| Author(s): | Fischer, David Hackett
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| Reviewer(s): | Munro, John H.
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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
Toronto.
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
“Malthusian,
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
society
(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,
very
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
of
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,
however,
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
schedules,
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
were
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
essence,
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
documented
long-wave.
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
imported
(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,
1991).
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
1934).
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
1691-1700
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
workers.
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| Subject(s): | Macroeconomics and Fluctuations
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| Geographic Area(s): | General, International, or Comparative
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| Time Period(s): | General or Comparative
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