Business, Legal & Accounting Glossary
Price revolution, in particular, refers to a phase of galloping inflation, which prevailed across Western Europe from the latter half of the 15th century to the first half of the 17th century. Prices on average rose around sixfold over a time span of over 150 years. [Price in modern days is defined as money asked for in exchange for a good or service.]
One school of thought attributed this high rate of inflation to a huge influx of silver and gold from what was known as the ‘New World’. In particular large volumes of silver were mined from Peru. This was from the year 1545. This school of thought postulated that there was ‘too much money chasing too few goods’ thus giving rise to a classic case of demand-pull inflation. [Inflation leads to a decline in the purchasing power of individuals and the cost of living increases. A rise in the cost of living implies that the cost of buying a basket of representative commodities increases.]
Large-scale bullion influx from over the Atlantic actually rolled in this price hike phenomenon. There was a quintupling in regards to silver production from central Europe from 1460 to 1530. However, by 1610s there was a gradual decline in this output. It fell by around two-thirds.
Demographic factors were also responsible for this hike in general prices. From about the third quarter of the 15th century, there was a substantial rise in the European population. Prior to that Black Death or Black Plague, a mid-14th century pandemic had wiped out an estimated 75 million people worldwide.
Post-1340s there had also been a substantial contraction of agricultural land. Increased population augmented pressure on arable land. Urbanization and trade made prices more responsive to external fluctuations. This inflationary phase ranging from 1470-1620 gradually petered out with a decline in the flow of New World bullion. There was again a fresh onslaught of inflationary pressure from the latter half of the 18th century due to a new set of factors.
The Price Revolution, also known as the Spanish Price Revolution, was a series of economic events that took place between the second half of the 15th century and the first half of the 17th century and was most closely linked to the high rate of inflation that swept Western Europe at the time. Over 150 years, prices increased by roughly sixfold on average. This level of inflation is 1–1.5 per cent per year, which is a low rate by today’s standards but a high rate when compared to the monetary policy in place in the 16th century.
The large influx of gold and silver from the Spanish treasure fleet from the New World, including Mexico, Peru, and the rest of the Spanish Empire, is thought to have caused the high inflation.
As a result of Spain’s balance of payments deficit, specie flowed through the country, raising prices and then spreading throughout Western Europe. Many European countries’ monetary supply and price levels grew as a result of this. Population growth and urbanisation, combined with the influx of gold and silver, kept the price revolution going. Too many people with too much money chased too few goods, according to this theory.
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This glossary post was last updated: 25th January, 2022 | 0 Views.