lords as rent. This surplus will vary according to the extent to which the fertility of their land exceeds in each case that of the least fertile land, the produce of which must be forthcoming to meet the demand.
But not only has farm produce to be raised—it has also to be placed on the market. The term 'production' is sometimes so interpreted as to cover the production of any utility, and to embrace the effort of labour and expenditure of capital undertaken by retail distributors. But, in any event, it comprises the effort and expenditure needed to place commodities on wholesale markets. The expenses of production, then, in the case of farm produce, include its carriage to the market as well as the cultivation of the land from which it is raised. Some land is situated nearer, and some at a greater distance from, the market where the produce is sold. The farmers of the most distant land, if their produce is needed to meet the demand, must secure such a price as to cover their expenses of production, including the cost of carriage. The farmers of the nearer land, obtaining the same price for what costs less to convey to the market, have a surplus in hand, which competition for the enjoyment of their advantages compels them to transfer to the landlords as rent.
To these two reasons for differential advantage in the cultivation of agricultural land Ricardo, who recognised the second, but laid greater stress on the first, added a third, connected with the law of diminishing returns. After a certain point has been reached in the cultivation of land, the returns of produce yielded to each fresh application of capital and labour will tend, ceteris paribus, to diminish and not to increase proportionally. Were this not the case, the whole of the food required might conceivably be raised from a single field, and there would not be any necessity to cultivate poorer land. As it is, the returns to different applications of capital and labour tend, ceteris paribus, to vary. Some are made under more, and some under less favourable conditions. A farmer will not knowingly engage in the least advantageous of each applications unless the price realised will cover the expenses of production; and from the more advantageous, obtaining the same price for what has cost less to produce, he will have a surplus in hand, which competition will compel him to transfer to the landlord as rent.
In a broad sense, then, rent is a payment for differential advantages, which may thus proceed from different sources. It is only by taking all sources of advantage into account that it can be determined whether one piece of land or another is a
