Saturday, August 11, 2012

Class XI, Principles of Economics, "Recardian Theory of Rent"

Recardian Theory of Rent

The British economist Devid Recardo propounded the theory of rent a century ago.
The Recardian theory of rent is based on the following assumptions.
1. Rent is paid to the landlord for the use of original and the indestructible power of land.
2. Rent is a differential return due to the differences in the fertility of land as well as their locations. The more fertile land the higher will be its rent and vice versa.
3. The Recardian theory depends on the historical order of cultivation i.e. the more fertile land is cultivated first and such rent does not pay rent in the beginning but as but as other grades of land come under cultivation it begins to pay the rent.
4. The land on which the cost of production is equal to the amount it produces is a no rent land or marginal land.
The Recardian theory of rent can be stated as
“Rent is that portion of the produce of earth which is paid to the land lord for the use of original and indestructible power of soil”.

Economic rent according to Recardo is the true surplus left after the expenses of cultivation as represented by payment to labour, capital and enterprise.
Recardian theory of rent has been criticized on the following grounds.
1. Recardo’s statement that the properties of soil are indestructible is wrong. The fertility of land often gets exhausted when it is continuously used. However it can be increased by using artificial manures but such fertility is considered to be temporary.
2. Statement of the theory that the superior land is cultivated first is not always true. Actually in general the order of cultivation is not the same as the theory says since a cultivates that land first which is near to him.
3. Recardo assumes that the no rent land exists in a country is also not applicable everywhere. This concept of no rent land is merely imaginary and theoretical.

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