The slow emergence of the rational investor: Grain markets and grain storage of rural estates in western Germany, eighteenth and early nineteenth centuries

We develop new datasets of monthly grain prices in 14 urban markets and of the storage and marketing of grain by five rural estates located in Western Germany between the late seventeenth century and c. 1860. We explore whether observed patterns of monthly prices, sales and storage of grain are consistent with the rational competitive storage model (RCSM). Results establish, first, that the crop year was divided into two seasons characterized by processing and marketing, respectively. Monthly prices of wheat during the marketing season (from February to summer) showed a pattern consistent with the rational competitive storage model. In the case of rye, which was a subsistence crop, a pattern of monthly prices consistent with the RCSM emerged only in the nineteenth century and was confined to urban markets. Second, grain price movements in spring and early summer predicted November prices, which implies the presence of inter-annual arbitrage. Whereas carry-over stocks held by rural estates partly served to provision a large household, tentative evidence suggests that some rural estates indeed also engaged in inter-annual arbitrage, but they do not seem to have been able to earn a profit from holding carryover stocks.