The Great Wave: Price Revolutions and the Rhythm of History

by David Hackett Fischer

One response was the hoarding of goods.

Toilet paper 2020

Another was speculation.

Gamestop

A third was panic...

Groceries 2020

Farmers kept grain from the market in fear of famine in their own households. Millers hoarded flour in hope of profits to come.

NEP system in the Soviet Union

Some people, more than others, were able to respond to rising prices. As a consequence, social imbalances began to develop.

Money-wages lagged behind the rising cost of living, and real wages fell sharply. By 1570 real wages were less than half of what they had been before the price-revolution began.

Most vulnerable were workers who had few skills and no capital of their own.

By comparison, landlords and capitalists tended to do better.

The Hapsburgs were forced to pay their bankers annual interest as high as 52 percent.

During part of the sixteenth century, rents and land prices rose even more rapidly than food and fuel.

Hoszowski concludes that the price-revolution actually strengthened the feudal system in eastern Europe.

Everywhere, it made the dominant elites richer and stronger than they had been before.

Those that benefited early in the price revolution were able to hold and Increase their power for over a century.

The growing gap between returns to labor and rewards to capital was one of the most important social consequences of inflation in the sixteenth century. These trends caused inequality to grow, in ...

In England, the numbers of beggars and vagabonds and homeless people were observed to rise rapidly during the price-revolution.

Look no further than major cites today.

Another imbalance developed in the monetary system.

individuals and institutions responded to inflation by taking actions which expanded the supply of money.

The cause of the price-revolution of the sixteenth century has often been attributed to this single factor: large imports of American metal, which increased the quantity of money in circulation, and reduced its purchasing power by expanding its supply.

In light of much historical research, this monetarist explanation must be revised, without being rejected.

The inventors of this test concluded, perhaps prematurely, that South American silver had little impact on the coinage of northern Europe in the sixteenth century. It would be more accurate to say that its impact was not felt until the later stages of the price-revolution.39

In short, the price-revolution came first; American treasure followed later.

Monetary theory explains why an increase in the supply of money drives up prices. It cannot explain why the money-supply increases in the first place, except by introducing the monetarist’s favorite diabolus ex machina in the form of corrupt and incompetent politicians who are believed to be too stupid or weak to understand the monetarist’s favorite remedies.

In every price-revolution, one finds evidence of frantic efforts to expand the supply of money, after people have discovered that prices are rising in a secular way.

Quantitative Easing

The quantity theory of money was invented during the second stage of this price-revolution.

The response of governments to rising prices created a third sort of imbalance, fiscal in its nature. By the mid-sixteenth century, large deficits were growing in the public accounts of European states. The problem was compounded by regressive taxation, and by the persistent tendency of the rich to shift the weight of taxes to poor and middling people.

For example, the price-revolution caused falling real wages and rising returns to land and capital, which caused the growth of inequality, which increased the political power of the rich, which led to regressive taxation, which reduced government revenues, which encouraged currency debasements, which drove prices higher.

These two movements— Reformation and price-revolution—were connected. In Germany, many historians have found evidence that the rapid spread of the Protestant Reformation and also the Peasants’ War were closely linked to increasing economic stress, caused by population growth and price inflation.

Historians have concluded that the Iconoclast movement was directly linked to economic instabilities, and particularly to a sudden surge in grain prices in the Netherlands from 1564 to 1566.

Spain in the reigns of Charles V (1516–1556) and Philip II (1556–1598) was the strongest state in Europe. Like many other great powers, even to our own time, it fell into the fatal habit of deficit spending, and was finally reduced to a fiscal condition that historian J. H. Elliott describes as “chronic bankruptcy.”

The first signs were similar to those of the medieval crisis. During the last quarter of the sixteenth century, the economy of Europe was afflicted by the same cruel combination of rising prices and falling opportunities that neoclassical economists would call “stagflation” in the late twentieth century.

The great dearth fell cruelly upon the poor, while the rich remained secure in their plenty. In London’s affluent central neighborhoods, the number of burials increased very little during these years; but outlying parishes inhabited by the poor suffered severely. The effect of scarcity was to deepen the material inequalities that were already very great in European culture, and to contribute to growing social instability.

When the price of food surged, crime increased sharply. When prices fell, criminal acts declined.

During the early seventeenth century, the armies of Europe reached their largest size since the Roman era.

The result was an age of revolutions in virtually all European states. Most of these overturnings were caused by fiscal problems. In Iberia, major revolutions broke out in Catalonia and Portugal (1640) when Spanish ministers tried to raise large revenues. In England, an ill-fated attempt by Charles I to obtain more money from his subjects led to full-scale civil war, which ended in the execution of the king himself.

The general crisis of the seventeenth century left its mark upon the culture of an age. The greatest works of literature, painting, philosophy and theology in this era commonly expressed a mood of increasing pessimism and despair.

In theology this was the era of neo-Calvinism—the narrowest, darkest, bleakest, and most pessimistic form of Christianity that has ever been invented, more so even than the theology of Calvin himself.

In England, the Puritans combined religious and political ideas in a single movement that overturned the government.

Even the worst years of this period were not nearly comparable with the famines of the fourteenth century.

During the crisis of the fourteenth century, high medieval civilization had collapsed. In the crisis of the seventeenth century, the civilization of early modern Europe was shaken to its deepest foundations. But it survived.

A period that seemed a depression to manorial lords and rural proprietors (as well as to historians who read their letters and shared their perspective) was an age of improvement for artisans and laborers and the great majority of Europe’s population.

The great cities, as always the barometers a civilization’s health,

Many rulers were called “great” in this era: Louis Le Grand, Frederick the Great Elector, Frederick the Great, Peter the Great, Catherine the Great. These leaders were no more able than many of the failed monarchs who preceded them in the seventeenth century. The enlightened despots of Europe were consumed by vanity and greed. They quarreled incessantly with other princes, and squandered both the wealth of their nations and lives of their subjects on petty and destructive rivalries. But an age of equilibrium is kind to reigning kings. A reputation for greatness in a monarch often owes more to circumstance than to character.

The work of these men had a fundamentally different texture from those who had preceded them by only a generation. They believed that the universe was a place of order and symmetry; that the world was within man’s power to understand and even to control.

That attitude was a zeitgeist in the strict sense, a spirit grounded in the historical conditions of the age.

One would later be called mercantilism. It encouraged the active intervention of the state in economic processes, and was given its classical expression by the ministers of Louis XIV, notably Jean Baptiste Colbert.

Paris in 1729 was a city divided against itself. Its restless population was kept in order by a garrison of Swiss mercenaries and by large numbers of informers, spies, detectives and agents provocateurs. Our modern language of espionage and surveillance is French, and much of it was invented in this era. A regime of great and terrible cruelty dominated its people by methods that were profoundly hostile to the ethics of Christianity and the dreams of the Enlightenment.

The prime mover of this price-revolution was the increasing pressure of aggregate demand, caused by an acceleration in the growth of population.

Why did population grow in the eighteenth century? In demographic terms, it happened mainly because of a decline in age at marriage and a small rise in rates of intramarital fertility.

But the primary cause of population growth in this period was a rise in fertility, not a fall in mortality.

The largest coin weighed forty-three pounds, and must have had a sluggish circulation.

Swedish currency

The government of France resorted to perpetual annuities called rentes. So large was the French national debt in the eighteenth century that it spawned a capitalist class called rentiers.