[4. Ricardo’s Views on Improvements in Agriculture. His Failure to Understand the Economic Consequences of Changes in the Organic Composition of Agricultural Capital]
Marx quotes Ricardo,
““We have seen, that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return, rent would rise.”” (p 321)
but, points out that not every investment of additional capital does lead to such diminishing returns. Ricardo says,
““It follows from the same principles, that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land, and which should therefore make the portion last employed more productive, would lower rent” (l.c., p. 68).” (p 321)
That may be true of absolute rent, but is not necessarily true of differential rent, because it depends which land is taken out of production. Conditions which might result in less capital and land being cultivated include “reduction in the capital of a country” followed by a fall in population. But, the same may arise as a result of an increase in productivity. If the population falls, the demand for agricultural products will fall, requiring less land to be cultivated. But, if productivity rises, the same amount of output, or more, might be achievable on a smaller area of cultivated land. Ricardo says,
““The same effects may however be produced, when the wealth and population of a country are increased, if that increase is accompanied by such marked improvements in agriculture, as shall have the same effect of diminishing the necessity of cultivating the poorer lands, or of expending the same amount of capital on the cultivation of the more fertile portions” (l.c., pp. 68-69).” (p 321)
Marx points out that Ricardo fails to mention here the point stressed by Anderson that this rise in productivity might also be manifest in a large improvement in the fertility of the inferior soils, which might even turn them into superior types of soil.
Ricardo's argument that the demand for corn can only rise as a result of an increase in population is clearly wrong. A fall in the price of corn means that the same amount can be consumed, at lower cost, leaving consumers revenue left over to demand other agricultural products, and at the same time the demand for corn may rise as it is used for the production of alcohol.
“Ricardo assumes here that the entire population consumes as much corn as it likes.” (p 322)
Marx quotes Newman to show that this was wrong.
“{“Our enormous increase of consumption in 1848, 49, 50, shows that we were previously underfed, and that prices were forced up by the deficiency of supply.” (F. W. Newman, Lectures on Political Economy, London, 1851, p. 158.)” (p 322)
Newman also goes on to illustrate what is wrong with Ricardo's rejection of the idea of absolute rent, and contention that rent does not lead to higher prices. As discussed in Capital III, this is different to the argument that rent adds to the value of the commodity. The reason that absolute rent causes higher prices is not because it adds value to the commodity, but because it acts to restrict supply. Having restricted supply, it results in market prices rising to a level above the price of production, which thereby makes the payment of the absolute rent possible. The supply is restricted because the landowner can choose to leave the land uncultivated unless a rent is paid for it, or else may rent out the land for other purposes.
Newman writes,
““The Ricardo argument,” that rent cannot enhance price, “turns on the assumption that the power of demanding rent can in no case of real life diminish supply. But why not? There are very considerable tracts which would immediately have been cultivated if no rent could have been demanded for them, but which were artificially kept vacant, either because landlords could let them advantageously as shooting ground, or […] prefer the […] romantic wilderness to the petty and nominal rent which alone they could get by allowing them to be cultivated.” (l.c., p. 159.)}” (p 322)
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