Urbanization and Inflation: Lessons from the English Price Revolution of the Sixteenth and Seventeenth Centuries

The English price revolution (the 500% rise in prices from 1500 to 1650) has been attributed by some to an excess of money, due to bullion imports from the New World, and by others to an excess of people, due to population growth. This essay shows both accounts to be severely flawed. A simple model of the impact of urban networks on monetary circulation is developed; it argues that taking account of the effects of urganization and occupational specialization on the velocity of money provides a fuller understanding of the price revolution than explanations based simply on aggregate population growth or changes in the money supply due to an influx of American metals. Implications are drawn for accounts of inflation in both early modern Europe and the contemporary developing world.