06 - Understanding our Political Economy - natural laws of wealth dis

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Lesson 6 - Natural Laws of Wealth Distribution

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Understanding our Political Economy LESSON SIX The Natural Laws Concerning the Production and Distribution of Wealth

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RENT WAGES INTEREST

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David Ricardo

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“After all the fertile land in the immediate neighbourhood of the first settlers were cultivated, if capital and population increased, more food would be required, and it could only be procured from land not so advantageously situated.”

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“Thus by bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated.”

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Henry George

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“Rent is that portion of production (or, wealth) claimed in return for access to land, when land of equal quality is no longer freely available. …”

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“Rent is determined by the margin of production. That is, rent equals the amount of produce in excess of what could be produced from the poorest land in use with the same amount of labor and capital.” Progress and Poverty , p.86

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Subsistence requires 60 units of wealth Commercial land now yields 300 units of wealth

Rent Graphically Illustrated:

Rent Graphically Illustrated 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 Best land yielding 100 units of wealth

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50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 0 0 0 0 10 RENT’S CLAIM ON WEALTH LAND STILL NOT FULLY OCCUPIED AND FREELY AVAILABLE / NOW FULL

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50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 50 60 70 80 90 100 0 10 20 30 40 RENT’S CLAIM ON WEALTH STILL FREE / NOW FULLY OCCUPIED AND YIELDING RENT

Wealth Distribution Stage One:

Wealth Distribution Stage One

Wealth Distribution Stage Two:

Wealth Distribution Stage Two

Wealth Distribution Stage Three:

Wealth Distribution Stage Three

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“Where land is free and labor is assisted by capital, wages will consist of the whole produce less what is necessary to induce the storing up of labor as capital. Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production). ...”

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“Where all natural opportunities are monopolised, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce.” Progress and Poverty , p.116

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NATURAL LAW EXTERNALITY tendency

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END OF LESSON SIX

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