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The Rent of Land

( Originally Published Early 1900's )

THE ownership of land comes within the definition of a monopoly, as given in the preceding chapter. For land, that is, the acres on the earth's surface, is a product of nature and not of human skill. It is also a product limited in supply; or, at least, that portion from which any given collection of people can conveniently draw their subsistence is limited. This will be made clear by reflecting that no person can go out and fertilize and cultivate land at pleasure, because he will find that all the land within reach is already occupied by somebody else, and is owned by that other person as private property. But it does not follow from this that the monopoly is either an unlimited or an effective one, as we have defined these terms. We must therefore look more closely into the matter with a view of seeing how far the usefulness of the soil is to be regarded as the product of human labor, and how far as the gift of nature. There are economists who have claimed that land has no other value than that which has been derived from labor expended upon it by its owners, and is therefore not a monopoly at all. The general opinion of economists is, however, on the other side. The theory generally in vogue, and which we are about to develop, is commonly associated with the name of Ricardo, who first brought it to public attention in a clear and forcible way. In explaining it we shall closely follow F. A. Walker, who has developed it with great clearness and fulness.

We begin by stating a fact which favors the view of the dissentients. We all know that land depends very largely for its fertility upon human labor. Before a crop can be raised the trees must be cleared away, the stumps pulled out and burned, and the ground cleared of the roots. Even in the case of the great prairies, where there are no trees to clear away, it is generally necessary to dig drains and to clear off the grass before the land can be cultivated. Then labor is to be applied to plough the land and sow the seed. Now suppose that one man working in this way upon a little farm of twenty acres could raise two hundred bushels of wheat. It will be found in many, perhaps most countries, that if two men work and put in twice as much material in the shape of fertilizers, plough twice as well, and so on, fully twice the crop can be raised off the farm. Possibly they might raise four hundred and fifty bushels by their combined efforts, and thus have twenty-five bushels each more than if they had worked alone on two separate farms of the same size. Perhaps if three men put their labor and fertilizers into the same farm, they would raise three times as much as one man. Now if this scale went on indefinitely—that is, if by increased labor and expense in fertilizing land, a proportional increase of crop could always be obtained—there could be no effective monopoly in land. Every man who wanted wheat could get as much by joining hands with his neighbor and helping him to cultivate his farm as he could by getting a farm of his own.

But such is not the case. A point is soon reached in which an addition to the amount of labor and material expended on the farm will not give a corresponding addition to the crop. This point is called the point of diminishing returns. We may consider it as reached in every community and on every farm after a short period of cultivation. That is, the more wheat we want from a given farm, the greater the labor and capital required per bushel.

Let us now suppose that, within convenient reach of a city or any other market, there are four tracts of land having four different degrees of fertility. The first tract, with a given amount of labor and capital, will yield twenty-four bushels of wheat to the acre, the second twenty-two bushels, the third twenty bushels, the fourth eighteen bushels. Let us begin with the case in which the city is so small, or the market one where there is so little demand for wheat, that it will only pay to cultivate part of the twenty-four-bushel tract. Then it is evident that the other tracts can command no rent.

Suppose a new man to come into the country seeking for land to cultivate. Since, by hypothesis, a portion of the twenty-four-bushel tract is still uncultivated, it will pay the owners of that tract better to let the new-comer have a farm upon it at a rental of one bushel per acre per annum than to leave it wholly uncultivated. He can pay this rent and still have twenty-three bushels per annum as his portion of the crop. This course will pay him better than it would to cultivate the next poorer tract free of rent, because then he would only get twenty-two bushels, and he will of course choose it. If the point of diminishing returns has not been reached, it might even pay all concerned still better to employ the new man, with his capital, as an assistant in improving the cultivation of the already-cultivated farms than to rent him a new one. Hence all the twenty-four-bushel farms will not be under cultivation until the point of diminishing returns has been reached.

Suppose that all the farms of the twenty-four-bushel class are at length under cultivation, and that, owing to increased population or increasing demand, there is now more wheat wanted than can be raised from these farms under the existing system of farming. Supposing that no wheat is imported, this demand must be supplied by commencing the cultivation of the next lower grades of land, namely, those in the twenty-two-bushel tract. Now, by hypothesis, the same amount of labor and capital necessary to produce twenty-two bushels from this second tract will produce twenty-four bushels from an acre of the first tract. It will therefore pay a tenant as well to rent a farm from the first tract at two bushels per acre per annum as to have land in the second tract for nothing. Hence, at this point, the land of the first tract will yield a rental of at least two bushels per acre.

Suppose that by the still increasing demand the lands of the twenty-bushel and eighteen-bushel tract come into cultivation. Then, reasoning in the same way, the twenty-bushel tract will yield a rental of two bushels, the twenty-two-bushel tract a rental of four bushels, and the twenty-four-bushel a rental of six bushels. For, the cultivator who rents land from the first tract at six bushels, or from the second at four, will be on the same level with the one who gets land on the third tract at two, or on the fourth for nothing. The general law is now evident: As population increases, lands of lower and lower degrees of fertility come into cultivation, and the better lands command rent. If there is every grade of land within convenient reach, then the rental will be equal to the excess of fertility of the best soil over that of the poorest soil which it will pay to cultivate.

In the preceding exposition we have, for simplicity, compared lands as if the rental depended solely upon their fertility. But other causes come into play which can be brought into the same class by an extension of the word "fertility." We have supposed that with a certain amount of labor and capital land would yield eighteen, twenty, twenty-two, and twenty-four bushels to the acre. The general question is not, however, that of the number of bushels to the acre, but that of the number of bushels to a given amount of labor. When we use acres to illustrate the case we tacitly suppose that the labor of cultivation is proportional to the acres. If from any cause what-ever it should cost twice as much labor to cultivate an acre of one farm as of another, the fertility of the first per acre would have to be twice as great in order to command the same fraction of the produce as rent. We must therefore interpret the word fertility as meaning the yield for a given amount of labor, and not the yield per acre.

In the next place, we have supposed that the crops from the different farms compared were all equally accessible to the market. If this is not so, then the land farthest from the market will be at a relative disadvantage. But this again will be brought into the rule by including in the cost of cultivation that of taking the crop to market. The rule will then be that those lands from which crops can be gathered and brought to market with the least total expenditure of labor will command a higher rent.

Relation of Rent to Price of Breadstuffs. In the case we have been supposing the tenants of the best farms will be paying to the land-owners a rent of six bushels of wheat per acre per annum. In order that they may be able to compensate themselves, they must get such a price for the remaining twenty bushels of their wheat as to return to them all they have expended in labor and material. That is, the price of wheat must be high enough to pay for all the labor and capital expunded in cultivation, and to make good the rent. This fact has given rise to the impression that the price of wheat is increased by the rent of land.

A close examination will, however, show that this view re-verses the relation of cause and effect. It is the high price of wheat which causes rent, and not rent which causes the high price. That is, rent is an effect, not a cause, of the high price. The simplest way to show this is to refer to the two first laws of supply and demand (Chapter III). These laws being true for each separate market, must be true at any one moment for the world at large. According to the first law, when the price of wheat is fixed at any given figure there will be a certain definite quantity which can be sold at that price. If only a certain number of bushels are brought to each market, then it will command in that market a price which will be higher the fewer the number of bushels brought. The buyer need not ask or care why the supply is plentiful or scarce. All that concerns him is to get his wheat at the lowest possible price. And if other people are ready to buy all that comes at a certain price, he also has got to pay that price or go without the wheat. Hence the price depends upon the quantity of wheat brought to market.

Now, it is quite true that if all the land-owners from whom it was possible to obtain a supply of wheat could by combining among themselves prevent more than a certain number of bushels per annum from being produced, or, what amounts to the same thing, if they would not allow any one to have their farms except at a higher rental than the natural one just laid down, then they would raise the price. But this would only be because some of the tenants would refuse to cultivate the farms on such terms, so that less wheat would be raised. Such a combination is practically out of the question.. Even if it were practised, it would not be a case of high rents causing high prices, but only a case of artificial scarcity caused by a combination on the part of the landlords to raise the price of wheat and thus to enable them to charge more rent.

To sum up : Wheat is high because only a certain limited quantity is brought to market.

No more is brought to market because more cannot be raised without having recourse to less fertile lands, which it will not pay to cultivate until the price is yet higher.

The cost to the farmer of raising any particular portion of wheat brought to market has nothing to do with the price at which it can be sold.

To dispose yet more clearly of this view, let us trace the chain of causes in the opposite direction. Suppose one or all the owners of the best class of farms actuated by the philanthropic desire to make the cost of bread to the public as low as possible. They therefore offer the lands to their tenants free of rent. Will the price of wheat fall in consequence ? Not at all. This remission of rent would not increase the quantity of wheat which the farms would yield. The tenants would take the same amount to market as before. The same amount being brought to market, it would command the same price.

The only effect would therefore be that the tenants would themselves pocket the rent which they had formerly paid to the landlords.

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