Criticism of tile Ricardian Theory
The Ricardian theory of rent has been widely criticized. First. it has been pointed out that there are no “original and indestructible powers of the soil.” Good lands. after being constantly cultivated. utility to a large extent and get exhausted. To this be replied that, if after exhaustion. good lands ma nuder equally with the bad ones, the their productive power much more readily than the latter. It is also pointed out that. in an old country. where land has been constantly manured. the upper layer, which grows crops, is all man-made. There l nothing ‘original’ about it. But this is not correct. The climate sunshine, air, situation, ete., of a particular piece of land are all fixed by nature. They are all ‘original and indestructible’ Secondly, it is objected that Ricardo uses the term fertility of land in a vague manner. Apart from the factor of situation. fertility depends upon the ability of the farmers and the methods of cultivation used. Moreover, fertility is relative to the crops grown. Thirdly, Ricardo’s theory assumes that there exists a no-rent land which only repays the cost of cultivation,In most cases. it is true; there arc lands which pay only a nominal rent. Such lands yield no true economic rent. The concept of scarcity relit can also explain this situation. For the substance of the theory, it is not necessary that there should exist a no-rent land. The concept of no-rent land is merely imaginary and theoretical and is not realistic. Fourthly, according to the Ricardian theory, rent arises on account of natural differential advantages of superior lands over the marginal one. But even if all the land is of A-grade, rent will still arise. It will arise owing to the operation of the law of diminishing returns when land is intensively cultivated. The marginal unit of labour and capital applied must be compensated by the yield obtained. The earlier units will give surpluses over their costs (because their costs are less than the cost at the margin), which will constitute the rent.
The fact is that rent arises not on account of superiority or inferiority of land. but because land is scarce. If land, good or bad were in a state of abundance, there. would have been no question of paying or receiving rent. Even if the lands were homogeneous, rent will still arise owing to its scarcity. Ricardian Theory explains that superior things have superior prices, but it docs not explain why prices emerge . Fifthl)’. as Carey and Roscher point out. it is historically wrong to assume that. in a new country. the best lands are cultivated first. In fact, lands that arc first cultivated are not usually the best; they arc only the most easily accessible. To this Walker replied that by the best land Ricardo meant not the most fertile land but that which was the best both from the point of view of fertility and situation Sixthly, criticism is levelled against Ricardo’s corollary that since the marginal land pays no rent and PriCE is determined by cost of the marginal land, rent does not fonn apart of the price of the produce. The modem economists think that it is only from the point of view of economy as a whole that land has perfectly. inelastic supply and earns a surplus or rent. This surplus is not included in cost and hence it docs not enter. into price. But, from the point of view of an individual. farmer or industry. a payment has to be made to prevent land from being transferred to some other use. The payment called transfer earnings, is an ‘clement of cost and hence enters into price. For the individual fanner the whole of rent is cost. “This concept of transfer earnings helps to bring the simple Ricardian theory-where transfer earnings arc zero because it is the whole economy which is being studied-into a close relation with reality.” (Stonier and Hague). Fillall~. the most important criticism of Ricardo, however, comes from those who deny the necessity of explaining rent hy a special theory not applicable to the rewards of other factors of production. They explain rent in the same way as wages, interest and profits. The) deny its peculiar nature as contended by specific and separate theory of rent is called fOL The demand and supply theory which determines all values, also determines the rent of land. This point of view is explained below.