The economy history of Iceland covers the development of its economy from the Settlement of Iceland in the late 9th century until the present.
The field of economic history in Iceland
According to a 2011 review study by economic historian Guðmundur Jónsson, Economic history as an independent field of study is of fairly recent origin in Iceland, emerging only in the last quarter of the twentieth century with the increased specialisation and differentiation of the history profession. With no separate economic history departments and in fact, only one general university, the University of Iceland in Reykjavík, it is not surprising that economic history has largely been in the hands of either historians educated within the broad church of history, non-professionals or scholars outside the history profession. Only in the last twenty years or so have specialist economic historians, educated abroad, entered the field and turned the subject into a distinct discipline.
Pre-18th century economic history
Trade in medieval Iceland was conducted through barter.
According to the traditional nationalist historical narrative, which has been associated with historian Jón Jónsson Aðils (1869–1920), Iceland experienced a golden age from 874 (settlement) to the 11th century (this period has often been referred to as the Saga Age). This period of prosperity purportedly ended when Iceland fell under foreign rule (Jónsson 1903, 79, 88–89, 103, 105, 178). Under foreign rule, the Icelandic nation declined and ultimately suffered humiliation (Jónsson 1903, 241-242). Aðils' lessons were that under Icelandic rule, the nation was prosperous, productive and artistic, but suffered under foreign role. However, Aðils argued that within every Icelander, a desire for freedom and nationalism remained, and only had to be awoken. Historian Guðmundur Hálfdanarson suggests that Aðils himself was doing his best to awaken this slumbering nationalist sentiment and strengthen the Icelandic pursuit of independence.
According to Icelandic historian Axel Kristinsson, there is little historical evidence to substantiate the aforementioned traditional narrative about economic decline after the Saga age. The Icelandic historian Árni Daníel Júlíusson characterizes the period 1550-1800 as a golden age in Icelandic farming. However, a 2009 book by the Icelandic historian Gunnar Karlsson supports the decline thesis, as he shows a 40% reduction in GDP from the 12th century to the 18th century. The Danish anthropologist Kirsten Hastrup characterizes the period 1400-1800 as a "period of remarkable social disintegration and technological decline."
18th to 20th century
Iceland had among the lowest GDP per capita in Western Europe at the start of the 20th century. According to one assessment by Central Bank of Iceland economists, Post-World War II economic growth has been both significantly higher and more volatile than in other OECD countries. The average annual growth rate of GDP from 1945 to 2007 was about 4%. Studies have shown that the Icelandic business cycle has been largely independent of the business cycle in other industrialised countries. This can be explained by the natural resource-based export sector and external supply shocks. However, the volatility of growth declined markedly towards the end of the century, which may be attributed to the rising share of the services sector, diversifi cation of exports, more solid economic policies, and increased participation in the global economy.According to Reuters, Iceland has had "over 20 financial crises since 1875".
Agricultural modernization
Certain institutional arrangements in Iceland retarded the modernization of agriculture and the growth of non-agrarian sectors. One such institution was "the system of land tenures with its heavy obligations to landlords and insecure farm leases, which discouraged fixed capital investment on the farms. The other was a wide-ranging social legislation set up to regulate family formations and to maintain a balance between agriculture and the fishing sector in favour of the former. The most effective regulatory device was a stringent labour bondage which had few parallels in Europe."
In the early 20th century, there was a decline in rowing boat fishing as the fishing industry moved towards mechanized fishing vessels.
Prior to 1880, agriculture (in particular, sheep products) was the largest share of Icelandic exports.