PRICE REVOLUTION

Price Revolution, as analyzed by economic historian Earl J. Hamilton, reshaped the fabric of societies
through its transformative impact on trade and wealth dynamics.

INTRODUCTION

Price Revolution is a term used for a period of prolonged inflation despite occasional dissent in the
use of this term. Europe witnessed phenomenal price rise in the sixteenth century. Steady increase in
prices continued throughout the sixteenth century. Its cumulative impact was so profound that the
economic historians have termed it as ‘the price revolution’.

The price rise appears revolutionary when the price level of the sixteenth century is compared with
the long period of static prices of the middle ages and with the declining or stagnant price level
during the seventeenth century. But it looks negligible from today’s standards. Although the annual
price increase was hardly 2 to 3 per cent, there were price fluctuations for short periods during the
sixteenth century and the actual price rise was noticeable from the middle of the century.

BACKGROUND

The Commercial Revolution, which unfolded from the late medieval period into the early modern
era, played a crucial role in paving the way for the Price Revolution in Europe. Here are key ways in
which the Commercial Revolution contributed to the economic conditions that led to rising prices:

Expansion of Trade Routes: The Commercial Revolution witnessed the expansion of existing trade
routes and the establishment of new ones. Increased maritime exploration and trade with the East
and West, including the Americas, brought a surge of goods and precious metals to Europe. This
influx of commodities and bullion contributed to changes in supply and demand dynamics, impacting
prices.

Globalization of Trade: European nations engaged in global trade networks, leading to a more
interconnected world economy. The increased flow of goods, spices, textiles, and precious metals
across continents had a profound effect on markets, influencing price levels.

Growth of Mercantilism: The rise of mercantilist economic policies emphasized accumulating

wealth, especially in the form of gold and silver. Nations sought to maintain a favorable balance of
trade, encouraging exports and restricting imports. This focus on accumulating precious metals
contributed to the monetary factors influencing the Price Revolution.

Monetary Influences: The influx of silver and gold from the Americas, resulting from exploration and
colonization, significantly expanded the money supply in Europe. This abundance of precious metals
contributed to inflationary pressures, as more money chased a relatively constant supply of goods
and services.

Shift in Economic Focus: The Commercial Revolution marked a transition from a predominantly
agrarian economy to one that increasingly valued commerce and trade. This shift in economic focus
led to increased market-oriented activities, affecting pricing mechanisms.

Banking and Financial Innovations: The emergence of banking institutions and financial innovations
facilitated economic transactions and investments. The use of bills of exchange, letters of credit, and
the establishment of banks provided mechanisms for capital accumulation and investment,
influencing economic growth and contributing to the dynamics of the Price Revolution.

TREND OF PRICE RISE

The rise in the cost of living was first noticed when the price of food grains, especially cereals,
showed an upward trend. The English, the French and the Alsatian sources indicate that thesteepest
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.

Netherlands and Norway, the price of cereals escalated faster than that of fish and cheese, and in
Sweden between 1460 and 1559 the price of barley and rye went much higher than that of butter,
cloves, pepper and iron.

In England, the period between 1550 and 1650 witnessed a fourfold increase in the prices of cereals
and wood, while those of meat, cattle, wool and metal doubled.

In Germany, a phenomenal price rise was experienced in the town of Speyer between 1520 and
1621. The price of r)'e rose by fifteen times, peas fourteen times, wheat thirteen times, salt six times
while the wages had gone up only by two to three and half times. In France, the price of grain from
the end of the fifteenth century till the beginning of the seventeenth century had risen ten times and
that of cattle eight times.

According to Hamilton, the Spanish price level had gone up 3.4 times between 1601-10 compared to
a century before; in France 2.2 times; Leiden, the famous Dutch textile centre it was over three times
while in Alsace, Italy and Sweden it had more than doubled. According to Brown and Hopkins, if we
compare the price rise between 1475 and 1620, assuming the period between 1451 and 1475 as 100
index points, the food index point had gone up to 555 in England, 729 in France and 517 in Alsace.

VIEWS ON BEGINNING

Some scholars believe that it had started from the late-fifteenth century itself, while some others feel
it began after 1500. There is also a suggestion that the sixteenth-century price revolution was
preceded by a pre-revolution in prices {The Cambridge Economic History o f Europe). It was
characterized by a slow rise in prices, perhaps 1 per cent annually between 1450 and 1500.

Similarly, on the question of its duration, there is no unanimity among the historians. It
probably varied from one region to another depending on the vitality and strength of the economy.
The first signs of recession are to be found in Spain in the 1580s

Historians feel that the prices followed a cyclical pattern in Europe. The twelfth and thirteenth
centuries experienced a rapid rise, the fourteenth and three quarter of the fifteenth centuiq^ was a
period of gradual fall followed by high price

then another period of recession for almost a century before the prices began to rise during the
eighteenth century. Pierre Chaunu suggests that the period from 1504 to 1550 experienced a steady
rise in prices followed by a relatively minor recession from 1550 To 1562
This graph is based on 25-year averages and the silver content of coinage is placed at 100 index
points for the period 1501-25. Each graph indicates that grain prices led the way followed by the
prices of industrial product.

Scholars in France trace the causes back to the mid-fifteenth century when the state authorities
levied tax on earnings. Several explanations have been provided for the wage-lag of the sixteenth
century.

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

CONSEQUENCE OF INDIVIDUAL WICKEDNESS

The initial reaction to the price inflation in the sixteenth century was seen as a creation of individual
wickedness. Theologians and preachers made scathing attacks on the monopolists and the usurers.
The German Diet blamed the Fuggers and other merchant bankers for this situation. The scarcity of
food and other commodities was also seen as the result of human weakness such as idleness or
greed. Thomas More in Utopia blamed ‘the unreasonable covetousness of a few’for ‘the great dearth
of victualles’. He described the sheep as men-eaters as he believed that food was running short
because of the greedy landlords who were turning their lands over to sheep to make profits out of
the sale of wool. Thomas Starkey also expressed a similar sentiment against the idlers and the ill-
occupied people in 1533.

BODIN MELESTROIT DEBATE

Professor Martin de Azpilceuta of Salamanca University came out with another explanation in 1556.
He suspected a connection between the price rise and increasing availability of bullion. Jean Bodin
further expounded this view in 1568. The two Frenchmen — Bodin and Malestroit - debated the
causes of inflation. The latter, an official of the French Royal mint maintained that the so-called
inflation was illusionary and he compared the prices of the thirteenth century with those prevalent
in the sixteenth century and found no indications of inflation. He believed that whatever slight
increase had taken place was due to the debasement of currency. It is a common fact that 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 growing expenditure of the luxurious
courts. The English government debased its coins first in 1520 then in 1546 and 1551. During this
period the silver content of one penny was reduced to one-sixth. Between 1543 and 1546, the silver
content of a shilling was reduced from 100 to 40 grains. Jean Bodin offered several explanations
based on his own observations and among them he focused on the influx of gold and silver causing
the price rise. He believed that the currency debasement was an insufficient factor to account for the
price rise. Bodin argued that as 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 be the influx of
American silver.

Malestroit favored civil unrest, bad har- vests, the loss of labor after
famines, and bullion exports as inducers of inflation; in the French case "by general acclaim Bodin
emerged the winner in the dispute.'8 Actually, the quantity theory had been put forward in Spain by
Azpilcueta de Navarro some twelve years earlier; indeed, it was well established in Spain by the end
of the century. Bodin's influence was felt in England, too, in the work of the mercan- tilist Gerard de
Malynes in 1601 and 1603

Later Richard CantiUon and Adam Smith also shared this view of Bodin. 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.

QUANTITY THEORY OF MONEY

Earl J. Hamilton (on Spain) and Fernand Braudel (on Mediterranean) gave this theory. Earl J. Hamilton
primarily wrote on the price rise of the sixteenth century in Andalusia and later he applied his
observation more generally to western Europe. 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 1503-5 until 1595, which he believed was closely linked to the arrival
of treasures from America. Thus, the sharpest rise in prices, according to Hamilton, 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.

s. Irving Fisher gave a new mathematical basis to the Quantity theory, when he stated,

MV=PT

(This equation states that money supply times its velocity of circulation is equal to the price of goods
and services times the number of transactions.

(This equation states that money supply times its velocity of circulation is equal to the price of goods
and services times the number of transactions.)

CRITICISM

This explanation of the price rise received immediate attention of many scholars. Comments were
made both in favour and against this view. Many historians do not fully agree with this view. The
quantity theory of money has been subjected to much attack on empirical as well as on theoretical
grounds. Doubts have been frequently expressed whether V and remain constant. In a strong
criticism of Hamilton, 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. For her the fundamental question is
- to what use was the bullion put to? Y.S. Brenner also supports Hammerstrom and argues 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. Citing the English
example, Brenner suggests that the price rise antedated the arrival of American treasure .Historians
such as P. Vilar and Jorge Nadal criticized Hamilton for concentrating only on the town. prices and
ignoring the rural prices of the local markets

SUPPORT

Writers such as Miskimin and R.S. Lopez have accepted the role of American bullion in causing price
revolution in a general sense. Citing the mercantilists’obsession with bullion, 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
offighting wars. Miskimin also supports the view of Hamilton on the slow rate of inflation till the first
quarter of the sixteenth century and feels that the economic growth from 1465 till the period of the
Reformation was a process of slow recovery. To Miskimin the gap between the prices of agriculture
and manufactured goods does not disprove the quantity theory because there were many factors
such as the demographic change, shifts in taste, and divergent elasticity of demand and supply.

Ralph Davis draws attention to the unevenness of the price

rise between different categories of products showing the consistence patterns with corn leading the
way while the prices of industrial goods seem to have risen but more slowly.

MONETARY APPROACH TO THE BALANCE OF PAYMENTS

The theory is actually a variant of the international quantity theory of money and thus can be
applied to a specie standard world, but it is a variant that does not require specie actually to move
from the deflating to the inflating country. An explanation of this proposition appears in a paper by
Dennis Flynn, specifically referring to the price revolution.23 Assum- ing that a country's real income
is determined by real factors, then "world prices, in conjunction with a country's real income,
determine the domestic demand for money. The monetary authority controls only the local source of
the supply of domestic money, but not its demand.' 24 Domestic prices are determined by
international prices, while the domestic money stock (jointly determined by money supply and
money demand) is, in effect, determined by (that is, caused by) the price level and anything that
explains the domestic demand for money.

Under the assumptions of the monetary approach, the French

money stock will expand to close the gap between French money demand and money supply, before
the specie inflow occurs. French prices will then rise, which will by itself tend to close the gap
between exports and imports of goods. It is clearly important to recognize in this mechanism an
alternative to the specie inflow (Mm); in the limit, no specie need flow into France.

VELOCITY ARGUMENT

The velocity argument also mentioned above comes into play from time to time, although its
strongest recent supporter is Peter Lindert.34 Harry Miskimin ties an alleged rise in velocity in the
period to increased urbanization.35 He suggests that the frequency of transactions increases as the
urban structure grows relative to the rural. J. D. Gould also takes this view. Lindert estimates the
velocity of money in England for this period and suggests that velocity rose at a rate much higher
than might reasonably be anticipated in view of the moderate rise in expected inflation (since actual
inflation was itself moderate). Lindert proposes, in effect, a population explanation involving the
need to spread slowly growing money supplies around to a growing population. But, as Michael
Bordo points out, the dynamics of the process are not entirely clear (why would velocity go on
changing in the absence of an acceleration of population growth?).Further, paraphrasing Bordo's
argument to some extent, there may well have been an adequate response in the development of
competing monies (of intermediation, that is to say) in the face of pressure from the population-
induced increase in the demand for money. In this case the velocity calculation is plainly misleading.
In conclusion, we seem a long way from being able to consider the causal aspects of these velocity
propositions in the current state of the sixteenth-century data (especially for real income).

The effect is certainly likely, although a secular rise in velocity of this sort is
also consistent with a growing national income; it could net out the effect of the rising velocity on
the price level.37 Indeed, apparently a central problem in this literature arises because of the
apparent misconception that the quantity theory of money requires a constant velocity. As Milton
Friedman points out, all that is actually required is that the demand for money be stable (or,
equivalently, that the velocity function be stable) for the main propositions of the quantity theory to
go through.38 More specifically, a rise in velocity will not by itself do the job if there is,
simultaneously, general economic growth. Indeed, urban growth certainly is suggestive of general
growth, al- though without further documentation the problem here is just that the velocity
hypothesis is not demonstrable without further data (for example, on velocity itself, or on real
income).

DEMAND PULL THEORY

The demand-pull theory (expounded, for example, by Shepard Clough and Richard Rapp), argues that
an increase in the demand for money accompanying the expansion of European economic activity
produced the rise in prices and a simultaneous pressure for exploration (in order to increase the
stock of money).Population growth is sometimes linked to this particular proposition as an additional
source of pressure on prices. The first modern proponent of the more general population thesis is
Moritz John Elsas, and a key finding is that agricultural prices rose more than the prices of
manufactured products.27 This change in relative prices is generally attributed to population
increases exceeding the ability of the agricultural sector to produce.

Scholars like Peter Kriedte and Ralph Davis suggest The real cause, according to
them, 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 urbanization leading to people moving to urban centres. The rise in population created greater
demand for food, fuel and clothing. Whatever statistics are available has been pieced together from
the materials such as parish registers, tax returns or muster rolls. All this evidence points to the rise
in population from the late-fifteenth century till the beginning of the seventeenth century. Sixteenth-
century European population was still rural in composition and the production process worked
mostly wdthin the framework of traditional and a relatively unchanging structure. Most of the
expansion had taken place outside agriculture due to the inelasticity in the method of cultivation. In
such a structure, population movements became the principal factor in the formation of demand.

Cipolla, Hilton, Peter Kriedte, J.U. Nef and many others have tried to provide some
rough estimates based on varied sources. Most of the information on demography comes from
municipal records, district or provincial censuses of households, land registers, taxation records and
the muster rolls for military recruitment. The population of Paris and Naples had crossed over
2,00,000. A number of smaller towns also expanded such as Vienna, Lubuck, Augsburg, Straasburg,
Danzig, etc. Italy had the heaviest density of about 114 persons per square mile.

. However, even the demographic explanation by itself cannot account for the
price rise. Several factors must have been 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 completely ignored. It has to be remembered
that every thing that caused long-term upward movement of prices from the late-fifteenth century to
earlyseventeenth century was interdependent: moneys of account, coinage, state of economy, social
structures, demand elasticity, demographic trends and the availability of metals. By money of
account, we mean 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.
IMPACTS OF PRICE REVOLUTION

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 capitalist development and economic prosperity. Hamilton asserted 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.

The disparity between wages and prices becomes evident in the 1530s
resulting in discontent among the labourers and occasionally leading to open revolts. J.M. Keynes not
only supported this view but also went much ahead of Hamilton when he argued that there was an
extra ordinary correspondence between the period of profit inflation and profit deflation
respectively with those of national rise and decline in the case of France, England and Spain.

the added bullion contributed much to the use of money. It gave greater mobility to capital,
encouraged investments, promoted market activities and resulted in division of labour. Writers such
as J.U. Nef and David Felixdo not subscribe to the views of Hamilton and deny that profit inflation
automatically contributes to capital formation. Nef observes that whereas the price inflation was
greatest in Spain, profit inflation was perhaps greater in France but the economic growth was fastest
in England. On the basis of his study of wage rates, prices and industrial technology, he accepts that
one cannot disprove the thesis that the price revolution stimulated capitalism but the influence of
price movement was much more complex. David Felix also points out that there was no clear sign of
profit inflation as suggested by Hamilton and Keynes.

NEW METHODS AND INVENTIONS

The major industries such as textile, shipbuilding and metal processing underwent little change in the
course of the sixteenth century. Textile manufacturing shifted from the guildcontrolled urban centres
to the rural areas to escape municipal control and strict regulations and to utilize cheap labour.

INFLUENCE ON CONSUMPTION

Slicher van Bath prepared a series of drafts pertaining to the prices of cereals, population growth and
the levels of real wages. In his argument he tries to establish that fluctuations in population exert a
strong influence on consumption and thereby affect the course of prices.

According to him, in the second half of the sixteenth century, particularly after 1550, there was a
decline in real wages at an increasing rate till the first half of the sevehteenth century when it
reached its lowest point. Based on the ten-yearly averages at the 1700- 49 level, Mark Overton has
prepared a table of prices for England covering different products including wheat, barley, oats,
mutton, wool and wages. The price of wheat shows a steady and speedy rise from twenty-two points
to hundred by the 1590s. The price of barley also rose rather sharply from seventeen to ninety-two
in the same period and wool prices increased from twenty-four to eightynine. Wages rose from
thirty-two to seventy but the increase was far less than other items.

SOCIAL CONSEQUENCES

Prices went up faster than the wages, generating social tensions in the urban population. It seriously
affected the wage earners and salaried sections in the towns. Besides, the price rise greatly increased
the costs of administration and created serious problems for many rulers. first two Stuart kings of
England faced stiff popular resistance on their financial policies leading to the break with their
parliaments. The Spanish rulers also faced grave threats caused by their mounting borrowings. The
French rulers faced strong opposition on the question of state taxation.

Many historians believe that the price revolution provided a major incentive
to economic transformation in western Europe and resulted in partial collapse of the manorial
system of agriculture. It was accompanied by significant social changes. The impact of the price
revolution was felt differently by different classes and varied according to the regions. It did not
affect all market goods uniformly but it brought about major changes in the economic relationship
between classes and individuals. The inflation of the sixteenth century brought about a major
redistribution of income among the classes and thereby widened the gaps between regions and
countries.

. A number of scholars have argued that the price revolution 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 agriciilture and emerged as a strong political force.

In France, Spain and Italy, the nobility managed to overcome the serious financial
problems caused by the price revolution 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. In this situation, the younger sons of the lesser
nobility suffered. In Holstein and Denmark, the nobles benefitted from the higher prices by acting as
middlemen between the peasants and foreign merchants. In Germany, the social effects varied
according to the locality and the classes. In western Germany, the nobility found it difficult to raise
rents except in Bavaria and Austria, as the ruling princes allowed their claims of raising entry fines. In
south-west Germany, the situation was slightly different.

EXPLOITATION OFR MIDDLE CLASS

There was a growing market of products like rye, timber and furs in western and southern Europe.
Poland profited from this new situation. The landowners started substituting feudal cash rents into
service rents.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.The Polish middle class
could not profit either from the expanding markets as the nobility exerted greater weight

IMPACT ON LAND TENURIAL RELATIONSHIP

The long-distance trade in food items provided profit to the middlemen or to those sections that
controlled this trade. Usually it was favourable to the agriculturists because price rise was the
greatest in agricultural products. In the case of England, it is no longer accepted that all the peasants
suffered in equal degree from excessive rents imposed by the landlords. Most of the time it was the
smaller landlords, quite often the recent purchaser of land, who rack-rented their tenants to obtain a
share of increased produce from the land. Not all English landlords could break the legal and
customary barriers of tenuarial relationship by enhancing the rent in order to raise their own
income.The smaller peasants did not have surplus stocks of corn to profit from the rising prices of
food grains. They were the chief victims of rent increases
 In many cases land was given on shorter leases to the tenants. However,
by this time some of the big landlords were ruined in England and France, particularly those who
showed unwillingness to adopt better methods of land management in order to meet the challenge
of rising prices. At places, landlords exerted political influence to evict the farmers from their land or
to rewrite the lease deals. These advantages kept them out of bankruptcy.

INCREASE IN LANDLESS POPULATION

In many parts of western Europe, the number of landless population increased because of evictions
by the landlords. 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. The powerful guilds in towns and the government legislation on
professions prevented them from entering the manufacturing sectors. The falling standards of living
of the poorer sections were evident from the growing problem of pauperism, which existed in many
parts of western Europe, but was more evident in England. m. A series of Poor Laws were enacted
and finally codified in 1601. It also forced the government to adopt legislation against the enclosure
movement and to prevent rural depopulation,.

Thus, the price revolution set in motion a series of economic and social changes
throughout Europe. On one extreme, it contributed to the commercialization of agriculture,
expansion othe market structure and promoted manufacturing activities, thereby breaking manorial
hold over land, as it happened in some parts of western Europe. On the other extreme, it
strengthened the control of the nobility over land and expanded serfdom and feudal order in Central
and Eastern Europe.