The Cost Theories (continued). Land Rent as an Element in Cost Land -- understanding the word in that familiar theoretical sense which refers to the indestructible part of land -- suffers no loss of substance in production. Among the costs of agricultural products, consequently, there is nothing to be calculated for what we may call the "substance-value" of land.
Ricardo goes farther than this, and affirms that the rent of land, like the value of land, cannot enter into costs. This contention is entirely in harmony with his theory that rent is a net differential rent, only ascribable to the better classes of land employed, while the poorest classes, those which are available in superfluity, yield no rent. If the classes of land which are last employed are free and bear no rent, the determining costs will, as a matter of fact, be made up without consideration of rent, simply by the sum of costs in capital and labour which are applied to the poorest classes of land. The rent yielded by the better qualities of land originates, as we know, from the surplus return of products which they assure to equal costs of capital and labour and equal value of products. Rent is, therefore, derived from the return, without finding expression in the value of the products.
It is otherwise if rent is not merely a differential but a general one. A general rent must enter into costs just as interest does. It must be included in the calculation if the determining amount of costs is to be obtained. Where all qualities of lands and all powers of the land, even those of the lowest class, are required to meet the demand, and all bear rent, the circumstance that classes of land of the poorest quality are devoted to a definite production, and so "tied up" throughout the duration of that production, is not a matter of economic indifference. For, so long as they remain tied up, their services are withheld from other productions to which they might have been devoted. In case of failure, their rent, which would otherwise have been obtained, is lost. Their rent consequently belongs to and must be included in the cost of the products.
For Ricardo it is of primary importance to persist in maintaining the foregoing contention, that land rent is always differential. His economic system cannot dispense with the proposition depending upon it, that rent does not enter into the value of products. He imagines it possible to bring the value of products under a general law, and consider them simply as multiples of units of capital and units of labour. The intervention of interest already forms a disturbing element in his law, but he believes himself able to prove that the disturbing element thus introduced is of no great importance. But if, besides, the element of rent plays a part in the value, the whole laborious structure of his theory falls to the ground, and his attempt to derive the value of products from labour, and to unite empirical amounts of value with amounts philosophically demanded, is completely overturned.
