24: The Rent of Land
Ricardo considers Smith's doctrine on the rent of land. Particularly, that only products whose prices exceed the cost of the resources to create them can provide rent of land. (EN: Which is an odd way to phrase things, but consider the relation of fixed and variable expenses in accounting, where price less variable cost yields profit, and total profit must cover fixed expenses, or the operation is destructive of wealth. In agriculture, rent is the fixed expense.)
From the perspective of a landowner, his property can return no rent if the nature of the land is such that it would cost more to work the land than could be earned by selling the product of such labor.
Smith also theorizes that "in almost any situation," land is capable of producing a greater quantity of food than is needed to maintain the labor necessary to grow it and bring it to market, and as such will always yield a level of profit that enables the tenant to pay rent to his landlord. Ricardo rightly asserts that this is generalization, as there are many places where land has been used to afford rent (where crops cannot grow, there may be timber that can be had, and even goats may graze on land that appears otherwise useless), but there are also many that cannot by any means be used productively enough to afford rent.
Also, given that market prices are influenced by aggregate supply and demand, the price of a good is set by the cost of production on land capable of producing it most efficiently. As an example, the plentitude and fertility of land in the Americas has rendered it unprofitable to produce many agricultural goods in Europe - they cannot compete in quantity, quality, and price to provide sufficient income to producers.
Especially since those involved in agricultural production rent land for an extended period of time (seven or fourteen years is not unusual), the tenant must consider rent as an expense, just as any other that will be necessary to his profession. The landlord, meanwhile, demands a rent on his land that is regardless of the profit that might be made of it by the tenant (though tenants' willingness to pay depends on their own estimation).
(EN: much of this points to a n inherent problem in any consideration of rent. Aside of the fact that its' an outdated concept from agricultural Europe, rent of land is a negotiation between landlord and tenant, and one cannot forward a theory that is accurate to all instances, though it is good guidance for a tenant to consider their expenses and revenues when deciding what price to offer.)
Ricardo relates, in some detail, Smith's account of the rent of coal mines, which depends on various factors based on the quantity and quality of coal they contain, the ease of extraction, and the ease of transportation from mine to market. For a combination of these reasons, there are mines that cannot profitably be worked, and no-one will offer rent for them.
Ricardo asserts that Smith's assertion of mines is very much the same as the rent of any land for any purpose - the precise purpose being a variable factor, but the essential nature being the same.
He then carries forward the influence of market prices: essentially, that when demand rises and the market price for a good rises, it increases revenue to the point that it becomes possible to profitably work land that would not yield a profit at a lower price. Those whose expenses are less due to land quality will enjoy a margin of additional profit over the ordinary profits required to produce a given commodity. However, Smith goes too far in asserting that the least fertile land regulates the price of a crop. This reverses cause and effect.
It is also true that the discovery of a fertile mine or the development of fertile land enables a new producer to offer commodities at a price beneath the current market rate (if he chooses to do so rather than taking the market price and keeping the difference), which in turn drives out some of the competitors who cannot produce as cheaply. And in this case, it would be reasonable to assert that resources that are best capable of production are generally the first to be employed, and that tenants will offer better rent for more productive properties.
There is some reference that quantity demanded figures into the equation. If a new food crop were discovered that could provide triple the nourishment of current staples and was acceptable as a substitute, only a third as much land would be needed to cultivate sufficient food to sustain the population, and the least productive farms would be fallow. (EN: One need not manage this centrally - the market would demand only so much, any excess would be waste, and growers would reduce production or go out of business for being able to sell, provided the surplus could not be exported.)
It is reckoned that the interest of the landlord and the producer of raw goods "are always opposed to" that of the consumer or manufacturer. The producer wants prices to be high for his own profit, which benefits the landlord by making his tenant able to pay more rent. The manufacturer and customer both want lower process of goods in the marketplace, the consumer for his own expenses and the manufacturer for the costs of raw materials and the wages his workers will demand. (EN: No mention of the laborers, but I expect that depends on where they work - they want their employer's product to sell at a higher price, but also to buy the products of others at a low price as consumers.)
There is some argument over whether the price should be managed, by bounty on manufacture and penalty on import, to discourage the importation of food into an economy. This has been to some degree considered in previous chapters - the fear being that imported food would be less expensive than domestic and the weakness of an nation that is beholden to foreign powers for something as necessary to life as food.
However, encouraging domestic production of food entails diverting resources from domestic production of other goods, which would create the greatest economic benefit to the nation - it is better domestic industry produce something else, to give in exchange for foreign imports of foods. It is also highly unusual, given that the price of imports must be lower even when transportation cost is considered (which si significant, as foodstuffs have low value to weight) , and highly unlikely a foreign source of a good would discontinue exports in quantity, as the export of food to the domestic market results in a gain of equal value for the market from which food is exported.
(EN: Ironically, the exact same case is being made in the present day on the topic of petroleum, and it is no more sensible. The notion that a given good is critically necessary, unsupported by a willingness of customers to pay a sufficient amount to encourage domestic production, seems illogical.)
It's finally noted that a high or low price of any item that arises from a change of value of money is of no importance to the landlord, as every price would be equally affected. (EN: I am doubtful of this, because a lease signed over a long period of time means that if the value of money falls, the landlord will receive the same nominal rent, but less purchasing power for the money he receives.)