The principle which he puts first in order,and which is indeed the key to the whole,is this --that the exchange value of anycommodity the supply of which can be increased at will is regulated,under a régime of free competition,by the labournecessary for its production.Similar propositions are to be found in the Wealth of Nations,not to speak of earlier Englishwritings.Smith had said that,"in the early and rude state of society which precedes both the accumulation of stock and theappropriation of land,the proportion between the quantities of labour necessary for acquiring different objects seems to bethe only circumstance which can afford any rule ior exchanging them with one another."But he wavers in his conception,and presents as the measure of value sometimes the quantity of labour necessary for the production of the object,sometimesthe quantity of labour which the object would command in the market,which would be identical only for a given time andplace.The theorem requires correction for a developed social system by the introduction of the consideration of capital,andtakes the form in which it is elsewhere quoted from Malthus by Ricardo,that the real price of a commodity "depends on thegreater or less quantity of capital and labour which must be employed to produce it."(The expression "quantity of capital"islax,the element oi time being omitted,but the meaning is obvious.)Ricardo,however,constantly takes no notice of capital,mentioning labour alone in his statement of this principle,and seeks to justify his practice by treating capital as "accumulatedlabour;"but this artificial way of viewing the facts obscures the nature of the co-operation of capital in production,and bykeeping the necessity of this co-operation out of sight has encouraged some socialistic errors.Ricardo does not sufficientlydistinguish between the cause or determinant and the measure of value;nor does he carry back the principle of cost ofproduction as regulator of value to its foundation in the effect of that cost on the limitation of supply.It is the "natural price"of a commodity that is fixed by the theorem we have stated;the market price will be subject to accidental and temporaryvariations from this standard,depending on changes in demand and supply;but the price will permanently and in the longrun,depend on cost of production defined as above.On this basis Ricardo goes on to explain the laws according to whichthe produce of the land and the labour of the country is distributed amongst the several classes which take part inproduction.
The theory of rent,with which he begins,though commonly associated with his name,and though it certainly forms the mostvital part of his general economic scheme,was not really his,nor did he lay claim to it.He distinctly states in the preface tothe Principles ,that "in 1815Mr.Malthus,in his Inquiry into the Nature and Progress of Rent ,and a fellow of UniversityCollege,Oxford,in his Essay on the Application of Capital to Land ,presented to the world,nearly at the same moment,thetrue doctrine of rent."The second writer here referred to was Sir Edward West,afterwards a judge of the supreme court ofBombay.Still earlier than the time of Malthus and West,as M'Culloch has pointed out,this doctrine had been clearlyconceived and fully stated by Dr.James Anderson in his Enquiry into the Nature of Corn-Laws ,published at Edinburgh in1777.(42)That this tract was unknown to Malthus and West we have every reason to believe;but the theory is certainly asdistinctly enunciated and as satisfactorily supported in it as in their treatises;and the whole way in which it is put forward byAnderson strikingly resembles the form in which it is presented by Ricardo.
The essence of the theory is that rent,being the price paid by the cultivator to the owner of land for the use of its productivepowers,is equal to the excess oi the price of the produce ot the land over the cost of production on that land.With theincrease of population,and therefore of demand for food,inferior soils will be taken into cultivation;and the price of theentire supply necessary for the community will be regulated by the cost of production of that portion of the supply which isproduced at the greatest expense.But for the land which will barely repay the cost of cultivation no rent will be paid.Hencethe rent of any quality of land will be equal to the difference between the cost of production on that land and the cost ofproduction of that produce which is raised at the greatest expense.
The doctrine is perhaps most easily apprehended by means of the supposition here made of the coexistence in a country of aseries of soils of different degrees of fertility which are successively taken into cultivation as population increases.But itwould be an error to believe,though Ricardo sometimes seems to imply it,that such difference is a necessary condition ofthe existence of rent.If all the land of a country were of equal fertility,still if it were appropriated,and if the price oi theproduce were more than an equivalent for the labour and capital applied to its production,rent would be paid.Thisimaginary case,however,after using it to clear our conceptions,we may ior the future leave out of account.
The price of produce being,as we have said,regulated by the cost of production of that which pays no rent,it is evident that"corn is not high because a rent is paid,but a rent is paid because corn is high,"and that "no reduction would take place inthe price of corn although landlords should forego the whole of their rent."Rent is,in fact,no determining element of price;it is paid,indeed,out oi the price,but the price would be the same if no rent were paid,and the whole price were retained bythe cultivator.
