The Contemporary Review, Volume 36, December 1879

by Various

We have now reached the full explanation of rent. It is surplus profit—that is, excess of profit after the repayment of the whole cost of production, beyond the legitimate profit which belongs to the tenant as a manufacturer of agricultural produce. The interest which he would have reaped from placing capital which he has devoted to the farm in some safe investment, such as consols or railway debentures, forms necessarily a portion of the cost of production. He would have realized some 4 per cent. on the investment without risk or effort of any kind. This interest constitutes no reward for engaging in agriculture.

It remains now to consider certain important consequences which flow from this explanation of rent. In the first place, it is evident that three separate incomes are derived from agriculture, whilst two only make their appearance in all other industries. In common with them agriculture furnishes reward or income for two classes of persons—wages for labourers and profit for the employer. There the similarity ends. A third income makes its appearance for a third person—rent for the landlord. This rent is not an ordinary consideration for hiring some useful machine; if it were a compensation of this nature, it would necessarily take its place amongst the items composing the cost of production. It is a part of the profit won, dependent in no way on the value of the property nor on the price at which it was bought, but purely and simply on the degree of the profit realized. It is a part of that profit, estimated and paid as what remains over—a surplus.

But how comes it to pass that an ordinary manufacture does not yield or pay any such third income? For a simple and decisive reason. A Manchester manufacturer cannot permanently earn a higher profit than belongs to his trade. If we suppose 10 per cent. to be the natural profit of that trade, and he persistently realizes 18, other mills will be opened by new men entering into the business, and this process will be continued till his profits are reduced to their legitimate level. It is otherwise with farming. If a tenant reaps 10 per cent. continuously from his farm, when competitors are willing to be content with 8, the landlord will quickly make the discovery, and will add the surplus 2 to the rent he requires. He will obtain the income, because 8 per cent. is judged by the farming world to be an adequate reward for engaging in agriculture, and because no additional land is to be found for the agricultural business.

2. It is clear that tithes, poor-rates, and other permanent charges, fall upon the landlord's rent, and not on the farmer's profit. They diminish rent. This is a point on which much misunderstanding prevails. A loud outcry is raised amongst tenants at this time of agricultural suffering against the heavy payments demanded of them for special taxes imposed upon land; a strong agitation is rising to obtain their repeal, as being unjustifiable wrongs inflicted on the most meritorious of industries. It is not perceived that these charges figured as items in the cost of production when the farmer was calculating what rent the farm would warrant him to pay: they diminished the rent at the cost of the landlord. Tithes and rates took their places in the estimate of the debit side quite as really as the number of horses, or the quantity of manure, which the farm would require. We have seen that rent makes its appearance only after every expense has been provided for, and a legitimate profit secured; then, and not till then, the calculation of the rent begins. If the farming world succeeds in removing these burdens, wholly or in part, from the shoulders of the tenants, there can be no doubt that rents will proportionately rise. The landlords would argue, with entire justice, that all other circumstances remaining the same, the collective farming profit had become larger by the disappearance of these taxes, and as the tenant was entitled only to his natural rate of profit, the increase of surplus would legitimately belong to him. If the tenant repelled such a claim, the landlord would be easily able to obtain the rent he claimed from competing farmers who would be satisfied with the natural profit of the business.

One exception, however, must be allowed to this conclusion—the case, namely, of a tenant who, upon a long lease, had contracted to pay a definite rent for many years. Such a tenant has taken upon himself the chances of the cost of production during a lengthened period, it may be nineteen or twenty-one years, being larger or smaller. If it diminishes during the interval, he gains: if it increases, he loses. Practically he has insured the landlord's rent, during the continuance of the lease, against diminution. For all increase or diminution of rates he fares as if he were the landlord.

3. A third very important deduction follows from the nature of the process which determines rent. Rent does not increase the price of agricultural produce; it does not make bread dearer. Rent is the consequence, not the creator, of price. Here the difference between agriculture and manufacturing trades is vital. The hire or purchase of machinery forms necessarily a part of the cost of manufacturing the goods: it must be paid for by the price realized, or the goods will not be made. On the other hand, the consideration to be given for the use of the land does not enter into the tenant's estimate of his cost of production. He does not direct his inquiry to the right rent till after he has ascertained what the farm will produce, the cost of obtaining it, and the price it will fetch. He then discovers what the profit will be: from it he takes his own necessary share; what is over he hands to the landlord as rent. He does not, like the manufacturer, insist upon a price which must be obtained, for otherwise he would not be able to pay for the use of the machine he borrows; he simply takes the price which he finds in the market, makes himself reasonably sure of the profit which rewards him, and the landlord must take the chance of what rent will remain over, whether large or small. Rent exists because a selling price is found which yields a surplus, an excess of profit beyond what the tenant requires. If price gives no surplus profit, the landlord will get no rent, and he must farm the land himself, or sell it to a farmer.

But there is a peculiarity in the agricultural market which exercises a very powerful influence in raising rents. Most manufactured articles can be dispensed with, or their consumption greatly lessened, if their cost of production is largely increased, or the means of buying diminished. It is otherwise with food: it must be had, must be bought, if any means of purchasing it exist. The effect of this force on a country situated like England is very marked. England cannot supply food for more than half of her population; the other half must be procured from abroad. Now, the principle which governs the price of indispensable food is the law, that the price paid for the dearest article—say, a loaf of bread—which must and will be bought, will impose itself on all like articles which are actually purchased. When the loaf made in England was cheaper than any imported from abroad, then the price of the English loaf rose to the price of the dearest foreign loaves which were sold and purchased in the English markets. This extra-addition of price was a pure surplus of profit received by the English grower of wheat; the cost of production was not changed, nor his requirement of profit for himself augmented. The gain he thus realized, being absolutely surplus profit, passed to the landowner. The need of foreign corn raised his rent. But the picture has a reverse side. It may well happen that the foreign corn landed in England will be saleable at a lower price than the English. If the supply can be furnished in sufficient quantity to provide bread enough for all England, the English corn in that case must inevitably sink to the level of the foreign—its price will fall, the profit realized on its sale may indefinitely sink, and a great reduction of rents throughout England may well be the inevitable consequence. The only weapon wherewith to fight off the disaster would be such a modification of British agriculture as would lead to the cultivation of other crops than wheat.

Here it seems desirable to notice briefly some remarks addressed by Professor Thorold Rogers to the Daily News, of October 30th, 1879; for though they are in the main true, they might easily give rise to mischievous misconception. He writes—"There is no doubt that rent is wealth to the recipient, and a means of profit to those who trade with the recipient; but except in so far as it represents the advantageous outlay of capital, it is no more national wealth than the public funds are." Surely this is to ignore the fact that the sources from which rent and the dividends on the public funds are derived differ radically in nature. The dividends on consols are the fruit of taxes levied on the whole people of England, and distributed as such to national creditors, which they may consume as they please. Rent is part of a profit earned by an industry useful to the country. A tax and a profit are not necessarily the same thing. No doubt a profit swollen by a monopoly price is equivalent to a tax: and a rent derived from "the price of the produce of land, raised by excessive demand and stinted supply," would be a forced contribution from consumers. But is all rent the child of monopoly? May it not well happen, does it not constantly happen, that rents are high by the side of cheap corn, because the agricultural business is largely productive through efforts made by landlords in improving the powers of the soil? Are they to be limited down in their reward to the pure interest which they could have obtained for their capital from investments in bonds and debentures? Is not part of the profit realized legitimately due to them, as profit accomplished by a commercial enterprise? If the returns on improvements made by landowners on their estates were limited to the interest which they could have obtained from consols, would not the motive for making such improvements be sadly wanting? It would sound strange in great manufacturing towns to be told that flowing profits are no increase of the public wealth, that they are taxes resembling the public funds, and must be swept away down to the lowest sum compatible with the existence of the industry.

And what must be said of the ugly word, monopoly, which is so freely flung against the owners of rent? There is a sound of unfairness in it; of unearned gains won without effort from the fortunes of others. How is such a reproach to be repelled? To parry the blow does not seem to be so difficult. There is, indeed, a kind of monopoly which is susceptible of no defence, a monopoly of manufacture conferred on a favoured few, by the arbitrary decree of the law, founded on no superior claim of merit or capacity, and resulting in inflated prices and inferiority of service rendered. Such were the monopolies whose abolition an indignant public opinion extorted from Queen Elizabeth. But a superior advantage of production or sale attached by nature to particular individuals or societies belongs to a wholly different class. Life is full of such monopolies. They are inherent and indestructible. The vineyards of France possess a monopoly of incomparable wine which will for all time earn amazing profits paid by voluntary buyers. England enjoys a like monopoly in the juxtaposition of her coal and iron, which have created a trade that no other nation can rival. The eloquent barrister, the acute physician, the brilliant artist, the quick-eyed inventor of machines, the soul-stirring singer, all are endowed with a personal monopoly resulting in great wealth. Are the men and nations who reap the splendid fruit of such a superiority to be stigmatized as despoilers of their fellow-citizens? Is rent, the offspring of a like advantage, to be painted as a tribute exacted from fellow-countrymen compelled to buy food?

But it will be said, change the tenure of the land, and the wrong will disappear. But what system will clear away superior produce and increased price? Certainly not a universal peasant-proprietor class. Such peasants would still possess the command of higher prices conferred by fertility and situation, and by means of such prices they would gather up swollen profits which would in reality be rent. Then let the land be owned by the whole community in common possession, exclaim French Socialists, and let its fruits be distributed in equal shares to every inhabitant. But even in such an extreme case it would be impossible to efface monopoly. The able-bodied man who received the same share of produce as the weak dwarf, the clever artisan who was unable to earn a special reward for his fructifying intelligence, would inevitably reap a diminution of labour and time. His higher faculties would earn a monopoly benefit in leisure.