The Black Death of the fourteenth century reduced Europe’s population by about two-thirds between 1348 and 1420. Since endowments of land and capital remained unchanged, standard economic theory predicts rising real wages, falling rents of land and capital, and hence a drastic reduction of economic inequality. All of this occurred in most of western Europe. Elites eventually yielded, serfdom ended, landowners shifted from labor- to land-intensive production (grazing displaced planting), and labor-saving inventions abounded. In Europe east of the Elbe, by contrast, a formerly free peasantry was reduced to serfdom and landowners specialized increasingly in grain production, much of it for export. A plausible reason for the divergent responses is soil and climate: western Europe was mostly suitable for sedentary animal husbandry, eastern Europe was not; and the two were separated by a sharp dividing line that lay only slightly west of the Elbe. Data on Prussian landholdings suggest a strong correlation between low suitability for animal husbandry and the prevalence of serf-cultivated estates. Western elites could engage in factor substitution; eastern ones could not.

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.