As the purchase of a piece of land[154-1] is no more and no less than its exchange against a portion of capital in the shape of money,[154-2] its purchase price depends generally on the amount it will rent for as compared with the interest on the capital to be given in exchange for it. The rate of interest remaining the same, it rises and falls with its rent. And vice versa, the rent remaining the same it rises and falls inversely as the rate of interest.[154-3] A rise in the price of land is not always a proof of the growing wealth of a people. It may proceed from a depreciation of the value of money, or from a decrease of the rate of interest caused by a decline in the number of loans which can be advantageously placed.
It is frequently said, that the price paid for land is greater than the money-capital which yields an equal revenue.[154-4] This, abstraction made of proletarian distress prices for small parcels of land and of the political and social privileges of landowners, is accounted for by the assumed greater security of the latter,[154-5] which, however, fares ill enough in war times, and times of political disturbance. The fact itself is found to exist, I think, only in economically progressive times, when confidence prevails, and it is based on the pretty certain prospect that the rate of interest will decline, while rents will rise.[154-6]
It has been observed in Belgium, that the medium farm rent of land, in quarters remarkable for any economic peculiarity whatever, pays an interest lower, as compared with the purchase money, in proportion as the country about is more thickly populated, and as its husbandry is carried on by farmers instead of by owners.[154-7] This phenomenon is doubtless correlated with these others, that the conditions just named are pretty regularly attendant on a high state of civilization, and that advanced civilization is attended uniformly by a decline in the rate of interest. (175).[154-8]
[154-1] In every day language, people say of a man who has purchased a piece of land, that he "put" as much capital as is equal to the purchase price "into his land;" or "laid out on it" as much. But this mode of expression is as inaccurate as is this other: "the sun is rising," or "the sun has gone down."
[154-2] Macleod, who is not fond of the natural mode of expression, maintains that the purchase price of a piece of land is equal to the discounted value of the sum of the values of all the future products to be obtained from the land. (Elements, 75.)
[154-3] C:i::L:r in which C = the capital, i = its interest, L = the piece of land, and r = its rent.
[154-4] There are traces to be found of the fact among the ancient Greeks, that the farm-rent of landed estates paid a smaller interest on the purchase money than was otherwise usual in the country. Isaeus de Hagn., 42; Salmasius, De Modo Usur., 848.
[154-5] Thus even North and Locke, loc. cit.; Cantillon, Nature du Commerce, 294.
[154-6] Compare List, Werke II, 173. In Belgium, farm-rent per hectare was, in 1830 = 57.25 francs, in 1835 = 62.78, in 1840 = 70.44, in 1846 = 74.50, on an average. This was at the rate of from 2.62 to 2.80, or an average of 2.67 per cent. on the purchase money. If to this we add the increase in the rise of land between 1830 and 1846, divided by 16, the yearly revenue rises from 2.67 to 3.91 per cent., that is pretty nearly the rate of interest on hypothecation, and is higher or lower in the different provinces, as the former is higher or lower. (Heuschling, Résumé du Récensement général de 1846, 89.) In France, land paid but from 2 to 3 per cent. on the purchase money; but both rents and the price of land have doubled between 1794 and 1844. (Journal des Econ., IX, 208.)
[154-7] Moreover, whole countries may, because of their great natural advantages, possess, so far as the commerce of the entire world is concerned, something analogous[TN 4] to rent. Thus, for instance, North America, although here, this world-rent finds expression in the national height of the wages of labor and of the rate of interest, (v. Bernhardi, Versuch einer Kritik der Gründe welche für grosses und kleines Grundeigenthum angeführt werden, 1848, 294.)