West, Edward

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West, Edward

Edward West (1782–1828), British economist, is remembered for having stated the principle of diminishing returns in the form and language made notable shortly after by Ricardo. As West said in his Essay on the Application of Capital to Land (1815, p. 2): “The principle is simply this, that in the progress of the improvement of cultivation the raising of rude produce becomes progressively more expensive, or, in other words, the ratio of the net produce of land to its gross produce is constantly diminishing.” The gross produce is the value of total output, and the net is the gross minus the cost of production and exclusive of profit and rent.

In agriculture, according to West, output increases by diminishing amounts as the input of labor is increased by successive equal amounts, as is the input of capital, and as (a) the input of land is increased, also by successive equal amounts, but the land is of less fertility or (b) the input of land is constant. On assumption (a) the principle explains decreasing returns to scale by stating that as the input of all resources increases in a given proportion, the output of the product increases in lesser proportion. The reason is the decreased productivity of land. On assumption (b) the principle resembles marginal productivity theory. The latter explains the relationship between output and changes in the input of a single resource while that of all others is constant. The reason for diminishing returns on assumption (b) is that resources are imperfect substitutes.

West seems not to have known that the principle, called the doctrine of rent, had already been stated in 1768 by Turgot and in 1777 by James Anderson. He rediscovered the principle when he undertook to correct Adam Smith’s doctrine of rent and to explain the developments in agriculture during the Napoleonic Wars. Although the British had used more labor and capital on land and had brought more land into use, and the output of grain had thereby increased, yet the price of grain had risen. One reason was the increase in the money supply; the other was a rise in costs.

West attributed these higher costs to diminishing returns. He used the idea of diminishing returns also to forecast a decline in per capita real income in Britain if the country did not increase its import of grain. (He was not, however, in favor of complete free trade.) If Britain were to continue to increase agricultural output, costs would rise and the returns to labor and capital decline. The reduction would be offset, but only in part, by increasing returns to manufacturing. The real income of landlords would increase because money rent would increase more than prices. Rent itself is the differential return (the net product after profit) on different grades of land; it increases as less fertile land is added.

Actually West gave more to economics than his theory of rent. But his other ideas were not noticed and had to be rediscovered by later economists. From the principle of diminishing returns he deduced the proposition (made notable by Eli Heckscher in 1919) that international trade equalizes costs between countries, although he believed the proposition to be valid only for agricultural production.

In The Price of Corn and Wages of Labour (1826), he said, or clearly implied, that price is determined by supply and demand (rather than by the labor cost of production as the Ricardians contended); that each can be expressed as a schedule; that long run price equals average total cost and short run price may be as low as average variable cost; that supply changes as the number of firms does; that demand is affected by taste and money income, the latter depending on aggregate income and employment, which themselves are much influenced by the money supply; that the elasticity of demand determines how much price will change when supply changes; that wages and employment in a particular market are determined by the supply and demand for labor, the latter depending on the demand for the output of labor and the profit of employers; and that the wage level and total employment are determined by the state of the cycle.

Rather than being a Ricardian before Ricardo himself, as he has been called, West was more nearly a Marshallian before Alfred Marshall and something of a twentieth-century macroeconomist. He was a lawyer by profession and wrote a standard work on the law of extents. He was sent to India as a judge in the court system that the crown maintained independently of the East India Company, which then governed the country. His decisions were notable for applying British justice to the treatment of natives, and he was continually in conflict with the company. Like other economists of his time, he was strongly influenced by Whig conceptions of individualism and civil liberty, and he was really more of a Ricardian in politics than in economics.

William D. Grampp

[For the historical context of West’s work, see the biography ofricardo; for discussion of the subsequent development of his ideas, seeRentand the biography ofMarshall.]

WORKS BY WEST

(1815) 1934 Sir Edward West on the Application of Capital to Land. London: Roworth. → First published as Essay on the Application of Capital to Land, With Observations Shewing the Impolicy of Any Great Restriction of the Importation of Corn….

1817 A Treatise of the Law and Practise of Extents in Chief and in Aid. London: Butterworth.

1826 The Price of Corn and Wages of Labour, With Observations Upon Dr. Smith’s, Mr. Ricardo’s, and Mr. Malthus’s Doctrines Upon Those Subjects. London: Hatchard.