The Great Wave: Price Revolutions and the Rhythm of History

David Hackett Fischer
Oxford University Press, 1996
xvi + 536 pages

What’s the price?

We are surrounded by prices. Billions of trades are made every day: a Mars Bar for fifty pence; a share in Tesla for $700. Most people even have a vague feeling that prices are always going up. This is not actually true historically; however, it has been true for decades, and most people do not pore over historical price indices. The layman’s history is a personal history.

Fortunately for us, David Hackett Fischer did pore over the numbers, in minute detail, twenty-five years ago. How much crunching did Fischer inflict on himself? The Great Wave only runs to 258 pages, yet, the author devotes another 242 pages to appendices, endnotes and a bibliographical essay which is essentially a book within the book under review. Simply put, Fischer did his research. He has also done us a great service.

The Great Wave identifies four price waves in European history and argues that for each there was:

(1) a period of equilibrium where prices rose slowly during a long period of prosperity; (2) a period where prices broke through the equilibrium often because of war; (3) a period where people now recognised the trend in rising prices and took action to combat price inflation. These choices, like expanding the money supply, only drove prices higher; and (4) a period of extreme economic instability marked by price volatility, increasing inequality, prices outstripping the wages of the poor and eventual economic collapse. The collapse, which resulted in sharply lower prices, started a new period of equilibrium, stable prices and growing prosperity.

Upon reading the outline above, I would not blame the layman for thinking “I’ll give this one a pass, it’s too dry. I don’t want to stare at statistical tables for hours on end.” Well, there are statistical tables, a lot of them. However, this is an important book worth reading; it is, in fact, a page turner because Fischer is a master historian and a gifted writer. In the hands of a lesser mortal, this would be a boring study. But the author never loses sight of the human story in all those tables and statistics. Take for instance, the economic crisis of the seventeenth century. Fischer surveys the rebellions, wars and revolts that engulfed Europe, but he also explains the deep cultural impact of economic collapse:

The greatest works of literature, painting, philosophy and theology in this era commonly expressed a mood of increasing pessimism and despair. After 1601, Shakespeare turned from his Elizabethan comedies and histories to his great tragedies – Hamlet (1600-01), Othello (1604), Macbeth (1605-06), King Lear (1605-06). These works were dark visions of a disordered world that seemed to conspire against human hope and happiness. At the same time, Cervantes produced perhaps the greatest masterpiece of Spanish literature, Don Quixote (1605, 1615), which for all its mordant humor was a sad and bitter description of a world that had dissolved into social chaos.

Elsewhere in the Great Wave,Fischer describes how bakers tried to combat rising commodity prices by making their buns and cakes smaller whilst maintaining the same prices. And here I thought “shrinkflation” was a modern phenomenon!

Of course, it is one thing to tell us what actually happened; it is harder to explain why. Fischer spends considerable time contemplating this, addressing the different schools of thought (and debunking them) and arriving at a compelling and novel answer: human action. Fischer argues that rising prices were mainly due to population growth which resulted in demand outstripping supply. Individual actors chose to have more children during the equilibrium phase because they perceived rising standards of living. Millions of humans making millions of choices affected the complex web of relationships we call society:

Let us begin in the late stages of price equilibrium, when prices are more or less stable, real wages are rising, rents and interest rates are falling, social stability is increasing, material conditions are improving, and cultural expectations are growing brighter. In these periods, people begin to make major choices in different ways. They decide to marry earlier. They choose to have more children. They also make economic decisions in a different way, expanding the scale of their ambition and the scope of their activity…The result of these choices is that aggregate demand grows more rapidly than supply. As it does so, the general price-level begins to rise.

The reader may be surprised that this is a novel approach. After all, we make our own choices all the time which impact others. Why would this not help explain history? The answer is that most academic historians do not consider individual, human action as an important factor in explaining past events. Instead, history is all about mysterious forces with little or no human agency.

The historian faces many hazards when trying to discover what actually happened. The closer he gets to the present, the less of an historian he becomes. Instead, if he is not careful, he becomes a commentator, a pundit or worse an idealistic dreamer. Indeed, Fischer recognises this danger, “Historians have special reasons for caution, for they will recall the fate of earlier attempts to know the future. They also have problems enough with the past.” If only Fischer had heeded his own advice.

Even before recognising this danger in the conclusion, the reader can see the cracks forming during Fischer’s treatment of the twentieth century. He makes no bones about abandoning objectivity. John Kenneth Galbraith is fawningly quoted in several places as if his Keynesian word was law. Price controls during the Second World War and the Truman and Nixon presidencies are touted without explanation. Moreover, there is no discussion about the abandonment of the gold standard after the First World War, the key role of central banking (i.e., the Federal Reserve) or Nixon’s closing of the gold window in 1971. It gets worse, Fischer states that the stagflation of the 1970s baffled neoclassical economists. Maybe some were baffled; however, it was the Keynesians who were truly baffled since stagflation was an impossibility according to their economic theory. Perhaps the nadir, when it comes to his abandonment of objectivity, is Fischer’s treatment of the 1980s: “No economic forecaster could have predicted…that any president in his right mind would have embraced the “supply-side” nostrums called Reaganomics in 1981.” [emphasis mine] There is nothing wrong, of course, with criticising economic schools of thought; however, Fischer simply throws his rhetorical grenades and moves on without explanation. Given the fantastic history that precedes this final chapter, this new style comes across as catty and smug. It is beneath him.

It only gets worse in the conclusion where Fischer offers a list of proposed remedies to get us out of the crisis phase of the twentieth century price wave. It is boilerplate leftism: more education, more funding for schools, more educated politicians, more welfare, more regulations, more price controls and more central bank tinkering. This was pie-in-the-sky even in 1996. Given where we are today, Fischer’s policy prescriptions are from another planet. The past really is a different country.

I have no wish to come across as uncharitable to this excellent historian. If I am, it is born out of frustration. The Great Wave is like watching a play where the first two acts are brilliant and the third is a stinker. It colours the whole play.