This paper re-examines Earl Hamilton's famous 1929 thesis on 'Profit Inflation' and the 'birth of modern industrial capitalism': namely, that the inflationary forces of the Price Revolution era produced a widening gap between prices and wages, thus providing industrial entrepreneurs with windfall profits, which they reinvested in larger-scale, more capital intensive forms of industry. Hamilton's analyses of price and wage data for 16th- and 17th-century Spain, France, and England led him to conclude that: Spain had enjoyed virtually no 'profit inflation', since wages had generally kept pace with prices; and that early-modern England had experienced the greatest degree of such 'profit inflation'. Such a contrast in their national economic experiences helps to explain, in Hamilton's view, why Spain subsequently 'declined', while England became the homeland of the modern Industrial Revolution. Hamilton subsequently (1942, 1952) applied his theories to Britain during the 18th-century Industrial Revolution era itself; but this paper is confine to the debate about industrial experiences in the Price Revolution era of ca. 1520 - c. 1650. A major reason for the significance and fame of the Hamilton thesis was its enthusiastic endorsement by John Maynard Keynes, in his Treatise of Money, published the following year, in 1930. Subsequently, the Hamilton 'profit inflation' thesis was subjected to severe attacks: by John Nef (1936-37) and David Felix (1956). But they had to rely on the same dubious and indeed often untrustworthy price and wage data for England and France (and of course on Hamilton's data for Spain, which was of much higher quality). Both rightly noted that the proper comparison had to be made between industrial wages and industrial prices, not the price level in general; and since industrial prices generally rose less than did the overall price level (heavily weighted with foodstuffs), they found much less evidence for 'profit inflation' than had Hamilton. Nef developed a counter thesis to argue that sharply rising raw material costs, especially for wood and charcoal, forced industrialists to engage in technological changes that not only reduced such costs but resulted in much larger-scale, more capital-intensive forms of industry. This study is based on newer sets of price and wage indices that appeared after their publications: those by Phelps Brown and Hopkins for England (which I have modified, after using their data sheets in the LSE Archives); and Herman Van der Wee for Brabant (Antwerp-Lier region). In the continued absence of reliable data, France is ignored in this study. My calculations and analyses of both industrial prices and industrial wages suggest that, for England, there is more evidence for potential 'profit inflation', in some industries, than Nef or Felix had been willing to concede. But the major discovery was that the Antwerp region continuously experienced, over the 16th and 17th centuries, the contrary phenomenon: what Keynes had called 'Profit Deflation' (for him, a truly negative force), in that industrial wages rose faster than industrial prices. And yet indisputably the southern Low Countries had a much more industrialized and more rapidly growing economy than did England, at least until the Revolt of the Netherlands (1568-1609). The concept of 'profit inflation' is not, therefore, a useful analytical tool, if based just on wage costs. This study concludes with a brief examination of the effects on inflation on two other factor costs: land, in terms of real rents, and capital, in terms of real interest rates and costs. In all likelihood both such costs did lag behind industrial prices in early-modern England and the Low Countries (and contrary to Eric Kerridge's 1953 assertions on English rents), though real interest rates lagged more than did real rents.
