HB 401 
 .C3 
 Copy 1 
 
 LIMITATIONS OF THE 
 
 RICARDIAN THEORY OF RENT 
 
 BY 
 
 WM. R. CAMP, A.B. 
 
 Submitted in Partial Fulfilment of the 
 
 Requirements for the Degree 
 
 of Doctor of Philosophy 
 
 IN THE 
 
 GRADUATE SCHOOL 
 
 OF THE 
 
 UNIVERSITY OF MISSOURI 
 
 1918 
 
LIMITATIONS OF THE 
 
 RICARDIAN THEORY OF RENT 
 
 BY 
 
 WM. R. CAMP, A.B. 
 
 Submitted in Partial Fulfilment of the 
 
 Requirements for the Degree 
 
 of Doctor of Philosophy 
 
 IN THE 
 
 GRADUATE SCHOOL 
 
 OF THE 
 
 UNIVERSITY OF MISSOURI 
 
 1918 
 
,C5 
 
THE LIMITATIONS OF THE RICARDIAN THEORY 
 OF RENT I 
 
 THE application of an economic theory is limited to the 
 conditions of the time in which it arose. A static 
 theory, particularly, has this limitation ; it can lay no 
 claim to being evolutionary. Its main endeavor is not to gain 
 a view of the long-time development of institutions, not to dis- 
 cover the factors of change and thus to give a theory of 
 changing society, but to formulate what is conceived to be the 
 normal state — "normal" being preferred to "natural" in the 
 present day; though it is difficult to see that the one more 
 than the other escapes the postulation of a static order of 
 society. Even those economic theories which use the evolu- 
 tionary method of investigation cannot lay any claim to finality, 
 for they cannot predict what the cultural variants will be. 
 
 The purpose of this investigation is to make a study of the 
 economic and political conditions which gave rise to the 
 Ricardian theory of rent and to show in what respects eco- 
 nomic and political development has failed to follow the ex- 
 pectations of the Ricardian theorists. They expected that 
 rents would increase, so that wealth would concentrate in the 
 hands of the landlord class. To explain why this has not 
 occurred is to give a new theory of the distribution of wealth 
 and to make clear the possibility of a new theory of institu- 
 tional development. The institutional changes which affect 
 the agricultural classes will be illustrated mainly in connection 
 with the building, capitalization, and rate-making of the new 
 system of transportation which has come into existence since 
 
 321 
 
322 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 the time when the Ricardian theory of land income was formu- 
 lated. No attempt will be made to take exception to Ricardo's 
 logic. Rather, it is desired to show its fitness as applied to his 
 time, and its inadequacy only as applied to the present. 
 
 The theory of rent was formulated when the belief was still 
 current that the landlord class would continue to hold the 
 position which it maintained under feudalism. During the 
 feudal period land was the one thing desired. All important 
 wealth, such as gold rings, leather stockings filled with silver 
 pieces, trinkets, expensive raiment, even house furniture, eco- 
 nomic instruments, slaves and cattle — all these things were only 
 supplementary to that fundamental and chief wealth, land.' 
 All capital goods were accessory to land ownership. Even a 
 capitalistic enterprise so fundamentally important as flour mil- 
 ling was tributary to the land owners, to whom it was simply an 
 additional instrument for obtaining an income.^ To secure the 
 ■whole advantage and complete control of this prime instrument 
 of production the Romans developed an extensive system of 
 slavery and serfdom. The new barbarian rulers were able to 
 utilize the classes thus trained in subjection, for the work of 
 tilling the soil. The chieftains, who later became known as 
 feudal lords, gradually gave up industry and devoted themselves 
 to fighting. As these fighting men became able to pick up a 
 living from their predatory operations, ordinary labor proved 
 distasteful to them. Pride in prowess supplanted pride in 
 workmanship. The forefighters depicted in Homeric and Ice- 
 landic cultures show the honor that attached to the fighting 
 men of these early days. Gradually, as the forefighter gained 
 eminence, he obtained a larger number of followers, and when 
 the followers became sufficiently numerous, the leader induced 
 others to fight for him. The exercise of control and of leis- 
 urely vaunting of the fruits of fighting became finally the 
 inherited prerogative of overlordship or kingship. The activ- 
 ities of this fighting class were thus related to the distribution, 
 
 * Schoenfeld, Der Islandische Bauernhof und sein Betrieb zur Sagazeit, 1902, 
 p. vii. 
 
 * Ashley, English Economic History, vol. i, pt. i, p. 34; pt. ii, pp. 6, 32, 40. 
 
Xo. 3] THE RICARDIAN THEORY OF RENT 323 
 
 control and consumption of wealth, rather than to its produc- 
 tion, A man's pre-eminence was to be measured by the degree 
 of his aloofness from industry and by the extent of his control 
 of its usufruct. The operations of this new predatory class of 
 barbarians increasingly interfered with the inherited fruits of 
 empire of the Caesars. The Roman roads which were the 
 imperial channels of control and of trade fell into disuse. 
 Authority became decentralized in accordance with the free 
 institutions of the North. Feudalism took the place of the 
 Roman system of taxation. The vassal held land in fief and 
 gave in return a certain amount of his time to fighting with 
 his lord. The serf received strips of land from the vassal in 
 return for labor on a portion of the latter's estate. Thus 
 feudalism was a military system of control of the productive 
 processes of agriculture. According to the later productivity 
 theorists, the new industrial order of capitalism contained no 
 survival from the old parasitic system except in the case of 
 land ownership. 
 
 In the early middle ages the crafts were merely accessory to 
 a self-sufficing manorial unit. Gradually less work was done 
 in the separate farm households, and more in specialized cen- 
 ters. These town trades organized themselves into craft and 
 merchant gilds with interests distinct from those of the agri- 
 cultural community. Later, hand and water power made a 
 larger scale of production more economical and thus gave 
 greater advantage to the specialized centers of trade and in- 
 dustry. Better communication became a profitable channel 
 for increased trade. A new class of merchants developed 
 larger and more distant markets. But gild and mercantile 
 regulations limited this expansion of trade. 
 
 In harmony with the demands of tradesmen for a wider 
 market Adam Smith brings forth his doctrine of free trade 
 and of land monopoly. With free competition under a natural 
 order of liberty he believes that there will result an equaliza- 
 tion of profits. " The whole of the advantages and disad- 
 vantages of the different employments of labor and stock 
 must in the same neigborhood be perfectly equal or continually 
 tending to equality." This is the ideal state of society which 
 
/ 
 
 324 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 will make the centralization of control through the ownership 
 of industrial wealth impossible, and which will tend to be re- 
 alized if all interference from the government and other ob- 
 structive organization be removed. "All system, either of 
 preference or of restraint, therefore, being thus completely- 
 taken away, the obvious and simple system of natural liberty 
 establishes itself of its own accord." Every man should be 
 left free to pursue his own interests as a separate individual, 
 but not in combination. Organization obstructs and restrains 
 the free course of individual trade. Adam Smith was not 
 deceived, as his followers have been, in thinking that this state 
 of industry then existed ; it was only tending to be realized. 
 His theory is the doctrine of the sufficiency of free competi- 
 tion to establish the price relation between industrial agents, 
 if governments will withdraw their " preference." Govern- 
 ments obstruct the tendency toward a divine natural order. 
 The rejection by later economists of the theory of a divine 
 order or of a natural order does not necessarily evidence any 
 material grounds for their conclusions. They reason on the 
 basis of an assumption of the existence of free competition 
 without giving any proof of it. In Adam Smith's time busi- 
 ness was largely carried on by individuals or by partnerships. 
 Since the corporate form of organization has become preva- 
 lent, business is demanding liberty to organize. The concep- 
 tion of the divine order of free competition is being abandoned. 
 Adam Smith's belief in the individualistic form of free com- 
 petition had some basis in historical fact. The main change 
 in institutions had been apparently in that direction. Capital- 
 istic enterprise had, in a measure, already overturned the gild 
 organization of society, through which the number of appren- 
 tices and masters and the quality and price of their goods had 
 been regulated.' But it should be noted that this victory was 
 not the victory of individual capitalists unaided by organiza- 
 tion. The richer members of the gilds gained control of the 
 gild organizations. By purchasing in large quantities the large 
 
 ' A-hley, Englisli Ec()noii\ic Ilistnry, vdI. i, part i, [ip. 71, 80, 103; pt. li, pp. 
 29, 75, 94. 
 
No. 3] THE RICARDIAN THEORY OF RENT 325 
 
 trader had the advantage in bargaining with the small master 
 craftsman, whether in selling him raw material, or in buying 
 from him finished wares.' The craftsman became poorer and 
 more helpless until finally, when he was reduced to the position 
 of a laborer, he had completely lost the advantage of private 
 property. The merchant had the organization of the govern- 
 ment to support the property rights of capital. He no longer 
 gained a livelihood by craftsmanship, but by trading. In trade, - 
 capital had become a necessity. ^ 
 
 The national monopolies granted by the Tudors and early 
 Stuarts did not continue after the abolition of the royal 
 grants. The common law did not favor this national restraint 
 of trade. ^ These king-created monopolies had not the advant- 
 age of modern large-scale production or the power of the 
 modern trusts to isolate competitors and crush them one by 
 one. The power of the early capitalists, however, was sufficient 
 to force part of the craftsmen to become permanent journey- 
 men or mere laborers. The laboring class became larger and 
 the owning or controlling class smaller. Thus both the town 
 monopolies possessed by the gilds, and the national monopolies 
 granted to court favorites, were finally supplanted by an indi- 
 vidualistic form of competition.3 Though this change was not 
 complete in Adam Smith's time, there were good historical 
 reasons for the current belief that if political privileges were 
 withdrawn competition would spread.* 
 
 From the competitive philosophy of Adam Smith's natural 
 order, a situation of centralized capital does not logically follow, 
 as either an immediate or a remote possibility.- " If in the 
 same neighborhood, there was any employment evidently either 
 more or less advantageous than the rest so many people would 
 
 ' Unwin, Industrial Organization in the Sixteenth and Seventeenth Centuries, pp. 
 107, 129, 162; Unwin, The Gilds and Companies of London, pp. 251 et seif.', 
 Lewis, The Stannaries, p. 208. 
 
 ^ Price, The English Patents of Monopoly, pp. 127, 128, 132. 
 
 'Levy, Monopoly and Competition, pp. 52 et seq. 
 
 * Ibid., ch. V. 
 
 * It serves the purpose of this investigation to use the term capital in the old sense 
 a? excluding land. 
 
326 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 crowd it in the one case, and so many would desert it in the 
 other, that its advantages would soon return to the level of 
 other employments." This, Smith continues, is true on the 
 assumption that all are at "perfect liberty" to compete with 
 one another.' On the other hand, in the theory of rent the 
 conclusion is reached that wealth will centralize in the hands of 
 the land owners. The theory of capital is an ideal of " perfect 
 liberty " ; that of rent, more of a hard fact of the old order of 
 society. Rent, says Adam Smith, " is naturally a monopoly 
 price." ^ " Considered as the price paid for the use of land, it 
 is naturally the highest which the tenant can afford to pay in 
 the actual circumstances of that land." 3 This expresses our 
 modern doctrine of " charging what the traffic will bear." The 
 rent of land varies with its fertility and its situation.^ The 
 landlords have all the surplus of produce above what is neces- 
 sary to maintain labor and pay the ordinary rate of profit to 
 the stock employed. In the natural order of society, more 
 food is produced than is necessary to support the workmen who 
 produce it. As the surplus of food increases, the population 
 may and will increase in number. With the increase of popu- 
 lation the demand for food products will increase, and the value 
 of the produce which the landlords receive will rise.s 
 
 The rent of the landlord depends not only upon the demand 
 for the produce of his land, but also upon the price of manu- 
 factured goods, for which he exchanges that part of the surplus 
 produce of the land which he does not consume.^ Under the 
 natural order of free competition, products will fall in value 
 with every improvement and every increase of the capital which 
 makes labor more efficient. With increased efficiency, less 
 labor will be used, the cost of producing a commodity will be 
 less, and its price will be lower. The surplus of the landlord 
 will increase both in quantity and in purchasing power. In 
 
 ' Wealth of Nations, Bohn ed. , London, George Bell and Sons, 1905, p. loi. 
 
 * Ibid., p. 151. 
 
 ^ Ibid., p. 149. 
 
 *- Ibid., p. 153. 
 
 '^ Ibid., p. 172. 
 
 ^ Ibid., p. 262. ^ 
 
No. 3] THE RICARDIAN THEORY OF RENT 327 
 
 the natural order, land is the only monopoly. Every increase 
 in the real wealth of society, every increase in the quantity of 
 useful labor employed within it, tends indirectly to raise the 
 real rent of the land,' but " as riches, improvement and popu- 
 lation have increased, interest has declined." ^ 
 
 But during the latter part of the eighteenth century govern- 
 ment regulation continues to interfere with the natural order of 
 free competition. The centralized and combinable character 
 of the town industries makes it possible for those engaged in 
 them to regulate trade to their own advantage.^ Through the 
 corporate privileges granted, the town workmen are able to 
 restrict the number of apprentices, limit the supply of stock, 
 and fix prices. The statute of apprenticeship restricts the free 
 circulation of labor and of stock. Prices naturally vary accord- 
 ing to supply, but the corporation laws of the towns enable 
 tradesmen to fix prices. 
 
 The inhabitants of the country, landlords, farmers and 
 laborers, dispersed in distant places, cannot easily combine. 
 They are not in an advantageous position for bargaining, as are 
 the people of the towns. The free and equal exchange rela- 
 tions which condition the full operation of Adam Smith's theory 
 of supply and demand do not exist. So it is not simply a 
 question of efficiency of labor, of fertility of soil, of improved 
 methods of production, and of yield per acre on the supply 
 side, and of large population on the demand side, as would be 
 the case in a purely technological situation. In isolated pro- 
 duction for household consumption, the interest is in using those 
 methods which will yield the largest crop for domestic needs. 
 But the trades of the towns are conducted according to a dif- 
 ferent principle. Their method is the organization of industry 
 and business, not for the greatest output or largest physical 
 productivity, but for the highest price or largest value return. 
 The instruments for producing quantity of return are in the 
 hands of the farmer, but the market, in which value arises, is 
 
 ■ op. cit., bk. i, ch. ii, p. 262. 
 
 » Ibid., p. 95. 
 
 ^ Ibid., pp. 129-130. 
 
328 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 within the control of tradesmen acting under the corporate laws 
 of the towns. 
 
 As organization is a factor in the control of prices, the 
 country producers, in dealing with the people of the towns, are 
 obliged to sell cheap and buy dear. Hence, as Adam Smith 
 says, the country producers are unable to buy back their share 
 of the total produce of the community. It is not simply a ques- 
 tion of the proportion of technological factors. The strategic 
 position of the owners of some of these factors has been of 
 sufficient moment to bring about a result, the reverse of that 
 to which the economic reasoning of Adam Smith would lead in 
 the natural order of society. Not merely the relative supply of 
 the material factors affects the price paid for them and conse- 
 quently the distribution of wealth, but the greater ability of the 
 makers of wrought goods to combine to fix prices, and the 
 power of governments to regulate the trade of town and nation 
 are decisive immaterial factors in determining market prices. 
 Instead of the country fostering the growth of the towns, the 
 towns outgrow the country, and agriculture lags behind.' " Noth- 
 ing is more secure than the investment of capital in land, but the 
 large profits made in the towns attract capital away from the 
 securest place of investment." ^ Duties, moreover, favor the 
 manufacturers more than the farmers.3 Mercantile regulations 
 are a logical outcome of the interest of the tradesmen in protect- 
 ing the home country and colonies from foreign competition. 
 Of the monopoly of the colonial trade, Adam Smith says : " To 
 widen the market and to narrow competition is always the interest 
 of the dealers," ^ but " by raising the rate of the mercantile profit, 
 the monopoly discourages the improvement of land." 5 Greater 
 profits to land improvement encourage agriculture, but greater 
 profits to mercantile enterprise will draw capital away from em- 
 ployment on the land. Thus government regulation favors 
 
 ' op. cii., bk. iii, chs. i, iv. 
 
 ^ Ibid., bk. iii, ch. i, p. 385. 
 
 ^ Ibid., bk. iv, ch. ii, p. 459. 
 
 * Ibid., bk. i, ch. xi, p. 265. 
 
 ^ Ibid., bk. iv, ch. vii, p. 123; bk. i, ch. xi, p. 262. 
 
No. 3] THE RICARDIAN THEORY OF RENT 329 
 
 manufacturers and merchants above the agricultural classes in 
 the distribution of the annual produce of the land and labor of 
 the country. As a result of government interference all the 
 great fortunes are made in the towns.' 
 
 Thus in the existing order which Adam Smith characterizes 
 as unnatural and retrograde he recognizes that the state is a 
 factor in preventing that perfect mobility of capital upon which 
 the assumption of a tendency toward the uniformity of prices 
 depends. Later economists of the classical and marginal utility 
 schools reason upon the basis of this assumption of Adam 
 Smith's natural order, but ignore the factors which he recog- 
 nizes had prevented its realization. Under the unnatural exist- 
 ing order labor and stock are not left free to circulate according 
 to demand, prices do not tend toward uniformity in different 
 markets, profits do not tend toward equality, profits are greater 
 in the towns, capital does not flow to agriculture but to trade in 
 which the greatest fortunes are made. Instead of agriculture! 
 stimulating the development of manufactures and commerce as 1 
 would result in the natural order, the development of the latter 
 has given birth to the principal improvements in the former.^ 
 Under a trade monopoly, the rate of profit and of interest will 
 be higher, but the aggregate of profits will be less.^ Less 
 capital may be saved and a smaller number of productive 
 laborers can be maintained. With the farmer's profit dimin- 
 ished, less capital will be employed upon the land and less food 
 will be produced. The real rent of the landlord, or his power 
 to purchase the labor or the produce of the labor of other 
 people, is reduced both by the diminished size of the surplus 
 produce, which goes to him, and by its diminished purchasing 
 power. Thus rent falls with the rise of trade monopoly profits. 
 In the natural order population and landlords thrive together. 
 In the unnatural order landlords lose their ascendant position, 
 wealth centers in the hands of the trade monopolies, and popu- 
 lation is checked. 
 
 ' op. cit.f bk. ii, ch. v, p. 381; bk. iii, ch. iv, p. 422. 
 
 ^ Ibid., bk. iii, ch. i, p. 388. 
 
 ^ Ibid,, bk. iv, ch. vii, pp. 123 et seq. 
 
330 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 Thus Adam Smith saw the significance of the revolution 
 which was then under way. His analysis as a whole takes full 
 account of it. But if we had confined our attention to that 
 part of his work which illumines the natural order, as has been 
 usually the custom of economists, we should have found no 
 suggestion of the revolution that was taking place in institutions. 
 
 In the consideration of the relation of landlordism to capital- 
 ism, Ricardo's Political Economy is a most valuable document, 
 especially when it is regarded in connection with the conditions 
 of which it is largely a pragmatic analysis. Its limitations are 
 found in Ricardo's attempts to draw conclusions of universal 
 application from an almost exclusive consideration of one period 
 of time. The economic question of great importance before 
 England at that time was : Shall the vested rights of the land- 
 lords be preserved and increased, or shall conditions favorable 
 to the manufacturing interests be fostered? The great numbers 
 engaged in the rapidly increasing manufactures of England, as 
 well as those absorbed by the Napoleonic wars, were greatly 
 increasing the demand for food products. The first attempt 
 to meet the condition of high prices involved in this demand 
 was by increasing the use of the waste lands.' Tradition, as 
 well as the landed "nterest, was in favor of reliance upon home 
 production of agricultural products. In the course of the effort 
 to meet this pressing demand, the so-called law of diminishing 
 returns, as first formulated by West and Ricardo, was worked 
 out. With the poor in increasing wretchedness, no longer 
 able to combine agriculture with manufacturing or handicraft, 
 with the rapidity of invention bringing about a sudden change 
 in labor requirements, the question of the diminishing returns 
 of agriculture was not academic in the sense that it has since 
 become, but was the problem of a country shifting from agri- 
 culture to manufacturing. Its solution involved the issue of 
 the struggle between capitalism and landlordism. With a 
 scrupulous consideration for the vested interests of the land- 
 lord, it would result, as Ricardo forecast, that " almost the 
 whole produce of the country, after paying the laborers, will be 
 
 * Cunningham, History of English Industry and Commerce, vol. ii, p. 17. 
 
No. 3] THE RICARDIAN THEORY OF RENT 331 
 
 the property of the owners of land and the receivers of tithes 
 and taxes." ' This view reflected the general expectation of 
 that time. 
 
 According to Ricardo, " Profits depend on high or low 
 wages, wages on the price of necessaries, and the price of 
 necessaries chiefly on the price of food, because all other re- 
 quirements may be increased almost without limit.* The price 
 of food depends upon the margin of cultivation. The demand 
 for food by an increasing population will cause a rise in the 
 price of food. A poorer quality of soil will be brought into 
 cultivation. The additional food will be produced with in- 
 creased difficulty. With the increased price of food the em- 
 ployer will be obliged to pay higher wages, and his own profits 
 will be correspondingly less. " The natural tendency of 
 profits," says Ricardo, " then is to fall ; for in the progress of 
 society and wealth, the additional quantity of food required is 
 obtained by the sacrifice of more and more labor." 3 The ten- 
 dency is for accumulation, the additional demand for labor, and 
 the rate of increase of population to diminish. " But ulti- 
 mately," he says, *' the very low rate of profits will have arrested 
 all accumulation and almost the whole produce of the country, 
 after paying the laborers, will be the property of the owners of 
 the land and the receivers of tithes and taxes." * As popula- 
 tion increases and as poorer lands are brought into cultivation, 
 the rent or the difference between the value of the produce 
 raised on the no-rent land and that of the more fertile lands 
 increases. With improvements in agriculture, food will be 
 produced with less difficulty, and prices of food will be lower. 
 But as population increases, the demand for food products will 
 be greater and prices will rise. The higher the price of food 
 products, the greater will be the rent of the landlords, the 
 higher the nominal wages of labor, and the lower the profits of 
 the capitalists. But improvements in manufacturing will not 
 benefit the capitalist. Free competition will bring about a 
 
 ' Principles of Political Economy, Bohn ed., p. 97. 
 
 ^ Ibid., p. 97, ^ Ibid.y pp. 98, 70. 
 
 ^Ibid., pp. 99, 320-321, 255. 
 
332 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 reduction in prices to the new level of the expenses of produc- 
 tion. The consumer will ultimately receive all the benefits of 
 improvements in the case of manufactured goods. 
 
 The capitalist is conceived to have no special advantage of 
 ownership which competition may not take away. The manu- 
 facturer has no advantage over the tenant farmer. The profits 
 are equal, or if not, the one with small capital may readily pass 
 from one occupation to the other. " There cannot be two rates 
 of profit," ' 
 
 For the restless desire on the part of all employers of stock to quit a 
 less profitable for a more advantageous business, has a strong tendency 
 to equalize the rate of profits of all , or to fix them in such proportions , 
 as may in the estimation of the parties, compensate for any advantage 
 which one may have, or may appear to have over the other.* 
 
 Thus a perfect mobility of capital is postulated, and upon this 
 assumption the conclusion is drawn that profits tend toward 
 equality and prices in general toward uniformity. 
 
 From the logic of Ricardo it follows that there may be no 
 accumulation of advantages through capital ownership and no 
 concentration of wealth through capitalistic enterprise. Instead 
 of there being an accumulation of advantages in the hands of 
 the owners of capital the tendency is in a reverse direction, 
 namely, toward a low rate of profits. The theory of capital 
 income, as well as that of land income, leads to one and the 
 same conclusion, namely, the concentration of wealth in the 
 hands of the landowners. Ricardian logic in nowise disturbs 
 the supremacy which the landholders possessed under the 
 ancient order of feudalism. 
 
 In Ricardo's time the application of steam to spinning ma- 
 chinery and power looms had so completely broken up the old 
 industrial and business organization of society, and individual 
 competition was coming so forcibly into business life, that what 
 was most emphasized were the transitional, competitive activ- 
 ities which characterized the period preceding the development 
 of the new business organization. That the government might 
 
 ' Op. cit., p. 49. * Ibid., p. 66. 
 
No. 3] THE RICARDIAN THEORY OF RENT 333 
 
 be wrested from the hands of the landlords and turned to the 
 account of the owners of capital was hardly conceivable. Nor 
 was it apparent that ve§ted rights might become more powerful 
 and more highly organized in connection with the ownership 
 of the new instruments of capitalistic production than was ever 
 possible in connection with land ownership. The bias was in 
 favor of reliance upon competition. The economic thought of 
 the time is a theory of how the competition of natural economic 
 forces may be found sufficient to regulate prices without gov- 
 ernment interference. Governments that were so largely in the 
 hands of the landlords could not be relied upon. The mo- 
 nopoly of lands within a country by the landlords was more 
 easily protected by tariff barriers at this time than later, as the 
 undeveloped conditions of transportation made the competition 
 of outside lands more difficult. Ricardo's theory represents 
 the effectual character of this national monopoly. The land- 
 lord could reap all the surplus, while the tenant, the farm hand, 
 and the general consumer would have little or none of the ad- 
 vantages from the use of the richer soil, or from improvements 
 in farming. While Ricardo may not have been conscious of 
 the scope of the revolution that was peacefully taking place, 
 his insight into his time is surprising for one who was prepared 
 to take only a static view. 
 
 The development of a system of canals in England made it 
 cheaper for England to obtain food products from other coun- 
 tries by sea. Her increasing manufacturing interests made it 
 imperative that these outside agricultural resources should be 
 utilized. With the importation of corn less of the country's 
 land will be used, the margin of cultivation will be raised, rent \ 
 that goes to the unproductive class will be diminished, real 
 wages will be higher, profits will be higher, production and the 
 general happiness will be increased.' Thus Ricardo sees 
 clearly that the competition of foreign corn means lower prices. 
 " The fall of prices invariably affects the landlord until the 
 whole of his rent is absorbed." "" This line of argument is 
 
 ^ Principles, pp. 256, 257. 
 ^ Ibid., pp. 419, 252-253. 
 
334 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 more in accord with the actual course of events as they have 
 taken place ; but Ricardo's theory is not stated in terms of such 
 a change. 
 
 The bounty on exportation of corn and the high tariff pro- 
 hibiting its importation, except in time of unusual scarcity, 
 helped to preserve to the landlord class until 1846 the advant- 
 ages which had been acquired since the feudal regime. When 
 England had become such a great center of manufacturing 
 that her own farms could not produce sufficient for her indus- 
 trial population except at higher prices than in countries where 
 land ownership had not been so highly capitalized — where, in 
 fact, in the absence of a feudal stage of development, land was 
 relatively free, then the maintenance of the tariff on the impor- 
 tation of corn must come to an end, or the manufacturers 
 themselves must cease to compete with other countries, where 
 food products could be obtained on better terms. The devel- 
 opment of the functions of the corn middleman was a potent 
 factor in breaking up the land monopolies about the towns. 
 The introduction of railroads was finally a decisive factor: 
 better transportation extended the market for manufactured 
 goods and made it possible for the British Isles to receive from 
 more distant lands cheap food for the support of their laboring 
 class. The repeal of the tariff on corn in 1846 indicated that 
 the monopoly of English landed gentry was broken and that 
 capitalistic enterprise in England was going to maintain its 
 position. From being masters, with all the traditional advant- 
 ages represented in economic theory, the landowners of Eng- 
 land became competitors with the owners of the cheapest lands 
 of the world, those of the United States, Argentina and Canada. 
 But the power of the land monopoly need not have fallen un- 
 less another monopoly had come to crush it and take its place. 
 
 Instead of the landlord having an increasing power of cap- 
 italization of land, as would have followed if the progress of 
 society had brought about that condition of increasing rents 
 which enters into and forms the foundation of all economic 
 theory that is either a survival of Ricardo's time or a slight 
 modification of it, there took place a gradual depreciation of 
 land values in Europe and even in the United States with the 
 
No. 3] THE RICARDIAN THEORY OF RENT 335 
 
 successive opening up of new tracts of land for cultivation. 
 The last territory opened up for settlement had the advantage. 
 The lowness of its original purchase price more than offset its 
 disadvantage of location. The first settler or speculator had a 
 short-lived period of reaping the profits of an increased rate of 
 capitalization due to the movement of population. Then in- 
 stead of there being a continuous increase in land values, as 
 would follow from the Ricardian theory, there soon came a 
 time when depreciation set in because of the competition of 
 new lands, and because of the system of rates of the new 
 scheme of transportation. 
 
 The United States government alone came into the posses- 
 sion of a domain of 1,441,436,160 acres for distribution. The 
 policy of selling the land at a low price, generally in small 
 amounts, favored the development of the widest diffusion of 
 ownership. The general Pre-Emption act of 1841, granting to 
 the settler on the public domain the first right of purchase, en- 
 couraged the appropriation of land by men of small capital. 
 The Homestead Act of 1862 granted a free title, to a maximum 
 amount of 160 acres, to the settler who had resided upon and 
 cultivated the land for five years. 
 
 The business of the speculator is to secure the land as nearly 
 free as possible and hold it until he may sell it to the cultivator 
 for a good price. To the degree that he succeeds, he eliminates 
 free land and takes to himself all the pecuniary values that have 
 accrued to idle land through the increase of population and the 
 extension of railroad facilities; to the extent that his values 
 are a money valuation of idle land rather than an industrial 
 worth from the productive services of the land, he has checked 
 population by that number of people who might have been 
 supported upon it and apart from it by its surplus. Thus large 
 tracts of land in the neighborhood of large cities, as well as in 
 undeveloped territories, are held idle by land-investment com- 
 panies. The Commutation Act of 1891 has favored the specu- 
 lator as a middleman between the government and the culti- 
 vator.' By this act the five years' residence required under 
 
 ' Report of Public Lands Commission, Senate Docs. 158-192 (1904-5), p. 75. 
 
336 POLITICAL SCIENCE QUARTERLY [Vol. XXXIIl 
 
 the Homestead Act might be commuted to a cash entry of $1.25 
 per acre after a virtual residence of eight months. This has 
 made it possible for people without agricultural experience to 
 secure the land from the government and then sell their titles 
 to loan companies from whom they may have obtained the 
 money to advance to the government. 
 
 In many parts of the United States the presence of the land 
 speculator makes it very difficult for settlers to secure land 
 cheap enough to make farming profitable.' The real-estate 
 dealers, and not the landlord, as assumed in traditional theory, 
 may get the increase in land values. The real-estate dealer is 
 a new factor in a new situation, which has developed since the 
 time of the formulation of the Ricardian rent doctrine. 
 
 With the development of the railroads and the great com- 
 mercial centers on the Eastern seaboard, the policy of the 
 United States government changed from an endeavor to make 
 the public land a source of revenue, to the purpose of facilitat- 
 ing the widest possible settlement of the soil. The general 
 Pre-emption Act of 1841 is a legislative mark of this change. 
 
 If the system of business had favored landlordism as the 
 most advantageous arrangement for securing an income, then 
 we should have expected that the railroad corporations, which 
 were granted 155,273,560 acres of land by the United States 
 government, would have become the greatest landlords in the 
 country. But instead of keeping the agricultural lands, as 
 would have been the result if the main advantage had been in 
 such ownership, according to Ricardo's theory of the distribu- 
 tion of wealth, they disposed of their holdings at a reasonable 
 advance over the price of government lands,* But they have 
 become large holders of coal, lumber and oil lands, which have 
 permitted the greatest power and advantage of combination 
 under the present scheme of pecuniary centralization of wealth.3 
 
 ^ Report of the California Commission on I^and Colonization, 191 6 
 "Donaldson, The Public Domain, p. 779. Previous to Nov, i, 1870, 14,310,- 
 204.16 acres were sold for $68,905,479.81. Prices of railroad land sold ranged 
 from an average of $2.14 per acre on the California Oregon Railroad to $12.12, the 
 average price per acre on land sold on the Chicago, Burlington and Quincy Railroad. 
 ^United States Industrial Commission, vol. xix, pp. 444-466; vol. ix, pp. xxlv 
 et seq ; vol. xix, p. 296; Proceedings of Conference of Governors, 1908, p, 138, 
 
No. 3] THE RICARDIAN THEORY OF RENT 337 
 
 They have endeavored to increase the settlement along their 
 lines by means of advertisements, immigration agents and home 
 seekers' excursions ; and to promote the efficiency of a new 
 subject class of farm owners by the establishment of agricultural 
 experiment stations. 
 
 Through experiment stations for the relatively free distribu- 
 tion of unpatented seeds and unpatented agricultural processes, 
 by the reclamation of swamp lands and the development of 
 irrigation systems, the government has created new competitors 
 for the farm-cultivating and farm-owning class ; while by 
 patents and tariffs, and by authorizing or permitting the unre- 
 stricted sale or gift of mineral resources, timberlands, and water 
 rights to large interests, the opposite methods are being pur- 
 sued to restrict competitors in the case of the dominant instru- 
 ments of production. 
 
 Canada has fostered settlement of its lands by helping to 
 defray the expense of transporting the immigrant to the place 
 of settlement. Argentina, one of the greatest competitors of 
 the American farmer, has gone so far as to advance capital to 
 the immigrant in addition to helping to pay his passage.' The 
 Brazilian government, likewise, has been active in promoting 
 small-scale farming.^ The states of Australia and many coun- 
 tries of Europe have bought up large estates, subdivided them 
 into small tracts and sold them on easy terms of credit to 
 peasants.3 Thus in the old world finally crumbles the ancient 
 power which attached to land ownership. Laissez /aire is 
 no longer found to be a desirable government policy as ap- 
 plied to the development of agriculture. The competition of 
 the agricultural lands in the new world was not sufficient to 
 bring about the complete utilization of land in the old world 
 without government interference. Government aid has been 
 
 'Emerick, "An Analysis of Agricultural Discontent in the United States," Polit- 
 ical Science Quarterly, vol. 11, pp. 462-3. 
 
 ^ Pierre Denis, Brazil, p. 116. 
 
 ' Duffus, Report on Agricultural Settlement and Farm Ownership, Wisconsin 
 State Board of Public Affairs, 191 2; Report of the California Commission on Land 
 Colonization and Rural Credits, 1916; B. H. Hibbard, American Economic Re- 
 view, vol. vii, p. 40. 
 
338 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 necessary to give the peasant the credit required to make him 
 the owner of a small farm. Government action was also neces- 
 sary to force the sale of small tracts of land at reasonable 
 prices. In some countries the government did not grant the 
 right of sale of the land, but only the right of use and bequest. 
 Thus the government eliminated speculative land values and 
 guaranteed long-time possession to the cultivator. Short-time 
 possession by tenants or temporary owners encourages ex- 
 ploitation and impoverishment of the soil. Government action 
 is a form of organized effort which it was the purpose of com- 
 petitive economic theory to prove unnecessary. With the fall 
 of the laissez-faire doctrine, the logic of the economic theory 
 which supported it ceases to have further application. 
 
 According to Ricardian logic, if prices are higher and profits 
 larger in one locality than in another, the free movement of 
 capital assumed will bring about uniformity of prices and 
 equalization of profits between places. Thus the theory of 
 equalization of profits and of uniformity of prices is dependent 
 upon the existence of perfect mobility of capital. According 
 to this theory, if there is more return at the no-rent or extensive 
 margin of cultivation, owners of capital are free to leave the 
 less paying forms of employment and take up the more profit- 
 able occupation of farming. In agriculture, business practice 
 has diverged from this assumption of the perfect mobility of 
 capital. The aid of the state has been invoked to increase land 
 settlement. Land settlement and colonization have become 
 state-directed in many countries. The movement of population 
 and capital to the margin of cultivation, contrary to all Ricar- 
 dian expectations, has not been the result of the free play of 
 economic forces. The United States government has either 
 given away agricultural lands or sold them at a nominal price. 
 The establishment of the federal land banks in the United 
 States under the Federal Farm Loan Act is recognition of the 
 insufficiency of the movement of capital to agriculture. Fur- 
 thermore, some governments in limiting the transfer of lands 
 have abridged the freedom of investment which is one of the 
 conditions of the perfect mobility of capital assumed. 
 
No. 3] THE RICARDIAN THEORY OF RENT 335 
 
 To grant the cultivator ownership was to secure the greatest 
 yield of crops from the soil. The profits of the railroads can 
 best be assured by the freight charges on the necessary trans- 
 portation involved in the modern scheme of production for a 
 market. The cultivator as owner becomes the best caretaker. 
 The bigger his crops the more the traffic will bear for freight, 
 clothing, oil, coal, sugar and machinery charges. If the gov- 
 ernments in the new countries grant free or cheap land to the 
 cultivators, initial cost for land will be less, and the necessary 
 interest on the initial investment will be correspondingly de- 
 creased ; hence a larger part of the price of agricultural pro- 
 duce may be exacted by the other factors engaged in the pro- 
 ductive and distributive processes. 
 
 Agricultural productivity at the margin of cultivation may 
 depend upon the fertility of the soil according to the traditional 
 theory of rent ; but the value of agricultural products is not 
 simply derivable from the productivity of marginal land or 
 from the marginal utility of the marginal product. Quantity 
 of products depends upon fertility; but the value of the product 
 to the farmer is measured by the net receipts, or by the gross 
 receipts minus all expenses incurred in its production. Net 
 receipts will depend upon the relative bargaining position of 
 the farmer in dealing with real-estate dealers, laborers, state 
 grain-dealers' associations, elevator corporations, buyers and 
 brokers generally, railroad companies, banking institutions, coal, 
 lumber and hardware corporations, agricultural machinery, fer- 
 tilizer, oil, sugar and meat trusts. This in turn is part of the 
 larger question in regard to the relative position of small-scale 
 business in dealing with large-scale business. To show this 
 problem in its development a brief survey will be made of the 
 historical relation of the landed and railroad interests in Eng- 
 land and the United States, 
 
 In Adam Smith we have a theory of transportation in rela- 
 tion to the income of landlords and tenants. The income value 
 of the distant location will be less than the near, by the amount 
 of the labor costs involved in the increased distance of trans- 
 portation. The rent of the landlord is diminished simply by 
 the wages of the extra labor that must be utilized to transport 
 
340 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 the produce the extra distance. If the transportation facilities 
 are improved, the monopoly power of the country bordering 
 the town is broken. More remote regions are put more nearly 
 upon a level with those in the neighborhood of towns. 
 
 According to the labor or cost theory of transportation, the 
 landed interest, as well as all other interests, is to reap advant- 
 ages from the introduction of railways. Any saving in trans- 
 portation costs through the use of steam will be added either 
 to the farmer's profits or to the landlord's rent. The saving in 
 capital and labor could be applied either to soils already under 
 cultivation or to new soils. The additional expenditures in 
 cultivation would be made up by decreased expenditure in 
 transportation. Torrens says : 
 
 The cost of bringing all things to market is comprised of the costs of 
 production and the cost of carriage. Reducing the cost of carriage is 
 precisely the same thing in its effects as reducing the immediate cost 
 of production. Consequently the conveyance of light goods by steam 
 power must cheapen all such goods to the consumers. This will neces- 
 sarily enable them to consume a greater quantity of such goods, and 
 the consumption of the greater quantity will enlarge the demand for 
 labor, call a larger manufacturing population into existence, and thereby 
 react on agriculture by increasing the demand for food. This cheaper 
 mode of internal carriage will not only lower the price of light and 
 refined manufactures to the home consumer, but will lower their price 
 to the foreign consumer so that here again there will be an increased 
 demand for manufactures, and for a manufacturing population, and 
 here again there will be another beneficial reaction on the soil.' 
 
 If steam power should take the place of horse power, it would 
 be possible to support a proportionately larger population by 
 the amount of soil released from the maintenance of horses. 
 The change would be so gradual that probably at no time 
 would any land be thrown out of cultivation. Thus we see no 
 revolution is contemplated in the scheme of institutions. The 
 change represents simply the difference between them and 
 
 'Testimony of Colonel Torrens before a Select '"ommiltee of the House of Com- 
 mons on Steam Carriages, October 12, 1831. Reprinted in the United Stales House 
 of Representatives as No loi, Twenty-second Congress, first session. 
 
No. 3] THE RICARDIAN THEORY OF RENT 34I 
 
 horse power, which will result in a saving to the landowner as 
 well as to the general consumer. That is, it is a difference in 
 the productive power of two methods of locomotion, which will 
 not in any way affect the relative position of vested rights ex- 
 cept in the case of canal monopolists. 
 
 The proposal that transportation should be owned by the 
 state and operated at cost was not followed. The railway was 
 not simply to maintain itself for the sake of other interests ; it 
 was to become a new interest with profits of its own. Hence 
 there arose a question of how far charges should exceed indus- 
 trial or social costs. Excessive charges would mean a conflict 
 of interests among land owners, farmers, manufacturers and 
 merchants. 
 
 The faith of the time was in the sufficiency of free competi- 
 tion to regulate the price relation between the different interests. 
 Provision was made for outside carriers to use the tracks of the 
 first railway upon the payment of charges.' But the same kind 
 of provisions for free competition had been unsuccessful in the 
 case of canals,"" for the ownership of wharves, land and ware- 
 houses along the canal involved the investment of a large 
 capital, and consequently gave a position of vantage which pre- 
 cluded the use of the canal by an outside carrier. The canals 
 had become an obnoxious monopoly. It was hoped that the 
 introduction of railroads would destroy their monopoly power. 
 It was thought that the competition of carriers on the railways 
 would reduce the rates of transportation on both canals and 
 railways. It was estimated that there was a mechanical saving 
 in the use of steam power on railways over horse power on 
 canals. The saving from this improved method also was to 
 go to the consumer. This expectation was in accord with eco- 
 nomic theory; as well as with popular opinion.^ All improve- 
 ments in transportation, like those in manufactures, would mean 
 economy of energy, which would be expressed in terms of price 
 
 ' Select Committee on Railways, 1S39, Second Report, p. vi. 
 
 ^ l'roceedin<;s of the Committee of the House of Commons on the Liverpool and 
 Manchester Railway Bill, 1S25, [ip. 100, 112, 113, 126, 307. 
 
 •M'hillips, History of Transportation in the Eastern Cotton Belt to i860, p. 387. 
 
342 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 through the efficient action of free competition. Competition, 
 as usually interpreted, assumes a rivalry of industrial methods 
 in which the more economical is able to win and to give the 
 benefit of the saving to the public through a lower price. It 
 was not foreseen that carriers on the same railway, or that 
 railways between common points, would find it to their interest 
 to combine to regulate prices. There was no conception of 
 the possibility that the railroads might some day become so 
 powerful as largely to eliminate competition in transportation 
 by water, either by owning and controlling steamship lines and 
 terminal facilities or by refusing to co-operate in the transship- 
 ments which are commonly required in freight by water.' 
 
 The select committee of the House of Commons in 1 839 found 
 that the expectation of competition between carriers on the 
 same railroad had not been realized. With a few exceptions 
 the railways themselves were the exclusive carriers. While the 
 law had provided for competition among carriers, the theory 
 had not worked out in practice. The railway owning the 
 stations possessed an advantage as a carrier of freight against 
 which an outside carrier could not compete. A conflict of 
 interests between the railways and the public was recognized. 
 It was thought that government control over railways should be 
 exercised to make up for the inefficiency of competition. But 
 the basis upon which this government control should proceed 
 is not indicated except in the vague, general way that the rail- 
 ways must be prevented from exercising their monopoly power 
 to the detriment of the common public good. 
 
 In the fourteen years between 1825 and 1839 the railroads 
 in England had thus come to be recognized as a monopoly. 
 The government was assumed to be strong enough to regulate 
 a monopoly so as to prevent its charges from becoming exces- 
 sive. Government regulation could, however, derive force only 
 from the effective weight of the interests involved. Which 
 would prove the most powerful — the landed interests, the man- 
 
 ' Report of the Commissioner of Corporations on Transportation by Water in the 
 United States, pt. i, pp. ii, 160-1; pt. ii, p. xxiii; pt. iii, pp. 37-40; Interstate 
 Commerce Report, vol. xxi, pp. 354 tt seq. 
 
No. 3] THE RICARDIAN THEORY OF RENT 343 
 
 ufacturers, the merchant class or the railways — no one was then 
 prepared to say. If the railways, acting as monopolies, were 
 able to dictate transportation charges, they would not suffer loss 
 because of the excessive costs of construction, which, in part, 
 were forced upon them by the landlord class. On the outcome 
 of this struggle would depend the relative capitalization of the 
 landed interests and the railways. According to the usual 
 theory, the high cost of initial capital investment need not affect 
 railroad charges. But this conclusion is based upon the as- 
 sumption of free competition. A monopoly can fix prices to 
 get back any excessive costs. The question really was : Could 
 the English land monopoly be broken up by the substitution 
 of another monopoly, namely, one of transportation, and, finally, 
 what effect would its system of rates have upon the old system 
 of land rents? These and related questions will be considered 
 in the December issue.' 
 
 William R. Camp. 
 
 West Raleigh, N. C. 
 
 'This manuscript was originally submitted in partial fulfillment of the requirements 
 for a Doctor's degree at the University of Missouri. 
 
LIMITATIONS OF THE RICARDIAN THEORY OF 
 
 RENT II 
 
 IN the Political Science Quarterly for September it 
 was pointed out that, according to the theories existing 
 before the introduction of railroads, there would be a 
 centralization of wealth in the hands of the owners of agricul- 
 tural lands, and that the Ricardian logic leads to increasingly- 
 high rents for landowners and to low profits for capitalists. 
 The long struggle between these two classes had taught the 
 capitalists to despise the political privilege and coercive gains 
 of a landlord and militaristic government and to believe in the 
 sufficiency of their own economic forces under free competi- 
 tion if the government would leave them free to trade without 
 tariff and other restrictions. According to the economic theory 
 of the third decade of the nineteenth century, railroads were 
 expected to benefit all alike, landlords as well as manufactur- 
 ers. But the landlords, through their control of the govern- 
 ment at this time, had the advantage in being able to force 
 the railroads to pay high prices for land. 
 
 The English railways were able to come into existence only- 
 after a great struggle with vested rights and established institu- 
 tions. The cost of that struggle made up a large part of the 
 original outlay for their construction. Each group of railroad 
 promoters had to obtain the passage of a special bill through 
 Parliament before construction could begin. The House of 
 Lords was controlled by landowners who owned the ground 
 over which the railways must secure a right of way. In the 
 effort to exact as high a payment as possible for land, great 
 opposition to railroads was developed in Parliament. The 
 parliamentary expenses for the London and Brighton Railway 
 amounted to i^4,8o6 per mile;' for the Manchester and Bir- 
 mingham, ;^S,i9o; for the Blackwell, £14,414; for the Great 
 
 ' Francis Whishaw, The Railways of Great Britain, p. 269; Select Committee on 
 Railways, 1839, 2nd Report, p. 30. 
 
 519 
 
520 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 Western Railway, £77$ ; and for the London Birmingham. 
 £662 ^ In the competition for charters the best right of way- 
 did not necessarily win. It was a form of competition in which 
 funds and political power had greater weight than purely in- 
 dustrial considerations. Such power is a factor to which no 
 weight is given in economic theories that have originated from 
 a labor theory of costs or from an equally industrial theory of 
 value based upon supply and demand. 
 
 The difference between the estimated average cost of land to 
 railways of ;^4,ooo a mile in the United Kingdom and ^235 
 per mile in the United States represents a difference in strength 
 of organization between the landed interests in the two coun- 
 tries. In the United States, land, and sometimes cash also, 
 was granted by the national, state, and city governments for a 
 large portion of the right of way. In the condemnation pro- 
 ceedings for the sale of land, the probable increase in the land 
 values was considered by the courts in favor of the railroads. 
 Freedom from taxation was sometimes stipulated for a period 
 of years. In Great Britain no consideration was to be given to 
 any possible increase in land values. The landlords, in any 
 event, were to receive the total increase. Not only were the 
 lands sold to the railroads to be paid for according to their 
 money-earning capacity, but also compensation was to be made 
 to the landlords for other than pecuniary loss. Damage to 
 scenic effects and relatively unproductive game preserves, and 
 interference with convenience in general was to receive a pecun- 
 iary compensation. 
 
 The building of stations involved an excessive expense to 
 meet the exactions of mature leisure-class tastes. Railroad 
 companies had to undergo economically unnecessary expendi- 
 ture in constructing tunnels made to avoid parks, and in build- 
 ing ornate bridges and expensive roadways to maintain the 
 aesthetic standards of the English ruling class. These exac- 
 tions were largely absent in the United States, together with 
 
 'Edwin A. Pratt, Railways and Nationalization, London, 1908, p. 213; G. A. 
 Sekon, A History of the Great Western Railway, London, Digby, Long & Co., 
 1895, p. 8. 
 
No. 4] THE RICARDIAN THEORY OF RENT 52 1 
 
 the leisure class that occasioned them. Country stations in the 
 United States are frequently no more than sheds, effective for 
 shelter but devoid of ornament. The expense of paying divi- 
 dends upon these unnecessary initial costs has been the occa- 
 sion of increased charges.* 
 
 The British railways have not been obliged to lower their cap- 
 italization by reorganization, as have the railways of the United 
 States.^ During the period of the most severe agricultural de- 
 pression in England, since 1875, there was no scaling down of 
 railway capitalization and no lowering of rates. Between 1873 
 and 1884 the total capital outlay upon the railways of Great 
 Britain increased from 588! to 80 li millions sterHng.s For 
 England this means an average increase of cost per mile of 
 roadway from ^42,533 in 1873 to ^^49,800 in 1884. "There 
 is no class of property," says Mr. Jeans, " that has within recent 
 years more largely increased in value than that of railways. 
 Between 1870 and 1884 the net profits from railway working in 
 the United Kingdom rose from 23 i millions to 33^ millions, an 
 increase of ten millions or about forty-three per cent." The 
 average dividend on this high capitalization did not fall below 
 four and one-fourth per cent during this period. 
 
 On the other hand, land values depreciated in Great Britain 
 between 1875 and 1895 fifty per cent, or nearly 834 million 
 pounds.'^ Those with mortgaged holdings found themselves 
 obliged to pay a higher interest than the rent would be accord- 
 ing to the existing scale of capitalization. " As regards the 
 changes in rents, the evidence shows that in the most depressed 
 parts of England rents have been reduced on an average of 
 fifty per cent, while on the very poor soil in some of the east- 
 ern and southern counties no rents can be obtained and farms 
 
 ^ Railroad charges upon which the dividends are based are not regarded as exac- 
 tions according to the productive or utility theory of value. No element of exaction 
 is conceived to enter prices. Prices are simply the resultant of industrial limitations. 
 Railroad overcharges are conceivable, but overcharges have no place in a purely in- 
 dustrial theory of production and distribution. 
 
 ''Stuart Daggett, Railway Reorganization, p. v. 
 
 *J. S. Jeans, Railway Problems, p. 44. 
 
 ^ Royal Commission on Agriculture, Final Report, 1897, C.-8540, p. 23. 
 
522 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 have been thrown on the owners' hands." ' The landlords do 
 not necessarily obtain interest even on the present improve- 
 ments. As in New England, the buildings sometimes cost 
 more than the present reduced capitalization.^ 
 
 In the thirties the railroads were the complainants ; before 
 the end of the century the reverse was true. In the early period 
 the point of view of the law emanating both from the courts and 
 from Parliament was that the property rights of the landlords 
 must be maintained. The high compensation paid for land as 
 well as the large parliamentary expenses involved in securing 
 the right of incorporation are abundant evidence that the vested 
 interests of the landlords were safeguarded in the infancy of 
 railroad development. Now the government is supposed to 
 maintain the income which gives to particular railroad property 
 its present capital value. Any effective control which would 
 involve a lowering of the present capitalization of railway in- 
 vestment would be considered a violation of the property rights 
 of the investors.3 There is no evidence of this revolution in 
 institutions either in the later Ricardian rent doctrine or in the 
 theory of capital income. 
 
 The railroads brought the British Isles into competition with 
 those lands whose ownership counted least.'' " English land 
 which had to support the landlords, the titheowner, the farm- 
 ers, the laborer, and a large army of paupers had to compete 
 with land where often one man was owner, farmer, and laborer 
 with no tithe and no poor rates." s In the new world the labor 
 
 * Royal Commission on Agriculture. 
 
 ^Francis Allston Channing, The Truth About Agricultural Depression, London, 
 1897, p. 7. 
 
 ^Thomas Waghorn, Traders and Railways, p. 3: "The Legislature is confronted 
 with the difficult problem of adjusting the respective rights of the owners and of the 
 users of the great highways of the kingdom . . The great courts look upon every 
 legislative enactment regulating the rights of the parties as an encroachment on the 
 rights of the railway companies, and as a quasi-confiscation of the shareholders' 
 private property." In 1887 Jeans comes to a similar conclusion: With the excep- 
 tion of regulation in protection from accident, " the railways of this country are as 
 free from state control as ever they have been." Railway Problems, p. 64. 
 
 * Final Report of Royal Commission on Agriculture, p. 53. 
 ^Curtler, A Short History of English Agriculture, 1909, p. 293. 
 
No. 4] THE RICARDIAN THEORY OF RENT 523 
 
 cost of producing a bushel of wheat was the largest factor. 
 The low prices of farm products, raised to such a large extent 
 upon land free from monopoly rents, diminished the importance 
 of land ownership in England. The bias of those in favor of a 
 labor-value basis for land, as well as for capital income, was to 
 a certain extent realized.' 
 
 The bias in favor of a labor or industrial concept of value 
 found expression in the belief that railroad charges should be 
 proportioned according to the distance and cost of carriage. 
 To Adam Smith and James Anderson, charges would be the 
 product of the wages for the labor of carriage for one mile and 
 the total number of miles. On the turnpike the rates of toll 
 had been determined by the wear upon the road. Trained to 
 this bias, the directors of the Stockton and Darlington Railway 
 found themselves at the very beginning of railroad development 
 in opposition to those mine owners who demanded an export 
 rate on coal lower than the domestic rates. Much against their 
 will, the directors were forced to allow an export rate of one 
 and one-half pence when they were charging four pence for 
 domestic coal. The exception has become the rule. The 
 mileage system of rates of the turnpikes has been replaced by 
 a highly varied system of tapering rates. 
 
 The change in the system of transportation has brought 
 about a revolution in institutions. The monopoly advantage of 
 the landowners near the centers of population, as represented 
 by Adam Smith, was possible under a system of turnpikes. 
 Tolls and cost of carriage piled up as the mileage increased, 
 with the result that a point prohibitive of transportation of all 
 
 ' Benjamin Badcock, Causes of Distress of the Landed Interests, Westminister 
 Review^ 1883, vol. 18, p. 124: "As of old it may be expected that our gentry will 
 return to their natural avocation and for the loss of their huge profits, stolen, not 
 earned from their fellow subjects, may find a recompense in the profits of their own 
 labor. It is not difficult to perceive that this must result or that all the smaller 
 gentry will be driven to seek employment in trades or professions. It will be per- 
 mitted to few to enjoy a position where profits can be earned without self-exertion. 
 Already this is felt in most trades. Land cannot in a state of free competition be 
 free from the same wholesome and invigorating principle. The truth of this remark 
 is known to all who are engaged in trades and are not possessed of huge capitals; 
 the return to capital is so small it serves only as a helpmate to the personal labor of 
 the capitalist." 
 
524 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 heavy goods, such as coal and wheat, was soon reached. If 
 the landowners could keep all their geographical advantage of 
 location, every increase of population would add to the demand 
 for farm produce at an increased price, that is, if the profits of 
 middlemen did not disproportionately increase.' The price 
 would need to be high enough to cover the higher freight rates 
 of more remote lands. The more the geographical position of 
 the near-by producer is considered in the system of railroad 
 rates, the less the supply of products will be and the higher 
 their price. One-fourth of early railroad rates in the United 
 States was a relatively cheaper short haul than long haul.^ 
 Such a system of rates would have protected the local farm 
 producer from outside competition, and given him a differential 
 advantage over the more distant producer, and would have 
 helped to maintain the local land monopolies postulated by 
 Adam Smith and Ricardo. 
 
 By 1879 the lower rate for the long than for the short haul 
 had taken away all geographical advantage from the New York 
 farmer.3 Rates were made as cheap from Chicago, III., as 
 from Rochester, New York, to New York City. The best wheat 
 land of the Genesee Valley, in New York, might just as well 
 have been located on the Mississippi River. At this time the 
 best lands in the eastern portion of the United States, as in 
 England, ceased to pay more than interest on the buildings. 
 The excess supply of grain of the Mississippi Valley, hauled on 
 cheaper long-distance rates, went to swell the supply of Eng- 
 land, and correspondingly to lower the price of wheat. By 
 1897 there resulted a great depreciation in English land values, 
 as shown by the report of the Royal Commission on Agricul- 
 ture. The American railroads might not be covering fixed 
 charges on this grain traffic* At this point appears a diverg- 
 
 ^ Cf. Adams, Marketing Perishable Farm Products, Columbia University Studies 
 in History, Economics and Public Law, vol. Ixii, no. 170. 
 
 * Ringwald, Development of Transportation System in the United States (1888), 
 p. III. 
 
 'Railroad Investigations, New York, 1879, vol. i, p. 113; vol. iii, pp. 1S37- 
 1894; McPherson, Railroad Freight Rates, pp. 165, 239, 252-3, 258, 359. 
 
 * Daggett, Railroad Reorganization, p. 340. 
 
No. 4] THE RICARDIAN THEORY OF RENT . 525 
 
 ence from the classical theory, as has been shown by Hadley.' 
 Railroads did not curtail their services because those services 
 could be performed only below the cost of their production. 
 As long as the freight rate covered the variable expenses and 
 paid something toward fixed charges it was better to take the 
 traffic. 
 
 The farmer who was both a grower and a shipper found him- 
 self outclassed by the large shipper. The small shipper in a 
 country village received a smaller rebate than the larger shipper 
 in the same place and the latter less than the large dealer in 
 the city. Thus it might happen that better rates for grain and 
 cattle could be obtained by shipping west to Rochester and 
 then east to New York city than by shipping direct to the latter 
 city. The largest shippers were located at competitive railroad 
 centers and competitive railroad and water points, and thus 
 could demand better terms than the shipper or producer in a 
 non-competitive district. The farmer's business for the most 
 part was located at non-competitive points. He could not 
 move his business to the city, and thus proceed in the direction 
 of developing big business. In England, a country of short 
 distances, as well as in the United States, the farmer could not 
 with equal advantage be his own shipper. It is not simply that 
 the cost is greater for transporting small amounts ; the pres- 
 sure is greater on the part of the large shipper to secure an 
 even cheaper rate than the lower unit cost for the transporting 
 of large quantities of goods. No supply-and-demand theorist 
 who bases prices on marginal cost would allow that there might 
 be such a concession of special privilege, which would give an 
 advantage to those who manage large-scale business inasmuch 
 as the privilege does not represent a technological equivalent 
 upon the supply side. 
 
 The agricultural districts in New York were unable to secure 
 the establishment of a pro-rata rate, which would have been in 
 accordance with the cost theory of rates. In 1884 the farmers 
 were a unit in support of a bill entitled, " An Act to Secure 
 Pro-Rata Charges on Local Freight Carried by Railroads in the 
 
 * Hadley, Railroad Transportation, ch. iv. 
 
526 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 State of New York," while the manufacturers and merchants 
 were opposed to it. The manufacturers declared that if their 
 special rates were withdrawn they would have to move from the 
 state, as they would not be able to compete with manufacturers 
 who had such concessions. The farmers complained of the 
 depressing effect on land income and value of high local freight 
 rates and of lower long-distance rates." 
 
 The system of rebates had one effect upon capitalistic enter- 
 prise, an opposite one upon agriculture. The larger the ship- 
 ment by the manufacturer the better the rates. A large 
 shipment could be produced more cheaply. With a larger 
 output of standardized products, more highly specialized or 
 more automatic machinery could be used. In order to dispose 
 of a large output, prices had to be lowered. To produce goods 
 and find a market for them at low prices, special railroad rates 
 had to be secured. Thus rebates became a business necessity 
 for the time being. Co-existent with rate wars, cut-throat com- 
 petition developed in manufacturing enterprises. The struggle 
 between manufacturers to occupy the position of the favored 
 shipper became more intense. During the time of good profits, 
 plants of a larger capacity than the period demanded were con- 
 structed. The manufacturer sought railroad rates that would 
 allow him to sell at his neighbor's door. The under-cutting 
 which was prophesied by the classical school became a common 
 practice. Thus one plant might successfully invade the market 
 of another. Production below cost frequently resulted. Fixed 
 charges went on in any case. It might be better to produce at 
 full capacity so long as a little more than the variable expenses 
 were covered. But in the case of manufacturers, there was at 
 this time no local traffic upon which monopoly prices might be 
 set in order to cover fixed charges. According to the expec- 
 tation of the classical school, production below cost would re- 
 sult in the curtailment of output and in the elimination of the 
 weaker plants. But historically this has not been the main 
 course of events. Pools, corporations, consolidations and hold- 
 ing companies have been organized to control prices. The 
 
 ' Report of New York Board of Railroad Commissioners, 1884. 
 
No. 4] THE RICARDIAN THEORY OF RENT ^27 
 
 destructive and wasteful character of competition has been 
 recognized. Consolidation and community of interests through 
 the establishment of interlocking directorates have put an end 
 to rate wars and price-cutting. Co-operation for the mainten- 
 ance of prices has been substituted for undercutting in many 
 lines of business, as in coal, oil, steel, sugar, beef, and the re- 
 tail trade generally. 
 
 Cheaper railroad ratings, as well as rebates, have helped to 
 build central shipping points. Special commodity rates which 
 favor particular manufacturers, jobbers, places, or industries, 
 and which apply generally to carload lots, have been substituted 
 for rebates.' The great increase in the carload minimum has 
 been to the disadvantage of the small local dealer and to the 
 corresponding advantage of large-scale business.^ The differ- 
 ence between the rates for 100-pound lots and carloads, 
 whether it represents a difference in the cost of transportation 
 or in the influence of shippers, has worked to the disadvantage 
 of all surviving small-scale producers. As a small producer, 
 the farmer has been disqualified in his individual capacity from 
 remaining his own shipper. As a consumer, the individual 
 farmer is likewise affected. Almost everything he buys comes 
 to the local dealers in less than carload lots.3 The special car- 
 load rates, which are more widely prevalent in the East and the 
 Middle West, the basing-point system of rates in the South, and 
 the Pacific Coast system of terminal rates have favored the de- 
 velopment of local jobbing centers for the distribution of goods 
 to the small retailers in agricultural towns. These same sys- 
 tems of rates have made it necessary for local buyers to collect 
 the raw produce from the farmers in small lots and send it on 
 in carloads to the secondary markets for consumption or re- 
 shipment. The average farmer is at the same disadvantage in 
 marketing his own produce as the small retailer in purchasing 
 
 'Proposed advances in freight rates, pp. 1442, 1469, 1594, 1925, 2185, 2862, 
 2866, 2924, 5395-5397. 5566-7, 3112; Ripley, Railroad Rates and Regulation, p. 
 322, 
 
 ^Proposed advances in freight rates, pp. 678, 1194; Ripley, pp. 332-337. 
 * Proposed advances in freight rates, p. 31 12. 
 
528 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 direct from the manufacturer, or from the largest importing 
 centers.' 
 
 While the formation of the great railroad systems has for the 
 most part made it unnecessary for railroads to secure traffic by 
 granting rebates, yet the system of rebates survives in the pres- 
 ent system in the relatively high rates charged for local traffic. 
 Local traffic has to bear a disproportionate amount of the total 
 expense of transporting goods. Farmers are generally located, 
 not at the through shipping points, but at the intermediate non- 
 competitive points, at which rates were not forced down by 
 rate wars or rebates. The surviving system of high local rates 
 is a differential disadvantage to the farm-owning class — a fact 
 which helps to explain the centralization of wealth outside of 
 that class, contrary to Ricardian prophecy and logic. No 
 special rate has given one farmer the ascendancy over another. 
 There has resulted no trust in the farming industry. Where 
 combination begins, the farmer's ownership ends. The ad- 
 vantage of lower rates has helped to bring about a centraliza- 
 tion of control and of wealth in lines in which Ricardo thought 
 that competition would be greatest and profits lowest. 
 
 The favors granted by the railways to certain buyers helped 
 to concentrate the grain business in a few hands. ^ The rail- 
 roads eventually came to own many of the elevators along their 
 lines. The use of an elevator would often be given to an ele- 
 vator corporation rent-free or at a nominal charge. In return, 
 the dealer was supposed to help create a certain amount of 
 traffic. In addition, an elevation allowance of three-fourths of a 
 cent a bushel was sometimes granted for the transfer of grain 
 even in those cases in which the corporation transferred the 
 grain for the purpose of securing the profits from cleaning, 
 treating and mixing. The free use of elevators and elevation 
 allowances were a discrimination against all dealers who did not 
 
 ^Interstate Commerce Commission Report, vol. xvi, pp. 354 e( set^. 
 
 * Testimony of William S. Warren, Ex-Pres. Chicago Board of Trade, in the Grain 
 Elevator Investigation, Interstate Commerce Commission, 59th Cong., 2d Sess., 
 1906, Sen. Doc. 278, p. 220; C/. pp. 285-6, 358-9, 365, 893-5, 896-910; W. P. 
 Rutter, Wheat Growing in Canada, United States, and the Argentine, London, 191 1, 
 p. 181. 
 
No. 4] THE RICARDIAN THEORY OF RENT 529 
 
 possess those advantages. Such discriminations were a new 
 form of rebate. 
 
 A rebate is "a quantity price "which is granted to large 
 dealers. In the classic theory, according to which wealth is 
 centralized in the hands of the landlord class, and the capitalist 
 class is left without special advantages, there is no quantity 
 price. Prices tend toward uniformity. This conclusion is 
 based upon the assumption that there is an unrestrained mobil- 
 ity of capital, as has already been indicated. But a discrimin- 
 atory or quantity price becomes itself a restriction upon the 
 free movement of capital. A quantity price is a discrimination 
 which gives the large dealer such an advantage as to handicap 
 the small dealer or to put him out of business. The small 
 dealer cannot share in such an advantage. It is a privilege 
 granted to large dealers. The lack of such a privilege prevents 
 a small business from becoming large. Thus, it is a differential 
 advantage which does not disappear with competition, as was 
 assumed by the classical school. A quantity price limits free 
 competition. The monopoly prices provided for in economic 
 theory, like competitive prices, are assumed to tend toward 
 uniformity. If a monopoly price is uniform to all competitive 
 lines of business, then it is quite feasible to consider monopoly 
 as a separate and independent phenomenon. But if monopoly 
 prices have a varying effect, then they become a factor in de- 
 termining the character of the competition of other lines of 
 business. The profits of some concerns which are charged a 
 higher price may disappear so as to drive them out of business, 
 or the profits of some lines of business which are constantly 
 unfavorably affected, as in agriculture, may be permanently at 
 a lower rate. The presence of a quantity price in both com- 
 petitive and monopoly business is contrary to the basic assump- 
 tion of classical theory that there is equality of opportunities 
 and a tendency towards a uniform rate of profits. 
 
 The equalization of profits, which was the expectation of the 
 early economists, would not permit of the centralization of 
 wealth in the hands of the capitalist class. The differential 
 profits which are based upon the possession of discriminatory 
 privileges make possible such a centralization of wealth. That 
 
530 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 such discriminatory advantages may run against the bias of 
 those who favor equality of opportunity, is not the issue here. 
 The problem is to explain the factors which have been effective 
 in bringing about a centralization of control and ownership of 
 wealth in the hands of capitalists and not of the owners of agri- 
 cultural lands. The tendency which the Ricardian theory was 
 intended to show is contrary to the subsequent course of events. 
 It therefore falls short of being a working hypothesis for the 
 explanation of present business enterprise. 
 
 The theory of equalization of profits expresses the expecta- 
 tion of those optimists who believed in an industrial order. At 
 first it was thought that free competition among individuals 
 would eventually prevail as part of the natural order. All that 
 government had to do was to cease granting favors and to 
 protect the results of private enterprise. Private property in 
 capital goods was not regarded as a privilege, but as the evi- 
 dence of the reward of society for services performed. Profit 
 is the price of management. All prices, including the wages 
 of management of entrepreneurs, are determined by supply and 
 demand. Wages of management measure a man's effectiveness 
 in turning out a supply of products which are demanded by the 
 consuming public. Profits can be high only temporarily. 
 Their reduction will be brought about by a fall in prices as a 
 result of the increased production of both old and new entrepre- 
 neurs. If profits vary, it is due to a difference in the industrial 
 efficiency of entrepreneurs. If some factory owners have 
 adopted improvements, their reduced expenses will temporarily 
 increase their profits. Such high profits are a merited reward 
 for efficiency. The absence of profits is a proof of inefficiency 
 on the part of the management. But increased production will 
 eventually force prices down and correspondingly decrease 
 profits. 
 
 The expectation of an increase in production is based upon 
 two assumptions : (i) that business men will find it to their 
 interest to go after a market in order to sell more goods, and 
 will do this independently of others and not in combination 
 with them, working in conflict with those in the same trade and 
 not in harmony with them; and (2) that outsiders have an 
 
No. 4] THE RICARDIAN THEORY OF RENT 531 
 
 equal opportunity to come into a new field and increase its pro- 
 duction — that is, upon the assumption of there being sufficient 
 mobility of capital goods through circulating capital to increase 
 the supply of goods and to decrease prices and profits. Thus 
 it was expected that the tendency would be for production to 
 increase, for prices to decrease, and for profits to become low, 
 especially in the manufacture of all goods which could be in- 
 definitely multiplied, as for instance, wrought goods which were 
 not thought capable of monopoly control. The quantity of 
 land was regarded as relatively fixed so that parallel with the 
 tendency toward low profits was a tendency toward high rents. 
 Economists who have been trained to an industrial bias do 
 not give any weight to factors which are not based upon in- 
 dustrial efficiency.' From this point of view it is not rebates 
 and other discriminatory privileges but superior managerial 
 ability in putting goods upon the market at a low cost that de- 
 velops a successful combination.^ In the earlier relatively dis- 
 organized situation, mechanical and industrial improvements are 
 more important — that is, improvements which affected the 
 supply of goods and also the price received for them. In the 
 later situation, non-industrial factors such as rebates, quantity 
 prices, strategic prices, cutting to kill competitors, division of 
 territory to maintain prices, interlocking directorates, com- 
 munity of interests between those in the same line of trade, and 
 trust strategy generally for the organization of a given line of 
 business, come to be more important. Such non-industrial 
 strategic factors affect prices irrespective of supply and de- 
 mand. Industrial costs do affect supply, but strategic factors 
 do not produce a good or a service for society, though, through 
 sabotage, they may diminish the amount of goods available for 
 consumption.3 Whatever adds to the amount or serviceabiHty 
 of the goods produced should be included among the industrial 
 or productive processes, but all activities such as " undercut- 
 
 ' L. D. H. Weld, Marketing of Farm Products, 1916, p. 6; Werner Sombart, 
 The Quintessence of Capitalism, 191 5. 
 
 ^Arthur S. Dewing, Corporate Promotions and Reorganizations, 1914. 
 ^ Cf. Thorstein Veblen, The Nature of Peace, 1917, pp. 324, 340, 343. 
 
532 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 ting" to kill competitors, misstatement of grade or condition of 
 goods, misquoting of a market, manipulated quotations, and 
 wash sales, determine the distribution of wealth to the extent 
 that they affect the size of profits received rather than the 
 amount or serviceability of the goods produced or handled. 
 Thus the price of management may increase or decrease with- 
 out reflecting a corresponding change in the supply of goods 
 put forth by the managers. 
 
 According to traditional theories, middlemen who own the 
 factors of production are powerless to determine prices except 
 as they are able to increase or decrease the supply of goods. 
 The supply of goods is a question of industrial costs. These 
 costs in terms of money will depend upon the relative propor- 
 tion of the goods to be utilized as compared to the demand for 
 them. Through an improvement in production, costs may be 
 diminished, profits increased, and consequently the supply of 
 goods put upon the market enlarged. But entrepreneurs can- 
 not maintain prices except when they possess a monopoly. 
 Such control can be exercised only through the power of the 
 monopoly to control the supply. Goods once put upon the 
 market have a value or exchange relation which is dependent 
 upon the quantity of other goods upon the market, including 
 money, for which they may be exchanged. The middlemen 
 between the source of supply and the consumer are helpless to 
 fix prices in their own interests except as they have power over 
 the supply, and then it is only through supply. If an organiza- 
 tion of farmers, a railroad company, or a consolidation of man- 
 ufacturing companies is to obtain better prices for its goods it 
 will be only through the power to diminish the rate of out- 
 put or to improve the quality. If one organization supplants 
 another, it is because of reduced costs. The test of survival is 
 industrial efficiency. 
 
 According to this theory prices are the resultant of natural 
 economic forces. Prices at the same time cannot be different 
 at different places which are accessible to the same source of 
 supply. At least, the difference can not be more than that of 
 the industrial cost for transportation and other necessary ex- 
 pense of handling the produce between the different localities. 
 
No. 4] THE RICARDIAN THEORY OF RENT ^33 
 
 Thus there is no place in the logic of the philosophy of the 
 theorists of the natural order of supply and demand for dis- 
 criminatory prices. The competitive philosophy expressed the 
 faith of these theorists in a competitive natural order which 
 should do away with all such phenomena. All the government 
 had to do was to keep its hands off — laissez faire. If the gov- 
 ernment should take a hand, it would be in the same impotent 
 position as speculators and monopolists. Adam Smith, better 
 than any one else of the supply-and-demand school, has ex- 
 pressed the belief in the impotence of all would-be price fixers.' 
 
 The quantity prices which are fixed in the existing order do 
 not vary with the industrial efiiciency of either the granter or 
 the receiver. Rebates were large or small according to the 
 scale of business and strategic position of the shipper. The 
 shipper who has lower freight rates can sell at a price which 
 may force a competitor out of business. A large corporation 
 may be able to crush out an owner of an efficient factory be- 
 cause the former has more dollars to lose in undercutting than 
 the latter. Thus circulating capital does not become neces- 
 sarily a means of equalizing prices and profits as assumed. 
 Funds may be used for diametrically the opposite purpose, 
 namely, to prevent the disappearance of excessive profits. The 
 quantity price is a form of price-fixing ; it is the arbitrary 
 exercise of power in the interest of the owners without any 
 necessary reference to industrial factors. Such power is the 
 resultant of the organization of a business which finds it to its 
 advantage to eliminate undesirable competition. If the tend- 
 ency is toward discriminatory prices rather than toward uni- 
 formity of prices, toward differential prices and quasi-monopoly 
 control rather than toward equality of opportunity and free 
 competition between individuals, the question becomes : What 
 is the effect of monopoly or trust methods upon agriculture as 
 a surviving form of unorganized competitive business? 
 
 In the early development of the grain business there were 
 many buyers. The distinction between independent and or- 
 
 ^ Wealth of Nations, vol. ii, p. 27; cf. F. W. Taussig, Principles of Economics, 
 New York, 1913, vol. i, pp. 159 et seq. 
 
534 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 ganized buyers did not exist. Prices were good for the farmer. 
 But the system of free competition became disastrous for some 
 grain dealers. All were not on the same footing. The track 
 buyers were a disturbing element to the owners of elevators. 
 The former had no expense from fixed capital. They could 
 shift from one place to another. Their action, like that of 
 tramp steamers, was uncertain. A track buyer could purchase 
 grain where there was no elevator, as readily as where there 
 was one. He could disturb the prices and lessen the profit of 
 the elevator owner. If the elevator owner raised prices above 
 what the local buyer could pay, the latter could withdraw, and 
 buy of farmers where the profits of the elevator concern were 
 in excess of the cost of production. As long as these tramp 
 buyers were allowed to do business the effective organization of 
 grain marketing would not be possible. 
 
 In the struggle which now took place between the small and 
 the large grain dealers, the railroads took the side of the latter. 
 The regulation which required that all the grain must be in 
 sight before any cars would be provided, put an end to the 
 competition of scoop shovelers, who could make money without 
 the labor-saving device of an elevator if the railroads would 
 provide them with cars. Farmers could shovel grain from their 
 wagons into the cars ; but the railroads refused to give them 
 cars. The transportation companies discriminated against the 
 farmer in favor of the owners of elevators. Thus it became 
 impossible for the farmer to ship to a distant market. The 
 reason given was, that the railroads wished to encourage invest- 
 ment in elevators. The farmers in a neighborhood might have 
 had several millions of dollars invested as compared with the 
 elevator corporations' five thousand dollars. But ten million 
 dollars scattered among many independent farmers does not 
 have as much influence as a million dollars organized in a line 
 elevator corporation. 
 
 The grain dealers of many states organized state associations 
 to regulate the trade. Scoop shovelers and independent deal- 
 ers who did not own elevators were not permitted to belong to 
 an association. The members boycotted any commission house 
 which dealt with an independent dealer or received grain direct 
 
No. 4] THE RICARDIAN THEORY OF RENT 535 
 
 from the farmer.^ By this method the competition of irregular 
 dealers who had not subscribed to the rules of the association, 
 was largely eliminated. The grain dealers who owned public 
 elevators at terminal markets could, if necessary, use their 
 profits for storage in order to overbid and drive out any unde- 
 sirable competitors who did not have the profits of storage at 
 primary markets. Thus the period of free individualistic com- 
 petition, which the Ricardian theory assumed to be permanent, 
 was supplanted by one of organization. 
 
 If the logic which was used to indicate the effect of the in- 
 troduction of the improved method of transportation be applied 
 to this situation, we should expect that the use of the elevator 
 would decrease the labor and cost of marketing grain. Part of 
 the saving would go to the landowner and part to the consumer 
 in the lower prices of grain and flour. Those who went into 
 the elevator business first would make large profits through the 
 saving in labor from the improved method of handling grain. 
 The large profit would induce others to build elevators. As 
 long as the returns continued greater than those offered in 
 other lines, there would be inducement for others to come into 
 the business. Those who came in later would be obliged to 
 bid up the price of grain in order to obtain business. Thus 
 the saving in the handling of the grain would be transferred in 
 the first instance to the farmer and later to the landlord in in- 
 creased rent. The diminished cost of production would make 
 it possible for less fertile lands to be brought into cultivation. 
 Then the price to the consumer would decrease until popula- 
 tion should increase the demand. But in the situation before 
 us, there is a divergence from the industrial conception of value. 
 The elevator is not simply a labor-saving device. It is an 
 income-yielder to those who control its use. To the extent 
 that its ownership gives power to line elevator corporations for 
 the depression of prices to the farmer, private property makes 
 of the implement a means for the centralization of wealth out- 
 
 ^ Testimony taken by the Interstate Commerce Commission in the matter of the 
 Relation of Common Carriers to the Grain Trade, 1906, 59th Cong., 2d Sess. , 
 Sen. Doc. 278, pp. 11-35, 44, 83-4, 648, 658, 665-676, 721, 743, 754-5, 764, 907. 
 
536 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 side of the farm-owning class. According to the belief of the 
 early theorist, excessive profits would be prevented, for the in- 
 ducement of large returns would encourage others to come into 
 the business until prices should be brought to the cost of pro- 
 duction. But the free and equal opportunities to enter a busi- 
 ness which has been assumed did not continue to exist. 
 
 Ownership which adds to the value of the product is to be 
 distinguished from the industrial productivity of an instrument 
 which adds to the amount or serviceability of the product. 
 The elevator was not simply an instrument to render a maximum 
 of service at a minimum of labor cost, as would be the case 
 were its machinery used simply for producing serviceable 
 goods, according to the assumption of both the classical and 
 marginal-utility schools ; but rather a device used by the owners 
 as a means of mixing grain to raise the grade and to increase 
 its selling value to themselves, a process which results in de- 
 preciating its worth to the millers.' 
 
 To control the grain business further, dealers at terminal 
 centers organized to share the expense of collecting and dis- 
 tributing information as to crops and prices, and to determine 
 the base price to be sent out and the margin of profits to be 
 deducted from this price, and to allot the amount of business 
 each was to receive.^ Grain buyers did not necessarily bid up 
 the price of grain in order to increase business as has been as- 
 sumed in the competitive theory of economics ; co-operation 
 was substituted for competition. The buyers of farm products 
 do not necessarily find it to their interest to compete. They 
 have a common interest in a low price ; either through a " gen- 
 tlemen's agreement " or through following their common inter- 
 est without any formal agreement they may maintain prices at 
 a lower level. Strategic factors are not simply potent in the 
 formation of great systems of railroads and of trusts, but they 
 are also prevalent in the small market of country towns, where 
 
 ' Grain Elevator Investigations, pp. 1108-1112; Mack H. Davis, Flour and Wheat 
 Trade in European Countries and the Levant, Special Report Department of Com- 
 merce and Labor, Sen. Doc. 149, 6ist Cong., ist Sess., pp. 55-62. 
 
 ''Grain Elevator Investigations, pp. 31, 658, 686, 700, 707, 713, 719, 722-724, 
 848, 867-8, 873-6, 891-2, 904, 930, 965, 981 ei seq. 
 
No. 4] THE RICARDIAN THEORY OF RENT ^37 
 
 price cutting may be resorted to to drive out competitors and 
 to depress the price paid to the farmer.' 
 
 As a result of the depression of prices and of the disadvan- 
 tage to the farmer which the organization of transportation and 
 marketing brought about, the farmers themselves in the early 
 eighties began to organize for the marketing of grain.^ Ac- 
 cording to traditional theory there is no necessity for organiza- 
 tion. Prices are simply dependent upon an efficient supply and 
 an effective demand. Organization interferes with the assumed 
 natural order of individual liberty to supply and demand goods.3 
 The explanation of supply has been sought in the necessary 
 industrial costs to the individual entrepreneur of putting the 
 supply of the article in question on the market. A fall in prices 
 would be due to a decrease in the expenses of production 
 through an improvement in technology or to a decrease in the 
 demand of consumers. But the fall in prices which caused 
 farmers to organize was not due either to an improvement in 
 industrial method or to a decrease in consumers' prices, but to 
 the strategic position of the buyers and handlers of farm pro- 
 ducts. That is, it was not the competition of superior indus- 
 trial methods of other farmers which forced some of them to 
 organize, but the superior bargaining position of the middlemen 
 agencies which stand between the producer and the consumer. 
 Consumers' prices do not vary correspondingly with producers' 
 prices. The margin between producers' prices and consumers' 
 prices, or the amount received by the middlemen, has been in- 
 creasing.'* To reduce this margin and at the same time to realize 
 the profits of integrating some of the processes of marketing 
 
 * Farmers' Market Bulletin, N. C. Agricultural Experiment Station, October, 1915. 
 ^ J. L. Coulter, Co-operation Among Farmers, 191 1, pp. 115 et seq.; G. Harold 
 
 Powell, Co-operation in Agriculture, 1913, pp. 81, 121 et seq. 
 
 ^Thiswas the position held by Adam Smith and by the advocates of individual 
 liberty generally. The modern business men oppose labor organization, but demand 
 the right to organize for themselves. The economists are equally inconsistent : they 
 have come to admit that labor organization may be a good thing to hasten the action 
 of the supply-and-demand forces, but they are apt to be opposed to the large-scale 
 organizations of business as an interference with the natural order of free competition 
 between individuals. 
 
 * Adams, Marketing Perishable Farm Products, 1916. 
 
538 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 with those of farming are among the main purposes of farm- 
 ers' organizations. In organizing, farmers found the banking 
 interest, the large elevator owners, and the railroads against 
 them. The railroads refused to grant sites or build side-tracks 
 to the land owned by the farmers. 
 
 Railroad companies would have a shortage of cars during the busy 
 season, and when the farmers' elevator company wanted to ship grain, 
 because of satisfactory prices the railroads would find it possible to 
 furnish cars to the elevators owned by the capitalists, but would not be 
 able to get cars for the farmers. When cars arrived it was difficult to 
 get them into place for loading, and just as difficult to get them hauled 
 to the terminal points. They were often lost for two or three days on 
 the way. It was even found to be extremely difficult to find members 
 of the grain exchanges to look after the selling of the grain. Every 
 possible discouragement was put in the way of the farmers' organ- 
 ization.' 
 
 The regular grain dealers would join together in bidding up the 
 price of grain in order to break up the farmers' company. A 
 higher price would be paid than the grain could be sold for. 
 Thus in the grain trade as in other lines, business was done be- 
 low cost, often with the result of ruining the independent, and 
 not both of the concerns which experienced the losses. These 
 obstructive tactics form no part of the methods of industrial 
 efficiency which were thought to be necessary for survival ac- 
 cording to the individualistic competitive theory. Neither the 
 result nor the intent of such tactics is to add to or decrease the 
 quantity of products on the market. Industrial methods do 
 affect supply ; but the non-industrial strategic methods of the 
 railroad and elevator corporations affect primarily the distribu- 
 tion of wealth rather than its production. 
 
 Notwithstanding the opposition of transporting and market- 
 ing organizations, there were in 191 1 nearly 1800 farmers' 
 grain elevator companies in the United States. They handled 
 270,000,000 bushels of grain or about 40 per cent of the total 
 amount shipped from the sections where the farmers' elevators 
 
 ' Couller, pp. 1 19-120; Grain Elevator Investigation, pp. 668-672, 730-731, 742, 
 755. 778-779- 
 
No. 4] THE RICARDIAN THEORY OF RENT 539 
 
 had been built. The price paid the farmer for grain was from 
 two to six cents a bushel higher where there was a farmers' or- 
 ganization than where there was none. A line elevator com- 
 pany might be paying these different prices at the same time, 
 depending upon whether there was a farmers' elevator or not. 
 Thus with no change in the supply and demand, different prices 
 may prevail. Supply and demand are not the only factors 
 which determine prices ; organization is a most important factor. 
 The natural order of free competition between individuals has 
 been supplanted by one of competition between individuals and 
 organizations and between organizations. The railroad princi- 
 ple, " Charge what the traffic will bear," becomes in the hands 
 of a line elevator company, " Pay what the traffic will bear." 
 Where there is no near-by competition the traffic will bear a 
 lower price. 
 
 With a few exceptions the organization of the farmers in the 
 United States has not advanced beyond the integration of the 
 business of the local buyer with that of the production of farm 
 crops. The owners of agricultural lands have not achieved an 
 integration of the intermediate processes between the produc- 
 tion of the raw products and the manufacture and sale of the 
 finished product, as in many other lines of business, such as 
 steel, lumber and oil. The flour mill is no longer a means of 
 income to the landlord, as in medieval Europe. 
 
 It has not been possible in farming to obtain as many econ- 
 omies from carrying on the business on a large scale as in man- 
 ufacturing. On a farm a child or a man cannot run a large 
 number of machines as in a factory. The farmer cannot use 
 automatic machinery. He has comparatively small investment 
 in a specialized form of fixed capital. The machinery and 
 horses can readily be turned from cultivating and harvesting 
 one crop to another. Economy from subdivision of labor can- 
 not be obtained by a small-scale business like farming; a 
 laborer may be required to do any kind of work. 
 
 There is no such necessity in farming to make certain of a 
 large market in order to support the heavy fixed charges of 
 highly specialized automatic machinery. One notable excep- 
 tion is that of the citrus growers of California and Florida who, 
 
540 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 because of their large fixed capital investment in orange groves, 
 have been forced to organize the better to control their 
 markets/ 
 
 The machine process makes possible the repetition of a uni- 
 form product of the same grade and quality. Thus it is that 
 manufacturers have a uniform product to sell, the reputation 
 of which can be increased with every sale. This reputation 
 becomes an intangible asset. People become accustomed to 
 ask for a product about the uniform quality of which there can 
 be no question. All money spent in training consumers to a 
 customary purchase of a standardized product becomes a source 
 of profit to the corporation which controls its production. The 
 advertising of manufactured goods pays. Trade marks develop 
 to give distinction to all repetitions of a machine-made product. 
 System in selling becomes possible. Large investments in ad- 
 vertising may develop distant markets which may become 
 world-wide. 
 
 In a hand-to-mouth distribution of products, from handi- 
 craftsman to consumer, system or organization in selling very 
 fittingly receives as little attention as it does in Adam Smith. 
 Handicraft goods, like agricultural products, have peculiarities 
 which vary with the individual craftsman. The consumers of 
 a locality adapt their tastes to the variable characteristics of the 
 producers of their own immediate neighborhood. But when 
 machine-made goods habituate consumers to uniform standards, 
 and when fixed capital investment in expensive automatic 
 machinery cheapens large-scale production, then a system for 
 developing and maintaining a large and regular demand be- 
 comes not only possible, but imperative. In brief the sale of 
 unstandardized products gives the profit of determining the 
 grade to interested middlemen and makes the cost of distribu- 
 tion greater through the necessity of repeated grading. 
 
 Under existing conditions farmers have been able to acquire 
 the intangible assets of regular trade for a standardized product 
 only in the disposal of citrus fruit, dried prunes, apricots and 
 peaches, and to a limited degree in the case of apples and 
 
 ' Powell, Co-operation in Agriculture. 
 
No. 4] THE RICARDIAN THEORY OF RENT 541 
 
 potatoes. Only in the marketing of citrus and dried fruits can 
 the organization of the growers be said to have a commanding 
 position in the market at all comparable with that of the rail- 
 roads or of the great industrial corporations. Without a 
 marketing organization, a farmer is dependent upon the pro- 
 duction of a crop for an income. Others distribute his pro- 
 ducts and gain a profit from their sale throughout the year. 
 From the fact that his income is received mainly at one season 
 there follows an increased necessity for credit at a higher rate 
 of interest than in the case of those whose assets may be hourly 
 or daily converted into cash. 
 
 In the matter of credit, as well as of transportation and 
 markets for his produce, the farmer is generally located at a 
 non-competitive point. The principle of rate making is that of 
 charging what the traffic will bear. A large business can 
 borrow for less in the small town or in the large cities, because 
 it has a credit reputation in either place. It pays a large cor- 
 poration with a high credit rating to keep an account in New 
 York : it saves New York exchange. Such a corporation can 
 borrow money in New York for three and a-half per cent when 
 farmers have to pay in the country from five to a hundred per 
 cent.' On the other hand, the credit reputation of a farmer is 
 limited to the locality where he lives.^ Rates of interest are 
 lowest in the large cities, and higher on the average in the 
 agricultural than in the industrial states. The smaller the 
 town, the higher is the rate of interest. The dependence of a 
 farmer upon one locality for short-time credit makes it possible 
 for his credit agencies to apply the monopoly principle : charge 
 what the traffic will bear. This is a differential disadvantage 
 which the Ricardian theorists have left out of account. 
 
 1 Report of the Comptroller of the Currency, December, 1915; Crop Reporter, 
 April, 1913; American Economic Review, Sept., 1913, March, 1914. These con- 
 clusions, however, are largely based upon answers to a questionnaire sent to bankers 
 in different parts of the United States by the Economics Department of the University 
 of Missouri, 1912. 
 
 '^ The passage of the Federal Farm Loan Act will establish a farmer's credit rating 
 for long-time loans in any market in the United States, and make his land-mortgage 
 bonds widely negotiable, as in Europe. 
 
542 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 Credit is a relatively new factor which becomes increasingly- 
 important as farm products are sold in distant markets. Cap- 
 ital in funds, which has been most relied upon to equalize 
 profits, itself does not tend to receive an equal return. To the 
 extent that the rate of return charged for the use of capital is 
 unequal, conditions for entering a new business or enlarging an 
 old enterprise are not equal, competition is not free, and capital 
 does not have the natural economic mobility assumed. The 
 Federal Reserve Banks and the Land Banks have been created 
 to control the mobility of capital. Thus the state has become 
 increasingly a factor in destroying the free play of economic 
 forces assumed. What form this state direction of capital will 
 take depends upon the future. But the increased government 
 direction of production during the war through the control of 
 credit, coal, railroad and water transportation in the interests of 
 the more essential industries may show the increasing import- 
 ance which some form of state or collective action will assume 
 in the future. 
 
 The high rate of credit in the rural districts has had the oppo- 
 site effect from that expected by Ricardian theorists. Capital 
 has not moved to the rural districts in sufficient volume with- 
 out state interference to lower the high rate of interest. One 
 of the results has been that settlement of land has been re- 
 stricted. The high rate of interest at the extensive margin of 
 cultivation, no less than the degree of fertility considered by 
 Ricardo,' has been one of the factors affecting the unit costs. 
 Another result is that farmers may be forced to sell their pro- 
 ducts as soon as they are ready for market to middlemen who 
 have cheaper credit. 
 
 ^ According to economic theory, differences in the rate of interest are explained by 
 differences in the risk. This risk represents possible losses. Through investigation 
 it has been found that the losses of bankers from bad loans are negligible though 
 the rate of interest among them may be highly variable as indicated above. Risk as 
 a factor in explaining differences in the rate of interest is therefore negligible to the 
 extent that losses are nominal. 
 
 The difference in the price of credit was thought to cover the difference in the cost 
 of credit extension. But if these differences do not represent losses the higher price 
 may be a source of greater profits. The size of bank dividends is evidence that the 
 so-called excessive profits do not necessarily disappear in the existing order, as as- 
 sumed in the natural order of economic forces. 
 
No. 4] THE RICARDIAN THEORY OF RENT 543 
 
 The laws of the different states have not been favorable to 
 the formation of co-operative organizations of farmers for pool- 
 ing the sale of farm products.' If the stock is to be owned as 
 ordinary corporation stock with the legal right to cast one vote 
 to each share owned or held by proxy, nothing can prevent the 
 organization from falling under the control of a few buyers. 
 A special enactment of law is necessary in order to restrict the 
 right to vote to one vote to each member, irrespective of the 
 number of shares owned. This restriction upon the transfer of 
 capital stock would lessen the possibility of exploiting the 
 associations from within. 
 
 In a corporation the directors are assumed to represent the 
 stockholders and in their official actions to conform to the in- 
 terests of the latter. Every stockholder is presumed to have 
 power in the election of directors in proportion to his stock. 
 The management is theoretically democratic ; but it develops 
 that the person with one hundred shares does not have power 
 corresponding with that of the director who owns or controls 
 one hundred thousand shares. The power of the minority in a 
 corporation is nominal. The directors as stock vendors may 
 be making large returns when the stock is paying little or no 
 dividend. The legal privilege of voting according to shares 
 owned or controlled proves to be a method of centraHzing 
 wealth. 
 
 Investment in a co-operative enterprise is not primarily for 
 returns from holding or selling stock, but for an increased in- 
 come from the farms which are kept under the independent 
 management of the individual owners. The interest of the 
 farmers continues to be primarily in their farm investment. 
 Their outlay for stock in a co-operative marketing agency is 
 nominal. For this reason if the co-operative association suffers 
 losses, while gaining ordinary business experience, the members 
 may withdraw. A farmers' organization may thus be so loosely 
 bound together as to be unable to gain sufficient experience to 
 become efficient. Manufacturers have likewise found a co- 
 operative joint sales agency not sufficiently binding to enable 
 
 ' Powell, Co-operation in Agriculture, pp. 18-78. 
 
544 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 them to realize permanent economies from large-scale market- 
 ing. After repeated failures to carry out the agreements in- 
 volved in such arrangements, individuals have given up their 
 ownership of separate plants and taken stock in a corporation.^ 
 In some industrial pools, stock is owned according to the output 
 of the plants which enter into the association. But when profits 
 are to be gained mainly from the exchange of securities, the 
 control of as many shares as possible becomes desirable. Then 
 the ownership of independent property may be given up for 
 stock in a corporation.^ Whether such a move is advantageous 
 or not will depend upon whether the owners of the independent 
 plants become a part of the management of the resulting con- 
 solidation or holding company. The laws of the United States 
 generally have been against all pools as organizations in re- 
 straint of trade. The same purpose, however, has been ac- 
 complished by the formation of a consolidating corporation or 
 a holding company. Then the control may be shifted from 
 the original manufacturers to financiers, as in the case of the 
 International Salt Company and the United States Steel Cor- 
 poration,^ Thus the hostility of the law to pooling associations 
 has had the effect of increasing the concentration of business 
 management. This result is the very opposite of the purpose 
 of the law, which is to maintain the old order of free compe- 
 tition. 
 
 To prevent the sale of stock to those hostile to the co- 
 operative organization of farmers, the stock must be made either 
 non-transferable or salable only by the consent of the organ- 
 ization. Membership must be made stable by a binding con- 
 tract. On the other hand, the main advantage of ownership of 
 ordinary corporation securities has come to be in their ex- 
 changeability by stock vendors or in their convertibility by 
 bankers or other creditors. In a purely co-operative associa- 
 tion the profits go to each member according to his contribu- 
 tion to the products which the association sells. A low fixed 
 return, or none at all, may be allowed upon the stock invest- 
 
 • Arthur S. Dewing, Corporate Promotions and Reorganization, pp. 518 e^ se^. 
 "^ Ibid., pp. 147, 198. 
 
No. 4] THE RICARDIAN THEORY OF RENT ^545 
 
 ment. The division of profits may be according to acreage or 
 productivity of the soil. 
 
 In a corporation the profits need not be diffused among the 
 stockholders but often are centralized in the hands of the 
 vendors of stock. When more profit can be made from the 
 sale of stock than from holding it, then the corporation will be 
 run in the interest of the vendors of its securities. The direc- 
 tors are the best vendors because they have the inside informa- 
 tion to know when to buy and sell. Stock that is paying no 
 dividend may be bought to secure a controlling interest. Man- 
 agement is sought to control the terms of issue of securities. 
 Holding companies of consolidations and holding companies of 
 holding companies are formed to increase the sphere of man- 
 agement of the directors beyond their own power of owner- 
 ship. The directors may be also directors in the largest credit 
 institutions. As bankers, they are in a position to reap a profit 
 whether a receivership, a reorganization, or a promotion 
 scheme is under way. Whether the industrial corporation is 
 worsted or not depends upon the terms which are made by its 
 financial directors for the exchange of its securities. No ade- 
 quate data are obtainable on this most important phase of 
 modern business organization.' But it seems clear that the 
 financial directors are in a position to reap profits from the in- 
 crease in the capitalization of a corporation. The profits made 
 form a part of the price of management and of the price of 
 credit to the corporation. These profits from traffic in securi- 
 ties constitute the great advantage of management or control 
 of a corporation. 
 
 The profits from vending securities are in no wise propor- 
 tioned to the time of owning or controlling the capital. The 
 great fortunes made in this way are not explainable by com- 
 petitive philosophy. Those who make them have a monopoly 
 of control of a corporation and of knowledge as to the inside 
 conditions which may give rise to an increased or decreasea 
 dividend and consequently to a fluctuation in the value of the 
 stock. It is upon these fluctuations that profits from stock are 
 
 ' Cf. Dewing, pp. 121, 171, 473, 492, 558. 
 
546 POLITICAL SCIENCE QUARTERLY [Vol. XXXIII 
 
 made. The degree of control of the few who own the control- 
 ling interest in a corporation does not necessarily equal or bear 
 any relation to the degree of control which the corporation has 
 over the prices of its products or services. The time element 
 that figures so largely in an industrial concept of capital as a 
 collection of capital goods for producing a supply of products 
 for the consuming public is not of commensurable importance 
 in the transfer of the ownership of securities. The length of 
 time that is necessary to create a fluctuation in the value of 
 securities can not be said to be the same as the time the cor- 
 poration takes for the production of commodities. The fluc- 
 tuations in the value of the securities of a corporation may or 
 may not be due to a change in the supply of the commodities 
 made by it and the demand for them. These fluctuations are 
 more likely to be caused by the organizers of the stock market, 
 when greater profits come to be made through the vending of 
 securities.' Then instead of supply and demand being the 
 cause of all things — of entrepreneurs' profits, rate of interest, 
 price of producers* capital goods, of consumer's capital goods 
 and of labor, according to classical and marginal utility theories 
 — supply becomes a by-product of high finance, that is, a phe- 
 nomenon shaped by the controlling financial interests. The 
 increase, decrease or idleness of capital goods may affect the 
 supply of consumption goods, but the transfer of stock owner- 
 ship is a form of mobility of capital which may be the source 
 of great profits without affecting the supply of the goods pro- 
 duced. Railroads and factories move just the same whether 
 the stock market is sluggish or active — that is, as business 
 enterprise has become less industrial, profits are less traceable 
 to the technological causes which the Ricardian and utilitarian 
 theorists have in mind. Corporation securities are a form of 
 private property which has assumed importance since the days 
 of Ricardo. It is a new factor in a new situation which helps 
 explain the centralization of wealth contrary to his expectations. 
 The reason why the organization of farmers proceeds more 
 slowly than organization in other lines of business may be sum- 
 
 ' Pujo Money Trust Investigation, 1913. 
 
No. 4] THE RICARDIAN THEORY OF RENT ^47 
 
 marized as follows : The variable unstandardized character of 
 farm products makes the control of their sale through organ- 
 ization of farmers more difficult. The expenditure for tele- 
 graphic information of markets, for expert knowledge of the 
 movement and proper diversion of railroad traffic, and for the 
 services of expert shippers for each of the wide range of pro- 
 ducts produced within any given area is so great as to make 
 small organizations of producers unprofitable. The " sea- 
 sonal " character of farm production militates against, and in- 
 creases the expense of, employing permanent managers. The 
 capacity of agricultural land to produce a variety of crops does 
 not cause the investment in it to be fixed capital, which would 
 require a marketing organization for its preservation and for 
 the maintenance of profits. The uncoordinated, scattered 
 character of agricultural production makes the concentrated 
 control of large tracts of land difficult. The ability to make 
 profits more readily from agriculture through railroad organ- 
 ization, industrial and banking corporations, middlemen organ- 
 izations and mercantile agencies makes it impossible to realize 
 such profits through the organization of farmers. The dis- 
 crirpinatory prices which have been granted to some farmers 
 have not been sufficient to give one farmer large-scale control. 
 The higher price paid large farmers makes them uninterested 
 in organization. The dependence of small farmers in some 
 sections for credit upon supply merchants and fertilizer and 
 seed companies does not leave them free to join 6rganizations 
 for storing and more advantageous marketing of their products, 
 since notes are made due so as to force early payment, and sale 
 is frequently restricted to the creditors. The higher discrim- 
 inatory prices charged the small farmer for supplies, credit and 
 transportation keep him from increasing the size of his busi- 
 ness. The organization of farmers with small capital scattered 
 over a large area has proved difficult, and in America generally 
 impossible ; the co-operative form of organization which en- 
 deavors to eliminate all special profits to organizers discourages 
 organization of farmers in competition with ordinary business 
 corporations, while profits to the promoters have formed a 
 prime incentive to the organization of the great combinations 
 
548 POLITICAL SCIENCE QUARTERLY 
 
 in business. In co-operative organizations increased control 
 through voting by proxy is prohibited, and the amount of stock 
 which can be owned is limited ; while proxy voting, unrestricted 
 stock ownership, holding companies, voting trusts and " com- 
 munity of interests " have made control of ordinary corpora- 
 tions easier and more profitable. This comparative lack of 
 organization among farmers as buyers and sellers and among 
 consumers as buyers are two of the great differential advantages 
 of all other organized business. 
 
 The Ricardian theory of rent is drawn in terms of a land 
 monopoly. The only differential advantages contemplated, 
 those of soil and of location, were to accrue to the landlord. 
 Such advantages were considered sufficient to centralize wealth 
 in the hands of the owners of agricultural lands. We have 
 shown some of the differential disadvantages of the farm-owning 
 class, which largely explain the causes of the fall of the land 
 monopoly and the centralization of wealth in more powerful 
 organizations of capital. 
 
 While the Ricardian theory of rent shows the character of 
 the cleavage of interests between the agricultural land-owning 
 and manufacturing classes at the beginning of the nineteenth 
 century, its limitations become increasingly apparent as later 
 economists use it to interpret conditions which have changed 
 contrary to the expectation of Ricardo. The struggle between 
 the owners of agricultural land and of other forms of capital 
 has brought about a result the reverse of what Ricardo contem- 
 plated. We have questioned the fitness of the assumptions 
 underlying his competitive philosophy of prices and of distribu- 
 tion of wealth as applied to later times. If great technological 
 changes had not taken place, wealth might have continued to 
 centralize in the owners of agricultural lands. We are not, 
 however, primarily questioning Ricardo's logic ; rather we wish 
 to show that he could not be expected to explain conditions 
 which he could by no power of prescience forecast. A new 
 theory is needed to explain the centralization of wealth in the 
 hands of others than the owners of agricultural lands. 
 
 William R. Camp. 
 
 West Raleigh, N. C. 
 
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BIOGRAPHICAL SKETCH 
 
 Graduate of Oberliu High School, Oberlin, Ohio, 1893. 
 
 Student of Oberlin Academy, Oberlin, Ohio, 1894. 
 
 Student of Leland-Stanford University, Palo Alto, California, 1896-1908. 
 
 Investigator of Social Conditions, San Francisco, 1898 and 1899. Employed 
 
 by Associated Charities. 
 Graduate of New York Summer School of Philanthropy, 1899. 
 Investigator Social, Economic and Political Conditions. Employed by Charity 
 
 Organization Society, 1899-1900. Employed bv New York Tenement 
 
 House Department, 1900-1904. 
 Investigator of Rural Conditions, California, 1904-1905. 
 Student of Economics and Political Science, Stanford University, 1906-1909. 
 
 Graduate 1909. Graduate work 1909-1911. 
 
 Graduate work in Economics and Student Assistant, Universitv of Missouri, 
 1911-1912. 
 
 Professor of Economics and Political Science, Lombard College, Galesburg, 
 111., 1912-1913. 
 
 Chief of North Carolina Division of Markets, and Superintendent of Credit 
 Unions. Raleigh, N. C, 1913, to date. Appointed Field Agent in Market- 
 ing by the Federal Bureau of Markets, March 15, 1918. 
 
 Professor of Agricultural Economics, North Carolina State College of Agricul- 
 ture and Engineering, 1913, to date. 
 
 Dissertation completed under the direction of Dr. Thorstein Veblen. 
 
LIBRARY OF CONGRESS 
 
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