The Need for a Second Generation of Consumer Price Indices
Current interpretations of the long-term development of the real wage in Europe between the late Middle Ages and the early nineteenth century are still largely based on the pioneering work of a generation of scholars who worked on this issue between the 1930s and 1960s.
The massive research effort was undertaken foremost by the members of the International Scientific Committee on Price History, set up in 1929, who published an impressive series of histories of prices and wages focusing on this period.3 A number of these studies (Hamilton, Hoszowski) included indices for the development of prices (cost of living) and wages in their cities or regions, and scholars such as Abel (1966) and Slicher van Bath (1960) used this material to map the long-term changes in wages and prices between 1000 and 1850. The most elaborate work on the reconstruction of long series of wages and the cost of living was undertaken by Phelps Brown and Hopkins in the 1950s.4 Not only did they construct such series for England between 1264 and 1954, but they also analysed the consequences of the price revolution of the sixteenth century by using the data from Hamilton (1934), Elsas (1936/1940), Pribram (1938) and others in constructing similar indices for continental cities and regions. Comparable indices of prices and wages were constructed for Spain (1500—present; Reher and Ballasteros 1993), Antwerp (1400-1700; van der Wee 1975), the western part of the Netherlands (de Vries 1994^; see also de Vries and van der Woude 1997), and other cities and regions.5These authors were interested in changes in the level of prices and wages in the long-run and, perhaps foremost, in the calculation of real wages as an indicator of the standard of living. Their conclusions were in general pessimistic: real wages declined strongly between the fifteenth and the beginning of the nineteenth century, a decline that was especially sharp during the price revolution of the sixteenth century and again after about 1750.
Only in a few cases—Antwerp in the sixteenth century (van der Wee 1975), and Holland in the first half of the seventeenth century (de Vries and van der Woude 1997)—did nominal wages increase more rapidly than prices and did economic expansion result in an increase in real wages.The quality of the series of this ‘first generation' of historical consumer price indices has only been tested in one case: the debate on the standard of living during the English Industrial Revolution. The pioneering chapter by Lindert and Williamson (1983) and new research by Feinstein (1998) brought clearly to light the weaknesses of the Phelps Brown and Hopkins (PBH) indices—both of wages and of prices—and the subsequent discussion has made clear the many problems involved in measuring long-term changes in the real wage, even for a period and a country which is relatively well documented. Whereas the first-generation studies concentrated on the wages of a small section of the labour force—basically the wages of certain labourers in the construction industry—Lindert and Williamson set out to construct a representative income series for all members of the labour force.
Moreover, the more recent work on price indices has also shown how sensitive these are to the use of different weights and the inclusion of other categories of expenditure (e.g. rents) in the CPI.6
In this chapter I focus on the second issue: the construction of a ‘second-generation’ CPI for the western part of the Netherlands. The reasons for doing this are that the first-generation CPIs have not always included the right price series (for example, no rents or rye prices instead of bread prices) and have used fixed weights for very long periods of time. An additional reason is to find out how important the introduction of a new item of consumption—potatoes—was for the cost of living. I hope to show what the consequences of these weaknesses are, and how an attempt to improve the CPI may affect our view of the development of the standard of living in the early modern period.
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