On corn, Turgot, and elasticities: The case for deregulation of grain markets in mid-eighteenth century France

Abstract

A group of French enlightenment intellectuals, ‘les economistes’ developed a novel argument for market integration and free trade in that they argued, and Turgot most vigorously, that the potential effect was to diminish price volatility in grain markets. Price volatility created severe welfare losses for the public and disincentive effects (lower profits) for producers. In a given segmented market all producers were equally affected by supply shocks which were local. That condition generated a strictly concave total revenue curve - implying a downward sloping demand curve with an elastic followed by an inelastic section - which diminished long-term profit for producers. In an integrated market local supply shocks in a large number of markets cancelled out, and the demand curve for local producers became elastic throughout its range. Profits increased although profit volatility increased, but ‘les economistes’ generally believed that income volatility was less of a problem for proprietors compared to the general public.