1 Ricardo revamped economic conventions and the definition of “rent.”
& Recall the Corn Laws debate. Some claimed that corn cost more because landlord were charging farmers more in rent. Ricardo disagreed, arguing that the price rose because of wartime shortages, which lured entrepreneurs into the farming industry. As they entered, landlords found more capitalists knocking at their doors and bidding up the rental price of land. Thus, land rents were high because the price of corn was high, not vice versa. When blockades tumbled, so would the price of corn, and landlords would have to charge lower rents. In modern economic terms, the desire for renting land is a “derived demand,” determined by the supply and demand for corn.
& Ricardo next argued that landlords can charge rents only if there is a demand for their property. Some land-owners’ property will be more fertile than others, and rent levels will be established on the basis of this difference in fertility. Rents arise because all land is not created equal:
When in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land. When land of the third quality is taken into cultivation, rent immediately rises on the second, and is regulated as before by the differences in their productive powers. At the same time, the rest of the first quality will rise.
& Differential Rent: If Ricardo is right, rents emerge as populations grow. When few people need food, they can raise enough by farming only the best land. As they can raise enough by farming only the best land. As mouths multiply, farmers begin cultivating the second-best land. Because the second-quality land produces less, the owner of the better land can now charge rent. Wages and a normal profit on the second land will determine the price of grain. And since costs are lower on better land, a surplus exists. The landlord takes the surplus.
& Why did Ricardo’s vision incite frowns and fright?
Capitalists could expand industrial production and even pay workers higher wages ííí The happy workers would breed more workers, bidding down wages ííí How would England feed the hungry crowds? By farming more land. ííí Bur remember, the additional lands would be less productive and most costly to cultivate, since farmers began by exploiting the riches land firs. ííí The price of grain would rise. But the capitalist would not profit, because he must pay the workers more so that they can survive.
& Who wins? The landlords. Who loses? The capitalists. Who stays the same? The workers, although ultimately starvation could strike when farmers exhaust the lands (stationary state).
& Why does Ricardo diverge so strongly from Smith’s merry dream? Smith generally assumes constant returns to agriculture and increasing returns to industry, which allows all parties to prosper. Ricardo depicts constant returns to industry and decreasing returns to agriculture.
1 Ricardo vs. Malthus on Corn Laws
& Ricardo wrote, “I contend for free trade on corn, on the ground that while trade is free, and corn cheap, profits will not fall however great be the accumulation of capital.” Economic growth confronts no ditches. And although obstacles arise from “the scarcity, and consequent high value of food and other raw produce… let these be supplied from abroad in exchange for manufactured goods, and it is difficult to say where the limit is at which you would cease to accumulate wealth.”
& Malthus posited a four-part rebuttal. (1) Corn Laws actually induced more domestic grain output because they boosted grain prices. (2) Grain was too important a commodity to be left to foreign producers. (3) Higher grain prices actually increased wages to workers, since workers are paid according to the price of grain (Ricardo argued that he was confused about the nominal vs. real wage). (4) Malthus rather defended the landlord by complimenting Ricardo.
The implication that there was a public opinion to be courted which was more than that of the old landed class had nonetheless been grasped earlier than this, as the Corn Laws debate had shown. All the greatest English parliamentary leaders in the nineteenth century were men whose success rested on their ability to catch not only the ear of the House of Commons, but that of important sections of society outside it. The first and possibly most significant example was Sir Robert Peel, who, by accepting the verdicts of public opinion gave English conservatism a pliability which saved it from an intransigence such as that shown in some European countries. Almost incidentally, though, he broke his party in the process. His conservative followers had been brought by him to accept parliamentary reform in 1832 and in 1846 he was just able to make them swallow repeal of the Corn Laws, but the champions of the agricultural interest turned on Peel soon afterwards and rejected him. The whole tendency of what he had done had been directed to the triumph of the new class which they identified with the middle-class manufacturers.
