Von Thunen Land – Price and Value

Johann Heinrich von Thünen, Price and Value, Von Thunen Land

Starting with the assumption that it costs the equivalent of 1+1/2 thalers to produce and transport a bushel of rye from the most distant circle, von Thunen supposes a fall in price to 1 thaler (p. 177). Then the 1+1/2 thaler land would cease to send grain to the city, including all land over 23+1/2 miles away. Assuming the same population and demand, there would be a great lack of grain, and the price would at once rise: the price of 1 thaler is impossible. The following "law" is then de­duced: "the price of grain must be so high that rent will not fall below zero upon the land on which the production of grain for the market is most costly, yet whose cultivation is necessary for the satisfaction of the demand" (p. 179).

Another interesting point concerns the determination of the price of the products of labor on the farm (p. 207). This must cover the outlays for food, etc., during the process, and for raw materials. If these materials must be procured from the city, the price of the product is only to a small extent determined by the local price of grain; but if the raw material — say flax — is produced on the farm, the price of the produced linen is largely determined by grain prices, since only a few articles for his home must be brought from the city and paid for by the farmer in money.

The place of demand is sufficiently emphasized, though not one-sidedly. If the consumption and demand increase, the price rises, and further cultivation "intensive and extensive" (p. 180) is the result. " As soon as this happens, production and consump­tion are again brought into equilibrium." Considering long-time periods, consumption is related to income: with equal production the rise or fall of grain prices will depend upon the increase or de­crease of the income which the consuming class of citizens enjoy.

Finally the distinction between market price and average (mittel) price is made. Market price rarely, if ever, coincides with the average price, but constantly fluctuates about it. It is observed that the Mittelpreis alone has been the object of the investigation, the long-time point of view being taken. Evi­dently the concept is similar to that of "natural value." Smith's distinction between value in use and value in exchange is also followed.