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February 25, 2007
When transportation costs matter c. 1907
The Feb. 25, 1907 NYT reports on the outcome of combining a perishable good, transportation costs, and a country that stretches 11 time zones: Russia's exports of wheat during the season 1906-1907 have mounted to 62,228,000 bushels, which, while comparing poorly with the previous year's 108,248,000 bushels, is still one-fifth of the world's exports...The strange spectacle of Russia exporting one-fifth of the world's surplus of wheat from one corner of the empire while another corner is actually starving is explained by internal conditions of transportation, which make it more expeditious, as well as more economical, to bring in German rye and American wheat at the northwestern ports of the country while ample grain to feed the starving millions goes abroad from the southern provinces by way of the Black Sea and Austrian ports.Perhaps a better transportation system would have precluded the massive famines that hit the Russian (and later Soviet) empires. On the other hand, if the country had a better internal transportation system there might not have been an empire (see a potential example here). Counterintuitive trade patterns such as these seem to violate the law of comparative advantage and to many smack of a conspiracy theory. However, transportation costs are important, if not to the conspiracy theorists then to the owners of the resource, be it wheat or crude oil. The United States actually exported 11 millions barrels of crude oil in 2005, even while importing some 3.6 billion barrels of crude oil in the same year (full data here). Posted by Craig Depken at 10:09 AM in Economics
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The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith
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