Download - Political Economy of Land Economics
Political Economy of Land Economics
The Ghosts of Natural Resource Economics Past
Wednesday, January 18
Thomas Hobbes (1588-1679)
Thomas Hobbes Each of us is motivated to act in such ways as we believe
will relieve our discomfort, preserve and promote our own well-being.
The natural state of human beings is in perpetual struggle against each other.
To escape this fate, we form the commonwealth, surrendering individual powers to the authority of an absolute sovereign.
The will of the sovereign for its subjects will be expressed in the form of civil laws that are decreed or tacitly accepted.
If individuals make private judgments of right and wrong based on conscience, succumb to religious enthusiasm, or acquire excessive private property, the state will suffer.
John Locke (1632-1704)
John Locke
“Natural Law” – men have “natural rights” not given to them by any ruler
Rights in property are the basis of human freedom
Government exists to protect these rights and to preserve order
Men organize under a “social contract” to gain advantages not available individually
LockeThis Contract of Society was the foundation of the Contract of Government, under which all political power is a trust for the benefit of the people, and the people themselves are at once the creators and beneficiaries of that trust. The State is based on a contract between ruler and subjects, who give him power only so that their own welfare is increased and their property protected in a way not possible in the State of Nature, where it may be taken away by unprincipled forces.
Political Economists
Study of land gave emphasis to role of governments in defining and protecting property rights Adam Smith David Ricardo Thomas Malthus Karl Marx John Stuart Mill
1600 1650 1700 1750 1800 1850 1900
Hobbes
Locke
Smith
Ricardo
Malthus
Marx
Mill
Locke
Smith
Ricardo
Malthus
Marx
Mill
1632-1704
1723-1790
1772-1823
1766-1834
1818-1883
1808-1873
Hobbes1588-1679
Adam Smith (1723-1790)
Adam Smith Ownership of land is
essentially nonproductive
Returns to land ownership are unearned
Secure, individual ownership might lead to improvements
Q = f( L, K) L = labor K = capital
Wages – returns to labor
Profit – returns to capital
Rent – returns to land (natural capital)
David Ricardo (1772-1823)
David Ricardo
Owners of land may earn rent. Scarcity rent
When land is homogeneous in quality but scarce
Differential rent When land is of different qualities; more fertile
land produces more/earns more.
Understanding Rent
Farmer Smith Poor land – max 10 bushels per acre of corn
Farmer Jones Fertile land – 100 bushels per acre of corn
Capital costs – $10/acre Labor costs – $40/acre
Summary – Understanding Rent
Corn Price
Jones 100 bu/ac Jones Rent Smith 10 bu/ac Smith Rent
$.50/bu TR = $50 TC = $50 None TR = $5 TC = $50
$3/bu TR = $300 TC = $50 $250 TR = $30 TC = $50
$5/bu TR = $500 TC = $50 $450 TR = $50 TC = $50 None
$8/bu TR = $800 TC = $50 $750 TR =$80 TC = $50 $30
Ricardo
Is rent unearned income? Or is rent a legitimate cost of production that gets included in the price of the good produced?
Conclusion: rent arises because of price of product, is a residual and is unearned
Thomas Malthus (1766-1834)
Thomas Malthus
Population increases at geometric (exponential) rate
Food supply increases at an arithmetic (linear) rate
Food supply (and hence, population) constrained by natural productivity of limited land supply
Labor Theory of Value
The value of a product is determined by the amount of labor used to produce it.
Karl Marx (1818-1883)
Karl Marx
Capital and land are essentially unproductive without labor
Capital is the product of labor exerted previously
Private ownership of land allows owner to extract unearned rent
Improvements to land exploit labor, taking away resources that should go to workers
John Stuart Mill (1806-1873)
John Stuart Mill
Inherent fallacy in labor theory of value Theory of Demand Landowner can use land to produce good
in highest demand and increase his income
Opportunity costs Private ownership would result in land
being used in highest valued use
Mill Private persons should be allowed to hold title to
land, not because there is any moral or natural right for them to do so, but because society as a whole is likely to benefit from the incentives which private land ownership hold out
Land owners hold their land at the sufferance of society and in trust for society
Landowners should be legally compelled to manage land in a way consistent with the public good
For further information: http://www.utm.edu/research/iep/m/milljs.htm http://csf.colorado.edu/psn/marx/Bio/Marx-Karl/
km1869a.htm http://www.ucmp.berkeley.edu/history/malthus.html http://www.bized.ac.uk/virtual/economy/library/
economists/ricardo.htm http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/
smith/farrer.html http://www.johnlocke.org/whowasjl.html http://www.philosophypages.com/ph/hobb.htm
Assignment for Monday Jan. 24 –Read Field Chapter 2, “Natural Resources and the Economy”