Great Wave

by Fischer, David Hackett;

  The purpose of this inquiry is to stimulate growing interest in this subject, by studying each price-revolution in turn, and then by comparing one with another. We shall describe the four great waves in their most important aspects: first, their timing, magnitude, rhythm, volatility, and the sequence of secular change in price levels; second, the pattern of price relatives for different types of commodities; third, the movement of real wages; fourth, the pattern of change in rent and interest. The same questions will be asked about periods of price equilibrium, one of which may be approaching.7

  The second task is to explore the question of cause. Braudel himself believed that these great waves were the strongest secular pattern in modern economic history, but he thought that the task of explaining them was the “most neglected” problem in historiography, and “impossible” to solve.

  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.

  Each of these approaches has taught us something useful about their common subject. All are flourishing today. The differences between them rise in large part from their assumptions about what prices are, and what the world is made of. They are theoretical constructions, but all of them also make strong empirical claims that can be tested against historical evidence. This inquiry will attempt to frame another model that might combine their strengths and correct their weaknesses.

  The third assignment is consider the consequences of price-movements, or more precisely the consequences of movements that prices represent. These consequences have been profound, and never more so than in our own time. The darkest tendencies of our troubled era—the growth of violence and drug use and family disruption which many people identify as the most urgent social problems of our age— are closely connected to price movements (or, again, the movements that prices represent). Most students of these social problems are entirely unaware of these linkages, which bring a new perspective to an understanding of the causes of our present discontents.

  Some of the brightest moments in modern history have also been linked to the rhythm of material events. This was so for the renaissance of the twelfth century, the renaissance of the fifteenth century, the age of the enlightenment, and the Victorian era.

  A Caveat for the Critical Reader

  Before we begin to study these relationships, a caveat is necessary. It should be understood clearly that the movements we are studying are waves—not cycles. To repeat: not cycles, but waves.

  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

  Even so, all great waves had important qualities in common. They all shared the same wave-structure. They tended to have the same sequence of development, the same pattern of price-relatives, similar movements of wages, rent, interest-rates; and the same dangerous volatility in later 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.

  These great waves also differ from cycles in their epistemic status. We know about them in different ways. Cycles must be teased from the data, commonly by statistical inferences in which the evidence is “filtered” and “detrended” by various techniques. The great waves are different in that respect. They appear on the surface of the evidence. To observe them no filtering or detrending of the data is required. Each great wave is the major price-trend in its own era. No theoretical models or statistical massages are needed to summon them from recalcitrant sources. To discover these secular trends in the data, it is necessary to do something that is very simple, and yet immensely difficult for many academic scholars. One must learn to look the evidence in the face, without fixed ideological, theoretical or epistemological preconceptions. We are sometimes told that this is impossible. So it is—for some people.9

  This book is written mainly for general readers who share the author’s interest in understanding patterns of historical change for their own sake. It also has a message for practical business leaders, journalists, investors, and ordinary citizens. Today, we are living in the late stages of the price revolution of the twentieth century. Disaster does not necessarily lie ahead for us. This book does not predict the apocalypse. It does not attempt to tell the future. To the contrary, it finds that uncertainty about the future is an inexorable fact of our condition.

  But it also finds evidence that what happens in the future is contingent on our choices in the present, which derive from our memory of the past. The result of this inquiry strongly suggests that when we make our economic choices, we would do well to improve our powers of recall, and to remember some very hard-won lessons of historical experience. If our purpose is to master the dangerous dynamics of our contemporary world, or merely to survive them, then we must remember the past—even the distant past. We must also learn to think of the present and future as part of an historical continuum.

  Many readers who are literate in economics will remember the special meaning of the Keynesian dictum that in the long run we are all dead. The events of the twentieth century should have taught us that this idea, in its most common application, is very much mistaken. 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

  To that end, this history begins more than seven centuries ago, on a market day in a medieval cathedral-town. The date was September 8, 1224. The place was Chartres.

  THE FIRST WAVE

  The Medieval Price Revolution, 1180–1350

  Greet prees at market maketh deere ware.

  —Chaucer’s wife of Bath

  CHARTRES, September 8, 1224, the festival of the Virgin’s Birth. For more than a week, the country roads to this cathedral town were clogged with crowds of pilgrims. Some were pious peasants who wished to thank the Virgin for hearing their prayers. Others were worldly merchants who came to buy and sell at the great market-fair called the Septembresce.

  Their journey brought them to the golden plain of Beauce, prosperous wheat country in the heart of France. In early September, the rolling fields were bright with ripening grain, and the last scarlet poppies of the summer were still in bloom beside the dusty roads. In the distance, footsore travellers could see their destination long before they reached it. The beautiful blue silhouette of Chartres Cathedral soared high above the horizon, and was visible for many miles across the open countryside.

  The great building that loomed before them, and still stands today, was the
seventh cathedral of Chartres. The fate of the other six made a catalogue of medieval miseries. The first had been wrecked by the Duke of Aquitania in 743, and the second had been ruined by the Vikings in 843. The third cathedral had been destroyed in 962, and the fourth had been pulled down in 1020. The fifth and sixth had burned in 1134 and 1194.

  After each of these catastrophes, the people of Chartres acted quickly to rebuild a structure that was vital to their faith and fortunes. In 1134 and again in 1194, they unhitched animals from their carts and placed themselves in the traces to haul stone for the new cathedral. That act of piety was remembered as the Cult of the Carts.

  “At Chartres,” one chronicler wrote, “men began with their own shoulders to drag wagons loaded with stone, wood, grain and other materials to the workshop of the church, whose towers were then rising . . . one might observe women as well as men dragging [carts] through deep swamps on their knees, beating themselves with whips.” People of every rank joined in the Cult of the Carts. “Whoever heard in all the generations past,” another chronicler wrote, “that kings, princes, mighty men of the world puffed up with honors and riches, men and women of noble birth, should bind a bridle upon their proud and swollen necks and submit themselves to wagons.”1

  The new cathedral that they built at Chartres was one of Christendom’s holiest shrines. Its sanctuary held the tunic that the Virgin Mary was thought to have worn when Jesus was born. Many pilgrims purchased replicas of this garment. Others bought sacred shirts called chemisettes which soldiers wore beneath their armor and pregnant women draped over their swollen bellies. During the festival of the Virgin’s birth, the sale of these sacred articles brought a large income to the people of Chartres.

  In the year 1224, this cathedral town was the capital of Europe’s richest province—an area of 13,000 square miles and a thousand churches. It was called the “great diocese” even in Rome. The town had become a center of trade and industry, specially renowned for textiles, weapons, and leather goods.

  The hub of this thriving economy was the Cathedral itself. During the festival, much buying and selling took place within the church. Food and firewood were sold inside the south door. Manufactured goods were available at the north door, where buyers and sellers haggled over prices. The side aisles of the nave became a labor-exchange, where artisans gathered in anxious circles around employers. The crypt was given over to the wine merchants. The south cloister was opened to the stalls of the money-changers. So lucrative were the rents paid by these much-hated men that a lively competition developed for their business between the Cathedral’s canons and deans, who controlled different parts of the building. The great cathedral was both a religious and an economic institution.2

  At the same time it was vital to its community in another way. Every great work of architecture is a cultural symbol. Chartres was a case in point. The beautiful cathedral perfectly symbolized an era that Charles Homer Haskins called the Renaissance of the twelfth century.3 This was the period when medieval civilization reached its highest level of cultural achievement. In the twelfth century, Romanesque architecture attained its peak of perfection. At the same time, the new Gothic style appeared full blown in the cathedrals of Paris (1163) and Canterbury (1175), as well as Chartres itself (1194). The people of France constructed more than eighty new cathedrals, 500 abbeys and 10,000 parish churches during this era—a building program that consumed more stone than the pyramids of Egypt, and more labor than the roads of Rome.4

  Great universities were founded at Paris, Oxford, Bologna and Salerno. Rapid progress was made in the revival of classical learning. Immortal works of Europe literature were recorded in the vernacular— Le Cid in Spain, the Nibelungenlied in Germany, the Chansons de Geste in France, and the Arthurian Legends in Britain.

  The twelfth century was also an epoch of high importance in political history. It was an era of great kings. Henry II of England (1154–89), Frederick Barbarossa of Germany (1152–90), Philip Augustus of France (1180–1223), and Alfonso II of Castile (1126–57) all claimed the title of Emperor, and enlarged their power and dominions. The twelfth century was also the great age of feudalism, when complex rules of chivalry and heraldry and primogeniture were elaborately codified. It was a time when new charters were granted to towns, gilds, and corporations. The twelfth century in Europe was marked by the simultaneous development of monarchy, aristocracy and popular government in open and pluralistic systems that were unique to the Western world. Power was broadly distributed among kings, clergy, nobles and commons.

  The twelfth century was an age of European expansion. The last major invasions by Magyars, Saracens, and Moslems had come to an end by the year 1050. Thereafter, the population of Europe slowly began to increase. It did so in northern Italy and southern France as early as the year 1000. In Spain, historians still speak of the great repoblación that commenced about 1150.

  Europeans began to move outward. The first crusade began in 1096, and was followed by many others in the 12th century. This also was the time of the Drang nach Osten—the movement by Teutonic Knights into eastern Europe. It was the age of the great Scandinavian migrations, west from Norway to North America, and east from Sweden to Russia.

  All of these movements rose from an expanding demographic base. Families, cities, markets, gilds, and fairs multiplied everywhere in Europe. Centers of commerce and industry grew at a great rate. As late as the year 1100, Paris had been a small settlement, largely confined for its own security to an island in the Seine. By 1215 it had become a city of perhaps 50,000 souls. The economy of medieval Europe rapidly developed from a comparatively primitive system of barter exchange toward a more complex system of market relationships.

  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

  This money-famine was only a hint of economic trouble in a period of high prosperity throughout Europe. The architecture of Chartres Cathedral perfectly captured the soaring optimism of its age. The geometry of its great rose windows symbolized a dynamic equilibrium that had appeared in the economy of Europe. The solid strength of the cathedral building embodied a union of social order and spiritual harmony. The bustle of commerce within its walls represented the prosperity that seemed to have become a permanent part of western culture in the early thirteenth century.

  But it was not to be. Ironically, the era when Chartres was built was a time of a deep change in European history—a moment when one change regime yielded silently to another. Even as the great vault of the Cathedral was completed in the year 1224, dangerous stresses were beginning to develop within the structure of medieval civilization.

  A symptom of trouble, and also in part its cause, was a movement that might called the medieval price revolution. This was a long wave of rising prices that began late in the twelfth century, and continued to the middle of the fourteenth century.

  In its earliest stage, the new trend was nearly imperceptible. It first appeared as
a minor price-flutter in medieval market-fairs such as the Septembresce. By the festival of 1224, the pilgrims of Chartres would have noticed that prices were a little higher, especially for firewood and food that was for sale inside the south door. Manufactured goods at the north door were also up a little, but not as much as food and fuel. The money-changers were getting more for their services, and the laborers who anxiously sought employment in the nave would have noticed that wages were beginning to lag behind the rising cost of living.

  All of these changes were still of minor magnitude in the year 1224. The price-revolution had barely begun. But once underway, it would continue for more than a century. Many years later it would end in a catastrophe so complete that scarcely anything of medieval civilization survives today except the beautiful blue silhouette of Chartres Cathedral, which still soars triumphantly above the scarlet poppies on the golden plain of Beauce.

  The Medieval Price Revolution Begins, circa 1180–1230

  Many years ago, the brilliant British polymath William Beveridge hypothesized that there had been a “price-revolution of the middle ages.” That idea was at first ignored or rejected by medieval historians, who regarded its author as a trespasser on their turf.7

  Trespasser or not, Lord Beveridge was correct in his belief. Toward the end of the twelfth century, prices began to rise throughout medieval Europe in a new trend that was destined to continue for more than a century. In England where evidence is most abundant, the inflection-point of this new trend appears to have come about the year 1180.8

  By the measure of modern movements, the medieval pricerevolution advanced at a very slow pace. Economic historian Michael Postan estimates that “the secular rise of prices between say 1225 and 1345 proceeded at a rate not higher than 0.5 per cent per annum.”9