Political Economy of Land Economics

The Ghosts of Natural Resource Economics Past

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

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.

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

Hobbes

1588-1679

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 differential

TR = $30 TC = $50

$5/bu TR = $500 TC = $50 $450 differential

TR = $50 TC = $50 None

$8/bu TR = $800 TC = $50 $450 diff.

$300 scarcity

TR =$80 TC = $50 $30 scarcity

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”