Karl Gunnar Persson

Mind the gap! Transport costs and price convergence in the nineteenth century Atlantic economy

This paper challenges the widely held view that sharply falling real transport costs closed the transatlantic gap in grain prices in the second half of the 19th century. Several new results emerge from an analysis of a new data set of weekly wheat prices and freight costs from New York to UK markets. Firstly, there was a decline in the transatlantic price gap but it was not sharp and the gap remained substantial. Secondly, the fall in the transatlantic price differential had more to do with improved market and marketing efficiency than with falling transport costs. Thirdly, spurious price convergence (or divergence) can appear if quality differences associated with allegedly homogeneous commodities like wheat are not controlled for.

The Malthus delusion

Greg Clark is a master of the art of using one-liners in telling stories and Farewell to Alms: A Brief Economic History of the World is no exception. It offers the Malthusian hypothesis of population growth leading to misery as an all-purpose vehicle for all human history, except for the last 200 years. However, his Malthusianism is at times more evangelical than empirical and analytical. He dismisses Angus Maddisons painstaking efforts (e.g. Maddison 2001, 2003) at providing an empirical basis for long-run income estimates (p. 19) as inconsistent with the logic of the Malthusian economy. When the historical record contradicts Greg Clark it is not allowed to stand in the way of his noble aim and declared intention of writing big history. At least in one respect he has succeeded: this book is the widescreen version of the Postan Thesis, although M. M. Postan (1966, 1972) is remarkably missing in the credits. The book is also big in rhetorical gestures, starting with the title, and a reader must be forgiven for occasionally asking whether the author should be interpreted literally, or whether statements should simply be deflated by common sense. I have decided to go nominal on Clark.

The Gains from Improved Market Efficiency: Trade Before and After the Transatlantic Telegraph

This article looks at the gains from improved market efficiency in long-distance grain trade in the second half of the nineteenth century, when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analysed. We show that the law of one price equilibrium was an ‘attractor equilibrium’. The implication is that prices converged to that equilibrium in a tâtonnement process. Because of asymmetrically timed information between markets separated by long distances there were periods of excess demand as well as excess supply, which triggered off the tâtonnement process. Over time, adjustments to equilibrium, as measured by the half-life of a shock, became faster and violations of the law of one price become smaller. There were significant gains from improved market efficiency, which took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era that saw the development of a sophisticated commercial press and telegraphic communication. This article is the first attempt to actually measure the gains from improved market efficiency and it demonstrates that improved market efficiency probably stimulated trade more than falling transatlantic transport costs. Deadweight losses decline significantly as markets became more efficient. The conventional view that Harberger triangles are almost always insignificant is challenged.

Feeding the British: Convergence and Market Efficiency in the Nineteenth-Century Grain Trade

This paper traces the evolution of the international market for wheat, from an emerging market structure after the repeal of the corn laws to a mature market characterized by efficient arbitrage after the introduction of the transatlantic telegraph and the growth of trade. Efficiency is documented using traditional price gap accounting as well as error correction modelling. Markets which traded directly with each other as well as markets which did not trade with each other were integrated. The traditional bilateral focus in market integration studies has been extended to a multivariate approach, which generates new insights into the pattern of diffusion of price shocks in the international economy. Shocks in the major importing nation, Britain, dominated in the emerging market phase, while shocks in the major exporting economy, the United States, dominated international price movements at the end of the nineteenth century.

Fertility Responses to Expectations of Child Mortality in a Tuscan Village 1700-1913: A Micro-Data Approach

This paper exploits microdata from parish registers in a rural Tuscan village to trace the relationship between experienced and expected child mortality on household fertility strategies. It turns out that spacing of births and hence completed fertility are not only linked to economic risks and infant mortality but also to expected mortality risks as proxied by past child mortality in the village and in previous generations. The results indicate that before the demographic transition households made sequential fertility choices within marriage as a response to economic shocks as well as expected child mortality.