2023 Author: Bryan Walter | [email protected]. Last modified: 2023-05-21 22:24
For the first time, Western Europe faced serious inflation in the middle of the 16th century, when the amount of precious metals exported by the Spaniards from the New World exceeded all reasonable limits. But was the uncontrolled influx of gold and silver the only reason for the price revolution in the 16th and 17th centuries? Read about this in the new issue of the blog of the historian Artem Efimov and subscribe to his telegram channel, where there are many other interesting notes.
Spanish galleon, mid-17th century. It was these ships that were part of the Silver Fleet of Spain, which delivered precious metals mined in America to Seville.
One of the most exciting subjects in world economic history is the "price revolution" of the second half of the 16th - first half of the 17th centuries. Several generations of Europeans have lived under conditions of unceasing inflation. Everything went up in price, but first of all - bread and other food. The largest and richest cities suffered the most: Seville, Marseille, Paris, London, Amsterdam, Cologne.
Inflation rates were, by today's standards, ridiculous: about 600 percent per century - this is an average of 1-1, 5 percent per year, in places and times with bursts of up to 4 and even up to 7 percent, but never and nowhere more than 10 percent in year. For comparison, when prices were released in Russia, inflation in 1992 alone amounted to 2508.8 percent; in 2016 it was 5.4 percent - and this is a record low in the modern history of Russia.
But the 16th and 17th centuries are an era of much more stable money. Even 1% annual inflation has been a serious shock for Europeans for several years in a row. A separate question is how appropriate it is to call a "revolution" a phenomenon that has been observed for a century, but somehow it happened so.
The question of why prices are rising has occupied the best minds. At the very beginning of the "price revolution", he was approached by scientists from the University of Salamanca - theologians from the Dominican order, who were interested in quite mundane questions: how is a just war different from an unjust one? Do Christian princes have the right to enslave American Indians just on the grounds that they are pagans? how to reconcile the Christian ban on usury with the proliferation and undeniable economic benefits of bank lending?
One of the scholars of the "Salamanca School", Martin de Aspilcueta, reasoned in 1549 as follows. The value of any commodity is determined, among other things, by its availability. The main coin metal, silver, is also a commodity, and when there is a lot of it on the market, prices for it fall. Accordingly, the purchasing power of silver money decreases (they are devalued) - the prices of other goods rise relative to silver.
This idea was taken up by the French thinker Jean Boden and in 1568 he proposed such an explanation for the "price revolution". From the middle of the 16th century to Europe, and especially to Spain, silver began to flow in huge quantities from American mines (the richest were the mines on Mount Potosi in the Andes, on the territory of present-day Bolivia). This provoked the devaluation of European silver money - and, accordingly, inflation. Thanks to this idea, Boden is considered the founder of the quantitative theory of money. The same idea was developed by the Scottish philosopher and historian David Hume in his book Political Conversations (1752).
In its most complete form, the concept of a "price revolution" due to the influx of American silver was developed by the American historian Earl Hamilton in his book "American Treasures and the Price Revolution in Spain" (1934). The major historical and economic thinkers of the twentieth century, including Fernand Braudel, Immanuel Wallerstein and Milton Friedman, relied on this explanation.
However, already in the 1970s, alternative explanations began to appear. Most scholars now acknowledge that the influx of American silver was an important factor in the "price revolution," but not everyone agrees that it was the root cause.
The American economist Irving Fisher at the beginning of the twentieth century was able to describe the circulation of money in a rigorous mathematical language. There should have been a run about the MV = PQ exchange equation, but I value my readers and will immediately translate from econometric to human.
Prices, according to Fischer, can rise for three reasons: 1) the growth of the money supply, 2) the acceleration of money circulation, 3) the decline in production. The classical explanation of the "price revolution" reduces it to the first reason: they brought silver from America, made money out of it, and other indicators remained more or less the same - hence the inflation.
In the 1970s and 1980s, American scientists Harry Miskimin and Jack Goldstone suggested paying attention to the second reason. The 16th – 17th centuries are a period of population growth and urbanization in Europe. As a consequence, this is also a period of commercialization - the intensification of commodity-money relations. And, accordingly, the acceleration of money circulation - to put it simply, money is increasingly passing from hand to hand. This leads to higher prices. The rise in prices, in turn, creates an additional burden on the state budget, and the state begins to make new money - this is where the inflow of silver from America comes in handy. The money supply is growing - prices are rising again. So much for the "price revolution".
The debate about the causes of the "price revolution" is part of a huge debate about the causes of inflation, one of the main controversies in world economics. Among other things, the "price revolution" was spreading: inflation in Seville and other large shopping centers led to, with some delay, inflation in other regions, which gravitated towards these shopping centers. Pretty quickly, inflation was "imported" into the Ottoman Empire - and led there to great financial troubles (in particular, to the Janissary riot of 1589, which we will talk about next time). It also reached Poland: since the price of bread in Western Europe rose, it became especially profitable for the Polish land magnates to export it; Poland became the breadbasket of Europe, its agrarian economy was mothballed, and it missed the industrial revolution.
Russia was hardly affected by the "price revolution" of the 16th – 17th centuries: trade relations with Europe were not very intense. Our "price revolution" happened already in the 18th century.
