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Working paper 463

John H. MUNRO, "Money Matters: A Critique of the Postan Thesis on Medieval Population, Prices, and Wages", 2012-08-08
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Abstract: This paper is a critique of Michael Postan's famous Malthusian-Ricardo model demonstrating that late-medieval prices and wages were essentially determined by demographic factors, especially after the Black Death, while contending that monetary factors played no role in determining prices or wages. His central argument is simple: that rapid and drastic depopulation (falling perhaps from ca. 1320) - by about 50% in England ca. 1450 - drastically altered the land:labour ratio so that real wages increased, both from a rise in the marginal productivity of labour and also from a corresponding fall in the costs of foodstuffs. As Ricardo had argued, a population decline necessarily led to lower grain prices, reduced rents, as well as to increased real wages. A related part of Postan's model is the contention that grain prices alone fell after the Black Death, while prices of most livestock products and especially industrial products rose, thus producing a widening divergence in commodity prices in late-medieval Europe.

This paper seeks to show that monetary factors also played a role in determining or influencing both prices and real wages in medieval Europe, both before and after the Black Death. The evidence produced here reveals cycles of inflation and deflation from the late 12th to early 16th century: with a sharp deflation before the Black Death, an equally severe inflation for the quarter century following the Black Death, which was then followed by steep deflation into the early 15th century, after which the deflationary trend was broken only by the final phase of the Hundred Years' War and by civil wars in Flanders. Deflation resumed in the very late 15th century, enduring until the eve of the inflationary European Price Revolution, from ca. 1515-20 to ca. 1650. The tables in this paper demonstrate that during both periods of inflation and of deflation, agricultural and industrial prices rose and fell together, if not necessarily in full tandem. These cycles of inflation and deflation were essentially due to monetary and not demographic factors; but differences in relative prices can be explained as well by real factors. Thus the core theme of the paper: 'money matters', though monetary factors certainly do not explain all economic phenomena.

The final section of the paper deals with post-Plague real wages, demonstrating first a sharp fall in real wages following the Black Death and then a sharp rise in real wages from the later 14th century. That was essentially a result and function of downward nominal wage-stickiness during the deflations that took place in this era, especially during the two bullion famines of ca. 1370 - ca. 1415 and ca. 1440 - 1475. An examination of the root causes of wage-stickiness, essentially a post-Plague phenomenon, has been more thoroughly explored in many other of my online working papers and numerous publications (since 2003).

The statistical evidence on prices and wages is taken from both England and Flanders (up to ca. 1500): i.e., from both a basically rural agrarian economy (England) and a much more commercialized, industrialized, urbanized economy (Flanders). If such radically different economies experienced the same trends in commodity prices and wages (nominal and real)- as they did, the agrarian-based Ricardo model cannot provide the full explanation - so that again a role for monetary factors must be allowed, all the more so in light of the detailed monetary evidence supplied in this paper.

Keywords: Ricardo; Malthus; Postan; marginal productivity; population; nominal wages; real wages; agricultural labourers; building craftsmen; masters and journeymen; money; bullion; credit; inflation; deflation; relative prices; England; Flanders; Middle Ages

JEL Classification: E31; E41; E42; E51; E52; E62; F33; H11; H27; N13; N23; N43