Book 3 — CHAPTER II.

THE RENT OF LAND.

SECTION CXLIX.

THEORY OF RENT.

Rent is that portion of the regular net product of a piece of land which remains after deducting the wages of labor and the interest on the capital usual in the country, incorporated into it.[149-1] Hence it is the price paid for the using of the land itself, or for what Ricardo calls the original inexhaustible forces of the soil which are capable of being appropriated.[149-2] This price also depends, of course, on the relation between demand and supply; the demand in turn, on the wants and means of payment of buyers, but the supply by no means on cost of production, which, from the definitions above given, is here unthinkable. However, land has this in common with other means of production, that its price is mainly determined by that of its products.

SECTION CL.

THEORY OF RENT. (CONTINUED.)

Agricultural products of equal quantity and quality are produced on pieces of land of unequal fertility, even when the same amount of skill is displayed by the husbandman, with very different outlays of capital and labor.[150-1] And yet the price of these products in the same market is uniformly the same. This price must, on the supposition of free and intelligent competition, be, in the long run, at least high enough to cover the cost of production on even the worst soil (the margin of cultivation according to Fawcett), which must be brought under cultivation in order to satisfy the aggregate want. (See § 110.) This worst land need yield no rent.[150-2] The better land which, with an equal outlay of labor and capital, produces a greater yield, furnishes an excess over the cost of production.[150-3] This excess is rent, which, as a rule, is obviously higher in proportion as the difference in fertility between the worst and the better land is greater. The person who cultivates the land of a stranger may unhesitatingly turn this rent over to the owner; since, notwithstanding his so doing, all that he has himself contributed to production in labor and capital of his own, returns to him entire in the product.[150-4]

According to § 34, a continual increase in the amount of labor and capital lavished on the fertilization of land, agricultural science remaining the same, leads, sooner or later to this, that every new addition of capital or labor becomes relatively less remunerative than the preceding.[150-5] The worse the land is, the sooner is this point reached. Hence, it necessarily happens that, with an increase in the aggregate want of agricultural products, greater and greater amounts of labor and capital are employed in the further fertilization of land, and that there comes to be a greater difference between the fertility of the worst and better lands, in consequence of which the rent of the latter rises.[150-6]

In the case of 2d class land— In the case of 11th class land—

feet,per cent. per cent. of the gross yield.

Of 500 55 42.9

Of 800 52½ 39½

Of 1600 48 34

Of 2400 43.8 26

SECTION CLI.

THEORY OF RENT.—LAND FAVORABLY SITUATED.

The favorable situation of a piece of land operates, in almost every politico-economical respect, in the same manner as its fertility.[151-1] If a market, to be fully supplied, needs to be fed from a circuit of ten miles, the price must be sufficient to make good not only the other cost of production but the freight over ten miles. Here, therefore, all producers living nearer to the market, who have to make a smaller outlay for transportation and yet obtain the same market price for their produce, make a profit exactly corresponding to the advantage of their situation.[151-2]

The situation of individual pieces of land relatively to farm buildings, etc., operates in a similar way.[151-3]

SECTION CLII.

THE THEORY OF RENT. (CONTINUED.)

From what we have said, it follows that the rent of the land of a country is equal at least to the sum of all the differences between the product of the least productive portions of capital which have been necessarily laid out in the cultivation of the soil and the product of the other portions more productively laid out by other husbandmen. It may rise higher than this on account of a coalition among landowners or immoderate competition among farmers, who may thereby be forced to surrender a portion of their wages and interest on capital to the former; but it can never lastingly fall below this amount. If the landowners themselves were to surrender all claim to rent, the price of agricultural products would not sink if the market was kept fully supplied; and the excess obtained from the better land over and above the cost of production would go, but only in the nature of a gift, to the farmers, corn dealers and individual consumers.[152-1] Normal rent is not to be explained by any mysterious or peculiar productiveness[152-2] of the land that yields it, but on the contrary, by the fact that even material forces unexhaustible in themselves, but which can be productive only in combination with given parcels of land, uniformly oppose even successively greater difficulties to every successive and additional improvement.[152-3]

Moreover, the capital which becomes a part of the land to such an extent that it cannot be separated from it, and perhaps not even distinguished from it at sight, such for instance as has been laid out for purposes of drainage or in the purchase of material intended to modify the nature of the soil, partakes of the character of the land itself, and its yield obeys the laws of rent. How frequently it happens that such improvements made by the farmer without the least assistance from the owner of the land permanently contribute to an increase of the rent. (§ 181.)[152-4]

SECTION CLIII.

THEORY OF RENT. (CONTINUED.)

Ricardo says that rent can never, not even in the slightest degree, constitute an element in the price of corn. This is certainly not a very happy way of expressing the truth, that a high rent is not the cause, but the effect, of a relatively high price of corn.[153-1] Ricardo would have been nearer right had he said that rent was not a component part of the price of every portion of the supply of corn brought to market.

Is rent an addition to national income? Ricardo (ch. 31) answers this question in the negative, and says that it takes from the consumers what it gives to the owners of the land, and that it increases only the value in exchange of the national wealth. [153-2] It is evident that as thus stated, the question is not properly put. Neither interest on capital nor wages are any addition to a nation's income, but, like rent, only forms of trade, by means of which that income is distributed among the individuals constituting the nation. (§ 201.)

The special kind of product obtained from a piece of land influences its rent only in so far as the growth of that kind of product is exclusively confined either by nature, privilege or prejudice to certain land.[153-3] Adam Smith is of opinion that the rent of agricultural land is ordinarily (!) one-third of the gross product; that of coal mines, from one tenth to a maximum of one-fifth; of good lead and tin mines, one sixth (with the dues paid the state of twenty-one and two-thirds per cent.); of Peruvian silver mines, scarcely one-tenth; of gold mines, one-twentieth. And he thinks that rent grows less certain for every succeeding article. [153-4]

So far as this is based on facts, it may be explained as follows: The greater capacity an article has for transportation from one place to another, the less important is advantage of situation, which is generally one of the chief elements of rent. The more indispensable the commodity is, the more readily is the consumer induced to pay a price for it greater than the cost of production; that is, to pay a rent. This again is enhanced by the difficulty of the preservation of the commodity. Lastly, the more it is a mere product of nature,[153-5] the more difficult it is to simultaneously employ several portions of capital of different grades of productiveness in its production.

SECTION CLIV.

THEORY OF RENT. (CONTINUED.)

As the purchase of a piece of land[154-1] is no more and no less than its exchange against a portion of capital in the shape of money,[154-2] its purchase price depends generally on the amount it will rent for as compared with the interest on the capital to be given in exchange for it. The rate of interest remaining the same, it rises and falls with its rent. And vice versa, the rent remaining the same it rises and falls inversely as the rate of interest.[154-3] A rise in the price of land is not always a proof of the growing wealth of a people. It may proceed from a depreciation of the value of money, or from a decrease of the rate of interest caused by a decline in the number of loans which can be advantageously placed.

It is frequently said, that the price paid for land is greater than the money-capital which yields an equal revenue.[154-4] This, abstraction made of proletarian distress prices for small parcels of land and of the political and social privileges of landowners, is accounted for by the assumed greater security of the latter,[154-5] which, however, fares ill enough in war times, and times of political disturbance. The fact itself is found to exist, I think, only in economically progressive times, when confidence prevails, and it is based on the pretty certain prospect that the rate of interest will decline, while rents will rise.[154-6]

It has been observed in Belgium, that the medium farm rent of land, in quarters remarkable for any economic peculiarity whatever, pays an interest lower, as compared with the purchase money, in proportion as the country about is more thickly populated, and as its husbandry is carried on by farmers instead of by owners.[154-7] This phenomenon is doubtless correlated with these others, that the conditions just named are pretty regularly attendant on a high state of civilization, and that advanced civilization is attended uniformly by a decline in the rate of interest. (175).[154-8]

SECTION CLV.

HISTORY OF RENT.

In poor nations, and in those in a low stage of civilization, especially where the population is sparse, rent is wont to be low. In Turkistan, land is valued according to the capital invested in its irrigation.[155-1] In the interior of Buenos Ayres, at the beginning of the nineteenth century, landed estates were paid for in proportion to the magnitude of the live stock on them, so that it seemed, at least, as if the land was given for nothing, or simply thrown in with the purchase. And only a short time since, an English acre in the same country, fifteen leguas from the capital, was worth from three to four pence, and at a distance of fifty leguas, only two pence.[155-2] In Russia, also, not long since, the valuation of landed estates was made, not in proportion to the superficies, but according to the number of souls, that is, of male serfs, a remnant suggestive of the previous situation when no rent was paid.[155-3] Where, in relatively uncivilized medieval times, instances of the farming out or leasing of land occur, farm-rents are so small that their payment can only be considered as a mere recognition of the owner's continuing right of property.

Under these circumstances, it is natural that great landowners, especially in the lower stages of civilization, should exert an especially great influence; and that their low tenants (Hintersassen) are more dependent in proportion to the want of capital and the absence of trade. Hence, these are wont to make up for the smallness of their rent by great honors paid to their landlords, and great services, especially military service.[155-4] Besides, the lords of the manor, in almost every medieval period, have used their influence with the government to cut down the wages of labor by serfdom and other similar institutions, and the rate of interest on capital by prohibiting interest, by usury laws, etc.; and thus, in both ways, to artificially increase their own share of the national income.

SECTION CLVI.

INFLUENCE OF ADVANCING CIVILIZATION ON RENT.

Advancing civilization contributes in three different ways to raise rents.[156-1] The growth of population necessitates either a more intensive agriculture (higher farming), or causes it to extend over less fertile parcels of land, or parcels less advantageously situated.[156-2] If the growth of population be attended by an increase of capital, this happens in a still higher degree. The people now consume, if not more, at least wheat of finer quality, more and better fed live stock; the consequence of which is, that the demands made on the land are increased. Lastly, if the population be gradually concentrated in large cities, this fact also must contribute to raise rents, because it requires a multitude of costly transportations of agricultural produce and so increases the cost of production (up to the time of consumption) on the less advantageously situated land.[156-3] [156-4]

As most of the symptoms of a higher civilization become apparent earliest, and in the most striking manner, in large cities, so also a rise in rents is first felt in them. The building of houses may be considered as the most intensive of all cultivation of land and that which is most firmly fixed to the soil.[156-5] Rent has nowhere an unsurpassable maximum any more than a necessary minimum.

District. 1849. 1864. 1849. 1858.

Thalers. Population per sq. mi.

Königsberg, 0.73 1.16 2076 2298

Gumbinnen, 0.59 0.76 2059 2249

Danzig, 1.02 1.51 2656 2926

Marienwerder, 0.63 1.06 1944 2135

Posen, 0.69 1.07 2789 2857

Bromberg, 0.69 1.10 2116 2322

Stettin, 1.07 1.73 2355 2614

Cöslin, 0.83 1.30 1735 1940

Stralsund, 0.95 1.50 2347 2549

Breslau, 1.19 1.45 4733 5034

Liegnitz, 1.17 1.75 3676 3763

Oppeln, 0.86 1.20 3973 4433

Potsdam, 1.08 1.59 3317 3640

Frankfort, 1.29 2.00 2446 2660

Magdeburg, 2.31 2.98 3290 3508

Werseburg, 2.35 3.03 3934 4270

Erfurt, 2.04 2.55 5621 5735

Münster, .... 2.03 3192 3299

Minden, 2.48 2.62 4841 4808

SECTION CLVII.

HISTORY OF RENT.—IMPROVEMENTS IN THE ART OF AGRICULTURE.

Improvements in the art of agriculture which are confined to individual husbandmen leave rent unaffected. They do not perceptibly lower the price of agricultural products, and only effect an increase of the reward of enterprise which is entirely personal to the more skillful producers and does not attach to the ground itself.

But how is it when these improvements become general throughout the country? If population and consumption remain unchanged, the supply of agricultural products will exceed the demand. This would compel farmers, if there be no avenue open to exports, to curtail their production. The least fertile and most disadvantageously situated parcels of land will be abandoned to a greater or less extent, and the least productive capital devoted to agriculture, withdrawn. In this way, rent goes down both relatively and absolutely, although the owners of land may be able to partially cover their loss by the gain which results to them as consumers and capitalists.[157-1] (§ 186). After a time, however, and as a consequence of the diminished price of corn, population and consumption will increase, and entail an extension of agriculture and a consequent rise in rents.[157-2] If it, relatively speaking, reaches the same point as before, it still is absolutely much greater than before. Let us suppose that there are three classes of land of equal extent in a country, which for an equal outlay of capital produce 100,000, 80,000 and 70,000 bushels yearly. The rent of the land here would be equal to at least 40,000 bushels. If the yield of production now doubles, while the demand for agricultural products also doubles, the aggregate harvest will be 200,000 + 160,000 + 140,000 bushels, and consequently rent will have risen to at least 80,000 bushels. But this increase of rent has injured no one. If the population increases in a less degree than the productiveness of the land, the consumer may, to a certain extent, gain largely, and the landowner better his condition. However, great agricultural improvements spread so gradually over a country, that, as a rule, the demand for agricultural products can keep pace with the increased supply. But even in this case, that transitory absolute decline of rent may be avoided; and it cannot be claimed universally, as it is by many who are satisfied with mumbling Ricardo's words after him, that an increase of rent is possible only by an enhancement of the price of the products of the soil. Where the development of a people's economy is a normal one, the rent of land is wont to increase gradually, but at the same time to constitute a diminishing quota of the entire national income.[157-3]

Improvements in milling,[157-4] and in the instruments of transportation[157-5] adapted to agricultural products, and the introduction of cheaper[157-6] food, have the same effect as improvements of agricultural production. All such steps in advance render an increase in population, or in the nation's resources, possible without any corresponding increase in the amount paid to landowners as tribute money.[157-7]

The foregoing facts furnish us the data necessary to decide what influence permanent soil improvements have on the rent of land.[157-8] The improved parcels of land now grow more fertile. Their rentability also increases, while that of the others becomes not only relatively but absolutely less, if the demand remains unaltered. The whole is as if capital had been transformed into fertile land, and this added to the improved land.

moveable property immoveable.

In 1835, of 552 mill. francs and 984 mill.

In 1853, of 820 " 1,176 "

In 1860, of 1,179 " 1,545 "

SECTION CLVIII.

HISTORY OF RENT.—IN PERIODS OF DECLINE.

If a nation's economy be declining, in consequence of war for instance, the disastrous influence hereof on rent may be retarded by a still greater fall in wages or in the profit on capital. But it can be hardly retarded beyond a certain point.[158-1] As a rule, the decline of rents begins to be felt by the least fertile and least advantageously situated land.[158-2] [158-3]

SECTION CLIX.

HISTORY OF RENT.—RENT AND THE GENERAL GOOD.

We so frequently hear rent called the result of the monopoly[159-1] of land, and an undeserved tribute paid by the whole people to landowners, that it is high time we should call attention to the common advantage it is to all. There is evidently danger that, with the rapid growth of population, the mass of mankind should yield to the temptation of gradually confining themselves to the satisfaction of coarse, palpable wants; that all refined leisure, which makes life and the troubles that attend it worth enduring, and which is the indispensable foundation of all permanent progress and all higher activity, should be gradually surrendered. (See § 145.) Here rent constitutes a species of reserve fund, which grows greater in proportion as these dangers impend by reason of the decline of wages and of the profit of capital, or interest.[159-2] Besides, precisely in times when rent is high, the sale and divisibility of landed estates act as a beneficent reaction against the monopoly of land, which is always akin to the condition of things created by rent.

But it is of immeasurably greater importance that high rents deter the people from abusing the soil in an anti-economic way; that they compel men to settle about the centers of commerce, to improve the means of transportation, and under certain circumstances to engage in the work of colonization; while, otherwise, idleness would soon reconcile itself to the heaping together of large swarms of men.[159-3] The anticipation of rent may render possible the construction of railroads, which enable the land to yield that very anticipated rent.