Economic Impact of the Black Death

The recent quarantine of an A380 airliner due to a number of travelers developing high fevers reminded me that I have an odd fascination of pandemics. New outbreaks of exotic diseases like the 2014 West African Ebola outbreak or mutations to serious killers like the 2009 H1N1 flu mutation always elicit a tingling, anxious feeling in my spine which is shortly followed by a news obsession. Is this the one that takes out the majority of the earth’s population? What would that look like? How would that feel?

Accordingly I’ve often thought of the Genoese defenders of Kaffa in the Crimea in 1347. What were they thinking as the observed the arc of the bodies in flight of Mongolian dead bearing disfiguring boils and tinged black with necrosis? The Mongolian commander, frustrated from failure of the siege and seeing his army wither by a disease from the steppes finally turned to biological warfare. Genoese merchants, fleeing in terror from the arrival of the new pestilence, unwittingly brought the disease with them back to Italy. The Black Death unleashed its fury on a crowded, poorly sanitized Europe.

When it was over, half of Europe was dead:

The Black Death brought the social structures of Europe to ruin. The sheer force of the human experiences that must have transpired is captivating in its own right. In the more mundane world of economics, it presents a series of extremely interesting questions.

What happens to an economy when the population incurs a sudden mortality of fifty percent? How do people continue to work, reproduce, and participate in the social bonds required to sustain an economy when it seems as though the world itself is ending? From an economic perspective, what happens to supply, demand, and the value of money when half of a population is suddenly deceased?

Economics of the Black Death

It should come as no surprise that such a cataclysm is indeed the subject of much academic debate and research. The prevailing view, as described (for example) in the “Tides of History” podcast on the topic is that the Black Death was a form of creative destruction. Europe, newly freed of the burden of so many mouths to feed while still possessing its entire infrastructure became positioned for growth. Wages rose due to labor shortages, and as a result peasants had more negotiating power to alter the servile bonds of feudalism. Faith and skepticism in religion itself, shaken to its core by the deaths of so many, began to lead towards the Reformation and the humanistic art of the Renaissance.

It’s a great story, but how does one juxtapose that with the modern ideas of economics where sudden supply shocks such as something as (relatively) minor as an oil embargo can crater the global economy? It’s difficult to imagine the road to recovery being a reasonably smooth ride on the heels of such a disaster.

The reality is slightly more nuanced. Amazingly, some very robust data sets of inflation, agricultural prices, and wage data exist all the way back to the thirteenth century. These data sets (and the respective publications in which they appeared) depict a rich history of the economic aftershocks in the subsequent centuries to the Black Death.

In 1348-1360, the economy collapses. Trade falters out of fear and the death of half the peasant class leaves agricultural products to rot in the fields. Prices of agricultural goods soar, while prices of manufactured goods actually plummet as there simply isn’t any demand. Meanwhile the amount of coinage in circulation remains the same. The overall result is inflation, slightly ahead of the darkest times of the own American stagflation. The source of this information is Munro 2005:


Declining Real Wages During the Black Death

The inflationary pressures resulted in upward pressures to wages in nominal terms. In England, the Ordinance of Laborers and Statute of Laborers were passed in order to apply a form of wage control. However prices of agricultural goods increased more quickly. As a result the real wages decrease during the darkest periods of the crisis. In London, workers lose 25% of their real wage between 1348 and 1350. This is simply unprecedented in modern American history:

This is a surprise that is counter to the traditional narrative of the Black Death, and with economic theory itself. However this simplistic view fails to account for the macroeconomic impacts of such a pestilence. The economy (even a primitive one such as the agrarian one of medieval Europe) is far too complex to be distilled into Ricardian notions of factors of production.

The reality is as with any modern business cycle: it takes time for shocks to work themselves out. Half of the demand for goods and half of the labor force disappear overnight. Those that died left behind lands of varying quality and gaping holes across the entirety of the feudal spectrum. Redeploying labor efficiently to maximize the potential simply cannot be expected quickly.

The upward trajectory in real wages thus establishes itself in the latter stages of the fourteenth century. Economically, society is re-optimizing around its new constraints. Marginal, no longer required farmland is abandoned in favor of the most bountiful hectares. Capital accumulated over the previous centuries, now concentrated across fewer workers, results in higher worker productivity. In accordance with economic theory (and one which would make Malthus quite proud), we see real wages began a steady ascent and standard of livings rally sharply. Higher wages encourage technological growth to make labor yet more efficient. This becomes the story that we know that sets the scene for the Italian Renaissance.

The Great Divergence

It is at this point where something at once familiar to a modern observer and yet curious becomes clear: Northwestern Europe and Southern Europe begin ‘The Great Divergence’. This is described in a much more robust context in Pamuk 2007.

While wages recover strongly in the aftermath of the Black Death, they reach a peak in the middle of the fifteenth century. At that point, as population recovers and more labor is present, real wages begin to fall. The key difference, however, is that wages fall much more quickly in central and southern Europe than they do in Britain and the Low Countries:

This discrepancy exists all of the way to the modern day. The split in prosperity between the United Kingdom and southern Italy, for example, literally hearkens all the way back to the Black Death.

The overall mechanism for why this occurred is not clear, though one can imagine a few likely factors. The British monarchy gradually evolved towards a much more representative form whereas the central Europeans redoubled efforts to apply the yoke of serfdom. Accordingly the organizational bureaucracy of the British and the capitalistic impulses of the Dutch no doubt played an important role in driving productivity growth whereas southern Europe was left to wither.

It will be an interesting point to remember when the next Italian sovereign debt crisis unfolds in a slow-motion train wreck and the financial world questions “what is wrong with those countries?” It all started to come apart in 1348 with a bacterium from central Asia.