Literature 1817 – 1900, David Ricardo and Henry George

David Ricardo (1817) is regarded as the father of economic rent. Previous authors including Adam Smith did write about rent, but their analysis was not precise and sometimes inconsistent. The quality of the analysis by Ricardo made his book one of the famous classics in economics. In addition to the scientific merits, his book was also highly relevant for society because he attacked the Corn Laws that limited the supply of corn by way of import tariffs. This increased corn prices in England in the first half of the 19th century. The high corn prices, in turn, increased land rents, since land by nature is limited in supply. Chapter 2 “On Rent” of Ricardo’s book states: “Corn is not high because rents are paid, but rents are paid because corn is high”. In addition, Ricardo explains “… rent does not and cannot enter in the least degree as a component part of its price. [Footnote 1:] The clearly understanding this principle is, I am persuaded, of the utmost importance to the science of political economy.”

Ricardo’s analysis in chapter 2 “On Rent” is also precisely because he distinguishes the return for the landowner since land is limited in supply and the return for improvements by the owner: “But it is evident that a portion only of the money annually to be paid for the improved farm would be given for the original and indestructible powers of the soil; the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land, and in erecting such buildings as were necessary to secure and preserve the produce.” The former are revenues without costs, i.e. rents. The latter are costs, and therefore not rents.

Ricardo focused on land rent, but he did mention in chapter 3 “On the rent of mines” that rent can also be caused by other resources that are limited in supply: “Mines, as well as land, generally pay a rent to their owner; and this rent, as well as the rent of land, is the effect and never the cause of the high value of their produce.”

The result of the corn laws was that the revenues of landowners increased, and the profits of entrepreneurs were reduced because the corn price had a big impact on labor costs.

Henry George (1879) applied Ricardo’s theory to explain the paradox of extreme wealth and poverty in industrial America in the late 19th century. Henry George proposed a single tax on land and natural resources. He attacked tariffs and monopolies. His book “Progress and poverty” was a bestseller in many countries. In the 19th century, it was the most popular book about economics among the public. A board game was designed to popularize the ideas of Henry George: the Landlord’s game later redesigned as the Monopoly board game (Retrieved from Wikipedia, The Landlord’s Game).

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