Chapter XV: ricardo's differential rent: the second part

There is a second part to Ricardo's theory which is frequently overlooked although it is really the more important From the very nature of land every piece of it has powers of different quality. Just as only the best lands are at first taken up, so are only the best powers in each piece of land Of these powers the poorest class-—so long as this class is in excess of the demand—-gives no rent, and the better classes give a net differential rent.

In this second part of Ricardo's theory also, the natural principles of imputation are found to be in perfect agreement with the rules he has laid down for the formation of contract rent. This may be best shown, by an example. Say, as before, that the quarter of wheat brings 40s. Then a certain piece of land, according as it is cultivated at a greater or smaller outlay in capital and labour, will produce the following returns:—

Under these circumstances a private owner will find it advantageous to expend only £400. He gains thereby a return of £40; and, instead of sinking the third £200 in his land and gaining a return of only £160, he will do better to employ it in some other direction, where it may give its full possible return of £200. From the £440 return thus obtained, he reckons £400 as the costs; the remaining £40 he can claim, and the tenant can pay, as rent. Just so must the communistic state make its calculations according to these natural principles of valuation There, too, natural principles will demand that only £400 be sunk in the land, and that the surplus of £ 40 thus earned be imputed to the land as rent.

The differential rent received from preferable powers of the soil may be called the “Intensity Rent,” because it emerges and rises according as the land is cultivated intensively. This “intensity rent,” according as Ricardo conceives of it, might quite well be a universal rent for all the lands of a country, or of the whole world, supposing them to be all cultivated with sufficient intensity. Ricardo's differential theory in no way requires—as is often said—the existence of no rent land. It is sufficient if there are no rent powers in the soil.

It need scarcely be said that “ intensity rents ” must receive as exact consideration from the economist as the rent of better lands. It is perhaps unnecessary to say anything further on this point.