1 We have seen how immediately and smoothly Ricardo's price theory is connected to his theory of differential rent. In this chapter we elaborate the latter by abandoning the simplifying assumption we have adopted in the last chapter that all land is homogenous in quality. We shall here instead assume, as Ricardo himself did, that land is differentiated in quality into several or infinitely many classes: the first class of the highest quality, the second best class, and so on. In the following, as we have done in the previous chapter, we use the device of the production function to describe the productivity of land.

In the days of Ricardo, no economist had a clear idea of the production function. But Ricardo was far in advance of his contemporaries and had almost got it. He stated: ‘Thus suppose land – No. 1, 2, 3 – to yield, with an equal employment of capital and labour, a net produce of 100, 90, and 80 quarters of corn’ (p. 70). This means that the production function of corn per acre of land shifts downwards when the quality of land utilized is lower. He also stated: