Ricardo’s theory of rent Essay

The term take comes from the Latin word rendita, which means returned. Rent as an income of one of the factors of earth attracted attention since old times. Further, in the scotch possibleness the concept of economical withdraw as a part of income of any factor appeared and developed. unriv on the wholeed of the theorists that ca-caed and developed the concept of direct was David Ricardo, who is considered to be one of the fathers of the opening of rent. However, despite the old origins, the theory has been criticized a lot by both(prenominal) theorists and practitioners. David Ricardo set-back mentioned rent in his book The foundations of political economy and taxes (1817). In this book, Ricardo defines rent as a part of the add harvest-home, which is paid to the basisowner for the example of the soil. The logic of Ricardo is quite simple. Given the legality of supply and demand, cryptograph pays for the use of air and water (as well as any opposite natures gift , which is widely available). Thus, any brewer or manufacturing business of any good constantly uses air and water to produce their goods. moreover because the air and water are limitless, they are not paid for. pursuit this logic, Ricardo comes to a conclusion that rent is paid for the use of soil bonny because the kernel of inflict is not limitless and the quality of priming is not the same. With the rise of the population, the worst defeat or the take downs that are situated inconveniently are in like manner get cultivated. When the stopping point touches the lands of questionable second category, i.e. the worse, the lands of the first category simultaneously form the rent, which depends on the quality of those two slips of land. The queerness of Ricardos theory lies in the fact that he approached the rent as a concept from only one perspective. Ricardo thought of rent as a solely agricultural one. Moreover, Ricardian rent is a rent for a raw product of agriculture in general, but not the rent for the land given for the one peculiar type of a product. It is considered that the land used as a field cannot be used a pasture labor and crownwork change from one piece of land to another, but the use of soil itself remains unchangeable. Because the amount of land is limited, as it was already mentioned, and it is used in a single way, rent is contumacious by price and not vice-versa. According to Ricardo, the rent is paid because the plunder is expensive and not vice-versa. (Henderson, 1922) Practitioners notice that Ricardos theory of rent has also another shortcoming. Ricardian rent is solely the earnings for the soil itself. Thus, it excludes any payment for the interest on capital invested by landowner in the form of buildings, drain constructions etc.Moreover, Ricardos concept of rent also excludes the income from the woods development or the extraction of any mineral reextractions on the rented land. there remains the pure rent for soil, w hich is regarded as the land designed for cultivation and not touched raw material richness, which is though limited in amount and completely specialized on the production of one type of product not considering certain distinctions in placement and fertility. However, later on Ricardo developed another branch of his theory. According to Ricardo, rent has two sources. If the land is homogenous, its limit provokes the rent of rareness. In this case, rent is a contravention between the product of all applied capital and labor and the product of the final input in the form of intensive use of soil.When the land differs in quality, the limited amount of certain quality is the source of so-called differentiated rent. Ricardo thought that Europe of that time had quite substantial amount of land, which didnt give rent. However, from the perspective of his theory, nothing could have changed, if this had been true. Rent wouldnt be simply differentiated, but would have remained the rent of ra reness. The all important(p) input of Ricardos theory is the fact that he proved that the source of rent was the work of labor that cultivated the land. Thus, rent becomes a hearty phenomenon in Ricardos theory. The emergence of rent is connected with the emergence of semiprivate ownership for land. The emergence of differentiated rent Ricardo explained from the point of view of the law of mensurate. Differentiated rent in Ricardos theory doesnt abstract as the special form of added value, i.e. the exploitation of hired labor, though Ricardo characterizes rent as added product. Yet, because of the insufficient development of labor theory of value and improper and insufficient understanding of the correlation between value and the price of a product, Ricardo didnt research the supreme land rent and denied its population base on the fact that it didnt conform to the law of value. Ricardo though that because the embody of agricultural products produced under the worst conditi ons regulate the cost and the price of all the rest of the same products, those lands cannot give any rent, because rent is a struggle between the cost of production on the worst pieces of land.Otherwise, rent would be simple margin for the price of a product. Aspiring to retain this basis, Ricardo denied the foundation of absolute land rent. Another reason why Ricardo denied the existence of absolute rent was the fact that he didnt understand the division of capital on constant and variable parts. Thus, Ricardo failed to detect the difference in radical structure of capital in industry and agriculture, and consequently the excess of added value in agriculture, which is actually construct the absolute rent. In such a way, though Ricardo contributed much to the overall understanding of economic theory and the theory of rent in particular, the latter has many inherent flaws derived from the misunderstanding and switch mixture between the concept of value and the concept of price. The main reward of the theory is the definition of so-called differentiated rent, i.e. the attempt of the explanation of the economic essence of rent.The foremost fault of Ricardos theory of rent on the earliest stages is that he regarded rent as the payment solely for the use of soil, excluding reinvested capital and interest. The second foremost flaw of the theory is the denial of the existence of the absolute rent, thinking that rent can be derived only from those land that are more fertile. However, Ricardo didnt count the fact that landowners of worse land wouldnt give this land in temporary usage for free.ReferencesDebrah Y. (2002) Globalization, practice session and the Workplace Routledge, capital of the United KingdomHenderson H. (1922) Supply and demand McGraw Hills, invigorated YorkMarch, James G., and Simon, Herbert A., (1958). Organizations. New York McGraw HillMoorhead G. and Griffin Ricky W. (1995), Organizational Behavior, 4th ed., Houghton Muffin Company, Boston, MA compact G. F. Varying costs and marginal net products // Econ. J. 1928. Vol. 38. Jun. P. 258-266Winters A. (1992) International Economics Routledge, London