Question

Ricardo was one of the most rigorous theorist of the classical group. Explain his rent theory and discuss why the land rent did not eat up all the profits since Ricardo’s time. Compare this falling rate of profit crisis theory with Malthus’ under-consumption crisis theory.

Answer 1

According to Ricardo ,when accumulation arises with increase in profit ,total output and which increases wage fund of labours . As population rises due to increase in wage fund. Increase in population raises the the demand for corn and its price. Then inferior grade lands are cultivated to meet the raise in demand for corn When the demand rises price will rise .It will rise the total output. When the inferior lans are brought under cultivation ,producer surplus falls. Then labours and landlords spend all their income on consumption. The saving is done by capitalist.As society progresses, share of profit will decline. Falling rate of profit slacken the capital accumulation . In this stage capital accumulation stops, profit reaches zero and population does not grow ,wage rate will be at subsistence level and economic reaches stationary state. It is not the land rent eat up all the profits ,instead wage rate , cultivation on inferior land,higher rate of population affect the capital accumulation and profit According to Ricardo falling theory of profit, any excess supply can be balanced by demands. But according to Malthus underconsumption theory, total demand can be smaller than the total output. But working population and others produce if it fully employed. If producers have not anticipated a fall in consumption demand , they will not able to sell their products. According to Ricardo Corn laws were about variable tariffs and export subsidies. Malthus was of view that retaining high tariffs on corn is necessary for its protection. Malthus argued for a labor theory of value and Ricardo argued for a cost of production theory