Black Death: Higher Wages Drive Progress?

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Instead of trying to predict the future economic outlook of today, this blog takes on a retrospective stance on European economic growth from the 14th-16th centuries.

In the 1340s Italian ports in Genoa and Venice thrived on trade and commerce. Traders from Asia were a regular sight, bringing spices and other luxury commodities from distant lands. It was a time of relative prosperity; however, within a couple of years, Europe would live through its worst plague epidemic, Black Death, that would ultimately wipe out roughly a third of the European population and change the course of its economy. In less than a decade more than 20 million people perished from the mysterious disease. Yet, amidst the chaos something interesting was brewing – wages started climbing rapidly.

At the time of the feudal system, peasants rarely had any choice and no income mobility. The wages were low, and the cost of capital was high. The Black Death has suddenly swayed the odds in the peasants’ favor. In order to understand how the epidemic affected labor and wages, it’s crucial to understand the supply and demand framework. The supply and demand of labor rest at equilibrium, meaning that if the working population were to suddenly drop, labor would become scarcer and wages would rise, establishing a new equilibrium. As the population rapidly decreased, there were fewer labor units available. It was only logical for peasants to demand higher wages from their lords. Lords, in turn, had no choice but to pay more because the number of fields to plow, remained the same. 


(Image cited from The Economist)

The wages were so high that England passed a law in 1349 forcing peasants to accept wages they received before the plague. As peasants gained more leverage, many lords were forced to give them broader freedoms and better working conditions. This time period of high wages became a milestone that ultimately led to the dissolution of Feudalism altogether in the 16th century.

As the wages spiraled out of control so did the inflation. According to The Economist, within the first 4 years of the epidemic, the average wheat prices rose 300%. Nevertheless, the lords enjoyed higher profits as prices went up and the peasants appreciated higher wages. People in Europe now had more purchasing power and a stronger incentive to maximize the efficiency of production as labor costs piled up.

Although the European economy underwent a post-plague recession it has reemerged as an economic powerhouse a century later. New innovations stemmed from scarce labor, higher wages, and greater purchasing power. Novel double-entry bookkeeping revolutionized accounting processes while banking systems became more complex. The printing press was invented in an effort to balance out the high wages and labor deficit. Technological advancements in shipbuilding allowed for exploration and unprecedented trade growth.

The Black Death was a horrifying time period in Europe which severely damaged the economy. At the same time, its side effects spurred immense growth within the region. Labor scarcity and high wages might have not been the sole ingredients in such a change, but they certainly had encouraged innovation in different practices and altered the societal structure which set Europe on the path of progress.

Sources:

http://msh.councilforeconed.org/documents/978-1-56183-758-8-activity-lesson-15.pdf

https://eh.net/encyclopedia/the-economic-impact-of-the-black-death/

https://theconcourse.deadspin.com/after-the-black-death-europes-economy-surged-1821060986

https://www.economist.com/free-exchange/2013/10/21/plagued-by-dear-labour

https://www.brown.edu/Departments/Italian_Studies/dweb/plague/effects/social.php

Pop the bubbly on this unique economic indicator

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By Sarah Montgomery

Photo from reservebar.com,

Champagne was discovered by Dom Pérignon, a monk who lived in the Champagne region of France in the 17th century. Upon the creation of this new concoction, he said to his peers, “Come quickly, I am tasting the stars!” Beyond being a delightfully bubbly beverage, champagne also serves as an economic indicator. Because the consumption of champagne often goes hand-in-hand with celebrations, the sales of champagne mirror the ambiance of the market. This relationship offers analysts insight into how the economy is doing. As put by Pascal Férat, the president of a Champagne-producer’s union, “When people are down in the dumps, they don’t feel like drinking [C]hampagne.” 

When people are down in the dumps, they don’t feel like drinking [C]hampagne. 

PASCAL FÉRAT
Image result for champagne pouring
Photo from vinegar.com.

When people are spending money on champagne, it indicates that not only do people have enough money for necessities, but they have enough disposable income to splurge on luxuries—times are good. 

NPR’s Planet Money searched for the most interesting economic indicators. They found that Champagne sales are about 90% accurate in, one year later, anticipating the average American income. The theory is that while good times are ahead, bad times will soon follow. Davidson offered the peak of the Internet and Housing bubbles as examples of times when champagne sales were high in 1999 and 2007 respectively; famously, the years following those were those of a weaker economy. 

Graph from The New York Times Company.

In its annual report, the Comité Champagne, a French community that represents champagne makers, notes an increase of global champagne sales while also having a 1.8% fall in shipments. An interesting place where champagne sales fell was in the U.K, historically the largest export market for the fizzy refreshment.; some suggest that Brexit is the reason. Shipments to the following countries grew: the US, Japan, China, Hong Kong, Russia, and South Africa. 

Graph from the Comité Champagne.

The U.S. Champagne Bureau, a representative of the Comité Champagne, echoed these findings and announced in March that an increase of sales champagne bottles occurred between now and 2017. And according to Beverage Wholesaler, “overall consumption [of champagne and sparkling wine] is up 56% in the past decade, and shows no sign of slowing.” Furthermore, more people are drinking champagne year-round. These are significant developments signaling prosperity, so perhaps the economy will falter in the near future.