Two modes of spatial economy models: Thünen and Krugman

The aim of the study is to compare the methodology of spatial model building of two very influential economists, Thünen and Krugman. Thünen is a representative nineteen century economist and Krugman represents the method of contemporary neoclassical mainstream economics. Thünen is mostly known from secondary and tertiary interpretations, which are sometimes superficial or misleading. Thünen's Isolated State has almost 700 pages, the most comprehensive German edition has 1260 pages, but the typical interpretation concentrates only on the first page which introduces the basic assumptions and the graphical presentation of the results. However, the methodology, the comparison of the theory and the empirics, the critical examination of the assumptions by Thünen are mostly neglected. Thünen was aware of the fact, that his model is an idealization of the agricultural land-use pattern: 'The abstraction from reality without which cannot come to any scientific knowledge has several dangers, namely: (1) We separate in thought what is in fact mutually interrelated. (2) Our conclusions rest upon assumptions of which we are not clearly conscious and which we therefore do not make expressly, and we then consider as generally true what is true only under these specific assumptions. The history of economics gives us many striking examples' (Thünen, 1930, pp. 407-408). He examines thoroughly the differences between his idealization and reality. Variables used in Thünen's model are observable and measurable. Krugman, on the contrary, uses unobservable and immeasurable variables also. Similar to Thünen, Krugman uses several assumptions (or 'tricks') during the model building: the Dixit-Stiglitz model of monopolistic competition, everyone shares the same Cobb-Douglas tastes, the iceberg treatment of transportation cost of industrial goods, costless transport of agricultural products, costless interregional movement of labor, punctiform regions and so on. However, in contrast with Thünen he does not examine the impact of various assumptions on the applicability of his models to any real world phenomenon. The first part of the paper reconstructs Thünen's method, treatment of space and his original ideas according to his Isolated State. Compared to Thünen's original work, it is shown that the typical interpretations have some misunderstandings. For example, it is highly unhistorical to say about Thünen, that his model was based on neoclassical perfect competition. The second part deals with Krugman's method, treatment of space and his main results. The third part gives general comparison between the two methods.