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Comparing economic rent and common sense rent Colloquial subversion in the neo- classical age.

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Presentation on theme: "Comparing economic rent and common sense rent Colloquial subversion in the neo- classical age."— Presentation transcript:

1 Comparing economic rent and common sense rent Colloquial subversion in the neo- classical age

2 Excludability: Economic inference in language Tacit in language yet its intent overtly exercised through economics, how “rent” is understood and applied is a narrative that illustrates not only “schooling” in comparison to “education” but offers some degree of insight into one’s socio- economic situationTacit in language yet its intent overtly exercised through economics, how “rent” is understood and applied is a narrative that illustrates not only “schooling” in comparison to “education” but offers some degree of insight into one’s socio- economic situation We offer you some perspectives on the phenomenon of “rent”…We offer you some perspectives on the phenomenon of “rent”…

3 “The Invisible Hand” is not a fist “Rent”: The income accruing to the owner for the services of a durable good such as a piece of land, property or a computer. (1)“Rent”: The income accruing to the owner for the services of a durable good such as a piece of land, property or a computer. (1) “Rent-seeking behavior”: Firms or individuals influencing government policy to increase their own welfare. (1) “Rent-seeking behavior”: Firms or individuals influencing government policy to increase their own welfare. (1) ♫ “Rent”: aka differential rent or in the case or NR, scarcity rent, is equivalent to producer surplus and is defined as payment over and above the minimum necessary supply price. (2) “Necessary” in terms of a common, normative value is an ethic, or at the very least a moral judgment, to which “market demand”, “whatever the market can bear” and all market equations would adhere to. Ecology becomes the new “gold standard” of accountability as apposed to fiat financing. “Necessary” in terms of a common, normative value is an ethic, or at the very least a moral judgment, to which “market demand”, “whatever the market can bear” and all market equations would adhere to. Ecology becomes the new “gold standard” of accountability as apposed to fiat financing.

4 What is economic rent? …the difference between what enables economic activity to occur, which is known as factors of production (usually an individual or single corporation), is paid and how much it would cost (or need to be paid) to keep that factor in use. Examples…

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6 Ricardian Rent and Differential Rent SAME THING as Economic Rent! “…payment of any such a 'surplus' to a factor of production over and above what was necessary to maintain that factor in its present use or form of production, above its opportunity cost.” “…payment of any such a 'surplus' to a factor of production over and above what was necessary to maintain that factor in its present use or form of production, above its opportunity cost.” - Marc Blaug

7 Francois Quesnay ( ): Physiocratic Rent Physiocrats (Les Economistes) – First organized group of economistsPhysiocrats (Les Economistes) – First organized group of economists “Rule of Nature”, Ideas developed (1756 – 1763)“Rule of Nature”, Ideas developed (1756 – 1763) Surgeon and PhysicianSurgeon and Physician Class assumptions developed from his observations of agricultureClass assumptions developed from his observations of agriculture Rise of a new class (Agricultural Entrepreneur). Crucial distinction between share-cropper and this group…access to capital (3)Rise of a new class (Agricultural Entrepreneur). Crucial distinction between share-cropper and this group…access to capital (3)

8 Francois Quesnay: “Avances” as Rent ? Quesnay's system of political economy was summed up in Tableau économique (1758), which diagrammed the relationship between the different economic classes and sectors of society and the flow of payments between them. In his Tableau Quesnay developed the notion of economic equilibrium, a concept frequently used as a point of departure for subsequent economic analysis. Of explicit importance was his identification of capital as avances—that is, as a stock of wealth that had to be accumulated in advance of production. His classification of these avances distinguished between fixed and circulating capital. (4)Quesnay's system of political economy was summed up in Tableau économique (1758), which diagrammed the relationship between the different economic classes and sectors of society and the flow of payments between them. In his Tableau Quesnay developed the notion of economic equilibrium, a concept frequently used as a point of departure for subsequent economic analysis. Of explicit importance was his identification of capital as avances—that is, as a stock of wealth that had to be accumulated in advance of production. His classification of these avances distinguished between fixed and circulating capital. (4)

9 David Ricardo ( ) “owners of high quality land would be able to extract the differential gain, or rent, from using higher instead of lower quality land by simply sitting back and letting the farmers bid amongst each other for the higher quality land. Competition would make every farmer's profits identical; the productivity differential, however, would remain and accrue to the holders of higher than marginal quality lands.” -Humberto Barreto A contemporary example…

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11 Thomas Paine ( ): “Quit-rent” Should affairs be patched up with Britain, and she to remain the governing and sovereign power of America, (which as matters are now circumstanced, is giving up the point entirely) we shall deprive ourselves of the very means of sinking the debt we have or may contract. The value of the back lands which some of the provinces are clandestinely deprived of, by the unjust extension of the limits of Canada, valued only at five pounds sterling per hundred acres, amount to upwards of twenty-five millions, Pennsylvania currency; and the quit-rents at one penny sterling per acre, to two millions yearly.Should affairs be patched up with Britain, and she to remain the governing and sovereign power of America, (which as matters are now circumstanced, is giving up the point entirely) we shall deprive ourselves of the very means of sinking the debt we have or may contract. The value of the back lands which some of the provinces are clandestinely deprived of, by the unjust extension of the limits of Canada, valued only at five pounds sterling per hundred acres, amount to upwards of twenty-five millions, Pennsylvania currency; and the quit-rents at one penny sterling per acre, to two millions yearly. It is by the sale of those lands that the debt may be sunk, without burden to any, and the quit-rent reserved thereon, will always lessen, and in time, will wholly support the yearly expense of government. It matters not how long the debt is in paying, so that the lands when sold be applied to the discharge of it, and for the execution of which, the Congress for the time being, will be the continental trustees. (5)It is by the sale of those lands that the debt may be sunk, without burden to any, and the quit-rent reserved thereon, will always lessen, and in time, will wholly support the yearly expense of government. It matters not how long the debt is in paying, so that the lands when sold be applied to the discharge of it, and for the execution of which, the Congress for the time being, will be the continental trustees. (5)

12 Enclosure’s Paine-in-the-Ass There are two kinds of property: Natural, Artificial [invention of man]There are two kinds of property: Natural, Artificial [invention of man] The former is a birthright, the latter impossible to be equalThe former is a birthright, the latter impossible to be equal Since birthrights were diminished by enclosure there ought to be “indemnification for that loss”Since birthrights were diminished by enclosure there ought to be “indemnification for that loss” Proposed a “national fund” for the “loss of his or her inheritance” (6)Proposed a “national fund” for the “loss of his or her inheritance” (6)

13 John Stuart Mill ( ): Keeping Ricardo Alive & Beyond… Principles of Political Economy ( st ed.) – To retain Ricardian framework (in an attempt to update A Wealth of Nations) yet take into account the many points made by criticsPrinciples of Political Economy ( st ed.) – To retain Ricardian framework (in an attempt to update A Wealth of Nations) yet take into account the many points made by critics Distinction between laws of production Based in physical world) and laws of distribution (human institutions)Distinction between laws of production Based in physical world) and laws of distribution (human institutions) Production of wealth depended on factors beyond human control (7)Production of wealth depended on factors beyond human control (7)

14 Henry George (1839 – 1897): Rent “The man who cultivates the soil for himself receives his wages in its produce, just as if he uses his own capital and owns his own land, he may receive interest and rent; the hunter’s wages are the game he kills; the fisherman’s wages are the fish he takes.” (8)“The man who cultivates the soil for himself receives his wages in its produce, just as if he uses his own capital and owns his own land, he may receive interest and rent; the hunter’s wages are the game he kills; the fisherman’s wages are the fish he takes.” (8)

15 Bibliography Intermediate Microeconomics and its applications, 8 th ed. Walter NicholsonIntermediate Microeconomics and its applications, 8 th ed. Walter Nicholson Ecological Economics Principles and Applications, 1 st. ed. Herman Daly, Joshua FarleyEcological Economics Principles and Applications, 1 st. ed. Herman Daly, Joshua Farley Ordinary Business of Life: History of Economics, Roger BackhouseOrdinary Business of Life: History of Economics, Roger Backhouse Encyclopedia Britannica On-LineEncyclopedia Britannica On-Line Capitalism 3.0 A guide to Reclaiming the Commons, Peter BarnesCapitalism 3.0 A guide to Reclaiming the Commons, Peter Barnes Common Sense, Appendix, Thomas PaineCommon Sense, Appendix, Thomas Paine Ordinary Business of Life: History of Economics, Roger BackhouseOrdinary Business of Life: History of Economics, Roger Backhouse Progress and Poverty, Book 1, Chapter 2 The meaning of terms, Henry GeorgeProgress and Poverty, Book 1, Chapter 2 The meaning of terms, Henry George


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