The Value of Everything: Making and Taking in the Global Economy

by Mariana Mazzucato

Ricardo proposed that the rent from more productive land always goes to the landlord because of competition between tenants. If the capitalist farmer–the tenant–wants to hang on to the largest possible profit by paying less rent, the landlord can give the lease to a competing farmer who will pay a higher rent and therefore be willing to work the land for only the standard profit. As this process goes on, land of increasingly poor quality will be brought into production, and a greater portion of the income will go to the landlords. Ricardo predicted that rents would rise. More significantly, rising rents were the flipside of rising food prices, caused by lack of good-quality agricultural land. More costly food increased the wages workers needed for subsistence. This growing wage share, Ricardo believed, put a squeeze on profits in other sectors such as manufacturing. As economic development proceeded, the profit rate–basically the manufacturing capitalist’s return on capital–would fall. The profit share–the part of the national income going to capitalists–would also fall. Correspondingly, the wage share going to manufacturing workers would rise. But the extra wages would have to be spent on food, which was more expensive because landlords were charging higher rents. As a result, much of the nation’s income would ultimately go to landlords. This would halt further economic growth and investment in, say, manufacturing because the low returns would not justify the risks.