[2. Adam Smith’s Hypothesis Regarding the Special Character of the Demand for Agricultural Produce. Physiocratic Elements in Smith’s Theory of Rent]
Adam Smith's theory of why some land always produces rent starts with a theory of population. Smith, like Malthus and Ricardo, essentially treats humans the same as any other animal. So, if food supplies increase, people have more children, population rises, and the demand for food thereby rises. The increased supply of food, thereby creates its own demand. The importance of this goes back to Smith's argument, and distinction of the ordinary price and sufficient price. If the demand for the basic foodstuff of any society always increases along with any increase in the supply of that basic foodstuff that has implications for what the ordinary price of that foodstuff should be, and what is the sufficient price for bringing it to market. So, if we take a situation where the basic foodstuff is corn, landowners may demand a rent for land used for its cultivation. In such a situation, the ordinary price of corn may equate to a sufficient price that includes this rent. Suppose a rent were not included in the price. The price of corn would fall, and, as the basic foodstuff, according to Smith's population theory, demand would rise, pushing up the price to a level whereby a surplus profit arose. The demand for land to grow corn would rise, and landowners would then extract a rent equal to this surplus profit. But, if an increase in the supply of some non-basic foodstuff, or agricultural raw material arises, this does not promote the corresponding growth of population, and hence demand for that product. So, its market price would fall. In the same way, if the ordinary price of such a commodity included rent, this rent may then cause this price to result in a fall in demand, and so a fall in the market price. In these cases, the ordinary price could not sustain rent.
There are many problems with this argument. Firstly, Smith's population theory like that of Malthus and Ricardo, and indeed, at least in places, of Marx himself, is simply wrong. All of the evidence, from numerous societies, across the globe, is that this correlation between food supply/price and family size does not exist. In fact, the evidence is that it is poverty that encourages larger family sizes. Its fairly obvious why that is the case. Poor societies, where people have no security in old age, or periods of sickness, rely on children to provide for their parents. In such societies, with low levels of productivity, more labour is required to ensure adequate levels of output, on peasant farms, which means more children are required in each family. Finally, high levels of infant mortality means that fewer children reach maturity, so more children are required to be born.
By contrast, all the evidence is that where living standards rise, so that availability of food, mortality rates etc. improve, family sizes decrease. Colin Clark pointed out (“Population Growth and Living Standards”), there are common misconceptions about population and family sizes. He demonstrates that the average number of children, per human family, where no attempt to restrict it is made, is around 6 children. That number comes from anthropological studies, and from biological and census studies. And as conditions improve, contrary to Malthus’s theory, that family size tends to decrease. The consequence is that if productivity rises so that the supply of the basic foodstuff rises, and its price falls, rather than causing a rise in population, and so demand, it instead has an income effect. Consumers pay less for their basic foodstuff, increasing their disposable income, which is then spent on other commodities.
Since 1980, the global workforce has doubled, and most of the increase has been in Asia. According to the ILO, the world labour force has grown by around a third in the first decade of this century alone. The number of workers employed in industry has risen by around 30% or about 150 million workers, the number employed in services has risen by 35%. This incessant demand for labour-power pushed up nominal and real wages significantly, at a global level. That was manifest in a sharp rise in global food demand, as the higher living standards of these workers was first translated into a better diet. The start of the new long wave boom after 1999 enhanced this process. In 2005, Chinese consumption of meat was 2.4 times what it was in 1990, milk 3 times, fruit 3.5 times, vegetables 2.9 times, fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. The large rise in demand from China, and other developing economies, was part of the reason for the spike in global food prices, at the end of 2007 and beginning of 2008.
As Marx describes in Capital III, a fall in cereal prices may, however, still result in a rise in demand for cereals. Lower cereal prices may reduce the cost of beer and other forms of alcohol. Consumers may buy more of that with their disposable income, increasing its demand and consequently for cereals. The same, may apply to cereals fed to chickens and other livestock. But, equally, consumers may demand other agricultural products, for example, fruit. In each case, however, the income effect raises the demand for these non-basic foodstuffs. Raising their market price, and increasing the demand for land for their cultivation.
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