1. Economic History Association
The European Grain Invasion, 1870-1913
Author(s): Kevin H. O'Rourke
Source: The Journal of Economic History, Vol. 57, No. 4 (Dec., 1997), pp. 775-801
Published by: Cambridge University Press on behalf of the Economic History Association
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2. THE JOURNAL OF ECONOMIC HISTORY
VOLUME57 DECEMBER1997 NUMBER 4
TheEuropeanGrainInvasion,1870-1913
KiEvN H. O'RouRKE
The articlequantifies impactof cheapgrainon the European
the economyin the late
nineteenth century.Falling transportcosts led to dramaticdeclines in Anglo-
Americangrainprice gaps, but price convergence was less impressivebetweenthe
U.S. andotherEuropean economies,andwithinEurope. Cheaper grainmeantlower
rentsthroughout Europe, protection
and boostedrents,but the magnitudes involved
differedbetweencountries.Similarly,cheapgrainincreasedreal wages in Britain,
but lowered them elsewhere.The grain invasion implied differentshocks across
countries, and this partly explains the varyingtradepolicies pursuedin Europe
duringthis period.
The voyages of discoverywere motivatedby a desirefor commodities
thatwere scarceandtherefore valuable.We know now thatthey were
farmoreimportant economically thanoriginally intended,preciselybecause
they stumbled upona resourceso abundant it was effectivelyfree:New
that
Worldland. The discoveriesraisedthe endowmentof land per European
capitasixfold.'The long-run for
implications European living standardsare
obvious.Less frequently remarked upon,butequallyobvious,are the long-
for
runimplications European incomedistribution. Suchan increasein land
endowments wouldinevitably for
spelldisaster European landowners. Over-
all livingstandards mightincrease, in the long runEuropean
but rentswould
decline,with European laboror capitalbenefitting.
For these changes to occur, it was necessarythat New Worldland be
into
brought cultivation. Thisrequired inputsof European laborand capital
as well as the efficienttransportationneededto maketheproduceof the land
available European
to consumers. Manyof the greatthemesof the next four
The Journal of Economic History, Vol. 57, No. 4 (Dec. 1997). ? The Economic History
Association.All rightsreserved.ISSN 0022-0507.
Kevin H. O'Rourkeis Statutory Lecturer Economics,Department Economics,University
in of
College Dublin,Belfield,Dublin4, Ireland.
All appendicesareavailableupon request,fromeitherthe authoror the offices of the Journal of
EconomicHistory.I amgrateful the followingfor help andadvice:Beth Ann Bovino, Bill Collins,
to
MikeGavin,ChrisHanes,JoelMokyr, PierreSicsic,andtwo anonymous referees; to the following
and
for sharingtheir datawith me: Jean-Michel Chevet,GiovanniFederico,GeorgeGrantham, Ingrid
Henriksen,Leandro Pradosde la Escosura,
Alan Taylor, JeffreyWilliamson.
and GiovanniFederico,
Avner Offer,Cormac0 Grada,JeffreyWilliamson and seminar participants All Souls' College
at
Oxfordmadeextremely helpfulcomments an earlier
on draftof the paper.
'Jones,EuropeanMiracle,p. 82; and Webb,GreatFrontier.
775

3. 776 O'Rourke
of
centuries-slavery,theextension thefrontier, voluntarymassmigration-
werepartof the vast adjustment processthatensued.2 the latenineteenth
By
century,this adjustment processwas reachinga climax, as steamshipsand
railroadslinkedNew Worldlandever moreclosely to the European econ-
omy. One of the most visible resultswas the flood of New Worldgrain,
which loweredEuropean grainpricesfromthe mid-I 870s. To whatextent
were the long-rundistributional of
implications Columbusfulfilled?
This article is primarilyconcernedwith the effects of cheap grain on
European wages,profits,andrents.It bringsa quantitative focus to bearon
the question, as C. KnickHarleyandothershaveexamined quantita-
just the
tive implications the graininvasionfor the New World.3 also hopes to
of It
addressthe vastpoliticaleconomyliterature asks:why did most of the
that
Continent resortto protection duringthisepisode,andwhy did Britainstick
to free trade?Why did Denmark respondso successfullyto the challenges
posed by cheapwheat?Whatdoes this episodetell us aboutthe difficulties
involved in buildingandmaintaining open international
tradingregimes?
Political scientists such as Peter Gourevitch,Ronald Rogowski, and
Daniel Verdierhave exploredat lengththe ways in which price shocks in
international commodity markets affectdomesticpolitics.4Whatis missing
fromthis work is a quantitative assessmentof the impactof cheapgrainin
Europe.Did declining transport costs implylargeor smalldeclinesin Euro-
pean grainprices,anddid Continental protection or
overturn merelymute
these globalizationforces? Protectionmeant that declining transatlantic
transport costs may not have translated into
automatically intra-European
commodity market a
integration; key taskof the articlewill be to distinguish
between transatlantic commoditymarketintegrationand intra-European
developments.
The articleplotsthe dimensions the graininvasionin severalEuropean
of
countries explorestheextentto whichprotection
and in
succeeded insulating
economiesfromthis international commodity marketshock.It exploresthe
impactof cheapgrainandtariffpolicies on resourceallocationand income
in
distribution a number countries,
of usingbotheconometric simulation
and
techniques. The focus is comparative, the traditionof Paul Bairoch,
in
Charles Kindleberger, others; it is on northwestern
and and Europe:France,
Germany, and
Sweden,Denmark, Britain.
BIG QUESTIONS,SIMPLEMODELS
When analyzing the political impact of the grain invasion, most authors
implicitly rely on the sector-specific factors model of international trade
2Findlay,
"International
Trade."
3Harley,
"WesternSettlement" "Transportation" "Late
and and NineteenthCentury
Transportation."
4Gourevitch,
Politics;Rogowski,Commerce; Verdier,
and Democracy.

4. EuropeanGrainInvasion, 1870-1913 777
3 wl P"LF D
OF LD LO OM
FIGURE 1
THE IMPACT OF CHEAP GRAIN
theory.5 modelassumestwo sectors,agriculture industry.
The and Agricul-
tureproducesfood using landand labor;industry producesmanufactures
using capitalandlabor.Let food be the importgood andmanufactures
the
exportgood. Laboris mobile acrosssectors;the economy'slaborendow-
ment is given by the distance 0FOMin Figure 1. DLF the demand curve for
is
agriculturallabor,measuredfrom OF, DLM the industrialdemand for labor
is
curve, measuredfrom OM. Initiallythe equilibrium at A, with nominal
is
wages equalto w0.
Now let the price of grainfall, as cheapNew Worldcerealsflood the
domesticmarket. demand laborin agriculture
The for contracts DLF', with
to
AB beinga measure the declinein food prices.The equilibrium
of shiftsto
C: agriculture
contracts, to
labormigrates the towns,andindustry expands.
Nominalwages fall to w,.
The distributionalconsequences this shockarefor the most partclear.
of
Capitalistsgain: as theirwage costs fall, profitsrise. On the otherhand,
5Themodel is itself in parta gift to thatfield fromcliometrics: Temin,"Labor
see Scarcity";
and
Jones,"Three-FactorModel." Rogowski, Commerce, implicitly
is workingwith a modelwithinwhich
labor,capital,andlandareall mobilebetweenat leastthreesectors,butthe modelis neverexplicitly
specified.

5. 778 O'Rourke
landlordslose: the decline in outputprices exceeds the decline in wage
costs, andrentsfall. The impacton workers unclear:
is nominalwages have
declined,butfoodpriceshavefallenby more.If food is a sufficiently impor-
tant part of workers'budgets,then real wages increase;otherwise,they
decline.
In the contextof latenineteenth-century Europe,the model suggeststhat
landlords shouldhave favoredagricultural tariffs,andthatcapitalists
should
have been free traders. preferences labor,the mobile factor,remain
The of
theoretically ambiguous; this does not a priori precludethe possibility
but
that workerswere awareof wheretheirinterestsactuallylay, and lobbied
accordingly.
The model's underlyingintuitionhas frequentlybeen drawnupon by
contemporaries and historiansdiscussing the political economy of late
nineteenth-century policy.First,consider impactof the graininva-
trade the
sion on labor,and the labormovement'sattitudetowardsprotection.In a
simpleHeckscher-Ohlin framework, European as
labor, the abundant factor,
shouldhave favoredtrade,andthis is whatRogowskiassumes.6 a sector-
In
specific factorsframework, the otherhand, things are not so straight-
on
forward.The off-settingeffects identifiedabove-the cost-of-livingeffect
on the one hand,and the labor-demand effect on the other-played a key
role in the policy debatesof the time. For example, Douglas Irwin has
argued Peel's decisionto repealthe CornLaws was due to his gradual
that
realizationthat, contrary classicalwage theory,workerswould benefit
to
fromlow food prices.7 the otherhand,Disraeliarguedthat"theprice of
On
wheat. . . is not a question rent,butit is a question displacing labor
of of the
of England that produces corn. . . . Will that displaced labor find new
employment?"8
Onthe Continent, socialistgroupstendedtowards trade,although
free this
was not universallythe case (the picture in France is mixed).9 Social
Democratsin Germany,and socialist parties in Italy, Switzerland,and
Belgiumall tookthe view thatcheapfood was to be welcomed;in 1904 the
BritishLaborPartyadopted free tradepositionto which it adheredfor 30
a
years.Thismayseemparadoxical lightof Marx'sview thatfreetradehad
in
hastenedthe depopulation Ireland provokinga switchfromtillage to
of by
pasture;the fact thatlabormovementswere largelyurbanmay providean
explanation. If laborwerecompletely
1 immobilebetweentownandcountry,
urban workers wouldonly gainfromcheapgrain; even if rural-urban
migra-
tion were possible (as it clearlywas), unionsmightnot have perceivedthe
6Rogowski, Commerce.
7Irwin,"Political
Economy."
8Cited Bairoch,"European
in TradePolicy,"p. 129.
9Thefollowingdiscussiondrawsheavilyon Bairoch,"European
TradePolicy."
'?Marx, Capital,p. 870.

6. European GrainInvasion, 1870-1913 779
full generalequilibrium effects of the graininvasion;or alternatively, they
mighthavecorrectly calculated the cost-of-livingeffect dominated
that the
labor-demand effect.
The sector-specific factorsmodelalso informsthe discussionof how the
two specific factors,land and capital,viewed tariffpolicy. In Britain,for
example,a textbookanalysisof theRepealof the CornLawsemphasizes the
growingpowerof urban interests,symbolized the ReformAct of 1832.11
by
It was this shiftin powerfromthe countryside the townsthatmaderepeal
to
inevitable. Thereis a problem withthe analysis: 1846,roughly80 percent
in
of MPs were still landowners.12One sophisticated responseto the problem
is givenby CherylSchonhardt-Bailey, arguesthata rapidlydeveloping
who
internalBritish capital marketled increasingnumbersof landownersto
investtheircapitalin nonagricultural sectorsof the economy:freetradeonly
damagedundiversified landowners.'3
Similarpuzzles have been debatedin the context of Continental trade
policy. The simple sector-specific factorsmodel can easily accountfor the
Germandebate of the 1890s, which pitted Agrarianeconomists such as
Adolf Wagner, arguingfor protection, againstfree-trading liberalssuch as
and
Max WeberandLuigiBrentano; agricultural lobby groups,such as the
BundderLandwirte, againstthe representatives industry. But whatcan
of 14
explain the "marriage iron and rye,"which led to both agriculture
of and
industrybeing protected in 1879? The model clearly predicts that the
interests capitalandlandwere directlyopposed;a combination tariffs
of of
thatbenefitedthe one inevitably wouldhavehurtthe other.Oneresponseto
this puzzle in the German has
historiography been implicitlyto arguethat
the model needs to be extendedfromtwo sectorsto threeor more sectors,
each with its own specific factor;in such a context, the owners of two
sector-specificfactors (grain growers and heavy industry,for example)
could combineto benefitthemselvesat the expense of politicallyweaker
groups(peasants engagedin animalhusbandry light industry). agri-
or Did
culturalprotection southern
hurt peasants, whose animalsate grain,or were
theymorethancompensated protection aniimal
by for products?"5 were
What
the effects of protectionon light industry,or steel firms which were not
verticallyintegrated? Once again,the debatehas been largelyconductedin
a sector-specificfactorsframework.'6
"CavesandJones, World Trade, 106.
p.
12The estimateis due to Aydelotte,"Country Gentlemen," cited in Schonhardt-Bailey,"Specific
Factors," 547.
p.
'3Schonhardt-Bailey, "SpecificFactors."
'4Barkin, Controversy,gives a goodaccountof latenineteenth-centuryGerman tariffcontroversies.
'Gerschenkron, Bread;Hunt,"Peasants"; Webb,"Agricultural
and Protection."
161t herethatRogowski's
is Heckscher-Ohlin framework the
provides moreelegantsolution.Capital
was still scarce in 1871, as was land, and so both were protectionist. the 1890s capital was
By
becomingabundant becomingconverted freetrade.This argument coursealso assumesthat
and to of

7. 780 O'Rourke
Finally, note that opponents of free trade objected to the allocative
consequences the graininvasion,as well as to its implications income
of for
distribution.In particular, migrationto the cities that would naturally
the
result was seen by many as ethicallyand socially undesirable: was a
this
themestressedby the German Agrarians, for example.Protectionism would
help slow down this undesirabletrend and was thus to be welcomed.
Ireland's Eamonde Valera to makesimilarcultural
was defensesof rurallife
in the twentiethcentury.17The Agrarian viewpoint in Germanywas often
characterized anti-Semitism racism,with the Slavicization Prussia
by and of
causedby the Leutenot(a scarcityof ruralworkersdue to migrationto the
cities) beinga frequentcausefor concern.Evenin liberalBritain,the dislike
of urbanization occasionallysurfacedin the debate,as the following quote
from G.B. Longstaffindicates:
the countrylife is morenatural, hence more desirablethanthe town life. . . the
and
town life is not as healthyas the countrylife.... The narrow chest,the pale face, the
weak eyes and bad teeth of the town-bredchild arebut too often apparent long...
life in towns is accompaniedby more or less degeneration the race. The great
of
militarypowersof the continent knowthis well enough,andit may be surmisedthat
with them agricultural protectionis but a device to keep up the supply of country-
bredrecruits. 18
The sector-specific factorsmodelcan thusbe used to shed light on many
of the great debates surrounding tariff policy in late nineteenth-century
Europe.Unhindered, graininvasionwould have reducedrents,boosted
the
profits,andled to urban-rural migration. questionis by how much?And
The
whatwas the net impacton labor:did the cost-of-livingeffect outweighthe
labor-demand effect, or vice versa?Whatwe need is some numericalflesh
to hangon to the theoretical bonesof the model.Moreover, modelneeds
the
to be generalized:capitalcan also be used in agriculture; landcan be used
in severalagricultural sectors;some goods arenontraded; outputsfrom one
sector can be used as inputsinto others.19
The next section examines movementsin grainprices in a numberof
economies between 1870 and 1913. The articlethen summarizesacreage,
wage, andlandpricetrendsoverthe sameperiod.Subsequent sections then
to
attempt makethe analytical connection betweencommodity prices,on the
therewas somethirdfactorthatwould be hurtby protection-in this case, labor-and thattherewas
a third,labor-intensive sectorfor policy makersto discriminate
against.
in
"7Although Ireland's case,theprotection de Valera
that espousedwouldof coursebenefitindustry
and cities, at the expenseof agriculture the countryside. an excellentanalysisof the cultural
and For
contradictions the heartof de Valera'seconomicpolicies, see Daly,IndustrialDevelopment.
at
"8Longstaff, "RuralDepopulation," 415-16. Thestrategic
pp. importance grainsat thistimeshould
of
also be keptin mind,as Offer,First World War, remindsus.
'9See Fogel, "SpecificationProblem."A sensible response to Fogel's critique is to adopt a
sufficientlygeneral modelingstructure as to ensure qualitative
so that resultsare,as faras possible,not
predetermined the theoretical
by structure the model.
of

8. European GrainInvasion, 1870-1913 781
one hand,andfactorpriceson the other.The articleuses a computablegen-
eral equilibrium(CGE) approach tackle the question,and then uses an
to
econometric approach.The conclusion draws some lessons for broader
historicaldebates.
THE EUROPEANGRAIN MARKET,1870-1913
MarketIntegration
International
This sectioncompares grainprices in eight locationsduringthis period:
Britain,Denmark, Sweden,France,Bavaria, Prussia,Chicago,and Odessa.
Price datafor wheat,barley,oats, and rye were collectedfrom a varietyof
sources, andtransformed commonunits (shillingsper ImperialQuar-
into
ter). Details are given in Appendix 1.
To see the full impactof decliningtransport costs, it is of courseneces-
saryto focus on commodity price gaps betweenexportingcountriesand an
importingnation,like Britain,which adheredto free tradethroughout the
period. Panel A of Table 1 confirmswhat Harleyand othershave already
found:therewas dramatic transatlanticgrainprice convergenceduringthe
latenineteenth century.20 U.S. grainpricesused here arenot fully com-
The
parable withthe European prices,implying I maybe incorrectly
that estimat-
ing price gap levels; but the trendsin these price gaps are unmistakable.2'
The Anglo-Americanwheat price gap fell from 54 percent in 1870 to
nothingin 1913;the barleypricegap declinedfrom46 percentto 11percent
over the sameperiod;andthe oats price gap collapsedfrom 138 percentto
28 percent.These were enormousshocksto the international economy.22
Moreover,there was intra-European commoditymarketintegrationas
well, at least betweenthose countriesthatallowed it to takeplace. Britain
was of coursea net importer all grainsin this period,Denmarkwas a net
of
exporter barley,andSwedenwas a net exporterof oats until 1899. Panel
of
B of Table 1 shows extremelylargedeclines in Anglo-Scandinavian price
gaps for thesetwo grains,confirmingthe findingsof myself and JeffreyG.
Williamson.23 example, Britishbarleyprices were 42 percenthigher
For
than Danish prices in 1870, but the gap had vanishedby the end of the
period.
As an importingcountry,Britain'sgrainprices were higherthan those
both in the New Worldandin Scandinavia. Commodity marketintegration
20Harley,"Transportation."
21Europeanprices are marketaverages; U.S. prices are for particular
gradesof grain.U.S. wheat
priceswereadjusted an attempt correct this. Trendsin transatlantic
in to for pricegaps will be reliable
unless averageEuropean wheatgradesarechangingovertime. See AppendixI for details.
22Thefact that wheatwas a moreexpensivegrainthanoats may explainwhy price gaps were so
in
muchgreater percentage termsfor the latterproduct.
230'Rourke Williamson,
and "OpenEconomyForces."

9. 782 O'Rourke
TABLE I
GRAINPRICESPREADS,1870-1913
INTERNATIONAL
(percentages)
Grain Countries 1870 1913
PanelA. Transatlantic
PriceGaps
Wheat States
Britain-United 54.1 -0.8
Barley States
Britain-United 45.9 10.9
Oats States
Britain-United 138.1 28.1
PanelB. Anglo-Scandinavian
PriceGaps
Barley Britain-Denmark 42.0 -2.0
Oats Britain-Sweden 55.3 5.0
Oats Britain-Denmark 46.8 7.1
PriceGaps
PanelC. UnitedStates-Scandinavian
Wheat Denmark-UnitedStates 28.9 -4.6
Barley Denmark-UnitedStates 0.4 11.4
Oats Denmark-UnitedStates 60.1 19.4
Rye Denmark-UnitedStates 44.7 5.3
Wheat Sweden-UnitedStates 18.7 17.3
Barley Sweden-UnitedStates -6.0 17.6
Oats Sweden-United
States 53.4 22.3
Rye States
Sweden-United 39.2 26.1
PanelD. Continental StatesPriceGaps
European-United
Wheat France-United
States 43.8 29.3
Barley States
France-United 6.1 15.4
Oats France-United
States 117.7 61.0
Rye States
France-United 61.1 16.9
Wheat States
Bavaria-United 44.0 37.1
Barley States
Bavaria-United 5.4 43.6
Oats Bavaria-United
States 82.6 106.3
Rye States
Bavaria-United 66.5 48.5
PanelE. Western PriceGaps
European-Odessa
Wheat Britain-Odessa 37.9 6.5
Wheat Denmark-Odessa 15.7 4.9
Wheat Sweden-Odessa 9.4 35.9
Wheat France-Odessa 28.0 48.8
Wheat Bavaria-Odessa 25.3 43.8
PanelF. Intra-European Gaps
Price
Wheat Britain-France 5.8 -23.5
Wheat Denmark-France -11.2 -26.2
Wheat Sweden-France -17.1 -9.2
Wheat Bavaria-France 0.6 7.1
Source:Predicted valuesarefromregressions pricegapson timeandtime-squared.
of The underlying
pricedatais as describedin Appendix1.
narrowed and
pricegapsbetweenBritain bothexporting markets. Thisprice
gradient,with Britainat the summit,can help explainthe paradoxical find-
ing thatprice gapsbetweenthe U.S. andDenmark, free traderthroughout
a
the period,did not always decline (panelC of Table 1). The oats price gap
fell from 60 percentto 19 percentover the period,a much smallerdecline

10. European GrainInvasion, 1870-1913 783
TABLE 2
CEREALPROTECTION, 1909-1913
(ad valoremequivalents,
percentage)
Grain France Germany Sweden
Wheat 38.1 37.2 32.0
Barley 21.0 35.5 42.2
Oats 16.9 45.1 0.0
Rye 20.6 42.9 39.9
Weightedgeometricaverage 26.6 40.0 0.0
Weightedarithmetic
average 28.4 40.1 24.0
Source: Tariffdatafor individualgrainsare given in Appendix 1. For weightsused in computing
averagetariffs,see Appendix5.
the
thanin the Anglo-U.S.case;although Danish-U.S.wheatprice gap was
eliminated 1913, this was froma muchsmallerinitialstarting
by point than
that of Anglo-America;and the Danish-U.S. barley price gap actually
increasedover the period.
What was true of Denmarkwas, not surprisingly, even more true of
Sweden,which imposedtariffson importsof wheat,barley,andrye. Table
2 gives averagetariffsfor the maingrainsin Germany, France,and Sweden
for the five-yearperiod1909to 1913.24The figuresconfirmwhatqualitative
histories stress:the disproportionatelyhigh protectiongiven to wheat in
Franceandrye in Germany well as the higheraveragelevel of protection
as
in Germanythan in Franceor Sweden.25 a traditionaloats exporter,
As
Sweden did not impose tariffson importsof thatgrain.
As in the Danishcase, the Swedish-U.S.barleyprice gap increased(and
by somewhat more than in the Danish case); more significantly,the
Swedish-U.S. rye price gap was only reduced by one-third,while the
Danish-U.S. rye price gap was all but eliminated;and the Swedish-U.S.
wheatprice gap remainedunchanged over the period.
FranceandGermany succeededin insulating
also themselvesto a consid-
erableextentfromthe impactof transatlantic cost
transport declines (panel
In
D of Table 1). Francewas of course a net grainimporter. this section I
focus on Bavarian ratherthanPrussian pricessince Prussiawas a traditional
grainexporter. o-U.S. wheatpricegapfell by only one-third,and
the Bavarian-U.S.gap by less than one-sixth; Bavarianoats and barley
prices,andFrenchbarleyprices,movedfurther fromU.S. levels duringthe
period; and the Bavarian-U.S.rye price gap fell by little more than one-
24Latenineteenth-century tariffs were specific; they are here convertedto their ad valorem
equivalentsby dividingthe specific tariffby a notionalworldprice, set equalto the domesticprice
minus the specific tariff.This methodof courseproducesalternative tariffestimatesfor Prussiaand
Bavaria(grainpricestendedto be higherin the latterregion).Prussian tariffsaregiven in Table2.
25Note, however,the even higherprotection German
for oats.
26Bavarian priceswerehigher
grain thanPrussian grainpricesduringthis period(exceptin the case
of oats, early on). Of course,market integration also occurring
was withinGermany, with price-gap
volatilitydecliningsharplyafterGerman unification(exceptin the case of barley).

11. 784 O'Rourke
fourth.AverageBavarian cerealpricescan hardlyhave moved much closer
to U.S. levels duringthe period, while cereal prices convergedfar more
stronglyon U.S. levels in BritainandDenmark thanin Franceand Sweden.
A clearcontrast thusemergesbetweenfree-trading Britain Denmark,
and on
the one hand, and protectionistcountrieson the other. This contrastis
furtherbornout whenwheatpricesin thesefive westernEuropean countries
are comparedwith Odessaprices (panel E of Table 1). In the Britishand
Danish cases, therewas clear commodityprice convergence,while wheat
prices divergedbetween Odessa,on the one hand,and Sweden, Germany,
and France on the other. Indeed,by 1913 British prices were closer to
Odessaprices thanwere Swedish,French,or Germanprices, whereasthe
oppositehad been truein 1870.27
Not only did Continental protectionmuteor overturn price convergence
betweenwesternEuropeandits U.S. andeasterngranaries, also hindered
it
commoditymarketintegration withinwesternEurope.Panel F of Table 1
makesthe pointby focusingon wheatprice gaps betweenFranceand other
European countries.Surprisingly, evidenceof commodity
no marketintegra-
tion emergeshere;in fact,for all fourpairsof countries Sweden-France,
bar
price gapsactuallyincreasedover the period.An era in which the Old and
New Worldsbecamemuch more economicallyintegrated with each other
was also an era in which grainmarketswithinContinental Europebecame
more balkanized.Globalizationwas not a universalphenomenon,even
duringthe comparatively liberallate nineteenthcentury.
Costs,Protection,andAverageCerealPrices
Transport
Marketintegration raisespricesin the exporting regionandlowersprices
in the importingregion.The questionnow arisingis whetherthe decline in
transportcosts documented above affectedEuropean U.S. prices more.
or
The answerdepends,of course,on elasticitiesof supplyand demandin the
two regions. If these elasticitiesare taken to have been equal to 1.0 and
-0.3, respectively,then a simple partialequilibriummodel predictsthat
decliningtransport costs on theirown wouldhave led to a declinein British
wheat prices of between 15 and25 percent.28
By how muchin realtermsdid wheatprices actuallyfall in Europeover
thisperiod?Table3 gives realgrain-price movements between1870 to 1874
27Appendix showsthatthesecontrasts
2 betweenfreetrading protectionist
and countriescan indeed
be explained protection. appendix
by The calculates Franco-British,
Bavarian-British,
Prussian-Danish,
and Swedish-Danishgrainprice gaps. These price gaps were highly correlated with tariffs in the
protectionist economies.This was particularly in the case of wheatand in the case of Germany.
true
28This based on O'Rourkeand Williamson,
is "LateNineteenthCenturyAnglo-American Factor
PriceConvergence" "Erratum";
and elasticities fromHarley,
are "Late NineteenthCentury Transporta-
tion,"p. 604, andpricegaps aredocumented above.Note thatHarleyhimselfestimatesmuchlarger
price effects;his table2 suggestswheatpricedeclinesin Britainof morethan50 percent.

12. European GrainInvasion, 1870-1913 785
TABLE 3
REAL GRAIN PRICE DECLINES, 1870-1874 TO 1909-1913
(percentage
changes)
Grain Britain Denmark Sweden France Germany
Wheat 35.3 33.3 23.2 22.5 21.2
Barley 25.5 3.6 9.9 12.6 8.3
Oats 18.7 -0.9 7.2 3.6 2.9
Rye N/A 19.1 11.7 18.4 13.5
Note:A negativeentrydenotesa priceincrease.
N/A indicates
datawerenot available.
Source:Forgrainprices,see Appendix1. ForGDPdeflators, Appendix6. German
see pricesreferto
Prussia.
and 1909 to 1913 for the five countriesin my sample.29 can be seen,
As
wheatpricesfell by 35 percentin Britain,or by 10 to 20 percentage points
more thanthe 15 to 25 percentwarranted the decline in transport
by costs
alone.Thislargeprice declinereflectsnot only marketintegration also
but
agricultural supplyshifts in the U.S. andelsewhere.Real wheatprices fell
by a very similaramountin Denmark.WhataboutFrance,Germany, and
Sweden? In fact, avoidingwheat-priceconvergenceon the U.S. was not
enoughto preventwheatfarmers fromlosing:wheatpricesfell in realterms
by roughly20 percentin all threecountries.Tariffs protectedfarmersfrom
the impactof commoditymarketintegration did not protectthem from
but
the othersupply-sideforces loweringwheatprices duringthe period.
Whataboutothercerealprices?Table3 showsthatothercerealpricesfell
by less in Britain;again,they fell by even less on the Continent; again
but
they did fall ratherthanincrease.For example,oats prices fell by only 19
percentin Britainand by only 0 to 7 percenton the Continent. repeat,
To
tariffsmutedor completelyoffset the impactof transatlantic commodity-
market integration, theydidnot offsetthe impactof mechanicalreapers
but
andall the otherforcespushingdown realgrainpricesduringthis period.
GRAIN ACREAGES AND FACTOR PRICES
Table4 showshow the areaundercerealcultivation changedin a number
of Europeancountriesbetween 1871 and 1911. As can be seen, acreage
expandedin Russia,an exportingcountry; also expandedin Denmark(a
it
barleyexporter) Sweden(an oats exporter
and before 1899) in the decades
before 1891. Thereafter, cerealacreagedeclinedin Denmarkbut held
the
steady in protectionistSweden. The impactof protectionalso shows up
clearly in the contrastbetween the dramaticdeclines in Britishand Irish
cereal acreages,the very modestdeclinein France,and the slight increase
in Germany.
Of course,it is the incomedistribution of
consequences the graininvasion
thatwere politicallycrucial,and Table5 gives some basic facts. It reports
29Nominal
grainpricesaredeflatedby the relevant
GDP deflator.

13. 786 O'Rourke
TABLE 4
CEREAL ACREAGES, EUROPE 1871-1911
(1871 = 100)
Country 1871 1881 1891 1901 1911
Austria 100 97.2 103.9 101.8 106.0
Denmark 100 106.4 107.1 102.0 98.9a
France 100 101.7 97.7 98.6 95.1
Gennany 100 100.2 101.4 103.8 106.3
Ireland 100 83.5 70.2 62.0 59.1
Italy I oob 96.0 96.5 N/A 100.7
Netherlands 100 107.6 105.3 105.5 107.2
Russia I oob 97.9 104.5c 121.3 162.5
Sweden 100 115.5 127.7 131.0 125.8
Britain 100 93.9 84.4 76.8 75.1
a1912
b1872
cl 892
Note: N/A indicates data were not available.
Source: Figures are calculated from the data given in Mitchell European Historical Statistics, table D 1.
dataon wages and landprices,collectedin collaboration with Alan Taylor
and JeffreyG. Williamson.30 data,deflatedby the relevantconsumer
The
price indices, are for five European countries-Britain, Germany, France,
Denmark,and Sweden-and for two New Worldcountries-the United
StatesandAustralia-and aregiven as five-yearaverages between1875 and
1913. Table5 confirmsthe dramatic wage growthin Scandinavia
real that
was the focus of O'Rourke Williamson, it is the dataon agricultural
and but
landprices thatare chiefly of interesthere.31 Britishlandprices collapsed,
decliningby over 40 percent;they declinedmore modestlyin Franceand
Sweden and not at all in protectionist Germanyor in the free-trading but
cooperating Denmark.32 contrast,landpricestripledin the New World,
By
wherewage-rental ratiosfell by a half;wage-rentalratiosmorethandoubled
in free-trading Britain Denmark increased less than50 percentin
and but by
protectionist Franceand Germany.33
It looks as if theremaybe a linkbetweentradepolicies andincomedistri-
bution: land prices fell by a lot more in free-trading than in protectionist
countries,and wage-rentalratios moved exactly as standard tradetheory
300'Rourke, and
Taylor Williamson, "FactorPriceConvergence." Dataon rentswould of coursebe
preferable, theyareunavailable. Offer,"Farm
but If Tenures," right,andthe "positional
is advantages
of ownership" were decliningin late nineteenth-century
Britain,then Britishlandrentswould have
declinedmoreslowlythanlandvalues;thisappears havebeen the case. The resultsin the following
to
two sectionsreferto the impactof grainpriceson landrents.
3'0'Rourkeand Williamson, "Education."
32These nationalfiguresdisguisemuchregionalvariation; example,in Britainrentswould have
for
held up well aroundurbancenters,which demanded growingamountsof milk and otherrelatively
nontraded products.
33The Swedishfigureis not suchan anomaly; Swedenadopted protection late, and average
relatively
protectionlevels were slightlylowerthanin Franceor Germany (Table2).

14. European GrainInvasion, 1870-1913 787
TABLE 5
FACTOR PRICES, 1875-1913
United Great
Year Australia States France Germany Britain Denmark Sweden
Panel A. Real Wages, 1875-1913
1877 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1882 95.5 104.7 105.2 96.5 104.0 112.1 99.3
1887 102.4 116.4 113.9 110.0 113.9 126.6 110.4
1892 109.9 121.1 116.9 110.2 118.8 138.1 120.0
1897 133.9 127.2 123.1 124.6 127.6 180.7 138.6
1902 123.4 135.5 132.2 131.2 121.6 204.0 151.6
1907 123.5 142.9 142.3 132.9 128.6 224.8 168.3
1912 126.3 142.3 122.2 135.1 125.9 252.2 180.8
Panel B. Real Land Prices, 1875-1913
1877 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1882 99.9 108.2 95.6 94.0 77.3 108.9 86.1
1887 121.0 124.7 82.9 102.4 76.1 97.5 83.7
1892 201.3 136.0 89.2 90.1 76.7 90.0 80.9
1897 226.4 141.7 84.5 92.1 82.2 89.3 77.5
1902 240.8 153.8 81.8 97.8 69.8 85.3 76.2
1907 313.6 212.9 89.8 101.8 68.3 97.8 80.1
1912 307.8 274.5 84.7 108.0 58.2 111.2 80.6
Panel C Wage-Rental Ratios, 1875-1913
1877 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1882 95.6 96.7 110.1 102.7 134.5 103.0 115.4
1887 84.7 93.4 137.3 107.4 149.7 130.2 131.9
1892 54.6 89.0 131.1 122.3 154.9 153.3 148.3
1897 59.2 89.8 145.7 135.2 155.2 202.2 178.9
1902 51.2 88.1 161.6 134.2 174.1 238.8 198.9
1907 39.4 67.1 158.3 130.6 188.2 229.4 210.1
1912 41.0 51.9 144.2 125.0 216.3 223.6 224.4
Source:Forfactor prices,see O'Rourke al.,"Factor
et app. 1; for consumerprice
PriceConvergence,"
indices, see Appendix6.
would predict.However,therewere manyotherforces at work influencing
income distributionduringthis period, notably factor accumulationand
progress. followingtwo sectionsthusmakemoreexplicitlythe
technical The
connectionbetweencommodityprices and factorprices.
GRAIN PRICESAND INCOMEDISTRIBUTION:CGE ANALYSIS
Model Specification
This sectionuses CGEmodelsfor Britain, France,and Sweden thathave
identical theoreticalspecificationsbut whose parameters reflect different
countrycharacteristics. purposeof the articleis comparative, it is
The and
thereforeimportant thatresultsdo not differbetweencountriesbecause of
differentmodel specifications.Adoptinga uniformtheoreticalframework
shiftsthe focus towardsthe calibration individual
of country models;differ-

15. 788 O'Rourke
ent resultswill reflectdifferentfactorendowments,sectoralfactorintensi-
ties, andotherfundamental economicparameters emergefromthe data.
that
Calibration requiresinformation all relevantinput-output
on relationships
andtradeflows in the threecountriesin a base year.Appendix3 describes
in full the procedures used.34
Therearefive sectorsin the model,threeagricultural two nonagricul-
and
tural:pasture grainG, nongrain
P, vegetableproduction manufacturing
NG,
M andservicesS.35 Servicesarenontraded; othergoods aretraded.Since
all
the price shocksbeing imposedarelarge,so-calledArmingtonassumptions
are made on both the export and the importside. These assumptionsare
standard the CGEliterature; purposeis to insulatedomesticsectors
in their
fromworldpriceshocksto some extent,thusensuring economiesdo not
that
entirely stop producingparticular commodities.The way this is done is to
assumethateachtraded goods sectorproducestwo goods: a domesticgood
D destinedfor local consumption an exportgood X. Imported
and goods M
substituteimperfectlywith domesticgoods in producingaggregategoods,
which are then consumedor used as intermediate inputs.
Allowing domestic goods, exportedgoods, and importedgoods to be
perfect substituteswould imply grainproduction(unrealistically) ceasing
entirely in several experiments.A further advantage of this article's
Armington-styletreatmentof international tradeis that it allows for the
realityof two-waytradein all commodities, possibilitythatwouldbe ruled
a
out a priori by assumingthat domestic and foreign goods were perfect
substitutes.36
The secondset of assumptions areimportant determining final
that in the
results have to do with the mobility of factors across sectors. Capitalis
assumed to be fully mobile acrossall sectors.Laboris imperfectlymobile
between agricultural urbansectors;that is, the economy is endowed
and
with raw labor,whichis thentransformed agricultural andnonagri-
into (LA)
cultural(LNA)laborvia a constantelasticityof transformation production
function.37 Landis only used in agriculture. some experiments, is fully
In it
mobile between all three agricultural sectors;this assumptionis relevant
when exploringthe long-runimpactof price shocks on averagerents. In
other experiments,land is assumed to be specific to either tillage (both
grainsandnongrains) pasture.This assumption relevantto the shorter
or is
34The BritishandSwedishmodelsaresubstantially revisedversionsof the modelsused in O'Rourke
and Williamson,"Late NineteenthCenturyAnglo-American Factor Price Convergence," "Open
EconomyForces."
4
35Appendix provides some rudimentary sensitivity analysis, establishingthat changing the
specificationof the Frenchand Swedishmodels in particular directionsdoes not affectthe resultsof
the article.
36Harley, "Antebellum AmericanTariff," a good discussionof the Armington
has approach.
37The benchmark elasticityof transformation set equalto 10.
is

16. European GrainInvasion, 1870-1913 789
run,andis usefulfor exploring initialimpactof priceshockson the rela-
the
tive fortunes grainproducers farmers
of and engagedin animalhusbandry.
Productiontakesplace in all threecountriesaccordingto
(PD,PX) =
P(LA,K,R,{I}) (1)
(GD,
GX)= G(LA,K,R, {I}) (2)
=
(NGD,NGX) NG(LA,K,R{I}) (3)
(MD,MX)= M(LNA,K, {I}) (4)
S= S(LNA,K,{I}) (5)
whereK denotescapital, denotesland,and {I} is a vectorof intermediate
R
inputs.38 productionfunctionsin equations1 through4 are constant
The
with
elasticityof transformation, benchmark elasticitiesof transformation
equal to 10. Similarly,the Armingtonelasticity of substitutionbetween
imported domesticgoods is set equalto 10 in the benchmark
and case. All
productionfunctionsarenested(Figure2), with intermediate inputsbeing
combined with value-addedaggregatesin a Leontief fashion;at a lower
level, primary factorsof production producethe value-added aggregatevia
CES production The
functions. benchmark is
elasticityof substitution 1 for
agriculturalsectorsand0.5 fornonagricultural sectors.All production func-
tions exhibitconstantreturns scale.
to
Thereis a singlerepresentative consumer the model,endowedwith all
in
factors of production,whose functionit is to generatedemandsfor final
commodities. The consumer's endowment of foreign exchange, the
numeraire good, is sufficientto enablethe economyto runthe benchmark
tradedeficit.
The Impact of Cheap Grain
The CGEmodelsused here incorporate aggregategrainsector,rather
an
than distinguishing betweenindividualgrains.Appendix5 thus calculates
aggregate priceshocks affectingthis sector,which involves takingaccount
of the differentcropmixes in the threecountries. Between 1870to 1874 and
1909 to 1913,Britishcerealpricesfell by 28.9 percentin realterms(when
dividedby the GDP deflator). France
In they fell by 16.1 percent,reflecting
a worldpricedeclineof 33.7 percentanda tariffof 26.5 percent.Finally,in
Sweden averagecerealprices fell by 10.4 percent,reflectinga worldprice
decline of 26.8 percentandan averagetariffof 22.4 percent.
38This not equivalent assuming
is to identical in
technologies thethreecountries. parameters
The that
define these productionfunctionsvary from countryto country,reflectingthe differenteconomic
structures each. See Appendix3.
in

17. 790 O'Rourke
Intermediate
/ ~~~~~Export
good
Inputs
Capital s=O 10
Labor __
Land
Domestic
(a) Agricultural production good
Intermediate
Export good
Inputs
Capital S, 10
/s=O0.5
Labor
Domestic
(b) Industrial production good
FIGURE 2
THE STRUCTURE OF PRODUCTION
Note:s denoteselasticityof substitution; denoteselasticityof transformation.
t
I startby askingwhatwouldhavehappened the threecountries cereal
in if
priceshaddeclinedby 28.9 percent,as in Britain.Sincethe threemodelsare
theoreticallyidentical,and the same shock is being imposedon them, any
in in
differences resultscan only reflectdifferences the underlying economic
structures the threecountries.Table6 gives some key facts.
in
Table7 gives the resultsobtainedwhen cerealprices are allowed to fall
by 28.9 percentin all threeeconomies.As outlinedabove,abouthalfto two-
thirdsof this actualBritishpricedeclinemaybe attributed decliningtrans-
to
portcosts, while the remainder due to othersupply-side
was forcesreducing
grainprices worldwide.Severalkey featuresstandout fromthe table.
First,theseprice shockshad a bigimpacton landrents.In the shortrun,
tillagefarmers wouldhave seen theirrentsdeclineby 8.8 percentin France,
20.6 percent in Sweden, and a massive 38.1 percent in Britain.39 These
39Throughout, returns deflatedby country-specific
factor are consumer
price indices,reflectingthe
budgetweights of urbanworkers.See Appendix3.

18. European GrainInvasion, 1870-1913 791
TABLE6
ECONOMIC STRUCTURE, 1871
(percentage)
Sector Britain France Sweden
PanelA. SectoralOutputShareswithinAgriculture
Pasture 56.5 40.7 27.8
Grain 27.2 23.7 39.4
Nongrains 16.3 35.6 32.8
PanelB. SectoralOutputShareswithinTillage
Grain 62.5 40.0 54.5
Nongrains 37.5 60.0 45.5
PanelC. SectoralOutputShares
Agriculture 19.2 40.7 36.9
Manufacturing 44.6 38.5 30.3
Services 36.2 20.8 32.8
PanelD. SectoralValueAddedShares
Agriculture 14.9 35.9 40.1
Manufacturing 39.8 38.2 11.4
Services 45.4 25.9 48.5
Shareof laborforce in agriculture 22.6 50.5 67.6
Net grainimports/production 54.7 4.3 13.9
Note: Percentage totalsdo not alwaysaddup to 100, due to rounding.
Source: See Appendix 3. For the agricultural labor share, see Appendix 3; and O'Rourkeand
Williamson, "OpenEconomyForces," 5, p. 10 and"WereHecksher OhlinRight,"app. 3, p.
app. and
5. The Britishfigureonly countsnondefenseemployment.
differentmagnitudesare partlyexplainedby the differentsharesof grains
and nongrainsin total tillage output:cereals accountedfor 63 percentof
tillageoutputin Britain only 55 percentof Swedishtillageoutputand40
but
percentof Frenchtillage output(Table6).
Second, as Gerschenkron emphasized,farmersengagedin animalhus-
bandry stoodto gainfromthe graininvasion,at leastin the shortrun.Cheap
grainmeantcheapfodder,and this boostedpasturerentsin all threecoun-
in
tries, particularly Britain.40
Third,and in qualification the second point, the relativefortunesof
to
tillage and pastureareasdependedcruciallyon the ease with which land
could be switchedbetweencrops and pasture.To take an extremecase, if
land were fully mobile betweenall agricultural sectors,all farmerswould
see their rents move in a similar fashion. Table 7 indicates that in this
extreme case, averagerentswould have fallen by 4 percentin France,9.4
percentin Britain,and 14.4percentin Sweden.41Again,these differing mag
40Williamson,"Impact," foundthe samein the contextof the Repealof the CornLaws.
41Thesedeclinesin averagelandrentsaremuchsmallerthanthose reported Britainin O'Rourke
for
and Williamson,"LateNineteenth CenturyAnglo-American FactorPriceConvergence,""Erratum,"
who were exploringthe impactof decliningpricegaps for meatandmanufactures, well as grains.
as

19. 792 O'Rourke
TABLE 7
EFFECTS A 28.9 PERCENT
OF DECLINEIN CEREALPRICES
changes)
(percentage
Britain France Sweden
Variable Fixed Mobile Fixed Mobile Fixed Mobile
P +7.2 +21.3 +3.0 +11.4 +2.2 +5.4
G -74.5 -85.1 -47.1 -48.5 -20.6 -21.6
NG +42.7 +20.9 +22.5 +19.4 +8.6 +8.4
M +5.7 +6.0 +3.1 +2.9 +13.9 +14.1
S -0.3 -0.2 -1.3 -1.4 +1.4 +1.5
WA +2.5 +3.0 -4.5 -4.4 -1.7 -1.0
WNA +5.0 +5.7 -3.7 -3.6 -0.4 +0.4
K +5.3 +6.0 +5.3 +6.7 +6.0 +6.3
R -9.4 -4.0 -14.4
RT -38.1 -8.8 -20.6
RP +14.1 +8.4 +7.4
LA -19.2 -20.6 -4.8 -4.9 -6.2 -6.2
Note:Fixedexperiments assumelandspecificto eitherpastureor tillage;mobileexperimentsassume
landmobilebetweenall agricultural sectors.P, G, NG, M, S areoutputsin pasture,
grains,nongrains,
manufacturing, services. WA,WNA, R, RT, RP are real returns agricultural nonagri-
and K, to and
LA
culturallabor,capital,land,and landin tillageandpasture. is agricultural employment.
Source:See the text.
nitudescanbe explained the varyingsharesof grainin total agricultural
by
output; grainaccounted only 24 percentof agricultural
for outputin France
but for 39 percentof Swedishagricultural output.
Fourth,the impactof cheapgrainon realwages was indeeddifferentin
differentcountries. the Britishcontext,it appears Peel was rightand
In that
Disraeliwas wrong;thatis, thepositive cost-of-livingeffect of cheapgrain
outweighedthe negativelabor-demand effect. Urbanrealwages increased
by 5 to 6 percentas a result of the grain invasion, and even agricultural
workersbenefitted.42 storywas rather
The different the Continent,
on where
agriculture accountedfor a far largershareof total employment. The same
price shockwouldhave reducedwages by 3.5 to 4.5 percentin Franceand
would have had littleeffecton Swedishrealwages.43 This makes sense. By
1871, only 22.6 percent of the British labor force was in agriculture, as
opposed to 67.6 percentin Sweden and 50.5 percentin France.44 Table7
shows the graininvasionhavinga relativelybiggerimpacton agricultural
employment Britainthanelsewhere;but even a largedecline in employ-
in
ment in such a small sectortranslated into only a minorfall in aggregate
labordemandandthus led to only a small declinein nominalwages.
for
Thesereal-wagefindingshave implications recentdebatesabouttrade
and real-wageconvergence.Transatlantic transport cost declines implied
42This alsothe findingof Williamson,
is and
"Impact"; O'Rourke Williamson,
and "LateNineteenth
CenturyAnglo-American FactorPriceConvergence."
43This consistentwith the findingsin O'Rourke Williamson,
is and "OpenEconomyForces."
laborwas engagedin forestry.
44Note a relativelylargeamountof Swedishagricultural
that

20. European GrainInvasion, 1870-1913 793
factor-priceconvergencebetweenthe Old and New Worldsbut may also
have impliedfactor-price or
divergence, at leastreal-wagedivergence, with-
in Europe,leadingBritishreal wages to pull further aheadof real wages in
the European periphery.45 in turnmay have stimulated
This intra-European
migration, corresponding a reshuffling resourcesfromEuropean
to of agri-
culture European
to industry: certainlyIrishmigrationto Britain be part-
can
in
ly understood this context.46 Globalization, in particular
and international
factorflows, did offerperipheral European countries chanceto converge
the
on Britain;free tradein grainmay have workedin the oppositedirection.
Finally,Table7 shows thatcheapgrainhad a substantial impacton agri-
culturalemployment Britain,if not elsewhere.A 28.9 percentdecline in
in
cerealpriceswould have led to a 20 percentfall in Britishagricultural em-
ployment,compared with a 5 percentfall in France,and a 6 percentfall in
Sweden.Thisdiscrepancy makessense.The migration laborto the towns
of
in response to a negative agricultural shock would depressurbanwages,
loweringthe incentiveto move. In Britain, whereagriculture accountedonly
for a small proportion total employment,nonagricultural
of wages would
havebeen largelyimmunefromsuchan effect,whichin FranceandSweden
would have mutedthe migration responseto the graininvasion.
The potential impact of the grain invasion was significantin all three
countries,especiallyfor tillage farmers.To what extentdid tariffssucceed
in protectingthis constituency?
TheImpactof Frenchand SwedishProtection
Tables8 and9 explorethe impactof protection Franceand Sweden.In
in
each case I impose a counterfactual "free-trade"
price shock (grainprices
fallingby 33.7 percentin Franceand26.8 percentin Sweden),followed by
the sameworldpriceshock,combinedwitha domestictariffon grains(26.5
percent in France, implying the actual domestic price decline of 16.1
percent;and 22.4 percentin Sweden, implyingthe actualdomesticprice
decline of 10.4 percent).
If the primaryaim of protectionwas to mute the impact of the grain
invasionon agricultural incomes,it succeeded.Protectioncut the declines
in rentassociated with cheapgrainby one-thirdin Sweden andby one half
in France: effects indeed.Frenchgrainoutputwas twice what it would
big
have been in the absence of protection;protectionraised Swedish grain
outputby a muchmoremodest8 percent.As expected,protectionwas bad
for capital in both countries,but it helped French labor (while leaving
Swedish laborbasicallyunaffected).
450'Rourke Williamson,
and "LateNineteenth
Century Factor
Anglo-American PriceConvergence";
and O'Rourke,Taylorand Williamson,
"FactorPriceConvergence."
460 'Rourke,
"Repeal."

21. 794 O'Rourke
TABLE 8
THE IMPACTOF PROTECTION FRANCE
IN
(percentage
changes)
Land
Sector-Specific MobileLand
Free Tariff Free Tariff
Variable Trade Protection Impact Trade Protection Impact
P +3.9 +1.0 -2.7 +15.0 +4.3 - 9.3
G -60.1 -20.0 +100.3 -61.6 -20.6 +107.2
NG +29.2 +9.1 -15.5 +24.9 +7.9 -13.6
M +3.6 +1.2 -2.3 +3.3 +1.1 -2.1
S -1.6 0.0 +1.6 -1.7 0.0 +1.7
WA -5.2 -2.3 +3.1 -5.2 -2.2 +3.2
WNA -4.3 -1.9 +2.5 -4.2 -1.8 +2.6
K +6.9 +2.2 -4.4 +8.8 +2.7 -5.6
R -4.3 -2.3 +2.1
RT -10.3 -4.5 +6.5
RP +11.1 +3.1 -7.2
LA -5.7 -2.3 +3.6 -6.0 -2.4 +3.9
Note:Sector-specific experiments assumelandspecificto eitherpastureor tillage;mobileexperiments
assumelandmobilebetweenall agricultural scenarioimposesa 33.7 percent
sectors.The free-trade
decline in the price of grain,whereasthe protectionscenarioimposesa 33.7 percentdecline in the
world price of grainand a 26.5 percenttariff on grain imports.The tariff-impact column simply
compares the previous two columns. P, G, NG, M, S are outputs in pasture,grains, nongrains,
manufacturing,and services. WA, WNA,K, R, RT, RP are real returns to agriculturaland
nonagricultural labor,capital,land,and land in tillageandpasture. is agricultural
LA employment.
Source:See the text.
TABLE 9
IN
THE IMPACTOF PROTECTION SWEDEN
changes)
(percentage
Land
Sector-Specific MobileLand
Free Tariff Free Tariff
Variable Trade Protection Impact Trade Protection Impact
P +1.9 +0.9 -1.0 +4.7 +214 -2.2
G -18.7 -12.2 +8.0 -19.5 -12.3 +8.9
NG +7.9 +5.3 -2.4 +7.6 +5.0 -2.4
M +12.7 +8.3 -3.9 +12.8 +8.1 -4.2
S +1.2 +0.8 -0.4 +1.4 +0.9 -0.5
WA -1.7 -1.5 +0.2 -1.0 -1.1 -0.1
WNA -0.4 -0.7 -0.3 +0.2 -0.3 -0.5
K +5.3 +2.9 -2.2 +5.6 +2.9 -2.5
R -13.2 -8.9 +4.9
RT -18.9 -12.8 +7.5
RP +6.4 +3.0 -3.2
LA -5.6 -3.6 +2.1 -5.6 -3.5 +2.2
Note: Sector-specificexperimentsassumelandspecificto eitherpastureor tillage;mobileexperiments
assume land mobilebetweenall agricultural sectors.The free-trade
scenarioimposesa 26.8 percent
decline in the price of grain,whereasthe protectionscenarioimposesa 26.8 percentdecline in the
world price of grain and a 22.4 percenttariff on grain imports.The tariff-impactcolumn simply
compares the previous two columns. P, G, NG, M, S are outputs in pasture,grains, nongrains,
manufacturing, services. WA,WNA, R, RT, RP are real returns agricultural nonagri-
and K, to and
LA
culturallabor,capital,land,and landin tillageandpasture. is agricultural employment.
Source:See the text.

22. EuropeanGrainInvasion, 1870-1913 795
ECONOMETRIC
GRAIN PRICESAND INCOMEDISTRIBUTION: ANALYSIS
An alternativeway of estimating impactof commodity
the price shocks
on incomedistribution to obtaindataon a panelof countries proceed
is and
econometrically. O'Rourke, Taylor Williamson preciselythis;their
and did
focus was on the effects of relativeagricultural prices on the wage-rental
ratio.47 sectionasksa morenarrowly
This focusedquestion: how did move-
mentsin grainpricesaffectlandowners?
is
To answerthis question,some theoreticalstructure needed, and the
sector-specificfactorsmodel seems the natural place to start.Whatexoge-
nous parameters affectincomedistribution such a framework?
in Endow-
ments clearly do. An increasein the land-labor ratiowill lower rents;an
increasein the capital-labor will pull workersinto industry,
ratio increasing
wages andagainloweringrents.Aggregate technological progresshas am-
biguouseffectson incomedistribution, depending whetherit is labor-or
on
land-saving, on whichsectorit occursin. Goodspriceswill also clearly
and
influencefactorprices.An increase agricultural
in priceswill increase rents;
an increase in manufactured goods prices, on the other hand, will pull
workersout of agriculture, raisingnominalwages and loweringrents.
O'Rourke, Taylor, Williamson
and collecteddataon endowments, manu-
factured goods prices, and outputs in a sample of seven countries-
Australia,the United States, France, Germany,Britain, Denmark,and
Sweden-over eightfive-yearly timeperiodsfrom 1875 to 1913. They also
collecteddataon average prices;sinceI am interested grains,
agricultural in
I use wheatpricesinstead. Furthermore,wantto controlfor movementsin
I
other agricultural prices, and collected meat prices for this purpose. I
estimateequations the form
of
DREALi,= o + xICAPLABi, X2LANDLABit+ LX30LDPRODi, +
+
cX4NEWPRODi, + cx5PMitcx6PWit Ox7PMFGiteit
+ + + (6)
DREALit= aio + aICAPLABi, + c2LANDLABjt + cX30LDPRODj,
+
+ +
x4NEWPROD1t cx5PMt cx6PWt cL7PMFG1tdt + elt
+ + (7)
wherethe variablesaredefinedas follows:
DREAL= log(nominal
landprice/CPI)48
CAPLAB= log(K/L)
LANDLAB= log(Land/L)
PROD = Solovian residual, share of K = 0.4, share of land = 0.1
=
OLDPROD PRODif countryis in Europe,0 otherwise
470'Rourke,TaylorandWilliamson, "Factor
PriceConvergence."
48Landrentswould of coursebe preferable the dataareunavailable. note 30.
but See

23. 796 O'Rourke
TABLE10.
THEDETERMINANTS REALLAND PRICES,1875-1913
OF
Regression No TimeDummies TimeDummiesIncluded
CAPLAB -1.53 -1.46
(-6.71) (-5.42)
LANDLAB -1.39 -1.73
(-8.60) (-4.92)
OLDPROD 0.23 0.52
(1.10) (1.57)
NEWPROD 1.94 2.26
(6.09) (5.29)
PM 0.49 0.58
(2.54) (2.68)
PW 0.46 0.52
(2.08) (1.35)
PMFG -0.95 -0.84
(-2.78) (-2.12)
Meanof dependent variable 0.210 0.210
Standard deviationof dependent
variable 0.360 0.360
Standard of
error regression 0.115 0.121
R- squared 0.922 0.928
AdjustedR-squared 0.897 0.887
Log of likelihoodfunction 49.592 51.949
Durbin-Watsonstatistic 1.380 1.382
Numberof observations 56 56
Notes:Thedependent equalsagricultural pricesdividedby CPI. All variables in log
variable land are
form. Estimation OLS with fixed effects (countrydummies). Fixed effects are not reported.
is t-
statisticsarein parentheses.
Dependent variables definedin text.
are
TABLE 11
CHEAPGRAINAND PROTECTION, 1871-1913
changesin reallandvalues)
(percentage
Scenario Model Britain France Sweden Germany Denmark
Free trade CGE -9.4 -4.3 -13.2 N/A N/A
Protection CGE N/A -2.3 -8.9 N/A N/A
Tariffimpact CGE N/A 2.1 5.0 N/A N/A
Free trade MIN -13.3 -15.5 -12.3 -15.7 -4.5
Protection MIN N/A -7.4 -4.8 -5.2 N/A
Tariffimpact MIN N/A 9.6 8.6 12.5 N/A
Free trade MAX -15.0 -17.5 -13.9 -17.8 -5.1
Protection MAX N/A -8.4 -4.8 -5.9 N/A
Tariffimpact MAX N/A 11.1 10.6 14.5 N/A
Note:CGEresults basedon Tables7, 8 and9. MINresultsarebasedon the estimate
are withouttime
dummiesin Table 10. MAX resultsarebasedon the estimate with timedummiesin Table 10. For
Franceand Sweden,the free-trade, and
protection, tariff-impact scenarios as described Tables
are in
8 and9. Thefree-trade scenarios Britain Denmark
for and involvegrainpricesfallingby 28.9 percent
and 9.8 percent,respectively(AppendixTable 5.2). For Germany, focus is on Bavarianprice
the
movements;grainpricesfall by 34.2 percentin the free-trade scenarioand by 11.4 percentin the
protection reflecting tariffof 34.7 percent
scenario, a (Appendix5). N/A meanseithernot availableor
not applicable.
Source:See the text.

24. European GrainInvasion, 1870-1913 797
NEWPROD PROD if countryis in New World,0 otherwise
=
PM = log(priceof meat/GDPdeflator);
beef priceswherepossible
PW = log(priceof wheat/GDPdeflator)
PMFG = log(manufacturingprice index/GDPdeflator)
d, = time dummy
andCPIis the consumer priceindex,K is capitalstock,L is laborforce,and
Land is the agricultural area.
land
Detailson the datasourcesused aregiven in Appendix6. The estimated
equationsare given in Table10. The resultsare good. The coefficientson
the endowment variables have the expectedsign andare largeand strongly
significant.As expected,agricultural prices have a positive effect on land
prices, and manufactured goods priceshave a negativeeffect. Introducing
time dummies has only a minor impact on the coefficients of interest
(althoughPWbecomes insignificant conventionallevels).49
at The results
indicate that the long-runelasticityof land prices with respectto wheat
prices lay between0.46 and 0.52.
Table11 summarizes impactbothof cheapgrainandof protectionon
the
land rents in Europe.It uses both the econometric the CGEresultsso
and
thatthesecan be compared with eachother.Firstit detailswhatwould have
happenedto landrentsif countrieshad maintained tradein grain.By
free
then askingwhat decliningworldgrainprices combinedwith actualgrain
tariffsimplied,it derivesthe impactof graintariffsalone on landrents.The
tablerepeats earlierCGEresultsfor Britain,
the and
France, Sweden,taking
the long-run case when land is fully mobile between sectors (as is
appropriate when thinkingaboutaveragerents).It also uses the elasticities
estimatedin Table 10 (0.46 and 0.52) to estimatethe effects of these price
shockson landvalues.S?
Cheap grain on its own would have led to British rents declining by
between9 and 15 percent,andto Swedishrentsfallingby between 12 and
14 percent.In Francecheapgraincould have reducedrentsby as little as 4
percent,or by as muchas 18 percent.In Germany tradein grainwould
free
haveled to average rentsfallingby an enormous16 to 18percent, grain-
and
price movementsin Denmarkonly led to rentsthere decliningby 4 to 5
percent.
Compared with this hypotheticalfree-trade scenario,protection boosted
land rentsby 2 to 11 percentin France,by 5 to 11 percentin Sweden,and
by 13 to 15 percentin Germany (the "tariff
impact" rows in Table I 1). On
49Coefficients the timedummiesare insignificant;
on they declinesteadilyovertime. Coefficients
on the countrydummiesareverylargeandpositivefor Australia the U.S.; positivefor Denmark
and
and Britain; quitelargeandnegativefor Sweden,France,andGermany.
and
50The (counterfactual)
free-trade
priceshocksand the actualpriceshocks,given protection, as
are
in
reported AppendixTable5.2.

25. 798 O'Rourke
the other hand, in all three countries,the combinedimpact of the grain
invasion and protectionon rents was negative (the "protection" rows in
Table 11). Protection did offset the impact of declining transatlantic
transport costs on grainprices;andit did mutethe negativeimpactof cheap
grainon landrents.However,realgrainpricesstill fell in all thesecountries,
and this shock was reducinglandrentseverywhere, ceterisparibus.
The econometric('MIN' and 'MAX') and CGEresultsare very similar
for bothBritainandSweden,whichis reassuring. the otherhand,in the
On
Frenchcase the elasticityof rentswithrespectto grainpricesis much lower
if the CGE results are to be believed than if the econometricresults are
correct.Thereis in fact a plausibleexplanation this. The econometric
for
resultsarebasedon an averageelasticity derivedfroma cross-section Old
of
Worldand New Worldcountries.In France,however,grainaccountedfor
a smallershareof agricultural outputthan was true elsewhere(Table 6);
grain prices could thereforebe expectedto have had a smallerimpacton
Frenchrentsthanon Swedishrents,say. The CGEmodels take accountof
this differencein agricultural structures,whereasthe econometricresults
imposea uniform elasticity all countries.
on Thisdiscrepancy highlights
thus
an important potentialadvantage CGEover econometric
of methods.
CONCLUSION
By 1913 the world economy had settled into an equilibrium that well
reflectedthe original promiseof the voyages of discovery.The New World
exportedfood and raw materials,feeding Europeanfactoriesand people.
Europeancapital and labor had sought employmenton the frontierand
pushedit back;by 1890,the U.S. frontier officiallydeclared
was closed. On
the otherside of the Atlantic, distributional
the implicationsof Christopher
Columbuswere finallybeingrealizedas steamships railroads
and exported
New Worldlandto Europe,embodiedin New Worldfood.
The articlehas calculated cheapgrain,by itself, impliedrentreduc-
that
tions of between10 and20 percentin Britain, France,andGermany. Refrig-
erationwould eventually removethe protection affordedanimalhusbandry.
In the free-trading U.K., rentscollapsed.In Ireland graininvasiontrig-
the
gered a strugglebetweenlandlords tenantsregarding
and who shouldcarry
the burdenof adjustment. landlords
The were eventuallydispossessed,al-
thoughBritishsubsidiessoftenedthe blow. In othereconomies,landowners
sought and receivedprotection,as they continueto do to this day; never-
theless, the age of the greatlandowning aristocracy comingto an end.
was
The grain invasion provoked differentpolitical responses across the
Continent.Whereasthe Danes and the Britishadheredto free trade,the
Frenchandthe Germans protectedtheiragriculture,
abandoning free-trade
a

26. European GrainInvasion, 1870-1913 799
policy datingfromthe 1860s. In an oft-citedarticle,CharlesKindleberger
used thesediffering reactions a peg on whichto hanga generaldiscussion
as
of how nationsvary in theirresponsesto commonshocks.5'
To what extent do these differingpolitical responses reflect different
politicalinstitutions, different
or politicalandsocialcultures? fact, closer
In
examinationreveals that the grain invasion implied differentshocks in
differenteconomies. First, it implied differentprice shocks. Grainprices
clearlyfell less in traditional grain-exporting countries,like Denmark,than
they did in traditional grain-importing countries,like Britain.Second, even
identicalpriceshockscouldhave very differenteffects on income distribu-
tion across countries,reflectingthe differentroles of grainproduction and
agriculture moregenerallyin each.
The results of this articlemay help in understanding differentpolitical
responses to the grain invasion. The grain invasion did not lower grain
pricesin Denmark muchas elsewhereand only loweredDanishrentsby
as
4 to 5 percent.This surelyhelps explainDenmark'swillingnessto stick to
free tradeas does the fact that Denmarkhad a comparative advantagein
many agriculturalcommodities that were largely (intercontinentally)
nontraded. Similarly, graininvasionbenefitted
the Britishcapitaland labor,
whereasin Continental economieslike Franceit hurtlaboras well as land.
Such differencesmay well have mattered politicaloutcomes.
for
It is true that simplisticmodels involving economic interestalone are
unlikely to fully explain the differing political responses to the grain
invasion.Institutions ideasclearlymatter tradepolicy too. However,
and for
the factthatthe graininvasionimplieddifferent shocksin differentcountries
makesit less necessary appealto different
to mediatinginstitutions each.
in
The resultsof the articlearethus consistentwith an interest-based account
of tradepolicy formation late nineteenth-century
in Europe.
5'Kindleberger,
"Group
Behavior."
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