GEOG 3404 Economic Geography

1. GEOG 3404Economic Geography LECTURE 2: Agriculture, Scarcity and Economic Rent Dr. Zachary Klaas Department of Geography and Environmental Studies Carleton University

2. Land and natural resources • A critical question in economic geography, which must be understood before one even begins: “Where do things of economic value come from?” • All material or tangible items (that is, items that are not ideas with no material form) come from nature. • Natural resources are those elements which are taken from or exist on the planet in their raw form. • Synthetic products, if they are tangible, always contain a mixture of elements taken in their raw form from nature. • The capacity to make products, in short, depends upon having some measure of control over natural resources used to make them – either direct control or influence over those who have that direct control.

3. Conceptualising land • Land can be the soil – earth which has value as the location where agricultural products are grown. • Land can be ground – earth which has value as the location where buildings or constructions are physically possible. • Land can be a site – earth which has value as the location for economic activities. • Land can be a milieu – earth which has value because of its impacts (environmental, social, etc.) on other areas. • Land can be conceived of as the natural resources themselves – not just the earth but all products which come in their raw form from nature. By this last definition, “land” has value as the substance from which, ultimately, all economic products are made.

4. Agriculture: the primary sector of the economy • The first stage of economic development is undeniably the agriculturalisation of societies. • The Neolithic Revolution saw the rise of subsistence agriculture, which allowed settlements to be rooted in one location. After agriculture became efficient enough to produce more than mere subsistence, these settlements became the geographic bases for urbanised communties to serve as central agricultural marketplaces. • Agricultural products would soon be supplemented as the primary products of marketplaces by manufactured goods (at first primitively manufactured) and services (at first primitive services), but agriculture importantly served as the base upon which these other elements of the economy depended.

5. Land ownership as social power • Given the historical importance of agriculture/land/the natural resource base, we have a lingering conception of economic power being secured by land ownership. Phrases like “having a piece of the rock” persist in the language, denoting the assumptions of many in past generation that direct ownership of land is vital to one’s economic health. (Think of the grandfather in The Apprenticeship of Duddy Kravitz by Mordecai Richler – “A man without land is nothing, Duddy, remember that.”) • Is this true today? Or has something supplanted it in importance today? Now do we think of capital ownership as more important? What about home ownership? Do we think of that the way people once thought about primarily about their farms?

6. Agricultural republicans • In the 17th and 18th Centuries, a political philosophy centred around the importance of free access to land, called “agricultural republicanism” grew in popularity. • The central contention of the agricultural republicans is that elites held power over so-called common people primarily because they held control over land, understood in this context as the natural resource base of the planet. So long as this was the case, those elites would be always able to dominate those commoners, on the basis of the scarcity of any other available natural resources. • Political philosophers such as James Harrington, John Locke, Thomas Jefferson, Thomas Paine and John Taylor of Caroline were prominent defenders of this viewpoint. Political independence, in large measure, was for these persons bound up in the freedom to own land.

7. Homesteading and the New World • In the “New World” of the Americas of the 18th and 19th Centuries, the availability of land afforded an opportunity to distribute social power more widely than it was in the “Old World”, where control over land was held by the landed gentry. (Think of the movie “Far and Away”, where the main character leaves the service of an Irish landlord, a member of the landed gentry, for the opportunity to own land himself in Oklahoma.) • Homesteading was the free distribution of plots of land in the New World – and a centrepiece of the agricultural republican ethic of greater distribution of political power by means of wider distribution of land.

8. “Land office business” in the New World • In Canada, distribution of land was more controlled. The initial idea of the imperial government was to create a version of a landed gentry in Canada, and those who controlled land offices, the agencies responsible for the distribution of plots of land, essentially saw their role as the shaping of a Canadian nobility, defined through land ownership. • Elite groups in Ontario (the “family compact”) and Quebec (“the Château clique”) were defined in large measure through their control of land offices. • Interestingly, even today, a formal requirement of membership in the Senate of Canada is the formal ownership of land.

9. Scarcity of natural resources as a theme in political economy • If we lived in a world of overflowing natural resources, where every person could have unlimited claims to nature’s bounty, then there would be no such thing as scarcity. • If there were no such thing as scarcity, however, there would probably also be no such thing as money or even barter transactions, as people would be able to take directly from nature everything that they need, and would need no monetary system to facilitate transactions they don’t need to undertake in the first place. • It is, in fact, the scarcity of natural resources, to various degrees, in the world that makes us need to have economic transactions in the first place. Things become economically valuable because they are not found in abundance.

10. David Ricardo’s observations about land • The 19th Century British political economist David Ricardo noted that profit on land (if we understand that term to refer to the natural resources generally) can either be off the use of the land or off its mere value in exchange. • A landowner could, for example, raise crops and sell them, and thus profit off the sales. This would be an example of the use value of the land, and it would also be an example of putting the land to productive use. • The landowner could also, however, keep his land unproductive until such point as the land could be sold to someone else. This is an example of the exchange value of the land. Ricardo noted that no one would buy land when land of equal quality was available in nature for free, so the landowner in this case is profiting not off productive use of the land, but rather off of the scarcity of available land of equal quality.

11. Henry George and his “single tax” idea • So scarcity in nature is, by this argument, essentially what gives everything value in an economy. Thus, it would seem to be an inherent relationship that those who control scarce natural resources would control the economy. • This is essentially the viewpoint of the 19th Century political economist Henry George, who wrote the book Progress and Poverty. • George was of the view that landowners, by virtue of their control of land, were elite figures who unjustly controlled the economy through control of scarce resources. His solution to this problem was to tax the value of land (understood as the value of all natural resources) and fairly redistribute this money to non-landowners. This proposal was called the “single tax”.

12. “The unearned increment” • The idea behind George’s proposal was to tax that which is “unearned” in the profit of those who hold control over natural resources, the part of that profit which he referred to as the “unearned increment”. • George had no problem with land having use value, and this part of land’s value he was unwilling to tax. He was content to allow labour to be properly rewarded for working the land, as well as capitalists to be rewarded for investing in the land’s productive capacity. But he opposed rewarding landowners simply for holding the title to the land, even if they did nothing to make it productive and serve people’s economic needs. In other words, he wanted to put his tax on the exchange value of the land.

13. The value of land use: The von Thünen model • Being the basis of the first stage in the economic development of most societies, the agricultural sector was the first sector to be effectively studied by economic geographers. • The mathematical model of the German economic geographyer Johann Heinrich von Thünen in the early 19th Century was one of the first attempts to rationally explain what gives particular tracts of land economic value. • The von Thünen model is a deductive model, which means it abstracts from the facts of the real world to provide an idealised, logical and theorised version of how things work. • It proceeds from knowledge of certain elements as premises of reality, and assumptions that one does not need to know additional elements, to reason to a conclusion.

14. Prediction of economic rent • Economic rent is what von Thünen called the value of land for a given land use purpose. Since he was an agricultural economic geographer, he was interested in predicting this value for land used to grow particular agricultural crops. He wanted to know which lands should be used for which crops, and the purpose of his model is to determine which crop, if grown on the land, would generate the highest economic rent (value) for that land. • To that end, von Thünen designed a predictive equation. The equation calculated a value for economic rent (R), which was derived in the equation from a number of other variables, as well as from the distance to the central marketplace where the crops were to be sold (k).

15. The von Thünen equation • The equation itself: R = E ( p – a ) – Efk • The elements of the equation: R is the economic rent to be predicted;E is the output of the land (in units of output); p is the market price of the units; a is the production cost of the units; f is the cost of freight for each unit and over each unit of distance; and k is the distance from the central marketplace in units of distance.

16. Assumptions of the model • Since von Thünen was reasoning about the world deductively, attempting to predict the world from rational principles rather than constantly observing the real world and experientially arriving, inductively, at conclusions about it, there are certain things he had to assume about reality. • Assumptions are part of any deductive model of reality; these models only work under certain constraints, and when those constraints are violated, the results of the predictive model will not hold. • In the case of the von Thünen model, the main assumption one must make is that one is predicting results for a surface uninterrupted by complicating geographic obstacles. For example, the value of the top of a mountain for farming will probably be low. Yet nowhere in the von Thünen model is elevation taken into account. This is an element which is beyond the scope of the model, and must be assumed away.

17. “The Isolated State” • For this reason, von Thünen had to imagine an idealised “isolated state” to exist, in which there were no complicated geographic obstacles (e.g., rivers, mountain ranges) or uneven conditions (some land far less suitable for farming than others). • So important was this part of his reasoning, in fact, that the book in which he presented his model was in fact entitled Der isolierte Staat (German for “the isolated state”). • Where conditions more clearly approach von Thünen’s hypothetical “isolated state”, his equation tends to predict very well. Where, by contrast, the landscape is broken or interrupted by geographic obstacles, the model tends to lose its predictive power. • The model is highly regarded, however, because in general, its assumptions are not often violated, and where they are, additional compensating terms could be introduced into the equation.