Part 1

This is a great question, and for a truly comprehensive answer I would recommend you consult a book called "The Great Wave: Price Revolutions and the Rhythm of History" by a fellow called David Hackett Fischer. It's $10 on Amazon and well worth the read as it meticulously traces average prices back for over 800 years through alternate periods of stability and inflation. It's also short enough to cruise through in a few hours and engaging enough to hold your interest.

Most of this answer will be sourced from that treatment.

So what does the history of inflation look like over the last 1000 years? Well if your familiar with the view of inflation taken by many modern economists a low level of inflation is a good thing (2% has been the generally quoted number and if your American it is also the inflation percentage targeted by the Federal Reserve)

It's also generally just accepted as natural because over the last 120 years that's roughly been the rate of inflation in the Western World. There have been variations around that rate notable the 1970s Stagflation in the US, black market inflation driven by World War 2 rationing and even a short period of deflation during the Great Depression. But, generally speaking for as long as anyone alive can remember we've generally witnessed a gradual inflation. Things that used to be 10¢ now cost $1-2 and that's just the way things are...

Or is it?

Well, no, not always. Since roughly the year 1200 inflation in the Western world has progressed in four great waves (hence the book title) each wave of inflation has run it's course over several generations lasting between 90-180 years depending on the particulars. And right now we are approximately 120 years into the fourth wave that began in approximately 1900 and has continued through to today.

The four major inflationary periods are, approximately (ie plus or minus 30 years depending on location) 1180-1350 approx .5% inflation per year 1470-1650 - approx 1% inflation per year 1720-1820 - approx 1.7% inflation per year 1900-today - approx 2% inflation per year

Interestingly these periods of inflation roughly correspond to the, rise of the black death, the wars of the reformation, the rise of colonialism and it's associated wars culminating with the French Revolution and the Napoleonic wars, and closer to home, both World Wars, and The Cold War. While the periods of price stability in between roughly correspond to the beginning of the Renaissance, Enlightenment, and the Victorian Era.

The periods in between exhibited long term price stability usually beginning with sharp price declines (deflation). This means that, generally an ounce of silver in London in 1830 would buy about as much grain as the same ounce in 1890. But an ounce of silver in 1800 would buy substantially less grain in London than in 1700.

Looking at each period of inflation is really too much for the scope of this answer, but we can start at the first period and examine some phenomena that are common throughout. So let's hop back in time to 1180 when things were better... I guess?

The Medieval world was actually shockingly good at keeping price records for various common items and by pulling from these reams of data Fischer reconstructed a broad outline of changing prices over time.

The first great wave of inflation begins in approximately 1180 and ends circa 1350 (again all these dates are plus or minus 30 years base in the pyres of the black death. Generally it saw a gradual price increase of about .5% per year and a steady rise in social instability and war. Now by modern standards that's not a huge amount but the inflation occurred over a sustained period contributing to substantially higher prices by the peak of the wave. Now I should also note that these price variations were not uniform or consistent. Medieval prices often exhibited the sort of wild oscillations that Wall Street Bets folks dream of. This could be driven by a whole host of issues, poor weather, bumper crops, flooding, a late spring or just an army rolling through and stealing all the food could easily send prices for essentials to the moon and back. This makes our data for medieval price changes very noisy as some kings decision to wage a war can show up as a wild perturbation in the dataset.

However, generally speaking prices increased across more than a hundred years and this trend is broadly visible in the historical price data. So why?

Well, the simplest answer is that there were more people. Fischer's view is that period in question appears to have correlated with a general increase in population which drove more demand for... Everything (this population boom appears to be a common theme in all secular inflation cycles). There were also monetary aspects to this phenomen but Fisher takes the view that population pressures predominated.

Now the interesting aspect is the effects of this inflation. This part can be regarded as controversial mainly because it's difficult to untangle cause and effect when you're dealing with events from multiple lifetimes ago. As a disclaimer regarding where I stand on the issue, I personally think sustained inflation is an absolutely devastating phenomenon.

So what happened during this inflationary wave? Well, a bunch of people died and society kind of fell apart in various ways. But to be more specific firstly, wages fell in real terms. This means that perhaps you were still paid the same amount of silver for a days work, but adjusted for inflation that amount bought less bread, milk, firewood... whatever. Now, not everything increased in price uniformly and essentials like food and energy generally outpaced manufactured goods.

The second thing that happened was that rents increased at a rate faster than wages. Now when I say rents in this context I'm not really talking about upper class apartments in Paris, rather rent was the amount paid to a landlord by a occupant (often a farmer)for use of the land or facilities (such as a mill). Generally speaking rents and land values went up very quickly. Now some rents were locked in at a certain amount (a fact that Adam Smith mentions in his own opus talking about the preference over the long term for rents paid in grain vs money since at the time Smith wrote The Wealth of Nations England was locked in another inflationary wave that had greatly devalued it's money). However with lots of time to think about the problem medieval landholders appear to have gotten creative in extracting money from their tenants. In modern terms you can think or rents as capital (ie stocks, bonds, real estate, or other interest bearing or productive assets) while labor is basically your paycheck. And so what was happening at it's core was that, on average, the rich were becoming wealthier while the cost of living increased and wages stagnated. So you might say that wealth inequality is in fact... medieval (cue laughter).

Governments were not unaware of these issues and reacted in several ways. Firstly, they began running deficits that grew more severe over time and borrowing to make up the difference. They also actively tried to increase the money supply, (ie gold and silver in circulation). This was accomplished partly via mining and in later cycles by exporting precious metals from the newly discovered America's. (Most recently we've discovered the joy of printing presses to mint money unbacked by anything). People also resorted to melting down various precious objects and by debasing their coinage, ie minting a silver coin that is 25% silver instead of 50% allows you to double your currency in circulation or more importantly, tax revenues, while normal people took to the time honored method of filing coins and keeping a small amount for metal for themselves. Finally governments attempted to impose various price controls which generally met with much resentment.

Taken together all this combination of growing population and increased money in circulation more or less pressured prices higher over the next hundred years and slowly pushed society to the edge of a proverbial cliff.

The fall over that precipice came in several forms. Particularly there was an increase in wars, revolutions insurrections, famines and general disasters culminating in the Black Death. Interestingly many of these events such as famine or disease were not unique to this period (medieval society was always rather violent by modern standards), but in a society where inflation had systemicatically stripped the lower classes of their resources to the benefit of the rich there was no buffer to absorb these shocks like there might have been in better times. To help a modern reader understand, its essentially the difference between losing your job with a mortgage plus a car loan and only $50 in the bank, vs loosing your job with a paid off house and a $2000 emergency fund. Your options and reactions are fundamentally different.

The end result of this was conflict, much of it class based as the poor revolted against the wealthy and the wealthy fought back with their inferior numbers but vast resources (This occured in various ways in all inflationary cycles). These conflicts in turn created their own feedback loops of instability that aggravated the underlying problems and left governments in increasingly dire straits. In short, Europe kind of blew itself apart and the Black Death compounded all those underlying issues to leave a devastated continent.