Why do rents often increase faster than inflation? How can mathematicians model these changes? The answers are complex, elusive, and often unsolved mathematical puzzles. Rents are directly proportional to the aggregate supply and demand, the velocity of money, zoning restrictiveness, the proportion of involvement of liquidity firms in the acquisition of land, and interest rate factors. Prices are also set by the possible monetary benefits of using the land for purposes other than domestic habitation. Agriculture, industrial production, military production, and private infrastructural development also set the prices of land. Until quite recently, the modeling of such processes across hundreds of thousands of urban areas would have been impossible. Let us permit artificial intelligence to give us the most robust and realistic models for rent prices. The technology for such calculations has existed for the past several years. For the first time in history, mathematicians and economists could pinpoint the most dominant contributions to rents across different urban areas using thousands of variable scaled-score factors rather than just a few. The models could also adapt continuously to maintain predictive viability. AI could determine the extent to which certain theories of rent exhibit fidelity to prevailing economic conditions. In this prelude, I will very briefly investigate Ricardian, Marxist, and Hegelian ideas surrounding the theory of rents. I shall build upon these foundations in future submissions to show how AI could be a friend to the US and UK’s rent-weary consumers.
David Ricardo’s theory of rent broadly claims that the rent prices of land are determined by the difference between the least productive and the most productive land in use for a particular purpose [1]. In Ricardian times, as in our own, this purpose was often agricultural. Ricardo and Malthus both relate population growth to the demand for raw agricultural products [1]. A larger population demands more food, which demands more arable land, which in-turn demands the conversion of marginal (unproductive) land into arable land [1]. This tripartite process of population growth, agricultural growth, and cultivation of hinterlands sets the instantaneous rent of land at the level of the “margin of cultivation” [2]. This margin can be defined in Keynesian terms as the point at which the marginal cost of agricultural production equals the marginal price obtainable via the sale of that production [2]. Ricardian economics determines that land rent is not directly determined by required capital investment in land improvement (or the necessary costs of agricultural production) but by the difference between the most and least productive land suited to a particular purpose [1].
Ricardo also argues for a labor theory of value that is consonant with his theory of rents – one in which the value of a commodity is set by the quantity of labor required to produce, harvest, or cultivate it [3]. Marx greatly extends the Ricardian theory of value to account for “socially necessary” labor power required for production, the latter of which is constantly revolutionized by market innovations that in-turn demand a basal rate of unemployment (“lumpenproletariat”) and place stronger downward pressures on wages than on prices [4]. In other words, technological innovations that decrease the prices of labor may also decrease the prices of finished products. However, in purchasing-power terms, laborers’ wages decrease with technological innovation while the bourgeoisie (capitalist class) attains an ever greater share of funds to invest in the technological improvement of capital [4]. Marx holds that this process continues indefinitely. For Marx, land rent is influenced by the ability of monopolists to collude and fix the prices for rent and capital at a higher rate than the mere value of fallow-land cultivation (e.g. Ricardo) would admit [4]. Marxs’ critique of Ricardo’s theory of capital places the latter in the pre-bourgeois phase of civilization: Marx charges that Ricardo does not understand where surplus value comes from – the exploitation of workers, rather than the exploitation of land [4].
Marxian economics is a fusion of Ricardo’s theory of rent and Hegel’s theory of Spirit – two odd bedfellows, indeed. One can descry, however, that the substance of Marx’s critiques of Ricardo and Hegel are philosophically similar. Just as Ricardian economics does not accord exploitation as the animus behind rents and labor, Hegelian progress does not attribute to exploitation its rightful place as the engine of history [5]. Like Hegel, Marx argues that society progresses according to a process of thesis, antithesis, and synthesis [6]. That is, societies evolve via cyclical progress and regress and eventually meet at a middle point until the symmetry is broken again [6]. For Hegel, this progress is economic, spiritual, ideological, and mental [7]. For Marx, all of these except the economic substrate are mere illusions [8]. Ideological struggle is class struggle and vice-versa. The ideas, norms, and values present in societies are fundamentally dominated by this struggle [8]. For Hegel, the nation-state is benign and even glorious if its governance is rational and wise – a notion hailing to Aristotle’s ancient economics and theories of practical wisdom [9]. For Marx, it inherently props up a system of oppression that is continually justified by nationalist ideologies, wars of expansion, and religious sentiments [8]. Thus, Marx criticizes Hegel’s view of the state as a neutral arbiter of social conflict [8]. Whereas Hegel supposed the state represented the universal interests of society, Marx grants that it is merely useful to suppress revolution and subjugate the poor under the illusion of freedom and progress and extortion of ever-greater rents [8].
Are Ricardo, Marx, and Hegel all correct in some measure? The debate has raged for centuries. Let us harness the power of artificial intelligence to craft truly predictive theories of rent that can be used by consumers, governments, and non-governmental organizations to improve the equity of rent and the availability of affordable housing. Let us not rely upon theory alone to make decisions: Rather, permit technologies to be put to use in the public interest and in accordance with the value of sustainably increasing the purchasing power of rents for the most needy among us. The outcomes of economic and political debates surrounding rents are much more likely to be reasonable and equitable if operational definitions, modes of reasoning, and vested interests are made clear.
Sources.
[1]. Samuelson, Paul A. “Mathematical vindication of Ricardo on machinery.” Journal of Political Economy 96.2 (1988): 274-282.
[2]. Patten, Simon N. “The Margin of Cultivation.” The Quarterly Journal of Economics 3.3 (1889): 356-358.
[3]. Johnson, L. E. “Ricardo’s labor theory of the determinant of value.” David Ricardo: Critical Assessments 6.1 (1985): 51.
[4]. Heinrich, Michael. An introduction to the three volumes of Karl Marx’s Capital. NYU Press, 2012.
[5]. Arthur, Christopher John. “Dialectics of labour: Marx and his relation to Hegel.” (1986).
[6]. Mueller, Gustav E. “The Hegel Legend of” Thesis-Antithesis-Synthesis”.” Journal of the History of Ideas 19.3 (1958): 411-414.
[7]. Pinkard, Terry P. “Hegel’s dialectic: The explanation of possibility.” (1988).
[8]. Hay, Colin. “Marxism and the State.” Marxism and social science (1999): 152-174.
