A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

Most contemporary economists, while denying that value is solely the product of labour and preferring to regard it as a reflection of human preferences, would willingly recognise the element of truth contained in the Ricardian view. But it must be understood in the sense that competition, although tending to reduce price to the level of cost of production, cannot reduce it below the maximum cost of production, or the price necessary to repay the expenses of producing the most costly portion of the total amount demanded by the market.[338] In this sense it is true not only of agricultural but also of all other products, and it has a wider scope than was at first ascribed to it by its authors. Rent is nowadays recognised as an element which enters into all incomes. But with an extension of sway has gone attenuation, and the term has lost something of its original significance and precision. To-day rent is treated as the outcome of certain favourable conjunctures, which are to be found in all stations in life, and it is no uncommon thing to speak of consumer’s rent even.

The Ricardian theory, moreover, presupposed the existence of a class of land which yielded no rent, the returns which it gave being only just sufficient to cover cost of production. In other words, Ricardo only recognised the existence of differential rents, and dismissed the other cases mentioned by Malthus.

It really seems as if Malthus were in this instance more correct than Ricardo. It is quite possible that in the colonies, for example, there may be lands which yield no rent because of the superabundance of fertile land. Or the same thing may occur in an old country because of the extreme poverty of the land. But it is quite evident that in a society having a certain density of population the mere fact that there exists only a limited amount of land is enough to give to all lands and to their products a scarcity value independent of unequal returns. Nor would the case be materially different if all lands were supposed to be of equal fertility, for who would be willing to cultivate land which only yielded the bare equivalent of the expenses of production?

Ricardo’s unwillingness to recognise this other class of rent, which depends solely upon the limited quantity of land, was due to the fact that it would have contradicted his other theory that there is no value except labour. It is true that he made an exception of some rare “products,” such as valuable paintings, statuary, books, medals, first-class wines, etc., the quantity of which could not be increased by labour. Nobody would have taken any notice of such a slight omission as that, but had he left out such an important item of wealth as the earth itself there would be great danger of the whole theory crumbling to dust.[339]

Such is the theory of rent, celebrated above all economic doctrines, and concerning which it might be said that no doctrine, not even that of Malthus, has ever excited such impassioned criticism. For this there are several reasons.

In the first place, it led to an overthrow of the majesty of the “natural order” by simply depicting some of its gloomier aspects. Men had been led to believe that the “order” was for ever beyond challenge. Now, however, it seemed that if the new doctrine was true then the interests of the landed proprietors were opposed not only to those of every other class in the community—for sharing always begets antagonism—but also to the general interest of society as a whole.

For what are the real interests of proprietors? First, that population and its demands should increase as rapidly as possible in order that men may be forced to cultivate new lands, and that these new lands should be as sterile as possible, requiring much toil and thus causing an increase in rents. Exhaustive labour bestowed upon the cultivation of land that is gradually becoming poorer and poorer would soon make the fortune of every landlord.

As a class, proprietors have every interest in retarding the progress of agricultural science, a paradox which the slightest reflection will show to be true. Every advance in agricultural science must mean more products from the same amount of land and a check upon the law of diminishing returns, resulting in lower prices and reduced rents, since it would no longer be necessary to cultivate the poorer soils. In a word, since rent is measured by reference to the obstacles which thwart cultivation, just as the level of water in a pond is determined by the height of the sluice, everything that tends to lower this obstacle must reduce the rent. In mitigation of this charge it must, however, be noted that, taken individually, every proprietor is of necessity interested in agricultural improvement, because he may have an opportunity of benefiting by larger crops before the improvements have become general enough to lower prices and to push back the margin of cultivation. If every proprietor argued in this way, individual interest would finally cheat itself, to the advantage of the general public. But this is nothing to be very proud of.

Ricardo set out to demonstrate the antagonism,[340] and with what a vigorous pen does he not picture it! The study of this question of rent made of him a Free Trader stauncher than Adam Smith, more firmly convinced than the Physiocrats. Free Trade was for them founded upon the conception of a general harmony of interests, while Ricardo built his faith upon one clearly demonstrated fact—the high price of corn and its concomitant, high rents. Free Trade seemed to be the means of checking this disastrous movement. The free importation of corn implied the cultivation of distant lands as rich as or even richer than any in Britain. All this meant avoiding the cultivation of inferior lands and reducing the high price of corn.

He was also desirous of proving to the proprietors that the practice of free exchange, even though it might involve some loss of revenue to them, was really to their interest. Their opposition, he thought, was very short-sighted. “They fail to see,” he writes, “that commerce everywhere tends to increase production, and that as a result of this increased production general well-being is also improved, although there may be partial loss as the result of it. To be consistent with themselves they ought to try to arrest all improvement in agriculture and manufacture and all invention of machinery.”[341]