Geoscience Reference
In-Depth Information
Von Th¨nen's famous contribution to spatial economics, elaborated in the
first volume of
Der isolirte Staat in Beziehung auf Landwirtschaft und
Nationalo¨konomie
(Th¨nen
1826
) is a fully developed theory of land prices and
land use in a monocentric economy, unfortunately not available in English until
the first translation 1966 (Th¨nen
1966
). Imagine a homogeneous infinite
two-dimensional space with a city where all goods have to be sold or bought.
Then, under perfect competition, an equilibrium allocation emerges where produc-
tion of different commodities self-organises in rings around the city. Commodities
with the highest per mile transport costs for the output of one acre occupy the most
inner ring; those with lower costs lie further outside. Beyond the most outer ring the
landscape ends in an uncultivated wilderness. The land rent per acre decreases from
centre to periphery and approaches zero at the boundary to the wilderness. At any
point its slope equals the transport cost per mile and acre of the good produced at
the respective point.
This is probably the first consistent analysis within a theoretical framework that
nowadays we would call neoclassical. There are well specified technologies and
market structures. The behaviour of agents is derived from optimisation, and the
market outcome is obtained as a market clearing equilibrium. From this master-
piece originates von Th¨nen's fame as a spatial as well as an agricultural
economist.
An obvious disadvantage of his construction is that the existence of a centre is
taken as given. The ultimate cause of spatial differentiation is exogenous. Land use
and land prices or rents vary across space only because varying accessibility of the
centre, the
raison de
ˆ
tre
for this centre itself remains unexplained.
Th¨nen was, however, well aware of this limitation. In one of his notes published
posthumous as volume 2, part 2, of
Der isolirte Staat
(Th¨nen
1863a
,
4, Sect. 9) he
discusses how to remove this restriction. The chapter has the promising title “
On the
configuration and distribution of cities in the isolated sate
”, and it holds its promise.
It gives a comprehensive account of centripetal and centrifugal forces, anticipating
almost everything what the literature has offered in one and a half century since.
The centrifugal forces are twofold, the costs of delivering goods produced in the
city to the countryside and the costs of procuring agricultural goods. These costs
lead to higher nominal wages in larger cities. The centripetal forces are the
following. I describe them in modern terms to save space, such that the informed
reader knows what Th¨nen is talking about. Longer citations would prove that what
he explains in very clear plain words is exactly what the modern terms mean:
1. Scale economies on the firm level due to indivisibilities of machinery, equip-
ment and factories
2. Scale economies due to the division of labour. The division is the deeper the
larger the market (this point is of course taken from his master Adam Smith)
3. Economies of shopping
4. Labour market matching (causing an urban wage premium)
5. Risk sharing
6. Reduction of monopoly power and avoidance of hands-up situations and
7. Product diversity
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