From Clio Infrastructure
Relative prices
Relative prices are the DNA prints of an economy: they reflect underlying structures – relative scarcities and technologies – and steer the behavior of economic agents resulting in the ‘reproduction’ of these structures. Relative prices tell us a lot about the functioning of an economy and about its growth potential (how expensive in human capital? how high are interest rates?), about the functioning of markets (how well integrated were they) etc. etc. The importance of relative prices is also suggested by recent revisions of the causes of the Industrial Revolution, by analyses of the processes of convergence and divergence in the world economy, and by hypotheses about the structure of relative prices of Western Europe vis-à-vis China and Japan in the early modern period, helping to explain the strong performance of this region in this period. The International Institute of Social History (IISH) in Amsterdam has set up a hub on Historical Wages and Prices and participates in the collaboratory ‘Global price and income history group’ which collects datasets covering the global history of prices and incomes before 1950. See the hubs at IISH and UCL Davis.
The aim of measuring relative prices is to discern different economic profiles of countries and regions – and how these change over time. Essential ingredients in these profiles are the relative prices of capital (the interest rate, preferably on ‘risk-free’ securities such as government bonds), of skilled labour (the skill premium), and of different commodities compared with each other: basic agricultural commodities (rice, or wheat, or sorghum), industrial commodities (iron, textiles), fuels (coal, firewood, peat), and ‘luxury’ agricultural commodities (meat). Analysing such a profile may help to understand what the relative strengths of economies are, and what their potential for growth in the long run is.
This hub will also produce stability indices such as CPI (inflation), exchange rate of currency against key currency (sterling or dollar); before 1870: value of currency in grammes of silver.
The Netherlands has a special position – and perhaps responsibility – in this kind of research, because the Dutch East India Company was the main trading body in large parts of Asia during the 1600-1800 period, and therefore collected a lot of information on prices and wages in various parts of the world economy (including Japan, China, Indonesia, India, Sri Lanka, Thailand, and South Africa), much of which is still stored in the National Archive in Den Haag. A priority is therefore to collect these data and make them available for research.
