4.3 The theory of rent

The Ricardian theory of rent was effectively demolished by Thomas Perronet Thompson (1783–1869) in his pamphlet, The True Theory of Rent (1826). Thompson weighed in against this fallacious capstone to the Ricardian system: ‘The celebrated Theory of Rent’, Thompson charged, ‘is founded on a fallacy’, for demand is the key to the price of corn and to rent.

The fallacy lies, in assuming to be the cause what in reality is only a consequence... [I]t is the rise in the price of produce... that enables and causes inferior land to be brought into cultivation; and not the cultivation of inferior land that causes the rise of rent.

Thompson goes on to note in wonder that Ricardo perceived the fallacy in the view that corn sells for a high price because rent is paid, and not vice versa, and yet pressed on to adopt a similar cost theory of price. Here Ricardo reversed cause and effect by maintaining that the cultivation of inferior land causes the price of corn to rise, instead of the other way round.

During the same year, Colonel Robert Torrens himself destroyed the Ricardian theory of rent even more effectively, zeroing in on the crucial fallacy of rent-as-a-differential. Characteristically Torrens, who was involved in all the economic controversies of the day and changed his mind significantly on nearly all of them, delivered his coup de grace in the third edition of a work in which he had originally predated Ricardo in the discovery and championing of the theory of differential rent. This work was the Essay on the External Trade, originally published in 1815. But now Torrens honed in on the critical point that the rent of land, A, does not depend on its being more fertile or productive than some other piece of land, B; that, on the contrary, the rent on each land stems from its own productivity, period, in turn partially determined by the scarcity of that particular land and by the demand for its product. The existence of a return on a piece of land is by no means dependent on the existence of inferior lands. As Torrens puts it:

Neither the gradations of soil, nor the successive applications of capital to land, with decreasing returns, are in any way essential to the appearance or the rise of rents. If all soils were of one uniform quality, and if land, after having been adequately stocked, could yield no additional produce... still the rise in the value of raw produce... would cause a portion of the surplus produce of the soil to assume the form of rent.

In the very same year, 1831, that Colonel Torrens was thus pronouncing the death of the Ricardian system, the Rev. Richard Jones (1790–1855), a Cambridge graduate, put the final boots to the Ricardian theory in his discourse ‘On Rent’, in his Essay on the Distribution of Wealth. A Baconian inductivist, historicist, and anti-theorist who paradoxically first succeeded Senior as professor of political economy at King's College, London, and then followed Malthus as professor at the East India College of Haileybury, Jones stressed the error of Ricardo's historical dictum that the most fertile lands are always cultivated first in every country, which then moved successively to less and less fertile lands. For Schumpeter and others to dismiss Jones's case as confusing historical fact with an abstract theoretical model, misses the real point. Fallacious anti-theorist Richard Jones undoubtedly was; but from his own point of view, David Ricardo was not simply setting up an abstract and totally unrealistic theoretical model. Ricardo was interested above all in political applications, and he was deluded enough to believe that his model was spewing forth accurate laws of past and future historical trends. For Ricardo, inexorable rises in rent, crippling future economic development, were a predictable empirical consequence of his own theory. Specific empirical facts cannot give rise to or test theory, but a theoretical law that attempts to predict past and future can be validly countered by examining the course of actual history. Empirical facts can properly be used to refute empirical generalizations.

The various demolitions of Ricardo's theory of rent, especially that of Perronet Thompson, quickly triumphed in the economic literature. The Thompson critique had been anticipated in the influential journals, in the British Critic as early as 1821, and by Nassau W. Senior in the Quarterly Review in the same year. By the early 1830s, Thompson's view had triumphed in the journals, including an article by Samuel Mountifort Longfield, the first Irish professor of political economy at Trinity College, Dublin. By the 1840s, the Ricardian theory of rent was dead in the water, and almost beneath discussion; apart from McCulloch, the only one willing to defend it was the ardent and emotional Ricardian, the poet and writer Thomas De Quincey (1785–1859).

David Ricardo, as he himself acknowledged, did not originate his differential theory of rent. It began in 1777, on the publication of An Enquiry into the Nature of the Corn Laws, by the Scottish farmer, James Anderson (1739–1808). An Aberdeenshire farmer, Anderson founded and edited the weekly Bee, and later moved to London, where he edited publications in agricultural science and the arts. Anderson's theory, however, remained forgotten, until independently replicated by three writers in 1815: Thomas Robert Malthus, in his Inquiry into the Nature and Progress of Rent; Sir Edward West's (1782–1828), Essay on the Application of Capital to Land; and the first edition of Torrens's Essay on the External Corn Trade. Malthus did not integrate his theory into anything like the Ricardian system, and, furthermore, he was scarcely an opponent of the landlords or of land rent. To the contrary, Malthus defended the Corn Laws. On the other hand, West, an attorney and fellow of University College, Oxford, who later served as supreme court justice in India and died early of disease, so closely anticipated the Ricardian system that Schumpeter habitually refers to the ‘West-Ricardian’ theory.

The interesting question is: what gave rise, in a very short period of time (1815–17) to such intense concern, or at least attention to, the alleged problems of rising rents? For apart from the relatively unknown James Anderson, attention to rising rents occurs within a very few years shortly after the end of Napoleonic Wars. The answer was brilliantly supplied by the early twentieth century American ‘Austrian’ economist Frank Albert Fetter: the Napoleonic Wars of the first fifteen years of the nineteenth century were marked by high taxation, blockages of food imports, currency inflation, and consequently unprecedentedly high prices for ‘corn’ in England and hence highly inflated agricultural rents. It is surely no accident, as Fetter notes, that ‘the so-called Ricardian doctrine of rent was independently formulated by several other writers – West, Malthus, Torrens and others between 1813 and 1815 – when wheat prices were at their peak’.¹³