The Law of Rent was formulated by David Ricardo around 1809. It was the first clear exposition of the source and magnitude of land rents, and is among the most important and firmly established principles of economics. The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital. David Ricardo (18th April, 1772–11th September, 1823), a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. ...

This law has a number of important implications, perhaps the most important being its implication for wages. The Law of Rent implies that wages bear no systematic relationship to the productivity of labor, and are instead determined solely by its productivity on marginal land^[1], as all production in excess of that amount will be appropriated by landowners in rent. This is not the notorious iron law of wages, which predated Ricardo and is most commonly associated with the writings of Thomas Malthus. Indeed, the Law of Rent explains why the Iron Law of Wages consistently fails to predict actual wages: if there are highly productive land sites available for free, wages will tend to be high, cet.par.; if the only available free land yields little, wages will tend to be lower. The Iron Law of Wages was an alleged law of economics that asserted that wages can never rise above the minimum level that will enable the laborer to survive. ... Robert Thomas Malthus, FRS (13th February, 1766 – 29th December, 1834), usually known as Robert Malthus, although he preferred to be known as Thomas Malthus, was an English demographer and political economist. ...

The Law of Rent makes it clear that the landowner has no role in setting land rents: he simply appropriates the additional production his more advantageous site makes possible, compared to marginal sites. The Law also implies that the landowner cannot pass on the burden of any cost such as land taxes to his tenants, as long as such costs do not affect the relative productivity of his land and marginal land.

Notes

Henry George Henry George (September 2, 1839 – October 29, 1897) was an American political economist and the most influential proponent of the Single Tax on land. ...

See also

• economic rent
• Von Thünen rent
• marginalism
• Differential and Absolute Grount Rent

In economic theory, economic rent is an analytic term employed to distinguish the difference between the income earned by an input or factor of production, and the cost of the factor of production. ... Johann Heinrich von Thünen (24 June 1783 - 22 September 1850) ranks alongside Marx as the greatest economist of the nineteenth century (Fernand Braudel). ... Marginalism is the use of marginal concepts within economics. ...

Further reading

David Ricardo, An Essay on the influence of a low price of corn on the profits of stock David Ricardo (18th April, 1772–11th September, 1823), a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. ...