Principles of Political Economy Part 2

[Footnote 150-2: The English are very fond of a.s.suming that the worst land for the time being under cultivation pays no rent. (_Ricardo_, Principles, II, 2.) This fact is frequently obscured by the aggregation into one economic whole of land that pays no rent and land that is able to pay rent. (_John Stuart Mill_, Principles, II, ch. 16, -- 3.) True it is that there is a great deal of land which cannot be farmed out, but which can be used only by its owners.

Compare _Salfeld_, in the Landwirthsch. Centralb., 1871, II, 182 ff. On land near Wetzlar which, notwithstanding the high price of land in the neighborhood, could not be farmed out at auction, because no one was desirous to lease it, and which was therefore turned over to the highest bidder for the preceding piece, see _Stockhardt_, Zeitschr. fur deutsche Landwirthe, 1861, 237. Where, however, all the land has its own proprietors, the compet.i.tion of farmers may easily produce a rent for the worst land. It is a matter of complete indifference to the theory of rent, whether the worst land when possessed only by right of occupation or used as pasturage for cattle previous to its cultivation, had value or not. Compare _Nebenius_, ff. Credit, I, 29; _Hermann_, Staatswirthsch. Unters., 170 seq.]

[Footnote 150-3: The a.n.a.logous gradation in mining may make this clearer.]

[Footnote 150-4: _Ricardo_ ill.u.s.trated this by the following example. An uncultivated tract of country is settled by a small colony. As long as there is here an excess of land of the best quality, and everyone may take possession of it without paying anything therefor, no rent of the land which is merely occupied is possible. But if all the first cla.s.s land is under cultivation--land which perhaps with the employment of a small amount of capital yields 5 quarters an acre per annum; and the increasing population necessitates the cultivation of land of the second cla.s.s, which with the same outlay of capital yields only 4 quarters an acre per annum, there arises a rent of 1 quarter an acre per annum for land of the first cla.s.s. For the price, 4 quarters is now high enough to cover the cost of production per acre, and it must be a matter of complete indifference (complete indifference?) to a new comer whether he obtains 5 quarters from land of the first cla.s.s as a farmer and pays out 1 quarter, or whether he harvests 4 quarters from second cla.s.s land as proprietor. If there is a further increase of population, so that land of the third cla.s.s also, which yields only 3 quarters per acre per annum, must be brought under cultivation, the price of corn rises again because the cost of production has now to be covered by three quarters.

Land of the first cla.s.s now pays a rent of 2 quarters and second cla.s.s land of 1 quarter. (Ch. 2.)]

[Footnote 150-5: _von Thunen_, der isolirte Staat, II, I, 179, estimates that a bed of manure 1/3 of an inch thick on an acre of ground, increases the production by ; that a second inch of manure increases the yield only by a + of 5/8 corn; the third of corn, etc. _Geyer_ is of opinion that, in Saxony, land of the average quality will yield a gross product of 60 thalers per acre, and 14 thalers net product per acre, in case it is managed with the greatest intelligence and the employment of a large amount of capital; when managed in a very ordinary way, it would yield 20 thalers gross, and 7 thalers net product. _Thunen_ gives the following formula determining when it is more advantageous to cultivate the old land with more _intensiveness_ (higher farming) than to begin the cultivation of new: As long as p - _a_q is less than sqrt(ap), so long is an increase of the outlay of capital on the same land more profitable than the cultivation of new land, and _vice versa_. Here p = aggregate product obtained by a workman in a year from the amount of capital used by him; a = sum of his necessary yearly wants; _a_ = the interest per annum of a capital = p; q = the amount of capital given to a.s.sist the individual workman.]

[Footnote 150-6: _Ricardo_ had, in every case in which outlay of capital and labor of different degrees of productiveness had to be used on the same land, to suppose a price of the products = the cost of the least productive outlay. See the tables in _Ricardo's_ work, On the Influence of a low Price of Corn on the Profits of Stock, 1815, 14 seq. _Schmoller_, on the other hand, rightly applies the principle of united costs of production in as far as the usual amount of profit of the producer is added to the cost of the commodity with the highest cost of production.

Mittheilungen des Landwirthsch. Inst.i.tuts zu Halle, 1865, 128. Compare _supra_, ---- 106, 110.]

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]

[Footnote 151-1: _L'eloignement equivaut a la sterilite._ (_J. B. Say._) If we imagine with _A. Walker_ an entirely uncultivated country, equally fertile in every part, settled only on the coast, and divided into shares of equal breadth, equally accessible at all points, so that every settler has unlimited s.p.a.ce to extend his possessions from the coast into the interior, the shares situated in the middle of the coast strip would be most eagerly sought after; since in its vicinity, prospectively, all the inst.i.tutions of the country would come together. The colonist, therefore, who should obtain that share as his, would, unquestionably, be in a condition to pay a price for this preference, that is a rent. (Science of Wealth, 296.)]

[Footnote 151-2: It is a consequence both of their difference of situation and of their fertility that in the Himalaya the farmers low down on the sides pay 50 per cent.

of the gross product as farm-rent, and higher up, 20 per cent. less. (_Ritter_, Erdkunde, III, 878.) Both influences may be traced most accurately in East Friesland, and in similar places: marsh land, sandy land, heath land, and high moorland.

Its situation influences especially the money rent of land, and its quality the amount of produce. (_McCulloch_, Principles, III, 5.)]

[Footnote 151-3: We need only mention the hauling of the crops and of manure. According to the instructions of the royal Saxon commission, above mentioned, the cost is a.s.sumed to be 10 per cent. higher for a distance of 250 rods, and 20 per cent. higher for a distance of 500 rods.]

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 compet.i.tion 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 a.s.sistance from the owner of the land permanently contribute to an increase of the rent. (-- 181.)[152-4]

[Footnote 152-1: Compare _J. Anderson_, An Inquiry into the Nature of the Corn Laws, 1777. Extracts from the same in the Edinburgh Review, LIV, 91 ff. On the other hand, _Buchanan_, on Adam Smith, IV, 134, thinks that rent arises exclusively from the monopoly of the owners, and that without it the price of corn would be lower. It is certain, however, that if the land of a country be considered as one great piece of property, and under one great system of husbandry, the products of the soil might be offered permanently at a price corresponding to the average cost of production, on the better and worse pieces of land. (_Umpfenback_, N. Oek., 191.)]

[Footnote 152-2: _Malthus_, On the Policy of restricting the Importation of foreign Corn, 1815. Additions, 1817, to the Essay on the Principle of Population, III, ch. 8-12; Principles, 217 ff.]

[Footnote 152-3: _Ricardo_ says that if air, water, elasticity and steam were of different qualities, and might be made objects of exclusive possession; and that if each kind could be had only in a moderate supply, they would, like land, produce a rent, according as they were brought into use, one kind after another. In the cla.s.s of natural forces, also, the possession of a secret of production or of inimitable skill, or a legal right to its exclusive use, may produce something similar to rent. (_Senior_, Outlines, 91.) _Hermann_, Staatswirthsch. Unters., 163 ff., had already laid the foundation of this doctrine, and earlier yet, _Canard,_ 17 seq., and _Hufeland_. I, 303 ff. See _supra_, -- 120. Hence _v. Mangoldt_ uses the word rent to designate all rarity-premiums. _John Stuart Mill_, III, ch. 5, 4.

_Schaffle_ speaks of the universal existence of a surplus; that is, of the factor of rent (Nat. Oek., I, Aufl., 140 ff.), and has recently developed this into a theory thoroughly systematic and detailed. (Nationalokonomische Theorie der ausschliessenden Absatzverhaltnisse, 1867.)

According to him, rent is "the premium paid for the most economic course taken in the interest of society in general;" and hence he finds rent as much in superior labor and in a very advantageous outlay of capital. Yet he grants, that "exclusive custom (_Kundschaft_) on the basis of natural advantages occurs only in the case of land-rent."

(59.) And even granting that he is right, that no rent is by itself forever secure (74 seq.), and that much rent is a premium paid for a search after and the appropriation of the best land, divination of the best situations, etc. (60 ff., 74 ff.), there still remains the great difference between rent and the extra income from labor and capital; that here the very transitory nature of the substratum, or basis, and the personal merit of the recipient, is the rule, while in the former case it is a rare exception. Willingly, therefore, as I recognize the possibility and fruitfulness of Schaffle's way of conceiving this subject (the latter, especially, for monographic purposes), I prefer, so far as the entire system is concerned, the keeping apart of the three branches of income corresponding to the three factors of production as has been usual since Adam Smith's time.]

[Footnote 152-4: _John Stuart Mill_, ch. 16, -- 5. An example in _Fawcett_, Manual, 149 seq. This explains many objections to Ricardo's laws, which are the result of misconception.

Thus, for instance, in _Schmalz_, Staatswirthschaftslehre, I, 81, Quarterly Review, x.x.xVI, 412 ff. _Bastiat_, Harmonies economiques, ch. 9, where rent is considered the interest on the capital laid out in bringing land under cultivation and improving it. If, however, we imagine an island to emerge suddenly from the waves in the vicinity of Naples, in consequence of an earthquake, no one can doubt that its land would sell at a very high rate and pay a very good rent. And yet no capital or labor has been laid out on it. A similar lesson is taught by the fact, that, in Scotland, rocks which are covered twice a day by the waves are leased for the sake of the sea-weed left on them. (_Adam Smith_, Wealth of Nations, I, ch. 11.) Also by the fact, that in Poulopinang, a cavity in which many edible swallows' nests are found, pays 500 a year rent. (Geogr. Ephemeriden, Oct., 1805, 134.) However, _Bastiat_, abstractly speaking, is right when he says, that every one by the importation of agricultural products from quarters which pay no rent, and still more by emigrating thither, may deprive the owners of land of the tribute imminent in rent.

But how would it be if the cost of transportation and emigration amounted to more than the rent? The case theoretically so important, in which all the land in the world is supposed to have been appropriated as private property, this writer, generally so lucid, treats in a surprisingly blind way (275 ff). It is remarkable that _A.

Walker_, Science of Wealth, spite of his prejudices in favor of Bastiat's doctrines on the gratuitous nature of all natural forces, nevertheless follows, essentially, _Ricardo's_ theory of rent, 294 ff.

A much more vulgar error yet is, that rent is the result of the capacity of the capital employed in the purchase of the land to produce some interest Thus _Hamilton_, Reports to the Congress on the Manufactures of the United States, 1793, and _Canard_, Principes, sec. 5. Per _contra_, compare _Turgot's_ view, _supra_, -- 42, note 1. Even _Locke_, Considerations on the Lowering of Interest, Works, II, 17 ff., maintained the closest parallel between rent and interest to be possible, with this difference only, that money was all of a kind but pieces of land of different degrees of fertility. Similarly _Sir D. North_, Discourse upon Trade, 1791, with his parallel of landlord and stocklord.]

SECTION CLIII.

THEORY OF RENT. (CONTINUED.)

Ricardo says that rent can never, not even in the slightest degree, const.i.tute 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 const.i.tuting 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.

[Footnote 153-1: To be met with in this form even in _Adam Smith_, Wealth of Nations, I, ch. 11, pr. _John Stuart Mill_, Principles II, ch. 16, -- 6, thus states the matter: "Whoever cultivates land, paying a rent for it, gets in return for his rent an instrument of superior power to other instruments of the same kind for which no rent is paid. The superiority of the instrument is in exact proportion to the rent paid for it." According to _v. Jacob_, Grundsatze der Nat. Oek., I, 187, rent const.i.tutes a much larger portion of the price of commodities than is generally supposed, in as much as wages depend so largely on the price of the means of subsistence. Per contra, _Baudrillart_, Manuel, 391 ff., who maintains that rent is practically insignificant.]

[Footnote 153-2: Similarly _Buchanan_, loc. cit., and _Sismondi_, Richesse commerciale, I, 49. Compare contra, _Malthus_, Inquiry into the Nature and Progress of Rent, 15. I would call attention _en pa.s.sant_ to the absurdity that there may be an increase in the value in exchange of a nation's entire resources without any increase in its value in use. (_Supra_, -- 8.)]

[Footnote 153-3: Thus _Adam Smith_ remarks that corn fields and rice fields pay very different rents, because it is not always possible to convert one into the other. (Wealth of Nat., I, ch. 11, 1.) Compare the tabular statistical view of the rent of land used for vineyards, gardens, meadows, pasturages, wood and farming purposes, in _Rau_, Lehrbuch, I, -- 218. For a general theory of the rent of wooded land, see _Hermann_, Staatsw. Unters., 177 ff.; of vineyards, 181 seq.]

[Footnote 153-4: _Adam Smith_, Wealth of Nat., I, ch. 11, 3.]

[Footnote 153-5: It is hereby rendered akin to those low stages of civilization in which no rent is paid.]

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 a.s.sumed 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]

[Footnote 154-1: In every day language, people say of a man who has purchased a piece of land, that he "put" as much capital as is equal to the purchase price "into his land;"

or "laid out on it" as much. But this mode of expression is as inaccurate as is this other: "the sun is rising," or "the sun has gone down."]

[Footnote 154-2: _Macleod_, who is not fond of the natural mode of expression, maintains that the purchase price of a piece of land is equal to the discounted value of the sum of the values of all the future products to be obtained from the land. (Elements, 75.)]