II. Rent for Landownership
For the use of any Land which is more desirable in its natural state than the best to be had for the taking, part of the Wealth produced from and upon it by Labor is allocated, through operation of Natural Economic Law, to the Distributive category for which the technical Economic term is Rent.
That allocation of a share of Labor-produced Wealth to Rent necessarily diminishes the proportion allocated to Wages, but it does not necessarily lessen the quantity.
Without Rent, Wages takes the whole Product; with Rent, Wages can of course take only a fraction of the whole. Yet as a result of enhancement of Labor-power—specialization, steam, electricity and other productive developments—that fraction of the whole may be greater in amount than the whole in less productive circumstances.
Rent is that proportion of total Wealth production which results from the use by Labor of Land lying above the Economic frontier, which in Economic terminology is best known as the Margin of Production.
For illustration, here are two tracts of agricultural Land of equal area and equal accessibility. One will yield to a standard of Labor-power more Wealth than the other, for the soil is richer. It will therefore be in greater demand by Labor than the other. Consequently, if its potential yield of Wealth be large enough and Land of its quality and location scarce enough to attract Landownership, Labor can utilize it only on condition of paying to that ownership a Wealth premium for the privilege. This premium is Rent. If paid periodically, it would be regarded as “groundrent”; if the “groundrent” were capitalized for selling or other commercial purposes it would take on some such term as “land value” or “selling value” or “capital value.” But whatever the form or the colloquial term for it might be, this premium for superior Land is technically classed in Economics as Rent. As Ricardo[7] expressed it at a time when “Land” seemed to mean only agricultural soil, “Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” Its tendency is to absorb all the Wealth produced from and upon superior tracts above what could be produced by like Labor from and upon inferior ones.
[7] “Principles of Political Economy.” Chapter II.
Still better agricultural Land would extract still higher Rent out of the Wealth product for the like special privilege of Production. Thus, with alterations in the so-called Margin of Production, the natural allocations from Wealth to Wages would rise or fall as the Margin receded or advanced, whereas the natural allocations from Wealth to Rent would rise with the advances of the Margin and fall with its recession.
The same marginal principle applies to other kinds of Land precisely as it does to the agricultural, some advanced Economic students to the contrary notwithstanding. For a non-agricultural illustration, here are two mineral deposits. One is more easily worked than the other, or more conveniently situated with reference to demand for the mineral product for Consumption. It is therefore more attractive to Labor than the other. Consequently, Labor will naturally yield to the ownership of the superior deposit (Land) a larger proportion of the mineral it extracts (Wealth) than to the ownership of the inferior deposit. The proportionate excess is Rent.
For still another illustration of the same Rent principle, here are two building-sites in a town or city. They are of equal size, and in every other physical respect equally desirable. But one of them is at the center of the business or other social activities of the town or city, the other at the outskirts. The former being in the Economic sense more desirable for Labor purposes than the latter, Labor yields to its ownership a larger proportion of Wealth as Rent than to the ownership of the other.