The Forgotten Factor of Production – The Role of Land in the Cambridge Capital Controversy and Natural Capital
Considering the importance of agriculture for pre-and early industrial economies, it is no surprise that the Physiocrats and classical economists like Ricardo and Malthus stressed the crucial role of land as a factor of production. Not only for it provides the “free gift of nature” and is thus regarded as the reason for surplus, but also as it was understood to be an important element of distributional questions. As a factor of production, it was deserving of remuneration, called rent. Ricardo and Malthus were mainly concerned with the question, whether the scarcity of land or its productivity were the reason for rent - newer, neoclassical, theories of rent emerged that simply declared that both scarcity and productivity were reflected in the discounted values of land´s marginal product which would, due to competition, tend to its price (rent)(Schumpeter 1954, p. 511). These theories (Jevons-Menger-Walras) denied land and rent a special status amongst the factors of production. Marshall on the other hand went to great lengths to try to offer a comprehensive theory of rent in his Principles of Economics (1890), grappling with the complex and thoroughly heterogeneous nature of natural agents. Possibly influenced by Marshall and Ricardo, Joan Robinson wrote her Accumulation of Capital (1956) in the classical tradition, devoting an entire chapter to the intricacies of the third factor of the traditional triad. However, when she initiated the Cambridge Capital Controversy by attacking the neoclassical production function (1953), she too focused on only two of the three traditional factors of production, excluding land to “not bother the student with it” (p. 81). However, even in the following highly academic argument, land did not find its way back into the limelight. This was often justified by either claiming that land is of minor importance for highly developed economies or by arguing that land, just like labour, was not as hopelessly heterogeneous as physical capital. The paper investigates the treatment of land within the capital controversy and shows that arguments concerning physical capital can also be applied to land. These findings are then related to the modern discussion of natural capital. It is argued that land does in fact deserve a special role that is not easily incorporable into neoclassical capital and distribution theory.
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Keywords: Cambridge Capital Controversy, Natural Capital, Land, Rent, Ecological Economics, Post Keynesianism, Neoclassic