Difference between Ricardian Theory and Modern Theory of Rent

This article will help you to learn about the difference between Ricardian theory and modern theory of rent.

Difference between Ricardian Theory and Modern Theory of Rent

Difference – 1. Application of the Theories:

Ricardo restricted his theory to the rent from land only. But modern writers have extended the rent theory to all kinds of factor incomes. It means that rent is not peculiar to land only. It may arise in the incomes of other factors as well, i.e., in wages, interests and profits.

Difference – 2. Origin of Rent:

In the Ricardo’s theory it is held that rent of land arises on account of differences infertility of the different plots of land. But, according to the modem writers, rent arises on account of the inelasticity of supply of factors.

Difference – 3. Transfer Earnings:

According to Ricardo, land has no supply price as its production does not involve any cost to the society. This view is correct only from the point of view of the society as a whole. But the modem writers have shown that even from the standpoint of the individual or of a firm, land has a minimum supply price. Again, Ricardo considers land as having a single use. So it has transfer earning (or opportunity cost). But the modem writers have shown that a particular plot of land may have alternative uses. So it has transfer earnings or opportunity cost.

Difference – 4. Relation between Rent and Price:

According to Ricardo, rent is a surplus of price over the cost of production and so it does not (and cannot) enter into cost and price. But modem writers have shown that rent, considered from the standpoint of the individual, enters into cost and price.