Tag: General Economic History

Price Revolutions and Their Historical Impact

In 1996, leading economic historian, David Hackett Fischer, published The Great Wave: Price Revolutions and the Rhythm of History. If you ponder the subtitle, you may grasp the work’s ambition.

Nobel Prize-winning economist Paul Krugman has been arguing with Fischer for many years that, in making the transition from business to historical cycles, Fischer’s position is problematic.

There are, of course, detailed histories of prices, such as Thomas Tooke’s A History of Prices and of the State of the Circulation during the Years 1793–1856 (6 volumes, 1838–1857).

In the first four volumes he treats (a) of the prices of corn, and the circumstances affecting prices; (b) the prices of produce other than corn; and (c) the state of the circulation. The two final volumes, written with William Newmarch, deal with railways, free trade, banking in Europe and the effects of new discoveries of gold.

Wikipedia (links added)

Tooke-type price histories are one thing, but what about Fischer’s price revolutions? Max Weber (who predates Fischer by almost a century) seems to endorse this concept. In Weber’s General Economic History (German: Wirtschaftsgeschichte), he writes:

The great price revolution of the 16th and 17th centuries provided a powerful lever for the specifically capitalistic tendencies of seeking profit through cheapening production and lowering the price. This revolution is rightly ascribed to the continuous inflow of precious metals, in consequence of the great overseas discoveries. It lasted from the thirties of the 16th century down to the time of the Thirty Years’ War, but affected different branches of economic life in quite different ways. In the case of agricultural products an almost universal rise in price set in, making it possible for them to go over to production for the market. It was quite otherwise with the course of prices for industrial products. By and large these remained stable or rose in price relatively little, thus really falling, in comparison with the agricultural products. This relative decline was made possible only through a shift in technology and economics, and exerted a pressure in the direction of increasing profit by repeated cheapening of production. Thus the development did not follow the order that capitalism set in first and the decline in prices followed, but the reverse; first the prices fell relatively and then came capitalism.

Max Weber, General Economic History, Collier Books (3rd printing), 1966, pages 230-231.

Notice the last sentence above, Weber explicitly describes price revolutions exactly as Fischer argues.

In the history books we read, the emphasis is always on colorful personalities, inventions and other more theatrical events. This obviously omits the idea of phenomena like price revolutions. We cannot explain history merely by these personalities; we need to zoom out and view the larger picture.

The Interconnectedness of Everything and How It Should Influence Our Thinking

Max Weber, considered to be the father of modern sociology alongside Émile Durkheim, wrote a classic of economic history, General Economic History (German: Wirtschaftsgeschichte).

Weber concludes chapter 25 (“Free Wholesale Trade”) with:

The railway is the most revolutionary instrumentality known to history, for economic life in general and not merely for commerce, but the railway was dependent on the age of iron; and it also like so many other things, was the plaything of princely and courtier interests.

Max Weber, General Economic History, Collier Books, Third Printing, 1966, page 221.

Zooming out you may intuit that these narrow gauge explanations are inadequate but much better than nothing. We are faced with the problem of connecting railroads and the Iron Age to larger transformations from which these railroads were born.

Your high school history book might mention Abraham Darby III; to quote Wikipedia:

He built the largest cast iron structure of his era: the first cast-iron bridge ever built, as a crossing over the Severn near Coalbrookdale. The bridge made it possible for the village of Ironbridge to grow up around it, with the area being subsequently named Ironbridge Gorge.

He was the third of four men of the same name, all English ironmasters, from several generations of a Quaker family that played a pivotal role in the Industrial Revolution. Without James Watt, there would be no steam engine; without which, there would be no railroad. Watt in turn improved upon the Newcomen atmospheric engine, while consulting other scientists.

Despite the brilliance of Watt’s engine, however, without the financial backing of Matthew Boulton, it might have been a failure.

If you read Watt and Boulton’s correspondence, Watt is always thinking locally, whereas Boulton is already talking about selling the invention globally. This is the ecosystem in which Weber’s economic observations reside.

Weber leads up to the point of the importance of railroads by discussing the evolution of land transport.

Land transport also remained as before. The post produced no change; it merely forwarded letters and small packages, but did not concern itself with large scale production, which was decisive for economic life.

Only the roads underwent an extraordinary improvement, through the construction of turnpikes. In this the French government under Sully took the lead, while England leased the roads to private enterprisers who collected tolls for their use. The building of the turnpikes wrought a revolution in commercial life comparable to no other before the appearance of the railways. There is no comparison between the present density of road traffic and that of this period. In 1793, 70,000 horses went through the little town of Lüneburg while as late as 1846 only 40,000 were used in freight transport in all Germany. The costs of land carriage amounted to ten or twenty times the freight on the railways at a later time, and were three to four times as high as the charges for inland shipping at the same period. A half billion ton-kilometers was the highest figure for transportation for the movement on land in Germany, while in 1913, 67 billions were carried on the railroads.

Max Weber, General Economic History, Collier Books, Third Printing, 1966, page 221.

Weber also connects railroads with the atmosphere of speculation:

Such speculation underwent an enormous expansion with the building of railroads; these provided the paper which first unchained the speculative urge. Under the head of goods, grains, and a few colonial products available in large volume, and then other goods, were drawn into the circle of exchange speculation during the 19th century.

Max Weber, General Economic History, Collier Books, Third Printing, 1966, page 219-220.

Everything is connected to everything else, and without realizing this truth and sensing the underlying transformations, you cannot get a clear signal from history.