As a result, the word “rent” takes on in the customary business sense a different meaning from the meaning of Rent in the normal Economic sense. In private business it may mean annual “groundrent,” or annual house-and-ground “rent”; and when capitalized, all legal rental rights may be combined in Price or Value. A concurrent custom is the transformation noted above of Rent for Land into Capital value or selling Price.
Such capitalizations operate as mortgages upon future Production; and as the capitalizations increase, that kind of mortgage burden grows in Economic weight. If Production continues advancing, the consequent increase of Wealth as a whole easily bears the burden, which rests then upon the naturally increasing Rent allocation rather than upon Wages. But in consequence of such capitalizations, Rent tends to become a football for Land speculation. This results in excessive capitalizations of Rent, which tend in turn to lower the Margin of Production, the Economic frontier, abnormally. As a consequence, Rent exactions in the form of speculative Land Prices rise above capitalizations of Rent at normal levels.
Exemplifications of such Economic phenomena may be observed in any community where at any time speculative Prices for Land have figured. In such circumstances, so long as Wealth is sufficiently increased by Labor—whether from improvement in Labor-power or from progressive advantages in Land opportunities,—increasing Rent is offset by increasing Wealth, and Economic prosperity abounds. But when increase in Wealth-production lags behind Rent, prosperity is checked and a “slump” in Land-values, Economically perilous, follows.
Other causes of Economic depression than “slumps” in speculative Land-values there doubtless are. They spring from such superficial maladjustments in the processes of Trade as are connected with defective banking, fluctuations in the values of corporate stocks and variations in Money standards from lack of effective stabilization. Even as to business depressions apparently so produced it is, however, exceedingly difficult if not impossible to declare with certainty that the leading part is not played by speculative Land values. For in our neo-feudalistic era, Land values are intricately confused with Wealth values in corporation stocks and bonds. To the extent that Land values and Wealth values are thus mingled, it is quite impossible to account for many Economic upheavals without more distinctive inventories of property in Trade and more accurate Economic classifications than in business circles or among advanced students of Economics have as yet been reached.
Before passing to the next subdivision of Distribution, it may not be a diversion to direct attention to the most remarkable distortion of technical Economic terms that has yet harassed Economic thought with confusion. This is the attempt of some Economists to identify Rent with Wages, by ascribing extraordinary compensation for extraordinary human service to “rent of ability.” As a subclassification of Wages there could hardly be any objection to this assignment except its tendency to mix Rent for Land with Wages for Labor in the minds of students. As a fundamental classification, however, its absurdity is manifest. Can anybody “rent” his ability, however great it may be, without putting it at work? Could the ablest physician, for instance, get a fee unless he offered to work with his ability? Could the most brilliant author command royalties unless he wrote books? Of course not. It is only as one works or promises to work that he is compensated for any degree of ability. Although Landownership may command compensation in Rent for such special opportunities as the Land offers to Labor, regardless of whether it is utilized or not, Man cannot rent his ability without obligating himself to use his ability; and the man who obligates himself, though he may call his compensation “rent” if that pleases either his vanity or his love for confused thinking, gets for his ability no rent whatever. What he gets is Wages for making his ability serviceable as a Labor unit. Nor is such compensation any the less Wages or any the more Rent, if it be (as with lawyers) a retainer for pledging future service which in the end has not been required of him. Compensation for work, or for a contract to work, is Wages whether the contract be in consequence of the worker’s ability or regardless of it. All compensation for service units, from lowest grades of ability to highest, is in Economic terminology and analysis, not Rent for Land but Wages for Labor. The bricklayer, contrasting his Wages with the Wages of an apprentice, might call his larger income “rent of ability,” if that flattered him; but his doing so, though it might enhance Economic confusion, would not alter the Economic relationship of Wages for Labor and Rent for Land. If Economic thinking is to be done with definite terminology instead of word-juggling, all compensation for human service must be expressed by a technical term different from the technical term for premiums for varying grades of Natural Resources. The accepted technical terms are Wages for Human service and Rent for Natural Resource advantages. Though “rent of ability” be picturesque in dramatics, it is farcical in Economics.
The importance to Economic study of assigning every item of Economic phenomena, Distributive as well as Productive, to its appropriate Economic category—Labor or Land in Production and Wages or Rent in Distribution—cannot be lightly ignored nor carelessly trifled with. Nor can it be too strongly emphasized. Without such assignments Economic phenomena are like printers’ “pi”; so assigned, they may be studied with precision.
III. Trade
The Distribution of Wealth, as well as its Production, is effected through Trade. As in the Productive Process from the very beginning of Labor specialization up to the point of delivery to ultimate consumers, so in the process of Distribution, Trade is the continuous and the culminating agency. It determines the kind of Wealth and the quantity that each factor in Production shall receive.
We have seen that Labor as a whole, a social unit, produces Wealth from Land and that this activity and this result are governed by natural Economic law—by natural relations of Economic effect to Economic cause. We have seen also that a correlative natural law, a correlative connection of effect to cause, constantly allocates one portion of the total Product to the Labor factor and another portion to the Land factor. We may readily see, moreover, that those two primary allocations subdivide into almost infinitesimal and extremely confusing secondary categories, comprising every variety of Labor, every variety of Land, every variety of Wealth, every variety of Economic desire. It is to satisfy those desires out of that continuous flow of Wealth that the infinitude of processes indicated in the next preceding Lesson enter into the comprehensive Productive Process which includes delivery to ultimate consumers, and that an infinitude of corresponding processes enter into Distribution.
Many of those processes overlap, playing now a part in Production and now in Distribution. Some of them are natural, some are customary, some are legalistic. But all are subject to the cooperation or to the obstruction of natural law as manifestly as is the navigation of a sailing vessel on the ocean. In so far as the customary or the legalistic do not conform to natural Economic law, natural penalizations inevitably result; in so far as they do conform to natural Economic law, the results are socially as well as individually beneficial. As with gravitation in the physical universe, so with its correspondent force in the Economic domain.