Political Economy of Land EconomicsThomas Hobbes (1588-1679)Thomas HobbesJohn Locke (1632-1704)John LockeLockePolitical EconomistsSlide 8Adam Smith (1723-1790)Adam SmithDavid Ricardo (1772-1823)David RicardoUnderstanding RentSummary – Understanding RentRicardoThomas Malthus (1766-1834)Thomas MalthusLabor Theory of ValueKarl Marx (1818-1883)Karl MarxJohn Stuart Mill (1806-1873)John Stuart MillMillFor further information:Slide 25Political Economy of Land EconomicsThe Ghosts of Natural Resource Economics PastThomas 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 individuallyLockeThis 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 MillLockeSmithRicardoMalthusMarxMill1632-17041723-17901772-18231766-18341818-18831808-1873Hobbes1588-1679Adam Smith (1723-1790)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)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 – $40/acreSummary – Understanding RentCorn PriceJones 100 bu/ac Jones Rent Smith 10 bu/ac Smith Rent$.50/bu TR = $50 TC = $50 None TR = $5 TC = $50$3/bu TR = $300 TC = $50 $250 differentialTR = $30 TC = $50$5/bu TR = $500 TC = $50 $450 differentialTR = $50 TC = $50 None$8/bu TR = $800 TC = $50 $450 diff.$300 scarcityTR =$80 TC = $50 $30 scarcityRicardo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 unearnedThomas 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 supplyLabor Theory of ValueThe 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 workersJohn 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 useMill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 goodFor 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.htmAssignment for Monday Jan. 24 –Read Field Chapter 2, “Natural Resources and the