1. There are few places today where land is freely available. In Greece, following the 2010 crisis, the government was giving away for free state-owned land in Macedonia, provided the applicants were committed to farming it. In Canada too, for several years, the government was giving away lands for free in some not so fertile and rather frosty areas. These cases are rare and negligible, the conditions are rather special and very few people take advantage of such opportunities.
Today, practically all Western countries are devoid of free land.
However, let us imagine those conditions in the US, Australia, Central and South Africa in the middle of the 19th century, where there were large expanses of land freely available. It was there that the last generations of hardened pioneers (or colonists) went to settle along with their families.
Our model will necessarily be one of an agricultural community; but it is founded on first-hand accounts made by E.G. Wakefield, Henry George and others. To make our point clear, we assume farmlands that have equal in size and use the same amount of labour and capital.
2. Diagram 1 demonstrates a small agricultural community of corn farmers, whose lands lie by the river estuary, whereat is formed a small natural port.
Each column represents a zone of four or five farms of equal yield. The ones closer to the estuary/port are more fertile and more advantageous; imports of necessary goods (tools, food, clothing etc) and exports of their surplus production are easier and entail a lower cost.
To the right, past column C, there is land freely available and any newcomers can settle there and start their own farms.
Indeed, new pioneers arrive and settle, and the new situation is demonstrated in diagram 2. The level of mutual help is now higher, since there are more pairs of hands to dig irrigation trenches, cut lumber, move rocks, exchange tools, repair the port etc.; thus there will be a general increase in production. The locations by the port will maintain their advantage.
Since we have assumed that the farmers represent equal amounts of land and labour, any difference in production will be due to the fertility of the land and its location by virtue of being nearer to the port. If the farmers at A were to exchange places with E, all other things being equal, the production at A and E would remain the same.
Let us now ask: if two or three new immigrants were to arrive and seeking labour in one or other of the farms, what is the lowest wage they would accept ?
3. New able-bodied pioneers would not accept a wage less than 20 units or there about. They could just as well start their own farm somewhere on the free land and have a comparable production within a short time. Moreover, even the farmers in zone A could not afford to pay such a wage as 18 or 15 units.
The pioneers would accept a much lower wage that the farmers could offer only if they were in no physical position to start their own farm.
It was clearly and emphatically noted by Wakefield in Australia and New Zealand very early in the 19th century and by others later up to 1850, that, in the areas mentioned above (§1, D1), hired labour was very scarce and wages very high.
And here one sees clearly how the natural distribution of production occurs and how is determined the natural reward of labour.
Wherever men are free and land is freely available, so that anyone who wishes so can have a plot at no, or very low, cost, the wages for hired labour tend to be equal to the production of the least productive (or “marginal”) site in use.
In D3 the determinative production is shown to be 20 units in zone E. The surplus in the other zones constitute the reward of the factor we called “Conditions” and which is due to the geophysical and social conditions of that community (since we assumed equal amounts of labour and capital). This surplus is called “(economic) rent” and should be returned to the community (or government).
4. Agricultural production was chosen for our model because that kind of production was actually observed and recorded in the first half of the 19th century and in it are seen clearly the natural forces determining the primary division of wealth. Soon after, the pioneers started to enclose huge areas of land, of which they made no use; they kept it forcing subsequent waves of newcomers to settle in ever remoter and less productive areas. As a consequence the wages went down and the economic rent went up. This phenomenon will be examined more closely in the coming posts.
Some of our readers may object, putting forward the fact that today’s economy is quite different (much more complex and diversified) from that of an agricultural community. That is true. However, instead of farms, the columns in the diagrams presented could just as well represent shampoo and shoe factories nearer to or further from their raw materials and markets. The analogies in production will remain the same.
In fact, the analogies are the same for the entire economy, as was mentioned in Political Economy 8: Principal Distribution and as will be demonstrated in the next article.