Economics Dictionary of ArgumentsHome
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| Land: In economics, land refers to all natural resources used in production, including soil, minerals, water, and air. It is a factor of production alongside labor and capital. Land generates economic rent and its value is influenced by its fertility, location, and accessibility._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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David Ricardo on Land (Economics) - Dictionary of Arguments
Rothbard II 83 Rent/land/Ricardo/Rothbard: Rent served as the linchpin of the Ricardian system. For, according to Ricardo's rather bizarre theory, only land differed in quality. Labour, as we have seen, was assumed to be uniform, and therefore wage rates are uniform, and, as we shall see, profits are also assumed to be uniform because of the crucial postulate of the economy's always being in long-run equilibrium. >Labour, >Ricardo, >Wages/Ricardo. Land is the only factor which miraculously is allowed to differ in quality. Next, Ricardo assumes away any discovery of new lands or improvements in agricultural productivity. His theory of history therefore concludes that people always begin by cultivating the most fertile lands, and, as population increases, the Malthusian pressure on the food supply forces the producers to use ever more inferior lands. In short, as population and food production rise, the cost of growing corn must inexorably rise over time. Rent, in Ricardo's phrase, is payment for the ‘use of the original and indestructible powers of the soil’. This hints at a productivity theory, and indeed Ricardo did see that more fertile and productive lands earned a higher rent. But unfortunately, as Schumpeter put it, Ricardo then ‘embarks upon his detour’. In the first place, Ricardo made the assumption that at any moment the poorest land in cultivation yields a zero rent. He concluded from that alleged fact that a given piece of land earns rent not because of its own productivity, but merely because its productivity is greater than the poorest, zero-rent, land under cultivation. Remember that, for Ricardo, labour is homogeneous and hence wages uniform and equal, and, as we shall see, profits are also uniform and equal. Land is unique in its permanent, long-run structure of differential fertility and productivity. Hence, to Ricardo, rent is purely a Rothbard II 84 differential, and Land A earns rent solely because of its differential productivity compared to Land B, the zero-rent land in cultivation. Rent/land/Ricardo: To Ricardo, several important points followed from these assumptions. First, as population inexorably increases, and poorer and poorer lands are used, all the differentials keep increasing. Thus, say that, at one point of time, corn lands (which sums up all land) range in productivity from the highest, Land A, through a spectrum down to Land J, which, being marginal, earns a zero rent. >Marginal costs/Ricardo. Rothbard II 95 RothbardVsRicardo/Problems: (…) in discussing the rise in cost of producing corn, Ricardo reverses cause and effect. Ricardo states that increasing population ‘obliges’ farmers to work land of inferior quality and then causes a rise in its price. But as any utility theory analyst would realize, the causal chain is precisely the reverse: when the demand for corn increases, its price would rise, and the higher price would lead farmers to grow corn on higher-cost land. But this realization, of course, eliminates the Ricardian theory of value and with it the entire Ricardian system. (…) as numerous critics have pointed out, it is certainly not true historically that people always start using the highest-quality land and then sink gradually and inevitably down to more and more inferior land. Rothbard II 91 VsRicardo/Rothbard: One of the greatest fallacies of the Ricardian theory of rent is that it ignores the fact that landlords do perform a vital economic function: they allocate land to its best and most productive use. Land does not allocate itself; it must be allocated, and only those who earn a return from such service have the incentive, or the ability, to allocate various parcels of land to their most profitable, and hence most productive and economic uses. >Allocation. Ricardo himself did not go all the way to government expropriation of land rent. His short-run solution was to call for lowering of the tariff on corn, or even repeal of the Corn Laws entirely. Rothbard II 108 VsRicardo: The Ricardian theory of rent was effectively demolished by Thomas Perronet Thompson (1783–1869) in his pamphlet, The True Theory of Rent (1826)(1). Thompson weighed in against this fallacious capstone to the Ricardian system: ‘The celebrated Theory of Rent’, Thompson charged, ‘is founded on a fallacy’, for demand is the key to the price of corn and to rent. The fallacy lies, in assuming to be the cause what in reality is only a consequence... [I]t is the rise in the price of produce... that enables and causes inferior land to be brought into cultivation; and not the cultivation of inferior land that causes the rise of rent. 1. Thomas Perronet Thompson. 1826. The True Theory of Rent, in Opposition to Mr. Ricardo and Others. Being an Exposition of Fallacies on Rent, Tithes, &C. In the Form of a Review of Mr. Mill's Elements of Political Economy. London. - - - Rothbard III 560 Land/Ricardo/Rothbard: What if the supply of capital remained the same, while the supply of labor or land factors changed? Thus, suppose that, with the same capital structure, population increases, thus expanding the total supply of labor factors. The result will be a general fall in the MVP of labor and a rise in the MVP of land factors. This rise will cause formerly submarginal, no-rent lands to earn rent and to enter into cultivation by the new labor supply. Land/Ricardo: This is the process particularly emphasized by Ricardo: population pressing on the land supply. The tendency for the MVP (marginal value product) of labor to drop, however, may well be offset by a rise in the MPP (marginal physical product) schedules of labor, since a rise in population will permit a greater utilization of the advantages of specialization and the division of labor. The constant supply of capital would have to be reoriented to the changed conditions, but the constant amount of money capital will then be more physically productive. Hence, there will be an offsetting tendency for the MVPs of labor to rise. >Factor market/Rothbard, >Production factors/Rothbard, >Land/Rothbard, >Labour/Rothbard, >Marginal product/Rothbard._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 |
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