Friday, February 20, 2009

The Great Wave

My father-in-law recently showed me a book he was reading called The Great Wave. It happens to be written by my favorite historian, David Hackett Fischer. I immediately ordered it from the library and read it. What an amazing book!

Fischer astutely observes four great price waves during the last 800 years. Periodically, prices increase for many years and then fall into a pattern of equilibrium. After several more years, and with little or no warning, the next wave hits.

His study begins with the Medieval Price Revolution in the early 1300s. Europe experienced terrible inflation, particularly in the prices of grain and firewood. Prices only fell after more than a decade of crop failures (due to global cooling) and the dreaded Black Death. Population decreased and prices eventually stabilized. This traumatic time was followed by the Renaissance.

This period of relative peace lasted until the mid 1500s, when prices began to rise again. A similar pattern of crop failures and disease followed at the turn of the 17th Century, though less severe than before. This wave was followed by the Enlightenment, characterized by price equilibrium.

Prices rose again at the end of the 1700s. By the end of that century, most of the world had experienced a time of revolution and war. The 1800's gave us the gentle and prosperous Victorian Era. Finally, the last wave began at the start of the 20th Century. This period of inflation has lasted more than a generation and continues to carry us ever closer to the crest.

Fischer urges us to take a wider, more historic, view of our current economic woes. Published in 1996, The Great Wave has only increased in relevance. See this interesting review and commentary from Reuters in January 2009. Fischer claims no predictive powers for his observation, but he does offer the hope that all waves are different, that each successive wave causes less devastation than the one before, and that whatever occurs, we are quickly approaching the next great age of equilibrium and progress.

The Great Wave sheds a bright light on our current situation, as well as offering insights on economic theory in general. I highly recommend it!


Stephen said...

Sounds good. I'll put it on my list.

commoncents said...

Great post!

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