With a purpose of further elucidating this problem, attention is asked first to its consideration from an "abstract," and next from a practical standpoint of view. Let us endeavor to clearly understand the common meaning of the word "rent." It is derived from the Latin reddita, "things given back or paid," and in plain English is a word for price or hire. It may be the hire of anything. It is the price we pay for the right of exclusive use over something which is not our own. Thus we speak of the rent of land, of buildings and apartments, of a fishery, of boats, of water, of an opera box, of a piano, sewing machines, furniture, vehicles, and the like. In Scotland at the present time farmers hire cows to dairymen, who pay an agreed-upon price by the year or for a term of years for each cow, and reimburse themselves for such payment and make a profit on the transaction by the sale of the products of the animal. This hire is called a rent, and is clearly the same in kind as the rent of land. We do not apply the word "hire" to the employment of men, because we have a separate word—"wages"—for that particular case of hire. Neither do we apply the word "rent" in English to the hire of money, because we have another separate word—"interest"—which has come into special use for the price paid for the loan or hire of money. But in the French language the word rent is habitually and specially used to signify the price of the hire money, and that of "rentes" to investments of money paying interest; the French national debt being always spoken of as "les rentes"; while the men who live on the lending of money, or capital in any form, are called "rentiers."
The question next naturally arises, Why is it necessary to set up any special theory at all about the natural disposition of the price which we pay for the hire of land, any more than about the price we pay for the hire of a house, of furniture, of a boat, of an opera box, or of a cow? The particular kind of use to which we put each of these various things is no doubt very different from the kind of use to which we put each or all the others. But all of these uses resolve themselves into the desire we have to derive some pleasure or some profit by the possession for a time of the right of exclusive use of something which is not our own, and for which we must pay the price, not of purchase, but of hire.
The explanation of this curious economic phenomenon is to be found in the assumption and positive assertion on the part of not a few distinguished economists that the truly scientific and only correct use of the term "rent" is its application to the "income derived from things of all kinds of which the supply is limited, and can not be increased by man's action."[17] As a rule, economists who accept this definition confine its application to the hire of land alone, although it professes to include other things, "of all kinds," to which the same description applies—namely, that they can not be increased in quantity by any human action. There are, however, no such other things specified, and in any literal sense there are no such other things existing, unless water and the atmosphere be intended.
Now, although it is indisputably true that man by his action can not increase the absolute or total quantity of land, any more than of water and air, appertaining to the whole globe on which we live, there is practically no limitation to the degree of value which man's action can impart to land, and which is the only thing for which land is wanted, bought, or sold, and which, as already shown, can be truly made the subject of taxation. The tracts of land on the earth's surface which are of no present marketable value are its deserts, its wildernesses, the sides and summits of its mountains, and its continually frozen zones, where no results of labor are embodied in or reflected upon it; while, on the other hand, its tracts of greatest value are in the large cities and marts of trade and commerce, as in the vicinity of the Bank of England, or in Wall Street, where the results of labor are so concentrated and reflected upon land that it is necessary to cover it with gold in order to acquire by purchase a title to it and a right to its exclusive use. The difference between land at twenty-five dollars an acre and twenty-five dollars a square foot is simply that the latter is or may be in the near future covered or surrounded by capital and business, while the former is remote from these sources of value. One of the greatest possible, perhaps probable, outcomes of the modern progress of chemistry is that through the utilization of microbic organizations the value of land as an instrumentality for the production of food may be increased to an extent that at the present time is hardly possible of conception. Again, in the case of air and water, although their total absolute quantity can not be increased, their available and useful quantity in any place, as before shown, can be by the agency of man, and their use made subject to hire or rent.
Consideration is next asked to the question at issue from what may be termed its practical standpoint. We have first a proposition in the nature of an economic axiom, that the price of everything necessary for production, or the hire of anything—land, money, and the like—without which the product could not arise, is, and must be, without exception, a part of the cost of that product; second, that all levies of the State which are worthy of being designated as taxes constitute an essential element of the cost of all products. The rent of an opera box, given to obtain a mere pleasure, constitutes a part of the fund out of which the musicians are paid, and if they are not so paid they will not play or sing. The rent given for the right to fish on a certain part of a river or its shores is a part of the cost of producing the fish as a marketable commodity. If a house is hired for the purpose of conducting any business in it, the price of that hire does most certainly enter into the cost of that business, whatever it may be, assuming that the use of the house is a necessity for carrying it on. As no man will produce a commodity by which he is sure to lose money, or fail to obtain the ordinary rate of profit, the tax must be added to the price, or the production will cease. If a uniform tax is imposed on all land occupied, it will be paid by the occupier, because occupation (house-building) will cease until the rent rises sufficiently to cover the tax. The landlord assesses upon his tenants the tax he has paid upon his real estate; each tenant assesses his share upon each of his customers; and so perfect is this diffusion of land taxation that every traveler from a distant part of the country who remains for even a single day at a hotel pays, without stopping to think about it, a portion of the taxes on the building, first paid by the owner, then assessed upon the lessees, and next cut up by them minutely in the per diem charge. But of course neither the owner nor lessee really escapes taxation, because a portion of somebody else's tax is thrown back upon them.
Is it possible to believe that in a city like New York, where less than four per cent of its population pay any direct tax on real estate, or in a city like Montreal, where the expenses of the city are mainly derived from taxes on land and the building occupancy of land, the great majority of the inhabitants of those cities are exempt from all land taxation? In China, where, as before shown, the title or ownership of all land vests in the emperor, and the revenue of the Government is almost exclusively derived from taxation of land in the form of rent, does the burden of tax remain upon the owner of the land? If the tax in the form of rent is paid in the products of the land, as undoubtedly it is in part, will not the cost of the percentage of the whole product of the land that is thus taken increase to the renter the cost of the percentage that is left to him; or, if the product is sold for money with which to pay the tax rent, will not its selling price embody the cost of the tax, as it will the cost of every other thing necessary for production? To affirm to the contrary is to say that the price which the Chinese farmer pays for the right of the exclusive use of his land is no part of the crops he may raise upon it.
Consider next the assertion of those who maintain the nondiffusion theory that taxes on land are paid by the owners because the supply of land can neither be increased nor diminished. In answer to it we have the indisputable fact that the owners of land, whenever taxes are increased, attempt to obtain an increased rental for it if the circumstances will permit it. And the very attempt tends to increase the rent. Nothing but adverse circumstances, such as diminishing population or commercial and industrial distress, can prevent a rise in the rental of land on which the taxes are increased; and in the case of dwellings and warehouses the rise is almost always very prompt, because no man will erect new dwellings or warehouses unless their rent compensate fully the increase of taxation. And in any prosperous community, in which population increases in the natural ratio, there must be a constant increase of dwellings and warehouses to prevent a rise of rent, independent of higher wages and higher taxation. In no other occupation is capital surer of obtaining the average net remuneration than in the erection of dwellings and warehouses, and nothing but lack of general prosperity and diminishing population can throw the burden of taxation on real estate or its owners, without the slightest attempt at combination on their part. If the owners of land are not reimbursed for its taxation by its occupants, new houses "would not be erected, the old ones would wear out, and after a time the supply would be so small that the demand would raise rents, and house building begin again, the tax having been transferred to the occupier."
It is pertinent at this point to notice the averment that is frequently made, that cultivators of the soil can not incorporate taxes on the land in the price of their products, because the price of their whole crop is fixed by the price at which any portion of it can be sold in foreign markets. In answer to this we have first the fact that, to give the population of the world an adequate supply of food and other agricultural products, it is not only necessary that all the land at present under cultivation shall continue to be so employed, but further that new lands shall each year be brought under cultivation, or else the land already cultivated shall be made more productive.
The population of the world steadily increases, notwithstanding wars, epidemics, and all the evils which are consequences of man's ignorance and of his improper use of things, his own faculties included. Hence, in case of increased taxation on land, the cultivator of the soil is generally enabled to transfer easily and promptly the burden of the tax to the purchasers of the products he raises, without abandoning the cultivation even of the least productive soil.
Furthermore, the exports of many agricultural products are due not to the cheapness of their cost of production, but to the variations which occur in the productiveness of the crops of other countries. M. Rouher, a French economist, and for a period a minister of commerce, thoroughly investigated this matter, and proved by incontestable data that almost invariably when the yield of breadstuffs in Europe was large in the country drained by the Black and Baltic Seas, it was small in the countries drained by the Atlantic. This variation in the yield of agricultural crops forces the countries where crops are deficient to purchase from those where they are abundant, or who have a surplus on hand from previous abundant harvests. In the United States, when the harvests are abundant, the American farmers, rather than sell below a certain price, keep a portion of their crops on hand until bad crops in Europe produce a foreign demand, which has to be supplied at once. Under such circumstances those who hold the surplus stock of breadstuffs, or any other product, would control the price, and not the foreigners who stand in need of it. The only check, then, to the cupidity of the holders of breadstuffs is the competition between themselves, which invariably suffices to prevent any undue advantage being taken of the necessities of the countries whose harvests are deficient. These bad crops occur frequently enough to consume all the surplus of the countries that produce in excess of their own wants. In fact, this transient, irregular demand is counted upon and provided for by producers just as much so as the regular home demand—hence is one of the elements that regulate production and control prices.