RISE OF THE MODERN WEST - I

DR. RICHA RAJ

Economic Developments of the Sixteenth

Century:
Price Revolution

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INTRODUCTION
This class will explore the meaning of the Price Revolution and its causes and effects in
sixteenth-century Europe.

Excerpts from: Arvind Sinha, Europe in Transition: From Feudalism to Industrialization

Meaning
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‘Price Revolution’ is a term used for a period of prolonged inflation, the cumulative effect of
which was astonishing to many scholars. It is important to note that (a) the prices of all
products did not rise uniformly, and (b) the rate of inflation varied from one region to another
depending on various factors.

The price trends in England and France indicate that the steepest rise was in the prices of arable
farm products followed by livestock farm products. The increase was minimum in the case of
manufactured items like textiles or metals.

The inflation was accompanied by a fall of real wages. Different reasons existed in different
regions. Scholars in France trace the causes back to the mid-fifteenth century when the state
authorities levied tax on earnings. In England, enclosures were blamed for agricultural
unemployment and the lowering of wages. In Germany, there was no enclosure movement, and
still the wages declined. Schmoller was perhaps the first to emphasize the debasement of
coinage to be the major cause for this trend. On the other hand, J.U.Nef argues that the view,
which suggests that wages lagged behind the price-level, is highly exaggerated. If wages had
really lagged behind prices to the extent as has been claimed, the demand for industrial goods
would not have existed. In recent years, scholars emphasize the role of population growth
causing surplus labour and consequently the lowering of wages.

Causes

The initial reaction to the price inflation in the sixteenth century was seen as a creation of
individual wickedness.

Professor Martin Azpilceuta of Salamanca University (1556): A connection between the price
rise and increasing availability of bullion. To him money was worth more when and where it
was scarce than when it was in abundance. The Frenchman, Jean Bodin (1568) further
expanded this view.

The official of the French Royal Mint, Maletstroit, maintained that the so-called price
revolution was illusionary. Whatever slight increase had taken place was due to the debasement
of currency. Many European governments had debased their coinage by reducing the silver
content to increase the number of coins. This was done to fetch a better price for the products
in the international market and to pay their debts that had been mounting because of the
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growing expenditure of the luxurious courts. The English government debased its coins in 1520,
1546 and 1551.

However, Jean Bodin found this an insufficient explanation saying that the rise in food prices
was out of all proportion to the extent by which the monies of account had been depreciated,
the real reason could only have been an influx of American silver.

In the late-eighteenth century, Adam Smith wrote that the discovery of the abundant mines of
America seemed to have been the sole cause of diminution in the value of silver in proportion
to that of corn.

In the twentieth century, Earl J. Hamilton (writing on Spain) and Fernand Braudel (on the
Mediterranean) gave this theory historical confirmation. This came to be known as the
‘Quantity Theory of Money.’ Observing the price trends in Andalusia, Hamilton believed that
there was a close connection between the imports of American gold and silver and the prices in
Andalusia. He observed an upward trend in the prices from 1503-05 until 1595, which he
believed was closely linked to the arrival of treasures from America. Thus, the sharpest rise in
prices coincided with the greatest increase in the imports of gold and silver. After that period,
decrease in the import of bullion resulted in the declining trend in prices.

Irving Fisher gave a new mathematical basis to the Quantity Theory:

MV = PT

(Money Supply times its velocity of circulation is equal to the price of goods and services times
the number of transactions.)

In a strong criticism of Hamilton, however, Ingrid Hammarstrom argued that Hamilton had got
his sequence wrong. She argued that it was an increase in economic activity that led to an
increase in prices. The mining activities in Central Europe also augmented the supply of
bullion. The fundamental question, in fact, was: to what use was the bullion put to?

Robert S. Brenner, citing the example of England, suggested that the price rise antedated the
arrival of American treasure. He argued that the changes in the commodity price level were
caused less from an increase, or lack of increase, in the European stock of metal than from the
manner in which this stock was employed.
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Writers such as Miskimin have accepted Hamilton’s theory. Miskimin suggests that the inflow
of precious metals would probably have set men and resources to work and, at the same time,
tended to increase the funds available for government finance, thereby lowering the cost of
fighting wars.

Ralph Davis draws attention to unevenness of the price rise between different categories of
products showing the consistent patterns with corn leading the way while the prices of
industrial goods seem to have risen more slowly. If the increase in prices was caused by the
supply of money, the prices of all the commodities would have risen evenly.

As per Carlo M. Cipolla, the highest average price rise in Italy took place between 1552 and
1560, while the influx of the American silver affected Italy only after the sixteenth-century. The
reason for the price rise before that period, in the view of Cipolla, was the restoration of peace
after a prolonged war from 1494, which was one of the chief causes of the price increase.

The demographic explanation was provided by Peter Kriedte and Ralph Davis, who suggested
that the growth of money in circulation is, in conditions of economic expansions, more
probably a reflection of expansion than its cause. It is, therefore, likely that other non-
monetary factors unleashed the price revolution and the Spanish silver only provided a
secondary role. The real cause is to be located in the demographic factor. The period after the
second half of the fifteenth century experienced a steady increase in the European population.
It was accompanied by a steady rise in urbanisation leading to people moving to urban centres.
The rise in population created greater demand for food, fuel and clothing.

In conclusion, one can say that several factors were responsible for the upward trend in prices
during the sixteenth century: the increased volume of money in circulation because of wars, the
growing urban population raising demand for agricultural and manufactured goods, economic
prosperity, war expenses and the expenditure on reconstruction, and most importantly the rise
in population. At the same time, the quantity theory of money cannot be ignored. Everything
that caused long-term upward movement of prices from the late-fifteenth century to early-
seventeenth century was interdependent: money of account, coinage, state of economy, social
structures, demand elasticity, demographic trends and the availability of metals.

By money of account is meant a scale of measurement, or a unit of measurement for gold coins,
silver bullion or copper that brings them all into a valid relationship with one another. It is
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distinct from the currency in everyday circulation and is used in settlement of international
trade.

The Impact of the Price Revolution:

It has been suggested that the price revolution affected the whole of Europe and had important
social repercussions. At the same time, it must be noted that its impact was not uniform but
varied in different regions.

1. Profit Inflation
Earl J. Hamilton is of the view that during the price revolution, wages lagged behind
prices causing profit inflation. The increase in profits stimulated business and capital
investment and contributed to the capital development and economic prosperity. He
asserts that there was not only a price rise but also a wage lag. It deprived the labourers
of a large part of the income and diverted this wealth into the hands of manufacturers
and middlemen. Rents as well as wages lagged behind prices. This resulted in windfall
for some and this provided them an incentive for the feverish pursuit of capitalist
enterprises. J.M. Keynes supported this view.

2. Socio-economic Consequences
The Price Revolution brought about a major incentive to economic transformation in
Western Europe and resulted in partial collapse of the manorial system of agriculture.
The impact of the price revolution was felt differently by different classes and varied
according to the regions. It has been argued that the p.r. brought about the rise of the
gentry in England during the sixteenth century, as they were involved in the market
structure, reaped huge profits in agriculture and emerged as a strong political force.

France, Spain and Italy: the nobility managed to overcome the serious financial
problems caused by the p.r. by raising the rent of their lands or by imposing entry fines.
The upper nobility, especially in France, received favours from the Crown in the form of
pensions, lands or offices in return for military and administrative services. The lesser
nobility in France was less successful in adjusting their rents to the economic situations
and consequently many of them joined the army or engaged in the wars of religion.
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In Central Europe, especially Poland, profiting from the growing markets in rye, timber
and fur in western and Southern Europe, started fresh enserfment also known as ‘second
serfdom’. They raised cheap labour to carry out farming work in their demesne lands by
forcibly tying the peasants to their holdings. Nothing was done by the local princes to
check this trend of fresh enserfment because they were themselves dependent on these
landowners or junkers as they were called.

The small peasants generally suffered in this period of rising prices, as they were unable
to take advantage of the increase in the prices of agricultural products. They produced
on a small scale and could not independently participate in the market transactions. In
many parts of Western Europe, the number of landless population increased because of
evictions by the landlords (ex. England). The growing population and lack of job
opportunities led to a steady flow of population away from agriculture towards the
towns. Even in towns, there were few jobs available in the absence of big industries,
eventually leading to a rise of pauperism.