[330] We must note the fact that the law of diminishing returns was already implied in the second of the famous progressions given by Malthus, for an arithmetical progression that shows an increase of one every twenty-five years implies an addition slower than the growth of the series itself, i.e. slower than the movement of time. Let us take land that yields one; in twenty-five years it will yield two, an increase of 100 per cent. But this is only the first step. At the end of another twenty-five years it will yield three, the increase being always one. But the increase from two to three means an increase of only 50 per cent., from three to four of only 33 per cent., and so on to 25 per cent. and 20 per cent. When the hundredth place has been reached, the increase will only be 1 per cent., and it will continue to fall farther, only more slowly.
[331] Ricardo gives a slightly different explanation. “If with a capital of £1000 a tenant obtains 100 quarters of wheat from his land, and by the employment of a second capital of £1000 he obtains a further return of eighty-five, his landlord would have the power at the expiration of his lease of obliging him to pay fifteen quarters, or an equivalent value for additional rent, for there cannot be two rates of profit.” (Principles, ed. Gonner, p. 48.) He means to say that if profits fall because new capital is less productive than old, rent must necessarily appear, because by definition rent is what remains of the produce after deducting profits and wages. This explanation closely resembles that one given by West in his Application of Capital to Land, published in 1815, and Ricardo was not above acknowledging his indebtedness to West.
[332] Shortly afterwards a German landowner published a book dealing with just that side of the problem of rent which had been neglected by Ricardo, namely, the influence of distance from a market upon cultivation and the price of products. We are referring to Thünen, who in his book Der Isolerte Staat (vol. i, 1826) draws a picture of a town surrounded by a belt of land, and shows how cultivation will be distributed in concentric zones around that centre, and how the kind of cultivation adopted will be a function of the distance.
[333] But the honour of discovering this law, which is so important for an understanding of exchange value, does not belong entirely to Ricardo. Forty years before a humble Scotch farmer named Anderson had observed the phenomenon and given a very satisfactory analysis of it in his book Observations on the Means of Exciting a Spirit of National Industry (1777). “Now as the expense of cultivating the least fertile soil is as great or greater than that of the most fertile field, it necessarily follows that if an equal quantity of corn, the produce of each field, can be sold at the same price, the profit on cultivating the most fertile soil must be much greater than that of cultivating the other, and as this continues to decrease as the sterility increases, it must at length happen that the expense of cultivating some of the inferior soils will equal the values of the whole produce.” (Quoted by Jevons, Theory of Political Economy, p. 229.) Anderson’s name was forgotten until quite recently, when it attracted a certain amount of attention among the pioneers of Ricardo. Ricardo himself does not seem to be aware of his existence; at least he never quotes him. The only two writers mentioned by Ricardo are Malthus and West.
[334] “In speaking, however, of labour as being the foundation of all value, and the relative quantity of labour as almost exclusively determining the relative value of commodities, I must not be supposed to be inattentive to the different qualities of labour.” (Principles, ed. Gonner, p. 15.)
[335] Hume had already pointed out the objection to this view. Cf. [p. 64, footnote].
[336] “If fixed capital be not of a durable nature it will require a great quantity of labour annually to keep it in its original state of efficiency, but the labour so bestowed may be considered as really expended on the commodity manufactured, which must bear a value in proportion to such labour.” (Principles, ed. Gonner, p. 32.)
[337] In a note on Section VI, chap. 1, he adds: “Malthus appears to think that it is a part of my doctrine that the cost and value of a thing should be the same—it is, if he means by cost, cost of production including profits.” (Ibid., p. 39.)
[338] Still we must note that Ricardo and Karl Marx, like everyone who has tried to base a theory of value upon labour, tacitly assume the operation of the law of demand and supply in order that their theories may fit in with the facts.
[339] But how was it that he never realised that land at least in any given country, and indeed for that matter over the whole world, is simply a kind of wealth “of which no labour could increase the quantity”?