The Soil

Land is not one thing. An acre of bottomland by a river — deep, well-watered, near the market — is a different economic object from an acre of thin upland soil at the end of a bad road, though both are called land and both are sold by the acre. The good acre is scarce; there is only so much bottomland, so much ground near the city, and no way to make more. From that scarcity, and from the differences between one acre and the next, the classical economists drew the first rigorous theory of rent — worked out, characteristically, in the middle of a political brawl.

The brawl was over the Corn Laws, the tariffs that protected British agriculture after the Napoleonic Wars by holding out cheap foreign grain and keeping the home price of corn — and so the rent of farmland — high. The landed interest favoured them, for exactly that reason. David Ricardo, in 1817, set out to show precisely whom such protection enriched, and in doing so produced the law of rent: an argument so clean that it survives, in its essentials, two centuries on, and so fertile that much of this volume is a series of footnotes to it.¹

The argument begins by refusing the obvious answer. Why does the good acre command a rent? Not, Ricardo insists, because it is fertile. Fertility alone would command nothing — if good land were unlimited, no one would pay to use a fertile acre while an equally fertile acre lay free for the taking next door. Rent is not the price of fertility. It is the price of a difference, under scarcity; and to see what difference, one must look not at the best land but at the worst.²

Imagine the lands of a country ranked by quality, from best to worst, and suppose a growing population must bring them into use one after another, the best first. So long as the best land alone can feed everyone, it bears no rent: it is not scarce relative to need, and competition among its owners to find tenants drives its rent to nothing. But let the population grow until the best land is fully used and a second, poorer grade must be broken to make up the shortfall. Now something changes.

The price of corn must rise to a level that makes cultivating the second grade worthwhile — enough to cover its costs, ordinary profit included, on that poorer ground. But corn is corn; it all sells at one price. And at that price the best land, which yields more for the same outlay, earns a surplus: the difference between what it produces and what the marginal land produces for the same cost. That surplus is rent. Push the margin to a third grade, poorer still, and the price rises again, and the surplus on both better grades rises with it. The rent of any piece of land is, exactly, its advantage over the worst land in cultivation — the marginal land, which itself pays no rent, because it earns no surplus.³

The fulcrum of the whole argument is the existence, at any moment, of a margin of cultivation that pays no rent. There is always a worst land in use — the last grade broken, or the last dose of effort applied — that barely repays its costs and yields no surplus. That marginal land is the hinge on which the price turns. The price of corn must be exactly high enough to make cultivating the marginal land worthwhile: no higher, or still worse land would be drawn in; no lower, or the marginal land would fall out of use and the harvest fall short of demand.

From this Ricardo drew the conclusion that so startled his contemporaries, and that the previous plate announced in advance. The rent of the good land does not raise the price of corn. It is the other way about. The price is settled at the no-rent margin, by the cost of growing corn on the worst land in use; and the rent of better land is the surplus that this price — fixed elsewhere, by the margin — happens to leave behind. Strike out every rent in the country and the price of corn would not fall by a farthing, because the price is set at the margin, where no rent is paid. In Ricardo's compressed formula: corn is not high because a rent is paid; a rent is paid because corn is high.⁴ Rent is price-determined, not price-determining — the dictum of the first plate, now earned.

There is a subtlety here that deepens the law and discloses its true reach. The argument did not really require several grades of land; it required only a margin — a last, least-productive application of effort that earns no surplus. And such a margin appears even on a single uniform field, through the principle of diminishing returns.

Take one plot of good land and work it harder: apply a second dose of capital and labour to the same acres, then a third, a fourth. Each dose adds something to the harvest, but less than the dose before — the field grows crowded, the easy gains are taken first, and the marginal product of effort falls. Cultivation intensifies up to the dose whose extra produce just covers its cost: that is the intensive margin, the no-rent dose. But the earlier doses, poured onto the same land, yielded more than that marginal dose, and so earn a surplus at the going price. Gathered across all the inframarginal doses, that surplus is rent — and it has arisen on a single field, from diminishing returns alone, with no difference of soil required at all.⁵

That shape is worth pausing on, for it is the moment economics first reached for the tool that would, half a century later, remake the whole subject. Ricardo's no-rent margin is a marginal concept; his rent is an inframarginal surplus; his entire argument turns on the contribution of the last unit. The marginal revolution of the 1870s did not invent that move — it found it, fully formed, in the theory of rent, and saw that what Ricardo had done for land could be done for every factor at once. The wage as the marginal product of labour, the return to capital as the marginal product of capital: these are the law of rent, generalised. In a real sense the whole apparatus of the first volume was Ricardo's rent theory, dressed in the clothes of a later century.⁶

The law has a dynamic, and it is a disquieting one. Everything turns on where the margin sits, and the margin moves. As a population grows and its hunger for produce swells, cultivation is driven onto ever-worse land, or ever-harder onto the land already broken; the margin descends; the price of produce rises to cover the poorer marginal soil; and the rent of every better acre — its advantage over that sinking margin — rises with it. Progress, in this vision, is a machine for enriching landlords. The growth of the society, to which the landlord contributes nothing in particular, steadily widens the gap between the good ground he happens to hold and the marginal ground that sets the price, and steadily fattens his rent.

Ricardo drew from this a famously gloomy prognosis. As the margin fell, rents would rise and engross a growing share of the national produce; wages, harried by the rising price of food, would hover near subsistence; and profits — the residual, squeezed between swelling rents and a wage floor — would sink toward the point where accumulation ceased and the economy settled into a stationary state. The prophecy did not hold to the letter: the opening of the New World's vast cheap lands and the productivity of industrial agriculture pushed the margin the other way for a century, and food grew cheaper, not dearer. But the underlying observation was sound and consequential, and it outlived the failed forecast: that the rent of land tends to capture the gains of general progress, and to deliver them to those who merely own the ground beneath it.⁷⁸

It is worth being clear about the power of this argument before turning, as the next plate will, to its uses. The law of rent explains an entire category of income without once appealing to anything the recipient does. The landlord's rent is not a wage for managing, nor a profit for risking, nor interest for waiting; it is a pure differential, the arithmetic surplus that scarcity and difference together throw off, and it would fall to whoever held the title regardless of their conduct. This is the first fully rigorous demonstration in economics that an income can arise from the bare ownership of a scarce and differentiated thing — and it is the analytic foundation on which every later argument in this volume, friendly to rent or hostile, is built.

But the law sees less than it sometimes claims, and three limits should be marked. First, the tidy order of cultivation — best land first, then second-best — is a simplification; real cultivation order depends on relative prices, on what each soil is suited to grow, on transport and technique, and it can and does reverse, so the neat staircase is a teaching figure more than a faithful map.⁹ Second, the law speaks of the “original and indestructible powers of the soil,” but as the first plate warned, the rent owed to those bare powers is desperately hard to separate, in any real parcel, from the return on the draining, clearing, building, and manuring that generations of owners have sunk into it. And third, most consequentially for what follows: by framing rent as a differential — the good land's advantage over the marginal land — the law quietly treats the marginal land's own situation as an innocent given. Henry George's challenge, in the next plate, will be to deny exactly that: to argue that the scarcity which fixes the margin where it sits is itself a social creation, and that the whole rent of land, not merely the differential above the margin, is an unearned fruit of the community's mere presence.¹⁰

Ricardo left economics three things, and the volume will use all of them. He left a mechanism: rent as the differential surplus that scarcity wrings from difference, set at the margin and gathered on everything better. He left a tool: the marginal analysis that would, once generalised, become the engine of all later price theory.¹¹ And he left a disquiet — the recognition that this surplus answers to no effort of its recipient, and that the progress of a society tends to swell it — a disquiet he stated in the cool language of arithmetic and left, characteristically, for others to moralise.¹²

It did not take long. Within two generations the arithmetic of the no-rent margin would be turned into a political programme by a San Francisco journalist who had watched a young country's land values explode and its poverty deepen in the very same motion, and who concluded that the two were one fact seen twice. Ricardo had shown that rent was a differential owed to scarcity. George would ask the question Ricardo declined to ask aloud — who made the scarcity, and by what right does the surplus it creates belong to the man who holds the deed? — and build a movement on the answer. To his unearned increment the next plate now turns.¹³