The Defenders of Liberty by Neema Parvini

Author:Neema Parvini
Language: eng
Format: epub
ISBN: 9783030394523
Publisher: Springer International Publishing

Here Senior seems to anticipate Carl Menger in recognising that the value of a good is determined by the preferences of the consumers and that capital investment in production of that good is a recognition of this fact. The costs of the factors of production are determined with the final price of the consumer good (and possible projected earnings) already in mind.54 In fact, as Ludwig von Mises went on to argue, economic calculation is only made possible by this price structure.55 Individual entrepreneur-capitalists appraise the prevailing market conditions and decide to allocate their resources to farming wheat or to establishing a coal mine, or to opening a factory manufacturing textiles, or perhaps an ironworks. They anticipate future market demand for this or that good and then invest in capital and labour accordingly, costing it against projected future returns. If they are correct, they will make some profit, if they are incorrect, they will make losses and eventually be forced to close the venture. This obvious reality of nineteenth-century life (indeed, of life at any time where markets are allowed to operate) is completely ignored by Ricardo, who ‘totally leaves out the entrepreneur’.56 We have already seen the impact of one entrepreneur on wheat farming, John Bennet Lawes, whose new fertiliser product led to a 37% increase in per acre yields in the 1840s which not only made him rich but also translated into a near 29% increase in average returns for tenant farmers (see Table 5.2). This blindness to innovation in Ricardo’s thinking ensures that, despite his reading of Jean-Baptiste Say, who I will discuss in the next section, he cannot see how the different parts of an economy might affect each other. For example, rent is not determined by the quality of land alone but by the many factors which affect demand for it, including its location and connectivity: ‘Railways affected rent by opening up distant markets to farmers and by cheapening the cost of farm inputs such as seeds, fertilisers, machinery and coal as transport costs fell.’57 The role of fixed capital investment also goes missing as a factor in Ricardo’s theory. As George Stigler noted, ‘Ricardo assumes … that all capital in agriculture is circulating capital.’58 For example, one technological innovation in the 1870s was the ‘tackle’, a steam-powered tractor and plough which greatly increased productivity. As with all automation, such contraptions reduced the need for labour while increasing output. They cost around £645, which for most tenant farmers (and their landlords) would have required some savings and investments—those early adopters would enjoy some competitive advantage over those who did not or could not invest. Ricardo’s static analysis could not foresee the effects of these sorts of changes which ultimately broke the Malthusian trap. In 2019, agriculture is around 0.59% of the UK economy and 1.6% of its workforce, while providing 50% of the food supply.59 Neither Malthus nor Ricardo foresaw technological advancement on this level.

Senior also highlights the fact that Ricardo misconstrued the relationship between agriculture and industry.

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