CHAPTER XXI

THE RENT OF LAND

RENT is the price paid for the services of land. In common usage the meaning of the word is, however, much less exact. That which one pays for the use of durable goods of any kind owned by another is commonly called rent. The payment for the use of a house or a business building is, for example, counted as rent. We shall see that in this case the so-called rent really consists of two elements, one a ground rent, or rent proper, the other capital rent, or what we shall call gross interest. If this distinction seems fanciful, it is only because we are accustomed to see the two united under one ownership. But in most large cities separate ownership is common. Sometimes one man owns the land and leases it for a long term of years to another who erects buildings upon it, which, either with or without payment, become the property of the landowner at the expiration of the lease, unless it is renewed, and if it is renewed, the one who possesses the building must frequently pay for it. Often, however, the separation in ownership is a permanent one, the house owner paying perpetually an annual sum for the use of the ground. This is the case in Baltimore, for example, where ground rents are an important feature in the economic life of the city. In such cases the two kinds of income are very clearly distinguished.

Some modern economists have extended the meaning of both rent and interest, using them as two different ways of describing one form of income, rather than as two distinct kinds of income. This usage is based on the obvious fact that the rent which a landlord receives for an acre of land may easily be computed as a certain rate of interest on the money value of the land, just as the amount earned by a machine may be viewed either

as the rent of the machine or as interest on its money value. But we shall see later that the income from other production goods, while governed in part by the same laws that control the income from land, is also governed in part by very different laws. Without dwelling further upon this distinction at this stage of our discussion, let us remember that in the great majority of economic writings the term "rent" means only an income from land, and that it is used only in this sense in the following discussion. The Services of Land. The first thing to be noted about land is its quality. Differences of fertility are familiar to every one, and depend upon what has been known as the "original and indestructible properties of the soil." An effort has been made by certain writers to minimize or deny the significance of this factor. It has been said that "soil" is not indestructible, that it may be exhausted or removed from land altogether, and that it may in turn be created by means of fertilization. These writers recognize in land no other indestructible property than standing room. This objection arises from the use of the word “ soil ” in a narrow sense. If by "soil "we mean only that thin top layer containing some elements necessary to plant life, it is true that this may be carted on or off at pleasure, that it may be wasted or replenished. But, granting this, there still remain many qualities of land which are indestructible and unproducible, and which so directly affect the productiveness of the land that we may not inappropriately call them "properties of the soil." Such a property is the conformation of the land. A steep, gravelly hillside will by no possible effort equal a plain in fertility. The north side of a mountain cannot be made to produce the same as the south side. Climate is not, to be sure, a "property of the soil," but it is an inseparable appurtenance of the land, and upon it the productiveness of the land primarily depends. It is needless to say that the ownership of a piece of land carries with it the advantage of all the conditions which attach to that land. It is simply true, therefore, that the expression "original and indestructible properties of the soil" is an inadequate and misleading expression; not that there is nothing but standing room to be considered under such a term.

We will, therefore, adopt another expression to explain what we mean by quality in land; namely, the irremovable conditions affecting its productiveness. Of these its extent (standing room), its conformation, and its climate are essentially original and indestructible. Others, such as are connected with the "soil" in the narrow sense, are not indestructible nor necessarily original, but they affect rent none the less. In defining quality as the conditions affecting productiveness of land, we have discarded the word "soil" because it has proved itself treacherous; we have omitted the words "original and indestructible" because fertility may be artificial, and is always destructible. On the other hand, fertility, even when artificial, becomes essentially a property of the land. While it is physically removable, it is not economically so. From the case where capital is embodied in land and entirely assimilated to it in character, we pass by insensible gradations to fences, barns, houses, etc., which more and more assume the character of capital as distinguished from land. It would be possible to restrict the term "land" to strictly natural land, and apply the term "capital" to all products, including the soils of old land. This would be a logical distinction, but, like so many logical distinctions, it would be confusing. On the other hand, if we include under land all capital that has been incorporated in it, we must recognize that there is no absolute line of division between land and capital. Thus we are again reminded that distinctions in economics, as well as in practical life, are questions of convenience, and are good or bad according as they are more or less useful.

The second great fact regarding land is location. On one side this is closely connected with climate. Land situated near a body of water or near a mountain range is much affected by these great controllers of climate. But a more distinct meaning of the word is location with regard to the consumers of products. Everybody knows that land a hundred miles from market is, other things being equal, worth more than land a thousand miles from market. This, however, is a question of accessibility rather than of mere distance. Land may be far away and yet easy to reach, or near and difficult of access. It will be noted that any

change in the cost of transportation affects rents. The rents of England have been revolutionized by cheap ocean transportation, which has practically brought distant land very near to her shores. To this fact of location we must ascribe almost wholly the enormous rents paid for city lots. Here, again, transportation facilities, such as are afforded by good rapid transit systems, powerfully affect rents.

One important difference in the way quality and location affect rent must, however, be noted. The quality of a piece of land affects the amount of its physical product; it determines how many bushels of wheat or how many pounds of cotton it will yield with a given amount of cultivation. The location of land does not, it is true, affect the amount of its physical product, but it does affect the price of the product, since that varies with the expense of transporting the product to market. The value of a piece of land to the user depends upon the value of its yield, which is ascertained by multiplying the number of units of product by the price per unit. Suppose a man owns two wheat farms of equal size, one in Dakota and one in Illinois. If the farm in Dakota produces thirty bushels of wheat to the acre, and it costs twenty cents a bushel to get it to the Chicago market, where wheat is selling at a dollar per bushel, while the farmer in Illinois produces twenty-five bushels to the acre, and it costs four cents a bushel to get this to the Chicago market, the farms are equally productive so far as the owner is concerned, for in each case he will get $24 for an acre's yield of wheat. If the other conditions of production are the same, the farms are equally valuable to the From the social point of view, too, one of the farms is as good as the other. For the costs of transportation, of moving things to where they are wanted, have to be counted among the legitimate and necessary costs of production. In short, we may say that the two pieces of land are equally good land. When we speak of good land, therefore, in connection with the subject of rent, we mean land which for all purposes taken together is desirable.

owner.

Rent under Assumed Conditions of Uniform Intensivity of Cultivation. The first settlers in a new country have no need to

pay rent. They find plenty of land, and even the best of it will be a free good, like air or water. So long as any man can get land of the best quality free, there is no reason why he should pay rent to any one else. But this fortunate state of affairs will last only so long as some of the best lands remain unoccupied. When increase in the population makes the utilization of inferior lands necessary, the owners of the better lands will be able to demand and receive a rent for the use of their lands. This will be made clear by reference to Figure 1, which is constructed on the assump

tion that there are six grades of land, A, B, C, D, E, and F, and that for all these lands the same amount of cultivation per acre is necessary. The successive rectangles represent the selling value of the product that can be raised on one acre of each of these different grades of land, by the use of a fixed amount of labor and capital. The product of an acre of the best land, A, will sell for Oamy dollars. Until all of this best land is occupied, no rent will be paid, and the entire value of the product will be available for the expense of the capital and the wages of labor employed in its cultivation.1

As soon, however, as it becomes necessary to cultivate some of the B lands, the situation will be altered. The owners of the A lands can now exact a rent for their use, and the farmer has no

1 The profits which the farmer may receive as entrepreneur do not affect the analysis, and may accordingly be neglected.