The Effect of the Black Death on Labor and Grain Prices

Long time readers will know that if I were asked to relive my life doing something entirely different, I would like to try studying economic history.  Today, in a bit of a coincidence, my son called me with a question about the effect of the Black Death in Europe on labor and grain prices ... just days after I had been learning about the exact same part of history in Professor Daileader's awesome Teaching Company course on the Middle Ages (actually he has three courses - early, high, late - which are all excellent).

From the beginning of the 14th century, Europe suffered a series of demographic disasters.  Climate change in the form of the end of the Medieval warm period led to failed crops and several years of famine early in the century.  Then, later in the century, the Black Death came... over and over, perhaps made worse by the fact that Europeans were weakened already from famine.  As a result, the population of Europe dropped by something like half.

It is not entirely obvious to me what such a demographic disaster would do to prices.  Panic and uncertainty usually drive them up in the near term, but what about after that?  Both the supply and demand curves for most everything will be dropping in tandem.  So what happens to prices?

In the case of the 14th century, we know the answer:  the price of labor rose dramatically, while the price of grain dropped.  The combination tended to bankrupt the landholding aristocracy, who went so far as to try to reimpose serfdom to get their finances back in balance (some things never change).  The nobility pretty much failed at this in the West (England, France) and were met with a series of peasant revolts.  They generally succeeded in the East (Germany, Poland, Russia) which is why a quasi-feudal agricultural system persisted so long in those countries.

But why?  Why did grain price go down rather than up?  Why did labor go in the opposite direction?  I could look it up, but that is no fun.

A first answer, which does not satisfy

People who think of all of the middle ages as "the dark ages" miss the boom that occurred between 1000-1300.  Population increased, and technology advanced (just because this technology seems pedestrian to us, like the plow harness for horses or the stirrup, does not make it any less so).  It was the only time between about 300 and 1500 when the population was growing (a fact we climate skeptics will note coincided with the Medieval warm period).

But even without the setbacks of the 1300's, historians probably would argue that Europe was headed for a Malthusian collapse no matter what in the 14th century.   An enormous amount of forest had been cleared and new farmland created, such that by 1300 some pretty marginal land was being farmed just so Europe could barely keep up with demand.  At the margin, really low productivity land was being farmed.

So if there is a sudden 50% population cut, then that means that all that marginal farm land will be abandoned first.  While the number of farmers would be cut in half, production would be reduced by less than half because presumably the least productive farms would be abandoned first.  With demand cut by half and production cut by less than half, prices would fall for grain.

But this doesn't work for labor.  The same argument should apply.  To get everyone fed, we would actually need less than half the prior labor force because they would concentrate on the best land.  Labor prices should fall in this model as well, but in fact they went up.  A lot.  In fact, they went up not by a few percent but by multiples, enough to cause enormous social problems across Europe.

A second answer, that makes more sense

After thinking about this for a while, I came to realize that I had the wrong model for the economy in my head.  I was thinking about our modern economy.   If suddenly, say, online retailing reduces demand for physical stores dramatically, people close stores and redeploy capital and labor and assets to other investments in other industries.  That is how I was thinking about the Middle Ages.

But it may be more correct to see the Middle Ages as a one product economy.  There was agriculture, period.  Everything else was a rounding error.

So now let's think about the "farmers" in the Middle Ages.  They are primarily all the 1%, the titled nobility, who either farm big estates with peasant labor or lease large parts of their estates to peasants for farming.

OK, half the population is suddenly gone.  The Noble's family has lots of death but someone is still around to inherit.  They have a big estate where growing grain supports their lifestyle as well as any military obligations they may have to their lord (though this style of fighting with knights on horseback supported by grants of land is having its last hurrah in the 100 years war).

Then grain prices collapse.  That is a clear pricing signal.  In the modern economy, that would tell us to get out and find a new place for our capital.  So, as Lord Coyote of the Castle Aaaaargh, I am going to do what, exactly?  How can I redeploy my capital, when it is essentially illiquid?  I can't sell the family land.  And if I did, land prices, along with grain prices and the demographic collapse, are falling through the floor.  And even if I could sell for cash, what would I do for a living?  What would I reinvest the money in?  Running an estate is all I know.  It's all anyone knows.  I have to support myself and my 3 mistresses and my squires and my string of warhorses.

All I can do is try to farm the land I have always farmed.  And everyone else does the same.  The result is far more grain than anyone needs with the reduced population, so prices fall.   But I still need the same number of people to grow the food, irregardless of the price it fetches, but there are now half as many workers available so the price of labor goes through the roof.  When grain demand collapsed, there was no way to clear the excess capacity.  It turns out everyone had a nearly vertical supply curve, because irregardless of price, they had nothing else they could do with their time and money.  You can see now why they tried to solve their problem by reimposing serfdom (combined with price controls, a bad idea for Diocletian and for Nixon and everyone in between).

Of course, nothing is stuck forever.   One way capacity cleared was through the growth of the bureaucratic state over the next 2 centuries.  Nobles eventually had to find some new way to support themselves, and did so by taking jobs in growing state bureaucracies.  They became salaried ministers rather than feudal knights supported by agriculture.  At the same time, rising wealth among the 99% non-nobility allowed kings to support themselves through taxes rather than the granting of fiefs, which in turn paid for the nobility to take jobs in the bureaucracy and paid for peasant armies with guns and bows that replaced the lords fighting on horseback.  So in the long term, the price signal was inordinately powerful -- so powerful it helped reshape much of European government and society.

By the way, if you are reading this expecting some point about modern politics, sorry.  Just something I was thinking about and it helped to write it down.  Comments are appreciated.  I still have not cribbed the answer from the history texts yet.

  • herdgadfly

    I can guess so let me try the angle that all commerce in the 14th century was local and as such both buyer and seller were affected by the same conditions - dead people, sick people, scared people and unharvested crops. So healthy people had the ability to barter or pay lower prices .for grain by doing the harvesting themselves. In the business of farming, you can sell your crops or your crops can rot - sell it or smell it, we used to say in the fresh meat business. As for the workers still around to sell their strength, of course they would demand higher pay, just as in any normal supply and demand circumstance.

  • kidmugsy

    You can feed surplus grain to beasts and fowls, particularly over the winter, and thus the peasantry can eat more meat. Some formerly arable land will be used as meadow or as pasture: similar result. Some abandoned land will tumble down to woodland - so the peasants will be better heated too.

  • Mercury

    "From the beginning of the 14th century, Europe suffered a series of demographic disasters. Climate change in the form of the end of the Medieval warm period led to failed crops and several years of famine early in the century. "
    ----------------------------------------------------------------------------------------
    I don't understand. Wasn't there uninterupted *climate stasis* from at least the time when humans first left Africa up until the industrial era when humans started pumping huge amounts of pollutants into the atmosphere?

  • Q46

    You missed the most important factor, the absence of free market competition which is the limiting factor on capitalism as it ensures prices and thus profit margin are at a minimum.

    Landowners/grain producers were a de facto cartel because poor communication made transport of grain difficult and expensive, and there was no import of it.

    They had localised captive markets and no need to compete.

    Margins then must have been at a maximum.

    But post-disaster, just as there was labour competition, so there would be market competition. Landowners would not only outbid one another for labour, but undercut one another for sales.

    Whilst labour rates went up, prices could come down because they had had a high margin and now landowners had to accept much lower margins and thus those increased labour costs were absorbed.

  • Mercury

    In Econ 101 they teach you that farming is such a crappy business because there are so many variables that can bite you and demand is inelastic. I guess it's a crappy business when demand is elastic too.
    It has always astounded me that it took Westerners roughly 1000 years longer than the Asians to invent the stirrup. Try to imagine yourself learning to ride a horse, legs flopping all over the place, and falling off again and again and again. How long do you think it would take before you figured out how to utilize your own weight and your largest muscles to solve this problem? The next day? Two days? Certainly by the end of the week right?

  • Edlin

    Very interesting post. Not everything has to relate to modern politics. I'd love to see more of these historical thought experiments.

  • Eric Hammer

    I suspect another possibility here is that plague hit cities harder than the countryside. As such more non-farmers died than farmers. More marginal productivity for farmers (who don't farm the less productive land) as well as a smaller market for grain in cities drives down the price. Non-agricultural workers are now much harder to come by due to the deaths in the cities, driving up labor costs both in towns and in the countryside as farm workers get bid away by manufacturers.

    There are a few pretty decent articles about the subject I have read in the past few months, though I generally disagree with single shock theories of what caused the Industrial Revolution, which is what most of them get at. Any time someone suggests that killing ~1/3 of the population at random is good for growth a muscle in my eye starts twitching.

  • Maximum Liberty

    Warren:

    The classic on this subject is Douglass North and Robert Thomas, The Rise of the Western World: A New Economic History (1973). I say it is the classic because:
    1. It has been used in a lot of European economic history classes, including the ones I took.
    2. It is highly, highly informed by the rise of neoclassical economic theory. North was pivotal in applying it to economic history. (See, for example, his Structure and Change in Economic History for the economic history of humanity in one book.)
    3. It is 40 years old now, and North has moved on to fancier theories that, to my mind, are far less robust and insightful.

    It is available on Amazon and is a good read if you are actually interested in economic history.
    I also like Jan de Vries, The Economy of Europe in an Age of Crisis, 1600-1750 (1976). He used to teach from his book and the North and Thomas book. They pair together pretty well. I recall that the introduction takes you back long before the period being studies, in order to set the stage. Working from 25-year-old memory, de Vries's book has more odd bits of case studies and such, so it sometimes gives you unexpected depth in narrow fields as examples. (And, if you ever decide to move to Berkeley for a semester, try auditing his European economic history course.)

    Max

  • DerKase

    The black death didn't kill more in the cities than in the countryside mostly because cites were not all that populated. The overwhelming majority of the population was dispersed working on the farms. London may have had a population of perhaps 50,000 in 1300, and London was far and away the most populous city in England.

    The aftermath of the black death also signaled the birth and expansion of the European middle class. With the glut of farm products Coyote mentioned, fewer people were needed to produce food. While farm wages
    rose, some farm workers were priced out of the market. The excess population turned to self-employment. People flocked to the cities to find non-farm work, setting themselves up as merchants, artisans, and
    laborers. At the same time, foreign trade was flourishing. Ships sailed farther and more regularly to ports throughout Europe, the Mediterranean, and beyond. The Crusades had opened Europe’s eyes to the possibilities abroad. Money started to flow back into Europe that had mostly flowed out in the previous several
    centuries. All his social movement and influx of new money helped break the age-old cycle of serfdom. People discovered that they didn’t have to spend their lives in subsistence farming

  • Eric Hammer

    Sorry, I perhaps should have specified that the proportion killed was higher in cities, not an absolute magnitude. England is an odd bean though, as their structure was apparently more geared towards towns and villages rather than cities, like say France. Even getting numbers for the percentages in farm/non-farm work is a real bear. However, if say 25% of agricultural workers died compared to say 35% of manufacturing workers that will cause a shift right there. If we further assume that farmers were under capitalized per capita (ie farm workers has less land and fewer tools than they could fully utilize) and that manufacturers were roughly properly capitalized at the time of the plague, losing even the same percentage of workers would make total farm output drop very little compared to the drop in manufacturing, leaving a lot of marginal value in extra manufacturing workers.

  • Maximum Liberty

    DerKase:

    You say, "While farm wages rose, some farm workers were priced out of the market." Economically, that is a contradiction in terms. If there were excess workers, farm wages would not rise. Remember, there were no minimum wage laws then.
    The actual mechanism worked like this.
    1. Lots of people died. Assume an even distribution, though it wasn't.
    2. Land-owners are now short of labor. They attempt various strategies to address it. Some poach labor by raising the total compensation. (Whether it is "wages" or something else is not relevant here.) Other owners either responded in kind or attempted to impose serfdom. In either case, you have some level of bidding by land-owners. The highest bidders were the ones with the most productive land, so they bid labor away from the marginal land, which was ultimately abandoned. So, this part of the process results in reallocation of labor to more productive land through a mechanism of wage bidding.
    3. The reallocation of labor to more productive land causes the price of agricultural products to fall. Without anything else, the economy would have ultimately reached some equilibrium in which rural wages stop rising as supply and demand re-equilibrate.
    4. Before that happened, the fall in the price of agricultural products made life as a craftsman much more profitable. The reason is that the price of food and clothing made up the majority of any household's budget. As the price of food fell, it became more attractive to work as a craftsman. As the price of wool fell, it became a lot easier to become a spinner, weaver, or tailor, because the price of inputs fell. (Remember all that marginal, abandoned land? Perfect for grazing sheep.) The price of clothing did trend downwards, but the prices of most other craft products did not, which meant tat cities became the land of opportunity. So, they start growing at the expense of the countryside. And, because of the intervention of kings who needed revenue, feudal lords often had limited rights to go after serfs who escaped to the city.

    In fact, the division between country and city was not necessarily so stark. One of the reasons that the dutch areas grew so much more prosperous during this period was that their land was great, so the population was more dense, and the cities were close. The first system of manufacturing was not a factory in the modern sense, but factoring. In this system, a factor would deliver raw materials to spinner and weavers who lived in the nearby countryside. The workers would spin it or weave it as piecework and get paid when the factor picked it up. The factor only had to invest in raw materials and inventory. The worker usually supplied the tools (spindle, loom, etc.) and location (usually a well-lit corner of the family home).

    One of the interesting themes to me is that the actions that the landlords took in response to the plague undermined feudalism. Many "bid up" labor compensation by waiving various feudal rights. ("OK, you don't have to use my mill or bring me a duck at Christmas.") Others attempted to re-impose labor obligations (the corvee), but their attempts to do so just made their peasants flee covertly. This is rather contrary to the Marxist theory that the feudal noble class acted in its class interests. If it had, lords would have returned fleeing peasants and banded together to force the cities to do the same. Instead, the system ends up moving towards cashing out the odd feudal obligations. The history of France leading up to the French revolution is likewise interesting because population had grown sufficiently to start reversing a lot of these trends, so the nobility was "re-discovering" "ancient" customary obligations that hadn't been enforced since the plague, as an attempt to raise their take from owning the fee (i.e. technical land ownership) other than the usufruct (the right to use the land and take what it provides).

    I'll stop talking now.

    Max

  • Maximum Liberty

    Mercury:

    You are engaging in hindsight bias. http://lesswrong.com/lw/il/hindsight_bias/.

    We know from actual life that it took westerners about a thousand years. Are we really that much smarter than them that we would have discovered it in 5 days? What will people 100 or 1000 years from now be thinking about our inability to discover the obvious whizamaguzzer?

    Max

  • Old Griz

    Where stirrups were really valuable is war. William the Conqueror's cavalry had stirrups while Harald's did not. It is much harder to unhorse a knight with stirrups than without. William won due to better tech. Perhaps the skill needed to ride without stirrups kept the riffraff walking.

  • Mercury

    @Max
    It's not quite hindsight bias because there is another, contemporaneous group of stirrup developers to compare the non-stirrup developers to. Plus, there were people walking around at the same time in both groups who were (or coming very close to) discovering all kinds of door-opening, fundamental truths about things like mathematics and how the universe worked.

    In a 100 years hopefully they'll wonder why it took us so long to make Al Gore king of the moon.

  • Mercury
  • Maximum Liberty

    Old Griz:

    I've often wondered which part of that is more important: the ability of a massed group of knights to stay on their horses in the impact of the initial charge, or the individual knights' ability to stay horsed while swinging a melee weapon from side to side in the subsequent fighting. I suspect it is the latter, because a mounted lance charge could be broken fairly easily by terrain or set pikes. But I don't know of anything that hints at an answer one way or the other. Do you?

    Max

  • Brennan

    I love your blog, but there is no such word as "irregardless." And you tried to use it twice.

  • Maximum Liberty

    Der Kase:

    I went back and re-read, so I have to retract point #4. The data show that most cities probably shrank after the plagues, relative to country population. That is, cities probably had greater population decreases than the countryside did.

    The economic reason for this is that wages will tend to equilibrate through migration, which means that marginal productivity will tend to equilibrate. Vacancies in rural tenancies will attract urban craftsmen until wages equilibrate. Another way to think about it is that the market shrank by over 25%, so you would expect less specialization.

    I was misled by my own logic. There would be rising real wages in the city. But migration will be based on relative real wages, not absolute real wages. If rural real wages grew more quickly than urban real wages, people move back to the farm.

    Max

  • http://www.lushfun.com/ lushfun

    Mongol Invasion ~1223...
    France and England more or less constant warfare on the continent.
    German push eastwards with warfare
    Viking expansion and raids.

    My sense is that not only people were led into slavery and died, but then the plague was the final straw. In some sense I would guess it was a ratcheting down effect by the top to keep their cash flow stable as available kept on dropping until there were no more resources and the societal structure collapsed.