Price Revolution

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Used generally to describe a series of economic events from the second half of the 15th century to the first half of the 17th, the price revolution refers most specifically to the high rate of inflation that characterized the period across Western Europe, with prices on average rising perhaps sixfold over 150 years.

As early as the 16th century, it was thought that this high inflation was caused by the large influx of gold and silver from the New World, especially the silver of Peru which began to be mined in large quantities from 1545. According to this theory, there was simply too much money for the amount of available goods.

In reality, the start of the rise in prices predated the large-scale influx of bullion from across the Atlantic, reflecting in part a quintupling of silver production in central Europe in 1460-1530: though this output fell by two-thirds by the 1610s, it was significant in fueling the early stages of inflation and undermining a price regime in place since the previous upsurge in silver production in 1170-1320.

Demographic factors also contributed to upward pressure on prices, with the revival (from around the third quarter of the 15th century) of European population growth after the century of depopulation and demographic stagnation that had followed the Black Death. The price of food rose sharply during epidemic years, then began to fall very rapidly as there were fewer mouths to feed. At the same time prices of manufactured goods tended to rise because of dislocation of supply. Later on, increased population placed greater demands on an agricultural area that had contracted significantly after the 1340s, or had been converted from arable to less intensive livestock production.

The increase in the proportion of Europe's population living in towns, though slight (in the region of one percentage point a century) until the 19th century, coupled with economic diversification, meant that there were more people to feed, but proportionately slightly fewer producers of staple foods. Urbanisation also contributed to increased trade between Europe's regions, which made prices more responsive to distant changes in demand, and provided a channel for the flow of silver from Spain through western and then central Europe.

Increased trade and availability of manufactured and luxury goods, especially in the 16th century, had also encouraged many landowners to convert their tenants' payments from produce to cash. Initially, this had helped the wealthy to accumulate more of the trappings of wealth, but as prices rose, those landlords who received payment in cash found themselves in financial straits. They often took extreme measures to combat the problem - measures that would add to social unrest and ultimately to a worsened financial position for themselves and their tenants.

In England, for example, many lands held as common lands (pastures, fields, etc.) were enclosed so that only the landlord could graze his animals. This forced his former tenants either to pay increased rents, which was close to impossible, or to leave their own farms. An increase in vagrancy meant more brigandage, a movement to the towns in search of employment and, where no employment could be found, an increase in urban poverty and crime.

The inflation of c.1470-1620 eventually petered out with the end of the initial rush of New World bullion, though prices remained around or slightly below the levels of the first half of the 17th century until the onset of new inflationary pressures in the latter decades of the 18th century.

References

• Earl J. Hamilton, American Treasure and the Price Revolution in Spain, 1501-1650 Harvard Economic Studies, 43 (Cambridge, Massachusetts: Harvard University Press, 1934).
• John Munro: The Monetary Origins of the 'Price Revolution':South Germany Silver Mining, Merchant Banking, and Venetian Commerce, 1470-1540, Toronto 2003