Lex, a loyal MR reader, asks:
My understanding of Ricardo’s theory of rents is that they are based on the least productive land used. Shouldn’t rent be based on the most productive land not used? Is that merely a semantic difference?
Ricardian rent theory is strange. Let’s say you have three pieces of land, yielding 3, 5, and 10. Rent will be 7, or 10-3, with apologies to Samuel Hollander. The marginal piece of land, the one yielding three, is allocated to wages and profit from capital. (You can treat profits as an afterthought in this model.) The rest goes to landowners.
Why might that distribution result? In the Ricardian model you can (and do) augment labor through Malthusian breeding. So labor doesn’t have much bargaining power in the long run. Any move in favor of wage labor creates more people and lowers the wage of labor to the return on the marginal unit of land. If you have some extra land, even if it isn’t incredibly productive, you can always breed more people to cultivate that marginal unit. So the value of the least valuable piece of land in essence sets the wage.
Land is inelastic in supply, and thus the landowners reap the rest of what is produced. We can also see that the last plot of land used (and not the marginal piece of land not used) determines rent and wages, because it is the actually used piece of land which regulates population and the return to labor.
That is my quick and dirty take on Ricardo, noting that "what Ricardo really meant" became a cottage industry about one hundred and ninety years ago…
Are you accurately representing the theory? The wiki is light on detail. My knowledge of it comes from
reading (summary of) Henry George. First of all, rent of *what* is seven? I think you mean to say that the
rent of the highest value land (the 10) is seven. The rent of the 5 is 2.
The reasoning, IIRC, doesn’t depend directly on Malthusian breeding, but on the insight that to “persuade”
a worker not to use the free land, you have to bad at least the yield he’d get on that land. So, if the
3-land is free, labor earns 3 because you have to bid 3 to get him to work for you on the 10.
I’m trying to remember the objection I had to this line of reasoning, because i discussed it with a Georgist.
I think my complaint was, “well what determines the yield on the marginal plot?” At the very least, you
would have to express that in money-neutral, and in fact, physical neutral terms to avoid regression. So you
can’t say “the marginal plot yields $3″ because, why is the output worth $3? But then, you also can’t say
“the marginal plot yields 3 carrots” because if there’s more than one good, you have to ask what determines
the exchange ratio of that land’s output to the other lands’ different output.
The upshot is, you would have to express the value of the marginal plot as something of the form, “enough
to provide sustenance for ones self” or “enough to provide sustenance for three people” or something like that
Okay, now it sounds like I’m rambling. Take it FWIW.
Surely one simply imagines that land is a continuum, where these are identical. If the farms were large enough that these two were different, then the price should be somewhere in between, set by some other factor. No?
If there were no improvements in fertilizer, Ricardo would still be bs.
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