What Are Economists Paid to Do, Take Two

by Will on October 8, 2010

The layman who chooses to explore the actual writings of Adam Smith, David Ricardo, and the other classical economists of yore, will be very surprised. The layman will be surprised because there is a concept that is quite important in these works, that is strangely absent from the modern “neoclassical” economics that is supposedly derived from them. This is the analysis of the role of Rents in a market economy.

For Smith and Ricardo and their ilk, there are three kinds of ways that money is moving around: Wages, Profits, and Rents. Wages are what people get in exchange for work. Profits are what businesses get for making cool stuff people want. Both are thus largely productive things to see in an economy. Rents are what both wage-earners and businesses pay to the person claiming title to the land they live and work on. Smith and Ricardo scratched their heads long and hard trying to figure out if there was any economy-wide benefit from the Rents.

Smith and Ricardo concluded that there was none. The land would still be there if the title-holder were absent: it’s not as though the title-holder produced it. And it’s not true that you need a title-holder to keep the land in good shape: if the people and businesses got to use the land for free, they’d eagerly do so, and keep it in good shape for living in and doing business. Moreover, the beneficiary of Rents (the landowner) does not feel compelled to work, and so is idle though he could be spending his time producing something. He is instead paid to do nothing. He does not know the value of his money, because he didn’t have to work for it, and so he is liable to squander it on stupid shit that shouldn’t even exist. It so followed that over the years the word Rents became synonymous with another opaque econ term: Deadweight Loss. Rents, according to Smith, Ricardo, and their followers, are just a total waste of money that make the whole economy less efficient and less productive than it could be.

Now, have you ever heard any economist elaborate this idea, an idea strongly present in the foundational writings of the Dismal Science? No? Now why do you suppose that is? It is quite curious that economists should chime up eagerly about the benefits of private investment and business profitability, but fall silent on the question of whether land-owners earn in any sense the profits they enjoy. Quite curious indeed.

P.S. It’s not that there aren’t good economists who care about the interests of working and unemployed persons, and who advocate on their behalf. Paul Krugman, Brad DeLong, Christie Romer, and many others, mostly employed as professors, are reliable defenders of the public interest. They are doing the Lord’s work, and good for them. But they are making a principled sacrifice by doing this. They would be making more money if they were willing to whore their intellects out to the Malefactors of Great Wealth, as many of their colleagues have chosen to do.

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