April 8, 2010 Reading Time: 2 minutes

In this paper, John Munro of the Department of Economics, University of Toronto revisits the historical debate on the origins of the price revolution of the 16th century. Though some historians and economists have claimed that this event was caused by population growth, Munro clearly demonstrates that the origins were monetary and not demographic. He also shows that the quantity identity of money (MV=Py) gives a good description of price movements in the long run.


“This paper seeks to provide a new and chiefly monetary explanation for the origins of the sixteenth-century era of sustained inflation (c.1520 – c.1640) commonly known as the ‘Price Revolution’; and in particular it provides an answer to the question: not, as traditionally posed, why did the Price Revolution commence so early; but rather why did it commence so late? Beginning with the Salamanca School (1556), and then the French philosopher Jean Bodin (1568) and culminating with Earl Hamilton and Keynes (1929, 1936), most economists and historians had attributed this sustained European inflation to the influx of Spanish-American ‘treasure’, chiefly silver from Peru-Bolivia and Mexico. But with advances in our knowledge of price history in the post-war era, economic historians pointed out that European inflation had commenced as early as the 1520s, some three decades before any substantial amounts of silver had been imported from the Americas. They therefore sought an alternative explanation: unfortunately, one that wrongly made population growth the ‘prime mover’ for inflation, with grave deficiencies in their economic theory […]

This paper focuses on the role of two other monetary factors, both of which preceded any sustained population growth in western Europe: the South-German silver-copper mining boom, commencing in the late 1450s, and reaching its peak in the 1530s; and then the revolutionary changes in credit institutions from c. 1510: in particular legal sanctions for and widespread use of negotiable, transferable bills; and the rapid rise of fully negotiable rentes as the principal agency for West European public finance, with an explosive expansion in the use of credit instruments in general.”

John Munro (2003)
“The Monetary Origins of the ‘Price Revolution’: South German Silver Mining, Merchant-Banking, and Venetian Commerce, 1470-1540”
Department of Economics and Institute for Policy Analysis University of Toronto
Originally published in 1999; revised in 2003

Marius Gustavson

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