Land (economic factor)

From Hobson's Choice

Land as a productive resource, as opposed to land as an ecological space or social commons. Land is usually treated as one of the factors of production in economics, although in recent years there has been more acceptance of the idea of generalized ecological resources (of which land is but one expression). At the time of this writing, treating land as an ecological space or social commons remains rare and controversial.

1 Land and Rent
2 Importance as a Factor of Production
3 Ecological Space
4 Notes
5 See Also
6 External Links

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Land and Rent

The initial, or classical, concept of an upwardly sloping supply curve arose from the idea of land made available for the cultivation of a particular type of crop. When prices were low, only the best land would be used since it could be cultivated easily. As prices rose, farmers would recover inferior grades of land, use more fertilizer, and produce lower yields. Hence, output would rise. Those landlords whose property was either geographically close to population centers, or else of high productivity, enjoyed high rents.

While "rent" is used in the vernacular to refer to the payment for the use of land, or more frequently, structures built on land, it is supposed to represent a premium that the land fetches by virtue of being more productive than land at the margin of productivity. In theory, there will be some land in cultivation such that the cost of cultivation is exactly equal to the wholesale value of the produce; the rent on this land should be zero, since the farmer would only break even by farming it. When land is so fertile that farming it produces abundant surplus revenue, it follows that the landlord would seek to bid up the rent to capture all of that surplus revenue. For this reason, the term "rent" is applied to any economic factor for which returns exceed the opportunity cost.

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Importance as a Factor of Production

As mentioned above, 18th and early 19th century economics regarded land as paramount in importance. Indeed, physiocrats like Anne-Robert Turgot and François Quesnay claimed that land was the source of all value. Adam Smith, while recognizing the distinctiveness of land as a productive input (by virtue of its returns), treated it as but one of three of the main categories of industrial resource. It was made somewhat more important under the influence of David Ricardo and Johann Heinrich von Thünen, who developed the concept of land quality and spacial utilization to establish the marginal wage.

Economics took a major turn with the marginal revolution (1869-1874), by redirecting its attention away from land as a decisive source of value. Partly this reflected the growing relative importance of industrial output; farming was, moreover, treated as another industrial output. This reflected the greater literal accuracy of the metaphor of a market for land: capital was now almost identical to finance capital, which could easily acquire land or capital.^[1] The goal of neoclassical economics was to find the basis of equilibrium, not the marginal product of labor. The latter was no longer regarded as significantly limited by the availability of productive land, since it was mostly offset by international trade in farm commodities. Accumulation of capital corresponded directly to a rightward movement of the supply curve for land, or at least, for the products of land. Land was now, so to speak, exactly like machinery.

In recent years, there has been more attention paid to land as a depletable resource; for example, land may be irrigated, which increases the stream of rents from it, but the aquifer may be used up, or the soil may gradually become contaminated with salts. Conversely, the land may be used for mining, in which case the land is used up in exchange for a diminishing stream of precious metals or phosphates. Hence, nonrenewable resources may be regarded as representing "embodied" or "congealed" land.

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Ecological Space

Land, when not used as a conventional factor of production, is of service to the living population of the earth as ecological space. For example, rain forests are known to be economically unproductive; old growth forests are not sources of income, which is why they have been the target of ecological redemption by the Trans-European industrial system. Since the 1970's, the conflict between economic "recovery" of land for production versus the universal human need of land as a space for the renewal of oxygen, has alarmed the world. As an ecological space, land is like a commons, but the commons can often have an immediate productive application (as, for example, clean seawater as a breeding ground for marine life); in the case of ecological spaces, the value lies in a shock absorber (so that human activities do not lead to unintended, devastating ecological consequences).

Jared Diamond mentions the case of the deforestation of Easter island, an event that mystifies him: he wonders what the Islander said as he cut down the last tree.^[2] Oddly, Diamond never points out that there was no need for the Easter Islanders to actually cut down all, or even most, of the trees on the island: often, the health of the entire local population depends on a minimum habitat size. Perhaps loggers might have cut swathes through the forest, which later lead to further forest decimation by wind. Later, the trees perhaps suffered a severe inability to reproduce, especially when recovering from a blight, or became genetically inbred. If one assumed that the only way to extirpate a species of tree was by literally cutting down the entire population, then one would constantly be driving species to the brink of extinction, and most would probably become extinct soon after.

The industrial exploitation of land almost inevitably imposes severe pressures on proprietors to drive the population to the brink of extinction; as a public relations ploy, however, it is always claimed that the owners have a strong interest in preserving the land as an ecological space, on the grounds that this will preserve the value of the property. Historical experience suggests that owners of lands with ecologically sensitive resources frequently lack the expertise or objective judgment to avoid killing the goose that lays the golden eggs. Again, this may arise because the lands would have remained part of the commons, but for the shrewd tactics of some speculators, who secured them for economic exploitation. This is called "perverse selection"; it is often stimulated by the fact that the putative long-term financial benefit of preserving the land is, in fact, eclipsed by the short-term commercial benefit of denuding it. This may also arise because ownership is divided, and only a minority of owners are foolish enough to destroy the part of the ecosystem under their control; but that minority is sufficient to wreck the whole.

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Notes

↑ Several radical economists of the 19th century argued that finance capital was indeed fundamentally different from "industrial capital"; mainstream economics maintained the opposite. One of the more famous of the finance capital ≠ industrial capital was Rudolf Hilferding, who seems to have introduced the idea in his defense of Karl Marx from Eugen Böhm-Bawerk (1904). In addition to the Democratic Socialist Hilferding, there were also nationalist socialists like Werner Sombart, who sought to use the alleged split to validate demonization of Jewish Europeans.
↑ Jared Diamond, Collapse, Viking Adult (2004), p.23, p.114, p.443.

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