The Great Wave: Price Revolutions and the Rhythm of History

by David Hackett Fischer

“Something Like a Seismograph . . .” Of all the recording devices that can reveal to an historian the fundamental movements of an economy, monetary phenomena are without doubt the most sensitive. But to recognize their importance merely as symptoms would do them less than full justice. They have been and are, in their turn, causes. They are something like a seismograph, which not only measures the movements of the earth but sometimes provokes them. —Marc Bloch, 19331

In the ebb and flow of American prices we may observe the cultural effect of the Jacksonian movement, the social impact of the Civil War, the chronology of the industrial revolution and the geography of the westward movement. Historical happenings as evanescent as moods of hope and fear may be measured with high precision by a study of prices. In the history of the American Civil War, a sensitive indicator of northern hopes was the changing price of government bonds from 1861 to 1865. A barometer of southern fears was the price of slaves as it rose and fell through the same period. Price movements are a powerful source of inferential knowledge about changing historical conditions and events.

At a still higher level of abstraction, prices may be studied as clues to the nature of change itself. That is the purpose of this inquiry. Every period of the past has been a time of change. The world is always changing—but not always in the same way. We shall find empirical evidence of distinct “change-regimes” in the past that were often highly dynamic, but stable in their dynamism. Sooner or later, even the strongest of these change-regimes broke down in moments of what might be called “deep change.” When it did so, one system of change yielded to another. Deep change may be understood as a change in the structure of change itself. In the language of mathematics, deep change is the second derivative. It may be calculated as a rate of change in rates of change.

In the United States problems of economic understanding have been compounded by the effect of economic prosperity. The Japanese in World War II spike ruefully of shoribyo or “victory disease.” The Greeks called it hubris, and thought that it always ended in the intervention of the goddess Nemesis. That lady makes her appearance when wave-riders begin to believe that they are wave-makers, at the moment when the great wave breaks and begins to gather its energy again.

A helpful perspective on the troubles of our time is a remarkable record of English “consumable” prices since the year 1264, compiled with great care by Henry Phelps-Brown and Sheila Hopkins. This index shows that market prices of food, drink, fuel and textiles in the south of England have tended to rise for more than seven hundred years, at an average rate of about one percent each year.

If we study the Phelps-Brown-Hopkins index and others like it, we find that most inflation in the past eight centuries has happened in four great waves of rising prices. The first wave continued from the late twelfth century to the early fourteenth century, and has been called the medieval price-revolution. The second was the familiar “price-revolution of the sixteenth century,” which actually began in the fifteenth century and ended in the mid-seventeenth. The third wave started circa 1730, and reached its climax in the age of the French Revolution and the Napoleonic Wars. It might be called the price-revolution of the eighteenth century. The fourth wave commenced in the year 1896, and has continued since, with a short intermission in some nations during the 1920s and early 1930s. It is the price-revolution of the twentieth century.

These great waves were punctuated by periods of a different nature—when prices fell a little, then found an equilibrium and fluctuated on a fixed plane. One such era, which might be called the equilibrium of the twelfth century, coincided with the climax of medieval civilization. Another could be named the equilibrium of the Renaissance (ca. 1400–1480). A third may be thought of as the equilibrium of the Enlightenment (1660–1730). The fourth might be remembered as the Victorian equilibrium, for it coincided with the life of Queen Victoria herself. All of these periods of equilibrium were marked by fluctuations of high complexity. None experienced long-term price-inflation.

Abel was more interested in agricultural conditions. He studied the price of grain alone, and converted it to kilograms of pure silver, rather than measuring a market-basket of “consumables” in monetary units. Abel found a wave-pattern that was similar in timing to the Phelps-Brown-Hopkins series, but different in its trend. His revolutions in the price of grain rose more steeply than did consumables in general, and were followed by periods of sharp decline rather than by price-equilibrium. Even so, the same long waves appear in both series. They have been documented in many studies, and are the most robust pattern of secular change in the history of prices—more so than Kondratieff cycles or any other cyclical rhythm, which must be derived by “detrending” the data. This wave-pattern is familiar to European scholars, but it is not well known in the English-speaking world. The reason why makes a story in its own right, and one that appears in an appendix to this work. Suffice to say that when French historian Fernand Braudel mentioned early modern wave-movements in a history of capitalism, American reviewers responded with expressions of surprise, bewilderment, and outright disbelief.

Even so, price historians in Europe have suggested seven causal explanations, which might be called the monetarist, Malthusian, Marxist, neoclassical, agrarian, environmental, and historicist models. Monetarists understand movements in the “general price level” as changes in the value of money, caused mainly by variations in its quantity and velocity. Malthusians think of price movements in a different way as a material representation

of the changing value of commodities that money might buy, caused primarily by imbalances between demographic and economic growth. Marxists think that price movements represent the changing terms of transactions within social systems, mainly between social classes. Neoclassical models perceive prices as indicators of change in the flow of supply and demand, and explain price-revolutions as the result of imbalances in market-relations, caused by various demand-centered or supply-side events, or by changes in the structures of market-conditions themselves. Agrarian approaches link prices mainly to harvest conditions. Environmental models understand price-movements as ecological indicators which register imbalances between human activity and its natural environment. Historicists explain things in their particulars, and think of each price-revolution as a unique event with its own ad hoc explanation.

Cyclical rhythms are fixed and regular. Their periods are highly predictable. Great waves are more variable and less predictable. They differ in duration, magnitude, velocity, and momentum. One great price-wave lasted less than ninety years; another continued more than 180 years. The irregularities in individual price-movements make them no more (or less) predictable than individual waves in the sea.8

stages. All major price revolutions in modern history began in periods of prosperity. Each

ended in shattering world-crises and were followed by periods of recovery and comparative equilibrium.

American economist Herbert Stein, after a term of service in Washington, wrote ruefully in 1979, “we woke up to discover that we were living in the long run, and were suffering for our failure to look after it.”10

The growth of population and the increase of wealth were roughly in equilibrium during the twelfth century. Prices remained comparatively stable throughout this period. The only major economic problem was the so-called “money-famine” of the eleventh and twelfth centuries—an event that would occur in most eras of price equilibrium throughout modern history. The growth of population and prosperity had created demand for a larger circulating medium. With precious metals in short supply, the people of Europe began to use what historian David Herlihy calls “substitute money”—not barter or commodity money, but liquid assets of high value called mobilia, such as silver jewelry, furs, fine textiles and even books.5 By the year 1100, the hunger for specie was so great that the canons of Pistoia’s St. Zeno Cathedral melted down their great crucifix and used it for money. German princes sold their imperial seals. English nobles exchanged their silver sword mounts, and French bishops converted their golden chalices into cash. The theologian Fulbert of Chartres justified these practices with the casuistry that it was better to sell sacred vessels to Christians than to pawn them into the hands of Jews.6

Even so, this great inflation of the medieval era was great because it was general throughout the Western world, and because it continued for a very long time. It happened in England, France, Italy, Germany, Iberia, and every other part of Europe where prices have been studied.10 Throughout that broad region, its impact was not perfectly uniform. The pace of inflation was comparatively rapid in the north of Italy, moderate in England and France, and slowest in eastern and northern Europe; but no part of the Western world is known to have escaped it.11 Why did medieval prices go up? Some historians find the cause in an expansion of the money supply; others, in the growth of population. Both factors were involved, but population appears to have been the prime mover. Before 1150, as we have seen, the population of Europe had been slowly increasing. After 1170, its rate of gain accelerated. In Picardy, the rural population doubled during the last quarter of the twelfth century (1175–1200), and kept growing rapidly for three generations thereafter. Similar trends appeared in England, France and Germany.12

The cause of medieval population-growth was mainly an increase in fertility, not a decline in mortality. After a long period of comparative stability and growing prosperity, women throughout Europe married at earlier ages and decided to have more children. The result was a medieval baby boom that began in the twelfth century and continued for many years.14 This medieval baby boom had important economic consequences. It changed the age-structure of the population. As long as it continued, a larger proportion were dependent children. Fewer were mature adults in the prime of their productive years. This happened at the same time that people needed more food, fuel, houses and land. Demand for life’s necessities expanded more rapidly than supply could increase. Inexorably, prices went up.15

A case in point was the cost of armor. This, the leading “consumer durable” in medieval Europe, was mainly designed to make a more durable consumer. Iron skullcaps called coifs were worn not merely by soldiers but also by traveling merchants who lived in a world where consumer complaints were forcefully expressed. The price of iron coifs and body armor in the thirteenth century

behaved very much like that of washing machines and refrigerators in the twentieth century. It rose in nominal terms, but fell in relation to other commodities for which supply was less elastic.19 Altogether, historian Michael Postan observes that “movements of agricultural and industrial prices did not synchronize” with one another during the medieval price-revolution. This distinctive pattern of price-relatives was typical of a demand-inflation. It appeared in every great wave without exception.20

Silver stocks expanded throughout Europe in the thirteenth century. One study finds that silver coins minted in England rose from 200,000 pounds in the period 1210–18, to more than 500,000 in the 1240s, and above 1,000,000 pounds in the 1280s. As the quantity of money increased, its value declined. The effect was to drive prices higher.31 Gold, which had drained away from Europe during the early Middle Ages, now began to flow in again. Some of it was stolen by Venetian pirates, Teutonic knights and French crusaders. More was gained in trade, and large quantities of bullion were imported from the mines of Africa. In the mid-thirteenth century, the Italian city-states became the first in the West to mint gold coin since the fall of Rome. Genoa may have been the earliest trading town to do so, as early as 1249. The people of Florence followed with gold florins in 1252. Venice began to issue gold ducats in 1284. The ducat became renowned for its stability, by keeping its gold content unchanged for more than five hundred years, from 1284 to the fall of the Venetian republic in 1797. The quantity of gold and silver in circulation, and probably their velocity as well, increased during the late thirteenth century, and added to inflationary pressures.

At the same time, rates of interest also rose very high. In the Italian city states, interest charged in actual transactions increased from 12 percent a year before 1230, to 20 percent later in the century. This rise was greater than the average increase of commodity prices. Real interest rose at a time when real wages were falling.39 Men of wealth were able to profit by the price-revolution in many ways. Powerful Italian merchants, for example, obtained laws that allowed them to insist on being paid in gold florins or ducats which held their value, but permitted them to pay wages and taxes in silver coins which were much debased. As a consequence, rich merchants grew richer, and the poor sank deeper into misery and degradation.40 This growing gap between returns to labor and capital was typical of price-revolutions in modern history. So also was its social result: a rapid growth of inequality that appeared in the later stages of every long inflation.

Yet another set of cultural responses to inflation created disparities of a different kind: fiscal imbalances between public income and expenditures. Governments fell deep in debt during the middle and later years of the thirteenth century. As spending outran revenues, monarchs borrowed heavily from domestic and foreign merchants. In Constantinople, the last Latin Emperor Baldwin II (1217–1273), was so hard pressed for ready cash between 1237 and 1261 that he surrendered the Crown of Thorns as collateral for loans by Venetian bankers. Public deficits began to grow out of control—another dangerous tendency that developed in the later stages of every price-revolution and gravely weakened the spring of government.42

Other sources of instability were financial in their nature. In the late thirteenth century, a major crisis led to the disruption of credit and banking in the western world. The great Italian banks dangerously overextended themselves by lending heavily to monarchs and private borrowers. These loans were highly lucrative—for a time. They brought prosperity to the north of Italy, and especially to the city of Siena, which in the words of one leading historian was “for seventy-five years the main banking center of Europe.” As Siena flourished in the thirteenth century, its citizens began to build a great cathedral which was intended to be the largest in Europe. The magnificent architecture of its central square, which today delights so many tourists, was created by the prosperity of this era.50 In the year 1298, Siena’s banking boom came suddenly to an end, with the failure of its greatest bank, the Gran Tavola of the Buonsignori. This was a world bank, with agents throughout Europe and the Mediterranean basin. Among its borrowers were great merchants, cities, nobles, kings and even the Pope himself. Increasing numbers of these loans went sour. In the year 1298, a banking panic began in Siena. The Buonsignori managed to hold things together for nearly a decade, but finally in 1307 the great bank collapsed. Many lesser enterprises failed with it.

Early in the fourteenth century Florentine banks began to fail. The Mozzi went under in 1302, the Franzesi in 1307, the Pulci and Rimbertini in 1309, the Frescobaldi in 1312, and the Scali in 1326. Six houses failed in 1342. Then, in 1343 and 1346, the three great houses of the Peruzzi, Acciaiuoli and Bardi all collapsed with a great crash. Not for many years would banking enterprise recover in Tuscany. Behind these events, many factors were operating at the same time: climatological, demographic, monetary, commercial, fiscal and financial. Together they unsettled social relationships throughout Europe, and caused deep suffering among the poor. Monarchs attempted to impose price regulations with little success. In the fourteenth century, powerful elites condemned price controls as unnatural, ineffectual and immoral, much as other economic moralists would do in the twentieth century. The Canon of Bridlington wrote in 1316, “How contrary to reason is an ordinance on prices, when the fruitfullness or sterility of all living things are in the power of God alone, from which it follows that the fertility of the soil and not the will of man must determine the price.” The arguments of medieval

God. In every price-revolution, as we shall see, propertied and powerful elites would oppose economic controls and profit by their absence.

Then, inconceivably, torrential rains came again in 1316. The grain crop failed a third year in a row. Europe began to experience the worst famine in its history. When other sources of food ran out, people began to eat one another. Peasant families consumed the bodies of the dead. Corpses were dug up from their burying grounds and eaten. In jails the convicts ceased to be fed; we are told that starving inmates “ferociously attacked new prisoners and devoured them half alive.” Condemned criminals were cut down from the gallows, butchered, and eaten. Parents killed their children for food, and children murdered their parents.

There were also acts of collective violence and insurrection. In rural France, a movement called the Pastoureaux spread rapidly through the countryside. A great mass of peasants and laborers gathered in the northwest, and began marching south and east toward the Holy Land, gaining numbers as they went. On the way, the Pastoureaux attacked castles, sacked monasteries, burned archives, released convicts, slaughtered Jews, murdered Lepers, and settled scores with the nobility for many centuries of oppression. They spread terror among the possessing classes, until finally they were dispersed and hanged by the hundreds. Their gaunt bodies dangled from the branches of trees throughout the south of France.

That savage act of regicide was not an isolated horror. The people of Flanders rose against their hated French masters in 1302, and killed many of them in an epic slaughter called the Matin de Bruges. Then they defeated the French nobility in the Battle of the Spurs at Courtrai. In France, King Louis X (remembered as Louis the Quarrelsome) was deposed in 1316. Twelve years later, the Capetian dynasty collapsed after more than three centuries in power.