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  4.25 Inflation and Births Outside Marriage, 1920–1990

  4.26 Hyperinflations after the Cold War, 1980–1992

  APPENDIX

  5.01 Price Movements in Ancient Babylon, 1840–1620 B.C.

  5.02 A Price Revolution in Ancient Greece, 450–150 B.C.

  5.03 Price Revolutions in Ancient Rome: Two Estimates

  5.04 The Price of Donkeys in Egypt

  5.05 The Price Revolution of the Tenth Century: Portugal

  5.06 Great Waves in Chinese History, 800–1800

  5.07 Distribution of Wealth in America, 1635–1995

  5.08 Births Outside Marriage in England and Wales, 1570–1993

  5.09 Homicide Rates in England, 1200–1995

  PREFACE

  “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

  QUANTITATIVE METHODS find many uses in modern historical research. In some hands, they are tools of descriptive measurement. In others, they become a calculus of conceptual relationships. A few work with them mainly as rhetorical devices, to “enlarge the historian’s vocabulary.”2

  Not everyone is comfortable with these applications. History teachers know that when the dreaded word quantification is mentioned in a classroom, undergraduate eyes glaze over. Numbers too often become numbers of young and restless minds.

  It need not be so. If one makes a leap of the imagination, numbers come alive. They do so both in what they allow us to know and in how they help us to think. Numbers make it possible for us to put the pieces together. They allow us to compare events that are otherwise incomparable. They tell us which way the world is moving. They help us to think in general terms about particular events, and then to test our generalizations against the evidence of empirical indicators.

  Many indicators of that sort exist for the study of recent events, but few reach very far into the distant past. Only one type of source-material spans the entire range of written history: the record of prices. We carry these humble documents about with us every day, in the tattered receipts that accumulate in our wallets and purses. They seem so ephemeral that we scarcely think of them in historical terms, and yet they survive in greater abundance than any other quantifiable material.

  Price-records come down to us from ancient civilizations of Asia, India, Rome, Greece, Egypt, Palestine and Mesopotamia. In the dust of old Babylon, archeologists have found large numbers of clay tablets and cylinders that yield price-series as early as the reign of Hammurapi (circa 1793–1750 B.C.). In the deserts of Egypt, scholars have found papyri that record the cost of living in the time of the Pharaohs. The civilizations of Greece and Rome, China and India all generated a large body of price-records.

  Even for the early Middle Ages, where the sources are not as strong, scholars have been able to put together primitive price-lists (as distinct from price-series) for an astonishing variety of medieval commodities. We can follow the price of peasant grain, monkish cowls, knightly armor, and even sacred relics from the sixth to the twelfth centuries. These sources allow us to reconstruct price movements in a rough way through the darkest period of European history.3

  From the twelfth century to the present, historians have compiled more sophisticated price-series of very high quality. These data now exist for all European nations, and many cities and towns.

  Since the mid-nineteenth century, complex price-indices have been constructed by governments throughout the world, in a vast labor of data-gathering that grows ever more elaborate and precise. Every month, the latest price movements are front-page news in our morning papers, and lead stories on the evening broadcast.4

  With all of this material in hand, it is possible to follow the movement of prices through nearly four thousand years of recorded history. The interpretive opportunities in these sources are limited only by the reach of our imagination.

  There are as many ways to study a price series as to read a text. On the surface, prices are a running record of the cost of commodities as they change hands in the market. This is their most common and familiar meaning. At the same time, they may also be studied in a different way, as evidence of the changing value of money—which is how some economists prefer to think of them. On a third level, prices tell us about systems of production, and especially about structures of exchange—a subject of growing historical importance, as scholars begin to discover that processes of exchange may have played much of the role that Marx attributed to the means of production.

  On a fourth plane of abstraction, prices become a source for the study of broad historical movements. To look at the movement of prices in the United States during the nineteenth century, for example, is to see many things through that one particular lens. 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.

  The method of this inquiry is to describe and hopefully to explain the rhythm of change regimes and deep change in price movements during the past eight hundred years. The purpose is to enlarge our understanding not only of prices in particular, but also of change in general.

  Large questions about the nature of change have tended to belong more to philosophers than historians, and have been studied mostly by methods of deduction. The growing accessibility of quantitative evi-dence allows us to convert a metaphysical conundrum into an empirical question. Dr. Samuel Johnson would have understood. He once ob-served, “That, sir, is the good of counting. It brings everything to a certainty, which before floated in the mind indefinitely.”

  Wayland, Massachusetts D.H.F.

  June 1996

  Preface to the Third Printing

  The period from 1996 to 1999 is deeply interesting to an historian of prices. The long inflation of the twentieth century has given way to a new disinflationary trend, and in some sectors to actual deflation. We have been living through an era of “deep change,” when one “change regime” yields to another.

  To understand these new economic movements, one must look beyond the boundaries of economics itself. The world-disinflation of the 1990s was driven mainly by demographic events: most of all by sustained deceleration in rates of population growth. In many nations, fertility rates have fallen nearly to the replacement level, or even below it. Demographers believe that the leading cause is a change in the status of women, though other factors are clearly involved.

  T
he economic consequences of decelerating population growth are slowing demand and downward pressure on prices throughout the world, which lead in turn to severe financial crisis in economies that were organized on expectations of very rapid growth.

  Social and cultural consequences have been positive. In that respect, this new era in price history appears to be similar to periods of price equilibrium in the 15th, late 17th and 19th centuries. It is marked by rapid declines in internal violence, family disruption, and consumption of drugs and drink. Many leaders take personal responsibility for these new trends. The true cause runs deep.

  In other ways the new era of the late 1990s is entirely without precedent. A novel tendency in a period of disinflation is a very powerful inflation of asset values, and especially in the price of common stocks on many exchanges. Here again the cause is to be found outside the conventional frame of economic analysis, in social and cultural tendencies that have caused investment in certain classes of assets to increase more rapidly than the supply of assets themselves. We might have a major problem here, in what an historian would call a shearing effect, created by countervailing price movements.

  Another problem operates on an entirely different level. In periods of deep change, understanding lags behind the movement of events. The world changes faster than our thoughts about it. For example, in the late 1990s, central bankers in many countries continued to think of themselves as inflation-fighters in a new era when greater dangers rose from disinflation or even deflation. Economists in the 1990s (monetarists especially) predicted that large increases in the money supply would cause inflation to pick up again, as would have happened a generation ago. But other factors have been more powerful.

  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.

  Wayland Massachusetts D.H.F.

  June 1999

  THE GREAT WAVE

  INTRODUCTION

  Great Waves in World History

  Upswing in the thirteenth century . . . downswing in the later middle ages . . . upswing in the sixteenth century which breaks in the seventeenth century; a third upswing in the eighteenth century . . . what is the meaning of these movements?

  —Wilhelm Abel, 19351

  History doesn’t repeat itself—but it rhymes.

  —attributed to Mark Twain

  THE HISTORY OF PRICES is a history of change. 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.2

  Price-inflation has been a continuing problem in the past, but it has not been constant in its rhythm, rate, or timing. Some eras have been more inflationary than others. A few have experienced long-term price-equilibrium, and even deflation.

  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.

  Figure 0.01 links three different price series. The first is D. L. Farmer’s index of English wheat prices in shillings from 1210 to 1275. The second is the Phelps-Brown-Hopkins price index of consumables (grains, vegetables, meat, fish, butter, cheese, drink, fuel, light and textiles) in shillings for southern England from 1264 to 1954. The third is the Ministry of Labor index of British retail prices in pounds sterling, 1952–93. All are converted to a common base of 1451–75=100. Sources include D.L. Farmer, “Some Livestock Price Movements in Thirteenth Century England,” Economic History Review, 2d ser., 22 (1969) 15; E. H. Phelps-Brown and Sheila Hopkins, “Seven Centuries of the Prices of Consumables, Compared with Builders’ Wage-Rates,” Economica 23 (1956) 297–314; B. R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics (Cambridge, 1968) 740–41; idem, Second Abstract of British Historical Statistics (Cambridge, 1971); B. R. Mitchell, International Historical Statistics: Europe, 1750–1988 (New York, 1992); Annual Abstract of Statistics (London, 1972–1994).

  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.

  This alternating rhythm of price-revolutions and price-equilibria was discovered as early as the eighteenth century. It was studied during the 1930s by French economist François Simiand, by Italian scholar Jenny Griziotti-Kretschmann, and by German agrarian historian Wilhelm Abel.3

  Abel’s work is still in print after fifty years, and strong in its empiricism. His purpose was different from that of other scholars. Phelps-Brown and Hopkins had wanted to know about the movement of monetized wages and prices. 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.

  Most historians in the United States are familiar only with one great wave, the price-revolution of the sixteenth century. Its successor, the inflation of the eighteenth century, has been much discussed by French scholars in relation to the revolution of 1789, but it is little known in America or Britain where its effects were less dramatic. The medieval price-revolution is even more obscure, because it is distant from our time and its sources are inaccessible. The price-revolution of the twentieth century is misunderstood for opposite reasons: the data are overwhelming, and the event is so close to us that we have trouble thinking of it in historical terms.4

  Figure 0.02 represents decennial moveme
nts in the price of grain in five European nations from 1201 to 1960. It includes wheat in England, France and Italy; and rye in Austria and Germany. Prices are decennial means, converted to silver equivalents (grams of pure silver per 100 kilograms of grain). The source is Wilhelm Abel, Agrarkrisen und Agrarkonjunktur: Eine Geschichte der Land und Ernährungswirtchaft Mitteleuropas seit dem höhen Mittelalter (1935; Hamburg and Berlin, 1966), appendix. The raw data are from price lists of Rogers, d’Avenel, Barolini, Parenti, Magaldi, and Fabris, listed in the bibliography.

  Economists in the United States also have little memory of these historical events, except for the price-revolution of the sixteenth century, which is distantly remembered as proving the truth of the axiom that inflation is “always and everywhere primarily a monetary phenomenon,” as the American economist Milton Friedman wrote in another context. Otherwise, the author has found that price-revolutions in general are (with some exceptions) entirely unknown to most economists, political leaders, social planners, business executives, and individual investors, even as they struggle to deal with one price-revolution in particular.5

  This collective amnesia is partly the consequence of an attitude widely shared among decision-makers in America, that history is more or less irrelevant to the urgent problems before them. An exception shows the power of this rule. In 1980, American economist Lester Thurow advised his colleagues that they could not understand the inflationary surges of that era without entering the distant realm that he quaintly called “the long ago.” By “the long ago,” he meant the year 1965.6

  There are signs that these attitudes may be changing. So turbulent and unpredictable have been the events of the late twentieth century, that even the most atemporal minds have begun to realize that history is happening to them. Academic interest in this subject also has a strong wave-like rhythm of its own. The discipline of price history, which flourished during the 1930s, is now in the early stages of revival.