Conociendo al capital, David Ricardo

The Evolution of Agriculture and Capitalism

Introduction to José and Manuel's Agricultural Ventures

• José is a traditional landowner who inherited vast tracts of land from his ancestors, emphasizing the generational aspect of land ownership.

• Manuel, living in the city, seeks to start a soybean production business influenced by an agronomist friend, highlighting the shift towards modern agricultural practices.

The Search for Fertile Land

• Manuel aims to lease fertile lands near ports for efficient soybean exportation, indicating the importance of location in agriculture.

• José's conditions for leasing his land may require economic insights from historical figures like David Ricardo to navigate negotiations effectively.

Historical Context: David Ricardo and Economic Theory

• David Ricardo, born in 1772 London, transitioned from stockbroker to influential economist after engaging with Adam Smith’s work.

• His contributions include "Principles of Political Economy and Taxation" (1817), which reflects on capitalism's rise during the Industrial Revolution.

The Impact of the Industrial Revolution

• Pre-industrial England was primarily agrarian; manual labor dominated both agriculture and manufacturing processes.

• The Industrial Revolution began around 1760 in England, drastically altering production techniques and societal structures.

Technological Innovations Transforming Production

• The invention of the steam engine in 1769 revolutionized energy use in industries, leading to unprecedented levels of production efficiency.

• This era saw a transition from manual tools to machinery powered by coal and iron, marking a significant shift towards large-scale industrial operations.

Societal Changes Due to Capitalism

• As capitalism matured, overseas trade expanded significantly; wealth accumulation among merchants fueled further industrial growth.

• Society became stratified into three main classes: peasants working the land, capitalists producing goods, and landlords profiting from agricultural output.

Enclosure Acts and Their Consequences

• Between 1760 and 1840, English laws mandated land enclosure, displacing many peasants reliant on communal lands for survival.

• Landlords adopted new farming techniques that increased productivity but reduced labor needs—leading to mass displacement of rural workers.

Emergence of a Labor Force

• Displaced peasants formed a workforce lacking resources or property; they relied solely on their labor for survival amidst growing industrial demands.

• This influx provided capitalists with abundant labor supply as families sought employment in factories due to insufficient wages from one breadwinner alone.

Transformation of Work Dynamics

• Factory work altered traditional family roles; entire families often worked together under harsh conditions due to inadequate wages.

The Dark Side of Labor Conditions

Harsh Realities in Factories

• Workers, including men, women, and children in factories, endure extreme misery due to lack of labor laws.

• Manuel seeks to lease land for soybean cultivation but faces competition from other producers, leading to discouragement when his offer is outbid.

Economic Theories and Value

• Manuel contemplates whether to persist with agriculture or explore alternative activities; he considers David Ricardo's theories on value.

• Ricardo identifies two sources of value: the labor required for production and the scarcity based on supply and demand dynamics.

Price Determination Factors

• The price of goods is influenced by both the labor involved in their production and the difficulty in obtaining them.

• Market forces can temporarily alter prices away from their natural values determined by incorporated labor.

Scarcity vs. Reproducibility

• Some goods, like a rare vintage wine, derive their value from scarcity rather than production effort; demand drives up prices significantly.

• Most products can be reproduced through labor without limits; thus, their value aligns closely with the work invested in creating them.

Income Distribution Insights

• Ricardo discusses how income distribution among workers, capitalists, and landowners is crucial as wealth grows within society.

• He emphasizes understanding who benefits from economic growth—workers versus capitalists—and how this affects overall societal wealth distribution.

Land Rent Dynamics

Evolution of Land Use

• As population increases, so does food demand; this leads to exploiting less fertile lands which require more work for lower yields.

Differential Rent Concept

• The concept of differential rent arises as more productive lands yield higher returns compared to poorer quality lands that require more effort for similar outputs.

Impact on Pricing Structures

• Prices are influenced by the least productive land used; if it takes 20 hours of work on inferior land versus 15 hours on superior land, all wheat prices adjust accordingly.

Capitalist Competition Effects

• Extra profits generated from better-quality land (differential rent), however, benefit landlords rather than capitalists investing in agricultural infrastructure.

Worker Wage Considerations

Economic Theories and Labor Dynamics

The Impact of National Idiosyncrasies on Wages

• The level of wages is influenced by a country's idiosyncrasy and development, with higher wages observed in England compared to India or Mexico.

• Ricardo suggests that while wages may temporarily rise above a minimum threshold, this situation cannot be sustained long-term due to population growth leading to increased competition among workers.

Cost of Living and Wage Dynamics

• Workers like Carlos spend most of their income on food, making the price of wheat a crucial determinant for wage levels.

• Even if nominal wages increase, workers may not improve their living standards if real wages (purchasing power) remain unchanged.

Landowners vs. Workers: A Conflict of Interests

• Ricardo argues that landowners benefit from agricultural price increases at the expense of workers' real incomes as rising prices lead to higher wage demands.

• He attributes this phenomenon to protectionist barriers that keep grain prices high, benefiting landowners but harming industrialists.

Advocating for Free Trade

• To counteract rising rents, Ricardo proposes free trade as a solution, advocating for importing cheaper grains from fertile lands rather than relying solely on less productive local agriculture.

• The 1831 English Parliament reform abolishing grain import tariffs marks a victory for capitalists over landowners.

International Trade and Comparative Advantage

• Ricardo analyzes why countries engage in international trade instead of producing all goods domestically; nations have different advantages in producing various goods.

• Under free trade conditions, each country should focus on activities where they hold comparative advantages—Argentina in primary goods and England in manufactured products.

Argentina's Role in Global Trade

• Argentina specializes in exporting agricultural products while importing industrialized goods from England, leveraging its natural advantages such as climate and geography.

• By the late 19th century, Argentina becomes an important global exporter under an agro-export model supported by foreign investments for infrastructure development.

Division of Labor and Efficiency Gains

• Ricardo’s theory supports the idea that specialization leads to greater efficiency; countries should produce what they can make best while trading for other needs.

• This division allows both Argentina and England to benefit economically through increased production capabilities without duplicating efforts across sectors.

Specialization Benefits According to Ricardo

• Even if one country is more efficient overall, it benefits from specializing in certain products where it has relative advantages while importing others.

Comparative Advantages in Argentine Agriculture

Theoretical Foundations of Economic Activity

• Argentina possesses comparative advantages that make agricultural production the most efficient activity, suggesting a focus on this sector while importing other goods from different countries.

• David Ricardo's theories, influential until 1870, highlight an objective opposition of interests between workers and capitalists, framing the discussion around class struggle.

• The labor theory of value posits that labor is the sole source of value, indicating potential exploitation and introducing a distributive conflict within capitalist society.

Practical Implications for Agricultural Entrepreneurs

• Manuel decides to expand his soybean venture by seeking suitable land; he finds less fertile land in northern Argentina compared to José's more productive fields near ports.