Henry George, David Ricardo
and the Law of Rent
Sydney S. Gilchrist
[Reprinted from the Georgist Journal, Spring,
In Book IV, Chapter 2 of Progress and Poverty, Henry George
discusses cities and the effect of increased population: "The
town has grown into a city.
Here, in short, is a center of human
life, in all its varied manifestations." He then goes on to
write: "So enormous are the advantages which this land now offers
for the application of labor, that instead of one man with a span of
horses scratching over acres, you may count in places thousands of
workers to the acre, working tier on tier ... eight stories from the
ground, while underneath the surface of the earth engines are
throbbing with pulsations that exert the force of thousands of horses."
Henry George is clearly indicating that the greater the advantages of
a site (i.e., its rent worth) then the greater is the amount of labor
and capital that will normally be applied in order to achieve the
satisfactions which yield rent. Obviously George had taken a step
forward in his thinking from when he quoted Ricardo's "law"
which suggests that rent is determined on a basis of the same amount
of labor being applied to all sites. We should step forward with
George, and cease drawing a horizontal "rent line" in
diagrams which suggest that capital and labor are the same on all
sites when we are seeking to explain the theory of rent. This basic
assumption of the "same application" is as silly as Keynes'
assumption in regard to the "propensity to consume" and to "savings
are never spent or lent."
But George's final proposals do not rely at all on Ricardo's "law."
It seems highly unlikely that George ever drew a diagram with a
horizontal rent line. Perhaps our earnest historians can discover when
these erroneous diagrams were first introduced. Why is it assumed that
there is the same application of labor and capital, when it is
obviously not true?
Comment by Robert Clancy (Editor, Georgist
The first diagrams illustrating the law of rent were developed by
Louis F. Post as early as 1894. This was during Henry George's
lifetime, and Post worked closely with George.
Though rent-line diagrams do not appear in
Progress and Poverty, there is a basis for them in the book,
e.g., Book IV, Chapter 3, where George says: "Let the margin of
cultivation, or production, be represented by 20. Thus land or other
natural opportunities which, from the application of labor and
capital, will yield a return of 20 which will just give the ordinary
rate of wages and interest, without yielding any rent; while all lands
yielding to equal applications of labor and capital more than 20 will
yield the excess as rent."
For the sake of simplicity, in explaining the law of rent, Ricardo's "equal
application" is used, since he was talking just about
agricultural land. George broadened the law to all lands; it won't be
the "same application" per person on urban land as on farm
land, but an equivalent application in terms of exchange value. Urban
activities call for more intensive use of land and thus more labor add
capital are applied to a given area of land -- but the total
production will still yield more rent per capita than the same labor
and capital applied to inferior lands. One person using an office will
pay more rent in a big city than the same office in a small town. The
same principle holds no matter how many people you're talking about.
The rent diagrams can be broadened to show the effects of adding more
units of labor and capital to a given area of land. In fact, one of
the editions of the course based on Progress and Poverty did
have such a diagram, but it was found to be too much for beginning
students who were still struggling with basic concepts. It could well
be revived for an advanced course.
Henry George universalized Ricardo's law of rent, and it certainly is
relevant to his "final proposals!"