CHAPTER XXXVII THE RENT OF LAND Rent the price paid for the use of land. The rent of land originally meant the price paid for its use during a given period of time. Its meaning is now extended to cover the income which the owner derives from it, whether he uses it himself or lets it out to someone else. The selling price of land is the price paid as a lump sum for its permanent possession, which includes its use through all future time. Its value is the present estimate of all its future utilities, whether they are sold or kept by the present owner and his heirs. There is thus a very close connection between the value, or price, of land, on the one hand, and its rent, on the other. The rent is the value, or the price, of the flow of utilities which it yields during a given period of time, such as a month or a year. Both the value and the rent of land come under the general law of value; both are determined by utility and scarcity, as is the case with all forms of value. Why rent is paid. The utility of land is of various kinds and degrees. In some cases land yields its utilities directly and is thus a consumers' good, or at least resembles consumers' goods in this respect. Parks, pleasure grounds, and residence sites yield their utilities in this way instead of yielding tangible products. In other cases land yields its utilities indirectly; that is, it produces or helps to produce tangible products which are themselves useful. In these cases the utility of land, like that of all producers' goods, is a derived utility. Its utility is derived from that of its products. There are great differences in the utility or desirability of different pieces of land, whether they be used for one purpose or for another. In one of the chapters on land (Chapter XVI) it was pointed out that these differences are mainly in location and fertility. The other qualities which make land usable, such as extension and solidity, all land possesses in equal degree, so that these qualities do not make one piece more desirable than another; but in the qualities of location and fertility there are great differences, and these differences powerfully affect its desirability and its value. Differences in the desirability of land. The problem of rent may be approached in several ways. In the first place, we may concentrate our attention on the differences in rent or the differences in the desirability of different pieces of land. There is always land somewhere the use of which can be had free of charge. Nevertheless, men will be found paying high rents for other land which is more desirable than that which can be had free of charge. The fact that it is more desirable than the free land is what makes it command a rent. In the case of land which is useful for production only, its desirability is of course determined by its productivity. He who secures the use of a superior piece of land can either produce more at the same cost than would be possible on the kind of land which is free or he can produce the same amount at lower cost. This difference in productivity gives its owner a rent when he cultivates or uses it himself, and enables a tenant to pay rent in case the land is worked by a tenant. Location as an element in desirability. That the location of a piece of land will affect its productivity will be clear to anyone who will consider that the cost of transporting goods to market is a part of the cost of production. If one farm is so badly located with respect to railroads and markets that it costs ten cents a bushel to haul the wheat to the nearest railroad, while another farm is so well located that the hauling costs only two cents a bushel, it is evident that if the two farms are equally fertile the former will be worth considerably less than the latter. The difference of eight cents a bushel in the cost of haulage would make a difference of $2.40 per acre if the average crop on the two farms were thirty bushels per acre. A tenant could 8 afford to pay that much more for the well-situated than for the badly situated farm. If land were so abundant that the badly situated farm in the above illustration and other land equally desirable could be had rent-free, and if it were the most desirable land which could be had free, then land of this type might be called marginal land, or land on the margin of cultivation. By marginal land is meant that which, under the conditions of the market, men would be induced to cultivate if it cost them nothing, but which they would abandon and leave unused if they were required to pay even the lowest conceivable rent for its use. Under these conditions the rent of the well-located farm of the above illustration would be $2.40 per acre, assuming that wheat is the only crop. The margin of cultivation. Aside from the productivity of the land, two other factors help to determine the margin of cultivation. These are the demand for products and the demand for labor, or the opportunities for the employment of labor. An increase in the demand for products will generally bring land into cultivation which would otherwise have remained idle, whereas a decrease in the demand for products will cause some poor land to be abandoned which would otherwise have remained in use. The margin of cultivation may change, however, for other reasons. When the prairies of the West were brought into cultivation the margin was extended in that direction, but this threw so many products on the market that some of the less productive lands of New England could no longer be advantageously cultivated. Much of this land was abandoned, and the margin of cultivation was contracted in this section. The extension of the margin on the Western frontier and the contraction on the rocky hillsides of New England tended to counteract one another. There was, however, at the same time a growing demand for products, so that the expansion in one direction more than made up for the contraction in the other. In other words, the total production actually increased, despite the diminution on some of the New England farms. Factors which extend the margin of cultivation. An increase in the supply of labor which is seeking employment, unless counteracted by a corresponding increase in the demand for it elsewhere, will generally extend the margin of cultivation and cause land to be cultivated which would otherwise remain idle. This problem may be approached from two points of view. In the first place, idle land may be regarded as an opportunity for idle men. When the supply of labor increases faster than the demand for it, the number of idle men increases. Some of these idle men are then crowded out onto the idle land. Even if they are not actually thrown out of work, the results are much the same. There is always a current of migration from the farms to the towns. When the labor market in the towns is overcrowded, country boys find fewer inducements to leave the country. Therefore they must perforce remain on the farms and cultivate the land. When larger inducements are offered in the towns, more of them leave the farms and less land can then be cultivated. Another way of approaching this problem is by considering the wages of farm labor. When this labor can be had at a low cost, some land can be cultivated profitably which could not be if the same kind of labor cost more. Wherever farm labor is cheap we find that there is little land going to waste except the very poorest; where farm labor is expensive and hard to secure we find fairly good land actually going to waste. Only the best land can be profitably cultivated by expensive labor. It must be remembered, however, that labor is not necessarily expensive merely because wages are high. Very efficient labor may be cheap even though it is paid high wages, and very inefficient labor may be expensive even though it works for low wages. With this explanation it ought to be clear that with a given demand for farm products poorer land can be cultivated if labor is abundant and cheap than would be profitable if it were scarce and dear. Different grades of land. A partial illustration of the doctrine of rent can be found in a study of the following table and the explanation which follows it. It is only a partial explanation, however, because it omits the law of diminishing returns. This lack will be corrected in the subsequent illustration and explanation. Grade A, yielding 1000 units of product to 100 units of labor Grade B, yielding 900 units of product to 100 units of labor Grade C, yielding Soo units of product to 100 units of laber Grade D, yielding 700 units of product to 100 units of labor Grade E, yielding 600 units of product to 100 units of labor Let us assume a miniature community possessing five grades of land, as indicated in the above figure. On the best grade of land, which is of limited extent, 100 units of labor will produce 1000 units of product; on the next grade, 900 units of product; on the next, 800 units of product; etc. If the demand of the community were for only 1000 units of product, and there were only 100 units of labor, only the best grade of land could be used. Until it was all in use there would be no rent. But if the population were to increase so that there was an increase in the demand for products and also in the supply of labor, Grade A would not continue to be sufficient. If, for example, the demand were to increase so that 1500 units of product were needed, some of it would have to be produced on the second grade of land, which would thus be the marginal land. On this marginal grade, however, each unit of labor would produce only 9 units of product, whereas on the best grade it would produce 10 units. Clearly each producer would rather work on Grade A than on Grade B. Because of this preference he could be persuaded to pay something for the privilege of |