Wayne Rooney and Ricardo forge dream team

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Most of footballer pay is what David Ricardo and James Anderson thought of as economic rent and it is just as much determined by politics as economics.

Wayne Rooney recently signed a new contract with Manchester United. The agreement guaranteed him £50m over its four-year life, equivalent to £250,000 a week. Mr Rooney is an exceptionally gifted footballer, but has few other evident talents. If he were not employed as a footballer, his earnings would probably be modest. And the life of a professional footballer is an exciting one, which attracts media attention and glamorous women. So it is likely that Mr Rooney would be willing to play professional football even if he were paid much less.

Many think of Sir Stanley Matthews as England’s greatest footballer. His autobiography describes a rather different lifestyle. At the end of his career, in the early 1960s, he was receiving the then maximum wage of £20 a week. One of his greatest matches was a postwar celebration in which Scotland met England in 1948 at Hampden Park before a crowd of 150,000 people (England won). A letter from the Football Association encloses Matthews’s match fee of £14 (about £500 at current prices) and his (second-class) rail fare from Stoke to Glasgow. But his claim for 6d (about £1 today) spent on a cup of tea in the station buffet at Carlisle was rejected: not a reimbursable expense.

The difference between what Rooney is paid and Matthews was paid is economic rent. Economic rent is the difference between actual earnings in an activity and the returns necessary to attract resources to that activity. The name seems misleading. The explanation is that early elaboration of the idea dates back to when agriculture was a principal form of economic activity. The concept is generally attributed to the English economist David Ricardo, but the idea was set out 50 years earlier by a Scottish gentleman farmer and scholar, James Anderson. Scotland won this one.

“Whence comes it, I [Anderson] may ask, that the price of grain is always higher on the west than on the east coast of Scotland? Are the proprietors in the Lothians more tender-hearted and less avaricious than those of Clydesdale?” No, he explains, “it is not the rent of the land that determines the price of its produce, but it is the price of that produce which determines the rent of the land. This seems to be a paradox that deserves to be explained”.

Mr Anderson’s subsequent account of that paradox stands up well 250 years later. The demand for corn determined how much land had to be cultivated: the worst land that needed to be brought into production to satisfy that demand would earn only the cost of production, and better land would earn rents that measured the value of their superiority. Who benefited from these earnings was a political issue. Rooney’s earnings are partly the result of the scale of revenues that football generates, and partly a result of the ability of his agent to bargain for them. Matthews’ second-class ticket is not an unimportant detail – we can assume that the officers of the Football Association did not travel second class to Glasgow – but a demonstration of the social milieu within which Matthews worked. The lifestyle of the proprietors of Lothian was the result of a combination of the economic forces that determined the regional demand for corn and a feudal regime that enabled the local gentry to extract a substantial fraction of the benefits. The amount and distribution of economic rent is the product of the interplay of politics and economics.

As Mr Anderson was the first to argue, to comment on the amount and distribution of economic rent we must begin by understanding the mechanisms that gave rise to it. He might have been anticipating the furore on bankers’ bonuses when he asked what might happen if “the gentlemen of Clydesdale, from an extraordinary exertion of patriotism and an inordinate desire to encourage manufactures, should resolve to lower the rents”. Would the price of grain fall in consequence of this? By no means. “Readers of penetration will be able themselves to finish the sketch,” he concluded. They must do so again today.

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