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February 7, 2021 - December 31, 2023
Ricardian theories of rent and wages should be read not as timeless economic truths, but as highly perceptive historical descriptions of the eighteenth century price-revolution, in its middle and later stages.
The same cause_increasing population—that drove up commodity prices also depressed real wages by expanding the size of the work force.
The result of this decline in real wages in the eighteenth century was different from earlier price-revolutions. It caused much suffering among the poor, but no epidemic famines as in the fourteenth century and no decline of population as in the seventeenth.
One important factor, beloved of classical economists, was the expansion and integration of world markets. Another was the improvement of income per capita, which meant that fewer people were living near the edge. A third was the growth of welfare which, however limited, helped to prevent starvation. The price of all these improvements was acceleration in rates of inflation, and diminution of its cruelest consequences.
In English-speaking America it was named the Great Awakening,
The cost of war caused another sharp surge of inflation.
This trend appeared in both Europe and America, where wealth became more concentrated in a few hands during the period from 1750 to 1790.
In France, the nobility arrogated to itself an increasing share of what economists call “positional goods,” that is, goods that are limited in supply by their very nature: the top jobs, the most powerful offices, the highest honors.
In retrospect, we know that this aristocratic resurgence was what German historian Martin Göhring calls a triumph der ständischen Idee, a triumph for the moment only. But within that moment the nobility seemed to carry everything before them. In a time of widespread suffering, they awakened intense resentment against themselves.
Between a third and half of the people of France lived near the margin of subsistence, spending as much as 80 percent of their income on food alone.
The growth of inequality was an international trend in the late eighteenth century. It appeared in Europe, Great Britain and even in the new United States, where many studies have found a rapid increase in the concentration of wealth during the period from 1760 to 1830.
In place of starvation there was hunger. Instead of despair there was rage—an emotion far more dangerous to the standing order.
The economies of western Europe in the 1780s experienced the same combination of inflation and stagnation that marked the penultimate stage of every other price-revolution.
Governments, caught in a spiral of increasing instability, struggled to maintain their solvency by raising taxes, as Britain did throughout its empire in 1763–75, and France attempted to do in 1783–88. Entrenched elites were able to shift these burdens away from themselves. The new taxes, like the old ones, fell heavily on those who were least able to bear them. In England, the resistance of the country gentry to a trivial tax on cider in 1763 compelled the government to try the dangerous expedient of taxing America, with disastrous results for the empire.
Price revolution caused the American Revolution
This system of regressive taxation simultaneously increased social resentments, diminished the moral authority of the standing order, and shrank the government’s income.29
The largest of these insurgencies developed in England’s American colonies, in response to repeated attempts by the British government to raise taxes in the Revenue Act of 1764, the Stamp Act of 1765, the Townshend Acts of 1767 and the Tea Act of 1773. The American rising was not unique. The regiments of British infantry that were sent to restore order in Boston after the Tea Party had been employed on many similar missions throughout the British Empire. The history of their service was a record of the rising spirit of rebellion throughout the western world.
Statesmen struggled to hold the system together, while short-sighted elites destroyed the props of their own privilege. By 1783, the long inflation was turning class against class. The old regime was on the edge of disaster.
In the period from 1726 to 1791, an average wage-earner in France spent 50 percent of his income to feed his family. In 1789, that proportion rose to 88 percent.2
In scenes reminiscent of fourteenth century England, sixteenth century Spain, and twentieth century America, the national credit of the most powerful nation in the world was systematically wrecked by the selfishness of its affluent citizens.
Benjamin Franklin toured a textile factory in Norwich and observed a cruel and bitter irony. He was amazed to see that the English clothmakers were themselves “half-naked or in tatters.” The factory owner pointed proudly to his inventory and said, “those cloths are for Italy, those for Germany, the ones over here for the American islands, and those for the continent.” Franklin replied, “Have you none for the factory workers of Norwich?
The politics of hunger were very different from those of starvation. In the early fourteenth century, starving peasants had been too weak to rebel. In the late eighteenth century, hungry peasants were outraged against feudal lords and seigneurial dues.
Ironically thq
Then they turned their wrath against that hated symbol of injustice, the Bastille. Historians Ernest Labrousse and Georges Lefebvre discovered that the Bastille was attacked on precisely the same day when grain prices reached their cyclical high in Paris.
The problem, once again, was the cost of living. From 1791 to 1793 there was another economic crisis.
When Robespierre fell from power, he was brought down by a riot against wage-controls.
A new and highly corrupt regime called the Directory gained control of the government and relaxed the system of wage and price controls.
Everywhere in Europe and America, prices had risen and real wages had declined. The concentration of wealth increased. Elites became more assertive of their privileges, and social tensions grew more intense.
In rapid succession, revolutions broke out in what is now Belgium (1789), Switzerland (1792), the Netherlands (1794), Poland (1794) and Ireland (1798). Revolutionary French armies toppled the old oligarchies of Genoa (1797), Venice (1797), Berne (1798), and many other Italian cities and Swiss cantons. Assassination was the fate of Sweden’s King Gustavus III (1792), and Russia’s Czar Paul I (1801). England’s prime minister Spencer Perceval (1812) was murdered by a bankrupt broker, John Bellingham.
In the new republic of the United States, a peaceable revolution occurred when the Jeffersonian movement transformed a whiggish Federalist oligarchy into a representative democracy.
Every age of glory in military history is an agony for ordinary people. So it was in the time of Napoleon and Nelson.
Confederate dollars were so crudely lithographed that counterfeit money was detected by its superior quality.
By one measure (an index constructed by Henry Phelps-Brown and Sheila Hopkins), the real wages of English building craftsmen increased more than 400 percent from 1801 to 1899.
During the late eighteenth century slave prices had fallen sharply in America, at the same time that real wages for free workers had been declining rapidly in western Europe. That trend reversed during the 1790s. Slave prices began to rise from $300 (or less) in 1795 to $1200 in Virginia and $1800 in New Orleans on the eve of the Civil War.
The most important funds were the “consols” that the United Kingdom had long issued for its national borrowing. In 1812, when Britain was simultaneously fighting separate wars against France and the United States, the average yield of Consols rose to 5.08 percent. Thereafter, the rate of return declined for 85 years, reaching bottom at 2.25 percent in 1897.
In the middle and later stages of every price equilibrium (but not in the early stages), the distribution of wealth tended to stabilize, or even to become a little more equal.
In the nineteenth century something else happened. Population went on increasing, and prices fluctuated on the same plateau. English historians Anthony Wrigley and Roger Schofield write, “If there was a notable uniformity in the behavior of the two series relative to each other until the beginning of the nineteenth century, however, there was a remarkably clean break with the past thereafter. . . . The historic link between population growth and price rise was broken; an economic revolution had taken place.
Equilibrium at higher levels of economic growth was achieved in many ways. A revolution in transportation created broader markets, which allowed larger units of production. An agricultural revolution released many workers from the soil and allowed them to shift to other sectors where their labor was more productive. An industrial revolution increased the productivity of labor and capital. A commercial revolution radically improved the efficiency of exchange.
Perhaps the most important factor was the integration of a world market through the nineteenth century, which created vast economies of scale.
In an era of equilibrium, the market operated as a self-correcting mechanism—a process that prompted contemporary observers such as John Stuart Mill (1806–73) and Alfred Marshall (1842–1924) to develop the timeless axioms of classical economics.
The dynamic equilibrium of the Victorian era was not entirely self-generating. It found support from exogenous factors of various kinds—in particular from favorable climatic conditions.
Long changes in climate do not correlate with long waves in the history of prices.
The economic effect of these conflicts was to integrate an ever larger proportion of the world’s population into national and even global markets, and monetary systems. Many scholars have written about the effect of European contact on primitive monetary systems that Europeans called “pseudo-money.” French historian Fernand Braudel observes, “The fate of this pseudo-money after the European impact (whether cowries in Bengal, wampum after 1670 or the Congo zimbos) proves identical in every case where it can be investigated— monstrous and catastrophic inflation, caused by an increase in
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Monetary factors would play a major role in the price-revolution of the twentieth century, but the great wave itself grew mainly from a different root. It was primarily (not exclusively) the result of excess demand, generated by accelerating growth of the world’s population, by rising standards of living, and by limits on the supply of resources, all within an increasingly integrated global economy.
Fertility declined in western Europe and North America, but rose higher in most other parts of the world. As a result, the growth of global population began to accelerate.
These new electors demanded that governments serve the interest of the many, not merely the few.
Like every great wave that preceded it, this great movement began primarily because the acceleration of demand outstripped the increase of supply.
In other ways, however, the price-revolution of the twentieth century was different from its predecessors. In its early and middle stages real wages increased, and kept on increasing until the late 1960s.
In the United States during the late 1920s, major industries began to suffer from excess capacity and insufficient demand. By 1927, purchases of houses, cars, and consumer durables were in decline.
Congress gave relief to the rich by cutting income taxes, but offered little assistance to the poor.
The international gold standard was abandoned by Britain in 1931 and by the United States in 1934.
Those who believe that “price controls don’t work,” even in the short run, will find strong evidence to the contrary in the history of the American economy during World War II and the Korean War.
