The quantity of land is limited, and so is its productiveness, and it is not uniform in quality.

If the
superior land will not support the population, recourse must be made to inferior lands and the produce
is, thus, raised at different costs. The differential advantage of the superior land over the inferior gives
rise to Economic Rent. It is plain that the farmer may just as well pay for the superior land as get the
inferior land rent free.

Thus, rent arises out of the difference existing in the productiveness of different soils under cultivation
at the time for the purpose of supplying the same market, and the amount of rent is determined by the
degree of those differences. This is known as Ricardo’s Theory of Rent.

According to Ricardo, rent is that portion of the produce of the earth, which is paid to the landlord for
the original and indestructible powers of the soil. It is a surplus enjoyed by the super marginal land over
the marginal land arising due to the operation of the law of diminishing returns.

Productiveness depends on fertility and convenience of situation. Therefore, Economic Rent in its
simplest form is the differential profit that arises in the case of production, owing to differences in
natural conditions due to:

(1) Fertility of the soil,

(2) Advantages of situation.

Take, for simplicity, a new country dependent on its own supplies and occupied by a body of settlers. At
first we may suppose that there is an abundance of the best land and that it is practically free. In this
case only the best land will be used, and the produce will sell so as to just cover (with current wages and
profits) the expenses of production. So far, there is no differential profit and, thus, no economic rent..

Robert Malthus (he went by his middle name) was born in "the Rookery", a country estate in Dorking,
Surrey (south of London). He was the second son of Daniel Malthus, a country gentleman and avid
disciple of Jean-Jacques Rousseau and David Hume (both of whom he knew personally). Accordingly,
Malthus was educated according to Rousseauvian precepts by his father and a series of tutors. Malthus
entered Jesus College, Cambridge, in 1784 and was ordained a minister of the Church of England in
1788. He earned his M.A. in 1791.
Around 1796, Malthus became a curate in the sleepy town of Albury, a few miles from his father's
house. Having been elected Fellow of Jesus College in 1793, he divided his time between Cambridge
and Albury. It was in the course of his interminable intellectual debates with his father over the
"perfectibility of society" thesis then being advanced by William Godwin and the Marquis de Condorcet,
that Malthus's decided to set his ideas down on paper. It was eventually published as a pamphlet
known as the Essay on Population (1798).

In this famous work, Malthus posited his hypothesis that (unchecked) population growth always exceeds
the growth of means of subsistence. Actual (checked) population growth is kept in line with food supply
growth by "positive checks" (starvation, disease and the like, elevating the death rate) and "preventive
checks" (i.e. postponement of marriage, etc. that keep down the birthrate), both of which are
characterized by "misery and vice". Malthus's hypothesis implied that actual population always has a
tendency to push above the food supply. Because of this tendency, any attempt to ameliorate the
condition of the lower classes by increasing their incomes or improving agricultural productivity would
be fruitless, as the extra means of subsistence would be completely absorbed by an induced boost in
population. As long as this tendency remains, Malthus argued, the "perfectibility" of society will always
be out of reach.

In his much-expanded and revised 1803 edition of the Essay, Malthus concentrated on bringing
empirical evidence to bear (much of it acquired on his extensive travels to Germany, Russia and
Scandinavia). He also introduced the possibility of "moral restraint" (voluntary abstinence which leads
to neither misery nor vice) bringing the unchecked population growth rate down to a point where the
tendency is gone. In practical policy terms, this meant inculcating the lower classes with middle-class
virtues. He believed this could be done with the introduction of universal suffrage, state-run education
for the poor and, more controversially, the elimination of the Poor Laws and the establishment of an
unfettered nation-wide labor market. He also argued that once the poor had a taste for luxury, then
they would demand a higher standard of living for themselves before starting a family. Thus, although
seemingly contradictory, Malthus is suggesting the possibility of "demographic transition", i.e. that
sufficiently high incomes may be enough by themselves to reduce fertility.

The Essay transformed Malthus into an intellectual celebrity. He was reviled by many as a hard-hearted
monster, a prophet of doom, an enemy of the working class, etc. The ridicule and invective rained down
on Malthus by the chattering and pamphleteering classes was relentless. But a sufficient number of
people recognized his Essay for what it was: the first serious economic study of the welfare of the lower
classes. Even Karl Marx, who deplored his conservative policy conclusions, grudgingly granted him this.
In 1804, Malthus got married and thereby forfeited his fellowship at Cambridge. In 1805, Malthus was
appointed Professor of Modern History and Political Economy at the East India College in Haileybury,
thereby becoming the England's first academic economist.

Malthus got interested in monetary in 1800, when he published a pamphlet (much praised by Keynes),
expounding an endogenous theory of money. Contrary to the Quantity Theory, Malthus argued that
rising prices are followed by increases in the quantity supplied of money. Around 1810, Malthus came
across a series of tracts by a stockbroker, David Ricardo, on monetary questions. He immediately wrote
to Ricardo and the two men initiated a correspondence (and a friendship) that would last for over a
decade. The Malthus-Ricardo relationship was warm in all respects but one -- economics. They found
themselves on opposites sides of the fence on practically every issue.

In 1814, Malthus launched himself into the Corn Laws debate then raging in parliament. After a first
pamphlet, Observations, outlining the pros and cons of the proposed protectionist laws, Malthus
tentatively supported the free traders, arguing that as cultivation as British corn was increasingly
expensive to raise, it was best if Britain at least in part on cheaper foreign sources for its food supply.
He changed his mind the next year, in his 1815 Grounds of an Opinion pamphlet, siding now with the
protectionists. Foreign laws, he noted, often prohibit or raise taxes on the export of corn in lean times,
which meant that the British food supply was captive to foreign politics. By encouraging domestic
production, Malthus argued, the Corn Laws would guarantee British self-sufficiency in food.

In his 1815 Inquiry, Malthus came up with the differential theory of rent. Although it was
simultaneously discovered by Torrens, West and Ricardo, Malthus's pamphlet was the first of the four to
be published. Refuting older contentions that rent was a cost of production, Malthus argued that it was
merely a deduction from the surplus. Rent, Malthus argued, is enabled by three facts: (1) that
agricultural production yields a surplus; (2) that the wage-fertility dynamics guarantee that the price of
corn would remains steadily above its cost of production; (3) that fertile land is scarce. Ricardo own
1815 essay was actually a response to Malthus. Ricardo dismissed Malthus's arguments, arguing that
Malthus's "third" cause -- that land differs in quality and is limited in quantity -- is sufficient to explain
the phenomenon of rent. He incorporated Malthus's theory of rent with his own theory of profits to
provide the "Classical" statement of the theory of distribution. He also dismissed Malthus's feeble
attempts to defend parasitical landlords and the Corn Laws.

Malthus's own criticism of Ricardo's 1815 essay led them into a debate on the question of "value".
Malthus supported Smith's old "labor-commanded" theory of value, whereas Ricardo favored the
"labor-embodied" version. The outcome of the discussion was Ricardo's Principles in 1817, which set
down the doctrine of the Classical School on value, distribution and production, incorporating at least
two of Malthus's own contributions: the "natural wage" version of Malthus's population theory and an
expanded version of Malthus's theory of rent.

Malthus was never comfortable as a member of the Classical school. Nowhere is this more evident than
in Malthus's own treatise, Principles of Economics (1820). He differs from the Classical Ricardians at
several points. For instance, Malthus introduced the idea of a demand schedule in the modern sense,
i.e. as the conceptual relationship between prices and the quantity sought by buyers rather than the
empirical relationship between prices and quantities sold. He also paid much attention to the short-run
stability of prices. insisting on a labor-commanded theory of value and,

Thirdly, and most famously, Malthus denied the validity of Say's Law and argued that there could be a
"general glut" of goods. Malthus believed that economic crises were characterized by a general excess
supply caused by insufficient consumption. His defense of the Corn Laws rested partly on the need for
landlord consumption to "make up" for shortfalls in demand and thus avert crisis. See our more
extensive discussion of the General Glut Controversy.

Abstract. Adam Smith considered rent a surplus which arises because some produce sells for a price in
excess of the cost of production. Thus rent is price-determined rather than price determining. Thomas
Malthus contributed the beginnings of the differential theory of rent, endeavoring to show that rent will
not arise until land of inferior quality is taken under cultivation. David‘Ricardo fully developed the theory
of rent which is named Ricardian: rent is a surplus in the form of a differential. Henry George brought
the classical position to its logical conclusion: rent is an unearned increment.

Rent, said Adam Smith, is a monopoly price. The quantity of good or desirable land is limited and those
who own it can extract something from the consumer which is neither a pay- ment for labor nor for
necessary capital (2). On the other hand. Smith indicates that rent is a surplus.

Physiocracy (French: physiocratie; from the Greek for "government of nature") is an economic theory
developed by a group of 18th-century Age of Enlightenment French economists who believed that the
wealth of nations derived solely from the value of "land agriculture" or "land development" and that
agricultural products ...
physiocrat, any of a school of economists founded in 18th-century France and characterized chiefly by a
belief that government policy should not interfere with the operation of natural economic laws and that
land is the source of all wealth. It is generally regarded as the first scientific school of economics.

Physiocracy etymologically denoted the “rule of nature,” and the physiocrats envisaged a society in
which natural economic and moral laws would have full play and in which positive law would be in
harmony with natural law. They also pictured a predominantly agricultural society and therefore
attacked mercantilism not only for its mass of economic regulations but also for its emphasis on
manufactures and foreign trade. Whereas mercantilists held that each nation must regulate trade and
manufacture to increase its wealth and power, the physiocrats contended that labour and commerce
should be freed from all restraint. Again, whereas mercantilists claimed that coin and bullion were the
essence of wealth, the physiocrats asserted that wealth consisted solely of the products of the soil.

world population

READ MORE ON THIS TOPIC

population: Physiocrats and the origins of demography

) By the 18th century the Physiocrats were challenging the intensive state intervention that
characterized...

The origin of these ideas may be traced in numerous works, in France and in Britain, from the end of the
17th century, but the so-called physiocratic school was founded by François Quesnay, court physician to
Madame de Pompadour and later to Louis XV. His first publications were in the field of medicine. His
knowledge of the circulation of the blood and his belief in the creative healing power of nature
influenced his later economic analyses. Also, despite a long residence at Versailles, Quesnay remained a
countryman at heart, and his economic ideas were coloured by his early studies of Aristotle and Thomas
Aquinas. His crowning work and the one that set forth his views schematically was the Tableau
économique (1758; “Economic Picture”), which, by deftly chosen data, demonstrated the economic
relation between a workshop and a farm and purported to prove that the farm alone added to a nation’s
wealth.

By the early 1750s, Quesnay’s rooms at Versailles had become the meeting place of persons interested
in economic and administrative problems. His first important disciple was Victor Riqueti, Marquis de
Mirabeau, who wrote Explication du Tableau économique (1759; “Explication of the Economic Picture”),
Théorie de l’impôt (1760; “Theory of Taxation”), and Philosophie rurale (1763; “Rural Philosophy”), all
elaborations of Quesnay’s theories. In 1763 the young Pierre Samuel du Pont de Nemours came to
Quesnay’s notice, and it is this event that marks the real beginning of the physiocratic school, which was
joined, among others, by P.P. le Mercier de la Rivière (1719–92), G.F. le Trosne (1728–80), the abbé
Nicolas Baudeau (1730–92), and the abbé P.J.A. Roubaud (1730–91). The school was popularized by du
Pont, who published a collection of Quesnay’s writings under the title La Physiocratie; ou, constitution
naturelle du gouvernement le plus avantageux au genre humain (1767; “Physiocracy; or, The Natural
Constitution of the Government Most Advantageous to Humankind”), from which the school took its
name. (The followers, however, preferred to be known as économistes. The term physiocrats became
current only in the 19th century.) Also influential in popularizing the school were Roubaud, who edited
the Gazette du commerce, and Baudeau, who controlled the journal Ephémérides du citoyen.

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By 1768 the physiocratic school was in decline. In 1774, however, shortly before Quesnay died, the
hopes of both school and party were raised by the appointment of Jacques Turgot as comptroller
general. Turgot himself was not a physiocrat, but he had affinities with the school, and the physiocrats
rallied around him. Eventually, accused of putting the government into the hands of theorists, Turgot
was dismissed in 1776, and the leading physiocrats were exiled.

Given their assumptions and the social system that they desired, the physiocrats were logical and
systematic. What they did was to rationalize medieval economic ideals, employing to that end the more
modern philosophical and scientific methods. Hence in their writings there is a strange blend of
conservative and revolutionary thought and, to the modern mind, some inconsistencies. They asserted
in a general way that prices were determined by cost of production and by supply and demand, but they
assumed that there was a constant fair price (bon prix) that obtained under a regime of free trade. On
the other hand, they claimed that government should fix the rate of interest. Again, they glorified tillage
and lauded the cultivators but assigned the net product (produit net) to the landlords. No wonder, then,
that the physiocrats have been variously regarded as levelers, as liberals, and as feudal reactionaries.
Their system did not survive for long. Their free-trade theories were, however, embodied in the Anglo-
French commercial treaty of 1786 and in the Revolutionary decree of August 29, 1789, freeing the grain
trade. The land tax established by the Revolutionary Constituent Assembly on December 1, 1790, also
followed physiocratic precepts, but the issue of assignats, or paper money, in April 1790 ignored
completely their theory of wealth. Indeed, this last theory soon ceased to hold respect. It had already
been attacked by Adam Smith and was soon to be demolished by David Ricardo. Of greater importance
than the conclusions of the physiocrats was their scientific method, which ironically in other hands and
in different circumstances was destructive of physiocratic doctrines.
The Editors of Encyclopaedia Britannica

This article was most recently revised and updated by Michael Ray.

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location theory, in economics and geography, theory concerned with the geographic location of
economic activity; it has become an integral part of economic geography, regional science, and spatial
economics. Location theory addresses the questions of what economic activities are located where and
why. The location of economic activities can be determined on a broad level such as a region or
metropolitan area, or on a narrow one such as a zone, neighbourhood, city block, or an individual site.

Johann Heinrich von Thünen, a Prussian landowner, introduced an early theory of agricultural location in
Der isolierte Staat (1826) (The Isolated State). The Thünen model suggests that accessibility to the
market (town) can create a complete system of agricultural land use. His model envisaged a single
market surrounded by farmland, both situated on a plain of complete physical homogeneity.
Transportation costs over the plain are related only to the distance traveled and the volume shipped.
The model assumes that farmers surrounding the market will produce crops which have the highest
market value (highest rent) that will give them the maximum net profit (the location, or land, rent). The
determining factor in the location rent will be the transportation costs. When transportation costs are
low, the location rent will be high, and vice versa. This situation produces a rent gradient along which
the location rent decreases with distance from the market, eventually reaching zero. The Thünen model
also addressed the location of intensive versus extensive agriculture in relation to the same market.
Intensive agriculture will possess a steep gradient and will locate closer to the market than extensive
agriculture. Different crops will possess different rent gradients. Perishable crops (vegetables and dairy
products) will possess steep gradients while less perishable crops (grains) will possess less steep
gradients.