Posted by: Dirk | March 30, 2007

von Thünen hits the iceberg on its head

I read von Thünen’s Der isolierte Staat in Beziehung auf Landwirtschaft und Nationalökonomie (Erster Teil, 2nd edition, 1842, in Deutsch) today. I always wondered if Samuelson’s iceberg costs are somewhere in that book, and if the story of a cart pulled by a donkey (or an ox) which eats the grain in back of the cart during their travels is Samuelson’s story or von Thünen’s. Well, Douglas Clement commented on that back in 2004:

A gentleman farmer himself, von Thünen described an economy in which farmers bringing produce to market in an urban center would incur a transport cost proportional to the distance they traveled. He called these “ox cart costs,” since the oxen pulling grain to market would eat some portion of that grain during the trip. (Years later, applying the concept to international trade, Paul Samuelson used the term “iceberg costs”—a fanciful description of a portion of an iceberg melting steadily away as it’s towed: the greater the distance, the lesser the iceberg.) A farmer whose land was close to the urban center would benefit from lower ox cart costs but would suffer higher land rents. The pattern, later referred to as a land-price gradient, determined what kinds of goods would be produced near the center and which could still be profitable if grown far from town.

Next up is the idea of linkages. Was that in von Thünen, too? And what about spillovers? More of that might be published next week.

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