If modern economics began with Adam Smith (1776), modern location economics began with Von Thunen (1826). He was the first to develop a basic analytical model of the relationships between markets, production, and distance. For this purpose, the agricultural landscape was investigated. Von Thunen observed that the land use structure around German villages in the early 19th century was remarkably similar. By looking at this organization he postulated that relative costs of transporting different agricultural commodities to the central market determined the agricultural land use around a city. The most productive activities thus compete for the closest land to the market, and activities not productive enough will locate further away. The model has a set of basic assumptions which reflected agricultural conditions in the early 19th century:
- Isolation. There is one isolated market in an isolated state having no interactions (trade) with the outside. The assumption is that the output is for the local market.
- Ubiquitous land characteristics. The land surrounding the market is entirely flat and its fertility uniform.
- Transportation. It is assumed there are no significant transport infrastructures such as major roads or rivers and that farmers are transporting their products to the market using horses and carts. Transportation costs are dependent on the type of commodity being transported to the market as well as the distance involved.
The model compares the relationships between production cost, the market price, and the transport cost of an agricultural commodity and is expressed as follows:
R = Y(p-c) – Yfm
- R = Rent per unit of land.
- Y = Yield per unit of land.
- p = market price per unit of yield.
- c = Average production costs per unit of yield.
- m = Distance from the market (in kilometers or miles).
- f = Freight rate per unit of yield and unit of distance.
All agricultural land uses maximize their productivity (rent), which is dependent upon their location from the market (Central City). The role of a farmer is to maximize profit which is the market price minus the transport and production costs. The most productive activities (gardening or milk production) or activities with high transport costs (firewood) are located near the market. The above figure provides an overview of Von Thunen’s agricultural land use model with the basic assumptions being applied (isolation, ubiquity, transportation). It can be divided into two parts:
- The pure isolated state over an isotropic plain (left). In this case, land uses are taking the form of perfect concentric circles.
- The potential impacts of modified transport costs (a navigable river) and the presence of a competing center (right).
The relationships between agricultural land use and market distance are very difficult to establish in the contemporary context. However, a strong relationship between the transport system and regional agricultural land use patterns can be acknowledged at the continental level in North America.