Following a lead from Mark Koyama’s twitter I arrived at the blog of Scott Summer, where I learned that heterodoxy is making inroads into that bastion of academic Economics, the American Economic Review. Despite the date of the post (April 1), it seems to be a serious, even passionate denunciation of an article by Nobel laureate Robert Shiller (at one point Summer characterizes Shiller’s views thussly: “That’s just silly.”).
From the abstract of the Shiller article:
The human brain has always been highly tuned toward narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact.
I didn’t read the article itself, but it sounds like Shiller is proposing to broaden up the spectrum of possible influences on economic processes from a very narrow focus that has been the trademark of the Orthodox Economics, something that I have called for on this blog (for example, here). Interesting that even a Nobel prize doesn’t protect one from being branded a heretic.
But the main reason I wanted to write this post was a comment by Summer later in his post, “But the Black Death was inflationary, just as the AS/AD model predicts” (the emphasis is Summer’s). I don’t know what the AS/AD model is, but factually this statement is clearly incorrect, and this is well known to economic historians since the groundbreaking work by Wilhelm Abel. See here, as reproduced in Fischer’s book The Great Wave:
The “Medieval Price Revolution” saw sustained growth of prices up until the first half of the 14th century. The post-Black Death period (1350-1450) was a period of price deflation.
Now, readers of Secular Cycles know that things were a bit more complicated than that. In agrarian societies sustained population growth eventually results in too many hands that need work and too many mouths that need food. So some things become more dear, like land and its produce (e.g., grain). Other things become cheap, like labor and its products (manufactures). So how prices respond depends on the commodity. Excessive population growth results in the increase of price of land, food, fuel, and shelter. It also depresses the price of labor (mostly unskilled) and manufactures whose price is primarily labor costs. Servant and soldier wages also decline, inasmuch as they are recruited from the “population surplus.”
The relationship between real wages and population pressure on resources is one of the most reliable relationships in economic history. Here’s an example from my work:
Here “Rel. Pop” is population relative to the carrying capacity of the land, and “Inv. wage” the inverse of real wage, or “misery index” (see Secular Cycles for details).
Historically (in agrarian societies), population declines brought about by epidemics like the Black Death always result in improved quality of life for the common people–those that survived. They switch to eating better grains (wheat instead of barley), drinking bear and wine, eating fruit and meat.
It happened after the Black Death in Europe, but we see the same dynamic after the Antonine Plagues and the Plagues of Justinian in the Mediterranean. And in the seventeenth century, when he plague returned to Europe, it was followed by a period of prices deflation.