secondary sector of the economy

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.

World-Watching: German Industry: Structural Change Underway

[from Deutsche Bank Research]

Production in major industrial sectors in Germany has developed very differently in recent years under the impact of the coronavirus pandemic and energy price shock. For example, manufacturing in electrical engineering rose by 18% compared with the start of 2015. In the chemical industry, there has been a 20% decline over the same period. The differences are not only cyclical, but also structural. In the future, it will be more important to distinguish between Germany as an industrial location and the German industry.

Read the Germany blog [archived PDF].

World Watching: Project Syndicate—New Commentary

from Project Syndicate:

The EU’s EV Greenwash

by Hans-Werner Sinn

EU emissions regulations that went into force earlier this year are clearly designed to push diesel and other internal-combustion-engine automobiles out of the European market to make way for electric vehicles. But are EVs really as climate-friendly and effective as their promoters claim?

MUNICH – Germany’s automobile industry is its most important industrial sector. But it is in crisis, and not only because it is suffering the effects of a recession brought on by Volkswagen’s own cheating on emissions standards, which sent consumers elsewhere. The sector is also facing the existential threat of exceedingly strict European Union emissions requirements, which are only seemingly grounded in environmental policy.

The EU clearly overstepped the mark with the carbon dioxide regulation [PDF] that went into effect on April 17, 2019. From 2030 onward, European carmakers must have achieved average vehicle emissions of just 59 grams of CO₂ per kilometer, which corresponds to fuel consumption of 2.2 liters of diesel equivalent per 100 kilometers (107 miles per gallon). This simply will not be possible.

As late as 2006, average emissions for new passenger vehicles registered in the EU were around 161 g/km. As cars became smaller and lighter, that figure fell to 118 g/km in 2016. But this average crept back up, owing to an increase in the market share of gasoline engines, which emit more CO₂ than diesel engines do. By 2018, the average emissions of newly registered cars had once again climbed to slightly above 120 g/km, which is twice what will be permitted in the long term.

Even the most gifted engineers will not be able to build internal combustion engines (ICEs) that meet the EU’s prescribed standards (unless they force their customers into soapbox cars). But, apparently, that is precisely the point. The EU wants to reduce fleet emissions by forcing a shift to electric vehicles. After all, in its legally binding formula for calculating fleet emissions, it simply assumes that EVs do not emit any CO₂ whatsoever.

The implication is that if an auto company’s production is split evenly between EVs and ICE vehicles that conform to the present average, the 59 g/km target will be just within reach. If a company cannot produce EVs and remains at the current average emissions level, it will have to pay a fine of around €6,000 ($6,600) per car, or otherwise merge with a competitor that can build EVs.

But the EU’s formula is nothing but a huge scam. EVs also emit substantial amounts of CO₂, the only difference being that the exhaust is released at a remove—that is, at the power plant. As long as coal– or gas-fired power plants are needed to ensure energy supply during the “dark doldrums” when the wind is not blowing and the sun is not shining, EVs, like ICE vehicles, run partly on hydrocarbons. And even when they are charged with solar– or wind-generated energy, enormous amounts of fossil fuels are used to produce EV batteries in China and elsewhere, offsetting the supposed emissions reduction. As such, the EU’s intervention is not much better than a cut-off device for an emissions control system.

Earlier this year, the physicist Christoph Buchal and I published a research paper [PDF, in German] showing that, in the context of Germany’s energy mix, an EV emits a bit more CO₂ than a modern diesel car, even though its battery offers drivers barely more than half the range of a tank of diesel. And shortly thereafter, data published [PDF, in German] by Volkswagen confirmed that its e-Rabbit vehicle emits slightly more CO₂ [PDF, in German] than its Rabbit Diesel within the German energy mix. (When based on the overall European energy mix, which includes a huge share of nuclear energy from France, the e-Rabbit fares slightly better than the Rabbit Diesel.)

Adding further evidence, the Austrian think tank Joanneum Research has just published a large-scale study [PDF, in German] commissioned by the Austrian automobile association, ÖAMTC, and its German counterpart, ADAC, that also confirms those findings. According to this study, a mid-sized electric passenger car in Germany must drive 219,000 kilometers before it starts outperforming the corresponding diesel car in terms of CO₂ emissions. The problem, of course, is that passenger cars in Europe last for only 180,000 kilometers, on average. Worse, according to Joanneum, EV batteries don’t last long enough to achieve that distance in the first place. Unfortunately, drivers’ anxiety about the cars’ range prompts them to recharge their batteries too often, at every opportunity, and at a high speed, which is bad for durability.

As for EU lawmakers, there are now only two explanations for what is going on: either they didn’t know what they were doing, or they deliberately took Europeans for a ride. Both scenarios suggest that the EU should reverse its interventionist industrial policy, and instead rely on market-based instruments such as a comprehensive emissions trading system.

With Germany’s energy mix, the EU’s regulation on fleet fuel consumption will not do anything to protect the climate. It will, however, destroy jobs, sap growth, and increase the public’s distrust in the EU’s increasingly opaque bureaucracy.