|Author(s):||de Vries, Jan |
|Reviewer(s):||Hoffman, Philip T. |
Published by EH.Net (March 2020)
Jan de Vries, The Price of Bread: Regulating the Market in the Dutch Republic. New York: Cambridge University Press, 2019. xx + 516 pp. $45 (hardcover), ISBN: 978-1-108-47638-6.
Reviewed for EH.Net by Philip T. Hoffman, Division of Humanities and Social Sciences, Caltech.
Although the incentive in economic history today may be to write articles, books can do something that no article can. They can tie different subjects together and explore topics in far greater detail than in an article, or even in set of articles. A book lets readers see the connections in a way that would simply be impossible in a journal.
Jan de Vries’s The Price of Bread is a vivid example. The book links consumer behavior, the regulation of a major industry, and the development of fiscal capacity in the Netherlands between the end of the Middle Ages and the late nineteenth century, all via a detailed study of what was arguably the center of the European diet well into the 1800s — bread. De Vries compares his findings for the Netherlands with practices in other parts of Europe, and his conclusions, based on extensive quantitative data and economic analysis, speak to broad issues, from the use of real wages and the calculation of standards of living to burning questions of political economy and de Vries’s own concept of an Industrious Revolution that fed into early industrialization.
Europeans consumed grain in a variety of ways, from groats cooked at home in porridges and soups for the poor to the refined white wheat bread made by bakers and increasingly prized by the rich and well off middle class consumers. Although authorities intervened in markets for the chief grains of rye and wheat when prices soared or when powerful interests were threatened (with the corn laws that protected British landlords from imports of cheap foreign wheat being a clear example), regulation of European grain markets was usually minimal. The same was not true, however, for the bread made from grain. Most cities and states in Europe carefully regulated the market for this necessity, much as political regimes in developing countries often do with essential commodities such as fuel. Typically, authorities in Europe tied the cost of bread p to the price of grain x via a simple linear function, p = ax, making the constant a large enough so that it could compensate bakers for the cost of the other factors of production.
In the late sixteenth century, the Dutch broke with this tradition and tried (if we interpret their efforts from our modern perspective) to get a better sense of what actually determined the cost of bread in a competitive market so that they could intervene via targeted social policies in times of distress. They had reason to do so because the Netherlands was importing large amounts of grain, which allowed Dutch farmers to specialize in other products, such as livestock. City authorities in the Netherlands therefore carefully investigated the cost of making bread. In what were for the time striking exercises of numeracy, they estimated a different approximation to a unit cost function for bread, p = ax + b, where the constant b captured not just fixed costs but the expense of the other factors of production, which varied less than the price of grain. The result was not just a much better approximation. It also had the effect of reducing both bakers’ profits and bread prices when grain prices jumped. Dutch cities came to rely on this new cost function to monitor the bread market, and it guided them to step in if some social groups risked going hungry.
Those were the measures adopted by cities, not a policy imposed from on high. But the cities and especially the provincial governments in the Netherlands then grafted on to this regulatory system an excise tax imposed on milled grain and collected by bakers, who became heavily regulated tax collectors. The excise tax came to furnish 10 percent or more of Dutch public revenues, well into the nineteenth century. The fiscal innovation was understandable because it exploited the growing and relatively inelastic demand for wheat bread. But it also meant that buyers of loaves of wheat ended up subsidizing the rye bread eaten by poorer Dutch consumers.
The resulting system of regulation and taxation had long term consequences, as de Vries shows in a careful analysis of consumption, the industrial organization of the bread industry and the political economy of bread price regulation. The system did have some advantages. It led to a more varied diet in the Netherlands with the Dutch eating less bread than other Europeans. Initially, it also encouraged concentration in grain milling and more efficient mills. In the long run, however, it slowed technical change. For regulatory reasons, it blocked a long distance trade in flour in place of bulkier grain that cut the cost of supplying urban bakers, and it slowed the use of steam engines in milling. Yet despite these drawbacks, neither liberal reformers nor an invading French army dismantled it. The strength of the organized interests behind it and the fear of popular discontent (despite very little actual rioting) kept it in place until it was finally abolished in 1855.
The full effects of this system of regulation and taxation stand out in a short counterfactual that de Vries sketches in his conclusion where he imagines what the Netherlands would have been like without this regulatory system. As far as consumers are concerned, those with higher incomes who wanted wheat bread would have been better off because wheat bread was heavily taxed. The poor would not have been worse off, though, because the assistance they got in times of dearth came not from the regulators but from churches and towns. The lack of the system, however, would have posed a serious political problem for the Netherlands, because the country would have had a hard time replacing the excise tax on milled grain with a direct tax on income and wealth.
Like Galileo’s telescope, The Price of Bread lets us view things we had never seen, and its implications go well beyond the history of bread production and consumption in the Netherlands. It raises serious questions, for example, about the widespread practice of calculating welfare ratios and real earnings by dividing wages by the cost of a fixed basket of consumption goods. The implicit assumption is that a worker is employed for a fixed number of hours per year. But de Vries’s estimates suggests that workers in the Netherlands worked longer hours to buy the wheat bread they wanted, despite its higher price. Wheat bread was thus one of those consumer goods that figured in de Vries’s Industrious Revolution, one that induced consumers to give up leisure time for more paid work in order to buy goods they desired.
Beyond the book’s implications for the Industrious Revolution, it also raises an important question. Outside the Netherlands, cities and states dabbled with the sort of regulation implemented in the Netherlands, but they did not really put something like it into practice. Why is a question that remains to be answered. Was it the extraordinary transportation system that allowed Dutch consumers to eat bread made with imported grain far before the same was true elsewhere in Europe? Or was it high levels of numeracy and the political freedom Dutch cities enjoyed?
Philip T. Hoffman is the Axline Professor of Business Economics and History at the California Institute of Technology and the author, with Gilles Postel-Vinay and Jean-Laurent Rosenthal, of Dark Matter Credit: The Development of Peer-to-Peer Lending and Banking in France (Princeton: Princeton University Press, 2019).
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|Subject(s):||Economic Planning and Policy|
Markets and Institutions