Natural Value (1889)

by Friedrich von Wieser (1851-1926)

Book III: The Natural Imputation of the Return from Production

Chapter XVI
Criticism of Ricardo’s Theory

NV-III-16.1 According to what is certainly the most usual opinion, the differential rent of better lands, or of better powers of land, is to be explained simply by the fact that there are not sufficient of such to meet the demand; that, in fact, as is frequently said, they “have a monopoly.” But it may easily be seen that this is not sufficient for an explanation. We must add two other assumptions.
NV-III-16.2 First, the lands or powers of land last taken into cultivation must be available in superfluous amount. In order e.g. that first quality lands may bear a differential rent, not only must these lands be insufficient to meet the demand, but there must be besides them “free” lands of the second quality. The limitation or “monopoly” of first-class lands is the proximate occasion of rent, and rent would emerge in any case, even if there should be no other qualities of land. Then the interposition of second-class lands, which are more than enough to meet the demand, and are consequently rentless, has the effect of keeping down the rent of first-class lands – which might otherwise rise indefinitely – to the amount of difference existing between the qualities of the two. If second-class lands were not “free,” they also would bear rent; and this rent, again, could only be kept down to the differential rent through the intervention of a third class. In short, if there is to be a net differential rent, there must be a last, rentless, and therefore “free” category of lands (or powers of land) alongside the better and limited ones. There must be both limitation and superfluity of land.
NV-III-16.3 Second, there must also be “monopoly” of capital and labour. Why does any one prefer the better classes of land? Because on them capital and labour prove more productive. But why should it be of consequence that capital and labour prove more productive? Because, as a general rule, we do not have enough of either. If it were quite a matter of indifference what return was obtained from definite amounts of capital and labour, because it was always possible to make up any deficiency by employing other quantities of the same, it would also be a matter of indifference from which class of land they got their return – assuming, of course, that there was never any scarcity of at any rate the poorest quality of land. And if, in face of such superfluity of the poorest class of land, the better and best classes are marked out and preferred, it is because man has to economise his labour and capital. The differential rent measures exactly the advantage which the better and best classes of land secure in the accomplishment of that task.
NV-III-16.4 Thus we see that, wherever a net differential rent exists, land is partially limited (in the better and best classes), partially over-abundant (in the poorer classes), while capital and labour are always limited.1 To have overlooked this circumstance is the first defect in Ricardo’s theory. He states positively that the amount of labour (and under this he includes capital), which may be expended in production can be had, as a rule, for the asking – may be increased at will; while the rent-bearing classes of land are to be had only in limited amounts. This defect is connected with another and still greater one – and one that applies not to Ricardo alone; he has no general theory of economy, of value, and of imputation. All his ingenuity is expended upon details, such, for example, as the explanation of land rent, and this in itself shows that these details can only have been looked at and conceived of in a one-sided fashion.
NV-III-16.5 A further defect of the differential theory is that it does not suffice for all cases. It sometimes happens that even the last cultivated lands, or powers of land, return a rent, and for this Ricardo has no explanation, or, to speak more exactly, no law. Whenever the demand for land products has increased to such an extent that the class of land last taken into cultivation is not sufficient to meet it, while, at the same time, the value of the land products has not risen sufficiently to permit of a new and still lower class being put under the plough, the last cultivated land returns a rent, although it becomes differential only when the next class of land has actually been put under cultivation. And when all the classes of land have been exhausted, and cultivation in general cannot be further extended, there emerges a universal land rent, – universal not only for all lands (for in this sense the “intensity rent” might be a universal one), but even for all powers of land. This case – of the impossibility of extending cultivation – occurs more frequently than one would think. It is not, as would seem at first sight, a thing to be expected at the very end of the historical development of economic life, when the whole earth is over-populated. It belongs rather to the normal phenomena which occur in the course of this development. Indeed it is just as regards the past that it can be established with perfect certainty; while prophecies of what is to come must always be uncertain, and can never be made with scientific exactitude. A slight consideration will suffice to make this clear.
NV-III-16.6 Land and capital, so far as regards the conditions under which they are acquired, appear to stand in complete opposition to each other. All capital, with trifling exceptions, has been worked for by human hands, and the sum of capital is always increasing and is capable of indefinite increase. All land, on the other hand (with exceptions which are quite insignificant as compared with the whole) has been in existence from the beginning, and it is practically impossible for human power to extend its compass – so at least a geographer or physicist would have to say. But can we say so economically? Certainly not. Economically speaking, man has not from the first had command over the whole solid surface of the earth and its treasures. Starting with a very insignificant portion of it, the sphere of his control has extended at a rate which scarcely comes behind the increase of his capital. The limits of his power are not yet reached, and he would be a bold man who would say when they must be reached, and where their limits lie. Looked at economically, there is always available to him only so much superficies and so much fruitful soil as he has the means and the knowledge to utilise. The development of agricultural skill and technique generally, the employment of manures, growth of population, emigration, scientific discovery, the spread of commerce, the perfecting of the means of transport, increase of wealth in capital and labour – all these have gradually increased landed property to an enormous extent. To the hunter belongs only the surface of the ground: to the peasant who forces his plough down into it belongs also its interior, and the deeper the plough goes, so much more of the land comes into the service of man. In our own time, indeed, the amount of land in far-away countries which is at the disposal of European consumption, has increased in a degree that is alarming to European agriculturists. If we look back on the past, we might almost believe that it has been quite the same with land as with capital; – that at first the provision of it was very scanty, and that later it has gone on richly and steadily increasing. Certainly the error which this opinion betrays would be no greater than that betrayed by the commonly held opinion that land is quite incapable of being increased. In any case, there can be no doubt of one thing. It is conceivable that a time may arrive when all land available for economic purposes has been taken up, and that, notwithstanding, at some later period, so much new land, economically speaking, may come into the world’s possession, that a much greater population may be maintained upon it, without even touching the limits of subsistence. And has this conceivable case never been an actual fact? Have we not accounts, handed down to us from primeval times, of overpopulation and emigration caused by urgent want? Has not the spectre of hunger haunted every land and every people on the face of the earth, and is it not the case that only the most highly cultured of nations, at the height of their development, have been able to escape from its terror?
NV-III-16.7 Still, however that may be, even supposing it has never actually happened that the limits of cultivation have been reached, – a theory which cannot bring the case of a “universal” land rent under a law remains an inadequate theory. If we have no law for the assumed case that all lands and powers of land bear rent, we have no law for the undeniable fact that all economically employed labour and capital yield a return; we can say absolutely nothing more than that the better qualities of goods have more imputed to them by the amount of their surplus return. We are incapable of learning what shares are to be imputed to the common qualities, which constitute the majority of production goods. The law of a universal land rent, and the universal law of imputation, are identical, and a theory which has no formula for the former confesses its utter inability to solve the problem of the valuation of production goods generally.2

NV-III-16.n1.1 1 Among the trees of a primeval forest which have, as a rule, no value, because they are available in superfluity, there are nevertheless some which may receive value; all those, namely, which have peculiar advantages as regards felling and carrying to market – say, e.g., that they stand in the near neighbourhood of a natural watercourse. Their value is exactly represented by the saving in costs – saving of labour and transit -- which they assure as compared with the trees less favourably situated, to which no value is attached. Here is a capital which bears a perfect analogy to Ricardo’s differential rent from lands of preferable quality. Even to the pure “intensity” rent there are analogies in capital. The sheep on the plains of South America do not receive value in their entire useful content – I mean a value corresponding to the entire usefulness of similar sheep in Europe, or any other district of great demand – but only in that portion of the same – say, perhaps, the hides – which repays the costs of transport to the sphere of the greater demand. The remaining part is meantime valueless, but may also receive value through an increase in demand. It is easy to infer from these examples the conditions for a purely differential rent.
NV-III-16.n2.1 2 A further fundamental defect in Ricardo’s theory may be pointed out; – that he has omitted to notice the reaction of land rent upon the return to capital and labour. Rent is certainly dependent upon the current valuations of cost, but, on the other hand, the valuations of cost are dependent upon rent, if not in the same degree. The return reckoned to capital and labour is essentially influenced by the amount of capital and labour which is required for working the land, and by the returns which they yield in so doing.
NV-III-16.n2.2 Finally, Ricardo might also be accused of having overlooked the universal importance of the differential valuation (compare Book III. chap. xiii.). Even purely differential valuations may be met with elsewhere than in the case of land, as we saw by the examples just given of wood in a primeval forest and of the herds of cattle in South America. But of course it is in the case of land that we oftenest find the relation which leads to a net differential valuation of the preferable qualities: viz. quantitative superfluity as a whole beside quantitative limitation as regards the best and better qualities. Compare with this Menger, p. 143.

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