What 300 Years of Firewood Prices Say About the Economy

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1:48Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracey Alloway. And I'm Joe Weisenthal. Joe, you know what's been missing in my life? Go on. Chickens. Oh, yes, actually. Chickens still missing in my life, but also a comprehensive series of historical firewood prices in the U.S. for the past 300 years. You know what? We have data on literally every other commodity in the world, but I don't have a 300-year time series on firewood prices. And I always feel like if I just had that number, then I would have the complete picture of commodities. Well, I know we're sort of joking, but this is actually important because if you think about the U.S.

2:28in the 1700s or the 1800s, people used firewood. The vast majority of America's energy consumption came from wood. Wait, do you remember a couple of months ago when I was that guy who brought up wages of destruction in every chat? Are you going to do it again? No. Oh, well, you just did. No. Now I'm going to be the guy who brings up Moby Dick in every conversation. Oh, yeah. I knew this was coming. Because I've been reading Moby Dick. And so I'm really interested in energy transitions in the 1800s because one of the things that, you know, has come up in some of our past conversations, such as with Bob Brack, et cetera, Whale oil is basically the only energy source that we've completely eliminated.

3:07Every other historical energy source that we've had, we're still using it to some degree. They never totally disappear. And so I'm very interested in the phenomenon of like past historical energy transitions. People talk about the transition now, but it's interesting to sort of examine other periods when one form of fossil fuel or other fuel like went out of style, so to speak, or became uneconomical. Well, I have to say, as the proud owner of a wood-burning stove now and formerly a coal-burning stove— Yeah, you're interested in energy transition, too. Absolutely. So, I am very pleased to say that we have the perfect guest.

3:44We are going to be speaking with the author of a paper that's called Firewood in the American Economy, 1700 to 2010. And it is all about collecting historical data on firewood prices and then figuring out how that fits into the wider economy and measures of other things like output and productivity and things like that. So we have Nicholas Muller. He is the Lester and Judith Lave Professor of Economics, Engineering and Public Policy over at Carnegie Mellon. So, Nick, welcome to the show. Thank you so much. The pleasure to be here. Why don't I start out with why firewood? And I know I mentioned that firewood was the majority of U.S.

4:27energy consumption for many, many years. Is it right to think of it sort of as like oil, the 1800s equivalent of oil powering the entire economy? Yeah, so there are two reasons why I focused on this particular topic in a paper. One, as you said, somewhere around or before the Civil War, back before the American Revolution and the founding of the country, essentially all the energy in the U.S. economy, whether it was in households or firms doing primitive things, it was all coming from firewood. And so the fact that the academic literature and government statistics didn't really have a reasonably comprehensive time series of these prices seemed like a really big gap to me.

5:14And so that was one reason to just set out filling that knowledge gap. The other was prior to being at Carnegie Mellon, I taught at Middlebury College in Vermont. And my wife and kids and I used to get heat from firewood in a wood stove. And so you participate in these informal markets for firewood even today, and it got me thinking about what that must have been like long ago. And sure enough, it turned out to be a pretty interesting process to gather these prices. I never thought of going to Lowe's to buy a bundle of firewood as participating in an informal market. I guess it is formalized nowadays, but certainly if you're a professor, that's probably how you're thinking about it.

5:54I used to live in Vermont and I remember, you know, it was not that uncommon for people to buy a cord of firewood or however much they anticipated needing for the winter to heat their homes, etc. So I get the idea that like, OK, fire was this dominant source of energy for a long time in the American economy. What are we gained by actually having the numbers like, OK, we know it. We know the fact about firewood's existence and prominence. What does it help us now? And we'll get into the details. But what does it help us now to actually have some sense of the size and scale? Yeah. So I think two primary reasons.

6:30One, when we look at existing prior to this paper, existing estimates of the early American economy and gross domestic product, it had very, very sparse information on firewood prices. And they turn out to be really low compared to the prices I gathered. And so what that means is even with the same estimates of how much wood was consumed, those existing estimates of GDP that included that measure were really low in that regard. So the energy cost of economic growth using existing estimates looked much, much lower than what these updated numbers suggest. So size of the economy. Two, growth in the economy over time, especially during the early to mid-1800s, appears to be different when you use the updated series.

7:21And then three, when you consider that the bulk of firewood was produced in the agricultural sector, often in an informal way, meaning just home production. But even when you think about the wood that was hauled into some of our newly forming cities, that was really all coming from agriculture. And that means that when we think about existing measures of agricultural productivity that included the sort of things you would expect, livestock and crops and the like, it was really missing this important energy commodity, which was actually being attributed or should be attributed to that sector. And so agricultural productivity during this period would have been mismeasured as well.

8:04So you mentioned the data gap and how significant this would be for, you know, measuring something like the growth of the U.S. economy in those years. I have to imagine one of the difficulties in gathering the data for something like this is because firewood is or was, still is, an informal market, as you pointed out. And I know I joked earlier that firewood was like the oil equivalent of the 19th century. But of course, the big difference is not everyone has an oil gusher in their backyard or refinery. People in the 1800s could just go out into their land and chop down firewood. So in some respect, they weren't even paying any prices for it.

8:46So I guess my question is, why didn't the data exist before? And then how did you actually go about gathering it? Sure. So the critical process that enabled the prices and the price data and the records of advertisements and exchange to start showing up in a systematic way was urbanization. What ended up happening, which, you know, this is well known in U.S. economic history, somewhere between the American Revolution and the Civil War, the population started to urbanize. We were still pretty agrarian around the time of the Civil War, but people were moving to cities. And once you move to cities, you lose that idea, Tracy, that you just mentioned, which is we all have a woodlot in our backyard.

9:34You don't if you live in a city. And so the process of urbanization gave birth to markets for firewood that actually passed through commercial exchange. The agricultural sector was still producing the firewood, but now it was being hauled into cities by various means and sold in, I don't want to say organized markets in the sense that your readers might think, but in the sense that there was some exchange, not just the use of time and labor to procure the wood. And so that led to records of really advertisements in that period where we started to see an abundance of data on wood by cord, by species, by month, by year that we could use software to extract from PDF images.

10:24Hmm. So what is that? Let's talk about the data itself, because we've been talking about the why of the data and the how of the data. But what are the top lines in terms of what your research showed? Yeah. So on the data gathering process, it's important to note that I'm sure as I'm talking about urbanization, urbanization happening in the 1800s, you know, the price series go back to 1700. I actually have in an appendix prices from the 1600s. That begs the question where those came from. And they come from largely probate and estate records, where when the head of household is deceased, what would happen is legal entities would come into the household and they would value assets.

11:09And much like they do today, there'd be a settlement of an estate that includes a house and barn and animals and all the things in the household. And often one of the things in the records was five cords of firewood or, you know, 10 cords of firewood or one cord. And they would value it because they had to legally in terms of documenting the value of the estate. So the really early stuff came from there. Now, back to Joe's question about what do we learn about the prices themselves and the top line numbers? There's really three patterns that come out. There's lots of nuance, but there's three patterns that come out in the data.

11:47From 1700 to around 1800, there's lots of noise and volatility in the price series, but there's no significant trend when you correct for inflation. So that means firewood prices were basically changing at the same rate that the price indices, the equivalent of a consumer price index, were changing over that period of time. Then from 1800 to the Civil War, firewood prices started to increase in real terms, implying that they were rising more rapidly than inflation, often between half a percent and one percent real per year. And then after the Civil War, up to the modern era, there really wasn't a lot of evidence of a systematic price change until late in the 20th century around the energy crises that we're all familiar with in the 1970s, there was a systematic move back to firewood in some parts of the US, and that shows up as real price increases.

12:47It probably had to do with the oil price spikes at the time. You have these three time periods where there's no real change, there's rapid price appreciation between 1800 and the Civil War, and then there's not a lot of evidence of systematic price changes afterwards. And it's that middle period that I think is the most important for how we think about the U.S. economy and how we think about the ensuing transition from biomass to coal. Well, I definitely want to talk about that transition. But just before we do, why did prices actually increase that quickly in that time period? Because I imagine, OK, for prices to move, you have changes in supply and demand, but the supply of wood probably isn't changing that rapidly?

13:33Is it all just a demand story? Yeah, clearly the demand side is at work. The population is growing. We're engaging in more manufacturing activities. Iron manufacturing from the Civil War back in time to when it started relied exclusively on charcoal. So that was, you know, cut down wood, bake the moisture and impurities out of it, and then use the resulting carbon to produce the heat that was needed. So So things were growing. The demand side was growing. But it's my sense, and this is really from reading about the time. I don't have an econometric or an empirical way to nail down a specific cause for the price increases.

14:13But I think what was happening based on reading is that the supplies of wood were getting scarce closer to cities. And so what ended up happening was the transport distances and hence costs to get wood into the cities for both consumers and firms was increasing. Concurrent with that process, the railroad network was growing. And so on the one hand, you would imagine that increasing rail networks would reduce costs, right? You just load up a train, you get the train into the cities, and that would be much more cost effective than putting it in a cart and pulling it with a horse or putting it in a canal.

14:56But the other thing to remember is that locomotives until really after the Civil War did not run on coal. They burned wood as well. And so you have this ambiguous effect of the railroads that may have lowered costs, but then they were voracious consumers of wood themselves. And so I think it is a scarcity story. It's not a scarcity story in the sense that the forests were gone, but rather the forests that had been feeding urban demand for wood were receding. And that led to increases in transportation costs to get to get the fuel into cities and the demand centers.

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17:54Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com. I guess the other dynamic that I'm curious about in your story is sort of the labor side. So if you have a bunch of people moving from rural areas to cities, that's fewer people who are theoretically in the business of cutting down trees. And I'm curious if in your research, you know, was there a scarcity of labor to cut down the trees? And I'm just curious, were there technological or productivity gains that you found in the business of cutting down trees, period, such that in the mid-1800s, did that process look substantively different than maybe earlier in the 18th century?

18:35The only thing I can really say about the agricultural labor supply is regional. And there's a table in the paper that unpacks agricultural productivity growth in the northern areas and the southern areas of the country. And one thing that table shows is that, I think if I have it right, the rates of consumption of firewood outpace the rate of growth of agricultural workers in the north and kept pace in the south. And so if there is an instance where scarcity and labor supply, which would have driven up wages, was working as a force to drive up prices, it would have been the north. And that probably also aligns with the urbanization dimension, right?

19:18Because the cities, Philadelphia, New York, and Boston were big. They were growing rapidly. And so those two forces would align. On the technology piece, I really can't say anything about harvest or about felling. But what I can say is the technology that was used to move wood around, so whether it was going into a city or whether it was going into a village and being sold, we know that that had to have matured from very simple transportation, means of transportation, like animals and carts, to canals and to augment boats on rivers, like the Erie Canal is an example where we know firewood was shipped, to ultimately railroads, as I mentioned earlier, which were strategically designed to connect population centers, which the data suggests were growing very rapidly at this time.

20:13So there's clear technological change. It's just the funny thing about railroads until about the Civil War is they were both enhancing supply of firewood in demand centers, but they were also consuming really crazy amounts of wood. I mean, there were multiple cord stashes along rail lines that were monitored or manned by the railroads. And they had cords of wood and the trains would pass by and stop and they'd load up the hoppers with firewood that had been felled from the surrounding surrounding areas. So this was a really significant demand side associated with that technological change. OK, so the technological change was mostly on the transportation side, not like, I don't know, people adding a new type of blade to their axe or something like that.

21:03But this actually reminds me of something I wanted to ask, which is anyone who has ever lit a wood fire will know that not all wood is created equal. And I certainly have been on the receiving end of bad wet wood popping in my face and things like that. Did you take into account quality of wood or different species? Yeah, it's really neat. So much of the data does not provide details on type of wood or whether it's seasoned or dry. However, there are some of the data provided that do report, say, a quart of oak, quart of hickory, quart of pine. So they do report differences by species. And then the data for Portland, Oregon has about two decades worth that distinguishes grades of the extent to which it's seasoned.

22:04So there's green cords, there's half dry cords, and then there's fully dry cords. And so what do those data tell us? When you try to assess differences, systematic differences in price, let's say to start by species, there's a figure in the paper in one of the appendices that shows there's a pretty clear positive correlation between prices and energy content of the species of wood. And so that kind of makes sense that a quart of hickory or a quart of oak would be worth more to the consumer and in equilibrium would have a higher market price than, say, a cord of pine or a cord of a softer hardwood.

22:47And so the data support that. The second point to make is even though the information on seasoning of the wood or aging of the wood is sparse, I do observe the month at which the prices are posted for a lot of the data. And using that information, you can see there's a pretty steep discount for wood marketed in the summer. And one interpretation of that is that there's just lower demand, and that's fine. The other interpretation is that there is storage and seasoning going on, where some portion of wood harvested and or purchased in the summer is then stored to be sold at higher spot price times in the winter.

23:30And that would reflect systematic differences in whether the wood is seasoned or green according to the season. So there's like a contango effect in the firewood market or seasonal contango, so to speak. I have another technological question. You know, you mentioned at the very beginning of your time series, collecting data from probate sales and so forth, which I think inherently are sort of like private data that most people would not have access to unless they tried to the newspapers, which is more important. And I think this is an interesting story of commodities. Do you observe anything? I guess what I would say of spreads or dispersion of prices as transparency became more of a thing.

24:12So such that once firewood became something that got advertised in a newspaper, are the range of prices that were transacted in a given time period narrower than they were when this was more private archival data that you're working from? It's a fascinating question. One thing as an academic, one thing I hope is that having invested time and research assistance time in putting together this data set is that there'll be multiple papers that come from this, right? And the ability to ask and answer a whole series of questions. One of those is price dispersion. Right. And so this idea that in a given market or maybe across markets, there are systematic differences in the range or spread of prices for similar commodities.

25:00So largely, that's a topic for future research. But what I will say is when you look at the period from, say, 1800, just roughly 1800 to the Civil War, I do see regional convergence in prices. So southeast, northeast, Midwest. I see some evidence of regional convergence. And the working hypothesis there is that the railroads were such an effective means to move the wood that if there were persistent price differences between, say, the Midwest, which included Ohio and Pittsburgh and Michigan and the northeastern cities, then the entrepreneur could put a bunch of wood on a train in Ohio and ship it over to New York, Philadelphia, and Boston and earn money and then therefore eventually close those spreads.

25:50And as I said, I do see some evidence of that occurring as the railroad networks would have been growing up to the Civil War. After the Civil War, people were basically turning to coal. And so you wouldn't see much. Tracy, this is just like our first Stinson Dean conversation all over again. It's just the same, like the idea of like, you know, the degree to which you're outside of the trucking lane or outside of the rail lane and these price convergences, nothing ever changes. No, apparently not. Well, actually, we just said that, but something did change in the mid 1800s, which is, I guess, the arrival of cheaper coal.

26:26What exactly was it about coal or the development of coal that suddenly made it a big competitor to firewood? So the data show, well, let me say to be clear, what I did for coal was to assemble existing price estimates. So to be very clear with your listeners, I didn't go and gather a bunch of original information on coal prices. There were and are very good data sources stretching back into the 19th century on anthracite by Tuminous Coal, and I used those. and anecdotal information, qualitative information learned from reading that basically commercial coal production really got going around and just before the Civil War, maybe 1830, 1840 at the earliest.

27:11And I can't speak technologically to the process of extracting and shipping coal. It's just not, I don't, there are people that know a lot more about that than I do. But as with many production processes, it exhibited a pattern of declining cost, unit cost over time as production ramped up. And you see that in the existing coal data. It's just an empirical regularity. Now, bear that in mind, as I repeat, in the mid-1800s, as the economy is growing from 1800 towards the Civil War, I had just mentioned that firewood prices were increasing, right? So you have these contrasting patterns for two energy fuels that tell us one was getting cheaper while the other one was getting more expensive.

27:58So if I stopped there and said, you know, that's the story that that might make sense. But the other thing to mention about firewood is it's really bulky, right? I mean, a cord is four by four by eight, and it's got a good amount of energy stored in a dry cord or embodied in a dry cord. But the same amount of energy comes from a lot smaller volume of coal. And so from a consumer point of view or from a business point of view, if you've got to pay for storage or you have to manage an inventory, not only is coal getting cheaper, but it's also easier to work with in that sense. And I think that it was those two dimensions, so both literally the price and the non-quantitative attributes of the fuels that would have contributed to the transition.

28:46The idea there's just more on any given carload of coal, there's just way more BTUs than there would be on that same carload of firewood. Yeah. If you had a volume measure, right? So four by four by eight dry firewood, four by four by eight of coal, you're going to get more BTUs out of coal, especially anthracite. And anthracite was the one that was really taking off at this time. I think what's interesting to me, you know, going back to one of your first answers about your study is, and this gets back to a theme that we've talked about a lot on the show, like coal didn't kill firewood. I mean, your story as you describe it ends in the late 20th century.