2: On Rent
As a component of production. Land represents "the produce of the earth" that is used in production, most often considered in the expense of rent, which is money paid to a landlord in exchange for use of the land for some productive purpose.
The cost of rent is not consistent, even in seemingly identical plots of land: even in the instances of two adjoining farms in identical condition, one tenant may pay more than the other in rent. This may be attributed to specific reasons (one plot was already plowed and irrigated whereas the other would need the tenant to make improvements beore the land could be conveniently farmed, hence a lower rent was negotiated), but it is ultimately variable and subjective as to what amount constitutes a "fair" rent.
In regard to the specific example, it is evident that the cost of rent bears with it some cost of labor: if a premium is charged for a prepared field and a house upon it, then the value of the rent paid includes in some part compensation for the labor to prepare the land and build the house, rather than by sole virtue of the land.
There is further consideration of the value of goods that are removed from the land. For example, where a ship-builder purchases timber, it is not clearly or immediately evident that the payment made for timber is in effect a rent on the land from which the timber was removed. This becomes muddled as one considers different resources: the removal of mineral resources permanently decreases the value of the land, whereas the removal of timber only temporarily so (trees will grow back over the course of some years) - the same could be perhaps said of crops, though kin such cases the crops are not evident at the time the land is leased, and are produced by the labor of the tenant.
Further, where the land is used by the individual who owns it, rent is difficult to ascertain, as he essentially pays nothing to himself for the use of his own land. Surely, some portion of the proceeds of his product should still be attributed to the land - for the depletion of its resources - but it is difficult to fix a monetary value on such things.
And so, Ricardo clarifies that his discussion of rent hereafter should be understand to be the amount paid to landlord by tenant for the use of land or anything affixed to it.
When a land is first settled, there is an abundance of rich and fertile land that is generally made available at very low cost to anyone who proposes to cultivate it. It is generally the case that good land is available at no cost to those who would settle in a colony, as no-one would be willing to pay for it. Like the use of water by the brewer, it is necessary, but available in such quantity that the supply outstrips the demand.
But ultimately, land is limited in quantity and when demand exceeds supply, such that land becomes scarce, it takes on value. The condition of the land also contributes to its value: land that is barren or swampy is of no value so long as arable land is available. And third, that some preparations are necessary to make land desirable - such as connection to the routes of trade. This follows the earlier principle, that what is most abundant is least valued, even though it is necessary.
This is true even of established nations, where there is presently great demand for "first quality" land prepared and ready for use, less demand for "second quality" land that is arable but not prepared, and little demand for "third quality" land that seems unsuitable for purposes of framing. The amount of rent one can get depends on the appeal of the land itself. There are even more subtle differences in the quality of land. Given the quality of the soil and water, some land can produce more crops than others. Given their proximity to trading routes, it will be more or less expensive to move crops from field to market.
It is also the case that there is greatest demand for the most appealing land, and this impacts the price of rent: where the demand outstrips supply, buyers "bid up" the price of the best land, before some decide to settle on second- or third-quality parcels.
The result of this is increase in the price of goods, given the premium paid for good land or the additional expense of using lower-quality parcels (the cost to cultivate the land is figured into the price of goods, as is the additional cost to transport goods from more distant locations, etc.)
Ricardo goes on a bit of a meander: In a market where a small amount of land can produce all the food that is needed, the price of land will remain low, and the price of food will remain low. And in a fertile nation where much food can be produced of the best land, there will be less demand of farm labor, and workers freed to other pursuits, keeping the price of labor low. Meanwhile, in a nation of little fertile land, hard work will be needed of many hands to produce food to sustain the population. All of that is to say that the wealth of a nation depends first upon the abundance of fertile land to feed its people before resources may be devoted to any other industry or pursuit.
He also stumbles a bit awkwardly onto the marginal utility theory: that increase in quantity of a good is not uniform as workers are added, as the best and most fertile land is first used, and subsequent workers expend their labor on less fertile land, yielding less product per unit of effort, and demanding a higher price for their output to cover the increased cost of production.
This also leads to some disparity of profit. Those farmers who first claimed the most productive lands may "live like gentlemen" given that the commodity cost of crops in the market is more than sufficient to cover expenses o growing on fertile land, whereas those who claimed less fertile lands will spend more of their revenue to raise crops and enjoy smaller profit for the effort.
The same is true in manufacturing, where those in possession of the most efficient machinery enjoy greater profits even at the same level of production as others who use less efficient equipment, given that they sell their products at the same price.
It's also suggested that wealth and rent have an causal connection (EN: rent being a cost deducted from profit, this should come as no surprise) but not necessarily a direct relationship. Wealth increases most rapidly when rent is stationary or falling, and rent increase most rapidly while the amount of usable demand decreases and/or there is an increase in population.
The relationship between food prices and agricultural rent is also not entirely straightforward. It can be reasoned that price of food is high because of the need to cover a higher amount of rent, or that more can be demanded in rent when the profit to be made from selling food is high. (EN: Ricardo continues with a precipitating argument, but it gets muddled given that this is a chicken-and-egg argument.)
Improvements in agriculture lead to a greater crop yield using less land and less labor, which Ricardo reckons will lead to an increased demand for labor (EN: though it would seem the exact opposite), higher wages, increased population, further demand for raw produce, and increased cultivation.
As to improvements in agriculture, they are of two natures: to increase the productive powers of the land (better fertilizer) and to enable us to produce with less labor (a better plow). Both lead to an increase in output, hence a decrease in the price, but not equally in proportion. Improvement to the productive capabilities of the land can be leveraged by any farmer, with any quantity of land, whereas improvements to the productivity of labor can only be enjoyed by larger farms where labor is better leveraged by larger farms - the greater the number of laborers, the greater the benefit of such an advance.
(EN: Much elaboration follows, but again this becomes a matter of argument that assumes farmers will produce as much as can be produced on their land - not considering that if the productivity increases, less land can be farmed if the balance between price and quality is more profitable at a given level. On the macroeconomic level, it makes more sense to release resources from an industry where they are no longer needed due to increased efficiency rather than producing in excess of the total market demand.)
One last stray bit: that the rent on land is considered to be a proportion of the product of the farm rather than a fixed money-price to be paid. Which is to say that the landlord does not in these examples fix a price of rent, but merely accepts a portion of the product, which was the custom of Ricardo's time.