The region of Burgundy was once an independent state, a powerful rival of France, boasting the most elegant and fashionable court in Europe. But all that power dwindled away half a millennium ago, leaving Burgundy with little more than memories and wine.

Since then, Burgundy has had its ups and downs. In his 1934 novel, “Tropic of Cancer,” Henry Miller described Dijon, the ancient capital of Burgundy, as “a hopeless, jerkwater town where mustard is turned out in carload lots, in vats and tuns and barrels and pots and cute-looking little jars.”

Its past glories as the seat of a great duchy were lost on him. Today, no one can accuse Burgundy of wielding imperial power. But its wine--prized throughout the world at breathtaking prices--has made Burgundy one of the richest regions of France. In fact, it has only one economic problem: whether its vintners, powered by greed, are driving away customers, especially Americans, by charging too much.

Symbol of Burgundy

With the dollar declining in value, the Burgundy merchants profess that there is little that they can do about price anyway. “We will have to have our friends from abroad swallow more increases in the cost,” said Burgundy merchant and producer Louis Latour in mid-November, just before the annual charity auction of wine for the medieval hospital known as the Hospices de Beaune here in the heart of Burgundy.

In many ways, the auction, held every year a couple months after the harvest of the year’s grapes, symbolizes Burgundy, deftly blending history and wine, the two dynamic forces that make this region special. For three days, in a dizzying festival featuring bacchanalian banquets in 15th-Century surroundings, merchants from all over the world come to Burgundy to taste, buy, talk and celebrate wine.

The hospital, founded by the chancellor of the Dukes of Burgundy in 1442, is one of the wonders of Burgundian architecture. Its spires and colored slate roofs have the look of old Flanders in Belgium, for the domains of Burgundy extended that far north in those days. Its artistic treasures include an altarpiece attributed to Roger Van der Weyden, the 15th-Century Flemish master.

For centuries, the Hospices de Beaune, which stopped functioning as a hospital in 1971, supported itself from the sale of wine from its vineyards. Since 1859, these sales have come in the form of the annual charity auction. The proceeds are now used to help support a modern hospital in Beaune and to maintain the Hospices as a kind of monument to Burgundy.

Prices Likely to Drop

The wine industry has long touted the auction as a barometer for the trend of prices for the year, but it is a confusing barometer. The price of 1987 wine, for example, according to good business sense, should have dropped at this year’s auction. But, instead of dropping, red Burgundies rose 9% and white Burgundies 3.5%.

Wine experts insist that the market price of Burgundy will probably drop a bit, at least in French francs though not in dollars, despite the auction. They said the wines from the hospital’s vineyards were not representative of the crop as a whole this year and that sentimental bidders let their charitable hearts get in the way of good business sense. Some merchants and producers simply advised analysts to look on the auction as more of a celebration of wine this year than a barometer of price.

Most Americans who drink Burgundy wine know almost nothing about the history of old Burgundy. But its brief flash of glory has a romantic appeal to Europeans. A young German woman, who went to Dijon to study at its university three years ago, explained recently why she decided to stay and work for the Burgundy office of tourism. “Every time you take a step,” she said, “you touch history.”

The Valois Dukes--Philip the Bold, John the Fearless, Philip the Good and Charles the Bold--ruled Burgundy from 1364 until 1477. Largely through marriage, this dynasty expanded the domains of Burgundy until, at its height, it extended from eastern France north through Alsace and Lorraine and Luxembourg to Belgium and the Netherlands.

Although the court travelled often to cities like Bruges and Brussels, the Dukes kept their capital in Dijon. The towns of Belgium and the Netherlands were among the richest, most enterprising and most artistic of Europe in those days, and the duchy of Burgundy was regarded as a European power with a court of unrivaled splendor.

Reminders of Glory

The dynasty ended, however, with the death in battle of Charles the Bold, who had no son. His daughter married a Hapsburg, and the Netherlands and Belgium were handed to that Central European dynasty. The French kings seized the rest of Burgundy for France.

Although Dijon, a city of 150,000 located 200 miles southeast of Paris, is probably best known to most outsiders as the producer of a heavily spiced mustard and to some aficionados of trivia as the origin of the aperitif kir, it brims with reminders of old glory. Visitors can still make a pilgrimage to the tombs of Philip the Bold and John the Fearless inside the medieval Palace of the Dukes of Burgundy.

Burgundy is a relatively small region. Its great wine area, which extends from the Chablis vineyards north of Dijon down to the Beaujolais vineyards outside Lyon, covers only 75,000 acres. Its most famous wines, like Gevrey-Chambertin, Vosne-Romanee, Beaune, Pommard, Puligny-Montrachet and Chassagne-Montrachet, come from a thin strip of land known as the Cote d’Or or Gold Coast, with an area half the size of the city of New York.

The wine tradition in Burgundy is a long one. Monastic orders in the middle ages began tending vineyards first planted during the Roman conquest. During the era of independence, the Dukes of Burgundy presented the wine as gifts to monarchs throughout Europe. Shippers first set up houses to export Burgundy in the 18th Century.

Burgundy is the only French wine that can compete with Bordeaux in quality, but it has a disadvantage. Unlike Bordeaux, with its small number of large estates, Burgundy has a proliferation of small vineyards. Some are very well known and therefore command very high prices. But customers are often faced with a confusing myriad of lesser-known Burgundy labels in shops, some of it on wine of uncertain quality.

‘Danger’ in High Prices

To maintain quality, producers have instituted a system of self-policing in which inspectors test bottles of wine at random for quality. In theory, an errant producer can be stripped of the right to bottle wine under the Burgundy label. But this sanction, which could bankrupt a small producer, is so Draconian that it seems never to have been used. Vintners say that, when a producer falls short on quality, they try to educate him to produce better wine rather than try to destroy his business.

Statistics make clear the great success story of Burgundy and the great danger in its high prices. Buoyed by an expanding American market and a sensational 1985 vintage that attracted high-paying buyers, Burgundy wine growers kept increasing their prices year after year.

The value of the sales of white Burgundy on the world market increased from 435 million francs in 1981 to 1.2 billion francs in 1985. The value of the sales of red Burgundy on the world market increased from 600 million francs in 1981 to 999 million francs in 1985. (These sums are difficult to compare in dollars; the dollar was valued at 5.6 francs in 1981, rose to 10 francs in 1985, and dropped to 5.6 francs again this year.)

Sales Off

Prices dropped in 1986 but not enough to make much of a difference to American buyers, and the international sales of both white and red Burgundy dropped in 1986 in both quantity and total income. Sales of white Burgundy dropped 32% in the American market from 1983 to 1986. Sales of red Burgundy dropped 20% during the same period.

Burgundy vintners bravely insist that other countries, such as Germany, are taking up the American slack, and that the Americans were never great purchasers of red Burgundy anyway. But the vintners are obviously worried. Some American merchants believe this worry will lower prices in a few months.

Abdallah Simon, the chairman of the Seagram Chateau and Estate Wine Co. in New York, who attended the Beaune auction this year, sounded optimistic about the price dropping by what he regarded as a needed 15% to 20%. “Good sense is going to prevail,” he said.