Why Land Is Part of Capital in Neo-Classical Economics

Interesting query and discussion at Martin Wolf's blog about how economics came to conflate natural resources and capital, and whether it should continue to do so. You'll want to read the comments too!

The idea that land and capital are the same thing is evidently ludicrous. It requires us to believe that the economic machine is self-sustaining -- a sort of perpetual motion machine. Capital is the product of savings and investment. It is the result of human frugality and the invention required to imagine and create new capital goods. Labour is also -- and in today's circumstances, increasingly -- a form of capital. Parents, governments and individual people invest in their own skills, so making themselves more productive. Yet there would be no economy -- indeed no humanity -- without a constant inflow of natural resources into the system: what lies above our heads (the sun and the atmosphere), what lies close to us (the soil, the seas and location itself) and what lies beneath us (fossil fuels, metals and minerals and heat). Humanity does not make these things; it exploits them. Some of these resources are also appropriable and so a source of unearned personal wealth.

Why did this compelling distinction disappear from economics? After all, no economist can believe that the economic system will move without a constant infusion of external resources.

One reason was that the classical world view implies diminishing returns. Since the supply of land was fixed, it would become ever scarcer. Rents -- the price of resource scarcity -- would rise, profits would fall and growth slow. But the economy did not show signs of diminishing returns. Technical progress seemed to offset any tendency towards diminishing returns. So assuming that land, like capital, could be effectively expanded, without limit, via land-augmenting technical progress, seemed to be the right thing to do.

Another reason may have been political. Henry George argued that resource rents are not a reward for the efforts of the owners, but the fruit of the efforts of others. It would be both just and efficient to socialise rents, he argued, and then use the proceeds to finance the infrastructure that makes resources valuable. But the powerful owners of natural resources wished to protect their unearned gains. In practice, therefore, the tax burden fell on labour and capital. Economics, one might argue, was pushed into supporting this way of organising economic life.

Yet it would seem to me that this way of thinking by economists is no longer sensible, if it ever was. Land must again be treated as separate from labour and capital.

More like this

"But the economy did not show signs of diminishing returns. Technical progress seemed to offset any tendency towards diminishing returns. So assuming that land, like capital, could be effectively expanded, without limit, via land-augmenting technical progress, seemed to be the right thing to do."

Yup. It's the right thing to do until progress decisively stops. So far, it looks OK. We're moving into the realm of GM crops in agriculture to further increase productivity.

Personally, I won't be surprised if by 2050 most of the arable land would be covered by genetically-modified CO2-sequestering plants for harvesting and burying in underground repositories. With 'normal' crops substituted by chemically synthesized foods, with the help of fusion power.

By Alex Besogonov (not verified) on 27 Jul 2010 #permalink

You realize, of course, that so far, at least, there's no compelling evidence that GM substantively increases crop yields? I'm not opposed to good applications of GM, but at this point, it isn't progress so much a hypothetical.

Sharon

Sharon,

I think one problem with the lack of production increase in GM crops, is that they have mostly focused on creating a market monopoly by forcing competing strains off the market, and by maximizing returns on ancillary products, like weed spray and fertilizer.

Once GM techniques are apply to actually increase tolerance to factors not exploitable commercially - like grasshoppers, locusts, drought, wider variation in weather, reducing toxic residues from current GMO adaptions, and sustainable yields without commercial fertilizer or pesticides, perhaps yields will start to increase. But for today, GMO is geared strictly to increase corporate profits, and not sustainable yields.

But we knew that.

Perhaps some open source software enterprise have contemplate an open source GMO project. Then we might look forward to a Gnu Corn and Gnu Soya Bean, that makes 1/2 the Monsanto yield, requires less manure per acre, and creates substantially more fiber for enriching the soil while proving more drought and heavy rain and wind tolerant - and results in more dollar return per acre.

45 years ago my Dad used a "stalk cutter" on his harvested corn field. Then the hybrid seed companies changed their strains so the corn stalk produced less "trash" to plug up the plow. That seems a silly compromise to me, today, when returning fiber to the soil seems more . . um, . . sustainable? Grazing the harvested stalks makes even more sense, if fencing is adequate. Anyway, perhaps we are looking at too recent a history, to find where seed companies have been compromising sustainable agriculture. Like back to when open-pollinated, non-hybrid seed was the norm, and you kept back your seed for next year at harvest time. That seems to have worked reasonably well for, oh, several centuries or so (since the time of the Anabaptists in Europe). Until the age of agribusiness started shutting down the age of agriculture.

"You realize, of course, that so far, at least, there's no compelling evidence that GM substantively increases crop yields? I'm not opposed to good applications of GM, but at this point, it isn't progress so much a hypothetical."

Certain GM crops have higher yields than normal crops (cotton is the one I personally know about).

But that's irrelevant, GM crops allow to increase profits by decreasing the required amount of pesticides, labor, etc. That also counts as 'development'.

By Alex Besogonov (not verified) on 28 Jul 2010 #permalink

Alex, actually, the evidence is more ambiguous than that - cotton does increase yields, but you can't eat it and the reduction of inputs is smaller than you'd expect. For corn, soybeans and other GM crops, the inputs have been rising, and are now getting closer and closer. My point isn't that GM is bad - my point is that the technology over two decades of research has yet to provide any substantive changes in our food situation, and it isn't a given that it will.

Sharon

I would also question whether profits really do go up at the farm level, worldwide, given the modern problem of Indian farmers committing suicide because they can't afford the crushing debt inflicted by patented seeds and the associated fertilizers and pesticides those varieties require. Maybe Monsanto profits, but the farmers often aren't even breaking even. They have plenty of cheap labor available, but corporate products are for them expensive. Some are starting to find that they are more profitable with the old-fashioned varieties even if the yields are a bit lower.

Some are starting to find that they are more profitable with the old-fashioned varieties even if the yields are a bit lower.

especially true in the case of organic and/or fair trade farms, which can sell at far above regular market price

To be fair, not all GM research is by Monsanto or the big Ag companies, although the majorities is - there's some useful stuff being done on GM in what would be open-source, savable seeds.

But my concern is that the places where agricultural yields can potentially be increased the most are among the very poor, who often don't have access even to good seed, or fertilizer - trying to up already high industrial yields a microscopic additional amount is less likely to be effective than bringing the good seed we've already got, and basic access to fertility to the poor. There you can see yields double and triple - GM doesn't necessarily focus on the correct things. Moreover, while there is some GM organic agriculture, most GMs are designed for industrial farming, with a certain minimum input cost in mind, and also with the soil consequences that go with industrial ag. There's compelling evidence that soils are more resilient to climate change in organic or largely organic systems, where soil is the emphasis.

So what concerns me the most about the emphasis on "hey, we've got GM, a cool new technology" is that I think it misses the basic point about where and how we can have the most effect on our food system.

Sharon

Prepare for jumping blockquotes here (highly unfocussed this morning, out of coffee error_101 is being remedied while typing)

You realize, of course, that so far, at least, there's no compelling evidence that GM substantively increases crop yields? I'm not opposed to good applications of GM, but at this point, it isn't progress so much a hypothetical.

Well, other than where it has.
Bt cotton in India and China has substantially increased yields (in the range of 50-150%).
Bt Brinjal in India had the potential to increase yields by similar proportions (I heard a 300% claim at some point, but that seems somewhat ott)
Bt corn and soy in the US has increased yield somewhere in the 1-5% range (taking these figures from the "failure to yield" screed by the UCS which most folk would agree is about as anti as you can get while still hiding most of the foam emitted from the mouth)
GM crops in developing countries globally have increased yields in the 10%+ range.

most GMs are designed for industrial farming

In terms of numbers of plants planted possibly, but in terms of traits developed or under development I'm not convinced this is the case. Herbicide tolerant GMs are afaik the only GMs designed specifically for industrial farming. IR GMs categorically do not need to be used in industrial ag settings - they'll work wherever there are insects susceptible to the Bt toxin (whichever type) to increase yields. Virus resistant GMs aren't designed specifically for industrial Ag - they'll work wherever you have viral problems. The multiple GM approaches to Cassava being attempted are categorically not aimed at industrial Ag. Drought resistance isn't only aimed at industrial Ag (the first product released is likely to be released aimed at the western edge of the corn belt and will therefore be utilized in industrial Ag, but hand in hand with that is the WEMA project which again, isn't industrial Ag). Golden rice - not industrial Ag, flood tolerant rice (albeit a bred in trait now rather than a GMO'd trait due to regulatory hurdles) not industrial Ag.

I think one problem with the lack of production increase in GM crops, is that they have mostly focused on creating a market monopoly by forcing competing strains off the market

No, they haven't. The working model for GM crops is one of licensing and sharing (at a price) rather than one of market monopoly - Monsanto traits may find their way into 90+% of the crops in which they've been commercialized, and had Monsanto wished they could have retained sole ownership of their traits in which case 90+% of corn would be Dekalb and 90+% of soy would be Asgrow - but this was not the route that was followed - the traits are licensed not only to the major players in Agriculture (Syngenta, Pioneer and the like) but also to small seed producers who can therefore maintain diverse germplasm which has the various traits inserted.

45 years ago my Dad used a "stalk cutter" on his harvested corn field. Then the hybrid seed companies changed their strains so the corn stalk produced less "trash" to plug up the plow. That seems a silly compromise to me, today, when returning fiber to the soil seems more . . um, . . sustainable? Grazing the harvested stalks makes even more sense, if fencing is adequate.

Reducing stover in the field improved farming efficiencies at the detriment of returning carbon to the soil for sure - the ability to No-till beans or corn back over a field however does away with this somewhat - and my own personal preference for carbon retention in the soil swings more towards bulking up the root system rather than leaving stover above ground - this'll capture nutrients, water and potentially reduce lodging (cursed midwest winds) - also leaving the potential to utilize the stover in biofuel production - I'm not sure how grazing of stover works - it looks particularly unpalatable to me and given that it's tough as all hell and practically leached of all nutrients (remobilization of nutrients is a wonderful thing) I dunno how useful it'd be as a grazed doodad.

I read somewhere that GM crops create tolerant weed leading to the use of more potent herbicides.

Should read returning to the use of more potent herbicides rather than leading to - without herbicide tolerant crops what method do you think would be used anyway? Also the picture isn't as bad as generally painted - different tank mixes and new herbicide tolerances offer "industrial" solutions - and a "super weed" is not a "super weed" to anything other than the herbicide it is resistant to.

Like back to when open-pollinated, non-hybrid seed was the norm, and you kept back your seed for next year at harvest time. That seems to have worked reasonably well for, oh, several centuries or so (since the time of the Anabaptists in Europe). Until the age of agribusiness started shutting down the age of agriculture.

Let's all strive to work reasonably well, rather than working as well as we can. Let's go back to when medicine involved bloodletting and anaesthetic free amputations - that seemed to work reasonably well for, oh, several centuries or so. Until the age of pharmaceutical companies started shutting down the age of arcane medicine.

Infact lets go back to hunter gathering - that seemed to work reasonably well for hundreds of thousands of years until the age of agriculturists came in and shut down the age of truly sustainable existence.

Ewan R - I believe that by Scienceblog standards, the complete response to those last paragraphs could be: "Straw man."

One point worth addressing is that you seem to presume that use of whatever is invented by major Western corporations really constitutes "working as well as we can." In medicine, the high-tech industrial approach often has a superior cost-benefit ratio; but sometimes it doesn't. The same is surely true for agriculture. For an Indian small farmer, gaining 10% extra yield at the expense of doubled costs would not be doing "as well as we can" [assuming that he counts among "we"].

And then there is the issue of sustainability. Perhaps the crop from the lab now offers your personal farm a net benefit. However, it requires more fertilizer than a traditional landrace, which is declining in availability or affordability, and more water, although the aquifer you draw from may be dropping rapidly. If you give up the landrace and become completely dependent on purchased seed, you may see an immediate gain, but you or your children may bitterly regret it later. Can you logically argue that others should ignore long-term impacts in making choices?

I'll also point out that, AFAIK, all successful GMO varieties to date have involved single-gene traits. You can cause the plant to produce or resist pesticides with one inserted gene. Complex traits, e.g., sugar and oil content in corn, involve many genes, and traditional breeding is a superior way of arriving at a reliably superior variety. I strongly suspect that flood tolerance is of this latter type, and that flood-tolerant rice is conventionally bred not because evil regulators oppressed the poor little seed companies, but because crossing relatively flood-tolerant traditional cultivars and putting the progeny through a good selection program would give far better results.

Ewan R - I believe that by Scienceblog standards, the complete response to those last paragraphs could be: "Straw man."

Straw men are people too. Although yes, I agree, it's a habit I attempt to avoid but is just too easy to fall back into.

Complex traits, e.g., sugar and oil content in corn, involve many genes, and traditional breeding is a superior way of arriving at a reliably superior variety.

Vistive gold soybeans change oil content. Single genes can drastically alter protein content. That which has gone before is in no way capable of defining that which will come in the future - stacking of multiple genes is likely to be the future of GM crops, be that the individual trait stacks you now see (smartstax has 8 genes stacked, all individual traits but shows that single genes working in isolation don't have to be the way forward) or stacks of the future - nature paper a while back showed some rather spectacular effects of bypassing photorespiration in arabidopsis and golden rice shows that stacking of pathway genes can lead to relatively predictable and stable results. Drought tolerant corn varieties rely on a single gene insert - some traits may be approachable in multiple fashions, there may be multi gene stacks which will get you there, there may be single gene solutions, you may be able to breed in a trait and modify at the same time, either for an additive effect or potentially (in the best of all possible worlds) a synergistic interaction in which the breeding/biotech trait is better than a simple addition of the two. May and might works both ways.

I strongly suspect that flood tolerance is of this latter type, and that flood-tolerant rice is conventionally bred not because evil regulators oppressed the poor little seed companies, but because crossing relatively flood-tolerant traditional cultivars and putting the progeny through a good selection program would give far better results.

Not so much

Genetic modification involved putting sub1 into rice. This was doable in the lab very easily. Regulatory hurdles prevented this version from being released. Luckily sub1 was found in a rice ancestor and was bred in (with a bit of an overhang on either side, which probably isn't a great thing but is better than having your rice essentially drown) - a process which took far more resources and time than simply inserting the gene. For the same effect. What is more, inserting the gene into any given rice variety is a spectacularly easy and cheap task (I believe that Pam over at tomorrow's table estimated a cost of ~$500 to transform - at least once you already have a lab set up with the equipment to do so) whereas to get the sub1 gene introgressed from one variety to another with minimum extra genetic carryover is a far harder and more expensive task.

One point worth addressing is that you seem to presume that use of whatever is invented by major Western corporations really constitutes "working as well as we can." In medicine, the high-tech industrial approach often has a superior cost-benefit ratio; but sometimes it doesn't. The same is surely true for agriculture.

I agree (with the second part) and did not mean to come off as suggesting that every and all industrial solutions necessarily are the best way to work, I'd also posit that in terms of a cost-benefit ratio hybrids are categorically an improvement over open-pollinated varieties. The direction hybrids have gone may not always be ideal, but this should be assessed on a case by case basis rather than simply assuming a return to yields that are ~25% of what we see today (if that) is a good thing(tm)

The same is surely true for agriculture. For an Indian small farmer, gaining 10% extra yield at the expense of doubled costs would not be doing "as well as we can"

Which is why you have to look at things on a case by case basis - thus far all the research I've done on the topic suggests that for a 2-3% increase in costs a small Indian farmer can expect a 50-150% increase in end of season profits. It all boils down to what your end profit is and what your initial costs are - it's wholly plausible that a 100% increase in costs for a 10% increase in yield may well be economically feasible although would certainly increase your risk should crop failure occur.

And then there is the issue of sustainability. Perhaps the crop from the lab now offers your personal farm a net benefit. However, it requires more fertilizer than a traditional landrace, which is declining in availability or affordability, and more water, although the aquifer you draw from may be dropping rapidly. If you give up the landrace and become completely dependent on purchased seed, you may see an immediate gain, but you or your children may bitterly regret it later. Can you logically argue that others should ignore long-term impacts in making choices?

Strawmanish - what if the GMO requires less water than your landrace uses, or less nitrogen. What if the landrace used keeps your area in such mindnumbing poverty that you never escape the grind of food insecurity, child mortality and poverty that keeps your areas population increasing exponentially rather than experiencing the decrease in growth associated with more comfortable living conditions. What if the local varieties used end up costing your nation half a billion dollars a year in food imports when utilizing modern hybrids could reduce this vastly and using GMOs could help even further(using Haiti as a specific example)?

Can I logically argue that others should ignore long-term impacts in making choices? When the long-term impacts are largely invented or unclear yes.

Bleh, href fail.

Was supposed to be a link over to tomorrow's table.

Once again distraction made me forget to preview my post.

Ewan R - You have certainly got more optimistic figures than I have seen (2-3% cost increase for 100-150% profit increase). This may be the case in some instances, but it's not the norm. Generalities will never be accurate (so your "what ifs" in the penultimate paragraph are at least as strawmanish as my "what if"). If a particular fungal disease is endemic in your area, a fungus-resistant GMO may well triple your profit. If the same disease is not present, and the GMO costs twice as much and gobbles fertilizer, the same variety may wipe out your profit. And, of course, the relative performance of different varieties always varies in different environments.

One of the reasons we cannot quantify the short-term profitability of specific GMOs for people in specific regions is that their manufacturers stifle independent research. The companies' rosy numbers cannot be independently confirmed under a variety of growing conditions, because an independent scientist cannot legally purchase patented varieties and use them in comparative agricultural trials (or safety studies!) without the manufacturer's permission. It is rather as if your only information regarding the likelihood that Crestor would save you from a heart attack or give you cancer came from AstraZeneca, because it was illegal for independent medical researchers to perform a clinical trial without AstraZeneca's approval. I have seen both Indian farmers and mechanized American farmers complaining that more expensive patented varieties gave them meager yield improvements; these are anecdotal reports, but I am not inclined to dismiss them as meaningless when more definitive studies are prohibited by law.

Meh - spam filtration - lengthy response incoming once Sharon has time to deal with my nonsense.

Ewan, I think I agree with you in some measures - again, I'm not blanket opposed to GM, by any means, although I do feel obliged to keep pointing out that cotton is not food ;-). I don't mean that reducing chemical use or producing more cotton isn't a good thing - I just think that using cotton as the major single example of yield increases in GM production in a conversation about food is changing the subject - and that is what seems to happen in these conversations.

So far I think that the anti-GM crowd wildly overstates dangers and difficulties, and that the pro-GM crowd tends to wildly overestimate potential returns and also assume that the best possible intentions will result in the best possible results in terms of access and distribution. I don't think there's evidence for either viewpoint, frankly, barring a few successes that are easily counterbalanced by some dramatic failures.

I'm not worried about superweeds or about growing a second head from eating GM food - but I do think that it makes sense to look at the Green Revolution as a past model and ask how the GM Revolution is doing when evaluating it. And I think the GM revolution is doing fairly poorly in comparison - even while we all have to acknowledge, I think that the Green Revolution came with limitations and unintended consequences in places as well. But twenty years into the Green Revolution, the number of successes and yield increases was dramatically higher than the current improvements in yield by a very small number of GM crops - most of which haven't been in production long enough to show off the inevitable (and I don't mean GM has more inevitable unintended consequences, just that everything does) unintended consequences.

And the degree to which GM research has pulled money and attention off traditional agricultural research strikes me as problematic. I also think that as well intentioned as most scientists are, the very fact that we've failed to distribute things we've had for fifty years to the poorest farmers, and the ones whose yields could rise the most simply by having access to fertilizer and improved seeds of the old fashioned variety - suggests to me that most of the well intentioned research may not reach the people it could most effectively help.

That said, I don't romanticize the idea of doing with lower yielding seeds of the past, or the old ways - I'd like to keep the best of what we can do, and preserve what we can, and if it is possible to create climate change adapted versions of rice and cassava and other crops and widely distribute those seeds, I'd be thrilled to see it happen. But I think it is also possible to romanticize science - to see one's acts as part of a large, progressive project in which the big successes are always coming, and always possible, and we should always keep going forward based on the fact that even though we can't achieve all that we wanted...yet...human intellectual creativity will make it happen. My concern is that much of the passion for GM is driven by a progressive romanticism, just as the desire for fusion reactors or the hydrogen economy is.

Sharon

Sharon - is there a chance my post that got blocked for moderation is going to get through, or should I try and rewrite sans links to make the point?

I just think that using cotton as the major single example of yield increases in GM production in a conversation about food is changing the subject - and that is what seems to happen in these conversations.

I'm using GM cotton as the major single example because to date it's one of the few GM crops that has a lot of data around it. Whether it is a food crop or not seems to me to be just sidestepping the arguement. It requires the same inputs as a food crop, it suffers the same type of pest problems as a food crop.

GM food crops have also increased yields. GM soy and corn in South America, South Africa - pretty much any environment in which inputs are limited GM food crops have increased yields and farmer incomes. They've also done so in the highest input farming setup we have - albeit to a lesser extent. A few articles (sans links to avoid being hung up in comment limbo):-

Economic Impact of Bt Corn in the Philippines
Jose M. Yorobe, Jr. and Cesar B. Quicoy
Single year study around introduction of Bt corn in Phillipines showing ~27% increase in yield. Average increase in profits. One area showed a decrease in profits using Bt corn.

Bt corn in Spainâthe performance of the EU's first GM crop
Manuel Gómez-Barbero1, Julio Berbel & Emilio RodrÃguez-Cerezo1
Is a correspondence in nature discussing the effects of Bt corn in spain - average yield was increased, although statistical significance only in one area, average profits up in all areas (3 areas looked at)
Roundup Ready soybeans in Argentina: farm level and aggregate welfare effects
Matin Qaim a,*, Greg Traxler b
For which I can only get at the abstract right now suggests a 10% increase in productivity.

Globally the data is way more widely available for cotton rather than food crops because of the widespread fear of genetically modified food crops - I've tried to avoid the ubiquitous Barfoot and Brookes analyses which while imo are interesting and relevant are more prone to being looked at as Monsanto propaganda than anything in the peer reviewed literature.

I also think that as well intentioned as most scientists are, the very fact that we've failed to distribute things we've had for fifty years to the poorest farmers, and the ones whose yields could rise the most simply by having access to fertilizer and improved seeds of the old fashioned variety - suggests to me that most of the well intentioned research may not reach the people it could most effectively help.

It's stupendously easier to supply a farmer with GM seed than it is to supply a farmer with all the bells and whistles of the green revolution. It is also far more sustainable imo - technology in the seed requires no more inputs (assuming the right seed) - you increase yields by supplying dwarf seed which can yield 10x more under high nitrogen due to lack of lodging and you have to supply nitrogen and other nutrients to meet this need - you supply a seed which yields 10%+ higher under drought conditions and you don't have to supply a damn thing more (done in the right fashion not even the seed)

The very fact that breeding has failed miserably to fix the problems faced by many farmers suggests to me that new methods absolutely need to be tried. And given that the major projects utilize both GM techniques and conventional breeding (WEMA for instance is a dual breeding biotech initiative, as I believe is the Pioneer Nitrogen efficiency project for Africa) I'm not completely sold on the idea that GM research is taking too much away from breeding efforts, perhaps it's taking some, but it's all about diversifying your whole risk reward structure - putting all your eggs in one basket is a bad idea.