles Postel-Vinay (?cole des Hautes ?tudes en Sciences Sociales) and Jean-Laurent Rosenthal (Caltech) recognize their debts to the finance-growth literature, exemplified by Ross Levine’s many and influential cross-country studies, and the equally influential La Porta, Lopez-de-Silanes, Shleifer and Vishny (LLSV) “law and finance” literature, which holds that a country’s financial system is heavily influenced by the legal protections offered to equity and debt holders.[1] As influential as the related Levine and LLSV literatures are, cross-country analyses labor under two fundamental shortcomings. First, they ignore the powerful historical forces that shape a country’s financial institutions and infrastructure, the “colonial origins” argument at the center of LLSV notwithstanding. For a host of reasons, many of which are explored in this book, countries become prisoners of their own pasts, but the story is far more complex than colonial origins. Second, both literatures identify, but cannot explain a growth nexus, though some progress on that front has recently appeared.[2] That is, the size and structure of a country’s financial system matters for long-run growth, but the analyses fail to explain why and how they matter and, more importantly, why and how they change. If success can be had by simply copying the successful, why have so many economies failed to do so? The short answer, of course, is that institutional change is not costless. No matter how inefficient an existing financial system, its costs and benefits are capitalized by economic actors who will resist change absent some outside impetus that alters the calculus.

Surviving Large Losses provides an original and provocative hypothesis that offers an interpretation of financial reform: historically, one of the most important moving forces behind financial evolution has been the financial crisis. It is a fact that financial crises are virtually inevitable in modern economies ? a source of sleepless nights, if not outright dread, for even the most sophisticated, well-hedged investor. Despite the enormous human costs of financial crises, “they often prove to be turning points in the evolution of financial markets and long-term economic growth” (p. 2). Because crises are followed by searches for culprits and insistent calls for change, they afford politically opportune moments to reform financial institutions. In the U.S., for example, the Federal Reserve System and the Federal Deposit Insurance Corporation, two fundamental building blocks of the twentieth century U.S. banking edifice, emerged as post-crisis reforms. These reforms demonstrate that something new and functional can be built on the ashes of the old and broken.

Although the authors offer a political economy model of post-crisis financial reform, they do not arrive at their conclusions by analyzing historical data ? though they have performed such analyses elsewhere. Instead, they take a decidedly low-tech, narrative approach to appeal to the widest possible audience. After providing a verbal explanation of their political economy model, the authors rely on their extensive historical knowledge of about four centuries of financial crises to support their interpretations.

The substantive chapters of the book open with a fundamental question: Why is it that some states protect savers and investors while others plunder? Every state, no matter how wealthy or democratic is capable of plunder, but those that resist grow over the long term. What increases the probability of plunder is the size of the public debt relative to the state’s ability to service it. Countries with small debts and low taxes relative to GDP are less likely to prey on financial markets (p. 12-13). Countries mired in public debt and with already heavy tax burdens have few politically viable options during a crisis other than default or confiscation. In many societies, preying on the military or a hungry electorate instead of the rentiers is a sure ticket for a short reign (p. 14-15).

In issuing public debt the state plays a critical role at the extremes. At one extreme is the state whose issuance of debt leads to the emergence of debt markets with institutions suitable to and organizations capable of trading private claims. So long as the state restrains itself, an entrepreneurial class gains access to an expanding web of finance with positive consequences for long-term economic development.[3] At the other extreme is the state that piles up enormous debts and pays for them by preying on financial markets. To avoid the predator, investment capital hides or flees with obvious negative consequences for long-term growth.

How do crises matter in this process? Financial markets shrink during a crisis and investors call for change in the aftermath. Whether change occurs, how change is initiated, and who initiates it ? government or private actors ? are issues determined through the interaction of political economy and historical accident. Part of the answer depends on who demands post-crisis change and whether the demands for change are translated into productive and efficient institutions (the preferred outcome) or whether losers use the political system to confiscate from winners however defined (the undesirable outcome) or something in between.

Hoffman, Postel-Vinay and Rosenthal argue that the outcome turns on the behavior of three actors ? the middle class, financial intermediaries, and the government. Casual observers might think that the wealthy would be the driving force behind post-crisis reform. But, as the authors note, it is a broad, relatively egalitarian middle that drives financial development, as well as the political economy of reform. Entrepreneurs tend to emerge from the middle. The middle has collateral. The middle relies on local financial institutions. The middle is most vulnerable to crises.

Although the middle’s favored short-term post-crisis strategy might be a bailout and redistribution, enough members of the group usually recognize that institutional reforms that strengthen the financial system and insulate it from transient shocks are the preferable long-term strategy. A more vibrant, more efficient financial system benefits them directly (diversification) and indirectly (spurring macroeconomic growth). Whether the middle class realizes their calls for reform depends on its size and its political clout relative to the wealthy. Egalitarian societies with a broad middle are most likely to initiate useful reform because the benefits of confiscation are small ? mostly because the middle will be confiscating from itself ? and because the benefits of crisis-averting innovation are large.

Whether the middle succeeds depends on the objectives of the second principal player: financial intermediaries. It is in this arena that a society’s wealthy play an important role. Because the wealthy have (very nearly by definition) large portfolios, they are able to spread the fixed costs of innovative new products across a raft of customized financial products. But once financial intermediaries have designed products for the wealthy, it is only a matter of time before they are made available to consecutively less wealthy investors until they are eventually redesigned to suit the needs of the middle. A recent example of increasing regulatory concern is the growing upper-middle class fascination with hedge funds.

Crises, as Hoffman, Postel-Vinay and Rosenthal note, have many causes, including government predation, herd behavior, asymmetric information, and inadequate diversification. If intermediaries see post-crisis profit opportunities and can expect governmental or legal support for reforms and new products that reduce the negative consequences of information asymmetries (i.e., new reporting requirements imposed by stock exchanges for listing companies) and enhance diversification (i.e., mutual funds), they will push for reform.

Government is the third principal player in the drama. Government differs from private actors because a private actor must realize a profit from any innovation or it will be driven from the market. Governments face no such constraint and can, in fact, impose taxes and other regulatory costs to pursue the changes it deems appropriate. Government has a prominent role in financial markets ? from enforcing contracts to subsidizing deposit insurance to overcoming some types of market failures ? but there is a constant fear of governmental overreach, predation, and the encouragement of rent seeking. Governmental intervention is successful when the net social benefits of a proposed reform outweigh its costs and when the rents created are small relative to the benefits of resolving the market failure (p. 169).

What is the authors’ interpretation of massive state intervention in financial markets in modern Western-style economies? They argue that it was an outgrowth of the bloody and tumultuous twentieth century. Governments intervened on a modern scale during the First World War when national survival seemingly demanded planning boards, rationing and conscription of men and materiel, including middle-class savings. The Great Depression induced a second wave of massive intervention and regulation. The Second World War, post-war reconstruction and the Cold War elicited even greater government intervention. Thus, the period between 1914 and 1990 was one of massive and increasing governmental regulation.

How did the Western-style economies realize their remarkable rates of growth in the twentieth century if financial markets labored under the ever increasing weight of government regulations? The authors argue that these countries “got away with it” because, as the century opened, they already had good institutions in place and governments, while highly regulatory, were rarely predatory. Low-income and low-growth developing countries that copied, or tried to copy, the regulatory structures of the West failed because they did not begin with the same pro-growth institutions.

In the end, then, Surviving Large Losses, while more historically nuanced than the finance-growth and law-and-finance literatures from which it springs leaves us in much the same place. Political economy takes us only so far. A large part of the story of good finance is historical contingency, which makes for a less parsimonious tale than that offered by LLSV and others, but one more satisfying to economic historians. Nevertheless, we are left to wonder how the financial institutions that matter emerge and thrive. The authors’ explanation hangs mostly on the existence of a middle class but that, too, depends on a preexisting set of “good” social, political, economic and governmental institutions. Surviving Large Losses is, therefore, probably best viewed as a low-tech contribution to the literature attempting to unbundle institutions. It is certainly thought provoking and leaves as many questions as answers. Before its interpretations carry the day, however, much more theoretical and empirical work will need to be done. Although the conclusions drawn from many historical episodes will appeal to economic historians and general readers, I suspect that mainstream banking and finance types will withhold judgment until many more formal tests are provided. I look forward to seeing those tests and expect the authors of Surviving to be notable contributors.

Notes: 1. See Ross Levine, “Financial Development and Economic Growth: Views and Agenda,” Journal of Economic Literature 35:2 (June 1997), 688-726 and Ross Levine and Thorsten Beck, “Stock Markets, Banks and Growth: Panel Evidence,” Journal of Banking and Finance 28:3 (March 2004), 423-42; Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny, “Law and Finance,” Journal of Political Economy 106:6 (December 1998), 1113-55.

2. Thorsten Beck, Asli Demirguc-Kunt, and Ross Levine, “Law and Finance: Why Does Legal Origin Matter?” Journal of Comparative Economics 31:4 (December 2003), 653-75; and Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “What Works in Securities Laws,” Journal of Finance 61:1 (February 2006), 1-32.

3. Richard Sylla, “U.S. Securities Markets and the Banking System, 1790-1840,” Federal Reserve Bank of St. Louis Review 80:3 (May 1998), 83-98 makes the case for the early U.S.

Howard Bodenhorn, professor of economics at Lafayette College and Research Associate at NBER, has written extensively on banking history. Among his recent articles is “Usury Ceilings, Relationships and Bank Lending Behavior: Evidence from the Nineteenth Century,” Explorations in Economic History (2007).

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century

Financing the First World War

Author(s):Strachan, Hew
Reviewer(s):Voth, Hans-Joachim

Published by EH.NET (January 2007)

Hew Strachan, Financing the First World War. Oxford: Oxford University Press, 2004. viii + 268 pp. $20 (paperback), ISBN: 0-19-925727-2.

Reviewed for EH.NET by Hans-Joachim Voth, Department of Economics, Universitat Pompeu Fabra, Barcelona.

Long before the trains started to roll towards the battlefields in 1914, the coming of World War I put heavy demands on other types of transport. All over the world, in late July, ships were loading unusual freight, in unusual quantities. As William Silber describes in his When Washington Shut down Wall Street [1], the cargo for the ships waiting in New York harbor came from only a few miles away. Workers at depositories stacked thousands of bars of gold in wooden kegs, covered them with saw dust to reduce abrasion, and nailed them shut. Armed transports took the crates and barrels with their precious cargo to the docks, before they were sent to the strong rooms of the waiting passenger and cargo ships.

As the risk of war grew, the soon-to-be belligerent powers sold foreign assets, and began to repatriate the proceeds in gold. Before the barbarism of the conflict became apparent to all, gold, the “barbarous relic” in the words of Keynes, started to change from currency anchor to strategic asset. Hew Strachan’s Financing the First World War is about the struggle to find the funds necessary to fight World War I — the first and the last of the major armed conflicts when all the main powers were on the gold standard when hostilities broke out. This scramble turned out to be every bit as desperate as the attempts to hoard gold in the summer months of 1914. The history of finance during World War I has often been told with a view to the hyperinflations and deflations, the booms and busts that followed — how economies coped with the large increase in money in circulation, the economic dislocation and the overhang of debt. As the introduction explains, Strachan is less concerned with the consequences of financing World War I. Instead this book aims to explain how the war was fought on the financial battlefield.

This is part of a much larger project. Strachan was commissioned to write a comprehensive replacement of Cruttwell’s (1934) A History of the Great War. Strachan’s To Arms is the first installment in what is promised to be a three-volume history of the conflict. Financing the First World War is not a self-contained book as such, written with the intention to get to the bottom of financing arrangements during the Great War. Rather, Oxford University Press is re-issuing parts of To Arms, the first volume of Strachan’s three-volume book on World War I, as separate paperbacks. In addition to this book, there are The Outbreak of the First World War, and The First World War in Africa. Strachan probably knows as much about the military, political and financial history of belligerents as any other author; he has also done an admirable job summarizing the main secondary works in German, French, Russian, and Italian. Since Strachan’s own university (Oxford) has abolished even basic language requirements (like a two modern languages and Latin) for the study of history because of alleged “elitism,” this is certainly to be welcomed. It is also in pleasing contrast with other English-language books on World War I, which often focus on the Anglo-German rivalry.

This is an ambitious and knowledgeable book. It is also poorly structured, strikingly confusing, and monumentally boring. The main problem seems to be that it has been re-assembled from the ingredients of a larger book. Like meat cuts reassembled into false filets, the book looks like the real thing, but certainly doesn’t taste like it. Chapters starts well enough, with a small, intriguing vignette — how the garbage-strewn battlefield of World War I indicates the prolific use of materiel, how a German Reichstag delegate encountered problems getting change when trying to pay for his dinner in Berlin in August 1914, etc. Yet these are rare morsels in army-style fare of dry prose and even drier numbers, cooked up without salt or spices. This reviewer thinks of himself as a bit of a chiffrephile, in Angus Maddison’s elegant phrase — someone who has a healthy appetite for figures. Yet the main account of financial questions related to the war effort in Strachan’s book is close to unreadable. The reader is treated to a constant bombardment with financial figures, without much explanation. A barrage with millions of Sterling here is followed by salvos of millions of Russian Rubles, Bulgarian Levas, German Marks and French Francs in adjacent sectors. They left this reader shell-shocked. Little or no effort is made to put them into context, nor is there much of an explanation of “how big is big” (they are certainly almost never related to something economically meaningful such as GDP). Only occasionally do we learn that the British tax increases in 1917 — after much back and forth – produced only enough additional revenue to cover the cost of five days’ fighting. A typical example reads like this:

A total of 4,460 million marks was subscribed, producing a surplus of 1,832 million over existing debt. The second, in March 1915, raised 9,060, a surplus of 1,851; the third, in September 1915, 12,101 million, a surplus of 2,410; a fourth 10,712 million, a surplus of 324 million…. The fifth loan was 2,114 million marks short of its target, the sixth (in March 1917) 6,732 million, the seventh (in September 1917) 14,578 million, and the eighth 23,970 million. The total of the last loan, issued in September 1918, fell back to 10,443 million marks, and left a shortfall of 38,971 million (p. 123).

Surely, this is why tables or graphs were invented? Yet not a single table or figure adorns the entire, 278-page book. The author apparently felt no need for such complications. This is no simple oversight, but indicative of his approach to the subject. All too often, we are simply told the sequence of minor political intrigues and major budget moves, in a blow-by-blow sequence, for one belligerent after the other.

For all its command of the minutiae, this book represents a wasted opportunity for comparative history. The book contains no insightful, analytical, systematically comparative discussion of war finances as such, other than a narrative of political maneuvers concerned with financial questions. For the most part, the discussion is strung across countries in a way that clarifies little. We are treated to very brief overviews in the introduction of topics — financial mobilization, taxation, domestic borrowing, foreign borrowing, etc. Then, quasi in subchapters, we are told how individual countries handled these issues. There is no attempt to summarize what the chapters show, nor is there even a brief section that would conclude and argue a case. If there is a guiding theme, I failed to find it. The book simply peters out with some observations on the Balfour mission to the U.S. in 1917, before moving on to suggestions for further reading.

The First Word War produced bouts of nostalgia in many. After the cessation of hostilities, Keynes wrote longingly about a world where goods from all corners of the globe could be ordered quickly, where capital flowed freely and no passports were necessary to cross borders. This book engendered a different kind of nostalgia in this reviewer — for a long-lost world where middle-aged copy editors in sensible shoes corrected spelling mistakes, editors at university presses leaned on authors to write to the best of their ability, a time when authors tried to publish books that were definitive works, not repackaged slices of a bigger volume which also contain prolific quantities of reworked secondary material; a time when charity publishers didn’t go out of their way to boost revenues by academic recycling; and one when publishing a book without a concluding chapter was unthinkable.

Note: 1. William L. Silber, When Washington Shut down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy, Princeton: Princeton University Press, 2007.

Hans-Joachim Voth is ICREA Research Professor in the Economics Department, Universitat Pompeu Fabra, Barcelona, a Research Affiliate at the Center for International Economics (CREI, Barcelona), and a Research Fellow in the CEPR International Macro Research Program. Recent publications include “Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714,” Economic Journal 2007 (with Peter Temin, forthcoming), “Why England? Demographic Factors, Structural Change and Physical Capital Accumulation during the Industrial Revolution,” Journal of Economic Growth 2006 (with Nico Voigtlaender), and “Credit Rationing and Crowding Out during the Industrial Revolution: Evidence from Hoare’s Bank, 1702-1862,” Explorations in Economic History 2005 (with Peter Temin).

Subject(s):Military and War
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

American Treasure and the Price Revolution in Spain, 1501-1650

Author(s):Hamilton, Earl J.
Reviewer(s):Munro, John

Classic Reviews in Economic History

Earl J. Hamilton, American Treasure and the Price Revolution in Spain, 1501-1650. Cambridge, MA: Harvard University Press, 1934. xii + 428 pp.

Review Essay by John Munro, Department of Economics, University of Toronto.

Hamilton and the Price Revolution: A Revindication of His Tarnished Reputation and of a Modified Quantity Theory

Hamilton and the Quantity Theory Explanation of Inflation

As Duke University’s website for the “Earl J. Hamilton Papers on the Economic History of Spain, 1351-1830″ so aptly states: Hamilton “helped to pioneer the field of quantitative economic history during a career that spanned 50 years.”[1] Certainly his most important publication in this field is the 1934 monograph that is the subject of this “classic review.” It provided the first set of concrete, reliable annual data on both the imports of gold and silver bullion from Spain’s American colonies ? principally from what is now Bolivia (Vice Royalty of Peru) and Mexico (New Spain) ? from 1503 to 1660 (when bullion registration and thus the accounts cease); and on prices (including wages) in Spain (Old and New Castile, Andalusia, Valencia), for the 150 year period from 1501 to 1650.[2] His object was to validate the Quantity Theory of Money: in seeking to demonstrate that the influx of American silver was chiefly, if not entirely, responsible for the inflation of much of the Price Revolution era, from ca. 1520 to ca. 1650: but, principally only for the specific period of ca. 1540 to ca. 1600. Many economic historians (myself included, regrettably) have misunderstood Hamilton on this point, concerning both the origins and conclusion of the Price Revolution. Of course the Quantity Theory of Money, even in its more refined modern guise, is no longer a fashionable tool in economic history; and thus only a minority of us today espouse a basically monetary explanation for the European Price Revolution (ca. 1515/20-1650) ? though no such explanation can be purely monetary.[3]

If inflations had been frequent in European economic history, from the twelfth century to the present, the Price Revolution was unique in the persistence and duration of inflation over a period of at least 130 years.[4] Furthermore, if commodity money ? i.e., gold and especially silver specie ? was not the sole monetary factor that explains the Price Revolution that commodity money certainly played a relatively much greater role than it did in the subsequent inflations (of much shorter duration) from the mid-eighteenth century to the present. The role of specie, and specifically Spanish-American silver, in “causing” the Price Revolution was a commonplace in Classical Economics and Hamilton cites Adam Smith’s statement in The Wealth of Nations (p. 191) that “the discovery of abundant mines of America seems to have been the sole cause of this diminution in the value of silver in proportion to that of corn [grain].”[5]

The Comparative Roles of Spanish-American Silver and Coinage Debasements: The Bodin Thesis

According to Hamilton (p. 283) ? and indeed to most authorities to this very day ? the very first scholar to make this quantity-theory link between the influx of American “treasure” and the Price Revolution was the renowned French philosopher Jean Bodin, in his 1568 response to a 1566 treatise by the royal councilor Jean Cherruyt de Malestroit on the explanations for the then quite evident rise in French prices over the previous several decades. Malestroit had contended that coinage debasements were the chief culprit ? as indeed they most certainly had been in the periodic inflations of the fourteenth and fifteenth centuries.[6] Bodin responded by dismissing those arguments and by contending that the growing influx of silver from the Spanish Americas was the primary cause of that inflation.[7]

Hamilton (in chapter 13) was therefore astounded to find, after voluminous and meticulous research in many Spanish treatises, letters, and other relevant documents, that no Spanish writer of the sixteenth century had voiced similar opinions, all evidently ignorant of Bodin’s views. Hamilton, however, had neglected to find (as Marjorie Grice-Hutchinson did, much later) one such Spanish treatise, produced in 1556 ? i.e., twelve years before Bodin ? in which Azpilcueta Navarra, a cleric of the Salamanca School, noted that: “even in Spain, in times when money was scarcer, saleable goods and labor were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver.”[8]

Hamilton also erred, if forgivably so, in two other respects. First, in utilizing what were then, and in many cases still are, imperfect price indexes for many countries ? France, England, Germany, Italy (but not for the Low Countries) ? Hamilton (1934, pp. 205-10) concluded that the rise in the general level of prices during the Price Revolution was the greatest in Spain. In fact, more recent research, based on the Phelps Brown and Hopkins (1956) Composite Price Index for England and the Van der Wee (1975) Composite Price Index (hereafter: CPI) for Brabant, in the southern Low Countries, reveals the opposite to be true. If we adopt a common base of 1501-10 = 100, in comparing the behavior of the price levels in Spain, England, and Brabant, for the period 1511-1650, we find that the Hamilton’s CPI for Spain rose from a quinquennial mean of 98.98 in 1511-15 to one of 343.36 in 1646-50 (for silver-based prices only: a 3.47 fold rise); in southern England, the CPI rose from a quinquennial mean of 103.08 in 1511-15 to one of 697.54 (a 6.77 fold rise); and in Brabant, the CPI rose from a quinquennial mean of 114.80 in 1511-15 to one of 845.07 (a 7.36 fold rise).[9] Both the Phelps Brown and Hopkins and the Van der Wee price indexes are, it must be noted, weighted, with roughly the same weights (80 percent foodstuffs in the former and 74 percent in the latter). Hamilton, while fully admitting that “only index numbers weighted according to the expenditures of the average family accurately measure changes in the cost of living,” was forced to use a simple unweighted arithmetic mean (or equally weighted for all commodities), for he was unable to find any household expenditure budgets or any other reliable guides to produce such a weighted index.[10]

Undoubtedly, however, the principal if not the only explanation for the differences between the three sets of price indexes ? to explain why the Spanish rose the least and the Brabantine the most ? is the one offered by Malestroit: namely, coinage debasements. Spain, unlike almost all other European countries of this era, underwent no debasements of the gold and silver coinages (none from 1497 to 1686),[11] but in 1599 the new Spanish king Philip III (1598-1621) did introduce a purely copper “vellon” coinage, a topic that requires a separate and very necessary analysis. The England of Henry VIII (1509-1547) is famous ? or infamous ? for his “Great Debasement.” He had begun modestly in 1526, by debasing Edward IV’s silver coinage by 11.11% (reducing its weight and silver contents from 0.719 to 0.639 grams of fine silver); but in 1542, he debased the silver by another 23.14% (to 0.491 grams of fine silver). When the Great Debasement had reached its nadir under his successor (Northumberland, regent for Edward VI), in June 1553, the fine silver contents of the penny had been reduced (in both weight and fineness) to just 0.108 grams of fine silver: an overall reduction in the silver content of 83.1% from the 1526 coinage. In November 1560, Elizabeth restored the silver coinage to traditional sterling fineness (92.5% fine silver) and much of the weight: so that the penny now contained 0.480 grams of fine silver (i.e., 75.1% of the silver in the 1526 coinage). The English silver coinage remained untouched until July 1601, when its weight and fine silver contents were reduced by a modest 3.23%. Thereafter the English silver coinage remained untouched until 1817 (when the silver contents were reduced by another 6.06%). Thus for the entire period of the Price Revolution, from ca. 1520 to 1650, the English silver coinage lost 35.5% of its silver contents.[12] In the southern Low Countries (including Brabant), the silver coinage was debased ? in both fineness and weight ? a total of twelve times from 1521 to 1644: from 0.33 grams to 0.17 grams of fine silver in the penny, for an overall loss of 48.5%.[13]

A New Form of Debasement: The New “Fractional” Copper or Vellon Coinages in Spain and Elsewhere

In terms of the general theme of coinage debasement, a very major difference between Spain and these other two countries, from 1599, was the issue of a purely copper coinage called vellon, to which Hamilton devotes two major chapters.[14] Virtually all countries in late medieval and early modern Europe issued a series of petty or low-denomination “fractional” coins ? in various fractions of the penny, chiefly to enable the populace to buy such low-priced commodities as bread and beer (or wine). But in all later-medieval countries the issues of the petty, fractional coinage almost always accounted for a very small proportion of total mint outputs (well under 5% of the aggregate value in Flanders).[15] They were commonly known as monnaie noire (zwart geld in Flemish): i.e., black money, because they contained so much copper, a base metal. Indeed all coins? both silver and gold ? always required at least some copper content as a hardening agent, so that the coins did not suffer too much erosion or breakage in circulation.

The term “debasement” is in fact derived from the fact that the most common mechanism for reducing the silver contents of a coin had been to replace it with more and more copper, a great temptation for so many princes who often derived substantial seigniorage revenues from the increased mint outputs that debasements induced (in both reminting current coin and in attracting bullion from abroad). In this respect, England was an exception ? apart from the era of the Great Debasement (1542-1553) ? for its government virtually always maintained sterling silver fineness (92.5% silver, 7.5% copper), and reduced the silver contents for all denominations equally, by reducing the size and weight of the coin. In continental Europe, the extent of the debasement, whether by fineness or by weight, or by both together, did vary by the denomination (to compensate for the greater labor costs in minting the greater number of lower-valued coins); but the petty “black money” coins ? also known (in French) as billon, linguistically related to vellon, always contained some silver, and always suffered the same or roughly similar proportional reduction of silver as other denominations during debasements until 1543. In that year, the government of the Habsburg Netherlands was the first to break that link: in issuing Europe’s first all-copper coin. France followed suit with an all copper denier (1 d tournois) in 1577; but England did not do so until 1672.[16]

Hamilton gives the erroneous impression that Spain (i.e., Castile) was the first to do so, in issuing an all copper vellon coin in 1599. Previously, Spanish kings (at least from 1471) had issued a largely copper fractional coinage called blancas , with a nominal money-of-account value of 0.5 maraved?, but with a very small amount of silver ? to convince the public that it was indeed precious-metal “money.” The blanca issued in 1471 had a silver fineness of 10 grains or 3.47% (weighing 1.107g).[17] In 1497, that fineness was reduced to 7 grains (2.43% fine); in 1552, to 5.5 grains (1.909% fine); in 1566, to 4 grains (1.39% fine). In 1597, Philip II (1556-1598) had agreed to the issue of a maraved? coin itself, with, however, only 1 grain of silver (0.34% fine), weighing 1.576g.; but whether any were issued is not clear.[18]

Hamilton commends Philip II on his resolute stance on the issue vellon coinages: for, in “believing that it could be maintained at parity only by limitation of its quantity to that required for change and petty transactions, he was exceedingly careful to restrict the supply.”[19] That is a very prescient comment, in almost exactly stating the principle of maintaining a sound system of fractional or petty coinage that Carlo Cipolla (1956) later enunciated,[20] in turn inspiring the recent monograph on this subject by Sargent and Velde (2002).[21] But neither of them gave Hamilton (1934) any credit for this fundamentally important observation, one whose great importance Hamilton deduced from the subsequent, seventeenth-century history of copper coinages in Spain.

Thus, as indicated earlier, in the year following the accession of the aforementioned Philip III, 1599, the government issued Spain’s first purely copper coin (minted at 140 per copper marc of 230.047 g), and from 1602 at 280 per marc: i.e., reducing the weight by half from 1.643 g to 0.8216 g).[22] Certainly some of the ensuing inflation in seventeenth-century Spain, with a widening gap between nominal and silver-based prices, ranging from 4.0 percent in 1620 to 104.2 percent in 1650, has to be explained by such issues of a purely copper coinage. Indeed, in Hamilton’s very pronounced view, the principal cause of inflation in the first half of the seventeenth century lay in such vellon issues ? more of a culprit than the continuing influx of Spanish American silver.[23]

If, however, we use Hamilton’s own CPI based on the actual nominal prices produced with the circulation of the vellon copper coinage, from 1599-1600, we find that this index rose only 4.61 fold from the quinquennial mean of 1511-15 (98.98) to the mean of 1646-50 (457.07) ? again well less than the overall rise of the English and Brabant composite price indexes. Nevertheless, the differences between the silver-based and vellon-based price indexes in Spain for the first half of the seventeenth century are significant. For the former (silver), the CPI rose from a mean of 320.98 in 1596-1600 to one of 343.36 in 1646-50, an overall rise of just 6.97%. For the latter (vellon-based) index, the CPI rose to 457.09 in 1646-50, for a very substantial overall rise of 41.41%. What certainly did now differentiate Spain from the other two, and indeed almost all other European countries in this period, is that in all the latter countries the purely copper petty coinage formed such a very much smaller, indeed minuscule, proportion of the total coined money supply.[24]

The Evidence on Spanish-American Silver Mining and Silver Imports into Seville to 1600

What this discussion of the vellon coinage makes crystal clear is that Hamilton did not attribute all of the inflation of the Price Revolution era to the “abundant mines of the Americas.” Nevertheless many economic historians, after carefully examining Hamilton’s data on prices and imports of Spanish American bullion, noted ? as Hamilton himself clearly demonstrated ? that the Price Revolution had begun as early as the quinquennium 1516-20, long before, decades before, any significant amounts of Spanish American silver had reached Seville. Virtually none was imported in the 1520s; and an annual mean of only 5,090.8 kg in 1531-35.[25] The really substantial imports took place only after by far the two most important silver mines were brought into production: those of Potosi in “Peru” (modern-day Bolivia) in 1545, and Zacatecas, in Mexico, the following year, 1546. From that quinquennium of 1546-50, mean annual silver imports into Seville rose from 18,698.8 kg to 273,704.5 kg in the quinquennium of 1591-95, marking the peak of the silver imports. Between these two quinquennia, the total mined silver outputs of Potosi and Zacatecas (unknown to Hamilton) rose from an annual mean of 64,848.9 kg to one of 219,457.4 kg (indicating that silver was coming from other sources than just these two mines).[26] Even then, their production began to boom only with the application of the mercury amalgamation process (which Hamilton barely mentioned ? only on p. 16), greatly aided by abundant local supplies of mercury ? at Zacatecas, from about 1554-57, and at Potosi, from 1572.[27]

The Alternative Explanation for the Price Revolution: Population Growth

If all this evidence does indeed prove that the influx of Spanish silver was certainly not the initial cause of the European Price Revolution, surely the data should indicate that the subsequent influx of that silver, especially from the 1550s, very likely did play a significant role in fueling an ongoing inflation. But so many of the anti-monetarist historians leapt to an alternative ? and in my view ? false conclusion that population growth was the initial and the prime-mover in “causing” the Price Revolution.[28] My objections to this demographic-oriented thesis are two-fold.

In the first place, the now available evidence on demographic recovery and growth in England and the southern Low Countries (Brabant) does not at all correspond to the statistical evidence on inflation during the early phase of the Price Revolution ? in the early sixteenth century. For England the best estimate of population in the early 1520s, when the Price Revolution was already underway, is 2.25 or 2.30 million, about half of the most conservative estimate for England’s population in 1300: about 4.5 million ? an estimate still rejected by the majority of medieval economic historians, who prefer the more traditional estimate of 6.0 million.[29] If England in the early 1520s was obviously still very unpopulated, compared to its late-medieval peak, and if its population had just begun to recover, how could any such renewed growth, from such a very low level, have so immediately sparked inflation: how could it have caused a rise in the CPI (Phelps Brown and Hopkins) from a quinquennial mean of 96.70 (1451-75 = 100) in 1496-1500 to one of 146.05 in 1521-25?

We find a similar demographic situation in Brabant. From the 1437 census to the 1496 census, the number of registered households fell from 92,738 to just 75,343: a fall of 18.76 percent.[30] If we further assume that a fall in population also involved a decline in the average family or household size, the demographic decline would have been much greater than these data indicate. According to Herman Van der Wee (1963), Brabant, like England, did not commence its demographic recovery until the early sixteenth century; and his estimated average annual rate of population growth from 1496 to 1526 was 0.96%.[31] For this same period, Van der Wee’s CPI for Brabant shows a rise from 115.35 in 1496-1500 (again 1451-75 = 100) to one of 179.94 in 1521-25. How can any such renewed population growth explain that inflation?

In the second place, the arguments and analyses supplied involve faulty economics: an erroneous transfer of micro-economic analysis to macro-economics. One can well argue, for early-modern western Europe, that the effect of sustained population growth for the agrarian sector, with necessary additions of “marginal lands” that were generally inferior in fertility and more distant from markets, and without a widespread diffusion of technological changes to offset diminishing returns in this sector, inevitably led to sharply rising marginal costs. That in turn resulted in price increases for grains and other agricultural commodities (including timber) that were greater than those for non-agrarian and especially industrial commodities, certainly in both England and the southern Low Countries during the course of the sixteenth and first half of the seventeenth century.[32] But that basically micro-economic model concerning individual, relative commodity prices is, however, very different from a macro-economic model contending that population growth by itself led to an overall increase in the level of prices ? i.e., in the CPI.

We should remember that, almost 35 years ago, Donald McCloskey (1972), in a review of Ramsey (1971), responded to these demographic-oriented explanations of the Price Revolution by contending that, if both monetary variables (M and V) were held constant, then population growth (if translated into an increased T or y, in MV = Py) should have led to a fall in P, in the CPI. Nevertheless, there is some validity to the argument that population growth and changes in the demographic structures may have influenced the role of another monetary factor in the Price Revolution: namely changes in the income velocity of money, to be discussed as a separate topic later in this review.

Hamilton’s Explanations for the Origins of the Price Revolution before the Influx of Spanish Treasure: The Roles of Gold, South German Silver Mining, and Changes in Credit

How then did Hamilton ? and how do we ? explain the origins of the Spanish and indeed European-wide Price Revolution, in the early sixteenth century, i.e., for the period well before any significant influxes of American silver, and also before there was any significant population growth (at least in England and the Low Countries). Was Hamilton that ignorant of the implications of his own data? Certainly not. On p. 299, in his chapter XIII entitled “Why Prices Rose,” he stated that: “the gold imports from the Antilles significantly influenced Andalusian and New Castilian prices even in the first two decades of the sixteenth century,” without, however, elaborating that point any further.[33] More important are his observations on p. 301, where he explicitly moderates his emphasis on the role of Spanish-American treasure imports, in stating that: “Only at the beginning of the sixteenth century, when, as has been shown, colonial demand, credit expansion, and the increased output of German silver made themselves felt, and at the end of the century, when a devastating epidemic, and an over issue of vellon coinage took place, did other factors play important roles in the price upheaval [i.e., the Price Revolution].” Indeed, in his own view, the paramount role of the influxes of Spanish-American bullion apply to only, at most, 65 years of the 130 years of the Price Revolution era, i.e., to just half the era ? from ca. 1535 to 1600, though the evidence for that role seems to be more clear for just the half-century 1550-1600.

It is most regrettable that Hamilton himself failed to elaborate the role of any these factors, principally monetary, in producing inflation in early-sixteenth century Spain. Had he done so, surely he would have been spared the subsequent and really unfair criticism that he was offering a simplistic monocausal explanation of the Price Revolution, and one in the form of a very crude Quantity Theory of Money. The most important of “initial causes” that Hamilton lists was surely the question of “German silver,” or more specifically, the South-German and Central European silver-copper mining boom from about the 1460s to the 1540s. Where he derived his information is not clear, but from other footnotes it was presumably from the publications of two much earlier German economic historians, Adolf Soetbeer and Georg Wiebe. The latter was, in fact, the first to write a major monograph on the Price Revolution (Geschichte der Preisrevolution des XVI. und XVII. Jahrhunderts), and he seems to have coined (so to speak) the term.[34] The former, though a pioneer in trying to quantity both European and world supplies of precious metals, providing a significant influence on Wiebe, produced seriously defective data on German mining outputs in the later fifteenth and sixteenth centuries, greatly underestimating total outputs, as John Nef demonstrated in a seminal article published in 1941, subsequently elaborated in Nef (1952).[35] In Nef’s view, this South German mining boom may have quintupled Europe’s supply of silver by the 1530s, and thus before any major influx of Spanish-American silver.[36]

Since then a number of economic historians, me included, have published their research on this South German-Central European silver-copper mining boom.[37] These mountainous regions contained immensely rich ores bearing these two metals, which, however were largely inaccessible for two reasons: first, there was no known method of separating the two metals in smelting the argentiferous-cupric ores; and second, the ever-present danger of flooding in the regions containing these ore bodies made mined extraction very difficult and costly. In my view, the very serious deflation that Europe experienced during the second of the so-called “bullion famines,” from the 1440s to the 1460s, provided the profit incentive for the necessary technological changes to resolve these two problems. Consider that since virtually all of Europe’s money-of-account pricing system was based on, tied to, the silver coinage, deflation (low prices) ipso facto meant a corresponding rise in the real value of silver, gram per gram (just as inflation means a fall in the real value of silver, per gram). The solutions lay in innovations in both mechanical engineering and chemical engineering. The first was the development of water-powered or horse-powered piston vacuum pumps (along with slanted drainage adits in the mountain sides) to resolve the water-flooding problem. The second was the so-called Saigerh?tten process by which lead was added to the ore-bodies in smelting (also using hydraulic machinery and the new blast furnaces) ? during the smelting process the lead combined with the silver to precipitate the copper, and the silver-lead amalgam was then resmelted to remove the lead.

Both processes were certainly in operation by the 1460s; and by my very conservative estimates, certainly incomplete, the combined outputs of mines in Saxony, Thuringia, Bohemia, Slovakia, Hungary, and the Tyrol rose from a quinquennial mean of 12,973.4 kg in 1471-75 (when adequate output data can first be utilized) to a peak production in 1536-40 (thus later than Nef’s estimates), with a quinquennial mean output of 55,703.8 kg ? a 4.29-fold increase overall (i.e.. 329.36% increase) ? close enough to Nef’s five-fold estimate, given the likely lacunae in the data.[38] Consider that this output, for the late 1530s, was not exceeded by Spanish-American silver influxes until a quarter of a century later, in 1561-65, when, thanks to the recently applied mercury amalgamation process, a quinquennial mean import of 83,373.92 kg reached Seville (compared to a mean import of just 27,145.03 in 1556-60).[39]

But where did all this Central European silver go? Historically, from the mid-fourteenth century, most of the German silver-mining outputs had been sent to Venice, whose merchants re-exported most of that silver to the Levant, in exchange for Syrian cotton and Asian spices and other luxury goods. Two separate factors helped to reverse the direction of that flow, down the Rhine, to Antwerp and the Brabant Fairs. The first was Burgundian monetary policy: debasements in 1466-67, which, besides attracting silver in itself, reversed a half-century long pro-gold mint policy to a pro-silver policy, offering a relative value for silver (in gold and in goods) higher than anywhere else in Europe.[40] Thus the combined Flemish and Brabantine mint outputs, measured in kilograms of fine silver rose from nil (0) in 1461-65 to 9,341.50 kg in 1476-80 ? though much of that was recycled silver coin and bullion in quite severe debasements. But in 1496-1500, after the debasements had ceased, the mean annual output in that quinquennium was 4,872.96 kg; and in 1536-40, at the peak of the mining boom (and, again, before any substantial Spanish-American imports) the mean output was 5,364.99 kg.[41]

The second factor in altering the silver flows was increasingly severe disruptions in Venice’s Levant trade with the now major Ottoman conquests in the Balkans and the eastern Mediterranean, from the 1460s (and especially from the mid-1480s) culminating (if not ending) with the Turkish conquest of the Mamluk Levant (i.e., Egypt, Palestine, Syria) itself in 1517 (along with conquests in Arabia and the western Indian Ocean). While we have no data on silver flows, we do have data for the joint-product of the Central European mining boom ? copper, a very important export as well to the Levant. In 1491-95, 32.13% of the Central European mined copper outputs went to Venice, but only 5.22% went to Antwerp; by 1511-15, the situation was almost totally reversed: only 3.64% of the mined copper went to Venice, while 58.36% was sent to Antwerp. May we conjecture that there was a related shift in the flows of silver? By the 1530s, the copper flows to Venice, which now had more peaceful relations with the Turks, had risen to 11.07%, but 53.88% of the copper was still being sent to the Antwerp Fairs.[42] Of course, by this time the Portuguese, having made Antwerp the European staple for their recently acquired Indian Ocean spice trade (1501), were shipping significant (if unmeasurable) quantities of both copper and silver to the East Indies. Then in 1549, the Portuguese moved their staple to Seville, to gain access to the now growing imports of Spanish-American silver.

The Early Sixteenth-century “Financial Revolutions”: In Private and Public Credit

The other monetary factor that Hamilton mentioned ? but never discussed ? to help explain the rise of prices in early sixteenth-century Spain was the role of credit. Indeed, as Herman Van der Wee (1963, 1967, 1977, 2000) and others have now demonstrated, the Spanish Habsburg Netherlands experienced a veritable financial revolution involving both negotiability and organized markets for public debt instruments. As for the first, the lack of legal and institutional mechanisms to make medieval credit instruments fully negotiable had hindered their ability to counteract frequent deflationary forces; and at best, such credit instruments (such as the bill of exchange) could act only to increase ? or decrease ? the income velocity of money.[43] The first of two major institutional barriers was the refusal of courts to recognize the legal rights of the “bearer” to collect the full proceeds of a commercial bill on its stipulated redemption date: i.e., the financial and legally enforceable rights of those who had purchased or otherwise licitly acquired a commercial bill from the designated payee before that redemption date. Indeed, most medieval courts were reluctant to recognize the validity of any “holograph” bill: those that not been officially notarized and registered with civic authorities. The second barrier was the Church’s usury doctrine: for, any sale and transfer of a credit instrument to a third party before the stipulated redemption date would obviously have had to be at some rate of discount ? and that would have revealed an implicit interest payment in the transaction. Thus this financial revolution, in the realm of private credit, in the Low Countries involved the role of urban law courts (law-merchant courts), beginning with Antwerp in 1507, then most of other Netherlander towns, in guaranteeing such rights of third parties to whom these bills were sold or transferred. Finally, in the years 1539-1543, the Estates General of the Habsburg Netherlands firmly established, with national legislation, all of the legal requirements for full-fledged negotiability (as opposed to mere transferability) of all credit instruments: to protect the rights of third parties in transferable bills, so that bills obligatory and bills of exchange could circulate from hand to hand, amongst merchants, in commercial and financial transactions. One of the important acts of the Estates-General, in 1543 ? possibly reflecting the growing influence of Calvinism ? boldly rejected the long-held usury doctrine by legalizing the payment of interest, up to a maximum of 12% (so that anything above that was now “usury”).[44] England’s Protestant Parliament, under Henry VIII, followed suit two years later, in 1545, though with a legal maximum interest of 10%.[45] That provision thereby permitted the openly public discounting of commercial credit instruments, though this financial innovation was slow to spread, until accompanied, by the end of the sixteenth century, with the much more common device of written endorsements.[46]

The other major component of the early-sixteenth century “financial revolution” lay in public finance, principally in the Spanish Habsburg Netherlands, France, much of Imperial Germany, and Spain itself ? in the now growing shift from interest-bearing government loans to the sale of annuities, generally known as rentes or renten or (in Spain) juros, especially after several fifteenth-century papal bulls had firmly established, once and for all, that they were not loans (a mutuum, in both Roman and canon law), and thus not subject to the usury ban.[47] Those who bought such rentes or annuities from local, territorial, or national governments purchased an annual stream of income, either for a lifetime, or in perpetuity; and the purchaser could reclaim his capital only by finding some third party to purchase from him the rente and the attached annuity income. That, therefore, also required both the full legal and institutional establishment of negotiability, with now organized financial markets.

In 1531, Antwerp, now indisputably the commercial and financial capital of at least northern Europe, provided such an institution with the establishment of its financial exchange, commonly known as the beurse (the “purse” ? copied by Amsterdam in 1608, and London in 1695, in its Stock Exchange). Thanks to the role of the South German merchant-bankers ? the Fuggers, Welsers, H?chstetters, Herwarts, Imhofs, and Tuchers ? the Antwerp beurse played a major role in the international marketing of such government securities, during the rest of the sixteenth century, in particular the Spanish juros, whose issue expanded from 3.586 million ducats (escudos of 375 maraved?s) in 1516 to 80.040 million ducats in 1598, at the death of Philip II ? a 22.4-fold increase. Most these perpetual and fully negotiable juros were held abroad.[48] According to Herman Van der Wee (1977), this sixteenth-century “age of the Fuggers and [then] of the Genoese [merchant-bankers, who replaced the Germans] was one of spectacular growth in public finances.”[49] Finally, it is important to note the relationship between changes in money stocks and issues of credit. For, as Frank Spooner (1972) observed (and documented in his study of European money and prices in the sixteenth century), even anticipated arrivals of Spanish treasure fleets would induce these South German and Genoese merchant-bankers to expand credit issues by some multiples of the perceived bullion values.[50]

The Debate about Changes in the Income Velocity of Money (or Cambridge “k”)

The combined effect of this “revolution” in both private and public finance was to increase both the effective supply of money ? in so far as these negotiable credit instruments circulated widely, as though they were paper money ? and also, and even more so, the income velocity of money. This latter concept brings up two very important issues, one involving Hamilton’s book itself, in particular his interpretation of the causes of the Price Revolution. Most postwar (World War II) economic historians, myself included (up to now, in writing this review), have unfairly regarded Hamilton’s thesis as a very crude, simplistic version of the Quantity Theory of Money. That was based on a careless reading (mea culpa!) of pp. 301-03 in his Chapter XIII on “Why Prices Rose,” wherein he stated, first, in explaining the purpose his Chart 20,[51] that:

The extremely close correlation between the increase in the volume of [Spanish-American] treasure imports and the advance ofcommodity prices throughout the sixteenth century, particularly from 1535 on, demonstrates beyond question that the “abundant mines of America” [i.e., Adam Smith’s description] were the principal cause of the Price Revolution in Spain. We should note, first, that the “close correlation” is only a visual image from the graph, for he never computed any mathematical correlations (few did in that prewar era). Second, Ingrid Hammarstr?m was perfectly correct in noting that Hamilton’s correlation between the annual values of treasure imports (gold and silver in pesos of 450 marevedis) and the composite price index is not in accordance with the quantity theory, which seeks to establish a relationship between aggregates: i.e., the total accumulated stock of money (M) and the price level (P).[52] But that would have been an impossible task for Hamilton. For, if he had added up the annual increments from bullion exports in order to arrive at some estimate of accumulated bullion stocks, he would have had to deduct from that estimate the annual outflows of bullion, for which there are absolutely no data. Furthermore, estimates of net (remaining) bullion stocks are not the same as estimates of the coined money stock; and the coined money stock does not represent the total supply of money.[53]

Third, concerning Hamilton’s views on the Quantity Theory itself, his important monetary qualifications concerning the early sixteenth century and first half of the seventeenth century have already been noted. We should now note his further and very important qualification (p. 301), as follows: “The reader should bear in mind that a graphic verification of that crude form of the quantity theory of money which takes no account of the velocity of circulation is not the purpose of Chart 20.” He did not, however, discuss this issue any further; and it is notable that his bibliography does not list Irving Fisher’s classic 1911 monograph, which had thoroughly analyzed his own concepts of the Transactions Velocity of Money.[54]

Most economics students are familiar with Fisher’s Equation of Exchange, to explain the Quantity Theory of Money in a much better fashion than nineteenth-century Classical Economists had done: namely, MV = PT. If many continue to debate the definition of M, as high-powered money, and of P ? i.e., on how to construct a valid weighted CPI ? the most troublesome aspect is the completely amorphous and unmeasurable “T” ? as the aggregate volume of total transactions in the economy in a given year. Many have replaced T with Q: the total volume of goods and services produced each year. But the best substitute for T is “y” (lower case Y: a version attributed to Milton Friedman) ? i.e., a deflated measure of Keynesian Y, as the Net National Product = Net National Income (by definition).[55]

The variable “V” thus becomes the income velocity of money (rather than Fisher’s Transactions Velocity) ? of the unit of money in the creation of the net national income in the course of a year. It is obviously derived mathematically by this equation: V = Py/M (and Py of course equals the current nominal value of NNI). Almost entirely eschewed by students (my students, at least), but much preferred by most economists, is the Cambridge Cash Balances equation: whose modernized form would similarly be M = kPy, in which Cambridge “k” represents that share of the value of Net National Income that the public chooses to hold in real cash balances, i.e., in high-powered money (a straight tautology, as is the Fisher Equation). We should be reminded that both V and k are mathematically linked reciprocals in that: V = 1/k and thus k = 1/V. Keynesian economists would logically (and I think, rightly) contend that ceteris paribus an increase in the supply of money should lead to a reduction in V and thus to an increase in Cambridge “k.” If V represents the extent to which society collectively seeks to economize on the use of money, the necessity to do so would diminish if the money supply rises (indeed, to create an “excess”). But this result and concept is all the more clear in the Cambridge Cash Balances approach. For the opportunity cost of “k” ? of holding cash balances ? is to forgo the potential income from its alternative use, i.e., by investing those funds. If we assume that the Liquidity Preference Schedule is (in the short run) fixed ? in terms of the transactions, precautionary, and speculative motives for holding money ? then a rightward shift of the Money Supply schedule along the fixed or stationary LP schedule should have led to a fall in the real rate of interest, and thus in the opportunity cost of holding cash balances. And if that were so, then “k” should rise (exactly reflecting the fall in V).

What makes this theory so interesting for the interpretation of the causes of at least the subsequent inflations of the Price Revolution ? say from the 1550s or 1560s ? is that several very prominent economic historians have argued that an equally or even more powerful force for inflation was a continuing rise in V, the income velocity of money (i.e., and thus to a fall in “k”): in particular, Harry Miskimin (1975), Jack Goldstone (1984, 1991a, 1991b), and Peter Lindert (1985). Furthermore, all three have related this role of “V” to structural changes in the economy brought about by population growth. Their theories are too complex to be discussed here, but the most intriguing, in summary, is Goldstone’s thesis. He contended, in referring to sixteenth-century England, that its population growth was accompanied by a highly disproportionate growth in urbanization, a rapid and extensive development of commercialized agriculture, urban markets, and an explosive growth in the use of credit instruments. In such a situation, with a rapid growth “in occupationally specialized linked networks, the potential velocity of circulation of coins grows as the square of the size of the network.” Lindert’s somewhat simpler view is that demographic growth was also accompanied by a two-fold set of changes: (1) changes in relative prices ? in the aforementioned steep rise in agricultural prices, rising not only above industrial prices, but above nominal wages, thus creating severe household budget constraints; and (2) in pyramidal age structures, and thus with changes in dependency ratios (between adult producers and dependent children) that necessitated both dishoarding and a rapid reduction in Cambridge “k” ( = rise in V).

Those arguments and the apparent contradiction with traditional Keynesian theory on the relationships between M and V (or Cambridge “k”) intrigued and inspired Nicholas Mayhew (1995), a renowned British medieval and early-modern monetary historian, to investigate these propositions over a much longer period of time: from 1300 to 1700.[56] He found that in all periods of monetary expansion during these four centuries, the Keynesian interpretation of changes in V or “k” held true, with one singular anomalous exception: the sixteenth and early seventeenth-century Price Revolution. That anomaly may (or may not) be explained by the various arguments set forth by Miskimin, Goldstone, and Lindert.

The Debates about the Spanish and European Distributions of Spanish American “Treasure” and the Monetary Approach to the Balance of Payments Theorem

We may now return to Hamilton’s own considerations about the complex relationships between the influx of Spanish-American silver and its distribution in terms of various factors influencing (at least implicitly) the “V” and “y” variables, in turn influencing changes in P (the CPI). He contends first (pp. 301-02) that “the increase in the world stock of precious metals during the sixteenth century was probably more than twice ? possibly as much as four times ? as great as the advance of prices” in Spain. He speculates, first, that some proportion of this influx was hoarded or converted, not just by the Church, in ecclesiastical artifacts, but also by the Spanish nobility (thus leading to a rise in “k”), while a significantly increasing proportion was exported in trade with Asia, though mentioning only the role of the English East India Company (from 1600), surprisingly ignoring the even more prominent contemporary role of the Dutch, and the much earlier role of the Portuguese (from 1501, though the latter used principally South German silver). We now estimate that of the total value of European purchases made in Asia in late-medieval and early modern eras, about 65-70 percent were paid for in bullion and thus only 25-30 percent from the sale of European merchandise in Asia.[57] Finally, Hamilton also fairly speculated that “the enhanced production and exchange of goods which accompanied the growth of population, the substitution of monetary payments for produce rents [in kind] … and the shift from wages wholly or partially in kind to monetary remunerations for services, and the decrease of barter tended to counteract the rapid augmentation of gold and silver money:” i.e., a combination of interacting factors that affected both Cambridge “k” and Friedman’s “y.” Clearly Hamilton was no simplistic proponent of a crude Quantity Theory of Money.

From my own studies of monetary and price history over the past four decades, I offer these observations, in terms of the modernized version of Fisher’s Equation of Exchange, for the history of European prices from ca. 1100 to 1914. An increase in M virtually always resulted in some degree of inflation, but one that was usually offset by some reduction in V (increase in ” k”) and by some increase in y, especially if and when lower interest rates promoted increased investment.[58] Thus the inflationary consequences of increasing the money supply are historically indeterminate, though usually the price rise was, for these reasons, less than proportional to the increase in the monetary stock, except when excessively severe debasements created a veritable “flight from coinage,” when coined money was exchanged for durable goods (i.e., another instance in which an increase in M was accompanied by an increase in V).[59]

One of the major issues related to this debate about the Price Revolution is the extent to which the Spanish-American silver that flowed into Spain soon flowed out to other parts of Europe (i.e., apart from the aggregate European bullion exports to Asia and Russia). There is little mystery in explaining how that outflow took place. Spain, under both Charles V (I of Spain) and Philip II, ruled a vast, far-flung empire: including not only the American colonies and the Philippines, but also the entire Low Countries, and major parts of Germany and Italy, and then Portugal and its colonies from 1580 to 1640. Maintaining and defending such a vast empire inevitably led to war, almost continuous war, with Spain’s neighbors, especially France. Then, in 1568, most of the Low Countries (Habsburg Netherlands) revolted against Spanish rule, a revolt that (despite a truce from 1609 to 1621) merged into the Thirty Years War (1618-48), finally resolved by the Treaty of Westphalia. As Hamilton himself suggests (but without offering any corroborative evidence ? nor can I), vast quantities of silver (and gold) thus undoubtedly flowed from Spain into the various military theaters, in payment for wages, munitions, supplies, and diplomacy, while the German and then Genoese bankers presumably received considerable quantities of bullion (or goods so purchased) in repayment of loans.[60] Other factors that Hamilton suggested were: adverse trade balances, or simply expanding imports, especially from Italy and the Low Countries (with an increased marginal propensity to import); and operations of divergent bimetallic mint ratios. What role piracy and smuggling actually played in this international diffusion of precious metals cannot be ascertained.[61]

But Outhwaite (1969, 1982), in analyzing the monetary factors that might explain the Price Revolution in Tudor and early Stuart England, asserted (again with no evidence) that: “Spanish silver … appears to have played little or no part before 1630 and a very limited one thereafter.”[62] That statement, however, is simply untrue. For, as Challis (1975) has demonstrated, four of the five extant “Melting Books,” tabulating the sources of bullion for London’s Tower Mint, between 1561 and 1599, indicate that Spanish silver accounted for proportions of total bullion coined that ranged from a low of 75.0% (1561-62) to a high of 86.3% (1584-85). The “melting books” also indicate that almost all of the remaining foreign silver bullion brought to the Tower Mint came from the Spanish Habsburg Low Counties (the southern Netherlands, which the Spanish had quickly reconquered).[63] Furthermore, if we ignore the mint outputs during the Great Debasement (1542-1553) and during the Elizabethan Recoinage (1561-63), we find that the quantity of silver bullion coined in the English mints rose from a quinquennial mean of 1,089.012 kg in 1511-15 (at the onset of the Price Revolution) to a peak of 18,653.36 kg in 1591-95, after almost four decades of stable money: a 17.13 fold increase. Over this same period, the proportion of the total value of the aggregate mint outputs accounted for by silver rose from 12.32% to 90.35% ? and (apart from the Great Debasement era) without any significant change in the official bimetallic ratio.[64]

Those economists who favor the Monetary Approach to the Balance of Payments Theorem in explaining inflation as an international phenomenon would contend that we do not have to explain any specific bullion flows between individual countries, and certainly not in terms of a Hume-Turgot price-specie flow mechanism.[65] In essence, this theorem states that world bullion stocks (up to 1914, with a wholesale shift to fiat money) determine the overall world price level; and that individual countries, through international arbitrage and the “law of one price,” undergo the necessary adjustments in establishing a commensurate domestic price level and the requisite money supply (in part determined by changes in private and public credit) ? not just through international trade in goods and services, but especially in capital flows (exchanging assets for money) at existing exchange rates, without specifically related bullion flows.

Nevertheless, in the specific case of sixteenth century England, we are naturally led to ask: where did all this silver come from; and why did England shift from a gold-based to a silver-based economy during this century? More specifically, if Nicholas Mayhew (1995) is reasonably close in his estimates of England’s Y = Gross National Income (Table I, p. 244), from 1300 to 1700, as measured in the silver-based sterling money-of-account, that it rose from about ?3.5 million pounds sterling in 1470 (with a population of 2.3 million) to ?40.88 million pound sterling in 1670 (a population of 5.0 million) ? an 11.68-fold increase ? then we again may ask this fundamental question. Where did all these extra pounds sterling come from in maintaining that latter level of national income? Did they come from an increase in the stock of silver coinages, and/or from a vast increase in the income velocity of money? Indeed that monetary shift from gold to silver may have had some influence on the presumed increase in the income velocity of money since the lower-valued silver coins had a far greater turnover in circulation than did the very high-valued gold coins.[66]

Statistical Measurements of the Impact of Increased Silver Supplies: Bimetallic Ratios and Inflation

There are two other statistical measures to indicate the economic impact within Europe itself of the influx of South German and then Spanish American silver during the Price Revolution era, i.e., until the 1650s. The first is the bimetallic ratio. In England, despite the previously cited evidence on its relative stability in the sixteenth-century, by 1660, the official mint ratio had risen to 14.485:1 (from the low of 10.333:1 in 1464).[67] In Spain, the official bimetallic ratio had risen from 10.11:1 in 1497 to 15.45:1 in 1650; and in Amsterdam, the gold:silver mint ratio had risen from 11.21 in 1600 to 13.93:1 in 1640 to 14.56:1 in 1650.[68] These ratios indicate that silver had become relatively that much cheaper than gold from the early sixteenth to mid-seventeenth century; and also that, despite very significant European exports of silver to the Levant and to South Asia and Indonesia in the seventeenth century, Europe still remained awash with silver.[69] At the same time, it is also a valid conjecture that the greatest impact of the influx of Spanish American silver (and gold) in this era was to permit a very great expansion in European trade with Asia, indeed inaugurating a new era of globalization.

The second important indicator of the change in the relative value of silver is the rise in the price level: i.e., of inflation itself. As noted earlier, the English CPI experienced a 6.77-fold from 1511-15 to 1646-50, at the very peak of the Price Revolution; and the Brabant CPI experienced a 7.36-fold rise over the very same period (expressed in annual means per quinquennium).[70] Since these price indexes are expressed in terms of silver-based moneys-of-account, that necessarily meant that silver, gram per gram, had become that much cheaper in relation to tradable goods (as represented in the CPI) ? though, as noted earlier, the variations in the rates of change in these CPI are partly explained by differences in their respective coinage debasements.

A Comparison of the Data on Spanish-American Mining Outputs and Bullion Imports (into Seville)

Finally, how accurate are Hamilton’s data on the Spanish-American bullion imports? We can best gauge that accuracy by comparing the aggregate amount of fine silver bullion entering Seville with the now known data on the Spanish-American silver-mining outputs, for the years for which we have data for both of these variables: from 1551 to 1660.[71] One will recall that the Potosi mines were opened only in 1545; and those of Zacatecas in 1546; and recall, furthermore, that production at both began to boom only with the subsequent application of the mercury amalgamation process (not fully applied until the 1570s). The comparative results are surprisingly close. In that 110-year period permitting this comparison, total imports of fine silver, according to Hamilton, amounted to 16,886,815.3 kg; and the combined outputs from the Potosi and Zacatecas mines was very close to that figure: 17,057,938.2 kg.[72] It is also worth noting that the outputs from the Spanish-American mines and the silver imports both peak in the same quinquennium: 1591-95, when the annual mean mined silver output was 219,457.4 kg and the annual mean silver import was 272,704.5 kg. By 1626-30, the mean annual mined output had fallen 18.7% to 178,490.0 kg and the mean annual import had fallen even further, by 24.7%, to 206,045.26 kg (both sets of data indicate that the silver imports for these years were not based just on these two mines). Thereafter, the fall in imports is much more precipitous: declining by 86.4%, to an annual mean import of just 27,965.33 kg in the final quinquennium of recorded import data, in 1656-60. The combined mined output of the Potosi and Zacatecas mines also fell during this very same period, but not by as much: declining by 27.1%, with a mean output of 130,084.23 kg in 1656-60: i.e., a mean output that was 4.65 times more than the mean silver imports into Seville in that quinquennium.

The decline in the Spanish-American mining outputs of silver can be largely attributed to the expected rate of diminishing returns in a natural-resource industry without further technological changes. The differences between the two sets of data, on output and imports, were actually suggested by Hamilton himself (even though he lacked any knowledge of the Spanish-American production figures for this era): a higher proportion of the silver was being retained in the Spanish Americas for colonial economic development, and also for export (from Acapulco, in Mexico) across the Pacific to the Philippines and China, principally for the silk trades. Indeed, as TePaske (1983) subsequently demonstrated, the share of pubic revenues of the Viceroyalty of Peru retained for domestic development rose from 40.8% in 1591-1600 to a peak of 98.9% in 1681-90. We have no comparable statistics for the much less wealthy Mexico (in New Spain); but TePaske also supplies data on its silver exports to the Philippines. Those exports rose from an annual mean of 1,191.2 kg in 1591-1600 (4.8% of Mexican total silver outputs) to a peak of 9,388.2 kg in 1631-40 (29.6% of the total silver outputs). Though declining somewhat thereafter, such exports then recovered to 4,990.0 kg in 1681-90 (29.0% of the total silver outputs).[73]

The Morineau Challenge to Hamilton’s Data: Speculations on Post-1660 Bullion Imports and Deflation

Hamilton’s research on Spanish-American bullion imports into Seville ceased with the year, 1660, because that latter date marked “the termination of compulsory registration of treasure” at Seville.[74] Subsequently, the French economic historian Michel Morineau (1968, 1985) sought to remedy the post-1660 lacuna of bullion import data by extrapolating statistics from Dutch gazettes and newspapers. In doing so, contended that Spanish-American bullion imports strongly revived after the 1660s, a view that most historians have uncritically accepted.[75] But his two publications on this issue present a number of serious problems. First, there is the problem of comparing Spanish apples (actual data on bullion imports) with Dutch oranges (newspaper reports, many being speculations). Second, the statistics in the two publications differ strongly from each other. Third, except for one difficult-to-decipher semi-logarithmic graph, they do not provide specific data that allow us to distinguish clearly between gold and silver imports, either by weight or value.[76] Fourth, the statistics on bullion imports are vastly larger in kilograms of metal than those recorded for Spanish American mining outputs, and also differ radically in the trends recorded for the Spanish-American mining output data.[77]

Nevertheless, these Spanish American mining output data do indicate some considerable recovery in production in the later seventeenth century. Thus, while the output of the Potosi mines continued to fall in the later seventeenth century (to a mean of 56,884.9 kg in 1696-1700, and to one of just 30,990.86 kg in 1711-15), those at Zacatecas recovered from the low of 26,373.4 kg in 1656-60 to more than double, reaching an unprecedented peak of 64,139.87 kg in 1676-80. Then, shortly after, a new and very important Mexican silver mine was developed at Sombrerete, producing an annual mean output of 30,492.83 kg in 1681-85. Thus the aggregate (known) Spanish-American mining output rose from a low 101,533.96 kg in 1661-65 (mean annual output) to a high of 143,212.93 kg in 1686-90: a 1.41-fold increase.[78]

Whatever are the actual figures for the imports of Spanish-American silver between the 1660s and the 1690s, we are in fact better informed about the export of precious metals, primarily silver, by the two East India Companies: in those four decades, the two companies exported a total of 1,3345,342.0 kg of fine silver to Asia.[79] An indication of some relative West European scarcity of coined silver money, from the 1660s to the 1690s, can be found in the Consumer Price Indexes for both England and Brabant. In England, the quinquennial mean CPI (1451-75=100) fell from the Price Revolution peak of 734.39 in 1646-50 to a low of 547.58 in 1686-90: a fairly dramatic fall of 25.43%. By that time, however, the London Goldsmiths’ development of deposit and transfer banking, with fully negotiable promissory notes and rudimentary paper bank notes, was providing a financial remedy for any such monetary scarcity ? as did the subsequent vast imports of gold from Brazil.[80] Similarly, in Brabant, the quinquennial mean CPI (1451-75=100) fell from the aforementioned peak of 1015.138 in 1646-50 to a low of 652.217 ? an even greater fall of 35.8% ? similarly in 1686-90. In Spain (New Castile), the deflation commenced somewhat later, according to Hamilton (1947), who, for this period, used a CPI whose base is 1671-80=100. From a quinquennial mean peak of 103.5 in 1676-80 (perhaps reflecting the ongoing vellon inflation), the CPI fell to a low 59.0 in 1686-90 (an even more drastic fall of 43.0%): i.e., the very same period for deflationary nadir experienced in both England and Brabant.

These data are presented in Hamilton’s third major monograph (1947), which appeared thirteen years later, shortly after World War II, covering the period 1651-1800: in Table 5, p. 119. In between these two, Hamilton (1936), published his second monograph: covering the period 1351-1500 (but excluding Castile) One might thus be encouraged to believe that, thanks to Hamilton, we should possess a continuous “Spanish” price index from 1351-1800. Alas, that is not the case, for Hamilton kept shifting his price-index base for each half century over this period, without providing any overlapping price indexes or even similar sets of prices (in the maraved?s money-of-account) to permit (without exhaustive labor) the compilation of such a continuous price index.[81] That, perhaps, is my most serious criticism of Hamilton’s scholarship in these three volumes (though not of his journal articles), even if he has provided an enormous wealth of price data for a large number of commodities over these four and one-half centuries (and also voluminous wage data).[82]

Supplementary Criticisms of Hamilton’s Data on Gold and Silver Imports

One of the criticisms leveled against Morineau’s monetary data ? that they do not allow us to distinguish between the influxes of gold and silver ? can also be made, in part, against Hamilton’s 1934 monograph. The actual registrations of Spanish American bullion imports into Seville, from 1503 to 1660, were by the aggregate value of both gold and silver, in money-of-account pesos that were worth 450 marevedis, each of which represented 42.29 grams pure silver (for the entire period concerned, in which, as noted earlier, no silver debasements took place). Those amounts, for both public and private bullion imports, are recorded in Table 1 (p. 34), in quinquennial means. His Table 2 (p. 40) provides his estimates ? or speculations ? of the percentage distribution of gold and silver imports, by decade, but by weight alone: indicating that from the 1530s to the 1550s, about 86% was in silver, and thereafter, to 1660, from 97% to 99% of the total was consistently always in silver.[83] His table 3 (p. 42) provides his estimate of total decennial imports of silver and gold in grams. What is lacking, however, is the distribution by value, in money-of-account terms, whether in maraved?s, pesos, or ducats (worth 375 maraved?s). Since these money-of-account values remained unchanged from 1497 to 1598, and with only a few changes in gold thereafter (to 1686), Hamilton should have calculated these values as well, utilizing as well his Table 4 gold:silver bimetallic ratios (p. 71). Perhaps this is a task that I should undertake ? but not now, for this review. A more challenging task to be explored is to analyze the impact of gold inflows, especially of Brazilian gold from the 1690s, on prices that are expressed almost everywhere in Europe in terms of a silver-based money of account (e.g., the pound sterling). Obviously one important consequence of increased gold inflows was the liberation of silver to be employed elsewhere in the economy: i.e., effectively to increase the supply of silver for the economy.

At the same time, we should realize that the typical dichotomy of the role of the two metals, so often given in economic history literature ? that gold was the medium of international trade while silver was the medium of domestic trade ? is historically false, especially when we view Europe’s commercial relations with the Baltic, Russia, the Levant, and most of Asia.[84]


EH.Net’s Classic Reviews Selection Committee was certainly justified in selecting Hamilton’s American Treasure and the Price Revolution in Spain, 1501-1650 as one of the “classics” of economic history produced in the twentieth century; and Duke University’s website (see note 1) was also fully justified in declaring that Hamilton was one of the pioneers of quantitative economy history. In his preface, Hamilton noted (p. xii) that he and his wife spent 30,750 hours in collecting and processing this vast amount of quantitative data on Spanish bullion imports and prices and wages, “entirely from manuscript material,” with another 12,500 hours of labor rendered by hired research assistants ? all of this work, about three million computations, done without electronic calcula

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):17th Century