Are we smarter than Colijn, or Charles V? (14-4-2020)

Written by: Jan Luiten van Zanden

In one of the blogs last week I suggested that we perhaps now understand what was happening in, for example, the economy and society of the Netherlands during the 19^th century better than the people who actually lived in that age. The arguments for this bold hypothesis might include that we have ‘better’ concepts to understand the changes that were happening (such as economic growth, and Industrial Revolution), that we have measured them, and that – but this is a bit cheating perhaps – we know what happened during the entire period – we know what for people in the 19^th century themselves was the unknown future. Is this correct? Do we possibly, better than Colijn, understand what went wrong in the 1930s, or better than Charles V,  know what the impact of the flow of silver form Latin America was on his empire? This is such a big, philosophical question that it cannot be answered in a blog (nor in another form for that matter). Does the social science package of theories, concepts and tools really lead to a much deeper understanding of the reasons why around the year 1000 people all over Western Europe began to build ever bigger churches and cathedrals, or are we simply telling interesting stories about the past to ourselves and our colleagues which are entirely disconnected from the historical reality as it was experienced at the time?  Nobody (as far as we know) in the 16tth century used the concept of economic growth; does this disqualify the concept for being used in the study of that period?

This question is too big for me, but there must be ways to find out if there are links between our understanding of changes in the past, and the experiences of people at the shop floor at the time. For example, how and when, did they experience the ‘price revolution’ of the 16^th century – the well-known increase in the price level due to the influx of silver and gold from the Americas? This phenomenon has been extensively studied, and people (including the present author) have, on the basis of historical data on prices of foodstuffs, textiles and other necessities, constructed consumer price indices (CPIs) to quantify the inflation. As a result we now know ‘exactly’ (if the sources used are unbiased and the sample of prices is okay) when the price level increased, and by how much (see the graph below). For contemporaries this was not easy to find out: there was no financial press which documented prices, prices fluctuated wildly due to all kinds of exogenous shocks (famines, wars), and increased from one year to the next, to fall again by half in the following year. Of course, they knew the prices they paid for their bread and their butter, and therefore had a rough idea about yearly (and weekly, and daily) changes, but when did they realize that the trend was changing and that the average price level had gone up? And how does this relate to the CPIs we have constructed? I agree, this is perhaps not the best test for the big questions raised, but it does tell you something, perhaps, about the links between our and their knowledge.

The issue of the price level was particularly relevant for the setting of the wage level. In the 16th-century labour markets were organized on a small scale and wage negotiations between a master and a journeyman did not leave much traces in the historical records. There is however one example of collective bargaining – between the shearmen (vollers) active in the Leiden textile industry and the city government which set their wages – which is well documented, and of which all the details have been published thanks to N.W. Posthumus’ masterpiece on the Leiden textile industry before 1570 (wonderful book from 1908; I was reading it again in preparation of this blog, and I am again impressed by the modernity and depth of this study, his dissertation). The shearmen at times submit petitions to the city government to demand a wage increase or other changes in labor conditions. The alternation of years of low and of high prices due to famines and wars was seen as a fact of life, which usually did not result in requests for higher wage. The high prices of the 1480s – linked to political unrest – do not lead, for example, to wage demands. The first complaints about high prices date from 1514 (when the CPI, in a year of peace, hits 176, so 76% higher than the ‘base level’ in 1450/74), but this is still seen as incidental, and does not lead to higher wages. In 1528 prices peak again (CPI: 197), and the shearmen complain about it, also pointing to the fact that the intrinsic value of the coin has declined, which has driven up prices. Now their story is effective, and the nominal wages are increased by 10% (for the first time since the 1470s). The most interesting petition dates from 1541, when the masters and journeymen state that the livelihood (‘lijfcost’) has increased more than half compared with sixty years ago (p. 344). So in 1541 they acknowledge that the trend level has increased by 50%. 1541 is in itself not a year with extreme prices (the CPI is 151, almost exactly 50% higher than before the political troubles that began in 1477). 1535 was much worse, and as the really big inflation was still ahead (started in 1544/45). Wages were increased a bit in the early 1540s, but insufficient to compensate for the 50% price increase. In later years the complaints about high prices return, but never in such a detailed form.

So shearmen in Leiden were at least once able to make some kind of implicit CPI, and knew, in 1541, that the general price level had changed by 50%, and speculated about its causes, pointing for example to the devaluation of the currency as one cause. Within the political context of collective wage bargaining this was highly relevant information, and it helped to strengthen their case for wage increases. There is thus a link between our sophisticated concepts and the wage negotiations going on in Leiden in the 16^th century. They probably would have profited enormously from the information that we now have at our disposal. The decline of real wages that did occur as a result of the price revolution, was probably also linked to the limited knowledge people had about the changes in the price level. And wages tend to be sticky, as it is usually difficult to distinguish between an incidental change and a structural one (even econometricians to day find it difficult to make and test this distinction). In that respect, we live in happier days. Think about a world where the graph and the table do not yet exist…..

The CPI can be found on: http://www.iisg.nl/hpw/brenv.php

Continue reading: Halcyon days, and a plea to canonize Eleonora (15-4-2020)

Source:

N.W. Posthumus, Geschiedenis van de Leidse Lakenindustrie, I, Den Haag 1908.