Great Wave

by Fischer, David Hackett;

  Paris in 1729 was a city divided against itself. Its restless population was kept in order by a garrison of Swiss mercenaries and by large numbers of informers, spies, detectives and agents provocateurs. Our modern language of espionage and surveillance is French, and much of it was invented in this era. A regime of great and terrible cruelty dominated its people by methods that were profoundly hostile to the ethics of Christianity and the dreams of the Enlightenment.

  But on the day of the Dauphin’s birth, September 3, 1729, all this was forgotten. The people of Paris put aside their differences and joined freely in a festival of joy. When news of the infant’s arrival reached the city, the tocsin was sounded and cannon were fired. Every house was ordered to be illuminated for three nights, and every shop was commanded to be closed for three days, while preparations began for a grand celebration. Each evening bonfires burned in the open squares. Casks of wine were opened to all who wished to drink. The poor were given free sausages and small loaves of bread, baked specially for the occasion.

  On September 7, at exactly 5:30 in the afternoon, the royal father of the newborn child proudly entered the city. Louis XV was a handsome youth, barely nineteen years old. He proceeded in high pomp to the Cathedral of Notre Dame, escorted by two companies of Musketeers and the Royal Company of Falconers, with birds of prey perched on their gloved fists. The princes of the blood and the great nobility followed in a long line of gilded carriages.

  When the King reached the Cathedral, the great guns of the royal artillery fired a salute in his honor. The infantry discharged three volleys of a feu de joie. Flashes of flame and clouds of smoke rippled down their long ranks from the Tuileries to Notre Dame. Inside the crowded cathedral three Cardinals led the singing of a Te Deum. Afterwards, the King traveled in great state to the city hall for dinner and a display of fireworks. His meal was served by the prévôt des marchands JacquesEtienne Turgot himself, as obsequious as the lowest lackey. At 11:30 the King rose from his table and made a tour of the city. The houses were ablaze with light. Each neighborhood competed for the honor of the best display. The Place Vendôme was judged the winner: its buildings were illuminated with perfect symmetry, and its street lamps were replaced by glittering chandeliers.

  The celebration of the Dauphin’s birth continued for a week. It spread to every city of France, and to many other nations. By all reports, people of every rank joined wholeheartedly in these events. What they celebrated was not merely the arrival of the little Dauphin himself, but the promise of order, prosperity, peace and continuity. The people of France still keenly remembered the cruel disorders of the last century. They recalled the terrible uncertainties of a time, not very long ago, when the last king in his grave and the next was in his cradle, and nobody knew what the future might bring.

  The people of Europe welcomed the birth of the Dauphin as a sign that order, stability and equilibrium would continue for many years to come. In 1729, France was at peace with all the great states of Europe. Her harvests were good, her commerce was flourishing, and her arts were the envy of every nation. The people of this great kingdom looked forward to a future of prosperity and peace with increasing confidence.2

  But it was not to be. In the very hour of the Dauphin’s birth, a deep change was silently occurring in the dynamics of European history. Once again, an important indicator was the movement of prices. At Paris in approximately the year 1729, the price-equilibrium of the Enlightenment quietly approached its end. A new movement began, which might be called the price-revolution of the eighteenth century.

  The Price Revolution Begins

  The new trend started slowly and silently, in much the same manner as the great waves that had preceded it. Its epicenter was Paris. In the grain markets of the French capital, the price of wheat began to rise about the year 1729.3 Other cities followed close behind. Grain prices began to climb at Winchester in 1731–32; Amsterdam, 1732–33; Bruges, 1733–34; Cologne, 1735–36; Philadelphia, 1738–39.4 In the eighteenth century, urban markets had become more closely linked throughout the Atlantic world.

  The countryside lagged behind the cities. In England and Wales, one very broad index of farm prices found that the advance did not begin until the early 1740s. Another English price-series showed no increase until after 1750. But by the early 1740s, agricultural prices were rising throughout most of Europe. Similar patterns appeared for the price of wheat in Belgium, France and Italy; and for rye in Germany, Austria, and Poland.5

  Once begun, the new trend spread swiftly from Europe to the New World. American historian Winifred Rothenberg made the startling discovery that farm prices in remote parts of rural Massachusetts synchronized with market fluctuations in London and Paris during the eighteenth century. This linkage was all the more remarkable in that very little gold and silver circulated in New England. The small farmers of Massachusetts did business without hard money, maintaining among themselves a system of mutual charge-accounts that has been called bookkeeping barter. Even so, the changing values in their account books closely matched the vibration of prices throughout the Atlantic world.6

  Figure 3.01 shows the profile of the eighteenth century price revolution in three nations. Sources include for England, the Schumpeter-Gilboy price index of 32 commodities, in B. R. Mitchell, British Historical Statistics, 719–20; for U. S. A., the Bezanson index of prices of 140 commodities in the Philadelphia market, Historical Statistics of the U.S., series E111; for France, an unweighted index of agricultural prices in Ernest Labrousse et al., Histoire économique et sociale de la France, II, 386–87. All series are converted to a common base of 1770=100.

  Similar movements also appeared in French Canada, but in Latin America, the trends were more complex. Agricultural prices in the Spanish and Portuguese colonies fell or remained on the same level until 1750, and kept on falling in some places (such as Salvador and ironically Potosí) as late as the 1780s. But in Mexico, Chile, and other parts of Latin America, prices were generally rising from the 1760s. By the late 1780s, the price-revolution of the eighteenth century was operating broadly there. Historian John Coatsworth writes of Latin America in general that “in all cases for which there are data, commodity prices were rising in the 1790s and during the war years that followed.”7

  The same pattern also appeared in Asia and the Middle East. The movement of Chinese grain prices during the eighteenth century was similar in trend, but smaller in magnitude. The Ottoman Empire also experienced a long wave of rising prices. The price-revolution of the eighteenth century was truly a world event.8

  At first, the new trend advanced slowly and unsteadily. For a time, contemporaries took it to be merely another market-flutter. In retrospect, however, the profile of a price-revolution was clearly evident from the start, especially in the distinctive pattern of price-relatives which were much the same as in the thirteenth and sixteenth centuries.

  Figure 3.02 finds evidence in French grain prices that the 18th century price-revolution was an exponential process, dynamic in its expanding magnitudes and amplitudes, but stable in its underlying rate of change. The data are from C. E. Labrousse, Ruggiero Romano and F. G. Dreyfus, Le prix du froment en France au temps de la monnaie stable (1726–1913) (Paris, 1970), xiv. Trendlines are fitted with an Excel 5.0 program.

  Once again, the most rapid movements occurred in the price of energy and food. Of nine basic commodities in France, the largest increase occurred in the cost of firewood and charcoal.9 Close behind the soaring cost of energy came the price of food. Foodstuffs in general rose rapidly during the eighteenth century, as in every other price-revolution. The largest increases appeared in staple commodities that were the staff of life among the poor—the cheaper grains and beans. Rates of inflation were more moderate for meat and wine. The smallest gains were in the price of manufactured products, which lagged behind as they had done in every other great wave.10

  The prime mover of this price-revolution was the increasing pressure of aggregate demand, caused by an acce
leration in the growth of population. In England, demographic historians Anthony Wrigley and Roger Schofield discovered that the rhythm of price-movements correlated closely with rates of population-increase in the eighteenth century. After a long pause from 1660 to 1720, the population of England began to grow more rapidly during the late 1720s, at precisely the same moment when the price-revolution also started. The correlation could not have been more exact.11

  Figure 3.03 finds that the movement of price relatives in the eighteenth century was similar to those in other price revolutions. In France, the cost of energy went highest, closely followed by food and raw materials. Processed products, manufactures, and wages lagged far behind. The data are from Ernest Labrousse, Esquisse du mouvement des prix et des revenus en France au XVIIIe siècle (2 vols., Paris, 1933), II, 98.

  Figure 3.04 shows a recurrent pattern in price revolutions: surging energy prices in late stages of the long wave. This was the case in Europe and even in America during the late eighteenth century. The source is George F. Warren and Frank A. Pearson, Prices (New York, 1933), 11-27; reprinted in part in the Historical Statistics of the United States, Colonial Times to 1970 (Washington, 1976), series E52–57.

  A similar association between rising prices and increasing population also appeared in other European states. In eastern Europe, the number of inhabitants who lived within the old boundaries of Brandenberg-Prussia rose from less than 1.6 million people at the death of Frederick William the Great Elector (1688) to nearly four million by the death of Frederick the Great (1786). Large increases occurred in most parts of Europe, with a few exceptions such as the Netherlands. The trend of prices matched this upward curve of population-growth.12

  Why did population grow in the eighteenth century? In demographic terms, it happened mainly because of a decline in age at marriage and a small rise in rates of intramarital fertility. In many parts of rural Europe, the average age at first marriage for women fell from 27 in the mid-seventeenth century to 24 or even 23 in the mid-eighteenth. Once married, women tended to reduce intervals between births, and began to bear children more frequently. The average age of a woman at the birth of her last child also rose a little—evidence of a deliberate decision not to limit the size of families as narrowly as had been done in the mid-seventeenth century.

  There was also a modest improvement in life expectancy for infants and women during the eighteenth century, and a moderate stabilization of death-rates. But the primary cause of population growth in this period was a rise in fertility, not a fall in mortality.13

  Why did men and women choose to marry earlier and have more children? An improvement in material conditions was part of the answer, but not the whole of it. Husbands and wives decided to have more children because the world appeared to have become a better place in which to raise a family. Always that sort of judgment has been made in terms that are broadly cultural rather than narrowly material.

  Figure 3.05 compares quinquennial estimates of English population with a 25-year moving average of the Phelps-Brown-Hopkins index of consumable prices in the south of England. The source is E. A. Wrigley and Roger Schofield, The Population History of England, 1541–1871; A Reconstruction (Cambridge, 1981), 403

  The growth of population in the eighteenth century created inflationary pressures in several ways. Most important was a demand inflation that developed from increasing need for life’s necessities—food, fuel, shelter and land. The supply of these commodities did not expand as freely as demand; in consequence, prices went up. Industrial products, on the other hand, could be turned out more easily in ever larger quantities. As a result, prices of manufactured goods tended to be more stable than those of farm crops and raw materials. This demand-induced inflation was not the only economic consequence of population growth. The increase of rural population also caused what in the twentieth century would be called “cost-push” inflation, especially in farm prices. In the agrarian economies of Europe and America, increases in food supplies were obtained in part by bringing marginal lands into cultivation. Production increased, but productivity diminished. Farmers worked harder to extract a smaller crop from stubborn fields of poor fertility. The same sad story was played out on the stony hillsides of New England, the bleak moors of Devon, the chill Schnee Eifel of Germany, and the barren lands of Bourbonnais where hamlets bore such names as Tout-y-fait (All’s Wanting), Pain-perdu (Lost Bread) and Petit-gain (Small Reward).

  English economist David Ricardo (1772–1823) was one of the first to observe and describe this mechanism from his own experience. It was clearly at work during the eighteenth century, as it had been in every previous price-revolution. The classic Ricardian processes of rising population and falling productivity served as an important source of price-inflation.14

  Some people responded to these problems by introducing new methods of farm management that have been called the agricultural revolution. In the process, farming tended to become more intensive, but it did not at first become more productive. Economist Esther Boserup has taught us that levels of productivity tend to fall in the early stages of agricultural revolutions during the twentieth century. Similar patterns also appeared in the eighteenth century.15

  Discovery and Cultural Response

  The rise of prices was felt keenly throughout Europe, but it was not perceived as a new secular tendency for many years. As long as the magnitude of price increases remained within the range of previous fluctuations, the new trend was invisible to contemporaries. There was no “inflationary psychology” in the period from 1725 to 1755. Price stability was assumed to be natural and normal in the world. As so often in history, perception was contemporary with the event, but understanding lagged behind. The intellectual climate remained largely unchanged even as the material order was beginning to be transformed in a new way.

  The second stage began during the middle years of the eighteenth century when prices rose above the range of fluctuations in the equilibrium of 1650–1720. As they did so, contemporary observers could at last recognize the great wave for what it was: a sustained and powerful long-term tendency that profoundly changed the conditions of ordinary life.

  Governments and individuals responded to this discovery much as they had done in earlier waves. As prices rose, pressures mounted for monetary expansion. In this relationship, the quantity of money (and the velocity of its circulation) was not an independent variable. In the face of rising prices, deliberate efforts were made to expand money in circulation. The supply of gold and silver in the Western world may have doubled or trebled during this period.16

  A large expansion also occurred in commercial paper, which served increasingly as a circulating medium in the eighteenth century. Private notes and bills of exchange (a sort of eighteenth century M-3) became widely used as money in many Western cities, and passed from hand to hand in multilateral transactions.17

  At the same time, paper currency began to appear in Scandinavia and North America, where shortages of specie were severe. The Swedish Wexelbank had issued paper notes as early as the 1660s, primarily as a carrying convenience. Swedish money was made of copper. The largest coin weighed forty-three pounds, and must have had a sluggish circulation. The American colonies issued paper money for the opposite reason: not because their metal coins were too heavy to carry around, but because they took wing and flew out of the country. New France adopted paper money in the 1680s; New England, in 1690. During the eighteenth century many other colonies issued paper currency.18

  These tendencies increased the quantity of money in circulation and added to inflationary pressures, especially in the second stage of the price-revolution. The inflationary effect of monetary expansion was felt most powerfully during the last four decades of the eighteenth century. Once again, monetary factors reinforced the momentum of the great wave, but did not set it in motion.

  Figure 3.06 shows the movement of American treasure from 1503 to 1805. It reinforced the momentum of the price revolution in the eighteenth century,
as it had done in the sixteenth century, but the largest increases occurred during the price equilibrium of 1660–1730. The source is Michel Morineau, Incroyables gazettes et fabuleaux métaux: les retours des trésors américains d’après les gazettes hollandaises (XVIe-XVIIIe siècles) (Paris, 1985), 482, 562.

  Governments responded to the price-revolution with various fiscal expedients that were also inflationary. As public spending tended to exceed income, the gap was filled with borrowing on a heroic scale. The government of France resorted to perpetual annuities called rentes. So large was the French national debt in the eighteenth century that it spawned a capitalist class called rentiers. Major European wars were financed by these securities in large volume, and by unfunded borrowing as well.

  Similar trends also occurred in Britain, where the government met its obligations by issuing “consolidated annuities,” or “consols” for short. These securities paid a nominal 3 percent, but in most years they traded below par and the yield rose in that proportion. The marketvalue of British consols fell sharply during periods of war, when large quantities were issued and public confidence declined. In 1745, after the effect of rebellion in Scotland was added to a general European war, London’s security market suffered its first “Black Friday.” The price of Consols dropped below 75. A similar crisis occurred during the Seven Years War (1754–63), when Britain’s national debt rose to the then unimaginable level of 100 million pounds, and consols fell below 80. The worst of these fiscal crises developed during the American Revolution, when Britain’s national debt rapidly expanded and consols plummeted as low as 54 before recovering after the peace of 1783. Whenever they did so, interest rates surged.19