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economic conditions that fix the number of acres that can be profitably utilized by one farmer. This unexploited area is, to that extent at least, a reserve which can be drawn upon as the demand for agricultural products increases. Then, too, we are just beginning to have some idea of the improvements which scientific selection may bring about in the qualities and productiveness of different kinds of plants; methods of fertilization and tillage are still the subjects of fruitful scientific inquiry; forestry and irrigation are yet in their infancy. Changes in demand, of such a nature as to make possible the utilization of some lands for the production of crops for which they are better fitted than for their present uses, are also among the things that may resist the tendency toward a general rise in rents. In fact, although it is absurd to suppose that the rent of land will not increase as society continues to increase in wealth and numbers, it is just as absurd to make this fundamental tendency toward diminishing returns in agriculture a basis for pessimistic views regarding the possibility of economic progress.

The Unearned Increment. When we say that the margin of cultivation has gone up, rather than down, since 1850, we do not imply that rents have not, in many cases, increased. The new lands opened up to use by new railways, for example, are at first very cheap lands, often free lands. As they are taken up, they command higher and higher rents. Practically all of the agricultural lands now utilized in America have had such a history, even though in some cases the present rents are not as high as their rents at some previous time. The fact that, through the change in transportation methods, the marginal farming lands of to-day are better lands than the marginal farming lands of sixty years ago does not affect the fact that the sum total of land rents, and consequently of land values, is immensely greater to-day than at any previous time. The increase in the value of land which accompanies the increase in its income-yielding power is often called the unearned increment. This phrase suggests that the increase in land values cannot be attributed to any special effort on the part of the owners of land, but is due to general social

causes.

This does not mean that the land-owning farmer cannot increase the selling value of his farm by wise investments of capital; but, remembering that rent is the payment for the irremovable conditions affecting the productiveness of land, it is clear that it can be affected only to a comparatively small degree by the efforts of individual landowners. Most of the present values of lands have grown out of that complex of things which we call general social progress, the most important of which in this connection are growth in population and growth in average wealth-the things that lead to an increased demand for the products of the soil. Nor is the truth of this statement affected by the fact that the opening of new lands has been among the most powerful factors that have made possible this growth in population and wealth. A very large part of the increase in land values would have come about, even if the use of land and the ownership of land were entirely distinct, if all lands were leased, rather than owned, by the users of land. We should, however, be careful to distinguish the rise in the sum total of rents which springs from the occupation of new and often better lands, and the increase in rent per acre, which comes from forcing downward the margin of cultivation.

Some writers have suggested that landowners do not secure an unearned increment, because future as well as present earning power is taken account of in fixing the price at which land is bought. But whether the selling value of land is based on its present or future earning capacity, this selling value will increase so long as the earning capacity of the land increases, and so long as the increase in earning capacity promises to continue into the future. An unearned increment is attached to valuable land, whether it is still in the hands of the original owner, who may have got it for nothing, or whether its ownership has been transferred a hundred times. Most economists have seen in the unearned increment a fact of very great social significance, and some have even supported various plans by which some of the unearned value might be returned to society through special taxation.

An American reformer, Henry George, converted a large following to his view that all taxes should be levied upon land values. This scheme, known as the "single tax," proposes that economic rent shall go to the government

in lieu of taxes - a proceeding which would amount to the government ownership of land, and is so understood by its adherents. The merits and defects of the single tax as a scheme for raising public revenue will be considered in another place. Here we are concerned with it simply as a scheme of economic reform. Henry George's main argument was based on the alleged tendency of land to absorb all the value due to "improvements in the productive power of labor." Among these improvements in the productive power of labor he included such diverse things as "the growth of population, the increase and extension of exchanges, the discoveries of science, the march of invention, the spread of education, the improvement of government," etc. "Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent — the price that labor must pay for the opportunity to utilize its powers, and thus all the advantages gained by the march of progress go to the owner of land, and wages do not increase."

In the first place, we may object strongly to the assumption that improvements in methods of production necessarily mean improvements in the "productive power of labor” an assumption which, like the socialists' labor theory of value, really begs the whole question. It would be just as reasonable to call these things improvements in the productive power of capital or improvements in the productive power of land. In the second place, we must enter an emphatic denial to the statement that "all the advantages gained by the march of progress go to the owner of land." If the supply of labor is increasing more rapidly than the supply of land, it is probable that rent per acre will increase faster than wages per laborer; but this does not preclude an advance in wages.

It must be remembered, too, that Henry George did not propose to abolish rent, an obvious impossibility, - but simply to do away with the private receipt of rent. This would prevent the withholding of land from use for purely speculative purposes; thus increase the available supply of land, and consequently lower rents. That such would be the immediate result of throwing all land open to use cannot be denied. But in the long run it would probably have little effect on rent, as it would simply lead to a more rapid exploitation of the land. Land ownership, like any other institution, has to be judged from the broad viewpoint of social interests. The "pride of ownership," as an incentive to accumulation and as a basis for good citizenship, cannot be lightly put aside.

Urban Lands. The unearned increment is an especially significant phenomenon in the case of urban lands. In the modern city we have a tremendous mass of land values created by causes that are purely social, being an absolutely necessary result of the concentration of a large population on a relatively small

area. All are familiar with the narrow limits set upon the wholesale districts, the shopping districts, and the financial districts in American cities. The residence districts to which the greatest social prestige attaches are apt to be quite as narrowly restricted. Improvements in rapid transit facilities enlarge the residence areas that are utilized by people with moderate incomes, but only serve to increase the congestion in the business centers. There is much to be said in favor of the special taxation of city land values. Movements in this direction have already gained great strength in England and Germany. Taxes so heavy as to amount to confiscation would, in the opinion of the present writers, be unjustifiable, and, in the United States, unconstitutional.

QUESTIONS AND EXERCISES

1. Malthus and Ricardo differed as to whether rent is an addition to the total income of society. What is the correct view?

2. An accepted doctrine of taxation is that landowners cannot shift a tax on land values to any one else (as the tax on tobacco is shifted from the manufacturer to the consumer). Explain this on the basis of the theory of rent.

3. "Rent does not enter into the determination of price." Explain the meaning of this statement, understanding price to mean "normal value."

REFERENCES

CARVER, T. N. The Distribution of Wealth, Chap. V.
GEORGE, HENRY. Progress and Poverty.
HURD, R. M.

The Principles of City Land Values.

MARSHALL, ALFRED. Principles of Economics, Vol. I, 4th ed., Book VI, Chaps. IX and X.

PIERSON, N. G. Principles of Economics, Vol. I, Part. I, Chap. II.

RICARDO, DAVID. Principles of Political Economy and Taxation, Chap. II.
TAYLOR, H. C. Agricultural Economics, Chap. IX.
Land and its Rent.

WALKER, F. A.

1 The assessed value of land, exclusive of improvements, in the city of New York, amounted in 1907 to over three and a half billions of dollars — an amount nearly twice as great as the assessed value of all the real estate, including improvements, in the state of New York outside of the city.

CHAPTER XXII

THE WAGES OF LABOR

WAGES Constitute the price paid for the services of labor. Under the head of "labor we include all the various kinds of personal services for which a payment is made. Professional men and salaried employees are wage earners in the economic sense, though the term is by common usage generally restricted to manual laborers working for daily or weekly payments. There is however, in society to-day, as every one recognizes, a "laboring class," marked off by lines that are fairly distinct, and including the great body of day laborers, factory hands, agricultural laborers, men in various trades requiring various degrees of intelligence and skill, employees in minor positions in business and mercantile establishments, and the like. Some of the most important and pressing present-day economic problems - the variety of things that make up what is often called the "labor problem "— relate to the economic position of this class. On this account it becomes of special importance to ascertain just what the rules are that determine its share in the national dividend. In the discussion of wages, then, we have in mind primarily the income of the "laboring class," although some of the principles that will be developed apply just as accurately to the other incomes that must be classed as wages in the economic sense.

Wages as the Price of Labor. The definition of wages already given suggests at once the most important fact about them: they are the prices paid for particular kinds of services, and hence come under the general laws of supply and demand. So far as the wages of any one kind of labor are concerned, we can say, as we did of the prices of commodities, that they will tend to be fixed at the point where the supply of that kind of labor and the demand for

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