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Commerce and Politics in Hume’s History of England

Author(s):Wei, Jia
Reviewer(s):Berdell, John

Published by EH.Net (October 2017)

Jia Wei, Commerce and Politics in Hume’s History of England. Woodbridge, UK: Boydell and Brewer, 2017. xi + 209 pp. $99 (hardback), ISBN: 978-1-78327-187-0.

Reviewed for EH.Net by John Berdell, Department of Economics, DePaul University.

Janet Wei brings David Hume’s accomplishments as a historian out of the shadows in this important investigation of Hume’s History of England. It is often remarked that Hume appeared in library card catalogue as “David Hume, the historian.” Also that he considered himself to be living in a time and place uniquely interested in history. (Hence, his purported aspiration to fill the vacant “post of honor” reserved for history in the English Parnassus.) According to Wei, Hume’s unique contribution to eighteenth century historiography lies in the interplay between his Scottish background and his cosmopolitan understanding of the emergence of commercial society across Europe. Wei finds it telling that unlike so many Scots historians of the time, Hume was not drawn to adumbrate a stages account of history, but rather to develop narratives that maintained a lively understanding of the role of chance and unforeseen events in human affairs. She underlines the fact that Hume’s history is so often paradoxical and ironic. This is part of Hume’s contribution to eighteenth century historiography, but Wei places great weight on the “innovative fabric of causation” that binds together Hume’s intertwined narratives of the rise of English liberty and commerce. Hume’s distinctive political economy informs his historical narrative of England’s emergence as a trading nation and it becomes intertwined with a narrative of the shifting balance between authority and liberty that originates in his political science.

Wei divides her book into two unequal parts. The first considers Hume’s historical account of England’s national character, or what Montesquieu called its “spirit.” The analysis centers on the interactions between the rise of English commerce and English liberty — and more particularly the proposition that for Hume the English state was largely the result of “a particular approach to colonial trade.” The second part focuses on public finance and the preservation of English liberty. Wei’s conclusion finds Hume increasingly pessimistic about that preservation because, rightly understood, England’s liberty rested upon a delicate balance between liberty and authority, which was increasingly destabilized by the fiscal demands of Britain’s empire.

Readers of Hume’s Essays will be familiar with his proposition that foreign commerce stimulated the economic development of England, indeed all of early modern Europe. Adam Smith popularized Hume’s thesis when he asserted that “For a pair of diamond buckles perhaps, or for something as frivolous and useless, they exchanged the maintenance, or what is the same thing, the price of the maintenance of a thousand men for a year, and with it the whole weight and authority which it could give them.” Wei shows us that what this gained in rhetorical flourish it lost in historical detail. While the growth of foreign commerce was essential to the erosion of noble power, the deliberate policy and legislation of Henry VII, amplified by the depredations of the War of the Roses, are central to Hume’s account of the formation of a centralized system of justice. Hume is shown to reject Harrington’s view that Henry was mistaken in his efforts to deliberately weaken noble power. Wei also emphasizes the fact that for Hume the growth of foreign trade was the product of considerably more deliberation and policy than the simple influx of luxuries found in his Essays. Hume approved of Henry VII’s and Elizabeth’s imposition of duties on foreign merchants and successfully encouraging English merchants and navigation to take their place. Although the contrast to Smith is not emphasized, Hume’s account of how foreign trade contributed to English liberty importantly includes the growth of its navy, and hence its ability to defend itself against its continental rivals. This was drawn from the strength of its colonial trade. These are not observations that sit easily with stale portrayals of Hume as the first great anti-mercantilist. There are innumerable interesting subthemes running through the first part of this book, but the central thesis must surely be Hume’s relentless attempt to undermine the Whig ideology that England’s freedoms had an ancient Saxon origin, while simultaneously undermining the Tory view that kings ruled by divine right. Contrary to the Tory view, it was commerce that slowly transformed feudal anarchy, and the jurisdiction of nobles, into a powerful Tudor monarchal absolutism. Contrary to the Whig view Parliament actively contributed to Tudor power since Tudor monarchs were the only feeble source of civil liberties in that dark age. All this would change under the Stuarts as the continued growth of commerce emboldened Parliament to rein in monarchal power, and to provide civil liberties an independent and more secure footing in an independent legal establishment.

The second part of the book focuses on the role of public finance in determining the balance between Parliament and monarch — between Hume’s great principles of liberty and authority. The balance hung upon control over tax revenues and the need to fund the navy. Here Wei makes good use of a burgeoning literature (from D.P. O’Brien among others) that puts Britain’s public finances, and imperial aspirations into European context. Istvan Hont, who tragically could only supervise the early phases of this thesis, has emphasized the fact that Hume was acutely aware of the instability lurking in England’s delicate political balance. Wei provides considerable new detail to Hont’s thesis by following the twists and turns of Hume’s account of English political “opinion,” and the increasingly uncompromising republican and monarchical “spirits.” Along the way she makes a short but powerful case that Hume should be seen as a supporter of unlimited religious toleration — rather than as an advocate for an established church as is usually taught. Her concluding thoughts on Hume’s increasing conservativism regarding the prospects for England’s public liberty should be contrasted with other accounts, such as those of Andrew Sabl and David Wootton, as Hume’s politics are notoriously difficult to situate on a anything resembling a liberal-conservative spectrum. When Hume was unable to simultaneously undermine both of the prominent party ideologies of his day, he would alternately adopt their positions: all in an effort to force his readers to think things through for themselves. Wei’s careful identification of Hume’s contributions to historiography certainly contributes a great deal to our understanding of how and why he did so.


Sabl, A. (2012). Hume’s Politics: Coordination and Crisis in the History of England. Princeton,
Princeton University Press.

Wootton, D. (1993). David Hume, “The Historian.” The Cambridge Companion to Hume. Edited by D. Norton. Cambridge: 281-312.


John Berdell is the author of International Trade and Economic Growth in Open Economies: The Classical Dynamics of Hume, Smith, Ricardo and Malthus (Edward Elgar, 2002) and articles on Cantillon, Hume, Smith and most recently John Law: “The Structure and Stability of John Law’s early Land Bank Proposals,” forthcoming, Oeconomia.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (October 2017). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

The Elgar Companion to David Ricardo

Editor(s):Kurz, Heinz D.
Salvadori, Neri
Reviewer(s):Ahiakpor, James C.W.

Published by EH.Net (December 2015)

Heinz D. Kurz and Neri Salvadori, editors, The Elgar Companion to David Ricardo.  Cheltenham, UK: Edward Elgar, 2015.  xiv + 603 pp. $290 (hardcover), ISBN: 978-1-84844-850-6.

Reviewed for EH.Net by James C.W. Ahiakpor, Department of Economics, California State University – East Bay.

This book is another in the collection of essays edited by Heinz Kurz and Neri Salvadori on classical economics.  It includes eighty-six essays written by fifty-seven authors, with Kurz and Salvadori themselves writing the greatest number: twelve by Kurz and seven by Salvadori, some collaboratively, besides a short Preface.  As the title suggests, the book aims at assisting readers to understand David Ricardo’s economic analysis.  The editors cite three reasons for the collection: (1) Piero Sraffa’s 1960 interpretation of classical economics in the Production of Commodities by Commodities, a model of the economy “that is fundamentally different from the one advocated by the later marginalist authors from Willian Stanley Jevons to Léon and Alfred Marshall” (p. xiii); (2) a renewed interest in “the problem of income distribution [that had been given] short shrift in much of economics” for decades but recently provoked by “the remarkable success of Thomas Piketty’s … Capital in the Twenty-First Century” (p. xiv); and (3) several “exegetical issues, which have led to important corrections of the picture we have of Ricardo’s view” (p. xiv).  The entries include topics on which Ricardo wrote as well as other writers’ views about Ricardo’s economic analysis, listed alphabetically from A, “Accumulation of Capital” to W, “Wicksell, Knut, on Ricardo.”  The contributors include familiar authors such as Roger Backhouse, Riccardo Faucci, Peter Groenewegen, Harald Hagemann, John King, Andrea Maneschi, Maria Marcuzzo, Murray Milgate, Gary Mongiovi, D.P. O’Brien, and Hans-Michael Trautwein.

The editors claim that “Ricardo, like other great economists, had repeatedly sound intuitions into particular economic problems, but was not yet capable of expressing them in a clear and coherent way: his vision surpassed what he could state using the analytical tools and language at his disposal” (p. iv).  On the contrary, I find Ricardo to have stated his arguments clearly in his numerous publications, parliamentary speeches, and letters that are collected in Sraffa’s edited volumes.  Thus, the essays on some prominent authors’ views on Ricardo, including those of Mark Blaug, Alfred Marshall, John Maynard Keynes, Karl Marx, Paul Samuelson, Joseph Schumpeter, and Knut Wicksell are more informative than several of those written on Ricardo’s economic analysis, particularly those cluttered with tedious mathematical formulas.  The latter include Ricardo’s theory of value, capital accumulation, determination of market prices, wage rates, interest rates, monetary theory, Say’s Law, General Glut, and “Ricardian equivalence.”  For these analyses, Sraffa’s Volume XI, General Index, is a more reliable guide to what Ricardo actually argued.  The Keynes-Marx-Sraffian interpretations of Ricardo’s analyses in several of the essays border on distortions of his work.  The exceptions include the entries that pay close attention to Ricardo’s own arguments, e.g. Andrea Maneschi’s on “Corn Laws.”

Ricardo made utility foundational to his theory of value, arguing: “If a commodity were in no way useful, – in other words, if it could in no way contribute to our gratification, – it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labour might be necessary to procure it” (Works, 1: 11).  Also, “Possessing utility, commodities derive their exchange value from two sources: from their scarcity, and from the quantity of labour required to obtain them” (1: 12).  He also modified the labor-embodied theory by time, capital depreciation, and capital-labor ratios.  But it is Karl Marx’s derivation of the labor theory of value from Ricardo that dominates the interpretations.  That Ricardo’s dissent from Smith on the theory of value can be traced to his having misinterpreted Smith’s “value of labor” to mean the wage rate (1: 16−17) does not feature in the restatements.  Ricardo also followed Smith’s market price determination in the short run by supply and demand, especially in chapter 30 of his Principles, titled, “Of the Influence of Demand and Supply on Prices,” and yet some authors in the volume seek to distance Ricardo from that explanation.  Several entries do not treat Ricardo’s insistence on the rise of wage rates as the cause of profit rate’s decline as an elaboration of Smith’s competition of capitals being the cause, despite Ricardo’s (1: 163) own argument that “the accumulation of capital naturally produces an increased competition among the employers of labour, and a consequent rise in its price.”

Other troublesome entries include Ferdinando Meacci’s, treatment of Ricardo’s contribution to Say’s Law.  He relies on Schumpeter’s unhelpful “final assessment of the debate,” with the conclusion that Ricardo understood the Law but “put it to illegitimate use” (p. 514), rather than making use of recent literature elaborating Ricardo’s contributions.  The classics dealt with a monetary economy, which is why the so-called “Identity” version of the Law does not represent what Ricardo argued.  Similarly, while minimizing the legitimacy of the so-called Ricardian Socialists’ claim to Ricardo’s analysis as a basis for their arguments, John King claims that J.F. Bray gave “an unusually explicit refutation of Say’s Law of markets” (p. 460).  Harald Hagemann’s entry on “General Glut” repeats the false claim that Ricardo, like the other classics, did not treat money as a store of value (but see Ricardo 3: 136−7) and that Ricardo’s defense of the Law was only for the long run to argue the Law’s validity only for the short run.  He also ignores J.S. Mill’s (1874) defense of the Law explaining that money itself must be considered a commodity, thus “there cannot be an excess of all other commodities, and an excess of money at the same time.”  Failing to treat saving as the purchase of financial assets, as in Smith, Ricardo, and J.S. Mill, Hagemann repeats the Keynes-Schumpeter difficulty with recognizing savings as investments by households, hence saving being a source of insufficient demand.

Ricardo also followed closely David Hume’s as well as Adam Smith’s monetary analysis.  Yet Ghislain Deleplace’s entry claims that Ricardo was “unorthodox on money” (p. 344), insisting that, to him, “the theory of value of commodities [supply and demand] does not apply to money … but to a standard that ‘regulates’ the quantity of money, hence its value” (p. 345).  Ricardo’s explanation of money’s non-neutrality — on account of the existence of absolute and proportional taxes, a point Ricardo noted as “never [having] been averted to” (1: 208), and which is still not widely known — does not feature in Deleplace’s entry.  Also, rather than the supply and demand for labor determining wage rates, an analysis Ricardo took from Smith, Enrico Bellino’s entry contends that “Wage determination is a rather complex phenomenon in classical political economy, which cannot be linked by a set of mechanical or deterministic relations with the other variables of the system” (p. 9).  I also found Bellino’s claim that Ricardo invoked “diminishing returns to scale” (p. 10), rather than diminishing marginal returns to equal doses of capital and labor to less fertile or marginal land as “the cause of a decrease in profits” to be strange.  Regarding the equivalence of debt and tax finance of government budgets, Ricardo gave reasons why people do not act according to the intertemporal equivalence that Robert Barro has employed in his models.  Ricardo rather emphasized their contemporaneous equivalence as the primary basis for his objecting to debt finance.  But Richard Sturn’s entry on “Ricardian Equivalence” merely repeats the intertemporal equivalence argument that has dominated the literature.

A subject index would greatly have helped readers to recognize the overlap of several entries.  For example, the entries on “Funding System,” “National Debt,” and “Ricardian Equivalence” that are far apart because of their alphabetical order cover pretty much the same ground, but are not readily linked through the author index.  It also would have helped to find a clear connection between the entries and Piketty’s commercial success with his 2013 book; most academic reviews of that book that I have seen do not rate it highly, e.g. McCloskey (2014).  That the rate of return on “capital” is greater than GDP growth is hardly a valid basis for claiming that the world economy is in trouble unless measures are taken to redistribute income and wealth, as Piketty claims.

My reservations notwithstanding, Kurz and Salvadori have done researchers on Ricardo a great service with their compilation of these essays.  They add to the likes of “Notes for Further Reading” in Robert Ekelund, Jr. and Robert Hébert’s A History of Economic Theory and Method.  I would urge readers of the book to check volume 11 of Sraffa’s edited Works and Correspondence of Ricardo for accuracy of many of the interpretations of Ricardo’s analyses.


McCloskey, D. N. (2014), “Measured, Unmeasured, Mismeasured, and Unjustified Pessimism: A Review Essay of Thomas Piketty’s Capital in the Twenty-first Century.”  Erasmus Journal for Philosophy and Economics 7, Issue 2 (August): 73−115.

Mill, John Stuart (1874), Essays on Some Unsettled Questions of Political Economy.  2nd ed., reprinted.  Augustus M. Kelley, 1968.

Ricardo, David (1951, 1957), Works and Correspondence of Ricardo.  Edited by Piero Sraffa. Cambridge: Cambridge University Press.

James C.W. Ahiakpor is Professor of Economics at California State University, East Bay in Hayward, California.  His publications include: “Ricardo on Money: The Operational Significance of the Non-Neutrality of Money in the Short Run,” History of Political Economy, 1985; Classical Macroeconomics: Some Modern Variations and Distortions (Routledge 2003); “Say’s Law: Keynes’s Success with its Misrepresentation,” in Steven Kates, ed., Two Hundred Years of Say’s Law (Elgar 2003); and “The Modern Ricardian Equivalence Theorem: Drawing the Wrong Conclusions from David Ricardo’s Analysis,” Journal of the History of Economic Thought, 2013.

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2015). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Nationalism and Economic Development in Modern Eurasia

Author(s):Mosk, Carl
Reviewer(s):Mokyr, Joel

Published by EH.Net (August 2013)

Carl Mosk, Nationalism and Economic Development in Modern Eurasia. London: Routledge, 2013. 298 pp. $140 (hardcover), ISBN: 978-0-415-60518-2.

Reviewed for EH.Net by Joel Mokyr, Departments of Economics and History, Northwestern University.

Carl Mosk is an experienced and widely respected economic historian who has done important work on comparative demographic history, with a special expertise in Japanese economic history. This current book is a deeply personal set of reflections and interpretations on what William Parker used to call Bigthink economic history. It is a sprawling and wide-ranging book, somewhat idiosyncratic as such works inevitably turn out to be, but well-written, provocative, opinionated and never for a moment dull. Some of the case studies are insightful and informed interpretations, especially the essay on Japan where, despite its brevity, the author?s deep knowledge of the country shines through.

The book consists of two parts: in the first part he outlines his views on nationalism and economic progress. In the second part he discusses five case studies: Great Britain, Germany, Yugoslavia, China and Japan. The exact connection between the two parts is not always very clear except that the case studies illustrate the diversity and richness of the connection between the forms taken by nation states and their economic history. Although the book touches on many topics (such as a long digression into the Habakkuk thesis on labor-saving technological progress), the core topic is what Mosk calls ?nationalism.? What he means by that is a particular version of the beliefs underlying the nineteenth century modern nation state, an ideology about identity more than a strong belief in particularism and exceptionalism.?

One of the attractive features of this book is that it places a strong emphasis on the importance of beliefs and ideology in historical development and the emergence of economic modernity. Mosk will have none of the historical materialism (the doctrine that asserts that dominant ideas are picked purely on an economic basis) still fashionable among some. In a few pages (pp. 30-36) Mosk delves into psychology to show how such beliefs as religion and nationalism are formed, not as the result of rational reasoning, self-interest maximization, and the careful weighing of evidence and logic, but through more primitive processes. While he does not provide a more detailed discussion of how we end up accepting the beliefs we do, he argues that what he calls ?nation-state branding? (essentially, picking some ideological commitment on which the polity is founded such as liberal democracy or fascist autocracy) is only very partially based on rational and scientific reasoning.

What is it that Mosk is arguing in this book? His view is that nationalism in its various forms allowed the nation state to create a consensus behind state formation and hence enable major infrastructural investments necessary for sustained economic progress. Throughout the book, he stresses the power of nationalism, which he thinks is the only ?ism? to come out of the Enlightenment that is ?here to stay.? Mosk fully realizes that as a historical force nationalism? was a double-edged sword, and that it has been the main reason for many of the bloody wars of the twentieth century, while also (more controversially) a major factor in the emergence of economic growth. The connection between nationalism and modernization is not altogether new. In 1993, Liah Greenfeld, a historical sociologist, wrote a massive and widely-noticed (if controversial) book (also based on case-studies) in which she laid down the connections between nationalism and modernity. In her view nationalism preceded modernity and brought it about.? Mosk?s work differs from hers in emphasis, but he might have spent a bit more time engaging her views (Greenfeld?s magnum opus is not cited; a follow-up book by her is).

Mosk recognizes that earlier forms of nationalism may well have predated the modern nation state. For Mosk, nationalism was the product of the Enlightenment. This is not altogether so obvious for those who think of nationalism as a form of loyalty to a collective entity that is juxtaposed to ?others.? At its core, the Enlightenment was a product of the transnational ?Republic of Letters,? which was fundamentally cosmopolitan, pluralist, universalist, and pacifist. While it was fully congenial with the idea of self-determination, which was the flip side of individual freedom, its emphasis was clearly not nationalist. Some enlightened thinkers realized the naivet? of the universalist ideology. The youthful David Hume, ever skeptical, pointed out in his Treatise on Human Nature (1739-40) that ?there is no such passion in human minds as the love of mankind, merely as mankind. … In Italy an Englishman is a friend; in China a European is a friend; and it may be that if we were on the moon and encountered a human being there, we would love him just as a human being. But this comes only from the person?s relation to ourselves.?

In any event, Enlightenment thought increasingly came to engage nationalist ideas in the late eighteenth century for a variety of reasons. In part this change occurred through the writings of German Romantic idealists such as Herder and Fichte, and in part as the unintended consequences of the events following the French revolution. The French Revolution, as John McClelland (1996), a historian of political thought, put it well, put nationalist flesh on the bones of the doctrine of liberty as self-determination.

The public sphere we associate with the Enlightenment was sufficiently malleable and protean to produce a variety of discourses or national-branding (as Mosk would call it). It created a networked society, with circles and organizations in which opinions were formed through the interactions of intellectuals. The rise of nationalism following the French Revolution directed these opinions in a direction that most of the great Enlightenment writers would have disapproved of. One could therefore see nationalism as the illegitimate offspring of the Enlightenment rather than its inevitable progeny. Mosk points out that the rise of literacy and expansion of the franchise created nineteenth century mass politics, a fertile ground for perverse nationalism for whom investing in infrastructure was less important than cultivating a xenophobic chauvinism. But not all countries became jingoist ? Scandinavia, the Netherlands, and even Italy never quite felt the need to hate their neighbors in order to build the kind of infrastructure that economic growth demanded.

Nationalism, argues Mosk (p. 41), is committed to economic progress for everyone, much like Acemoglu and Robinson?s (2012) ?inclusive society? and North-Wallis-Weingast?s (2009) ?open access society. It would have helped the reader if he had compared his approach with those two landmark volumes.? One could beg to differ whether nationalism as such is in fact that critical to modernization.? In his classic work on progress (which Mosk does not cite either), Robert Nisbet (2008) distinguished between ?progress as freedom? (which includes material progress) and ?progress as power,? which we might think of as the emergence of the nation state and institutional change. The former was decidedly transnational and cosmopolitan in nature, the latter much more in the spirit of Mosk?s view of nationalism. But the Enlightenment view of progress was based first and foremost on reason driving scientific and technological progress and institutional reform. In its classical form in the eighteenth century, it did not require a nation-centric attitude ? yet. An example of how the distinction between the two clarifies matters is in how ideology deals with trade. Seventeenth- and eighteenth-century mercantilism contained nationalist (or ?proto-nationalist? as Mosk would say) elements in it, and it mostly found itself at loggerheads with Enlightenment philosophes who favored free trade and high mobility. Nineteenth century nationalist ideology turned, by and large, supportive of protectionism, while Enlightenment thought in its liberal incarnation, stressing that international trade was a positive-sum game, supported free trade and hopefully postulated the civilizing effect that ?sweet commerce? would have on international relations. Mosk (p. 233) sees it differently: trade and economic competition are a form of ?aggression,? meant to defeat one?s ideological opponents. This is reminiscent of the mercantilist zero-sum thinking that was mercifully supplanted by Enlightenment thinking.

One of the central theses of Mosk?s book (p. 65) is that ?progressive movements purporting to advance international causes are actually hitched to nation-state formation.? His example is predictably Communism which started out as an international movement, yet eventually became anchored in one country, Russia. Whether this is an accurate and fair representation of the history of socialism or not, one cannot avoid thinking of many transnational movements that made an effort to keep their cosmopolitan character, such as the scientific community, pacifism, or the movement to bring about European unification. Mosk provides a welcome antidote to the tedious odes to ?globalization? in the past decades (the word does not appear in his book as far as I can tell). Something similar can be said about the category of ?class? so endlessly beloved by historians nostalgic for their Marxist days. National loyalty and class solidarity seem incompatible (though at times they have been able to work out a modus vivendi). Nationalism as an ideology appears less popular among historians than class consciousness, and it is important to stress its role in the modern world.? Valuable as these messages are, Mosk tends to get carried away here and there. Even when he does, his engaging style and lively mind make for a readable volume.

Hopefully it will not be churlish to note that for the outrageous price that Routledge charges for this volume, they might at least have produced a quality volume. But this book seems to have had neither copy editor nor proofreader. It is full of annoying typos, especially in dates and names, and it has a barely-serviceable index. Moreover, many terms and concepts are not properly defined or explained. This is normal for books like this: the author has been thinking so long in certain terms that he forgets that some of readers may not be familiar with terms such as ?Axial Thought? (a reference to Karl Jaspers would have been helpful) or ?nation-state branding? (a term apparently invented by Mosk but not fully explained until the very end). Good copy editors still make for much better books ? one wonders why Routledge does not supply one.

Acemoglu, Daron and James Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty.? New York: Crown.

Greenfeld, Liah. 1993. Nationalism: Five Roads to Modernity. Cambridge, MA: Harvard University Press.

Hume, David. 1739-40. Treatise of Human Nature, Book III: Morals., accessed Aug. 25, 2013.

McClelland, John S. 1996. A History of Western Political Thought. London: Routledge.

Nisbet, Robert. 2008. History of the Idea of Progress, second edition. New Brunswick, NJ: Transactions Publishers.

North, Douglass C., John Joseph Wallis, and Barry R. Weingast. 2009. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History.? Cambridge: Cambridge University Press.

Joel Mokyr is the author of The Enlightened Economy: An Economic History of Britain, 1700-1850.

Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (August 2013). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Asia
Time Period(s):17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-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 maravedí, 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 maravedí 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 _Saigerhütten_ 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, Höchstetters, 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 maravedís) 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 of commodity 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 Hammarström 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 maravedís 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 maravedís, pesos, or ducats (worth 375 maravedís).  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 calculators, let alone computers.  Who today would even contemplate undertaking such an enormous task without powerful modern computers and a bevy or research assistants?  For this task, this truly pioneering task, Hamilton deserves full praise.

How much praise does he deserve for the goals that he pursued?  In his introduction he expressed his hope that all these data “may afford a partial verification of the quantity theory and also throw new light upon the related question of the connection between prices and the supply of precious metals;” but he also stated (pp. 4-5) that “the last lesson concerning the quantity theory has not been drawn from this phenomenon; nor is the final word likely to be spoken before greater knowledge of the history of banking and the contemporary influence of credit on prices becomes available.”

As I have sought to demonstrate in this review, necessarily with very detailed evidence, Hamilton did achieve this more modestly defined goal, certainly as well as any pioneering economic historian could have been expected to achieve in the 1930s.  Of course, a contemporary economic historian, utilizing the vast amount of research conducted on these questions in the past seventy years, and using much more sophisticated techniques of economic analysis and econometrics would have produced a very different book — but possibly one lacking Hamilton’s own insights.  Given the current disfavor into which even the more refined, modern version of the Quantity Theory has fallen, the major goal of this review has been to demonstrate at least a qualified validity of this approach to understanding inflations and deflations, and the Price Revolution in particular.  Thus the complementary goal has been to rescue Hamilton’s reputation, given in particular his frequent use of infelicitous phrases, such as the statement that “American gold and silver precipitated the Price Revolution,” which Hamilton himself demonstrated was clearly not the truth.  Finally, given the enormous importance of the Price Revolution — a truly unique historical experience — in shaping the economy and society of early-modern Europe, and in establishing a more truly global economy, I have also sought to supply data unavailable to Hamilton in demonstrating how and why the behavior of prices during the Price Revolution era was related to the complex combination of changes in the money supplies (including credit), changes in the income velocity of money, and changes in national incomes; and also to explain why (as Hamilton did not) inflation in the Price Revolution era was an international (or at least a European-wide) phenomenon.

 A Biographical Note on Hamilton:[85]

Earl Jefferson Hamilton (1899-1989), born in Houlka, Mississippi, received his B.S. (Honors) from Mississippi State University in 1920; his M.A., from the University of Texas in 1924; and his Ph.D., from Harvard University in 1929.  He was an Assistant Professor of Economics at Duke University from 1927 to 1929, and then Professor of Economics there until 1944, when he became Professor of Economics at Northwestern (to 1947), and finally Professor Economics at the University of Chicago, until retiring in 1967.  He was also the editor of the _Journal of Political Economy_ from 1948 to 1954; and he served as President of the Economic History Association in 1951-52.




  1. URL: See also the University of Chicago Library, Special Collections Research Center, Guide to the Earl J. Hamilton Papers:

And also on EH.Net:

  1. The prices for individual commodities for each year, from 1501 to 1650, are given in Hamilton (1934), Appendices III-V, pp. 319-58; wages, in Appendix VII, pp. 393-402.


  1. For my publications on the Price Revolution, see Munro (1991, 1994a, 1998, 2003a, 2003b, 2004, and 2007 forthcoming). The non-monetary variable is “y,” in the modernized version of the Fisher Identity: MV. = Py; and in the Cambridge Cash Balances equation: M = kPy. It is also the deflated or “real” Keynesian Y = NNI = NNP.


  1. See my online review online review:, 24 February 1999, of Fischer (1996).


  1. Smith (1776/1937), pp. 191-92. Hamilton might have better cited Smith’s passage on p. 34: “The discovery of the mines of American diminished the value of gold and silver in Europe” (i.e. as expressed in silver-based money-of-account prices); and also other similar passage on pp. 198, 236, 241, and 415-16.


  1. See Spufford (1988), chapter 13, “The Scourge of Debasement,” pp. 289-318; Munro (1973); and the various studies in Munro (1992).


  1. Both published in Le Branchu (1934) and Moore (1946).


  1. Grice-Hutchinson (1952), Appendix III, p. 95.


  1. For Spain: Hamilton (1934), Appendix VIII, p. 403; for Brabant, Van der Wee (1975), pp. 413-47; for southern England: Phelps Brown and Hopkins (1956, 1981). Using the Phelps Brown worksheets, now housed in the Archives of the British Library for Political and Economic Sciences (LSE), I have corrected many of their statistical data.


  1. By constructing various hypothetical “trial” budgets, Hamilton (1934, pp. 273-79) hypothesized that his unweighted index numbers may have underestimated rises in the cost of living by perhaps as much as ten percent in the later sixteenth century, but by perhaps only two percent in the first half of the seventeenth century. See also Hamilton (1947), pp. 113-14, where he more explicitly states: “The contemporaneous account books have failed to yield an inductive basis for weighting the index numbers of commodity prices, and it seemed unlikely that any system of arbitrary weights would give me more accurate results than simple indices. A detailed comparison of unweighted and crudely-weighted index numbers for New Castile in 1651-1700 tended to confirm this hypothesis.”


  1. From 1497 to 1686, the Spanish crown consistently minted (with one exceptional, minor deviation in 1642-43) two silver coins at 93.06 percent fineness: the _Real_, with 3.195g pure silver (67 cut from an alloyed marc of 230.0465 g., with a silver fineness of 11 _dineros_ and 4 grains = 93.056%) and a nominal money-of-account value of 34 maravedís (375 to the ducat money of account; 350 to the peso money of account). In fact, it differed from the earlier _Real_ , struck from 1471, only in its money-account-value, having been raised from 31 to 34 maravedís. Also struck from 1497 was the heavy-weight Real known as the “piece of eight” (real de a ocho), with just over eight times as much fine silver, 25.997 g, and a value of 272 maravedís. In 1686, it was subjected to a very minor weight reduction that reduced its fine silver content to 25.919 g.  The American dollar can trace its descent from this Spanish coin.  Hamilton (1934), chapter III, pp. 46-72; Hamilton (1947), chapter II, pp. 9-35; Ulloa (1975); Motomura (1994, 1997); Munro (2004a), Vol. 4, pp. 174-84.


  1. See Challis (1971, 1978, 1989, 1992a, 1992b); Gould (1970).


  1. Van der Wee (1963), Vol. I, pp. 126-29.


  1. Hamilton (1934): Chapter IV: “Vellon Inflation in Castile, 1598-1650,” pp. 73-103; and Chapter X: “Prices under Vellon Inflation, 1601-1650,” pp. 211-21.


  1. Munro (1988), pp. 387-423: especially for the debasement formula. In medieval and early-modern Flanders the silver penny _groot_ was divided into 24 _mijten_ or _mites_, almost entirely copper in composition.


  1. Spooner (1972), Appendix A, p. 332; Challis (1992a), pp. 365-78; Challis (1992b), p. 689.


  1. The silver fineness was based on theoretical purity of 12 _dineros_, with 24 grains each, and thus a total of 288 grains. The weight was defined as the number cut from an alloyed marc of 230.0465 grams. See n. 11 above.


  1. Hamilton (1934), pp. 49-64.


  1. Hamilton (1934), p. 74.


  1. Cipolla (1956). He states (p. 27): “Every elementary textbook of economics gives the standard formula for maintaining a sound system of fractional money: [1] to issue on government account small coins having a commodity value lower than their monetary value; [2] to limit the quantity of these small coins in circulation; [3] to provide convertibility with unit money. … Simple as this formula may seem, it took centuries to work out.  In England, it was not applied until 1816, and in the United States it was not accepted before 1853.” Cipolla (p. 29) cites a seventeenth-century Italian treatise, by Geminiano Montanari (a mathematics professor at Padua), who had stated that: “it is not necessary for a prince to strike petty coins having a metallic content equal to their face value, provided [that] he does not strike more of them than is sufficient for the use of his people, sooner striking too few than striking too many.”


  1. Sargent and Velde (2002). The title of their book is adapted from the title of chapter 3 in Carlo Cipolla’s book (cited in the previous note): “The Big Problems of the Petty Coins,” pp. 27-37. Sargent and Velde do cite my article on “Deflation and the Petty Coinage Problem” (in n. 15 above), in which I supplied statistical evidence from the Flemish mint accounts, from 1334 to 1484 that the Flemish counts and the Burgundian dukes who succeeded them were always careful to restrict the supply of the petty, copper-based coinages, which rarely accounted for more than 2% of mint outputs by value, during this entire era.


  1. Hamilton (1934), p. 75. A marc of copper was worth 34 maravedís.


  1. On the _vellon_ based inflation in seventeenth-century Spain, see Sargent and Velde (2002), chapter 14, pp. 230-53; Motomura (1994), pp. 104-27; Motomura (1997), pp. 331-67; Spooner (1972), pp. 41-53 (and for western Europe in general).


  1. See n. 15 above.


  1. See Munro (2003a): Table 1.2, pp. 4-5: extrapolated from data in Hamilton (1934), Table 1, p. 34, Table 2, p. 40, Table 3, p. 42; and Hamilton (1929a), pp. 436-72.


  1. These mining output data do not come from Hamilton, but rather from these following sources: Bakewell (1975), pp. 68-103; Bakewell (1984), pp. 105-51; Garner (1987), pp. 405-30; and Cross (1983), pp. 397-422. The only Spanish-American mining data available to Hamilton was Haring (1915), pp. 433-79, which he cited, but did not use.


  1. Spooner (1972), p. 36.


  1. See in particular Outhwaite (1982), especially pp. 39-57; and also the introduction and many of the essays in Ramsay (1971), in particular Hammarström (1957) and Brenner (1961). See also the rather hostile review of this collection by McCloskey (1972), pp. 1332-35. Brenner makes the fundamental error in not treating the Fisher Identity in aggregate terms, and thus talking about a relative (i.e., per capita) diminution in Q (= T, or “y”) that presumably resulted from population growth.  Many of the authors engage in another error, one scorned by Anna Jacobson Schwartz (1974), who, in a review of Spooner (1972), p.  253, comments that: “the author subscribes to a familiar fallacy, namely that a monetary explanation to be valid requires that all prices move in unison.”  On this very common error, see Munro (2003c); and n. 58 below.


  1. For those favoring the lower bound estimate for 1300 (4.0 to 4.5 million), see Campbell, Galloway, Keene and Murphy (1993); Campbell (2005); Nightingale (1996); Nightingale (1997); Nightingale (2005); Russell (1966); and Harvey (1966). For those favoring the upper-bound estimate (6.0 to 7.0 million), see Postan (1950); Hatcher (1977); Hallam (1988); Mayhew (1995); and Dyer (1989). For population estimates in the early sixteenth century, see Cornwall (1970); and Campbell (1981).


30.Cuvelier (1912), vol. I, 432-33, 446-47, 462-77, 484-87; and also pp. cxxxv, clxxvii-viii, and ccxxiii-xviii.


  1. Van der Wee (1963), Vol. I: Appendix 49/1, p. 546. In comparison, the average annual rate of population decline from 1480 to 1496 was -0.81%.


  1. There is yet another explanation why agrarian prices rose more than did most industrial prices: a household budget constraint, when agricultural prices and the CPI rose more than did money wages, as was almost always the case in the sixteenth century. Thus the share of disposable income spent on foodstuffs (and fuels) would have necessarily reduced the share of such income to be spent on other commodities, and thus the relative demand for most other industrial products. At the same time, most labor-intensive industries, with elastic supply schedules, could have readily hired more labor to expand output without experiencing significant rises in marginal costs, when wages were rising so much less than most commodity prices.  See my online 2006 Working Paper: “Real Wages and the ‘Malthusian Problem’ in Antwerp and South-Eastern England, 1400-1700: A Regional Comparison of Levels and Trends in Real Wages for Building Craftsmen.”


  1. Mean annual imports of fine gold rose from 517.24 kg in 1503-05 to 865.93 kg in 1526-30. See n. 25 above, and also Hamilton (1934), p. 45, on the role of gold. For somewhat different figures, but in decennial means, see TePaske (1998).  His estimates of decennial mean New World gold outputs (per year) are 1,209.8 kg in 1501-10 and 1,071.1 kg in 1511-20.  Hamilton, however, made no mention of the much more important Portuguese imports of West African gold: about 17 metric tons, from Sao Jorge da Mina, from about 1460 to 1520 (when other sources of gold, in Africa and Brazil, became more important.  See Wilks (1993).


  1. Adolf Soetbeer (1879); and Wiebe (1995), especially pp. 253-321. See the tables on German silver production from 1493 to 1700, on pp. 265 and 267, based on Soetbeer.


  1. Nef (1941, 1952).


  1. Nef (1941) estimates that aggregate European silver mining outputs in the peak decade 1526-1535 (in his view) ranged between 84,200 kg to 91,200 kg per year.


  1. See my own publications in n. 3, above; and also Munro (2007b). See also Hatcher (1996) and Nightingale (1997).


  1. See Munro (2003a), Table 1.3, p. 8; and Munro (2007b). By far the most important of the new mines was Joachimsthal in Bohemia (from 1516), which reached its peak production in 1531-35, with a quinquennial mean production of 16,554.81 kg of fine silver.


  1. See Munro (2003a), Table 1.2, pp. 4-5, based in part on Hamilton (1934).


  1. The ratio was altered from 11.98:1 to 10.83:1 (June 1466), while in England, it was altered in the opposite direction, to become pro-gold: from 10.33:1 to 11.16:1. See Munro (1973), pp. 155-80, 198-211, Tables C-K; and Munro (1983), Table 10, pp. 150-52; Van der Wee (1963), Vol. I, pp. 126-28, Table XV; Vol. II, pp. 80-101.


  1. See Munro (2003a), Table 1.4, pp. 12-13.


  1. See Munro (2003a), Table 1.7, p. 26, based on Van der Wee (1963), Vol. I, Appendix 44, pp. 522-23.


  1. See Munro (1979, 1992); Spufford (1988), pp. 240-66.


  1. See Van der Wee (1967, 1977, 2000); Munro (1979, 1991b, 2000, 2003d).


  1. See Statutes 37 Henrici VIII, c. 9 of 1545, permitting interest up to 10%; repealed by 5-6 Edwardi VI, c. 20 in 1552, which was in turn repealed in 1571 by 13 Elizabeth I, c. 8, which thus restored 37 Hen. VIII, c. 9, in _Statutes of the Realm_, vol. III, p. 996; and IV.i, pp. 155 and 542, respectively.


  1. See Van der Wee (1967, 1977, 2000), and other sources cited in notes 43 and 44.


  1. See Munro (2003d); Tracy (1985, 1994, 2003).


  1. Van der Wee (1977), pp. 373-76, Table 28. See also Usher (1943), Table 7, p. 169, using older data, which shows a rise in the Spanish funded debt from 4.320 million ducats in 1515 to one of 76.540 million ducats in 1598; and also Spooner (1972), pp. 56-57: “Wherever data [on public borrowing] are available they show that the expansion was certainly spectacular”: in Rome, France, the Low Countries, Germany. In Antwerp, Charles V’s loans rose from about £1.0 million groot Flemish in the 1520s to about £7.0 million in 1557 (on the eve of the Spanish royal bankruptcy). In Genoa, the issue of civic bonds rose from 193,185 _luoghi_ in 1509 to about 500,000 _luoghi_ in 1560 (p.  66).


  1. Van der Wee (1977), pp. 375-76; and see the other sources cited in n. 44 above.


  1. Spooner (1972), pp. 4, 54-55, stating that: “The structure of credit was, in effect, supported by progressive increases in the stocks of precious metals.” Very similar observations have been made in Nightingale (1990), Mueller (1984), Spufford (1988), p. 347: commenting that “when money [coined specie] is freely available, credit is also; when money is scarce, so is credit.”


  1. The title of Hamilton’s Chart 20 (p. 301) is “Total Quinquennial Treasure Imports and Composite Index Numbers of Commodity Prices.”


  1. Hammarström (1957). Her other criticisms of Hamilton’s scholarship strike me as being unfounded and thus unfair.


  1. Many, many years ago, one of my graduate students did run regressions involving both annual values of treasure imports and estimates of residual Spanish stocks of bullion, and achieved better results (high R-squared and better t-statistics) with the latter regressions.


  1. See I. Fisher (1911). The only reference in Hamilton (1934, p. 5, n.6) or in his other publications, to this famous economist is I. Fisher (1927), on index numbers.


  1. For various reasons, too complex to discuss here, I prefer to use the Gross National Product – as many economic historians, in fact do, in the absence of reliable figures for Net National Product.


  1. Mayhew (1995), p. 240, states that: “My own investigation of velocity in the medieval period up to 1300 also suggests that in periods of growth in terms of money, prices, and economic activity, velocity may be expected to fall rather than rise. … It will be argued here [in this article] that velocity does not rise with increasing urbanization and monetization. Indeed, the increasing use of money usually seems to require an enlarged money supply which will actually permit a reduction in velocity rather than an increase.” His intriguing and exceptionally important article makes some very heroic assumptions about the levels of NNI and of M (the money supply) over this long period, not all of which will earn general consent.


  1. See n. 79 below, and also Munro (2007b).


  1. See Gould (1964): who contended that inflation itself promoted capital investment during the Price Revolution era by cheapening the cost of previously borrowed capital: i.e., the relative cost of annual interest payments and repayment of the principal. Gould, however, was one of the critics of the Hamilton thesis; and also one of those who promoted the fallacy that the validity of a monetary interpretation would require that all prices move in unison (p. 251). See Schwartz (1974) in n. 28 above.


  1. The period of England’s “Great Debasement,” 1542 – 1553, was however, surprisingly, not one such example — nor can any be cited in English monetary history (in contrast to medieval French monetary history). As noted earlier, during the “Great Debasement,” the English penny lost 83.1% of it silver content. The formula for relating a debasement to the potential rise in prices (or the rise in the money-of-account price of silver) is: [ (1 / (1 – x) ] – 1, in which x represents the percentage reduction of fine silver in the penny coin and in the linked money-of-account (sterling). By this formula, prices should have risen by 491.72%; but they did not.  The Phelps Brown and Hopkins (1956) CPI rose from a quinquennial mean of 152.33 in 1536-40 to one of 315.85 in 1556-60: an increase of only 107.34%. See also Gould (1970) and Challis (1971, 1978, 1989, 1992a, 1992b).


  1. For shipments of Spanish silver to pay Charles V’s bankers in Antwerp and Genoa, see Spooner (1972), pp. 22-24.


  1. See Hamilton, pp. 44-45: but the analysis and evidence is very thin. On p. 19, he states more explicitly that “In view of the popular misconceptions concerning the amounts of treasure taken by the English, French, and Dutch, one who works with the records is impressed by the paucity rather than the plethora of the specie that fell prey to foreign powers.” See also Hamilton (1929a), pp. 436-72.


  1. Outhwaite (1982), pp. 31, 36. He is referring to the Anglo-Spanish trade treaty of 1630.


  1. Challis (1975). One other account, for June to December 1567 is incomplete, and does not provide the amount of bullion coined, though indicating that Spanish silver may have accounted for only 7.4% of such bullion. Surprisingly, this seminal article is not mentioned in Outhwaite’s second edition of 1982, referring only to Challis (1978).  See also Challis (1984).


  1. The bimetallic ratio in 1526-42 was 11.16:1, as it had been from 1465; in 1600, the bimetallic ratio was 11.10:1. For the mint data, see Challis (1978, 1989, 1992a, 1992b).


  1. See Flynn (1978), D. Fisher (1989), Frenkel and Johnson (1976), McCloskey and Zecher (1976), and Floyd (1985).


  1. In the sixteenth century, apart from the Great Debasement period (1542-1553), gold coins varied in official value from the sovereign worth 20s or £1 (=240d) to the half crown, worth 2s 6 (=30d). The silver coins varied from the farthing (0.25d) to the groat (4d). On this very point about varying circulation velocities on the coinages, see Spooner (1972), p. 74.


  1. My own calculations of the official bimetallic mint ratios indicate a rise from 12.109 in 1604 to 13.363 in 1612 to 13.348 in 1623 to 14.485 in 1660 to 15.210 in 1718 (remaining at this level until 1815). Based on data supplied in Challis (1992b), pp. 673-98.


  1. Hamilton (1934), Table 4, p. 71.


  1. The Dutch East India Company’s exports of fine silver rose from an annual mean 6,959.7 kg in 1600-09 to a mean of 11,563.7 kg in 1660-69. Gaastra (1983), pp. 447-76, especially Appendix 5, p. 475. Spooner (1972), pp. 76-77 and Chart 11, has estimated that Venetian silver exports to the Levant in 1610-14 amounted to 6% of the total Spanish-American silver bullion imports into Seville during those years.


  1. See note 9 above for the statistics (for a base of 1501-10), and the sources used to compute the three sets of CPI. If we use the Phelps Brown and Hopkins base (1451-75=100), instead of the earlier base for 1501-10 (to include Spanish prices), we find that the English weighted CPI rose from an annual mean of 108.52 in 1511-15 to one of 734.19, at the peak of the Price Revolution, in 1646-50: an overall rise of 6.77 fold. Similarly, in Brabant, the Van der Wee CPI rose from an annual mean of 137.904 in 1511-15 to one of 1015.14 in 1646-50, also the peak of the Price Revolution in Brabant: an overall rise of 7.36 fold.


  1. See note 74, below, for the termination date.


  1. See Munro (2003a), Table 1.2, pp. 4-5: and the sources cited in notes 24 and 25 above. In the period 1521 to 1550, total silver imports into Seville amounted to just 263,915.8 kg. During the period from 1551 to 1660, a total of 122,902.24 kg of gold was also imported.


  1. TePaske (1983), Tables 2-5, pp. 442-45.


  1. Hamilton (1934), p. 11, note 1. Most economic historians have wrongly assumed that Hamilton was forced to end his research on bullion imports with the outbreak of the Spanish Civil War in 1936 — an argument obviously refuted his earlier articles of 1928, 1929a, in which bullion import data cease in 1660.


  1. Morineau (1968), p. 196; Morineau (1985), especially Table 83, p. 578; Figure 38, p. 579; Table 84, pp. 580-83; Figure 39, p. 585.


  1. Morineau (1985): except for the semi-logarithmic graph, Figure 39, on silver imports and exports, which is very difficult to decipher; and it certainly does not allow to attribute actual values to the small-scale bar chart lines. His Figure 37, p. 563, with imports in millions of pesos, also has estimations for the period 1630-56, not indicated as such in the other tables and graphs.


77.The title of his 1986 monograph, _Incroyables gazettes et fabuleux métaux_ seems, in retrospect, to be ironic.  In Morineau (1968), the data presented on p. 196, evidently for the total value of bullion imports in each quinquennium, even when divided by 5, to produce annual means, exceed the data on mined outputs from a minimum of 12.12-fold  to a maximum of 41.07-fold.  In Morineau (1984), Table 83, p. 578, presents decennial means of bullion imports, expressed as equivalent amounts of silver, that, for the period from 1660 to 1700, range from being 3.653 times to 18.684 times greater than the recorded aggregate mined outputs of Spanish-American silver.  (See also his bar-graph, Figure 37, on p. 563, displaying in five-year periods — totals or annual means? — the values of “treasure” imports, expressed in millions of piastres or pesos: those of 272 maravedís or 450 maravedís?)  Hamilton (1929a, 1934) indicated that, in the seventeenth century, up to the cessation of recorded data, in 1660, almost all the imports were in the form of silver.  The great boom in Brazilian gold exports did not really begin until 1700.  See TePaske (1998), pp. 21-32.


  1. See the sources in notes 25 and 26 above. The Sombrerete mining outputs, however, began to fall sharply from the 1680s, reaching a low (quinquennial mean) of 3,957.14 kg in 1716-20. Subsequently, by the mid eighteenth century, Mexico experienced another and very major silver-mining boom: See Brading (1970), Garner (1987).


  1. Gaastra (1983), Appendix 5, p. 475; Chaudhuri (1968), pp. 497-98. We have no data on the Dutch Company’s exports of merchandise, but we do for the English East India Company. Between 1660 and 1700, it exported a total of 645,486.0 kg of silver (worth £5,795.793.65) and 21,552.0 kg of gold (worth £2,788.035.34), and a total value of £2,593.114.00 in merchandise.   Thus gold and silver “treasure” accounted for 76.80% of total exports to Asia, and merchandise for 23.20%.  Of the total value of bullion exports, silver accounted for 67.52% and gold for 32.48% of the total value.  (For the long period of 1660-1720, silver accounted from 81.35% and gold for 18.65% of the total values of bullion exports).  In the English East India Company’s early history, however, from 1601 to 1624, it exported a total of £753,336 in precious metals (‘treasure’) and £351,236 in merchandise, for an aggregate export value of £1,104,572, so that precious metals then accounted for a somewhat lower percentage of the total value: 68.20%.  Chaudhuri 1963), p. 24.


  1. See TePaske (1998), tables, pp. 21-32.


  1. Fortunately, for the book under review (Hamilton 1934), he did provide an Appendix (number VIII, pp. 403-04) for “The Composite Index Numbers of Silver Prices, 1501-1650.”


  1. My most serious criticism — and one voiced by many other economic historians — is the one concerning his concept of “profit-inflation,” in Hamilton (1929b). His thesis was warmly endorsed by John Maynard Keynes (1930), the following year, Vol. II, pp. 152–63, especially pp. 154-55: “But it is the teaching of this Treatise that the wealth of nations is enriched, not during Income Inflations but during Profit Inflations — at times, that is to say, when prices are running away from costs.” Keynes in fact really coined this term (so to speak).  Subsequently Hamilton published two more articles on this theme — in 1942, and 1952.  The latter was his Presidential Address to the Twelfth Annual Meeting of the Economic History Association.  Since this concept does not appear in the book under review, it would be unfair to criticize this thesis, here, even if space did permit it.  But I have posted on my web site an unpublished Working Paper, entitled “Prices, Wages, and Prospects for ‘Profit Inflation’ in England, Brabant, and Spain, 1501-1670:  A Comparative Analysis”:  It should be noted, however, that Hamilton (1934) did devote his chapter XII, pp. 262-82, to “Wages: Money and Real” and his Appendix VII (pp.  393-402) is devoted to “Money Wages.”  But space limitations have prevented me from discussing this aspect of his monograph.


  1. He warns the reader (p. 40) “that these are estimates based on partial information, into which the determination of arbitrary assumptions of correlations have entered, not exact compilations of complete data.”


  1. See notes 79 and 80 above.


  1. See note 1.




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Munro (1979), John, “Bullionism and the Bill of Exchange in England, 1272-1663: A Study in Monetary Management and Popular Prejudice,” in Center for Medieval and Renaissance Studies of the University of California (Fredi Chiappelli, director), ed., _The Dawn of Modern Banking_ (New Haven and London: Yale University Press, 1979), 169-239; reprinted in Munro (1992).

Munro (1983), John, “Bullion Flows and Monetary Contraction in Late-Medieval England and the Low Countries,” in  John F. Richards, ed., _Precious Metals in the Later Medieval and Early Modern Worlds_ (Durham, 1983), 97-158; reprinted in John Munro, _Bullion Flows and Monetary Policies in England and the Low Countries, 1350-1500_, Variorum Collected Studies series CS 355 (Aldershot, 1992).

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Munro (1991a), John, “The Central European Mining Boom, Mint Outputs, and Prices in the Low Countries and England, 1450-1550,” in Eddy H.G. Van Cauwenberghe, ed., _Money, Coins, and Commerce: Essays in the Monetary History of Asia and Europe (From Antiquity to Modern Times), Studies in Social and Economic History (Leuven: Leuven University Press, 1991), 119-83.

Munro (1991b),  John, “The International Law Merchant and the Evolution of Negotiable Credit in Late-Medieval England and the Low Countries,” in Dino Puncuh, _Banchi pubblici, banchi privati e monti di pietà nell’Europa preindustriale: amministrazione, tecniche operative e ruoli economici_,   Atti della Società Ligure di Storia Patria, Nouva Serie, Vol. XXXI (Genoa: Società Ligure di Storia Patria, 1991), 49-80; reprinted in John Munro, _Textiles, Towns, and Trade: Essays in the Economic History of Late-Medieval England and the Low Countries_ (Ashgate and Brookfield, NY:  1994).

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Munro (1998), John, “Precious Metals and the Origins of the Price Revolution Reconsidered: The Conjuncture  of Monetary and Real Forces in the European Inflation of the Early to Mid-Sixteenth Century,” in  Clara Eugenia Núñez, ed., _Monetary History in Global Perspective, 1500-1808_, Proceedings of the Twelfth International Economic History Congress at Madrid, August 1998 (Seville, 1998), 35-50.

Munro (2000), John, “English ‘Backwardness’ and Financial Innovations in Commerce with the Low Countries, 14th to 16th centuries,” in Peter Stabel, Bruno Blondé, and Anke Greve, eds.,_ International Trade in the Low Countries (14th – 16th Centuries): Merchants, Organisation, Infrastructure_, Studies in Urban, Social, Economic, and Political History of the Medieval and Early Modern Low Countries (Marc Boone, general editor), no. 10 (Leuven-Apeldoorn: Garant, 2000), 105-67.

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Munro, John (2003b), “Money, Wages, and Real Incomes in the Age of Erasmus: The Purchasing Power of Coins and of Building Craftsmen’s Wages in England and the Southern Low Countries, 1500-1540,” in Alexander Dalzell and Charles G. Nauert, Jr., eds., _The Correspondence of Erasmus_, Vol. 12: _Letters 1658-1801, January 1526- March 1527_ (Toronto: University of Toronto Press, 2003), Appendix: 551-699.

Munro (2003c), John, “Wage Stickiness, Monetary Changes, and Real Incomes in Late-Medieval England and the Low Countries, 1300 – 1500:  Did Money Matter?” _Research in Economic History_, 21 (2003), 185-297.

Munro (2003d), John, “The Medieval Origins of the Financial Revolution: Usury, Rentes, and Negotiability,” _The International History Review_, 25:3 (September 2003), 505-62.

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Munro (2007a), John, “The Price Revolution,”  in Steven N. Durlauf and Lawrence  E. Blume, eds., _The New Palgrave Dictionary of Economics_, 2nd edition, 6 vols. (London and New York:  Palgrave Macmillan, forthcoming).

Munro (2007b), John, “South German Silver, European Textiles, and Venetian Trade with the Levant and Ottoman Empire, c. 1370 to c. 1720: A Non-Mercantilist Approach to the Balance of Payments Problem,” in Simonetta Cavaciocchi, ed., _Relazione economiche tra Europa e mondo islamico, seccoli XIII – XVIII_, Atti delle ‘settimana di Studi” e altri convegni, no. 38, Istituto Internazionale di Storia Economica, “Francesco Datini” (Florence: Le Monnier, 2007), forthcoming.

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John Munro is Professor Emeritus of Economics at the University of Toronto, where he has taught since 1968, and where, despite mandatory retirement, he continues to teach a full course load in European economic history, both medieval and modern (to 1914).  His publications, in medieval and early modern economic history, are in two fields: (1) money, prices, and wages; and (2) textiles (including labor history and thus wages), which have predominated in his recent years of published output.  In the first field, his recent publications include “Wage Stickiness, Monetary Changes, and Real Incomes in Late-Medieval England and the Low Countries, 1300-1500: Did Money Matter?” _Research in Economic History_, 21 (2003) and “The Medieval Origins of the Financial Revolution: Usury, Rentes, and Negotiability,” _The International History Review_, 25:3 (September 2003). Forthcoming is the entry on “The Price Revolution,” in Steven N. Durlauf and Lawrence  E. Blume, eds., _The New Palgrave Dictionary of Economics_, second edition.

Copyright (c) 2007 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (; Telephone: 513-529-2229). Published by EH.Net (January 2007). All EH.Net reviews are archived at

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

Quarter Notes and Bank Notes: The Economics of Music Composition the Eighteenth and Nineteenth Centuries

Author(s):Scherer, F. M.
Reviewer(s):Velde, François R. V

Published by EH.NET (January 2005)

F. M. Scherer, Quarter Notes and Bank Notes: The Economics of Music Composition the Eighteenth and Nineteenth Centuries. Princeton, NJ: Princeton University Press, 2004. x + 264 pp. $35 (cloth), ISBN: 0-691-11621-0.

Reviewed for EH.NET by Fran?ois R. Velde, Federal Reserve Bank of Chicago.

Among lovers of classical music, there are those who recognize in the immortal works they so admire the purest manifestation of man’s genius striving to manifest the divine and touch the soul. And then, there are the economists.

F. M. Scherer, Aetna Professor Emeritus in the John F. Kennedy School of Government, Harvard University, and visiting professor at Haverford College, is one of those music-loving economists, who cannot help but see that the music he loves is, after all, an output like many others, and cannot help but ask how this output was produced, by whom, facing what prices and making what trade-offs, in what kind of markets. This book contains his answers, a bold raid by an economist into the subject matter of musicologists, but one that economic historians would be the last to reprove, and should be the first to imitate.

Scherer has much material to work with: composers have been the subject of historical research and biographies, some of it particularly directed at the business aspects of composing and performing (such as the work of Milhous and Hume on Handel’s finances). Scherer has delved deeply into this material, selecting 50 composers whose biographies he read and from which he has selected many enlightening anecdotes.

But quantitative analysis, guided by economic thinking, is the comparative advantage of the economist. The substance of the book, accordingly, consists of the analysis of a data-set constructed by the author.

Scherer took all composers born between 1650 and 1850, listed in the Schwann Opus Fall 1996 catalogue of recorded music, and whom he was able to match with biographical entries in the New Grove. The Schwann catalogue provided both the sample selection tool and the measure of musical output (the length of listings); the Grove and additional documentation provided personal characteristics (dates and location of birth and death, type and level of education and training, years spent in various locations, type and duration of employment).

The obvious weakness of the data-set appears both in the selection of composers and the in measure of output. The choice of composers reflects the availability to (and tastes of) North American music lovers of the last half-century. Moreover, musical “output” measures the number of recordings, not the number of recorded works, let alone the number of works written. Scherer wants to interpret this as output weighted by quality, or at least durability. This interpretation assigns a measure of reliability to the tastes reflected in the 1996 catalog. The same exercise today (albeit not with the Schwann, which disappeared several years ago) could well yield a quite different sample, because of the “early music” revival and rising interest in hitherto neglected composers. Scherer mentions that only three recordings of Salieri’s operas were listed in Schwann in 1996: since then, Salieri’s operatic “output” has tripled (and, with three dozen unrecorded operas, it has room to grow)!

Not only does the author fully acknowledge this weakness, he constantly reminds the reader of it, when appropriate. And I would not be overly concerned about the bias in the measure of output, since the analysis rests mostly on the numbers of composers in various categories, rather than their output (regressions with this output on the left-hand side don’t tend to yield significant results). But the selection bias itself is worrisome, particularly in opera, where the phenomenally prolific composers of the eighteenth century leave barely a trace in recordings today, for obvious reasons of costs.

Be that as it may, Scherer proceeds to make full use of the sample he has painstakingly constructed, and does so, alternating graphical displays and regression analysis (with the estimates consigned in endnotes for general readability), and qualitative evidence taken from the biographies of the composers. Some anecdotes might already be familiar from recording liner notes, but the vast and rich array assembled here, if it does not prove or disprove the kinds of hypotheses economists test, nevertheless gives texture and context, a good feel for the reality of composers’ working lives.

After a good general overview of the historical and economic background and a description of the music-producing sector, Scherer asks the questions that naturally come to mind, on origins and backgrounds, education and training, the nature of careers and employment, geographic mobility, the trade-offs faced, the rewards that could be expected, and the degree of financial success that could be hoped for. An additional chapter looks into more detail at the economics of music publishing.

Among the interesting findings of chapters 3, 5, and 6, Scherer shows that the transition from long-term employment relationships to market-oriented activity was much more gradual than is frequently asserted. While support from nobility and church collapsed after 1800, composers had already largely begun to shift toward freelance composing and performing in the eighteenth century (comparing employment within Germany between merchant cities and court-dominated principalities confirms this). In the geography of music, Austria (modern-day borders) overwhelmingly dominates the eighteenth century, both in producing and in employing composers (the concern about selection bias returns here). Thus, Scherer does not find support for the hypothesis that political fragmentation in Germany led to increased demand for music from princelings competing to decorate their courts. Also, poorer nations tended to be exporters of musical talent. This is perhaps less surprising after Scherer shows that the type of training did not seem to matter much in what was still a craft, hence poorer nations were not at a particular disadvantage in accumulating this type of human capital. Interestingly, the mobility of composers dropped very sharply in the nineteenth century, because improved transportation and communication made it easier not to move (change residence) in order to make a living.

Chapter 4, on the financial rewards and successes of composers, has little in the way of concrete results, although Scherer is able to document a very skewed distribution of rewards for musicians (being mindful again of the selection bias: for those musicians whose music we like enough to track down their probate inventories). But focusing on the income derived from publishing, which is done in the final chapter, proves fruitful. Many facts are gathered about the technology and the costs of publishing music, and the evolution of copyright, whose impact on the number of composers is examined. Scherer also looks at the fees paid by publishers to Schumann and Beethoven for their works, and measures how the fees per work rose with cumulated output (presumably a reputation effect).

In the conclusion chapter, Scherer indulges in further speculation about which system (court/church employment versus freelance) produced better music. Modern debates over government subsidies for the arts might find useful elements here, if the bias did not interpose itself once more. The best Scherer could do with his data is to make a statement about which system was better able to produce music for the listeners two hundred years hence, not necessarily the relevant question for today’s taxpayer. The concluding chapter also argues that a turning point in the 1920s (identified as the emergence of radio and recordings, and documented by the collapse of piano sales) led to a bifurcation between “serious” music and mass-market, the former contracting Baumol’s cost disease and now requiring permanent transfusions of money to survive. These considerations are a little hasty, as it is far from clear that the turning point is correctly identified, and it is performance of old works, rather than the composition of new works, that suffers from the cost disease. The interesting question is: Why have we invented this concept of “classical” music, i.e., music which by definition becomes more expensive to perform? In most of the period that Scherer studies, music died with its composer (if not before), and neither court nor church subsidized the performance of centuries-old music (Allegri’s Miserere notwithstanding).

If the book’s only merit were to raise such questions, that would be praise enough. But this book, designed to be accessible, deserves to be read widely and foremost by his music-loving colleagues in the economics profession. Even if Scherer has already done much of what can be done with the material already gathered by musicologists, there are still open questions (the economics of performing is largely untouched). And this is, of course, not a flaw but an invitation to follow in his footsteps.

Fran?ois R. Velde, Federal Reserve Bank of Chicago, is co-author of The Big Problem of Small Change (Princeton University Press, 2002), and a music-lover

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):19th Century

The Lost Art of Economics: Essays on Economics and the Economics Profession

Author(s):Colander, David
Reviewer(s):Ramrattan, Lall B.

Published by EH.NET (February 2003)

David Colander, The Lost Art of Economics: Essays on Economics and the

Economics Profession. Cheltenham, UK and Northampton, MA: Edward Elgar,

2001. x + 203 pp. $80 (hardcover), ISBN: 1-84064-694-2.

Reviewed for EH.NET by Lall B. Ramrattan, Department of Economics, University

of California – Davis.

Although the author of this book expresses an artistic partiality for

economics, his message is to call a spade a spade, namely “not to present

scientific economic arguments for more than what they are” (p. 11). The

methodology of the book is presented in almost syllogistic form on page 10,

built on a functional foundation, and mapped onto the domain of “how economists

actually go about their work, and where they get their directions from.”

Art is defined as “using one’s intuition to gain insight, and imagination in

expressing the insights one has gained through the best means possible.

Purposeful people are naturally artists” (p. 10). As economizing behavior is

purposeful, science will have a limiting role. Within the author’s framework,

science is limited to the role of gaining and storing insights. Standard

science stores insights in efficient mathematical form, and conveys insights to

others. It fails in some areas that do not lend themselves easily to empirical

verifications; particularly, in the areas of complex systems such as economics

and the social sciences.

As a first examination of the author’s theses, we may note, from an ontological

point of view, that economists are not all artistically inclined. Economists

are inclined to take a position anywhere between belief and science. The

Austrian school, for instance, are “Human Action” or “praxeologically”

inclined, a methodology Friedman set about to attack with his brand of positive

economics. A second problem from a common sense or pragmatic position is that

knowledge may be a limiting case of belief: what we believe in we can come to

know. However, superiority over our ancestors in science and culture does not

guarantee us being more artistic. A third problem is that from a research or

epistemological point of view, science may create art. For example, a recent

CBS 60 minutes report showed that the invention of the mirror is largely

responsible for the enhancement of art. A fourth problem from a mystical point

of view is that art might be an experience good for the economist, with no

guarantee that the intuition necessary for better economic policies will

develop. Because the author’s position is not clear from the definition he

offers of art, we shall try to further understand it from a more logical


A distinguishing feature of Colander’s methodological position is his implicit

insistence that normative and positive are contrary rather than contradictory

terms. According to P. F. Strawson, when one can add an inconsistent statement

(art) to two statements that are inconsistent with each other (normative and

positive), then the statements are contrary (Strawson, 1952, 16). Colander’s

system is analogous to the analysis of day and night but not without twilight,

and appears to be the way its framer, J.N. Keynes, laid out its initial

architecture for Political Economy. He is clear about the position of art as

“establishing a buffer between positive economics and normative judgments” (p.


Colander argues for keeping the three-part system of Keynes, but for adjusting

it towards a more realistic balance favoring art. Metaphorically speaking, if

the three party system can be laid out on the three corners of the Jacob

Marschak preference triangle as modified by Machina (1987), then the way modern

economists have unfolded their methodological preferences has resulted in the

collapse of the side that represents art. However, it is not clear whether such

a situation represents a degeneration of the Keynesian methodology, which the

author seeks to make more progressive. One must not forget that the father of

positivism, Auguste Comte, thought of progress in a positive sense as a

movement from childhood to manhood, from religion through metaphysics to

science, and that Friedman might just be following that hunch. In terms of the

metaphor, the three vertices can degenerate, and the suppression of the third

vertex, representing art, can attempt to make the Keynesian program


Another approach to understanding Colander’s methodology is to contrast it with

others. The author makes important contrasts with the methodology of Thomas

Mayer (pp. 51-53). We are told that Mayer emphasizes, “empirical science

economics,” while the author emphasizes “applied policy economics.” Mayer

laments “the notion of an intellectual hierarchy with formal theory on top”

(Mayer, p. ix), while the author “sees such abstract work as necessary to

refine theoretical insights” (p. 52). Mayer’s approach is akin to “fingertip

economics,” embedded in a “single semi-formal methodology” in which the art and

positive economics are intertwined, whereas Colander’s methodology drives a

wedge, creating a separating plane between art and positive economics. But like

practitioners of the same paradigm, the two views are dominated with more

agreements over disagreement.

It is tempting to contrast the text with the paradigmatic and research program

methodologies of Kuhn and Lakatos, respectively. Briefly, art as used by the

author in the tripartite system has often been taken as equivalent to the words

“practical,” “precepts,” or “instrumental” (Machlup, pp. 489, 506). If those

words can be used interchangeably, then it would be incorrect to state that the

use of instrumentalism is absent in modern policy economics. Policy models,

such as advocated by Tinbergen and others will embody the tripartite

distinction with significant weight given to each. This point can be further

elucidated with a few ninth-grade algebraic terminologies. Consider these two

system equations:

Target = d I + eE +f S (1) Trend = a I + bE + c S (2)

where I, E, and S are instruments to achieve a target return, and some trend.

Given appropriate values for the parameters, we can state that national trends

should be arrested by about x-percent to attain over the long-term a target

y-percent growth. From the art point of view, the two equations with three

instruments (I, E, and S) are overdetermined. For joint policy effects, we can

take one variable as given. But that still would not help. Assuming we take the

effects of S as fixed, then another problem surfaces, viz., db – ea = 0, since

the coefficients for I and E in the two policy equations are collinear, using

the coefficients from our model. Similar problems arise if I or E, instead of

S, is fixed. Therefore, no simultaneous policy effects in line with the two

equations are allowed.

The use of the term “instrumental” instead of “art” may not warrant the severe

charges the author has leveled against Friedman. Friedman would legislate rules

to act as instruments in the case of regulating the money supply, an area in

which he is more influential than scientific. In other cases, he would use

trivial instrumental examples such as the dumping of money in a community by a

helicopter (Friedman, 1969, p. 4). Colander should take into account that

Friedman was standing on the shoulder of giants such as David Hume. In a recent

good text on methodology, Kevin Hoover reminded us of such a foundation set by

the many Humean statements such as “Were all the gold in ENGLAND annihilated at

once,” or if “every man in GREAT BRITAIN should have five pounds slipt into his

pocket in one night,” or suppose that “four-fifths of all the money in GREAT

BRITAIN to be annihilated in one night”(Hume, 1974, pp. 296-311 cited in Hoover

2001, p. 5). In the hard sciences, such experiments were maintained and

popularized in science by Albert Einstein himself under the name

Gedankenexperiment. We should also state that Friedman is very abstract

and scientific as can be his work on the permanent income hypothesis.

Therefore, it is difficult to appreciate Colander’s point of view that

“Friedman’s methodology involves … a lack of interest in doing abstract

theory” (p. 34).

The five axioms Colander offers are in a budding state. They are not parallel

to the axioms of Savage or Von Neumann. In the author’s own words, they are

“methodological rules” not intended to be “binding constraints.” It is up to

the methodologists whether to nip these rules in the bud, or nurture them for a

while. J.M. Keynes gave us a tri-part system that is still alive and well

today. Colander’s restatement of them is likely to contribute to their

progressive lives. This book is a must reading for serious students of economic



Hume, David, Essays: Moral, Political, and Literary, edited by Eugene F.

Miller (Indianapolis: Liberty Classics, 1954, edited 1985).

Friedman, Milton, The Optimum Quantity of Money and Other Essays

(Chicago: Aldine Publishing Company, 1969).

Hoover, Kevin D., Causality in Macroeconomics (New York: Cambridge

University Press, 2001)

Machina, Mark, J., “Choice under Uncertainty: Problems Solved and Unsolved,”

Journal of Economic Perspectives, Vol. 1, No. 1, Summer 1987, 121-154.

Machlup, Fritz, Methodology of Economics and Other Social Sciences (New

York: Academic Press, 1978)

Mayer, Thomas, Truth versus Precision in Economics (Northampton, MA:

Edward Elgar, 1993)

Strawson, P. F., Introduction to Logical Theory (London: Methuen, & Co.,


Lall Ramrattan is the co-author of “The European Monetary Union vs. U.S.A.,

Cooperation and Competition: An Examination of Welfare Benefits,” (with Michael

Szenberg and Cathyann Tully) in J. Jay Choi and Jeff Wrase, editors,

European Monetary Union and Capital Markets, Volume 2 of the

International Finance Review (Holland: Elsevier: JAI Press, 2001). He

has published in many fields of economics in a variety of journals. He is a

lecturer at the Department of Economics at UC-Davis.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Famous First Bubbles: The Fundamentals of Early Manias

Author(s):Garber, Peter M.
Reviewer(s):Kindleberger, Charles P.

Published by EH.NET (August 2000)

Peter M. Garber, Famous First Bubbles: The Fundamentals of Early Manias.

Cambridge, MA: MIT Press, 2000. xii + 163 pp. $24.95 (cloth), ISBN


Reviewed for EH.NET by Charles P. Kindleberger, Professor of Economics,

Emeritus, MIT.

This small book has been hailed by a series of financial economists with high

reputations, including Rudi Dornbusch, Robert Shiller, Richard Sylla, Michael

Bordo, Mike Dooley, Eugene White and Charles Calomiris. Its thesis is that

calling a sharp financial expansion that collapses a “mania” or “bubble” is

sloppy thinking. Behind each upset lie some fundamental conditions. Even if

historical contemporaries call an episode a mania or bubble, good economic

historians should probe more deeply and determine what fundamental brought it

on. They should stay clear of expressions like mania, bubble, herd behavior,

panic, crash, irrational exuberance, financial crisis, chain letter, Ponzi

scheme, contagion and “other-fool theory.” Instead, they should dig.

Peter Garber focuses on three episodes: the Dutch tulipmania of 1634-37 (one

word in his lexicon) and the Mississippi and South Sea “bubbles” of 1719-1720.

The tulipmania, on which he has written before, takes eighty-three pages of

text, compared with thirty-five for both Mississippi and South Sea. The tulip

fundamental is that rare bulbs are hard to produce, but once achieved they are

relatively easy to propagate-this brings high and rising speculative prices for

rare species in the process of being developed, which fall after the exotic

coloring has been won. In earlier work Garber held that the similar bubble for

common varieties or pound goods was difficult to explain. In this book he holds

that their price history was meaningless-the players at the various “colleges”

or taverns were merely seeking entertainment, after the disastrous bubonic

plague of 1634-36, confident that any substantial losses would be written down

by the state. The speculation in his new view was just an idle “winter drinking

game” played for amusement. This basis of that confidence in February 1637,

when the write-down in Haarlem occurred in May 1638, is unclear.

Garber has provided a great deal of tulip prices in the period, much of it for

different dates, apart from February 7, 1637, from different sources. One major

source took the form of a debate for and against the speculation promoted by

government in the spring of 1637 to discourage speculation. Some sixteen charts

of the prices of particular bulbs (some exotic, some common) display straight

lines joining an early price to those of 1636 or 1637-to the weighted average

of the day’s price, not the peak. A straight line from, say, 1622 to 1637 gives

an impression of gradual rising, whereas there might have been a sharp rise in

the last weeks or month, as is shown in some charts.

Some arguments against the existence of a bubble are hardly persuasive. One is

that there was a depression following the collapse, as there had been after the

US stock market bubble of 1929 and the Japanese of January 1990. Another is

that the Cambridge Economic History of Europe in the Sixteenth and

Seventeenth Centuries does not mention it. Two important Dutch histories,

do, however: Jonathan I. Israel whose The Dutch Republic (Oxford:

Clarendon Press, 1995) sets it in the boom of East India Company shares, the

West Indies Company, housing, drainage schemes for the wealthy and tulips for

small town dealers and tavern keepers (pp. 552-53); and Jan de Vries and Ad van

der Woude, The First Modern Economy: Success, Failure, and Perseverance of

the Dutch Economy, 1500-1815 (New York: Cambridge University Press, English

translation, 1997), who call it a mania and include considerable detail. They

make the point that the contracts in the taverns were unenforceable. “Public

officials viewed this democratic speculation with both fear and loathing, and

once the mania collapsed . . . pamphlets appeared denouncing the irrational and

immoral conduct of the speculators” (p. 150-51).

Garber’s book was written before the appearance of Devil Take the Hindmost:

A History of Financial Speculation (New York: Farrar, Straus and Giroux,

1999), by Edward Chancellor, English banker and historian. So he had no

opportunity to respond to Chancellor’s third chapter devoted to tulipmania.

Chancellor, on the other hand, had read one of Garber’s early articles and

takes a dim view of it. “This bold attempt at historical revision does not

withstand scrutiny.” Several points are questioned, especially buying bulbs in

the ground in winter which will not be known to have produced exotic offshoots

until exhumed in June, and then whether the offshoots would produce exotic

flowers until years later . . . “The term ‘speculative mania’ aptly described

the condition of the Dutch tulip market in the mid-1630s” (pp. 24-25).

I have left too little space to deal with Garber’s treatment of the Mississippi

and South Sea bubbles. He regards each as a sensible experiment in what is now

called Keynesianism, bidding up the price of shares, financed by a captive

bank, in the hope that supply would expand later to justify the higher prices.

But speculation based on hope is difficult to characterize as a fundamental,

which in ordinary parlance is more tangible. The enemies of John Law in France,

largely in the Languedoc, were “infinitely more realistic than Law . . . . The

true masters of high flight who directly stimulated the agiotage, kept aloof

from the fever, planning themselves to ruin Law’s systeme when they judged the

movement favorable” (Guy Chaussinand-Nogaret, Les Financiers de Languedoc au

XVIII Siecle, Paris: S.E.V.P.E.N., 1970, p. 129). Chancellor includes the

South Sea bubble in Devil Take the Hindmost, noting that “some

speculators lost fabulous sums . . . ?247,000 . . . and ?700,000 of a paper

fortune. Sir Isaac Newton lost ?20,000 by selling out too early (with profit)

and then returning to the market at its peak” (p. 88). “A rational investor is

one who seeks to optimise his wealth by offsetting risk with reward and using

all publicly available information. Was the investor who bought South Sea stock

at ?1,000 behaving rationally? The answer is no. First, there was sufficient

public information to suggest that the share price was seriously overvalued.

Second, by entering the bubble at an advanced sate the investor faced a poor

ratio of risk to reward: he was chasing a small potential gain and risking a

larger and more certain loss. Third the ‘fundamentals’ (i.e., the long-term

prospects of the company) did not change significantly in the year” (p. 94).

Chancellor does not address the Mississippi bubble except tangentially.

As for herding, investors in London and Paris, cashing out in their local

bubble bought shares in the other. As South Sea stock started to slip in July

1720, eighty denizens of “change alley” in London went to the Dutch Republic to

mend their fortunes in insurance companies in Amsterdam, Middelburg, and

Rotterdam. Only, two insurance companies of the more than twenty survived

(Frank Spooner, Risks at Sea: Amsterdam Insurance and Maritime Europe,

1766-1780, New York, Cambridge University Press, 1983, pp. 24-25).

Belief in efficient markets is subscribed to by many, but may be losing

credence after the April 2000 decline of the NASDAQ share index. Andrei

Schleifer of Harvard has just brought out a book, Inefficient Markets

(New York: Oxford University Press, 2000), which argues, inter alia, that many

investors do poorly in the market because they chase the latest fashion. This

is herd behavior.

Garber claims that the world “bubble” lacks clear meaning and that it should be

invoked only as a last resort. The same would seem to apply to fundamentals

based on hope. The notion that markets are rational, efficient and collate all

available information is a strong prior belief often used in the absence of

clear facts. Finance has fads that rest on contagion, some of which may later

prove illusory. For the world today, one can mention conglomerates, mergers and

acquisitions, initial public offerings, hedge funds, loans to emerging markets,

and the Long-Term Capital Management fund.

The last in this list evokes a remark from Garber with an edge to it. “Law’s .

. . experiment is tarred with the pejorative ‘bubble.’ When modern economic

policymakers’ reach exceeds their grasp, they simply accommodate the ensuing

tenfold price inflation and get the Nobel Prize” (p. 107).

The debate between those who believe market are always rational and efficient,

resting on fundamentals, and historians who call attention to a series of

financial crises going back to at least 1550 is likely to continue. Parsimony

calls for making a choice for or against financial crises; complexity permits

one to say that markets are mostly reliable but occasionally get caught up in

untoward activities.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):18th Century

A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society

Author(s):Poovey, Mary
Reviewer(s):Alborn, Timothy

Published by EH.NET (September 1999)


Mary Poovey, A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society. Chicago: University of Chicago Press, 1998. xxv + 419 pp. $49.00 (cloth), ISBN: 0-226-67525-4; $17.00 (paper), I

SBN: 0-226-67526-2.

Reviewed for EH.NET by Timothy Alborn, Department of History, Lehman College, CUNY.

Economic historians don’t tend to think much about epistemology. As they trace unfolding developments in the economy, though, epistemology has a way of sneaking up on them. To cite an example from the recent past, The Economist this past July commented on the difficulty of squaring the enormous optimism generated by the new information-technology economy (reflected in the booming stock market) with the plainly unimpressive growth rates in all sectors of the economy barring computer sales. This was apparently “a sad case of the irresistible story meeting the immovable statistic,” claimed the magazine. As if to drive home the underlying epistemological quandary, the accompanying editorial (and magazine cover) was titled: “How real is the new economy?”

In A History of the Modern Fact, Mary Poovey reinterprets classic texts in political economy, philosophy, and statistics in order to locate the historical origins of what she claims is a peculiarly modern dilemma. Whether charting economic growth or planetary motion, she claims, we moderns feel the need to ground our claims in immovable statistics; yet at the same time we are compelled to find a transcendent meaning (an irresistible story) in the mass of details. Poovey brings to this project the perspective of a literary critic who has, in the past, turned her attention to putatively non “literary” topics like Florence Nightingale and poor law reform. Her recent appointment as director of the Institute for the History of the Production of Knowledge at NYU has provided her with an institutional base from which to pursue the ambitious, and clearly historical, agenda for which A History of the Modern Fact is a blueprint.

It is indeed an ambitious book. One is tempted to apply to it Daniel Defoe’s definition of “project”, which Poovey quotes (p. 158): “a vast undertaking, too big to be managed.” The narrative moves from late-16th century British book-keeping manuals; through the debate between Gerald de Malynes and Thomas Mun on Britain’s money supply; William Petty’s writings on political arithmetic; Defoe’s essays on “projects” and mercantile conduct; Earl Shaftesbury on sociability; David Hume on conjectural history; Samuel Johnson on the Outer Hebrides; and Smith and Malthus on political economy, before concluding with a chapter on John Stuart Mill and the astronomer John Herschel. On the way, she has much to say about the history of classical rhetoric, moral philosophy, scientific societies, and the problem of induction. And for the most part, she succeeds at holding all these topics together by keeping in focus her subjects’ diverse efforts to solve the same problem: how to produce systematic knowledge about society in an era when the political basis of social order was being transformed?

Two important contexts for this problem appear in the book’s opening chapters: classical (or Ciceronian) rhetoric, which dominated the way Renaissance writers made arguments; and “reason of state” theories which viewed politics in terms of sound principles which an absolute monarch could then impose on his subjects. Poovey describes most of her subjects as struggling against one or both of these conventions on their way to inventing a new way of analyzing society. Double-entry bookkeeping, for instance, substituted plain-speaking numbers for Ciceronian excess, in the process selling the precision of balance sheets as a proxy for mercantile virtue. Thomas Mun similarly pitched his arguments against centralized monetary policy both by his recourse to precise-sounding (but wholly illustrative) figures depicting the balance of trade and by his defense of mercantile rules and expertise. And Daniel Defoe moved from tracing the tangible effects of mercantile enterprise (in his Essays upon Several Projects) to writing a conduct manual for merchants (his Compleat English Tradesman), once he had determined that real-world merchants were not capable of rising to his vicarious ambitions.

As all these examples suggest, Poovey is especially interested in what might be called the communitarian origins of the modern fact. Only once a stable community is in place, with formal rules resting on unspoken customs, can its accompanying way of knowing the world start to appear stable as well. Poovey presents each of her early modern participants in the making of the “modern fact” as falling short, in one way or another, of achieving such stability, and hence never quite securing trust in the facts they tried to generate. Neither her bookkeepers nor Mun really intended their “facts” to correspond transparently or comprehensively with “reality”; all that mattered for them was that their figures added up. And she presents other examples of people employing modern facts for premodern purposes, as when William Petty intended his political arithmetic to assist in the Hobbesian project of maintaining social order through kingly fiat.

The main arguments of A History of the Modern Fact come into focus in the chapters on Scottish moral philosophy and political economy. The subjects of these chapters first try to pin their hoped-for epistemological stability on divine design, before settling on the tools of disciplinary expertise. Poovey first traces the Scottish philosopher Francis Hutcheson’s efforts to identify abstractions like “the human mind” at work in history, the reality of which he demonstrated not mainly by reference to historical evidence, but by internal coherence and the assumption that anything constructed by God must run like clockwork. The key figure in the move away from providential design, unsurprisingly, is David Hume, who drew attention to the problem of induction that providence left unanswered. Poovey portrays Hume as solving that problem to his satisfaction by asserting that even though all theories about society or nature can only be fictions, they are useful fictions which should not be abandoned just because they can never be fully proven. For Poovey the most important implication of this insight (although one which Hume shied away from) is that its success as a solution depends on the social authority of the expert whose job it is to invent theories, now that the expert can no longer appeal to the higher authority of God. Once experts achieve both the self-confidence to assert their systematic knowledge as “real” and the social status to enforce allegiance to those assertions, she claims, the modern fact is born.

The most important of Hume’s useful fictions, according to Poovey, was that of the market system, which Adam Smith famously adopted as the centerpiece of his Wealth of Nations. She describes Smith, like Hume, as being ambivalent about claiming the expert authority which lent weight to the thoroughly modern “fact”. But she points to Smith’s famous reference to unintended consequences as paving the way for the modern economist to make such claims. Even though Smith intended his “invisible hand” as a blow to “reason of state” theorists who assumed that rulers could fully predict and hence govern the behavior of their subjects, the notion of unintended consequences also further enhanced his status as an economic expert who could discern productive results, at least in hindsight, where others saw only self-interest. Poovey next turns from Smith to Malthus, who appealed to the economic fact of overpopulation to draw attention to a less optimistic unintended outcome: procreation leads to social disaster. Because this claim was even more clearly opposed to orthodox religious teaching than Smith’s had been (and Poovey makes the same point about Ricardo’s “dismal” theory of rent), the result was to cut economists off from any possible “providentialist” interpretation that might yet discover “reality” in their theories by reference to God’s design.

With this final problem, A History of the Modern Fact comes to an end. Post-Ricardian economists are presented with a choice: try and patch back together the failed marriage between social science and natural theology, or go bravely forward, insisting ever more stridently that “facts” — and not merely fictional “systems” — do in fact prop up their theories. Poovey discusses J.R. McCulloch as a representative of post-Ricardian providentialism; and traces the development of the London Statistical Society as an example of the grim march forward. The march was grim, she suggests, because in their rush to base their social authority on the “facts” of political economy, they came face to face with the problem that neither Smith nor Ricardo had worried very much about “evidence” in the modern sense of empirical verification. Smith had relied on the rhetorical force of his striking claim that bad behavior yields good results, while Ricardo had staked his claim to expertise on internally-coherent mathematics; both, in short, had been happy to assume, along with Hume, that “fictions” could indeed be useful. The statisticians did not agree, so they simply collected facts and chastised anyone who did not do so as merely “literary”. Since the statisticians still claimed to be doing social science, this move kept religious and social critics of political economy out of that domain, which in the long run allowed for further developments in economic theory (e.g. Jevons and Keynes). But, Poovey argues, this move certainly did not pave the way for any real solution to the problem of induction. As she concludes: “By stressing the incontrovertible nature of statistical ‘facts’ … by way of contrast to the excesses and deceits associated with fiction and rhetoric, apologists for statistics were able to downplay the methodological problem of moving from whatever numbers were collected to general principles” (313-314).

Poovey’s mission in this book is, as she states, to open a dialogue about the origins and limitations of modern knowledge claims. In this sense it is primarily educative and synthetic; but not, as in a survey textbook, with the aim of filling undergraduates with relevant facts and socializing them to organize their thoughts in accordance with the norms of an academic discipline. Rather, the goal is to educate other academics to take notice of lively debates in fields outside their own, and the topics in each chapter are intended to illustrate how some of the lessons of these debates might be applied in practice. What makes the book’s ungainly structure work (to the extent that it does work) is exactly what makes a good graduate program turn out good students: readers who have already thought about some of these issues are invited to pursue them in surprising directions. The other side of this is that many historians who have spent a career examining a single thread of this story in far more detail than Poovey could possibly have done will be tempted to split hairs, or to find little value added to their area of special expertise (those who are tempted to respond to the book in this way should at least not ignore the extensive footnotes, where Poovey provides running commentary on her use of secondary sources). And economic historians who have never been interested in the problem of induction (a sizeable demographic, if Poovey’s claims are correct) will most likely not have the patience to follow her arguments through to the end. In other words, this book is not very well designed to teach old dogs new tricks.

Poovey also uses her book to speak, more elliptically, to the ongoing academic debate over the merits of “postmodernism”; indeed, given her background as a literary critic, one way of reading this book is as an inquiry into the historical origins of postmodernism. At nearly every stage of her argument, she is careful to present examples of people proposing alternatives to the “modern fact” as a means of organizing knowledge. Hume, for instance, switched from treatises to essays after 1757 in order to encourage a more open-ended, conversational approach to knowledge; Samuel Johnson’s Journey to the Western Islands of Scotland (1775) appears at the end of chapter five as a very early example of postcolonial critical theory, in which the Highlanders’ agency is used to interrogate the limits of modern rationality. And Poovey concludes her book with the outright rejection of the “modern fact” by the Romantic poets Southey and Coleridge.

These various efforts to get beyond a focus on grand theories and endless evidence, she argues, all anticipate to some extent the more general tendency of various “postmodern” writers today to “solve” the problem of the modern fact by rejecting it; by denying that knowledge needs to be about grand theories, and focusing instead on “micropolitics” or formal models. Although she doesn’t explicitly say so, much of modern economic theory, at least dating back to Debreau, takes exactly this formalist approach to opting out of the problem of induction. As Poovey recognizes, though, and as the persistence of questions like “Is the New Economy Real?” suggests, the modern fact and its associated tensions are likely to remain with us for a long time to come.

Tim Alborn is assistant professor of history at Lehman College in the City University of New York. He has published Conceiving Companies: Joint-Stock Politics in Victorian England (Routledge, 1998) and is working on a book about the social history of British life assurance.


Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):General or Comparative

The Great Wave: Price Revolutions and the Rhythm of History

Author(s):Fischer, David Hackett
Reviewer(s):Munro, John H.

Published by EH.NET (February 1999)

David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of

History. Oxford and New York: Oxford University Press, 1996. xvi + 536.

$35 (hardcover), ISBN: 019505377X. $16.95 (paperback), ISBN: 019512121X.

Reviewed for EH.NET by John H. Munro, Department of Economics, University of


Let me begin on a positive note. This is indeed a most impressive work: a

vigorous, sweeping, grandiose, and contentious, though highly entertaining,

portrayal of European and North American economic history, from the High Middle

Ages to the present, viewed through the lens of “long-wave” secular price-

trends. Indeed its chief value may well lie in the controversies that it is

bound to provoke, particularly from economists, to inspire new avenues of

research in economic history

, especially in price history. The author contends that, over the past eight

centuries, the European economy has experienced four major “price-

revolutions,” whose inflationary forces ultimately became economically and

socially destructive, with adverse consequences that provoked various complex

reactions whose “resolutions” in turn led to more harmonious, prosperous, and

“equitable” economic and social conditions during intervening eras of “price

equilibria”. These four price-revolutions are rather too neatly set out as the

following: (1) the later- medieval, from c.1180-c.1350; (2) the far better

known 16th-Century Price-Revolution, atypically dated from c.1470 to c.1650,

(3) the inflation of the Industrial Revolution era, from c.1730 to 1815; and

(4) the 20th century price-revolution, conveniently dated from 1896 to 1996

(when he published the book).

Though I am probably more sympathetic

to the historical concept of

“long-waves” than the majority of economists, I do agree with many opponents of

this concept that such long-waves are exceptionally difficult to define and

explain in any mathematically convincing models, which are certainly not

supplied here. For reasons to be explored in the course of this review, I

cannot accept his depictions, analysis

, and explanations for any of them. This will not surprise Prof. Fischer, who

is evidently not an admirer of the economics profession. He is particularly

hostile to those of us deemed to be “monetarists,” evidently used as a

pejorative term. After rejecting not only the “monetarist” but also the


neo-Classical, agrarian, environmental, and historicist” models, for their

perceived deficiencies in explaining inflations, and after condemning

economists and historians alike for imposing rigid models in attempting to

unravel the mysteries of European and North American economic history,

Fischer himself imposes an exceptionally rigid and untenable model for all four

of his so-called price-revolutions, containing in fact selected Malthusian and

monetarist elements from these supposedly rejected models.

In essence, the Fischer model contends that all of his four long-wave

inflations manifested the following six-part consecutive chain of causal and

consequential factors, inducing new causes, etc., into the next part of the

chain. First, each inflationary long-wave began with a prosperity created from

the preceding era of price-equilibrium, one promoting a population growth that

inevitably led to an expansion in aggregate demand that in turn outstripped

aggregate supply, thus — according to his model

— causing virtually ALL prices to rise. Evidently his model presupposes that

all sectors of the economy, in all historical periods under examination, came

to suffer from Malthusian-Ricardian diminishing

returns and rising marginal costs, etc. Second, in each and every such era,

after some indefinite lapse of time, and after the general population had

become convinced that rising prices constituted a persistent and genuine trend,

the “people” demanded and

received from their governments an increase in the money supply to

“accommodate” the price rises. As Fischer specifically comments on p. 83: “in

every price-revolution, one finds evidence of frantic efforts to expand the

money supply, after people have discovered that prices are rising in a secular

way.” Third, and invariably, in his view, that subsequent and continuous growth

in the money supply served only to fuel and thus aggravate the already existing

inflation. He never explains, however, for any of

the four long-waves, why those increases in money stocks were always in excess

of the amount required “to accommodate inflation”. Fourth, with such

money-stock increases, the now accelerating inflation ultimately produced a

steadily worsening impoverishment of the masses, aggravated malnutrition,

generally deteriorating biological conditions, and a breakdown of family

structures and the social order, with increasing incidences of crime and social

violence: i.e., with a rise in consumer prices that outstripped generally

sticky wages in each and every era, and with a general transfer of wealth from

the poorer to richer strata of society. Fifth, ultimately all these negative

forces produced economic and social crises that finally brought the

inflationary forces to a halt,

producing a fall in population and thus (by his model) in prices, declines that

subsequently led to a new era of “price-equilibrium,” along with concomitant

re-transfers of wealth and income from the richer to the poorer strata of


(where such wealth presumably belonged). Sixth, after some period of economic

prosperity and social harmony, this vicious cycle would recommence, i.e., when

these favorable conditions succeeded in promoting a new round of incessant

population growth, which inevitably sparked those same inflationary forces to

produce yet another era of price-revolution, continuing until it too had run

its course.

While many economic historians, using more structured Malthusian-Ricardian type

models, have also provided a similarly bleak portrayal of

demographically-related upswings and downswings of the European economy,

most have argued that this bleak cycle was broken with the economic forces of

the modern Industrial Revolution era. Fischer evidently does not. Are we the

reforecondemned, according to his view, to suffer these never-ending bleak

cycles– economic history according to the Myth of Sisyphus, as it were?

Perhaps not, if government leaders were to listen to the various nostrums set

forth in the final chapter,

political recommendations on which I do not feel qualified to comment.

Having engaged in considerable research, over the past 35 years, on European

monetary, price, and wage histories from the 13th to 19th centuries, I am,

however, rather more qualified

to comment on Fischer’s four supposed long-waves. Out of respect for the

author’s prodigious labors in producing this magnum opus, one that is bound to

have a major impact on the historical profession, especially in covering such a

vast temporal and spatial range, I feel duty-bound to provide detailed

criticisms of his analyses of these secular price trends, with as much

statistical evidence as I can readily muster. Problematic in each is defining

their time span,

i.e., the onset and termination of inflations. If many medievalists may concur

that his first long- wave did begin in the 1180s, few would now agree that it

ended as late as the Black Death of 1348-50. On the contrary,

the preceding quarter-century (1324-49) was one of very severe deflation,

certainly in both Tuscany (Herlihy 1966) and England. In the latter, the

Phelps Brown and Hopkins “basket of consumables” price index (1451-75 =

100) fell 47%: from 165 in 1323 (having been as high as 216 in 1316, with the

Great Famine) to just 88 in 1346. Conversely, while most early-modern

historians would agree that the 16th-Century Price Revolution generally ended

in the 1650s (certainly in England), few if any would date its commencement so

early as the 1470s. To be sure, in both the Low Countries and England, a

combination of coinage debasements, civil wars, bad harvests, and other

supply-shocks did produce a short-term rise in prices from the later 1470s to

the early 1490s; but thereafter their basket-of-consumables price-indices

resumed their deflationary downward trend for another three decades (Munro

1981, 1983). In both of these regions and in Spain as well (Hamilton 1934), the

sustained rise in the general price level, lasting over a century, did not

commence until c.1520.

For Fischer’s third inflationary long-wave, of the Industrial Revolution era,

his periodization is much less contentious, though one might mark its

commencement in the late 1740s rather than the early 1730s.

The last and most recent wave is, however, by far more the most controversial

in its character. Certainly a long upswing in world prices did begin in 1896,

and lasted until the 1920s; but can we really pretend that this so neatly

defined century of 1896 to 1996 truly encompasses any form of long wave when we

consider the behavior of prices from the 1920s?

Are we to pretend that the horrendous deflation of the ensuing Great Depression

era was just a temporary if unusual aberration that deviated from this

particular century long (saeclum) secular tend? Fischer, in fact,


rarely ever discusses deflation, ignoring those of the 14th century and most

of the rest. Instead, he views the three periods intervening between his price-

revolutions as much more harmonious eras of price-equilibria: i.e. 1350-1470;

1650 – 1730; 1820 –

1896; and he suggests that we are now entering a fourth such era. In my own

investigations of price and monetary history from the 12th century, prices rise

and fall,

with varying degrees of amplitude; but they rarely if ever remain stable,

“in equilibrium”.

Certainly “equilibrium” is not a word that I would apply to the first of these

eras, from 1350 to 1470: not with the previously noted, very stark deflation of

c.1325 – 48, followed by an equally drastic inflation that ensued from the

Black Death over

the next three decades, well documented for England, Flanders (Munro 1983,

1984), France, Tuscany (Herlihy 1966),

and Aragon-Navarre (Hamilton 1936). Thus, in England, the mean quinquennial PB

& H index rose 64%: from 88 in 1340-44 to 145 in 1370-74, fal ling sharply

thereafter, by 29%, to 103 in 1405-09; after subsequent oscillations, it fell

even further to a final nadir of 87 in 1475-79 (when,

according to Fischer, the next price-revolution was now under way). For

Flanders, a similarly constructed price index of quinquennial means

(1450-74 = 100: Munro 1984), commencing only in 1350, thereafter rose 170%:

from 59 in 1350-4 to 126 in 1380-84, reflecting an inflation aggravated by

coinage debasements that England had not experienced, indeed none at all since

1351. Thereafter, the Flemish price index plunged 32%, reaching a temporary

nadir of 88 in 1400-04; but after a series of often severe price oscillations,

aggravated by warfare and more coin debasements, it rose to a peak of 138 in

1435-9; subsequent ly it fell another 31%, reaching its 15th century nadir of

95 in 1465-9 (before rising and then falling again, as noted earlier).

Implicit in these observations is the quite pertinent criticism that Fischer

has failed to use, or use properly, these and many other price

indices–especially the well-constructed Vander Wee index (1975), for the

Antwerp region, from 1400 to 1700, so important in his study; and the Rousseaux

and Gayer-Rostow-Schwarz indices for the 19th century (Mitchell &

Deane 1962). On the other hand, he has relied far too much on the dangerously

faulty d’Avenel price index (1894-1926) for medieval and early-modern France.

Space limitations, and presumably the reader’s patience, prevent me from

engaging in similar analyses of price trends

over the ensuing centuries, to indicate further disagreements with Fischer’s

analyses, except to note one more quarter-century of deflation during a

supposed era of price equilibrium: that of the so-called Great Depression era

of 1873 to 1896, at least within England, when the PB&H price index fell from

1437 to 947, a decline of 34% that was unmatched, for quarter-century periods

in English economic history, since the two stark deflations of the second and

fourth quarters of the 14th century. (The Rousseaux index fell from 42.5% from

127 in 1873 to 73 in 1893).

My criticisms of Fischer’s temporal depictions of both inflationary long-waves

and intervening eras of supposed price equilibria are central to my objections

to his anti-monetarist explanations for them, or rather to his

misrepresentation of the monetarist case, a viewpoint he admittedly shares with

a great number of other historians, especially those who have found

Malthusian-Ricardian type models to be more seductively plausible explanations


inflation. Certainly, too many of my students, in reading the economic history

literature on Europe before the Industrial Revolution era, share that beguiling

view, turning a deaf ear to the following arguments: namely, that (1) a growth

in population cannot by itself,

without complementary monetary factors, cause a rise in all prices, though

certainly it often did lead to a rise in the relative prices of grain,

timber, and other natural-resource based commodities subject to diminishing

return and supply

inelasticities; and thus (2) that these simplistic demographic models involve

a fatal confusion between a change in the relative prices of individual

commodities and a rise in the overall price-level. Some clever students have

challenged that admonition,


with graphs that seek to demonstrate, with intersecting sets of aggregate

demand and supply curves, that a rise in population is sufficient to explain

inflation. My response is the following. First, all of the historical prices

with which Fischer and my students are dealing

(1180-1750) are in terms of silver-based moneys-of-account, in the traditional

pounds, shillings, and pence, tied to the region’s currently circulating silver

penny, or similar such coin, while prices expressed in terms of the gold-based

Florentine florin behaved quite differently over the long periods of time

covered in this study. Indeed we should expect such a difference in price

behavior with a change in the bimetallic ratio from about 10:1 in 1400 to about

16:1 in 1650,

which obviously reflects the fall in the relative value or purchasing power of

silver — an issue virtually ignored in Fischer’s book. Second, the shift, in

this student graph, from the conjunction of the Aggregate Demand and Supply


from P1.Q1

and P2.Q2, requires a compensatory monetary expansion in order to achieve the

transaction values indicated for the two price levels: from 17,220,000 pounds

and 122,960,000 pounds, which increase in the volume of payments had to come

from either increased

money stocks and/or flows. Even if changes in demographic and other real

variables, shared responsibility for inflation by inducing changes in those

monetary variables, we are not permitted to ignore those variables in

explaining historical inflations.

Admittedly, from the 12th to the 18th centuries, to the modern Industrial

Revolution era, correlations between demographic and price movements are often

apparent. But why do so few historians consider the alternative proposition

that much more profound, deeper economic forces might have induced a complex

combination of general economic growth, monetary expansion, and a rise in

population, together (so that such apparent statistical relationships would

have adverse Durbin-Watson statistics to indicate significant serial

correlation)? Furthermore, if population growth is the inevitable root cause of

inflation, and population decline the purported cause of deflation, how do such

models explain why the drastic depopulations of the 14th-century Black Death


followed by three decades of severe inflation in most of western Europe?

Conversely, why did late 19th-century England experience the above-noted

deflation while its population grew from 23.41 million in 1873 (PB&H at 1437)

to 30.80 million in 1896 (PB&H

at 947)?

Nor is Fischer correct in asserting that, in each and every one of his four

price-revolutions, an increase in money supplies followed rather than preceded

or accompanied the rises in the price-level. For an individual country or

region, however

, one might argue that a rise in its own price level, as a consequence of a

transmitted rise in world or at least continental prices would have quickly —

and not after the long-time lags projected in Fischer’s analysis — produced an

increase in money supplies to satisfy the economic requirements for that rise

in national/regional prices. Fischer, however, fails to offer any theoretical

analysis of this phenomenon, and makes no reference to any of the well-known

publications on the Monetary Approach to the Balance of Payments [by Frenkel

and Johnson (1976), McCloskey and Zecher (1976), Dick and Floyd (1985, 1992);

Flynn (1978) and D. Fisher (1989), for the Price Revolution era itself]. In


and with some necessary repetition, this thesis contends:

(1) that a rise in world price levels, initially arising from increases in

world monetary stocks, is transmitted to most countries through the mechanisms

of international commerce (in commodities, services, labor) and finance

(capital flows); and (2) that monetized metallic (coin) stocks and other

elements constituting M1 will be endogenously distributed among all countries

and/or regions in order to accommodate the consequent rise in the domestic

price levels, (3) without involving those international bullion flows that the

famous Hume “price- specie flow” mechanism postulates to be the consequences of

inflation-induced changes in national trade balances.

In any event, the historical evidence clearly demonstrates that, for each of

Fischer’s European-based price-revolutions, an increase in European monetary

stocks and flows always preceded the inflations. For the first,

the price-revolution of the “long-13th century” (c.1180-c.1325), Ian Blanchard

(1996) has recently demonstrated that within England its elf,

specifically in Cumberland-Northumberland, a very major silver mining boom had

commenced much earlier, c.1135-7, peaking in the 1170s, with annual silver

outputs that were “ten times more than had been produced in the whole of

Europe” for any year in

the past seven centuries. By the 1170s,

and thus still before evident signs of general inflation or a marked

demographic upswing, an even greater silver mining boom had begun in the Harz

Mountains region of Saxony, which continued to pour out vast quantities of

silver until the early 14th century. For this same

“Commercial Revolution” era, we must also consider the accompanying financial

revolution, also evident by the 1180s, in Genoa and Lombardy; and though one

may debate the impact that their deposit-

and-transfer banking and foreign-exchange banking had upon aggregate European

money supplies,

these institutional innovations undoubtedly did at least increase the volume of

monetary flows, and near the beginning, not the middle, of this first



For the far better known 16th-Century Price Revolution, Fischer seems to pose a

much greater threat to traditional monetary explanations, especially in so

quixotically dating its commencement in the 1470s, rather than in the 1520s.

Certainly Fischer and many other critics are on solid grounds in challenging

what had been, from the time of Jean Bodin (1566-78) to Earl Hamilton

(1928-35), the traditional monetary explanation for the origins of the Price

Revolution: namely, the influx of Spanish

American treasure. But not until after European inflation was well underway,

not until the mid-1530s, were any significant amounts of gold or silver being


(via Seville); and no truly large imports of silver are recorded before the

early 1560s (a

mean of 83,374 kg in 1561-55: TePaske 1983), when the mercury amalgamation

process was just beginning to effect a revolution in Spanish-American mining.

Those undisputed facts, however, in no way undermine the so-called

“monetarist” case; for Fischer, and far too many other economic historians,

have ignored the multitude of other monetary forces in play since the 1460s.

The first and least important factor was the Portuguese export of gold from

West Africa (Sao Jorge) beginning as a trickle in the 1460s;

rising to 170 kg per annum by 1480, and peaking at 680 kg p.a. in the late

1490s (Wilks 1993). Far more important was the Central European silver mining

boom, which began in the 1460s, at the very nadir of the West European

deflation, which had thus raised the purchasing power of silver and so

increased the profit incentive to seek out new silver sources: as a

technological revolution in both mechanical and chemical engineering.

According to John Nef (1941, 1952), when this German-based mining boom reached

its peak in the mid 1530s, it had augmented Europe’s silver outputs more than

five-fold, with an annual production that ranged from a minimum of 84,200 kg

fine silver to a maximum of 91,200 kg — and thus well in excess of any amounts

pouring into Seville before the mid-1560s. My own statistical compilations,

limited to just the major mines, indicate a rise in quinquennial mean

fine-silver outputs from 12,356 kg in 1470-74 to 55,025 kg in 1534-39 (Munro

1991). In England, 25-year mean mint outputs rose

from 18,932 kg silver in 1400-24 to 33,655 kg in 1475-99 to 59,090 kg in

1500-24; and then to 305,288 kg in 1550-74 (i.e., after Henry VIII’s

“Great Debasement”); in the southern Low Countries, those means go from 54,444

kg in 1450-74 to 280,958 kg in 15 50-74 (Challis 1992; Munro 1983,


In my view, however, equally important and probably even more important was the

financial revolution that had begun in or by the 1520s with legal sanctions for

and then legislation on full negotiability, and the contemporary establishment

of effective secondary markets (especially the Antwerp Bourse) in fully

negotiable bills and rentes, i.e., heritable government annuities; and the

latter owed their universal and growing popularity, compared with other forms

of public debt, to papal bulls (1425,

1455) that had exonerated them from any taint of usury. To give just one

example of a veritable explosion in this form of public credit (which thus

reduced the relative demand for gold and silver coins), an issue that Fischer

almost completely ignores: the annual volume of transactions in Spanish

heritable juros rose from 5 million ducats (of 375 maravedis) in 1515 to 83

million ducats in the 1590s (Vander Wee 1977). Thus we need not call upon

Spanish-American bullion imp orts to explain the monetary origins of the

European Price Revolution, though their importance in aggravating and

accelerating the extent of inflation from the 1550s need hardly be questioned,

especially, as Frank Spooner (1972) has so aptly demonstrated,

even anticipated arrivals of Spanish treasure fleets would induce German and

Genoese bankers to expand credit issues by some multiples of the perceived

bullion values. Fischer, by the way, comments (p. 82) that: “the largest

proportionate increases in Spanish prices occurred during the first half of

the sixteenth century — not the second half, when American treasure had its

greatest impact.” This is simply untrue: from 1500-49, the Spanish composite

price index rose 78.5%; from 1550-99, it rose by another 92.1% (Hamilton


Changes in money stocks or other monetary variables do not, however,

provide the complete explanation for the actual extent of inflation in this or

in any other era. Even if every inflationary price trend that I have

investigate d, from the 12th to 20th centuries, has been preceded or

accompanied by some form of monetary expansion, in none was the degree of

inflation directly proportional to the observed rate of monetary expansion,

with the possible exception of the post World War I hyperinflations.

Consider this proposition in terms of the oft-maligned, conceptually limited,

but still heuristically useful monetary equation MV = Py [in which real y = Y/P

= C + I + G+ (X-M)]; or, better, in terms of the Cambridge “real cash

balances” approach: M = kPy [in which k = the proportion of real NNI (Py) that

the public chooses to hold in real cash balances, reflecting the constituent

elements of Keynesian liquidity preference]. Some Keynesian economists would

contend that an increase in M, or in the rate of growth of money stocks, would

be accompanied by some

offsetting rise in y (i.e. real NNI), whether exogenously created or

endogenously induced by related forces of monetary expansion, and also by some

decline in the income velocity of money, with a reduced need to economize on

the use of money. Since mathematically V = 1/k, they would similarly posit

that an expansion in M,

or its rate of growth, would have led, ceteris paribus — without any change in

liquidity preference, to a fall

in (nominal) interest rates, and thus, by the consequent reduction in the

opportunity costs of holding cash balances, to the necessarily corresponding

rise in k (i.e., an increase in the demand for real cash balances; see Keynes

1936, pp. 306-07). Sometimes, but only very rarely, have changes in these two

latter variables y and V (1/k) fully offset an increase in M; and thus such

increases in money stocks have also resulted, in most historical instances, in

some non-proportional degree of inflation: a rising P, as measured by some

suitable price index, such as the Phelps Brown and Hopkins

basket-of-consumables. [Other economists,

it must be noted, would contend that, in any event, the traditional Keynesian

model is really not applicable to such long-term

phenomena as Fischer’s price-revolutions.

Keynes himself, in considering “how changes in the quantity of money affect

prices… in the long run,” said, in the General Theory (1936, p. 306):

“This is a question for historical generalisation rather than for

pure theory.”]

For the 16th-century Price Revolution, therefore, the interesting question now

becomes: not why did it occur so early (i.e., before significant influxes of

Spanish American bullion); but rather why so late — so many decades after the

onset of the Central European silver-copper mining boom?

Since that boom had commenced in the 1460s, precisely when late-medieval

Europe’s population was at its nadir, perhaps 50% below the 1300 peak, and just

after the Hundred Years’ War had ended, and just

after the complex network of overland continental trade routes between Italy

and NW Europe had been successfully restored, one might contend that in such an

economy with so much “slack” in under-utilized resources, especially land, and

with elastic supplies for so many commodities, both the monetary expansion and

economic recovery of the later 15th century , preceding any dramatic

demographic recovery, permitted an increase in y proportional to the growth of

M, without the onset of diminishing returns an d without significant inflation,

before the 1520s By that decade, however, the monetary expansion had become

all the more powerful: with the peak of the Central European silver-mining

boom and with the rapid increase in the use of negotiable, transferable

credit instruments; and, furthermore, with the Ottoman conquest of the Mamluk

Sultanate (1517), which evidently diverted some considerable amounts of

Venetian silver exports from the Levant to the Antwerp market.

The role of the income-velocity of money

is far more problematic. According to Keynesian expectations, velocity should

have fallen with such increases in money stocks. Yet three eminent economic

historians — Harry Miskimin

(1975), Jack Goldstone (1984), and Peter Lindert (1985) — have sought

to explain England’s16th-century Price Revolution by a very contrary thesis:

of increased money flows (or reductions in k) that were induced by demographic

and structural economic changes, involving interalia(according to their

various models) disproportionate changes in urbanization, greater

commercialization of the rural sectors, far more complex commercial and

financial networks, changes in dependency ratios, etc. The specific

circumstances so portrayed, however, apart from the demographic, are largely

peculiar to 16th- century England and thus do not so convincingly explain the

very similar patterns of inflation in the 16th-century Low Countries, which had

undergone most of these structural economic changes far earlier. Certainly

these velocity model s cannot logically be applied to Fischer’s three other

inflationary long-waves. Indeed, in an article implicitly validating Keynesian

views, Nicholas Mayhew (1995) has contended that the income-velocity of money

has always fallen with an expansion in money stocks, from the medieval to

modern eras, with this one anomalous exception of the 16th-century Price

Revolution. Perhaps, for this one era,

we have misspecified V (or k) by misspecifiying M: i.e., by not properly

including increased issues of negotiable credit; or perhaps institutional

changes in credit (as Goldstone and Miskimin both suggest) did have as dramatic

an effect on V as on M. Furthermore, an equally radical change in the coined

money supply (certainly in England), from one that had been principally gold

to one which, precisely from the 1520s, became largely and then almost entirely

silver, may provide the solution to the velocity paradox: in that the

transactions velocity attached to small value silver coins, of 1d., is

obviously far higher

velocity than that for gold coins valued at 80d and 120d. Except for a brief

reference to Mayhew’s article in the lengthy bibliography, Fischer virtually

ignores such velocity issues

(and thus changes in the demand for real cash balances) throughout his

eight-century survey of secular price trends.

Finally, Fischer’s thesis that population growth was responsible for this the

most famous Price Revolution (and all other inflationary long waves) is hardly

credible, especially if he insists on dating its inception the 1470s. For most

economic historians (Vander Wee 1963; Blanchard 1970;

Hatcher 1977, 1986; Campbell 1981; Harvey 1993) contend that, in NW Europe,

late-medieval demographic decline continued into the early 16th-century;

and that England’s population in 1520 was no more than 2.25 million,

compared to estimates ranging from a minimum of 4.0 to a maximum of 6.0 or even

7.0 million around 1300, the upper bounds being favored by most historians. How

— even if the demographic model were to be theoretically acceptable — could

a modest population growth from such a very low level in the 1520s, reaching

perhaps 2.83 million in 1541, and peaking at 5.39 million in 1656, have been

the fundamental cause of persistent, European wide-inflation, already underway

in the 1520s?

According to Fischer, the ensuing, intervening price-equilibrium

(c.1650-c.1730) involved no discernible monetary contraction, and similarly,

his next inflationary long-wave (c.1730-1815) began well before any monetary

expansion became — in his view — manifestly evident. The monetary and price

data, suggest otherwise, however, incomplete though they may be. Thus, the data

complied by Bakewell, Cross, TePaske, and many others on silver mining at

Potosi (Peru) and Zacatecas (Mexico) indicate that their combined outputs fell

from a mean of 178,692 kg in 1636-40 to one of 101,534 kg in 1661-5, rising to

a mean of 156,497 kg in 1681-5

[partially corresponding to guesstimates of European bullion imports, which

Morineau (1985) extracted fr om Dutch gazettes]; but then sharply falling once

more, and even further, to a more meager mean of 95,842 kg in 1696-1700. During

this same era, the Viceroyalty of Peru’s domestically-

retained share of silver-based public revenues rose from 54% to 96%

(T ePaske 1981); the combined silver exports of the Dutch and English East

India Companies to Asia (Chaudhuri 1968; Gaastra 1983) increased from a

decennial mean of 17,293 kg in 1660-69 to 73,687 kg in 1700-09, while English

mint outputs in terms of fine sil ver (Challis 1992) fell from a mean of 19,400

kg in 1660-64 (but 23,781 kg in 1675-79) to one of just 430.4 kg in 1690-94,

i.e., preceding the Great Recoinage of 1696-98. From the early 18th century,

however, European silver exports to Asia were well more

than offset by a dramatic rise in Spanish-American, and especially Mexican

silver production: for the latter (with evidence from new or previously

unrecorded mines: assembled by Bakewell 1975, 1984; Garner 1980,

1987; Coatsworth 1986, and others), aggregate production more than doubled

from a mean of 129,878 kg in 1700-04 to one of 305,861 kg in 1745-49.

Possibly even more important, especially with England’s currency shift from a

silver to a gold standard, was a veritable explosion in aggregate

Latin-American gold production: from a decennial mean of just 863.90 kg in


zooming to 16,917.4 kg in 1741-50 (TePaske 1998). Within Europe itself, as

Blanchard (1989) has demonstrated, Russian silver mining outputs, ultimately

responsible for perhaps 7%

of Europe’s total stocks,

rose from virtually nothing in the late 1720s to peak at 33,000 kg per annum in

the late 1770s, falling to 18,000 kg in the early 1790s then rising to 21,000

kg per year in the later 1790s.

Finally, even though changes in annual mint outputs are not valid indicators

of changes in coined money supplies, let alone of changes in M1,

the fifty-year means of aggregate values of English mint outputs (silver and

gold: Challis 1992) do provide interesting signals of longer-term monetary

changes: a fall from an annual mean of 348,829 pounds in 1596-1645 to one of

275,403 pounds in 1646-95, followed by a rise, with more than a full recovery,

to an annual mean of 369,644 pounds in 1700-49 (thus excluding the Great

Recoinage of 1696-98). Meanwhile, if the earlier Price Revolution had indeed

peaked in 1645-49, with the quinquennial mean PB&H index at 680, falling to a

nadir of 579 in 1690-94, the fluctuations in the first half of the 18th-century

do not demonstrate any clear inflationary trend, with the mean PB&H index

(briefly peaking at 635 in 1725-9) stalled at virtually the same former level,

581, in 1745-49. Thereafter, of course,

for the second half of the 18th century, the trend is very strongly and

incessantly upward, with almost a

doubling in PB&H index, to 1093 in 1795-9.

Whatever one may wish to deduce from all these diverse data sets, we are

certainly not permitted to conclude, as does Fischer, that inflation preceded

monetary expansion, and did so consistently. Such a view becomes all the more

untenable when the radical changes in English and banking and credit

institutions, following the establishment of the Bank of England in 1694-97,

are taken into account: the consequent introduction and rapid expansion in

legal-tender paper bank note issues (with prior informal issues by London’s

Goldsmith banks), and more especially fully negotiable,

transferable, and discountable Exchequer bills, government annuities,

inland bills and promissory notes, whose veritable explosion in circulation

from the 1760s, with the proliferation of English country-banks, hardly

requires any further elaboration, even if these issues are given short shrift

in Fischer’s book. In view of such complex changes in Britain’s financial and

monetary structures,

subsequent data on coinage outputs have even more limited utility in

estimating money stocks. But we may note that aggregate mined outputs of

Mexican silver more than doubled, from a quinquennial mean of 305,861 kg in

1745-49 to 619,495 kg in 1795-99, while those of Peru more than tripled, from

34,318 kg in 1735-39 (no data for the 1740s) to 126,354 kg in 1795-99 (Garner

1980, 1987; Bakewell 1975, 1984; J.

Fisher, 1975).

Having earlier considered the so-called and misconstrued

“price-equilibrium” of 182 0-1896, let us now finally examine the inception of

the fourth and final long-wave commencing in 1896. Fischer again contends that

population growth was the “prime mover,” despite the fact that Britain’s own

intrinsic growth rate had been falling from its

1821 peak [from 1.75 to 1.31 in 1865, the last year given in Wrigley-Davies-

Oppen-Schofield (1997)]. For evidence he cites an assertion in Colin McEvedy

and Richard Jones, Atlas of World Population History (1978) to the effect that

world population, having increased by 35% from 1850 to 1900,

increased a further 53% by 1950. Are we therefore to believe that such growth

was itself responsible for a 45.2% rise in, for this era, the better structured

Rousseaux price-index [base 100 = (1865cp +1885cp)/2]: from 73 in 1896 to 106

[while the PB&H index rose from 947 in 1896 to 1021 in 1913]?

As for the role of monetary factors in the commencement of this fourth long

wave, Fischer observes (p. 184) that “the rate of growth in gold production

throughout the world was roughly the same before and after 1896.” This

undocumented assertion, about an international economy whose commerce and

finance was now based upon the gold standard, is not quite accurate.

According to assiduously calculated estimates in Eichengreen

and McLean

(1994), decennial mean world gold outputs, having fallen from 185,900 kg in

1850-9 to 135,000 kg in 1880-9 (largely accompanying the aforementioned 44%

fall in the Rousseaux composite index from 128 in 1872 to 72 in 1895),

thereafter soared to

a mean of 255,600 kg in 1890-9 — their graph of annualized data shows that

the bulk of this increased output occurred after 1896 — virtually doubling to

an annual mean of 513,900 kg in 1900-14.

World War I, of course, effectively ended the international gold-standard era,

since the Gold- Exchange Standard of 1925-6 was rather different from the older

system; and the post-war era ushered in a radically new monetary world of fiat

paper currencies, whose initial horrendous manifestation came in the hyper

inflations of Weimar Germany, Russia, and most Central European countries, in

the early 1920s. For this post-war economy, Fischer does admit that monetary

factors often had some considerable importance in influencing price trends; but

his analyses, even of the post-war radical, paper-fuelled hyperinflations, are

not likely to satisfy most economists, either for the inter-war or Post World

War II eras, up to the present day.

This review, long as it is, cannot possibly do full justice to an eight-century

study of this scope and magnitude. So far I have neglected to consider his

often fascinating analyses of the social consequences of inflation over these

many centuries, except for brief allusions in the introduction, where I

indicated his deeply hostile views to persistent inflation for its inevitably

insidious consequences: the impoverishment of the masses, growing malnutrition,

the spread of killer-diseases, increased crime and violence in general, and a

breakdown of the social order, etc.

While some of

the evidence for the latter seems plausible, I do have some concluding quarrels

with his use of real wage indices. Much of our available nominal money-wage

evidence comes from institutional sources on daily wages, which, by their very

nature, tend to be fixed over long periods of time [as Adam Smith noted in the

Wealth of Nations (Cannan ed.

1937, p. 74), “sometimes for half a century together”). Therefore, for such

wage series, real wages rose and fell with the consumer price index, as

measured by, for example, our Phelps Brown and Hopkins basket-of-consumables

index. Its chief problem (as opposed to the better constructed Vander Wee

index for Brabant) is that its components, for long periods, constitute fixed

percentages of the total composite index,

irrespective of changes in relative prices for, say, grains; and they thus do

not reflect the consumers’ ability to make cost-saving substitutions.

Secondly, they are necessarily based on daily wage rates, without any

indication of total annual money incomes; thirdly, the great majority of

money-wage earners in pre-modern Europe earned not day rates but piece-work

wages, for which evidence is extremely scant.

But more important, before the 18th century (or even later), a majority of the

European population did not live by money wages; and most wage-earners had

supplementary forms of income, especially agricultural, that helped insulate

them to some degree from sharp rises in food prices. If rising food prices hurt

many wage-earners, they also benefited ma ny peasants,

especially those with customary tenures and fixed rentals who could thereby

capture some of the economic rent accruing on their lands with such price

increases. It may be simplistic to note that there are always gainers and

losers with both inflation and deflation — but even more simplistic to focus

only on the latter in times of inflation, and especially simplistic to focus on

a real wage index based on the PB&H index. And if deflation is so beneficial

for the masses, why, during the deflationary period in later 17th and early

18th century England, do we find, along with a rise in this real-wage index, a

rise in the death rate from 23.68/1000 in 1626 to 32.14/1000 in 1681,

thereafter falling slightly but rising again to an ultimate peak of

37.00/1000 in 1725 (admittedly an era of anomalous disease-related

mortalities), when the PB&H real-wage index stood at 60 —

some 24% higher than the RWI of 36 for 1626? One of the many imponderables yet

to be considered, though one might ponder that sometimes high real wages

reflect labor shortages from dire conditions, rather than general prosperity

and more equitable wealth and income distributions, as Fischer suggests.

Finally, Fischer’s argument that inflationary price-revolutions were always

especially harmful to the lower classes by leading to rising interest rates is

sometimes but not universally true, even if rational creditors should have

raised rates to protect themselves from inflation. Thus, for the Antwerp money

market in the 16th century,

the meticulous evidence compiled by Vander Wee (1964, 1977) shows that

nominal interest rates fell over this entire period [from 20% in 1515 to 9% in

1549 to 5% in 1561; and on the riskier short term loans to the Habsburg

government, from a mean of 19.5

% in 1506-10 to one of 12.3% in 1541-45 to 9.63% in 1561-55]. In the next

price-revolution, during the later 18th century, nominal interest rates did

rise during periods of costly warfare, i.e., with an increasing risk premium;

but real interest rates actually fell because of the increasing tempo of

inflation (Turner 1984), more so than did real wages for most industrial



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Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative