Now let us see what are the assumptions on which Ricardo grounded his law about the course of rent,wages,and profits in a progressive community.The pressure of population,he argued,makes men resort to inferior soils;hence the cost of agricultural produce increases,and therefore rent rises.But why will profits fall?Because they depend upon the cost of labour,and the main element in determining this is the cost of the commodities consumed by the workmen.Ricardo assumes that the standard of comfort is fixed.If,therefore,the cost of a quartern loaf increases,and the labourer is to obtain the same number of them,his wages must rise,and profits therefore must fall.Lastly,why should wages remain stationary?Because,assuming that the labourer's standard of comfort is fixed,a rise of wages or a fall in prices will only lead to a proportionate increase of population.The history of the theory of rent is very interesting,but it is out of our road,so I can only lightly touch upon it.Adam Smith had no clear or consistent theory at all on the subject,and no distinct views as to the relation between rent and price.The modern doctrine is first found in a pamphlet by a practical farmer named James Anderson,published in 1777,the year after the appearance of The Wealth of Nations;but it attracted little attention till it was simultaneously re-stated by Sir Edward West,and by Malthus in his pamphlet on the Corn Laws.Had the theory,however,been left in the shape in which they stated it,it would have had little influence.It was Ricardo,who,pUzzled by the question of rent,snatched at the theory,and gave it currency by embodying it in his whole doctrine of value and of economic development.
Ricardo's two great positive conclusions are:first,that the main cause of rent is the necessity of cultivating inferior soil as civilisation advances;and secondly,that rent is not the cause but the result of price.The theory has been disputed and criticised,but nearly all the objections have come from persons who have not understood it.We may say conclusively that,as a theory of the causes of rent,apart from that general doctrine of industrial development of which in Ricardo it forms a part,the theory is true.The one formidable objection which can be urged against it is that the rise in rents in modern times has been due not so much to the necessity of resorting to inferior soils,as to improvements in agriculture;but when Professor Thorold Rogers attacks the theory on this ground,he merely proves that Ricardo has overlooked some important causes which have led to an increase of rents since the Middle Ages.
What,then,are we justified in stating to be the ultimate causes of rent?First,the fertility of the soil and the skill of the cultivator,by which he is able to raise a larger produce than is necessary for his own subsistence;this makes rent physically possible.Next,the fact that land is limited in quantity and quality;that is,that the supply of the land most desirable from its situation and fertility is less than the demand:this allows of rent being exacted.The early colonists in America paid no rent,because there was an abundance of land open to every one;but twenty years later,rent was paid because population had grown.Let us see exactly what happens in such a case.A town is founded on the sea-coast;as it grows,the people in that town have to get some of their food from a distance.
Assume that the cost of raising that corn and bringing it to the town is 20s.,and that the cost of raising it close to the town is 15s.for every five bushels (we will suppose that in the latter instance the cost of carriage is nil);then,as both quantities will be sold at the same price,the surplus 5s.In the latter case will go for rent.Thus we find that rent has arisen because corn is brought into the market at different costs.In twenty years more,rents will have risen still further,because soils still more inferior in fertility or situation will have been brought into cultivation.But the rise of rent is not directly due to the cultivation of inferior soils;the direct cause is the increase of population which has made that cultivation necessary.
Going back to the question raised by Professor Rogers,as to the effect of agricultural improvements on rent,we may notice that the controversy on this question was first fought out between Ricardo and Malthus.Ricardo thought that improvements would lead to a fall in rents;Malthus maintained the opposite,and he was right.Take an acre of land close to the town,such as we were considering above,with an original produce of five bushels of wheat,but which,under improved cultivation,yields forty bushels.If the price of wheat remains the same,and all the land under cultivation has been improved to an equivalent extent,the rent will now be 5s.multiplied by eight.Yet there are a few historical instances where agricultural improvements have been followed by a fall in rents.For instance,during the Thirty Years'War the Swiss supplied Western Germany with corn,and introduced improvements into their agriculture,in order to meet the pressure of the demand.After the peace of Westphalia the demand fell off;the Swiss found they were producing more than they could sell;prices fell,and,as a consequence,rents fell also.
Professor Rogers has further objected to Ricardo's theory that it does not explain the historical origin of rent.The term 'rent'is ambiguous;it has been used for the payment of knight-service,for the performances of religious offices,for serfs'labour and the sum of money for which it was commuted.In Ricardo's mouth it meant only the money rent paid by a capitalist farmer,expecting the usual rates of profits;but it is quite true that these modern competition rents did not arise till about the time of James I.
