Chapter XXII. Principles Of Land Rent.
Rent values of land.—The general character of rent, as connected with the use of fixed capital and so associated with interest, has already been touched upon. In that sense it depends upon the fact that possession of wealth is universally an advantage in production of future wealth and is subject to all the peculiarities affecting interest. But land rent, as represented in the value of farms, city lots, mineral claims, fisheries, water privileges, wharves, etc., has peculiarities of its own. Its connection directly with rural wealth in the value of farm lands makes it of special importance in this discussion. While rent, as such, is comparatively unimportant to farming interests in the United States, where most of the land is worked by its owners, the principle is involved as fully in the transfer value of farms as it is in countries where land is almost universally rented for farm purposes, like England and Ireland. It is simply necessary to remember that the rent question in such a country as England, where land is seldom transferred from owner to owner (but all values are expressed in the terms of annual rental), is quite different in form from the question in our country, where transfer of landed property is free and common, and the rental is regulated [pg 294] largely by current rates of interest upon land values. In England, too, the rent question involves long standing relations between the people and landed proprietors who, for generation after generation, have been rulers of the people as well as landlords, and are still the natural magistrates over the renters upon their estates. Yet the principal occasion for rents in such countries is exactly the same as that for varying values of land in the United States. Peculiar intricacies of methods of rent-paying and of terms in leases, varying with the customs of different countries, have little importance in the United States, except for comparisons.
The United States afford superior advantages for the study of land values fairly independent of restrictive laws or customs. The rapid settlement of wild lands by farmers and the rapid building of cities under free competition give the fairest illustration of tendencies in land values to be found in the world. The fact that the government for the past fifty years has encouraged the settlement of new land at the bare cost of establishing ownership makes the problem almost as simple as if the government had no voice in the distribution.
It may be proper to recall the conditions under which any individual has been able to secure the absolute control of land as a proprietor: First, by preëmption, involving temporary residence until the land is purchased and patented, at the nominal price of $1.25 an acre, or $2.50 within ten miles of such railroads as may have been subsidized by a gift of one-half the land within the same limits. Second, by homestead preëmption, by which any head of a family, present or [pg 295] prospective, can secure 160 acres of land by payment of certain registration fees, amounting in all to less than $20 upon the average, and making his residence upon the land for a period of five years. The issue of a patent at the end of the five years establishes ownership. The soldier's homestead, offered to those who had served as volunteers in the army of the nation, varied from this only in a reduced term of residence. Third, homesteaders, as well as others, could secure additional lands under a provision for tree culture on the treeless prairies, the requirement being the planting of a few acres of trees and the maintenance of culture on those acres for a period of eight years. Even the establishment of trees in permanent growth was not a requisite. Fourth, by certain outlay for irrigation purposes in arid lands a tract of 640 acres could be secured. In addition to these, certain land grants to the several states led to the issue of scrip, entitling the possessor to locate on government lands upon payment of only fees of registration. Certain states, within whose borders public lands did not exist, being unable to hold lands in other states or territories, sold scrip at less than half the price asked by the government for lands.
All these methods operated not only as a stimulant to the settlement of new territory, but as a check upon rising values of land in the older communities. Nevertheless, this rapid development has given the best of opportunities for watching the tendencies of land values.
Propriety of land rent.—The right of property in land, like every other property right, rests upon its [pg 296] advantage in the welfare of communities. Among savage tribes individual control of plots of ground would interfere with welfare, as hindering the only use to which the land is put in hunting. Among people living by herding no nice dividing lines are needed, though strife between herdsmen, since the days of Abraham and Lot, results from the mingling of herds upon the same feeding grounds. With the actual tillage of soil, control of the space tilled becomes absolutely necessary, and more necessary with every improvement in agriculture which takes the nature of permanent improvement upon the soil. No agriculture beyond the merest skinning of the surface has ever existed without permanent occupation. Even where the land is distinctly owned, but used under temporary leases, few permanent improvements in agriculture are possible.
The necessary permanence of control over the products of toil makes an essentially permanent control of land necessary to the common welfare. For this reason the progress of civilization everywhere demands more distinct boundaries of landed property, and this in the interest of the whole community, which shares in the progress. The more intensive and far-seeing the methods of farming become, the greater the necessity for fixed boundaries. This necessity is recognized in all provisions for exact surveys, complete records of transfers in ownership; and finally for government guaranty of title. Such ownership underlies all prudential consumption of wealth for future returns. The loss to communities from want of it is seen in the waste [pg 297] of game in unappropriated countries and the destruction of the seals in the seal fisheries. Yet this ownership is still subject under all circumstances to the law of welfare for the entire community. The community's right of eminent domain has always been recognized in the need of public highways and other public improvements, and is likely to be still further recognized with any new necessity, like the control of injurious insects or quarantine against disease. Yet none of these restrictions diminish the necessity of ownership, in the sense of individual control for all purposes of agriculture, manufactures, commerce and social relations. This individual control is intimately connected with our ideas of rent, and would be still, though all the lands were managed under one proprietorship, and that a public one. Rent would accrue and be paid, though the whole people held title to the land.
The sources of land values.—The value of land, like every other value, is the result of comparisons. Whatever advantage is given to a producer by his possession of land is likely to form his estimate of its value. In the comparison of two farms of equal dimensions every difference in fertility, location as to drainage, exposure, or convenience to market or social advantages, adaptability to improved methods in agriculture and convenience of arrangement, will enter into the estimate of worth. If one of the farms can be had for the asking, the other will be worth just what its advantages will add to the power of the owner in the production of wealth, provided both are considered alike as simply machines for producing food. Usually, however, [pg 298] economy in the consumption of wealth is considered also. In a new country lands most easily accessible and readily tillable are chosen first. With added demand for food, less accessible or less easily tillable lands are occupied. At once the more accessible have a value equal to the greater ease with which the same product can be offered in market. If the difference were only a mile of hauling all produce and all commodities for which produce is exchanged, that cost of transportation would make the value of the nearest land. If the difference is simply in yield for a given amount of labor, the land which yields thirty bushels of wheat to the acre, when land which yields twenty bushels can be had for the taking, will be worth ten bushels of wheat a year, and its value will be estimated in dollars at a sum which securely at interest will bring a similar return. If, by and by, the demand for food or improvement in transportation or an easier method makes it worth while to cultivate land yielding only ten bushels of wheat to the acre, the annual value of land yielding twenty bushels will be ten bushels, and that of the land yielding thirty bushels will have become twenty bushels.
Thus the rent, and correspondingly the value of farms, increases with the increasing demand for farm products, whether that demand results from the increased number of eaters at hand, from the increased ability of these eaters to supply their wants, or from ready transportation to eaters elsewhere. Many influences in various directions affect the tendency to an increase of land values with the increase of population. Some have been led to the assumption that only the multiplication [pg 299] of food-eaters, increasing the need for land, makes rent possible. Connecting it with the theory of Malthus that population tends to increase in geometrical ratio, while food can increase only in arithmetical ratio, they have denounced rent as a price paid to monopolists under stress of danger from starvation. These forget that rent is payable as truly out of increasing abilities of individuals to meet increasing wants as under the spur of more distressing wants. Indeed, starvation, or the approach to it, never pays rent, however strong an incentive it may be to promise rent.
Rent in price of products.—Does the value of the land upon which my wheat is raised enter into the price of my wheat? If all land values were destroyed, would the wheat of the world be cheaper, because its cost would be diminished? The price at any time is just enough to bring the supply to market and keep it there. A portion of the supply has cost even more than it brings to its owner. If any brings more than cost, the difference goes either to the energetic raiser using improved methods, or to the fortunate receiver of timely showers, or to the possessor of the fruitful field. Neither the profit of the raiser, through his method and the shower, nor the rent of the fertile field has made a bushel of wheat less or more valuable in market. The value of the wheat in the market makes both the profit and the rent. If the value of wheat falls, the value of best wheat lands sometimes follows; but land values do not directly affect prices of products, though they may be directly dependent upon those prices.
Indirectly, however, the value of land may affect [pg 300] prices of products. Land, in certain speculative movements of society, gains a value for future use. If the fertile fields are held for speculative purposes, less fertile fields must furnish a limited supply at increased price. If the fields are wanted for homes, the supply must come from a distance at greater cost, or be raised on fewer acres by more costly tillage, and will not come till the price is increased. Thus high rents, or land values, if maintained by outward forces may diminish the total product, and so affect prices. But no conspiracy of land holders can affect the price of their products so long as their lands are employed in supplying the market.
Variation in land values.—Rents vary in different countries under various customs of those countries, and so land values can be compared only by knowing the customs and laws which influence the transfer of landed property, either by deed or by lease. Differences in value are often due to considerations entirely distinct from production. Farms are homes as well as machines; and the privileges of home life, with all the relations of family, friendship and patriotic associations, may rouse competition that greatly influences the market value of farms. In any community, whatever custom or law hinders competition in farming affects the relative value of farms in productive industry. Peculiarities in the method of holding lands have much to do with their value. The hopes and expectations of the people have large influence. Whatever stimulates enterprise and increases speculative energy enlarges the estimate of land value. Whatever depreciates abilities or discourages enterprise diminishes land value. Whatever encourages [pg 301] permanent improvements and far-sighted plans in farming increases land prices. Whatever discourages the spirit of improvement reduces such prices.
In some of these ways it is possible to account for great differences of value in regions apparently equal in natural advantages. Thus nobody wants lands in Turkey, however fertile, in comparison with lands in a free country like ours. Countries under a poor system of agriculture with inefficient labor cannot maintain high value of land. Ignorance and thriftlessness in a community of laborers operates in the same way. Thus the habits of the people, as well as their laws, enter into the question of rent. In countries where large estates are parceled out to renters, generation after generation, the customary terms of leases as to time, method of payment, adjustment of improvements, restrictions as to methods of tillage, and requirement of capital, enter largely into the question of rents. In some the fear of eviction under arrearages cuts a prominent figure; in others the confiscation of improvements destroys all enterprise. Upon the continent of Europe, in some places, the payment of rent in produce,—what we call working of land upon shares,—greatly limits individual enterprise, though it gives to the land owner a direct control in the methods employed on the land. Restrictions of law or of custom upon transfer of ownership always have the effect of diminishing the general productiveness by hindering the natural competition of productive enterprise. The result of all laws of entail, by which enormous estates are held from generation to generation under control of the same family, is universally deprecated because of its interference [pg 302] with the natural law of supply and demand as to farms and homes. All such restrictions favor the spirit of monopoly and cultivate arbitrary power, which in every way hinders progress.
Recent decrease of land values.—In the United States during recent years there has been a decided shrinkage of land values in most of the country. Several evident causes appear worthy of mention. The most evident is a rapid increase of farms on the western plains, recently bringing their products into the competition. These prairie regions give the largest range for farming in the world. In the same connection is the introduction, upon these immense fields of cheap land, of extensive machinery by which the productive power of labor is multiplied. The labor of one man for 300 days is said to have produced in California 5,000 bushels of wheat, so that one man's labor on many acres gives to each of 1,000 people a barrel of flour a year. Next to this is the opening of new agricultural enterprises in South America, Australia, India and South Africa, with still greater prospects in Siberia—all the result of great improvements in transportation, opening to these regions the world's great markets. This has pushed the supply of staple products toward the condition of over-production. The same cause has diminished the demand for our staples by greatly stimulating the consumption of foreign fruits and nuts. Most recently has come the depression from loss of confidence in enterprise, through excessive speculation and waste of capital, undermining the market for land as well as for all the machinery of production. In these conditions the whole world has shared.
Population drifting to cities.—The drift of farm population toward the cities is a symptom of the changed conditions, not a cause. If, as decided by an expert investigator, three men on a farm do the work that fourteen did forty years ago, the farms can well spare to the cities an increasing number of its boys and girls. The drift is real and permanent, diminishing rural population in 100 years from 96 per cent of the whole to 70 per cent, though exaggerated in figures through arbitrary division between towns and cities. This movement has been noticed the world over since 1848, when machinery began to affect agricultural production.
That this drift is wholesome is evident, if we look at the diversity of employment resulting and the improved welfare of all. A simple comparison of figures from the United States census will show the readjustment of employment. No one can doubt the advantage gained in the entire nation.
Abandoned farms.—The most disturbing feature of this readjustment is the desertion of some farms in the rougher parts of New England and the drier parts of the West. These lands will find a profitable use in the woodlots through the East, and in grazing ranges through the West, with slight permanent loss. They are not signs of poverty, but of a developing thrift, just as the abandoned country woolen mills tell the story of immense growth in the factory methods. While individuals seeking profit in sale or rent of their farms may suffer in any such shrinkage of local values, it must not be forgotten that the total of rural welfare is not necessarily diminished. Land values, aside from improvements, [pg 304] are everywhere evidence of limitations to welfare in some special direction. If human enterprise and invention and thrift lessen such limitations, the world is better off.
The great mass of farmers, who think more of their homes than of property, will suffer little from lower prices of land unless such low prices result from a general lack of thrift and of adaptation to new circumstances. While the changes in price which affect reduction of rent values do require readjustment of plans and methods, the farmer who keeps in touch with the world's work will not suffer, but gain, in the general advancement. In many instances, the low condition of farm property is due to unthrifty neglect of farmers in whole neighborhoods. Bad roads, short schools, weak fences and poor stock are as often a cause as an effect of low prices of land. Whole regions in our country suffer in this way from unthrift, whatever the price of farm products or of lands.
Farms in the United States.—These are under conditions best suited to attend the general thrift of the world in every way. Ownership is not complicated in any way with magisterial duties or prestige or entailment, as in England. It is not so distinctly hereditary as to embarrass agriculture by extreme subdivision of farms, as in France and other portions of Europe. It is in no danger of combination into great estates under absentee landlords, as in Ireland. Its laws of transfer and guaranty are growing more and more simple and direct, while protection to homestead rights is strong. Farmers themselves have such responsibility in state and nation [pg 305] as to make their genuine interests felt everywhere, and no system of caste can make them a peasantry, as in most of the Old World. Indeed, the farmer in every region makes his farm; and the enterprising, educated farmer of the next generation in our country will find in himself the forces at work to give value to his land. The speculative movement in land holding will be outgrown when genuine farm homes are more prized for their welfare than for their wealth; but this very welfare will maintain a stable value in lands.