Prices since the 1200s

There are two kinds of half-truth letters which will always find a place in the correspondence columns of certain newspapers. One is from readers who recall how low prices were when they were young. A Sunday newspaper in June 1969 published a letter quoting old grocery prices, and ending “we certainly did not know how well off we were in 1915″. The other is from readers who draw attention to the smallness of the wages received by their fathers and grandfathers. So we have the conflicting beliefs in the ‘good old days’ and the ‘bad old days’. John Burnett, reader in economics and social history at Brunei University, brings together a large amount of detailed information to show not only what people paid in past centuries but what was the income of different social groups, how they lived, and what was their standard of living.

He deals with the big movements of prices and how these movements, along with other changes, affected the different classes. For example, the rise of prices in the 14th century, accompanied however by the labour scarcity after the Black Death of 1349 which led to a rise in wages and “placed the labourer, perhaps for the first time in English history in a strong bargaining position”. On the other hand, the second half of the 17th century saw the opposite situation—rising prices and lagging wages causing a drastic fall in living standards.

Burnett stresses the difficulty of obtaining enough representative statistics about prices in earlier centuries and warns the reader against expecting a greater degree of accuracy than the information warrants. He reproduces two indices, one by Prof. Guy Routh covering the years 1906 to 1960, the other by Prof Phelps Brown 1906 to 1954, and a graph summarising price changes of consumer goods in Southern England from 1264 to 1954.

He comments on the general long-period agreement between the two indices but might well have used their non-agreement in the war years 1938 to 1945 to illustrate the way in which—in certain circumstances—indices, accurate enough for their defined purpose, can diverge if they cover some different articles and if the articles excluded from one index are rising (or falling) in price at an abnormal rate.

For the years 1938 to 1945 the Routh Index shows a rise of 47½ per cent, while the Phelps Brown index shows 79 per cent Two other indices (Ministry of Labour and London and Cambridge Economic Service) show 30 per cent and 49 per cent respectively.

One of the major reasons for war-time divergence was that it was Government policy to use subsidies to keep down the prices of articles which were heavily represented in the Ministry of Labour Index.

Burnett might also have warned the reader against the still widespread belief that the larger the number of articles covered by a price index the higher the price rise it will show. It all depends on whether all prices are rising at much the same rate or whether some are rising faster than others. If all prices rise by a uniform 5 per cent in a given period it does not matter whether an index contains 10 articles on a 100 or only one: the answer will still be 5 per cent.

Complaints were often made that the official index in past years gave greater weight to certain articles than was warranted by the relative amounts spent by certain social groups. It was sometimes forgotten that this can work both ways. When civil servants had their pay automatically regulated by the cost of living index they were the losers when food prices were falling fast because food was overweighted in the index, but equally they were the gainers when food prices were rising faster than other articles.

On a number of aspects of price and income movements Burnett has been able to extend the range of his information beyond what was known to earlier writers. One such aspect was the decline of the fortunes of the aristocracy because of rising prices between 1540 and 1640. The traditional view of this was, he writes, “derived ultimately from the economic interpretation of history of Marx and Engels, modernised and qualified by R. H. Tawney and Lawrence Stone” and he now argues that the decline was less general than has been assumed.

About the date at which money was gradually coming into general use his views do not appear to differ from earlier ones. He writes: “That money was in regular, if limited, use on 13th century Manors is certain”. Townsend Warner, writing in 1899, said that money payments on the Manor “begin to be common in England in the early years of the 13th century” (Landmarks of English Industrial History). Of course both writers agree that money was in use centuries earlier among traders and merchants and in the big towns generally.

About the causes of the price rises in recent years Burnett is not satisfactory. He offers a sort of explanation but it is difficult even to understand what it means. It starts with the statement that “one of the main influences on prices must be the pressure of demand” but later on goes on to say “The pressure of demand, it seems, has had little direct affect on prices, but it does have direct effect on earnings which then lead to price increases by the process known as ’cost-push’: price increases then lead to renewed wage-increases by a process of ’cost-of-living push’. In popular language this is the wages and prices spiral”

So we are asked to believe (in direct contradiction to the facts) that sellers of goods do not put up their prices in response to increased ’pressure of demand’ but only because and after wages have gone up. So price increases are due to the workers’ ‘demands’; but why then did prices rise twice as much in Britain as in Switzerland and the U.S.A. in the 20 years to 1968 ? And why did not Burnett offer the same kind of explanation for movements of prices and wages in earlier periods ?

What he entirely ignores here is the effect of currency depreciation as the biggest single factor of the price rise. It is strange that he overlooks this on p315 for he is aware of it on p11 and elsewhere. On p315 he offers his explanation, not directly as his own conclusion, but as what “most economists would accept”; but on p4 he puts forwards a view which nearly all the economists he refers to would completely repudiate. They reject the view of earlier economists, including Marx, that there is a direct relationship between the amount of inconvertible paper money and the price level, but on p11 Burnett appears to accept this as he states that ’’prices are determined by the ratio between the supply of and the demand for money: the supply of money is the currency in circulation . . .”

It is a pity Burnett allowed the confusion of modern monetary theory to divert him from his earlier view.