Other complex patterns appeared in the relative movement of prices, wages, rent and interest. While prices fluctuated on the same plane or even declined, real wages rose buoyantly—as in other periods of equilibrium. By one measure (an index constructed by Henry Phelps-Brown and Sheila Hopkins), the real wages of English building craftsmen increased more than 400 percent from 1801 to 1899. That comparison overstated the magnitude of change: 1801 was an exceptionally hard year; 1899 was a time of high prosperity. Other benchmarks showed smaller magnitudes of increase—a doubling of real wages rather than quadrupling. But always the same upward trend appeared. Both money wages and real wages increased in Britain, France, Germany, Sweden and every other European nation where data has come to hand. In this respect the equilibrium of the Victorian era was similar to those of the twelfth century, the Renaissance and the Enlightenment.8
Figure 3.20 reports evidence of a sustained rise in real wages, which for British builders trebled during the nineteenth century. The source is E. H. Phelps-Brown and Sheila Hopkins, “Seven Centuries of the Prices of Consumables, Compared with Builders’ Wage-Rates,” Economica 23 (1956) 296–315.
Wages also rose in the United States, but the American pattern was less stable than that in Britain. Real earnings of workers fell sharply during the Civil War, reaching their nineteenth century nadir in 1866, largely as a consequence of the price inflation in that period. Panics and depressions in 1873 and 1893 also drove wages down, but these dark intervals were the exceptions. Long-term improvement was the rule for both highly skilled artisans and farm laborers.9
These generalizations, it must be emphasized, refer to the income of workers only during periods of employment. “The great difficulty,” writes Stephan Thernstrom, “lies not in estimating the daily wage, but in judging how many days each year the laborer was likely to find work.” He estimated that unskilled laborers in Massachusetts were unemployed two or three months in every year during the mid-nineteenth century. Whether this proportion increased or diminished during the course of the nineteenth century we are unable to discover. Thernstrom believes that it changed little from mid-century to the 1870s, but even a small alteration would have made a major difference in real income, as distinct from real wages.10
Figure 3.21 finds a long, slow decline in sale prices of English and Welsh real estate from 1812 to 1864, followed by a brief rise from 1864 to 1877. The secular trend in rent was stable through the nineteenth century. The source is E. M. Carus-Wilson, “A Century of Land Values: England and Wales,” Essays in Economic History, III, 128–31.
Further, a rise in the cost of labor was not always a return to laborers themselves. An example was the slave economy of the American South before the Civil War, with its combination of a free market and unfree labor. The price of slaves in the southern states moved in parallel with real wages in Europe and the northern States, as it had done in earlier periods. During the late eighteenth century slave prices had fallen sharply in America, at the same time that real wages for free workers had been declining rapidly in western Europe. That trend reversed during the 1790s. Slave prices began to rise from $300 (or less) in 1795 to $1200 in Virginia and $1800 in New Orleans on the eve of the Civil War.
The increase in slave prices was greater in its magnitude than the rise of real wages for free labor. Nevertheless, the direction of change was similar in both labor systems. The long secular rise of slave prices from 1815 to 1860 was not unique to the “peculiar institution” of the American South, nor was it driven primarily by the economics of slavery itself, as historians have mistakenly believed. The trend in slave prices was part of a much larger movement throughout the Western world.11
The Victorian equilibrium was not a golden era of prosperity for everyone. All felt the bite of hard times some of the time; some suffered all of the time. Grain farmers were in deep trouble throughout the world after the panic of 1873, with political consequences that included the Populist movement in the United States, the “revolt of the field” in Britain, and rural unrest in Europe. But in general real wages rose for most workers.
At the same time that real wages were rising, returns to capital (as measured by rates of interest) fell steadily during the nineteenth century, as they had done in other periods of price equilibrium. This trend clearly appeared in the city of London, the epicenter of international capitalism in the nineteenth century, where bonds were called “stocks,” and stocks were “shares,” and public securities were “funds.” Their annual performance was carefully monitored in a publication called Fenn on the Funds, a Victorian equivalent of Moody’s Manual which showed a striking pattern of stable change for nearly a century.
The most important funds were the “consols” that the United Kingdom had long issued for its national borrowing. In 1812, when Britain was simultaneously fighting separate wars against France and the United States, the average yield of Consols rose to 5.08 percent. Thereafter, the rate of return declined for 85 years, reaching bottom at 2.25 percent in 1897. This downward trend was not perfectly constant. The Crimean War drove up interest rates and commercial depressions brought them down again, but through these many fluctuations the pattern of secular change was stable for a century.12
The same tendency also appeared in the public securities of other western nations. Yields on French rentes, Dutch perpetuals, Prussian bonds and New England municipals all showed similar patterns of secular decline. There were a few exceptions. The government of France had to pay more for its money after its revolutions in 1830, 1848 and 1871. But these fiscal disturbances were remarkably shallow and short-lived. Even the French government, despite a persistent reputation for political disorder, was able to meet its public obligations with 3 percent securities during the late nineteenth century.13
Interest rates in private transactions were higher, and also more variable, than those for public funds. The Bank of England charged its individual customers different rates, after ranking them on a scale that was more moral than material, from “dealers in greatest respectability and opulence” to “persons in low estimation.” Each borrower was offered a discount to match the measure of his depravity. Private debtors of high eminence but dubious reputation were compelled to pay interest that would shock even a twentieth-century sensibility. In 1840, Britain’s future prime minister Benjamin Disraeli was charged annual interest of 40 percent for a loan to cover a “pressing liability.” In general, however, interest rates tended to decline in private lending as well as public finance during the Victorian equilibrium. The trend was consistently downward throughout the long equilibrium of Victorian era.14
Figure 3.22 summarizes evidence of a long decline in rates of interest throughout the western world from 1820 to 1896. The source is Homer, History of Interest Rates, 196–209.
Returns to land—both rent and real estate prices—also fell, then stabilized and fell again in the early nineteenth century. A history of land in Saxony-Anhalt showed a very close correlation between real estate values and the price of rye from 1820 to 1895. Land prices and rents also moved together in Prussia, England and the United States.15
These trends were full of trouble for rural estate-owners, and in time their tribulations would be visited upon the world. The landowning classes faced falling rents, rising wages and depressed agricultural prices all at the same time. England’s county families, Prussian Junkers and southern planters in the United States all shared that same predicament. These landholders traced their descent (in spiritual terms at least) from Europe’s old feudal elites, and raised their sons to a warrior ethic. As the pax victoriana wore on, more than a few of these energetic young men were bankrupt, bored, and bloody-minded—a dangerous combination. Some sought adventure overseas in “splendid little wars” and distant conquests; the British Empire has been called a system of outdoor relief for the upper classes. Others pursued politics and diplomacy as an equivalent of war, which was still more menacing to world peace—all the more so when the horrors of the last grea
t European slaughter were forgotten, or half-remembered in a haze of glory. In the sunny afternoon of the Victorian era, the dark clouds began to gather on the distant horizon.
Altogether, the relative returns to land, labor, and capital were much the same in the Victorian equilibrium as they had been during the Renaissance and Enlightenment. They were also similar in their social results. In the middle and later stages of every price equilibrium (but not in the early stages), the distribution of wealth tended to stabilize, or even to become a little more equal. There was a lag-effect here. In the early nineteenth century, inequality continued to increase, as it had done during the later stages of the price-revolution of the eighteenth century. But after 1850 wealth and income tended to become more equal in their distribution or to remain on the same plane of inequality. This tendency appeared in the later stages of all other equilibria, and the lag pattern was always the same.
Figure 3.23 shows stability in wealth and income distribution during the nineteenth century in Britain and the United States. This was the net effect of stable rents, falling returns to capital and rising real wages. Sources include Lee Soltow, “Long-Run Changes in British Income Inequality,” Economic History Review, 21 (1968) 17–29; Peter Lindert and Jeffrey Williamson, “Revising England’s Social Tables,” EEH, 19 (1982) 385–408; Charles Feinstein, “The Rise and Fall of the Williamson Curve,” Journal of Economic History, 48 (1988) 699–729; R. V. Jackson, “Inequality of Incomes and Lifespans in England since 1688,” Economic History Review, 47 (1994) 508–24; Lee Soltow, Men and Wealth in the United States, 1850–1870 (New Haven, 1975); idem, Patterns of Wealthholding in Wisconsin since 1850 (Madison, 1971); Roger Ransom and Richard Sutch, One Kind of Freedom (Cambridge, 1977); Jonathan M. Wiener, Social Origins of the New South: Alabama, 1860–1885 (Baton Rouge, 1978).
In other respects, however, the Victorian era was unique. It was more dynamic in its structure than any comparable period. During the equilibria of the Renaissance and the Enlightenment, population had increased very little. A balance was achieved between low rates of economic development and a lower pace of demographic growth. This was not the case in the Victorian era. In Europe, America, and throughout the world, population grew at an exponential rate through the nineteenth century. Rapid population rises had often occurred before— always with the same inflationary effect upon price levels. As Labrousse wrote, an inflation des hommes had been accompanied by inflation d’argent and inflation des prix as well.
In the nineteenth century something else happened. Population went on increasing, and prices fluctuated on the same plateau. English historians Anthony Wrigley and Roger Schofield write, “If there was a notable uniformity in the behavior of the two series relative to each other until the beginning of the nineteenth century, however, there was a remarkably clean break with the past thereafter. . . . The historic link between population growth and price rise was broken; an economic revolution had taken place.”16
Wrigley and Schofield were right in one way, but wrong in another. It is true that a simple, surface correlation between prices and population disappeared, just as they said. But the link was not broken altogether. A deeper association persisted in the second derivative of change. The rhythm of change in rates of population increase during the nineteenth century continued to correlate very closely with price movements. The Victorian equilibrium was indeed something new in the world—a dynamic balance between rates of change in rates of change.
The Victorian equilibrium also derived its stability from magnitudes of change in economic growth. Real output (per capita) of the American economy, for example, had grown only about 0.6 percent each year before 1790. After 1825, it grew at a rate of approximately 1.6 percent a year—enough to double national product per capita every forty-three years. This rate was maintained throughout the nineteenth century. Similar trends (with differences of timing) occurred in European nations.17
Figure 3.24 compares price movements with rates of population growth in Britain. Both series are decennial means of annual data. Sources include E. A. Wrigley and Roger S. Schofield et al., The Population History of England, 1541–1871: A Reconstruction (Cambridge, 1981), table A3, column 3 (estimated values of compound annual growth rates); and Henry Phelps-Brown and Sheila V. Hopkins, A Perspective of Wages and Prices (New York, 1981).
Figure 3.25 makes a different comparison between price levels and absolute magnitudes of population size. Wrigley and Schofield found that between 1811 and 1871 English population doubled while prices fell. They concluded that “the historic link between population growth and price rise was broken; an economic revolution had taken place” (pp. 403–4). This statement is correct in its own terms, but if one compares rates of growth rather than magnitudes of change, a strong link between the dynamics of demographic and economic change continued through the 19th century. An economic revolution had indeed taken place, but the association between population growth and price movements remained very important.
Equilibrium at higher levels of economic growth was achieved in many ways. A revolution in transportation created broader markets, which allowed larger units of production. An agricultural revolution released many workers from the soil and allowed them to shift to other sectors where their labor was more productive. An industrial revolution increased the productivity of labor and capital. A commercial revolution radically improved the efficiency of exchange.
Other factors included the emigration of Europeans in large numbers to other parts of the world where the marginal return on their labor and capital was higher than at home. Also important was the economic development of new regions which produced commodities in unprecedented quantity: Mississippi cotton, Argentine beef, Australian wheat, New Zealand mutton, African ore and Canadian timber. Perhaps the most important factor was the integration of a world market through the nineteenth century, which created vast economies of scale.
The Victorian equilibrium was a great whirring machine with many moving parts. It did not always run smoothly. The economy of the western world moved through alternating periods of prosperity and depression, but even these disturbances were remarkable for their regularity. In the United States, major panics and depressions tended to recur at twenty-year intervals: 1819, 1837, 1857, 1873, 1893. The rhythm of these economic fluctuations remained remarkably stable for nearly a century.
Far from disturbing the Victorian equilibrium in any fundamental way, this pattern was part of the process by which the balance was maintained. In an era of equilibrium, the market operated as a self-correcting mechanism—a process that prompted contemporary observers such as John Stuart Mill (1806–73) and Alfred Marshall (1842–1924) to develop the timeless axioms of classical economics.
But the conditions that inspired them were not eternal. They did not operate in the same way before 1815 or after 1896, or in any other period of modern history. The dynamic stability of the Victorian equilibrium was unique. It was maintained by an unprecedented set of balances between rapid population growth and even more rapid economic growth, between industrial transformation and agricultural revolution, between massive international migration and still more massive domestic movements, between overseas development and commercial integration of a world economy.18
A few economists have attempted to explain the Victorian equilibrium primarily in monetarist terms. Monetary factors did indeed have an impact on prices throughout the period, but they did not create the equilibrium itself. In the United States, for example, annual fluctuations in price levels and the money supply (that is, specie, banknotes and bank deposits) tended to correlate closely, and were much the same in timing. But magnitudes and secular trends were very different. Large changes in the supply of money caused price movements that were comparatively small, by the measure of other periods. Money supply in the United States increased enormously during the 1820s and 1830s, more than trebling in a period of fifteen years, according to estimates by Peter Temin. But price levels remained remarkably stable, rising a
nd falling only about 15 percent in that same period. A similar pattern also appeared during the 1840s and 1850s, when large swings in the supply of money coincided with very small movements in price levels. Clearly a close relationship existed between the quantity of money and the level of prices in the American economy. All things being equal, that relationship was strong and intimate, but ceteris non paribus is the iron law of economic history.19
In this age of equilibrium, monetary and demographic factors might be understood as strong centrifugal forces, acting to pull prices off their stable base. Those elements were balanced by equally strong centripetal forces of expanding production and exchange, which drew them in again. The dynamic equilibrium of the nineteenth century might be envisioned as a Tenniel engraving of a tug-of-war between two teams of muscular Victorian athletes, each of approximately equal strength. On one side were the wiry Centrifugals, with currency symbols embroidered on their old school caps. On the other side were the brawny Centripetals, straining mightily in the opposite direction. With much tumult and shouting, the rope moved slightly one way and then the other, but the white rag remained in the middle until 1896, when the exhausted Centripetals collapsed in a heap.
The dynamic equilibrium of the Victorian era was not entirely self-generating. It found support from exogenous factors of various kinds—in particular from favorable climatic conditions. After a period of very nasty weather which historians call the “little ice age,” the climate of western Europe and North America grew warmer through much of the nineteenth century. English meteorologist H. H. Lamb observes that “the price rise around 1800 could be attributable largely to the interference of the Napoleonic wars with supplies and with trade, but the time does coincide with the latest of the great periods of advance of the glaciers and the Arctic Sea ice about Iceland.” There were no major climatic anomalies in the next century of remotely comparable magnitude. The amelioration of climate may have made a difference in price levels, but it was not a major factor. Long changes in climate do not correlate with long waves in the history of prices.20
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