Plague Year Price Patterns
Human behavior appears to be as predictably unpredictable in the 21st century as it was in the 17th century. There are astonishing parallels between our own concerns, obsessions and actions during the time of COVID-19 and the concerns, obsessions and actions of Londoners during the last outbreak of bubonic plague in 1665. Presumably, if there were any first-hand written accounts of the Plague of Justinian in 541 AD or even Pharoah's plagues in 1800 BC, they would demonstrate the same human concerns -- how many are dying, how to treat the sick and dying, how to keep the living fed and how to keep the sickness from surging back more destructively than ever.
For evidence of what behavior patterns the commodity markets might expect during a pandemic, I've turned to "A Journal of the Plague Year," written by Daniel Defoe (better known for writing Robinson Crusoe and Moll Flanders) about London's Black Death in 1665 when 20% of the population died. My jaw dropped as I turned each page and found descriptions -- in Defoe's wry chatty voice -- of market behavior nearly exactly matching our lives and decisions today.
First of all, let me note that Defoe was the son of a butcher before becoming a trader and an economic journalist, so it's no wonder I appreciated his "journal" with its tables of numbers and attention to the logistics of getting commodities into the hands of consumers. Here's a small list of the ways his 1665 narrative seems to match our own:
-- When the plague started spreading in London, the first thing the rich did was to pack up and leave for their second homes in more remote locations.
-- Those who didn't leave amassed great hoards of food and supplies, if they were economically able, and shut themselves up in their homes.
-- "At the first breaking out of the infection there was, as it is easy to suppose, a very great fright among the people, and consequently a general stop of trade, except in provisions and necessaries of life, and even in those things, as there was a vast number of people fled and a very great number always sick, besides the number which died, so there could not be above two-thirds, if above one-half, of the consumption of provisions in the city as it used to be."
-- When people did venture out to buy goods, the shopkeepers made sure not to touch any coins unless they were first dropped into a pot of vinegar.
-- All public entertainment was banned.
-- Sick people were quarantined in their homes, along with every other resident of the household, for 40 days at a time.
-- "The common people, who, ignorant and stupid in their reflections as they were brutishly wicked and thoughtless before, were now led by their fright to extremes of folly: running after quacks and every practicing old woman for medicines and remedies, storing themselves with such multitudes of pills, potions, and preservatives, as they were called, that they not only spent their money, but even poisoned themselves beforehand for fear of the poison of the infection and prepared their bodies for the plague instead of preserving them against it."
-- There was knowledge of asymptomatic carriers: "One man, who may have really received the infection, and knows it not, but goes abroad and about as a sound person, may give the plague to a thousand people, and neither the person giving the infection nor the persons receiving it know anything of it."
-- The poor and the working-class population were acknowledged by Defoe to be the most likely to suffer, because they had fewer resources to begin with, and most of all because they still had to go to work in dangerous occupations (like hauling out dead bodies). As Defoe said, they "went about their employment with a sort of brutal courage."
-- Trading for agricultural goods (grain, butter, and cheese) "carried on all the while of the infection, and that with little or no interruption."
The temptation, of course, is to skip ahead to the end of the book and ask, "How did it all end?" If market behavior matches up between the beginnings and middles of the two pandemics, shouldn't we prepare for our own pandemic story to match the end of Defoe's? Here again I admire the old trader's attention to prices. He reports that there were no shortages of food: "Provisions were always to be had in full plenty, and the price not much raised neither, hardly worth speaking."
Specifically, the value of a "wheaten loaf" of bread went from the equivalent of $0.82 (converted into today's U.S. dollars) before the plague, to $0.91 "in the height of the contagion ... and never dearer, no, not all that season," then back down again within eight months as the plague waned. That may sound cheap to us, when a 16-ounce loaf of bread today costs more than $3.00, but bear in mind that the annual wages for a skilled tradesman in 1660s were only $3,270 (converted into today's U.S. dollars).
The great value of Defoe's "Journal of the Plague Year" is its reminder to us that there is nothing new under the sun. It also reminds us that sometimes, patterns do occur in markets. Robert Shiller, winner of the 2013 Nobel Prize in economics for his work describing the "speculative bubble" pattern that occurs in asset prices fueled by herd instinct, has now turned his attention to the opposite pattern perhaps occurring in markets today. Rather than irrationally exuberant buying that creates overheated prices, perhaps we're seeing irrationally, fearful selling driving unfairly depressed prices. He writes that "a contagion of financial anxiety works differently than a contagion of disease. It is fueled in part by people noticing others' lack of confidence, reflected in price declines and others' emotional reaction to the declines. A negative bubble in the stock market occurs when people see prices falling, and, trying to discover why, start amplifying stories that explain the decline. Then, prices fall on subsequent days, and again and again."
Time will tell whether the current bearishness in the fuel markets, for instance (which include ethanol and corn), or the bearishness in feed markets (including soybean meal), is an irrational overreaction that will correct itself back upward as fear subsides or whether it's truly an efficient response to observations of suddenly lower demand.
Unfortunately, my own understanding of germs (which, admittedly, comes from nothing more than high school science classes and years of vaccinating calves) is enough to know that our pandemic likely won't peter out as easily as the Black Death of 1665. Their plague was caused by a flea-hosted bacterium that presumably died over the cold winter when the fleas on the rats died. Our pandemic today is caused by a virus -- a trickier, undead non-lifeform with no known cure.
Yet again Defoe has been there before us, noting a resurgence of death counts in the two weeks after a premature rumor circulated that the disease wasn't really so bad. He lamented "the people's running so rashly into danger, giving up all their former cautions and care, and all the shyness, which they used to practice, depending that the sickness would not reach them, or that if it did, they should not die."
Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at firstname.lastname@example.org or on Twitter @elainekub.
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