Political economy of land economics
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Political Economy of Land Economics. The Ghosts of Natural Resource Economics Past Wednesday, January 18. Thomas Hobbes (1588-1679). Thomas Hobbes. Each of us is motivated to act in such ways as we believe will relieve our discomfort, preserve and promote our own well-being.

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Political Economy of Land Economics

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Political Economy of Land Economics

The Ghosts of Natural Resource Economics Past

Wednesday, January 18


Thomas Hobbes (1588-1679)


Thomas Hobbes

  • Each of us is motivated to act in such ways as we believe will relieve our discomfort, preserve and promote our own well-being.

  • The natural state of human beings is in perpetual struggle against each other.

  • To escape this fate, we form the commonwealth, surrendering individual powers to the authority of an absolute sovereign.

  • The will of the sovereign for its subjects will be expressed in the form of civil laws that are decreed or tacitly accepted.

  • If individuals make private judgments of right and wrong based on conscience, succumb to religious enthusiasm, or acquire excessive private property, the state will suffer.


John Locke (1632-1704)


John Locke

  • “Natural Law” – men have “natural rights” not given to them by any ruler

  • Rights in property are the basis of human freedom

  • Government exists to protect these rights and to preserve order

  • Men organize under a “social contract” to gain advantages not available individually


Locke

This Contract of Society was the foundation of the Contract of Government, under which all political power is a trust for the benefit of the people, and the people themselves are at once the creators and beneficiaries of that trust. The State is based on a contract between ruler and subjects, who give him power only so that their own welfare is increased and their property protected in a way not possible in the State of Nature, where it may be taken away by unprincipled forces.


Political Economists

  • Study of land gave emphasis to role of governments in defining and protecting property rights

    • Adam Smith

    • David Ricardo

    • Thomas Malthus

    • Karl Marx

    • John Stuart Mill


1808-1873

Mill

1818-1883

Marx

1766-1834

Malthus

1772-1823

Ricardo

1723-1790

Smith

1632-1704

Locke

1588-1679

Hobbes


Adam Smith (1723-1790)


Ownership of land is essentially nonproductive

Returns to land ownership are unearned

Secure, individual ownership might lead to improvements

Q = f( L, K)

L = labor

K = capital

Wages – returns to labor

Profit – returns to capital

Rent – returns to land (natural capital)

Adam Smith


David Ricardo (1772-1823)


David Ricardo

  • Owners of land may earn rent.

  • Scarcity rent

    • When land is homogeneous in quality but scarce

  • Differential rent

    • When land is of different qualities; more fertile land produces more/earns more.


Understanding Rent

  • Farmer Smith

    • Poor land – max 10 bushels per acre of corn

  • Farmer Jones

    • Fertile land – 100 bushels per acre of corn

  • Capital costs – $10/acre

  • Labor costs – $40/acre


Summary – Understanding Rent


Ricardo

  • Is rent unearned income? Or is rent a legitimate cost of production that gets included in the price of the good produced?

  • Conclusion: rent arises because of price of product, is a residual and is unearned


Thomas Malthus (1766-1834)


Thomas Malthus

  • Population increases at geometric (exponential) rate

  • Food supply increases at an arithmetic (linear) rate

  • Food supply (and hence, population) constrained by natural productivity of limited land supply


Labor Theory of Value

The value of a product is determined by the amount of labor used to produce it.


Karl Marx (1818-1883)


Karl Marx

  • Capital and land are essentially unproductive without labor

  • Capital is the product of labor exerted previously

  • Private ownership of land allows owner to extract unearned rent

  • Improvements to land exploit labor, taking away resources that should go to workers


John Stuart Mill (1806-1873)


John Stuart Mill

  • Inherent fallacy in labor theory of value

  • Theory of Demand

  • Landowner can use land to produce good in highest demand and increase his income

  • Opportunity costs

  • Private ownership would result in land being used in highest valued use


Mill

  • Private persons should be allowed to hold title to land, not because there is any moral or natural right for them to do so, but because society as a whole is likely to benefit from the incentives which private land ownership hold out

  • Land owners hold their land at the sufferance of society and in trust for society

  • Landowners should be legally compelled to manage land in a way consistent with the public good


For further information:

  • http://www.utm.edu/research/iep/m/milljs.htm

  • http://csf.colorado.edu/psn/marx/Bio/Marx-Karl/km1869a.htm

  • http://www.ucmp.berkeley.edu/history/malthus.html

  • http://www.bized.ac.uk/virtual/economy/library/economists/ricardo.htm

  • http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/smith/farrer.html

  • http://www.johnlocke.org/whowasjl.html

  • http://www.philosophypages.com/ph/hobb.htm


Assignment for Monday Jan. 24 –

Read Field Chapter 2, “Natural Resources and the Economy”


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