The marginalists who confronted land

American Journal of Economics and Sociology, The,  Jan, 2008  by Fred E. Foldvary

• E-mail
• Print
• Link

With respect to government, Pareto (1896: 386-387) states that there is a political type of class struggle:

   in which each class tries to seize the government to turn it into a
   machine of exploitation. The struggle of certain individuals to
   take possession of the wealth dominates the entire history of
   humanity. It hides and disappears under the most diverse pretexts,
   which have often mislead historians.... The dominant class does
   wrong not only to the classes that are dispossessed; it does wrong
   to the whole nation, because as exploitation generally goes
   together with the destruction of wealth, often considerable, it
   reduces the lowest incomes as it increases the inequality in the
   distribution of income.

With this summary of Paretian thought, we may now analyze Pareto's ideas with respect to natural resources, what Pareto calls "territorial capitals." Following Walras, Pareto differentiates between "territorial capitals," "mobile capitals," and "personal capitals," or in classical terms, land, capital goods, and labor. Pareto's terminology points to the neoclassical attempt to classify land as just another form of capital good.

Pareto begins the chapter dedicated to "territorial capitals" in his "applied political economy" by pointing out that economic theory should take territorial capitals in "the condition they are," that is to say, without differentiating the improvements made in the past that are incorporated into earth, such as fertilizers, canals, drainage of swamps, and so on, for which Pareto says it would be difficult to distinguish the improvement value from that of the land free of improvement.

Pareto (1896: 391) then states:

   The price of the services of territorial capitals is established,
   at least as a first approximation, in the same way as the price of
   the services of all the other capitals, namely, the price that
   equalizes the quantities supplied and demanded.

However, Pareto (1896: 392) immediately points out that when it comes to the investment of savings in new capital goods, there are substantial differences. While savings can be applied to mobile capitals (steam engines, ships, houses) and to personal capitals (what is now called human capital: skills, training, education), in contrast:

   there are other capitals for which savings can be transformed only
   with great difficulty: those capitals for which the quantity
   remains fixed, given a closed economy. Those are territorial
   capitals, mines, etc.

Pareto indicates, as a consequence, that the possessors of natural resources are in a better position than the other owners to secure extraordinary benefits in the case of increasing demand; while the other capitals, in the same case of increasing demand for their services, can only secure economic profits for more or less short periods, because attracted by the high profits, new capitals will come and the competition will tend to reduce the price and profits. In contrast, the holders of territorial capitals "enjoy a more concrete monopoly, which in certain cases can be an absolute one. They will be able to obtain substantial gains."