Political Economy of Land Economics

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Political Economy of Land Economics

• The Ghosts of Natural Resource Economics Past
• Wednesday, January 18

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Thomas Hobbes (1588-1679)
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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.

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John Locke (1632-1704)
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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

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Locke
This 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.
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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

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1808-1873
Mill
1818-1883
Marx
1766-1834
Malthus
1772-1823
Ricardo
1723-1790
Smith
1632-1704
Locke
1588-1679
Hobbes
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Adam Smith (1723-1790)
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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)

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David Ricardo (1772-1823)
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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.

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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

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Summary Understanding Rent
Corn Price Jones 100 bu/ac Jones 100 bu/ac Jones Rent Smith 10 bu/ac 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
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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

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Thomas Malthus (1766-1834)
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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

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Labor Theory of Value
The value of a product is determined by the
amount of labor used to produce it.
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Karl Marx (1818-1883)
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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

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John Stuart Mill (1806-1873)
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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

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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

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For further information

• http//www.utm.edu/research/iep/m/milljs.htm
• http//csf.colorado.edu/psn/marx/Bio/Marx-Karl/km1
  869a.htm
• http//www.ucmp.berkeley.edu/history/malthus.html
• http//www.bized.ac.uk/virtual/economy/library/eco
  nomists/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

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Assignment for Monday Jan. 24 Read Field
Chapter 2, Natural Resources and the Economy