Ricoridian Theory of Rent?

David Ricardo, an English classical economist, first developed a theory in 1817 to explain the origin and nature of economic rent to explain the large rise in corn and land prices during 1805 to1815. Ricardo defined rent as, “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.” His theory of rent was based on the following assumptions: 

1. Rent of land arises due to the differences in the fertility or situation of the different plots of land. It arises owing to the original and indestructible powers of the soil.

2. Ricardo assumes the operation of the law of diminishing marginal returns in the case of cultivation of land. As the different plots of land differ in fertility, the produce from the inferior plots of land diminishes though the total cost of production in each plot of land is the same.

3. Ricardo looks at the supply of land from the standpoint of the society as a whole.

4. In the Ricardian theory it is assumed that land, being a gift of nature, has no supply price and no cost of production. So rent is not a part of cost, and being so it does not and cannot enter into cost and price. This means that from society’s point of view the entire return from land is a surplus earning.

According to Ricardo rent arises for two main reasons, (1) Scarcity of land as a factor and (2) Differences in the fertility of the soil. Ricardo assumed that land supply is fixed and it had used only to grow corn. Hence the price of land was totally determined by the demand for land. It was the high price of corn which caused an increase in the demand for land and a rise in its price, rather than the price of land pushing up the price of corn.