2013 | 23 Working Paper Norges Bank’s Bicentenary Project Contributions to a history of prices in Norway: Monthly price indices, 1777-1920 Jan Tore Klovland Working papers fra Norges Bank, fra 1992/1 til 2009/2 kan bestilles over e-post: [email protected] Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholder forskningsarbeider og utredninger som vanligvis ikke har fått sin endelige form. Hensikten er blant annet at forfatteren kan motta kommentarer fra kolleger og andre interesserte. Synspunkter og konklusjoner i arbeidene står for forfatternes regning. Working papers from Norges Bank, from 1992/1 to 2009/2 can be ordered by e-mail: [email protected] Working papers from 1999 onwards are available on www.norges-bank.no Norges Bank’s working papers present research projects and reports (not usually in their final form) and are intended inter alia to enable the author to benefit from the comments of colleagues and other interested parties. Views and conclusions expressed in working papers are the responsibility of the authors alone. ISSN 1502-8143 (online) ISBN 978-82-7553-777-3 (online) 2 Contributions to a history of prices in Norway: Monthly price indices, 1777-1920 Jan Tore Klovland∗ Norwegian School of Economics [email protected] September 26, 2013 Abstract This study reports the outcome of an effort to collect market price data for Norway with a view to constructing monthly price indices from the year 1777 to 1920. The material covers data on commodity prices from agriculture, fishery, dairying, manufacturing and mining. Indices of the wholesale and producer price index families are constructed, using the repeat sales method for constructing the underlying price series. Separate indices for commodity exports and imports are also presented. The new wholesale price index, as well as the export and import price indices, are linked to existing price indices after 1920 and brought forward to the end of 1940. The price indices shed new light on two great wartime inflationary episodes in Norway: 1807-1817 and 1913-1920. In spite of a 61-fold increase in the price level in the first period and a 4-fold increase in the second, it is found that, after inflation had been brought under control, prices reverted to a level consistent with the purchasing power parity principle. Keywords: Price index, price history, purchasing power parity JEL Classification: E31, N13, N14 ∗I would like to thank Camilla Brautaset, Øyvind Eitrheim, Ola H. Grytten and Lars Fredrik Øksendal for helpful discussions. I am also deeply indebted to Yngve Nedrebø of the Regional State Archives in Bergen for the efforts made to digitalize copies of the Bergen Price Current and the Minute Books of the Bergen City Brokers. I would also like to thank Rainer Hinterberg of the Leibniz-Institut f¨urSozialwissenschaften in Cologne for providing me with historical exchange rate data underlying the study by Denzel et. al. (2006). 1 Introduction The first historical price indices created were often motivated by the task of measuring business cycles.1 This implied that the sample was restricted to a limited number of price series that were sensitive to demand disturbances, thus being suitable to form a barometer of business fluctuations. Later the focus was diverted to measuring the general price level on a broader basis. According to Gayer et al. (1953, p. 465) `[t]he primary characteristic of a general commodity price index should be its inclusiveness.' This approach, which is followed here, is far more demanding with respect to sources. Al- though much price information is available, many compromises must be made as to validity, reliability and frequency of price observations in order to construct a price index with a rea- sonably comprehensive coverage of goods. Much space is therefore devoted to a discussion of the sources and characteristics of individual price series, which will highlight the strengths and weaknesses of the data material underlying the price indices. An overview of data sources is presented in section 2, with a detailed list of commodity descriptions to be found in the appendix. Section 3 reviews issues related to data measurement and statistical methods. Sections 4 to 6 present the price material for some of the most important commodities, divided into three subperiods: 1777-1830, 1830-1913 and 1913-1920. The first and the last subperiods are treated separately, partly for reasons of data availability, but also because these were periods of extremely high rates of inflation, which require separate graphs in order to illustrate the course of prices in a meaningful way. Aggregate price indices are presented in section 7, import and export price indices in section 8. A comparison with existing consumer price indices is found in section 9, while in section 10 the new Norwegian indices are compared with German and British price indices. This section also contains some graphic analysis of price movements from the perspective of the purchasing power parity principle. Finally, section 11 explains how the new indices are linked to the existing wholesale price indices for the interwar period. Monthly and annual index values are tabulated in the appendix. 2 Data sources The price observations that would be most ideal for the construction of the families of price indices considered here are those determined on commodity exchanges. Market prices originating from actual transactions undertaken by commodity brokers are also highly useful. Price currents of wholesale prices, giving a fair and well informed statement as to the actual level of commodity prices, are also within the desired range of sources. A well known example of the latter source is the Economist's weekly price current, which stated that `[t]he prices in the following list are revised on Friday with the assistance of an eminent firm in each department.' Examples of such sources may be found for Norway in the period covered here, 1777 - 1920, but they only exist for part of the period and mostly for a limited range of commodities. The weekly price current published in the Norwegian weekly Farmand, beginning in February 1891, is the closest we get to the Economist's price current. In the early part of the sample the semi-official Bergen Price Current is of great importance. There is also very useful price information from commodity brokers or grocers that was published in Christiania from 1825 and in Bergen from 1861. The publication of the Christiania source petered out towards the end of the 1840s but the Bergen price currents continued to be published until 1916. Price data from many of the sources listed below were transcribed and stored in the Weder- 1Persons and Coyle (1921); Silberling (1923). 1 vang Archive, which is now located at the Norwegian School of Economics.2 This is an extremely useful collection of data for this purpose, which has been extensively drawn upon. Most of the material from the archive utilized here originates from newspaper sources. Whenever it was feasible to go to the original sources this was done, because extracts made from the sources were often less than complete as to price series included. The accuracy of the transcribed material is admirable, but ambiguities sometimes occur, which makes it desirable to go to the original sources. 2.1 Bergen Price Current and market reports from Bergen commodity bro- kers The monthly Bergen Price Current, known as `meglerpriskuranten', was published by Bergen commodity brokers.3 It originally appeared in German language as `Preis-Courant vor Bergen in Norwegen', from 1829 it was published as 'Bergen Priis-Courant', now in domestic language. It contained monthly price quotations for export and import goods traded by merchants in Bergen. The city brokers (stadsmeglerne) obtained certain privileges from the king in 1759, but by then they were well established. Coldevin (1938, p. 146) maintained that the Bergen Price Current dated at least back to the 1740s.4 A page of the Bergen Price Current from June 1777 is shown in Figure 1.5 When our sample starts in May 1777 it was a rich source of price information on `incoming' (import) goods such as wheat, rye, barley, oats, malt, salt, spirits, tobacco, iron, hemp, flax, linen cloth and canvas; there was also an extremely well specified price list of 'outgoing' (export) goods such as herring, stockfish, clipfish, fish oil, roe, tar, hides and skins. The price current gradually deteriorated as to coverage of actively quoted goods in the ensuing years, however, so that by 1812 it was basically only grain and salt left of the import goods and fish from the export price list. It is likely that the diminution of the range of goods actively quoted is in large measure attributable to the effects of the Napoleonic Wars and the British blockade of Norwegian waters starting in 1807, which severely interrupted the free flow of goods across the borders of Europe. It has not been feasible to locate the original issues of this price current after 1812. However, there exists a complete run of records containing weekly reports which were sent from the city brokers to the magistrate in Bergen giving information on the prices of selected commodities.6 These always included precise information on the stipulated market prices of rye, barley, wheat and malt, sometimes also prices of salt, fish and a few other commodities. In addition, part of the material from the Bergen Price Current for selected years, in particular with respect to fish prices, was recovered from the Wallem and Grip papers stored at the University of Bergen.7 Beginning January 1830 extracts from the Bergen Price Current and the underlying bro- kers' minute books are preserved in the Wedervang Archive, which represents a considerable extension of the material.