Ricardo's Development

theoryof
* Economic

linked to land
theory
·

His ideas are embodied his book. "The Principles of

in

Political and Taxation. " (18K].

Economy
·

He Ricardian Theory of Rent

gave
:

In Ricardo's model growth and development depends

; capital on

accumulation ,
which depends reinverment of profits
on .

Profits earned
by capitalist depends the
growth of
·

on

agricultural output especially food , ,

which is called
wage
good
There 2
stages
·

are :

:
Progressive :

I [ProFitt Y
T
Capital Accumulation
Investment T
Production Y
Y
T
Wages
Technological Progress
2 -

Stationary :

WagesT
Population ↑ >
-

(population =
Labour Furze)
Food Demand T
 ·
To meet increased food demand ,
supply needs to increase on

land.
existing

Superior land Interior Land

t
already being used land
Coverutilization)
Less
productive
t More labour will be utilized
More burden t
t ↑ in
wages
↑ in Rent

Cost of Production T
t

Profits ti
t
Rate of tes till it becomes
profit zero

Population
stops growing

Technological Progress stops

M - Wages (subsistence level)

E
&
↑ (ProductionFunction]

Progressive output-rent
stage
olt-rentvisurplus -Stationary stage
Ewage T
O
S
 At point E

output-rent-wage
olt =

rent-wage
T =
0 (Profits are zero)

2 olt-r
wage
olts war

Revenues Cost > >O

-

* Assumptions

Supply of land fixed

·

·
Land used for production of corn

return land
Diminishing
·

on

·
Perfect Competition
·
Demand of labour depends on accumulation of capital.

Supply of labour given

·

price

Capital accumulation result from profits

·

* There are 3
agents of production :

Landlord
Capitalist
Labour
 Capitalist hire labour and land and role
play key
·
in
process
of economic development .

·
Ricardo considers capitalist like modern entrepreneurs.

Capitalists undertake production rent to landlord

,
pays ,
wages
to workers.

wages determined by subsistence level of workers

·

minimums

when
Subsistence
Wages
Population increases and
brings them to level of
subsistence.

Land >
-
Rent
Capitalist -> Profit (TD) Y =
Rent I + co
+

Worker
Wages (w)
-

Rent AP-MP >

Marginal Products
-
+
per
Important
unit
↓
Average Product

Production function
Y =
F(k ,
N,

Improvement in
agriculture technique might check
progress of
returns
to
go beyond stationary level
·

Capital accumulation- acts as an

engine of growth. It depends
on :

to (Not possible labor

Capacity Save
by
willingness to save (Not possible by landlords)

done
Can
only be
by Capitalists