oftwominds-Charles Hugh Smith

Food Shortages, Rising Prices, Stagnant Wages: Welcome to the 13th Century

This week's theme: Survival +

Human history is not just a chaotic cacophony; if we pay attention, we observe rhythms and structures. The reason is as obvious as it is profound. Like all species of life on earth, humanity has been structured/selected via complex adaptations to survive and reproduce within various ecological niches. That our social structures and our histories share certain characteristics over historical time is common-sense.

History, like an individual, is unique even as it shares characteristics with previous eras. Without studying history, we are prone to both arrogance and insecurity. Unaware of the past, we proudly reckon we've gone beyond the reach of cyclical history; and then, when the cycle turns and we are adrift and fearful, then we feel inadequate to the task of righting the sinking ship.
History properly studied renders us humble about our ability to control nature and events, and confident that we too can survive bad times.

Which brings me once again to The Great Wave: Price Revolutions and the Rhythm of History by historian David Hackett Fischer (recommended by reader Cheryl A., who kindly sent me a copy of the book.)

In Fischer's well-documented view, there is a grand cycle of prices and wages which turn on the simple but profound law of supply and demand; all else is detail.
As a people prosper and multiply, the demand for goods like food and energy outstrips supply, causing eras of rising prices. Long periods of stable prices (supply increases along with demand) beget rising wages and widespread prosperity. Once population and financial demand outstrip supply of food and energy--a situation often triggered by a series of catastrophically poor harvests--then the stability decays into instability as shortages develop and prices spike.
These junctures of great poverty, insecurity and unrest set the stage for wars, revolutions and pandemics.

It is remarkable indeed that the very conditions so troubling us now were also present in the price rises of the 13th, 16th and 18th centuries. Unfortunately, those cycles did not have Disney endings: the turmoil of the 13th century brought war and a series of plagues which killed 40% of Europe's population; the 16th century's era of rising prices tilled fertile ground for war, and the 18th century's violent revolutions and resultant wars can be traced directly to the unrest caused by spiking prices.

(The very day that prices for bread reached their peak in Paris, an angry mob tore down the Bastille prison, launching the French Revolution.)

After a gloriously long run of stable prices in the 19th century--prices were essentially unchanged in Britain between 1820 and 1900--The 20th century was one of steadily increasing prices. Fischer takes great pains to demolish the ideologically appealing notion that all inflation is monentary; the supply of money (gold and silver) rose spectacularly in the 19th century but prices barely budged. In a similar fashion, eras of rising prices have seen stable money supplies. Yes, monentary expansion can play a part, but Fischer has done his homework, and population growth is a far stronger correlation than money supply.

Monentary inflation can lead to hyper-inflation, of course, but there are always mitigating factors in those circumstances. The long wave is not one of hyper-inflation but of supply and demand imbalances undoing the social order.

Americans are inherently suspicious of anything which seems to threaten constraint of the American Will or Dream; thus it is not surprising that cycles of history are largely unknown in the U.S. As Fischer explains:

This collective amnesia is partly the consequence of an attitude widely shared among decision-makers in America, that history is more or less irrelevant to the urgent problems before them.

Fischer notes that he describes not cycles but waves, which are more variable and less predictable. (Surfers know to count waves, as they tend to arrive in sets.)

Is the sudden rise in the price of oil unique? Not at all. Energy in 1300 was firewood, and as Fischer relates, the cost of energy skyrocketed then, too:

In England from 1261 to 1320, the price of firewood and charcoal rose faster and farther than any other commodity. Close behind the soaring cost of energy came price-rises for food-stuffs of various kinds--particluarly for grain, meat and dairy products.

Talk about being ripped from the headlines: this describes our current situation remarkably well.
In response to this great rise in prices of essentials, both commoners and governments debased the currency. In their day, this meant shaving the edges of coins, or debasing new coins with non-precious metals. The debasement was an attempt to increase money to counteract the rise in prices, but it failed (of course). Every few decades, a new undebased coinage was released, and then the cycle of debasement began anew.

Just as insidiously, wages fell:
But as inflation continued in the mid-13th century, money wages began to lag behind. By the late 13th and early 14th centuries real wages were dropping at a rapid rate. Hmm--sound familar?

Now guess what happened next:
At the same time that wages fell, rents and interest rose sharply. Returns to landowners generally kept pace with inflation or exceeded it.

This growing gap between returns to labor and capital was typical of price-revolutions in modern history. So also was its social result: a rapid growth of inequality that appeared in the late stages of every long inflation.

And what happened to government expenditures? It's deja vu all over again--deficits:
Yet another set of cultural responses toinflation created disparities of a different kind: fiscal imbalances between public income and expenditures. Governments fell deep into debt during the middle and later years of the 13th century. Oh, and crime and illegitimacy also rose. Fischer summarizes the end-game of the price-rise wave thusly:

In the late 13th century, the medieval price-revolution entered another stage, marked by growing instability. Prices rose and fell in wild swings of increasing amplitude. Inequality increased at a rapid rate. Public deficits surged ever higher. The economy of Western Europe became dangerously vulnerable to stresses it might have managed more easily in other eras.

And there you have our future, writ large in the 13th, 16th and 18th century price-revolution waves which preceded ours. It is hubris in the extreme to think we have somehow morphed into some new kind of humanity far different from those people who tore down the Bastille in a great frustrated rage at prices for energy and bread they could no longer afford.

It is foolish to blame "speculators" for the rise in food and energy, when the human population has doubled in 40 years and the consumption of energy and food has exploded as a result. Yes, technology in the form of the Green Revolution enabled vastly greater yields per acre; and yields in many places can still be increased with fertilizers, improved seeds and so on.

But all of this was the result of cheap, easy-to-pump, readily available oil. All the miracles resulted from cheap oil, and now that it's gone--yes, yes, there is more, but it's not cheap or easy to pump--then we have to replace it with some other energy source.

But petroleum and natural gas are wonderfully adaptable energy sources, handy for making fertilizer, plastics, and other chemicals as well as for fuel. Both are readily stored and possess very high energy densities. Yes, Lithium-ion batteries also have a high energy density, but it isn't a matter of drilling a hole and complex lithium-ion batteries gush out. It takes tremendous energy and technology to fashion lithium-ion batteries, and as a result they're expensive.

If the market responds to the oil price-revolution with sufficient verve, capital and innovation, perhaps a rich brew of petroleum replacements will appear in mass production. But there is a peculiar feedback loop at work; there has to be enough energy on hand to build this new infrastructure of solar-cell factories, algae-to-biofuel plants and all the rest. If we consume all the cheap oil in a vain attempt to maintain the status quo, then the replacement becomes ever more costly. And then we have a price-revolution on our hands which looks eerily like the ones which swept Europe in the 13th, 16th and 18th centuries.

So where does this leave us? In Dude, We Are So Doomed, I noted the intersection of four long-term cycles (waves), which suggest that the era from the present (2008) to 2021 will be troubled indeed, and may result in a war, revolution or equivalent re-ordering of U.S. society and perhaps the world.

It doesn't take much thought to anticipate the post-cheap-petroleum era might be fraught with risk and turmoil as the transition--messy and unpredictable in some ways, but predictably messy in any event--takes place. Based on the history so painstakingly asembled by Fischer, we can anticipate:

Ever higher prices for what I call the FEW Essentials: food, energy and water.
Ever larger government deficits which end in bankruptcy/repudiation of debts/new issue of currency.
Rising property/violent crime and illegitimacy.
Rising interest rates (by a lot, not a little).
Rising income inequality in favor of capital over labor.
Continued debasement of the currency.
Rising volatility of prices.
Rising political unrest and turmoil (see "Revolution").

We'll continue examining these all-important issues in this "Survival +" themed week. Survival + what? We shall see....

These two Readers Journal essays are extremely relevant to this week's theme of Survival +
( read them all, of course):

The Power of Eight and Three (Reinventing our Native Cuisine) (Noah Cicero, June 23, 2008)

The Principles of Trading Also Apply to Life (Harun I., June 19, 2008)

New commentaries on diet/lifestyle and Something Amiss added:

Readers Journal commentaries week of June 20, 2008 Electric vehicles, long-wave cycles pointing to World War III, bikeways to L.A., Chinese goods and competition, something amiss, diet/lifestyle and more.

Food Shortages, Rising Prices, Stagnant Wages: Welcome to the 13th Century
This week's theme: Survival + June 23, 2008 Human history is not just a chaotic cacophony; if we pay attention, we observe rhythms and structures. The reason is as obvious as it is profound. Like all species of life on earth, humanity has been structured/selected via complex adaptations to survive and reproduce within various ecological niches. That our social structures and our histories share certain characteristics over historical time is common-sense.
History, like an individual, is unique even as it shares characteristics with previous eras. Without studying history, we are prone to both arrogance and insecurity. Unaware of the past, we proudly reckon we've gone beyond the reach of cyclical history; and then, when the cycle turns and we are adrift and fearful, then we feel inadequate to the task of righting the sinking ship.
History properly studied renders us humble about our ability to control nature and events, and confident that we too can survive bad times.
Which brings me once again to The Great Wave: Price Revolutions and the Rhythm of History by historian David Hackett Fischer (recommended by reader Cheryl A., who kindly sent me a copy of the book.)
In Fischer's well-documented view, there is a grand cycle of prices and wages which turn on the simple but profound law of supply and demand; all else is detail.
As a people prosper and multiply, the demand for goods like food and energy outstrips supply, causing eras of rising prices. Long periods of stable prices (supply increases along with demand) beget rising wages and widespread prosperity. Once population and financial demand outstrip supply of food and energy--a situation often triggered by a series of catastrophically poor harvests--then the stability decays into instability as shortages develop and prices spike.
These junctures of great poverty, insecurity and unrest set the stage for wars, revolutions and pandemics.
It is remarkable indeed that the very conditions so troubling us now were also present in the price rises of the 13th, 16th and 18th centuries. Unfortunately, those cycles did not have Disney endings: the turmoil of the 13th century brought war and a series of plagues which killed 40% of Europe's population; the 16th century's era of rising prices tilled fertile ground for war, and the 18th century's violent revolutions and resultant wars can be traced directly to the unrest caused by spiking prices.
(The very day that prices for bread reached their peak in Paris, an angry mob tore down the Bastille prison, launching the French Revolution.)
After a gloriously long run of stable prices in the 19th century--prices were essentially unchanged in Britain between 1820 and 1900--The 20th century was one of steadily increasing prices. Fischer takes great pains to demolish the ideologically appealing notion that all inflation is monentary; the supply of money (gold and silver) rose spectacularly in the 19th century but prices barely budged. In a similar fashion, eras of rising prices have seen stable money supplies. Yes, monentary expansion can play a part, but Fischer has done his homework, and population growth is a far stronger correlation than money supply.
Monentary inflation can lead to hyper-inflation, of course, but there are always mitigating factors in those circumstances. The long wave is not one of hyper-inflation but of supply and demand imbalances undoing the social order.
Americans are inherently suspicious of anything which seems to threaten constraint of the American Will or Dream; thus it is not surprising that cycles of history are largely unknown in the U.S. As Fischer explains:
This collective amnesia is partly the consequence of an attitude widely shared among decision-makers in America, that history is more or less irrelevant to the urgent problems before them. Fischer notes that he describes not cycles but waves, which are more variable and less predictable. (Surfers know to count waves, as they tend to arrive in sets.)
Is the sudden rise in the price of oil unique? Not at all. Energy in 1300 was firewood, and as Fischer relates, the cost of energy skyrocketed then, too:
In England from 1261 to 1320, the price of firewood and charcoal rose faster and farther than any other commodity. Close behind the soaring cost of energy came price-rises for food-stuffs of various kinds--particluarly for grain, meat and dairy products. Talk about being ripped from the headlines: this describes our current situation remarkably well.
In response to this great rise in prices of essentials, both commoners and governments debased the currency. In their day, this meant shaving the edges of coins, or debasing new coins with non-precious metals. The debasement was an attempt to increase money to counteract the rise in prices, but it failed (of course). Every few decades, a new undebased coinage was released, and then the cycle of debasement began anew.
Just as insidiously, wages fell:
But as inflation continued in the mid-13th century, money wages began to lag behind. By the late 13th and early 14th centuries real wages were dropping at a rapid rate. Hmm--sound familar? Now guess what happened next:
At the same time that wages fell, rents and interest rose sharply. Returns to landowners generally kept pace with inflation or exceeded it.
This growing gap between returns to labor and capital was typical of price-revolutions in modern history. So also was its social result: a rapid growth of inequality that appeared in the late stages of every long inflation. And what happened to government expenditures? It's deja vu all over again--deficits:
Yet another set of cultural responses toinflation created disparities of a different kind: fiscal imbalances between public income and expenditures. Governments fell deep into debt during the middle and later years of the 13th century. Oh, and crime and illegitimacy also rose. Fischer summarizes the end-game of the price-rise wave thusly:
In the late 13th century, the medieval price-revolution entered another stage, marked by growing instability. Prices rose and fell in wild swings of increasing amplitude. Inequality increased at a rapid rate. Public deficits surged ever higher. The economy of Western Europe became dangerously vulnerable to stresses it might have managed more easily in other eras. And there you have our future, writ large in the 13th, 16th and 18th century price-revolution waves which preceded ours. It is hubris in the extreme to think we have somehow morphed into some new kind of humanity far different from those people who tore down the Bastille in a great frustrated rage at prices for energy and bread they could no longer afford.
It is foolish to blame "speculators" for the rise in food and energy, when the human population has doubled in 40 years and the consumption of energy and food has exploded as a result. Yes, technology in the form of the Green Revolution enabled vastly greater yields per acre; and yields in many places can still be increased with fertilizers, improved seeds and so on.
But all of this was the result of cheap, easy-to-pump, readily available oil. All the miracles resulted from cheap oil, and now that it's gone--yes, yes, there is more, but it's not cheap or easy to pump--then we have to replace it with some other energy source.
But petroleum and natural gas are wonderfully adaptable energy sources, handy for making fertilizer, plastics, and other chemicals as well as for fuel. Both are readily stored and possess very high energy densities. Yes, Lithium-ion batteries also have a high energy density, but it isn't a matter of drilling a hole and complex lithium-ion batteries gush out. It takes tremendous energy and technology to fashion lithium-ion batteries, and as a result they're expensive.
If the market responds to the oil price-revolution with sufficient verve, capital and innovation, perhaps a rich brew of petroleum replacements will appear in mass production. But there is a peculiar feedback loop at work; there has to be enough energy on hand to build this new infrastructure of solar-cell factories, algae-to-biofuel plants and all the rest. If we consume all the cheap oil in a vain attempt to maintain the status quo, then the replacement becomes ever more costly. And then we have a price-revolution on our hands which looks eerily like the ones which swept Europe in the 13th, 16th and 18th centuries.
So where does this leave us? In Dude, We Are So Doomed, I noted the intersection of four long-term cycles (waves), which suggest that the era from the present (2008) to 2021 will be troubled indeed, and may result in a war, revolution or equivalent re-ordering of U.S. society and perhaps the world.
It doesn't take much thought to anticipate the post-cheap-petroleum era might be fraught with risk and turmoil as the transition--messy and unpredictable in some ways, but predictably messy in any event--takes place. Based on the history so painstakingly asembled by Fischer, we can anticipate:
Ever higher prices for what I call the FEW Essentials: food, energy and water.
Ever larger government deficits which end in bankruptcy/repudiation of debts/new issue of currency.
Rising property/violent crime and illegitimacy.
Rising interest rates (by a lot, not a little).
Rising income inequality in favor of capital over labor.
Continued debasement of the currency.
Rising volatility of prices.
Rising political unrest and turmoil (see "Revolution").
We'll continue examining these all-important issues in this "Survival +" themed week. Survival + what? We shall see....
These two Readers Journal essays are extremely relevant to this week's theme of Survival + ( read them all, of course):
The Power of Eight and Three (Reinventing our Native Cuisine) (Noah Cicero, June 23, 2008)
The Principles of Trading Also Apply to Life (Harun I., June 19, 2008)
New commentaries on diet/lifestyle and Something Amiss added:
Readers Journal commentaries week of June 20, 2008 Electric vehicles, long-wave cycles pointing to World War III, bikeways to L.A., Chinese goods and competition, something amiss, diet/lifestyle and more.


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