Ricardo's Differential Rent: The Second Part There is a second Part to Ricardo's theory which is frequently overlooked, although it is really the more important.
From the very nature of land every piece of it has powers of different quality. Just as only the best lands are at first taken up, so are only the best powers in each piece of land. Of these powers the poorest class -- so long as this class is in excess of the demand -- gives no rent, and the better classes give a net differential rent.
In this second part of Ricardo's theory also, the natural principles of imputation are found to be in perfect agreement with the rules he has laid down for the formation of contract rent. This may be best shown by an example. Say, as before, that the quarter of wheat brings 40s. Then a certain piece of land, according as it is cultivated at a greater or smaller outlay in capital and labour, will produce the following returns: --to a first ?00 of expenses the return is 120 qrs. and the value ?40to a second ?00 of expenses the return is 100 qrs. and the value ?00therefore to ?00 of expenses the return is 220 qrs. and the value ?40to a third ?00 of expenses the return is 80 qrs. and the value ?60therefore to ?00 of expenses the return is 300 qrs. and the value ?00Under these circumstances a private owner will find it advantageous to expend only ?00. He gains thereby a return of ?0; and, instead of sinking the third ?00 in his land and gaining a return of only ?60, he will do better to employ it in some other direction, where it may give its full possible return of ?00. From the ?40 return thus obtained, he reckons ?00 as the costs; the remaining ?0 he can claim, and the tenant can pay, as rent. Just so must the communistic state make its calculations according to these natural principles of valuation.
There, too, natural principles will demand that only ?00 be sunk in the land, and that the surplus of ?0 thus earned be imputed to the land as rent.(1*)The differential rent received from preferable powers of the soil may be called the "Intensity Rent," because it emerges and rises according as the land is cultivated intensively. This "intensity rent," according as Ricardo conceives of it, might quite well be a universal rent for all the lands of a country, or of the whole world, supposing them to be all cultivated with sufficient intensity. Ricardo's differential theory in no way requires -- as is often said -- the existence of no rent land. It is sufficient if there are no rent powers in the soil.
It need scarcely be said that "intensity rents" must receive as exact consideration from the economist as the rent of better lands. It is perhaps unnecessary to say anything further on this point.
NOTES:
1. If ?00 were sunk a total of ?00 would indeed be received in return, but none the less would there be a loss of ?0 on the third two hundred. If only ?00 were sunk, and the surplus of ?0were imputed not to the land, but to the capital or to the labour, we should make two mistakes, each contradicting the other. Firstly, the land, as such, would be declared to yield no return. The practical conclusion would be that it ought not to be cultivated, and that the capital and labour should be otherwise employed, in which case the whole ?0 would be lost. Secondly, this application of capital and labour would be shown to be peculiarly profitable -- the practical conclusion of which would be that it would appear permissible to sink even more capital in the land. But this ought not to be done, as ?00 is the highest expenditure economically permissable. The land rent of ?0 is, therefore, the rational expression of the most advantageous disposition of production.
