David Ricardo, 1772–1823
Everything here is from Hunt & Lautzenheiser, ch. 5, pp. 91–92, unless a page says otherwise.
- Money
- Son of a wealthy stockbroker who had come to England from Holland. Ricardo did better than his father on the exchange and was rich before he was thirty.
- 1799
- Read Smith's Wealth of Nations. From then on he split his time between political economy and making more money.
- Method
- HL call him "the most rigorous theoretician of the classical economists." He built an abstract model of how capitalism works and followed its logic to the end. That style of economics is still the dominant one.
- Malthus
- His closest friend and his lifelong opponent. They agreed about population. They disagreed about value, about gluts, and above all about who should win the fight between landlords and capitalists. Ricardo took the capitalists' side.
- 1815
- Malthus published a pamphlet on rent. Three weeks later Ricardo published his Essay on the Influence of a Low Price of Corn on the Profits of Stock, with the model you are about to play.
- 1817
- Principles of Political Economy and Taxation. The first sentence of the preface says what he thinks economics is for: to find "the laws which regulate this distribution" of the produce of the earth among landlords, capitalists, and laborers (p. 92).
- The claim
- "The interest of the landlord is always opposed to the interest of every other class in the community" (p. 96). The three levels show why he thought so.
How the puzzles work
Each level has three puzzles. Some you solve by moving the farm into a state the puzzle names. Some you solve by predicting a number on paper before the farm shows it. A gold badge appears above when a puzzle is solved. Nothing is locked; do them in any order.
Level 1 · Who gets the extra twenty quarters?
New here? Scroll down and press Watch a round before you touch anything.
The setup. Three plots of land, each with its own landlord. Farmed with the same capital and labor, they yield a net produce of 100, 90, and 80 quarters of corn. Net produce is what is left after wages and worn-out capital are replaced; it goes to the farmer as profit or to the landlord as rent, nowhere else.
The players. Many farmers, all alike, each with one dose of capital. Any farmer can take any plot. Landlords do nothing but rent to whoever offers the most. Nobody sets prices; a farmer who pays less than a plot is worth gets outbid, and a farmer who pays more walks to a worse plot.
Your move. You happen to be on No. 1. You cannot set the rent; you can only test one. Pick an offer with the slider and open the season. The ledger below the figure shows what every other farmer would gain by taking your plot at that offer. If anyone gains, they bid. Find the offer at which nobody moves.
Watch a round first
Nothing to do yet. Press the button and watch a season play itself: two farmers, two plots, and a landlord who only takes the higher offer. About a minute.
Ledger · who gains by moving?
Bidding continues while the last column is positive for anyone. It stops when every entry is 0. That is the equilibrium: one rate of profit, and the marginal plot pays nothing.
Your move
Level 2 · The margin moves out
Now the whole produce, not just the surplus. Each plot's bar is cut into wages (bottom), profit (middle), and rent (top). Press Next year: population grows, a worse plot comes under the plough, and the three areas change shape.
Controls
Level 3 · The Corn Laws
Same farm, same population. Left: imports are banned and the margin goes wherever population pushes it. Right: foreign corn can be had at a world price, so no plot yielding less than the import-equivalent is worth farming, and the world price becomes the no-rent level.
Wage is 80 per plot in both panels. Under free trade the plots right of the margin are not farmed; that corn comes from abroad.
My schedule · check your paper
Type the numbers from your assignment. The farm redraws and prints every row. If a row does not match your paper, one of you is wrong. Find out which.
Schedule
Where to read · Ricardo's study map
Hunt & Lautzenheiser, 3rd ed., chapter 5. Printed page numbers. Each card says which pages carry a level, what to be able to do after reading them, and what the Tuesday quiz will quote.
Level 1 · The bidding
Read pp. 92–94
- p. 92 My definition of rent, and the two assumptions: lands differ in fertility, and competition equalizes the rate of profit among the farmers.
- pp. 92–93 What net produce means. Total product minus everything needed to make it, wages included. What is left goes to profit or rent, nowhere else.
- p. 93 My No. 1, 2, 3 passage, 100, 90, 80 quarters. Then HL's gloss: the farmer who pays only 15, the rival who offers 18, and why it stops at 20.
- p. 94 Figure 5.1, the three bars with the dashed lines.
Be able to: compute rent on any plot once you know the marginal plot, and say in one sentence why it is the farmers' competition, not the landlords', that sets it.
The quiz will quote the p. 93 passage.
Level 2 · The margin
Read pp. 94–98, then p. 114
- pp. 94–95 Why the bars become a line, Figure 5.2.
- p. 95 The corn rate of profit: net produce on the no-rent land divided by the corn wage. Why it must fall as the margin extends.
- p. 96 The growth sequence, profits to accumulation to population to more land, and where it runs into trouble.
- p. 97 Figure 5.3: the triangle is rent. And the sentence that rent is "never a new creation of revenue."
- p. 98 Figure 5.4, x1, x2, x3. The walkthrough is on p. 96. Draw it yourself from the numbers before you look.
- p. 114 The stationary state: "without a motive there could be no accumulation."
Be able to: draw Figure 5.4 from memory with the three areas labeled; say what falls when the margin moves out and the wage does not; write the formula for r.
The quiz will quote p. 97 on rent as a part of revenue already created.
Level 3 · The Corn Laws
Read pp. 96, 98, 115–116, and Malthus's side in ch. 4, pp. 87–88
- p. 96 "The interest of the landlord is always opposed to the interest of every other class in the community."
- p. 98 Why I opposed the Corn Laws: imports blocked, worse land ploughed, profits fall, growth stops. Also Malthus's objection that sent me to the theory of value.
- p. 115 The three ways out: import food, improve agriculture, or stop growing. Which two the landlords fight.
- p. 116 "The loss is wholly on one side, and the gain wholly on the other."
- ch. 4, pp. 87–88 Malthus, holding my theory of rent, wants the landlords paid. His reason is gluts. My reply is the fire in the warehouse.
Be able to: state my policy and the mechanism behind it; explain why Malthus, with the same rent theory, took the other side; say where each of us stands on whether exchange harmonizes interests.
The quiz will quote p. 96.
Wrong turns I have seen
- "Rent raises the price of corn." Backwards. Corn is dear because the margin is far out; rent is high because corn is dear. Rent is a residual, not a cost (p. 103).
- "Profit falls because landlords take it." No. Profit falls because the cost of labor rises with the price of corn. The margin moving out causes both.
- "The landlord earns rent because his land is productive." That is Malthus's framing (ch. 4, p. 82). My rent is paid for the difference in productivity. The best land alone pays nothing.
- "Ricardo predicted doom." The stationary state was an argument aimed at Parliament, not a forecast (p. 115). I named the escapes myself.
- "This is Smith's conflict." Smith's bargain sets master against workman. Mine sets the landlord against everyone else. Here workers and capitalists are on the same side.
Sources
Rent is "that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil."Ricardo, Principles, quoted in Hunt & Lautzenheiser p. 92
"Thus suppose land—No. 1, 2, 3—to yield with an equal employment of capital and labour a net produce of 100, 90, and 80 quarters of corn. … As soon as population had increased as to make it necessary to cultivate No. 2 … rent would commence on No. 1; for either there must be two rates of profit on agricultural capital, or ten quarters … must be withdrawn from the produce of No. 1 for some other."Ricardo, quoted in HL p. 93
The "restless desire on the part of all the employers of stock … to quit a less profitable for a more advantageous business has a strong tendency to equalize the rate of profits of all."Ricardo, quoted in HL p. 93
Rent is "in all cases a portion of the profits previously obtained on the land. It … [was] never a new creation of revenue, but always a part of a revenue already created."Ricardo, Essay (1815), quoted in HL p. 97
"The interest of the landlord is always opposed to the interest of every other class in the community."Ricardo, Essay (1815), quoted in HL p. 96
Figures follow HL Figures 5.1–5.4 (pp. 94–98). In Levels 2–4 the bar for each plot is its total produce; wages are the only cost, so produce minus wages is Ricardo's net produce, which goes to profit or rent. Rate of profit = net produce on the no-rent land ÷ the corn wage (HL p. 95). The world-price mechanism in Level 3 is the instructor's rendering of the Corn Laws argument on pp. 98 and 115–116, not a diagram in the book.