Neo-Ricardian Notions


Tyler Cowen offers a “Ricardian thought in process”:

In Ricardo’s basic model there are diminishing rather than linear returns. Surplus accrues to the fixed factor, which is land. Labor earns some version of subsistence and the going rate of profit is piled on top of that. The productive difference between a piece of land, and the least valuable piece of land, accrues to each specific landlord as rent.

What if ideas rather than land are the fixed factor? Wages and profits stagnate. Some “idea landlords” receive enormous pecuniary returns, while others do not. The rate of invention is slowing down and indeed “patents per researcher” has been falling for a long time.

I like this first and foremost because it’s an opportunity to link to Martin Wolf’s article asking “Why Were Resources Expunged From Neo-Classical Economics?” making the case that it was a mistake of contemporary economics to abandon this Ricardian point about land in the first place. And, indeed, I would note that if you follow Wolf in expanding the concept of “land” to include “resources” more broadly you find that real estate and energy are well-represented on the Forbes 400 and five of the world’s ten largest corporations are in the oil business.

But on the “ideas” front, this I think highlights some of the problems with our trend toward ever-stronger definitions of intellectual property rights. It’s difficult to look at the growth in high-end income inequality in the United States and reach the conclusion that people lack adequate financial incentive to develop and exploit commercializable new ideas. But strong IP is not only an incentive to innovate, it also raises the cost of innovation. And I think there’s a much more plausible case to be made that innovation is currently too hard to do than there is a case that innovation is insufficiently rewarded.