Debasement all around: lessons from 16th-century inflation

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Hello, and welcome to the Intelligence from the Economist. In London, I'm Jason Palmer.

And in New York, I'm John Fassman. Every weekday we provide a fresh perspective on the events shaping your world.

Not far from Indonesia's capital lies a community of thousands who live a religious, ascetic life. Our correspondent meets with the bad wee people and finds some edging out into the modern world just as that world encroaches on their way of life.

And every dog must have its day. But some get more days than others. Our data team combed through the numbers to determine what determines a breed's popularity. It varies by country, but it turns out that starring in a movie really helps. But first, The emergence of COVID 19 brought about a global health crisis, endangering millions of lives. But it also resurrected an old enemy that economists, politicians and bankers, especially in advanced countries, had come to see as no longer much of a threat. Inflation.

My colleagues and I are strongly committed to bringing inflation back down to our 2% goal.

We have both the tools that we need and the resolve it will take.

To restore price stability. On behalf of American families and businesses.

Today's surge in prices, only a year or so old, has already had profound social and political consequences. Consumer confidence is at rock bottom as real wa decline.

I've been more on a budget this.

Year than in years past, so I'm.

More mindful of prices at this time.

Incumbent politicians are unpopular, and around the world, protests about the cost of living are growing.

We want that 10% because we're working.

Hard for it and the cost of living is too high.

Even the transport, the petrol, the food.

Everything is very high.

So we want that 10%.

Everything is expensive.

I cannot afford anything.

I cannot afford to take my kids to school anymore. It's too much. But soaring inflation after a period of price stability is nothing new. History throws up some troubling examples of what happens when it persists.

In the days of King Henry VIII, in the 1500s, it often felt as though England was falling apart.

Callum Williams is a senior economics writer at the Economist.

There were lots of accounts of a huge number of beggars roaming the streets of London, many of whom would rob you or kill you given half a chance. People at the time also worried that the coinage, the currency, was being debased, and they also worried that the country's morals were in decline. The thing was that it wasn't just in England that there was this feeling that society was coming apart. There were similar sentiments across Europe, and indeed, by the latter part of the 1500s, so in particular 1590s, the continent really was consumed by financial crisis, social unrest and war. And when all is said and done, the root cause of this chaos is kind of easy to explain, really. It was a totally unexpected and also totally unfamiliar surge in inflation.

Callum, how severe was the surge and why was it unexpected?

It was unexpected in the sense that there had never really been inflation, certainly in living memory and even in the memory of many generations before that one. For example, if you look at the prices for England in the year 1500, the price of a basket of goods like food, clothing and light was no higher than it had been in 1275. So in other words, average inflation over that period of exactly zero percent. But then all this changed after about 1500 and sustained price inflation. So year after year of prices moving up went from something that was kind of unthinkable to something that seemed, at the time, completely unstoppable. So within 50 years, average prices across England had actually doubled. In the 1500s, Italian prices rose by about 5% a year. By the end of that century, in France and Holland, inflation was about 4%. And the global rate of inflation in the 1590s peaked at about 3%. To modern ears, that might not sound outrageously high in a world where inflation is around 10% across advanced economies. But bear in mind at the time, wages in cash terms didn't really go up from one year to the next. So even a tiny bit of inflation usually meant real terms, cuts in people's standard of living.

So what caused this first spike in inflation?

So a bit like now, pundits at the time disagreed very strongly over the causes. There was a particularly fierce debate that took place in France in the 1560s and 1570s, and the terms of that debate will sound familiar today. There was one pundit on one side, whose name was Jean Chaurier de Malestroit, who argued that inflation really was the result of excessive spending. It was almost a kind of quasi religious argument. But then on the other side, you had a guy called Jean Beaudin who actually took a more supply side approach to the question and argued that there were unexpected shocks to the global economic system. And they both, a bit like how Larry Summers and Paul Krugman today were write blog posts attacking each other's position. It was a bit similar back then. They both attacked the other's position. And ever since then, really, both economists and historians have taken one side or the other.

Let's stay in the 1500s for now. In that specific instance, do we know which of those two pundits were right?

I think they were both right. So there was little doubt that excess demand did play a role in the inflation. An important event here is the Black death of the mid-1300s. The population of Europe fell very drastically after the Black Death. It then recovered very quickly. So you had high population growth and also people moved to cities. So what this did was it raised demand for food while at the same time cutting the number of farmers that were producing food. So higher demand and lower supply. So that was one thing. Another demand side factor that we're talking about is what historians call debasement, which is basically a manipulation of the currency. And to really oversimplify, essentially what a lot of monarchs started to do in the 1500s, the monarch would take in a certain number of golden coins, they would melt down the golden coins to create liquid gold, recast that gold into maybe twice as many golden coins, and use a worthless metal to make up the difference. So they would essentially double the amount of money they had. And, you know, there are some estimates of what this really amounted to. For example, Henry VIII during the 1540s raised about 2% of English GDP per year in this way. And he used this money to spend wars and on palaces and so on. It wasn't just Henry VIII who did this. We also did see this form of currency debasement in Scotland, and we also saw it in what are today's Netherlands, Luxembourg and Belgium. So demand side effect is clearly important, but I don't think they were the only factors. I think supply side factors were also important.

So what are the other factors at play? If debasement alone doesn't explain inflation, what else was behind it?

So I think the other big thing is what's happening on the supply side, which is really a huge external shock to Europe's money supply. So in around 1545, enormous silver deposits were found in the hills of Bolivia. And a lot of this silver was exported from Bolivia to Europe. In the first quarter of the 1500s, about 10 tons of silver arrived on Europe's shores. But by the third quarter of that century, Europe imported 173 tons. So a really enormous rise. Much of it arrived in Spain. And that's particularly interesting because Spain saw both very high inflation and saw inflation really before anywhere else. And then it spread to the rest of Europe.

And so ultimately, what can we learn from the consequences of that period of inflation? Are there any lessons for today?

Yeah, I think there's quite a few lessons. So one is kind of what happens to the economy. Of course, the economy back then was very different. Capitalism hadn't really got going in the way that we understand it today. What you had was a long, long period of declining real wages. So from about 1500, real wages across Europe start to fall. But they fall and fall and fall year after year after year. And eventually they start to rise again, but they actually don't regain their purchasing power until the late 19th century. So really a very, very long time after they started to decline. So that's the economic effect then. I think in a way, more interestingly, there were very large political effects. And particularly towards the end of the 1500s, society and politics do seem to become very, very unstable across many parts of Europe. So there's lots of examples to choose from. One particularly famous one took place In France in 1572, which was the St. Bartholomew's Day Massacre, which was the kind of Catholic on Protestant attack, essentially, but really across Europe. So the 1590s were years of revolt in Austria, Hungary, Ukraine, Finland. At the time Russia experienced what they call its troubles, which was essentially a 15 year period of lawlessness. You have the start of the Thirty Years War at the beginning of the 1600s. And then of course, this kind of all culminates in 1649 with the execution of Charles I in England. Governments also suffered. They faced numerous fiscal crises during this period, basically because their expenditure went up and up and up, but their revenues didn't. So really, the consequences of the inflationary surge were profound on almost every level.

And the big question is, how and why did this surge end?

Well, the honest truth is that no one really knows for certain. The suggested explanations include the fact that population growth slowed, so the increase in demand, year on year, started to decline. You do start to see monarchs realizing that debasement of the currency, while it kind of is good in the short run, is bad in the long run, so they stop doing it. And also the flow of precious metals from the Americas did start to slow. But I think really the lessons from that century are not so much how to stop inflation, but are more that once inflation really gets going, a society that has high inflation can expect a lot more than just their living standards to fall.

All right, Callum, thanks very much for joining us today.

Thanks, John.

A few months ago, I was in Jakarta, the capital of Indonesia. I'd heard about this closed society in western Java. They're the Badui, basically the Amish of Indonesia.

Charlie McCann writes about Southeast Asia for the Economist.

This is a people who live without electricity, without the modern comforts of society. I was intrigued. They're so close to one of the world's great metropolises and yet they shun all of that. I wanted to spend a little bit of time with them, so I took a drive from the capital to a place called Kanekes, where they live. As we went on this drive, the sort of six lane highway turned into a bumpy one lane road. The trees got bigger and bigger. We eventually arrived at this forest. It was this really old ancient forest and these little thatched houses. And we had arrived. They've lived in this corner of western Java for centuries. They're an example of what Indonesians call Masirakat Adat. Ethnic groups who live according to their traditions. And for the Baduy, that means that life revolves around their religion. They believe that the universe sprang forth from their sacred forest and that they are on this earth to protect that forest. And to protect it, they have to basically do whatever their ancestors did. I talked to Sang Sang, who is a Badui official. Like many Indonesians, he goes by only one name. And he told me what it means to be Badui. And he explained they live almost exactly as their ancestors did. They have very rigid set of rules. Some of them are intended to preserve the land. They can't irrigate the fields, they can't use chemical fertilizers. Pesticides, they can't plant certain kinds of crops that would leach the land lands fertility. So that's one set of rules. And then there are another set of rules which are really intended to protect their souls. The Badui are concerned with maintaining their moral purity. So that means abiding by their rituals and crucially shunning modernity. For them. Modernity is this kind of overwhelming corrupting force and they are supposed to have nothing to do with it. So what that means in practice is they can't drive or travel in cars, motorcycles, modern vehicles, basically they can't go to school, they can't wear shoes, they can't wear long trousers. And you know, they're supposed to basically avoid a lot of things that we wouldn't necessarily even consider to be modern. But like things like toilets. Soap is also not allowed. These aren't just annoying rules, right? These rules have the force of commandments because it's a theocracy. And up until the 1990s actually their sort of version of vice squad would go from house to house, making sure that citizens were in compliance with these rules. In recent decades these rules have softened a little bit. And it really exemplifies how modernity is rushing into this community. In some places at least, the baduy are divided into two castes. So you have the inner baduy who live in the south of the territory. They number about 900 people. And then you have the outer baduy who live in a kind of horseshoe encircling the sacred core of their territory. And this is a much bigger group, about 15,000 people. The outer badwy split off from the main group maybe in the 16th century. We don't know a lot about exactly when and why they left. But the consequence of their departure and their closer proximity to the wider world means that in essence they get to abide by a more lenient set of rules than their neighbors in the inner core. So they can travel in cars and buses, they can use mobile phones, and they get to wear machine made clothes. That's not to say it's a free for all, right? They still have to abide by certain restrictions. So while they can travel in cars, they can't drive them. While they can use mobile phones, they can't charge them. In badouy territory, life in the outer core is still very much governed by all these rules. And yet change is creeping in. The outer Badui kind of occupy this liminal space almost where they somehow seem to straddle both the past and, and the present. Inners really rely on Outers, because they basically exist as a kind of bulwark against modernity. They handle the outside world on behalf of the inners. They deal with the local government, with the hordes of tourists who are coming in ever growing numbers. And because of that essential service that they play, it means the inners are free to pursue their asceticism. They can be the hermits that their religion tells them to be. The Inners I spoke to, they're grateful that the Outer badwy perform that service for them. But at the same time, there's a degree to which the Inners, I think, feel a slight sense of superiority, at least when it comes to the outers. Because the outers are so close to the modern world and they engage in it, and that means they're less pure. Their souls are in some way stained by that engagement. And so this hierarchy is expressed in a bunch of different ways. It's most obviously expressed in the color of their clothes. So outer men and women wear black and blue garments while the inners wear black and white. White being the color of purity. And you see this difference also maps onto the land. So the inners and outers are separated geographically because the inners are pure. They get to live amongst their sacred sites in the sacred forest, while the outers have to live further away. The two groups can visit each other, but not for long. They have to return to their villages after two nights. The point being that every badwi must know his or her place. Modernity is this force which is increasingly difficult to resist. A growing number of Inner Bad. We are actually migrating to the outer core. Some say that about 10 bad we move to Outer Bad. We land about every year. That's about 1% of the population of the intercourse. And it's not an easy decision to make. Once you leave in a bad way, you can never go back. You'll forever be an outsider. I spoke with the man who made that really difficult decision to leave. His name is Herman Jarkan. In many ways, he is the picture of a modern Indonesian. When I visited, he was distracting his one year old son with cartoons on his phone. When he's not working the fields, he's on Instagram, he's on Facebook. He frequently goes to Jakarta to visit his friends. He told me he left Inner Badouy because he wanted freedom. He wanted a sense of agency over his own life. Herman had sort of mulled over this decision for such a long time. He longed to experience life on the outside. But the thing that finally pushed him over the edge was just the hardship of life on the inside. There's a finite amount of land in Inner Badui and the population is growing. Hermann was finding it increasingly difficult to put food on the table. That's what prompted him to leave, to seek a better life in Outer Badwy. But it was tough at the start. Life on the outside, it's different on the inside, it's a barter economy. On the outside, everyone is working their own plots of land in order to make money. It was tough for Hermann to adjust to this new way of living. Eight years later, though, he's made a tremendous success of himself. He is a prosperous entrepreneur. He owns four plots of land. He grows bananas, durian, stink beans, timber, and he sells this produce online, via Instagram, via Facebook, much like any other modern Indonesian farmer. He's so well off, he told me, that he was able to buy a house for his newly married son, which he was tremendously pleased about. As you might imagine, Every year, more and more people are leaving Inner Bad we and permanently relocating to Outer Bad We Outers are more and more welcoming of modernity in spite of their rules, in spite of what the religion requires of them. You can see that embrace of the outside world on TikTok. If you just search search badwee, you'll see dozens of tiktoks made by Outer Badwee. Teenagers, young people, And in fact, a small but growing number of outers are abandoning bad wee land altogether. In a sense, modernity is rushing in to their community, and there's just no going back from that.

On the streets of New York and in countless celebrity selfies, oh, you're just real peanut haggard. The French bulldog is a popular accessory. With its short muzzle and big ears, it is to many the very definition of an adorable mutt and has become increasingly common over the last decade. This, however, wasn't always the case. Many in the US will remember a time when the only bulldogs around, like Spike from the Hanna Barber cartoon Tom and Jerry. We're American. I'll murder that. Jonathan Swift once wrote that every dog must have its day. But why is that? And why do some seem to have more days in the sun than others?

There's some breeds that are favorites everywhere. The Labrador retriever is a great example. That's been the top breed in America for the last years, but it's also the top breed in four other countries. And you know you have other international favorites like the golden retriever.

Dolly Seton is a data journalist at the Economist.

Others sort of go up and down, boom and bust and flame out and Crash and data analysis is a great way to look at all these numbers and trends and try to figure out what's going on. What are the drivers behind what makes a dog really popular?

So let's start with the data. Tell us what you found and how you found it.

Well, I compiled data from nine different countries, from America, Britain, France, Germany, Sweden and Finland. So European countries and also South Africa, New Zealand and Japan. And altogether I got 86 million dog registrations from those countries, kennel clubs and had to pull those together, which was tricky because in a lot of those countries the data was in another language, so it had to be translated. And then I started trying to see if there were specific trends, what was impacting the dog breed rises and falls.

And so you had to do a lot of number crunching. Once you did that, what did you find? What shapes, tastes in these different countries?

One of the things I found was that the nationality of the dog breed made a difference. Some countries are patriotic or nationalistic in their choices, and in particular Germany stood out there. German breeds represented 83% of registrations in the top 10 breeds over the last 10 years, compared to about 43% in the other eight countries. And in Finland and Sweden, there's a dog called a Finnish Lapphund that is popular only in Finland and Sweden. And colonialism seems to have also left a mark. You have New Zealand and South Africa disproportionately favoring British dogs compared to the other countries. But these sort of national stereotypes aren't always correct. Poodles are the official dog of France, but they don't make the top 10 there in 2021. And they're actually much more popular in Sweden and Germany and actually also in Japan.

So history and nationality matter. What about the environment? I mean, I imagine a Finnish Lapphund would be great if you're roaming over open vistas tracking moose. But what about in more urbanized environments?

Yeah, that's a good question. Practicality definitely factors in. In Japan there are Japanese breeds like the Shibu Inu, but actually three non native breeds, a toy poodle, the Chihuahua and the Dachshund account for of registrations over the last 10 years. And those three dogs are all small, which is useful in a densely populated country filled with tiny apartments that also may play into the Japanese love of cuteness or kawaii. But yeah, definitely practicality plays a role.

And are there any other factors? Visibility, for instance.

Yes, visibility. Media play a big part winning best in show, for example, at the American Kennel Club's Westminster Dog show increases the odds of a new puppy registration in each country by 67% the first year and 93% two years later. But more striking is the effect of on screen appearances. So positive starring role in an American film increased puppy registrations of that breed by 119% in the year that the movie was released and 176% higher two years later. And you see that bump from American film releases in seven of the nine countries. And so in these cases, you know, star quality can trump practicality entirely. In December, I went to a dog shelter run by Animal Care Centers of New York City. And there I spoke with Katie Henson, who told me about how they often see an influx of certain types of dogs after these primetime appearances. There is a huge influx of huskies.

Coming into the shelters. And a lot of that people think.

Has to do with Game of Thrones is people saw the huskies and they.

Thought, oh, this is so great. Well, you know, huskies as a breed are a great dog. They need a lot of special work. They're not probably the best dog to.

Have in the city. This seems to be a common long term trend. You know, it's been happening over decades, similar to the 101 Dalmatians that happened.

And people don't realize that dalmatians are.

Not an easy breed either. But that may change as the media landscape fragments and the impact of TV and movies fades.

So what could replace those influences?

Celebrity posts about their adorable pets can really usurp the national spotlight. And a great example of that is the soaring popularity of French bulldogs, which has been propelled by celebrities like Lady Gaga and Reese Witherspoon. You know, posts with their pets. Want a treat? You want the treat? The French bulldog has become number two in America and it's really sort of challenging. The Labrador retrievers. You also have some dogs like the Pharaoh hound, which was bred in ancient Egypt. I think they have hieroglyphics that show which breeds were popular back then. You know, the Pharaoh hound is not at all popular in any of the countries in our data set. But, you know, you get a viral celebrity post or a TikTok with animated hieroglyphics and who knows?

All right, Dolly, thanks so much for joining us today.

Thank you very much.

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