Most Important Concepts

Action Points

Chapter Recap

Preface

• Price records exist for the past 4000 years. This is unique in that no other records are so complete, and go so far back.
• Prices can tell us:
  • The cost of commodities
  • Changes in the value of money itself
  • Changes in the systems of production

Introduction

• Most inflation in the past 800 years happened during 4 great waves of rising prices.

The first wave

• The medieval price revolution, 1180-1350
• During the 12th century, prices were stable, and amount of money in circulation was stable, but towards the end, population had grown, and there was a lack of money to go around.
  • After a long period of comparative stability and growing prosperity, women throughout Europe married at earlier ages. The result was a medieval baby boom.
  • With a boom of babies, demand for life’s necessities expanded more rapidly than supply could keep up. This increased prices, with prices of energy (timber, charcoal, oxen) and food leading the way.
  • People responded to the rising prices by deliberately expanding the supply of money, through mining more silver, and through debasement, helping the individuals and institutions involved to cope with the high prices, but had the collective effort of driving prices up even higher.
• During this period the rich who held assets that increased along with inflation managed to grow their wealth, while the poor got poorer, and as a result wealth inequality grew.
• Governments went deep in to debt, with public deficits growing out of control.
• In the period from 1314-1348, the great wave crested and broke in a shattering catastrophe. As it did so, the people of Europe suffered through the darkest moment in their history; a terrible time of starvation and pestilence, insurrection and war, persecution and political chaos.
• Afterwards, in the 15th century equilibrium was reached, prices were very stable for about a 100 years, allowing a prosperous period that we know as the renaissance.

The second wave - The price revolution of the sixteenth century

• The longest price-revolution of modern times, a run of 180 years, beginning ad early as 1470, and continued as late as 1650.
• Was not caused by gold and silver being shipped in from American colonies, as the price-revolution had already began way before the first gold made it back to Europe. New gold from America would have reinforced the existing trend though.
• In every price-revolution, one finds evidence of frantic efforts to expand the supply of money, after discovering prices are rising.
  • For example by doubling the efforts to extract gold and silver from American colonies.