Economic Rent Extraction

In the 1800s, economists such as Ricardo (see Principles of Political Economy & Taxation) and George (see Progress and Poverty) identified economic rent-seeking, the earning of excess profits from the ownership of land and natural resources, to be a very major problem for any economy. These profits were not from a productive activity but rather acted as a private rentier tax on those that carried out productive activities, while at the same time owners benefitted from external events such as population growth and infrastructural investments made by the government that increased rents and land values. Such rentier profits should either be taxed away or land and natural resources publicly owned. Marxist economists agreed about the negative impact of economic rents, but saw them as a result of the ability of monopolies to extort higher prices in any area of the economy. A concept that can be extended to all forms of monopoly, including the monopoly of a bourgeois capitalist class over the means of production. The Marxists and political economists may have differed somewhat in their treatment of economic rent extraction, but they agreed on the need to remove it for the better of the economy and the general population.

In the early 1800s, Ricardo had pushed for a repeal of the tariffs that protected British landowners from foreign competition (the “Corn Laws”) as they raised food prices that then required industrialists to pay higher wages; holding back industrial development. The beneficiaries were the landowners who gained higher prices for the food they grew, or could charge higher land rents to tenant farmers; a form of economic rent. The Corn Laws were repealed in 1846. Ricardo argued for free trade more generally, but severely (or perhaps wantonly) misunderstood the difference between those economic sectors that drive technological upgrading and productivity (e.g. manufacturing) and those that have much less impact (e.g. agriculture). He argued that other nations such as Portugal should focus on agriculture (reducing British industrialists costs) while Britain focused on manufacturing (capturing the upgrading and productivity benefits). Such an arrangement locks in the commodity producer to an extractive relationship while locking it out from the benefits of industrial activity; a situation that the South American nations find themselves in today.