Chris invites economists to have a pop at this effort by Mark Braund. Life's too short to give it a full fisk. But there's a beautiful irony in it.
Mark says we need another theory of economics, one based upon Ricardo's theory of rent:
Ricardo explained the tendency of free markets to promote inequality rather than inclusion in the largely agricultural economy of the early nineteenth century....Ricardo showed how those individuals whom, for whatever reason, start out with the best land, inevitably end up owning most of the land, and thus holding great economic power over the rest of population.
His theory of rent was most clearly set out in his 1815 Essay on Profits, not the Principles to which Mark links. Ricardo writes, apparently vindicating Mark:
In a progressive country, rent is not only absolutely increasing, but...it is also increasing in its ratio to the capital employed on the land...The landlord not only obtains a greater produce, but a larger share.
This happens because of diminishing returns to land. As the population grows, so does demand for food. That means worse quality land must be cultivated, so profits in the agricultural sector tend to fall. This in turn raises demand for the best quality land, and so raises rents.
You can generate a theory of inequality from this.
But here's the irony. What did Ricardo see as the solution to this problem?
Free trade, that's what. If we could import cheap corn, he said, demand for quality land in the UK would fall, as would rent:
If corn can be imported cheaper than it can be grown on [British] land, rent will again fall and profits rise.
In this sense, free trade is a way of preventing inequality rising.
Did Mark really mean to say this?
So inequality in the global economy can be reduced by trading with Mars?
Posted by: Inequality | September 26, 2006 at 05:00 PM
Your comments section on this post is only for economists, I realize and yet I have a question.
...Ricardo showed how those individuals whom, for whatever reason, start out with the best land, inevitably end up owning most of the land, and thus holding great economic power over the rest of population...
Aren't the crucial words here 'for whatever reason'? What reason, I'd like to know.
Posted by: james higham | September 27, 2006 at 09:24 AM
Quite, James. Ricardo was silent on this matter. Needless to say, Marx wasn't. Chs 26-29 here give his views:
http://www.ecn.bris.ac.uk/het/marx/cap1/index.htm
This is not to mention the Levellers, of course.
Inequality - it depends what Mars' specialities were. I reckon that, were we to ever trade with another planet, its exports would be hugely skill-intensive. That could reduce relative wages of skilled workers here, couldn't it?
Of course, there are other ways of reducing inequality in the nearer-term.
Hey fellas, the post was about Ricardo, not a general theory of inequality.
Posted by: chris | September 27, 2006 at 10:06 AM