Main Drawbacks of Ricardian Theory or Rent
Airfare Daily Deals eCigarettes Eyeglasses Hotels Jewelry Online Backup Online Dating Online Printing Online Tickets Skin Care Textbook Rentals Vitamins Web Hosting Weddings
Find thousands of shopping-related forums
SEARCH

Main Drawbacks of Ricardian Theory or Rent

Main Drawbacks of Ricardian Theory In the Ricardian theory, two facts stand out prominently: (a) That rent arises because some lands are better and others substandard; and (b) That rent is measured from the non-rent margin.

Main Drawbacks of Ricardian Theory

In the Ricardian theory, two facts stand out prominently:

(a) That rent arises because some lands are better and others substandard; and

(b) That rent is measured from the non-rent margin.

Modern writers question both these contentions. In the first place, they assert that it is a matter of unconcern to the universal principle of rent whether the land is unvaryingly good, unvaryingly bad or gradable. The indispensable feature of rent is the comparative paucity of the product that land can produce. The paucity of land is in reality consequential from the shortage of its products. If the crisis is advanced from this point of observation, the requirement of assuming dissimilar grades of land fades away. The "differential principle" only explains why one particular hectare of land commands a higher rent than a less fertile one; it does not explain why rent arises. Fundamentally speaking, rent is paid because the produce of the land is scarce in relation to the demand for it.

In the face of this scarcity, rent will arise even if all the land in a country is exactly alike. The same is the case with wages, interest and profits. These payments arise because the products of the factors concerned are scarce in relation to the demand for them. Just as a superior labourer gets higher wages and a superior entrepreneur earns higher profits over the inferior ones, superior land also commands a higher rent. "Fundamentally, all that the Ricardian theory of rent amounts is to the truism that the better article will always command the higher price. A more fertile acre will be worth more than a less fertile one simply because they are different things. The same truism applies to wages." Wicksell has pointed out that rent and wages are almost parallel cases.

Thus, there is no justification for placing rent in a special category. Land commands rent according to its marginal productivity just as labor commands wages or capital commands interest.

The second point of attack is the idea of the no-rent margin. This is the starring point of determining rent as per the Ricardian theory. It is challenged by present economist that the no-rent margin may be real in some situations, but it is not elementary to the theory of rent. For example, a number of lands may be healthy only for a particular use, e.g., cultivatingcorn. If it is not cost-effective to produce corn on them owing to drop in the value of corn, such lands possibly will go out of nurturing, or they might just compensate for the cost of the crop cultivation on them. The subsistence of such insignificant lands does not give any eventual justification of the theory of rent.

But when we do not refer to any particular crop, especially in a fully developed country, there is probably no land that cannot be put to profitable use. Thus, the margin of cultivation may vary according to the use to which a particular land is put.

Conclusion. It is concluded, therefore, that the theory of no-rent margin and a series of differential rents created upon it, while true in particular cases, is a partial, not an ultimate, explanation of the phenomenon of rent. It does not reach the root of the problem. The real approach to rent, as to other phenomena of value, is through the principle of scarcity. The Ricardian theory has, therefore, been rejected.

 

Need an answer?
Get insightful answers from community-recommended
experts
in Economics & The Economy on Knoji.
Would you recommend this author as an expert in Economics & The Economy?
You have 0 recommendations remaining to grant today.
Comments (0)
ARTICLE DETAILS
RELATED ARTICLES
ARTICLE KEYWORDS