• Economics

    Ricardo’s Law of Rent

    British economist David Ricardo‚Äôs Law of Rent comes from his 1809 work On the Principles of Political Economy and Taxation. The term rent here, or economic rent, doesn’t refer to the usual meaning of the payment a tenant makes to a landlord for use of land, but refers to something that is closer to producer surplus (i.e. producer’s profit, simply the producer’s revenue minus cost). Ricardo’s motivation to explore the nature of economic rent was due to rising grain and land prices during his time. He wanted to explore the question of whether rising land prices caused grain prices to rise or whether rising grain prices caused land prices to…