The rising price of literature after the Black Death incentivized the invention of movable-type printing. An example of technological overshooting, the printing press turned an acute shortage of literature, and of human capital, into a sudden abundance. Cheaper literature encouraged wider literacy; new grammar schools and universities further multiplied human capital. That expansion sorely threatened the earlier Latinate elite, both clerical and secular, and led directly to the Reformation. Southern Catholic Europe invoked censorship; northern Protestant Europe censored only lightly. European publishing migrated northward. The divergent responses to printing are explained by: (a) the growth of Atlantic commerce and (b) the rise in Northern Europe of absolutist states. Both commerce and state-building required, and depended on, newly abundant human capital. In northern, Protestant Europe, rapidly multiplying human capital led to prosperity and technical progress; in southern, Catholic Europe, censorship constricted human capital and imposed persistent backwardness.

The unforeseen extent and duration of World War I interrupted much of Europe’s access to the abundant lands of the New World, on which its food supply had come to depend. In Germany, the British blockade starved some 800,000 people; mortality increased most (over 60 percent) from malnutrition-related tuberculosis. Central to the appeal of Hitler’s National Socialist movement was its call for the conquest of Lebensraum in eastern Europe and western Russia – and the expulsion or extermination of those regions’ native inhabitants – as a means to self-sufficiency in food. Both in Mein Kampf and in his “second book,” Hitler argued explicitly that neither factor substitution, factor mobility, nor new technologies could guarantee Germans’ food supply; only the admittedly costly and risky route of conquest would suffice. When Stresemann’s “export powerhouse” strategy of factor mobility collapsed after 1929, Hitler’s alternative won strong popular support. In the “breakthrough” election of 1930, the Nazi vote increased most in the cities that had suffered the highest wartime mortality from tuberculosis. Hitler’s genocidal plan appealed especially to the populations that had endured the worst wartime hunger and death.

Whether a society adapts to a supply shock or resists it coercively depends on the costs of each action. The more costly is adaptation, the likelier is a coercive response. We consider three kinds of adaptation, each usually costlier than the last: factor substitution, factor mobility, and factor-saving technology. Where substitution is elastic, producers can readily substitute a cheaper factor for one that has become suddenly expensive. Inelastic substitution forecloses that alternative, but often a suddenly devalued factor can exit to a different sector or region where it remains in higher demand. Where neither substitution nor exit is possible, a factor-saving technology or institutions that use a factor more efficiently – e.g., where labor is suddenly scarce, a labor-saving technology – can sometimes be adopted or invented. The puzzle, addressed in the next chapter, is why a new technology does, or does not, arise.

In this chapter, we explore factor markets in a computable general equilibrium (CGE) model. Data in the Social Accounting Matrix (SAM) on factors of production describe factors’ sources of employment and income. Important factor market concepts in the CGE model are factor mobility assumptions, the effects of factor endowment and productivity growth, complementary and substitute factors, full-employment versus unemployment model closures, and the links between changes in factor supply and industry structure and between changes in industry structure and factor prices.