GEOG 3404 Economic Geography

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GEOG 3404Economic Geography
LECTURE 2 Agriculture, Scarcity and Economic Rent

• Dr. Zachary Klaas
• Department of Geography and Environmental Studies
• Carleton University

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Land and natural resources

• A critical question in economic geography, which
  must be understood before one even begins
  Where do things of economic value come from?
• All material or tangible items (that is, items
  that are not ideas with no material form) come
  from nature.
• Natural resources are those elements which are
  taken from or exist on the planet in their raw
  form.
• Synthetic products, if they are tangible, always
  contain a mixture of elements taken in their raw
  form from nature.
• The capacity to make products, in short, depends
  upon having some measure of control over natural
  resources used to make them either direct
  control or influence over those who have that
  direct control.

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Conceptualising land

• Land can be the soil earth which has value as
  the location where agricultural products are
  grown.
• Land can be ground earth which has value as the
  location where buildings or constructions are
  physically possible.
• Land can be a site earth which has value as the
  location for economic activities.
• Land can be a milieu earth which has value
  because of its impacts (environmental, social,
  etc.) on other areas.
• Land can be conceived of as the natural resources
  themselves not just the earth but all products
  which come in their raw form from nature. By
  this last definition, land has value as the
  substance from which, ultimately, all economic
  products are made.

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Agriculture the primary sector of the economy

• The first stage of economic development is
  undeniably the agriculturalisation of societies.
• The Neolithic Revolution saw the rise of
  subsistence agriculture, which allowed
  settlements to be rooted in one location. After
  agriculture became efficient enough to produce
  more than mere subsistence, these settlements
  became the geographic bases for urbanised
  communties to serve as central agricultural
  marketplaces.
• Agricultural products would soon be supplemented
  as the primary products of marketplaces by
  manufactured goods (at first primitively
  manufactured) and services (at first primitive
  services), but agriculture importantly served as
  the base upon which these other elements of the
  economy depended.

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Land ownership as social power

• Given the historical importance of
  agriculture/land/the natural resource base, we
  have a lingering conception of economic power
  being secured by land ownership. Phrases like
  having a piece of the rock persist in the
  language, denoting the assumptions of many in
  past generation that direct ownership of land is
  vital to ones economic health. (Think of the
  grandfather in The Apprenticeship of Duddy
  Kravitz by Mordecai Richler A man without land
  is nothing, Duddy, remember that.)
• Is this true today? Or has something supplanted
  it in importance today? Now do we think of
  capital ownership as more important? What about
  home ownership? Do we think of that the way
  people once thought about primarily about their
  farms?

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Agricultural republicans

• In the 17th and 18th Centuries, a political
  philosophy centred around the importance of free
  access to land, called agricultural
  republicanism grew in popularity.
• The central contention of the agricultural
  republicans is that elites held power over
  so-called common people primarily because they
  held control over land, understood in this
  context as the natural resource base of the
  planet. So long as this was the case, those
  elites would be always able to dominate those
  commoners, on the basis of the scarcity of any
  other available natural resources.
• Political philosophers such as James Harrington,
  John Locke, Thomas Jefferson, Thomas Paine and
  John Taylor of Caroline were prominent defenders
  of this viewpoint. Political independence, in
  large measure, was for these persons bound up in
  the freedom to own land.

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Homesteading and the New World

• In the New World of the Americas of the 18th
  and 19th Centuries, the availability of land
  afforded an opportunity to distribute social
  power more widely than it was in the Old World,
  where control over land was held by the landed
  gentry. (Think of the movie Far and Away,
  where the main character leaves the service of an
  Irish landlord, a member of the landed gentry,
  for the opportunity to own land himself in
  Oklahoma.)
• Homesteading was the free distribution of plots
  of land in the New World and a centrepiece of
  the agricultural republican ethic of greater
  distribution of political power by means of wider
  distribution of land.

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Land office business in the New World

• In Canada, distribution of land was more
  controlled. The initial idea of the imperial
  government was to create a version of a landed
  gentry in Canada, and those who controlled land
  offices, the agencies responsible for the
  distribution of plots of land, essentially saw
  their role as the shaping of a Canadian nobility,
  defined through land ownership.
• Elite groups in Ontario (the family compact)
  and Quebec (the Château clique) were defined in
  large measure through their control of land
  offices.
• Interestingly, even today, a formal requirement
  of membership in the Senate of Canada is the
  formal ownership of land.

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Scarcity of natural resources as a theme in
political economy

• If we lived in a world of overflowing natural
  resources, where every person could have
  unlimited claims to natures bounty, then there
  would be no such thing as scarcity.
• If there were no such thing as scarcity, however,
  there would probably also be no such thing as
  money or even barter transactions, as people
  would be able to take directly from nature
  everything that they need, and would need no
  monetary system to facilitate transactions they
  dont need to undertake in the first place.
• It is, in fact, the scarcity of natural
  resources, to various degrees, in the world that
  makes us need to have economic transactions in
  the first place. Things become economically
  valuable because they are not found in abundance.

10
David Ricardos observations about land

• The 19th Century British political economist
  David Ricardo noted that profit on land (if we
  understand that term to refer to the natural
  resources generally) can either be off the use of
  the land or off its mere value in exchange.
• A landowner could, for example, raise crops and
  sell them, and thus profit off the sales. This
  would be an example of the use value of the land,
  and it would also be an example of putting the
  land to productive use.
• The landowner could also, however, keep his land
  unproductive until such point as the land could
  be sold to someone else. This is an example of
  the exchange value of the land. Ricardo noted
  that no one would buy land when land of equal
  quality was available in nature for free, so the
  landowner in this case is profiting not off
  productive use of the land, but rather off of the
  scarcity of available land of equal quality.

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Henry George and his single tax idea

• So scarcity in nature is, by this argument,
  essentially what gives everything value in an
  economy. Thus, it would seem to be an inherent
  relationship that those who control scarce
  natural resources would control the economy.
• This is essentially the viewpoint of the 19th
  Century political economist Henry George, who
  wrote the book Progress and Poverty.
• George was of the view that landowners, by virtue
  of their control of land, were elite figures who
  unjustly controlled the economy through control
  of scarce resources. His solution to this
  problem was to tax the value of land (understood
  as the value of all natural resources) and fairly
  redistribute this money to non-landowners. This
  proposal was called the single tax.

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The unearned increment

• The idea behind Georges proposal was to tax that
  which is unearned in the profit of those who
  hold control over natural resources, the part of
  that profit which he referred to as the unearned
  increment.
• George had no problem with land having use value,
  and this part of lands value he was unwilling to
  tax. He was content to allow labour to be
  properly rewarded for working the land, as well
  as capitalists to be rewarded for investing in
  the lands productive capacity. But he opposed
  rewarding landowners simply for holding the title
  to the land, even if they did nothing to make it
  productive and serve peoples economic needs. In
  other words, he wanted to put his tax on the
  exchange value of the land.

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The value of land use The von Thünen model

• Being the basis of the first stage in the
  economic development of most societies, the
  agricultural sector was the first sector to be
  effectively studied by economic geographers.
• The mathematical model of the German economic
  geographyer Johann Heinrich von Thünen in the
  early 19th Century was one of the first attempts
  to rationally explain what gives particular
  tracts of land economic value.
• The von Thünen model is a deductive model, which
  means it abstracts from the facts of the real
  world to provide an idealised, logical and
  theorised version of how things work.
• It proceeds from knowledge of certain elements as
  premises of reality, and assumptions that one
  does not need to know additional elements, to
  reason to a conclusion.

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Prediction of economic rent

• Economic rent is what von Thünen called the value
  of land for a given land use purpose. Since he
  was an agricultural economic geographer, he was
  interested in predicting this value for land used
  to grow particular agricultural crops. He wanted
  to know which lands should be used for which
  crops, and the purpose of his model is to
  determine which crop, if grown on the land, would
  generate the highest economic rent (value) for
  that land.
• To that end, von Thünen designed a predictive
  equation. The equation calculated a value for
  economic rent (R), which was derived in the
  equation from a number of other variables, as
  well as from the distance to the central
  marketplace where the crops were to be sold (k).

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The von Thünen equation

• The equation itself R E ( p a ) Efk
• The elements of the equation
• R is the economic rent to be predictedE is
  the output of the land (in units of output)
• p is the market price of the units
• a is the production cost of the units
• f is the cost of freight for each unit and
  over each
• unit of distance and
• k is the distance from the central marketplace
  in
• units of distance.

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Assumptions of the model

• Since von Thünen was reasoning about the world
  deductively, attempting to predict the world from
  rational principles rather than constantly
  observing the real world and experientially
  arriving, inductively, at conclusions about it,
  there are certain things he had to assume about
  reality.
• Assumptions are part of any deductive model of
  reality these models only work under certain
  constraints, and when those constraints are
  violated, the results of the predictive model
  will not hold.
• In the case of the von Thünen model, the main
  assumption one must make is that one is
  predicting results for a surface uninterrupted by
  complicating geographic obstacles. For example,
  the value of the top of a mountain for farming
  will probably be low. Yet nowhere in the von
  Thünen model is elevation taken into account.
  This is an element which is beyond the scope of
  the model, and must be assumed away.

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The Isolated State

• For this reason, von Thünen had to imagine an
  idealised isolated state to exist, in which
  there were no complicated geographic obstacles
  (e.g., rivers, mountain ranges) or uneven
  conditions (some land far less suitable for
  farming than others).
• So important was this part of his reasoning, in
  fact, that the book in which he presented his
  model was in fact entitled Der isolierte Staat
  (German for the isolated state).
• Where conditions more clearly approach von
  Thünens hypothetical isolated state, his
  equation tends to predict very well. Where, by
  contrast, the landscape is broken or interrupted
  by geographic obstacles, the model tends to lose
  its predictive power.
• The model is highly regarded, however, because in
  general, its assumptions are not often violated,
  and where they are, additional compensating terms
  could be introduced into the equation.