Criticism of the Ricardian Theory of rent
The Ricardian theory of rent has been widely criticized as under:Â—
(i) It has been pointed out that there are no "original and indestructible powers of the soil." Good lands, after being constantly cultivated, lose their fertility to a large extent and get exhausted. To this may be replied that if after exhaustion, good lands are manured equally with the bad, the former regain their productive power much more readily than the latter. It is also pointed out that in an old country, where land has been constantly manured, the upper layer, which grows crops, is all man-made.
Criticism of the Ricardian Theory of rent
The Ricardian theory of rent has been widely criticized as under:—
(i) It has been pointed out that there are no "original and indestructible powers of the soil." Good lands, after being constantly cultivated, lose their fertility to a large extent and get exhausted. To this may be replied that if after exhaustion, good lands are manured equally with the bad, the former regain their productive power much more readily than the latter. It is also pointed out that in an old country, where land has been constantly manured, the upper layer, which grows crops, is all man-made. There is nothing 'original about it. But this is not correct. The climate, sunshine, air, situation, etc., of a particular piece of land are all fixed by nature. They are all 'original and indestructible'.
(ii) It is objected that Ricardo uses the term fertility of land in a vague manner. Apart from the factor of situation, fertility depends upon the ability of the farmers and the methods of cultivation used. Moreover, fertility is relative to the crops grown.
(iii) Ricardo's theory assumes that there exists a no-rent land which only repays the cost of cultivation. In most cases, it is true; there are lands which pay only a nominal rent. Such lands yield no true economic rent. The concept of rent can also explain this situation. For the substance of the theory, it is not necessary that there should exist a no-rent land. The concept of no-rent land is merely imaginary and theoretical and is not realistic.
(iv) According to the Ricardian theory, rent arises on account of natural differential advantages of superior lands over the marginal one. But even if all the land is of A-grade, rent will still arise. It will arise owing to the operation of the law of diminishing returns when land is intensively cultivated. The marginal unit of labor and capital applied must be compensated by the yield obtained. The earlier units will give surplus over their costs, which will constitute the rent.
The fact is that rent arises not on account of superiority-inferiority of land but because land is scarce. If lands, good or bad, were in a state of abundance, there would have been no question of paying or receiving rent. Even if the land were homogeneous, rent will still arise owing to its scarcity. Ricardian theory explains that superior things have superior prices, but it does not explain why prices emerge?
(v) As Carey and Roscher point out, it is historically wrong to assume that, in a new country, the best lands are cultivated first. In fact, lands that are first cultivated are not usually the best; they are only the most easily accessible. To this Walker replied that by the best land Ricardo meant not the most fertile land but that which was the best from the point of view of both fertility and situation.
(vi) Criticism is leveled against Ricardo's corollary that since the marginal land pays no rent, and price is determined by the cost of the marginal land, rent does not form a part of the price of the produce.
The modern economists think that it is only from the point of view of economy as a whole that land has perfectly inelastic supply and earns a surplus or rent. This surplus is not included in cost and hence it does not enter into price. But from the point of view of an individual farmer or industry, a payment has to be made to prevent land from being transferred to some other use. The payment, called transfer earnings,is an element of cost and hence enters (vii) The most important criticism of Ricardo, however, comes from those who deny "the necessity of explaining rent by a special theory not applicable to the rewards of other factors of production." They explain rent in the same way as wages, interest and profits. They deny its peculiar nature as contended by Ricardo. No specific and separate theory of rent is called for. The demand and supply theory, which determines all values, also determines the rent of land.
In view of the above-stated criticism leveled against the Ricardian theory, it finds few supporters among the modern economists. The theory has, therefore, been rightly rejected. However, we should not ignore the elements of truth contained in it. Who can deny that with the increasing pressure of population, inferior land would be brought under the plough? It is true even today and not only historically true. The scientific improvements and new technology going under the label of 'green revolution' can only put off the process. Further, the theory exerted powerful influence on the contemporary economic and political thought. It highlighted the conflicting interests of the landlords and the rest of society. That is why abolition or socialization of rent was advocated.