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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

Political Economy of Land Economics

The Ghosts of Natural Resource Economics Past

Wednesday, January 18

thomas hobbes
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
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

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
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















adam smith
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
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
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
  • 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
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
Labor Theory of Value

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

karl marx
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
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
  • 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
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”