284 RENT DOES NOT ENTER INTO COST OF PRODUCTION rise to some destructive criticism of his theory. | differs from that of the hire of productive It is, perhaps, not necessary, though quite facilities which are not destroyed by being possible, to enter on a defence, necessarily some- used. In part, nevertheless, the superior ease what lengthy, of the precise terms used. The of obtaining minerals from some mines as essence of the doctrine of rent is not bound up compared with others causes a part of the with the adjectives in this phrase. Capital rent to be due to this difference, though the invested in improvements may alter the original main portion be the price of material carried character of the land. The inducement to away. Wherever, in the hire of agricultural make such an investment is afforded by the land, the contract provides for improvement expectation of increasing the facilities for pro- of the land, or for exhausting previous imduction which it offers so as to increase its provements, a similar feature is introduced returns sufficiently to yield at least interest at there to that which is most prominent in current rates on the investment. When the mine rents (see RICARDO). investment is made, however, it becomes difficult to differentiate between the original and acquired powers of the soil in many cases. The doctrines above enunciated may be applied to the improved land, if it be supposed that, in its cultivation, its actual powers are preserved unimpaired. The capital invested is as much bound up with the soil as its original qualities, and may conveniently be treated on the same basis. The problem which has been dealt with here is, strictly speaking, the elucidation of the causes which determine the amount of a "producer's surplus," to use the phrase adopted by Professor Marshall, the said surplus being that which accrues to the producer by reason of his having the use of facilities superior to those of some of his competitors. Whether precisely this amount will be actually paid as rent will depend on the conditions of tenure of land and the relations between the various classes interested in agriculture at the time and in the place considered. If the owners of the land be in active and intelligent competition for tenants, and are unscrupulous in exacting the utmost possible payment from tenants, while tenants are also in active and intelligent competition to secure tenancies on the best possible terms, the producer's surplus on an average of years represents the utmost which tenants can pay without reducing unduly their own remuneration for labour and risk, and hence the most which owners can procure. It may be further observed that, as produce from one portion of land has been taken as the equivalent of that from another, the corresponding hypothesis is that the produce considered is sold in the same active market, so that the hypothesis of but one price for the same article may be reasonably made. In regard to the rent of building land, the element of advantage of situation, important in the case of agricultural land, becomes the principal feature. In the case of mine rent, while partly determined by the facilities for extraction of minerals and their superiority to those elsewhere, the payment exacted is in part a charge for material actually carried The powers of the mine are not preserved unaltered, so that the case naturally away. A. W. F. RENT DOES NOT ENTER INTO COST OF PRODUCTION. This statement is commonly understood to imply merely that rent forms no part of that cost of production which is the measure of exchange value, that is, not average cost of production, but marginal cost of production. The theorem rests on the conceptions explained under the head Basis of Rent. A farmer, having contracted for the hire of land, is in the position that it is to his profit to expend any "dose" of capital and labour the return to which exceeds the cost of its application. He will, therefore, be induced to apply dose after dose, though the margin of surplus of return over outlay become narrower and narrower, so long as the margin is on the right side. The point at which he will cease to cultivate more intensively is determined by the vanishing of this margin. The "marginal dose" only increases the return by enough to cover the expenses of its application. The increase of return thus procured contributes nothing to rent, rent does not enter into its COST OF PRODUCTION. Although the expenses of the producer may contain- -as against the whole crop-the stipulated rent, the "marginal production" is sufficiently encouraged if its price leave no surplus for rent, but merely covers other expenses. To quote the wellknown passage of Ricardo, "Corn is not high because a rent is paid, but a rent is paid because corn is high." A rise in price of produce results in a smaller return being sufficient to remunerate the cultivator for applying a dose of capital and labour. leads to increasing intensity of cultivation and a rise of rents. This From the other standpoint, that of the existence of no-rent land, which may be at any distance from the market, the fact that such land comes under cultivation proves that the cost of production of its crops are covered by their price. Rent forms no part of their cost, therefore it forms no part of the price of the whole market supply. The price may, nevertheless, be affected by rent, if the existence of rent operate to stint the supply of the produce of land, that is, if the owners of land be able to command a price for the privilege of cultivating even the poorest RENT OF ABILITY land. Such a "monopoly-rent" may affect the price of the commodities produced under its influence. The same principles, too, come into play as the result of the fact that land may be applied to alternative uses. If for one of these uses certain land be sufficiently productive, in comparison with other land actually in use for the same purpose, to command a rent, the condition of its use for any other purpose is that it should pay at least as large a rent in the latter as in the former case. If it be less productive than the worst land already in use for this other purpose, it cannot be economically used until the price of the product in question rise to a sufficient height to enable it to yield not only the expenses of applying the necessary labour and capital, but also the rent obtainable by the assumed alternative use of the land. The cost of production of the most expensive portion of the supply does in this case include rent. In general it is true that rent may be reduced and the margin of cultivation raised if fresh sources of supply, involving a smaller cost than that involved in the use of some of the sources actually in use, be brought into the market. If these fresh sources of supply be held out of use on account of their yielding a greater rent for some other purpose, the fact of rent does stint supply and raise price. It The introduction of the consideration of such an indirect influence of rent on price appears to be of considerable importance. It is from the treatment of land as if yielding a produce of one kind only that its influence is lost sight of in the general enunciation of the doctrine. remains true, however, that if the cultivators of land were set free from their obligation to pay rent, such a change would not introduce motives tending to divert land from the purposes where it yields the greatest surplus to the producer over the expenses of its cultivation. Thus though the fact of alternative uses for land does reduce the supply of any one of its products below the amount which it might reach if all land were capable of use simply for the supply of this product alone, the abolition of the obligation to pay rent would not affect the relative supply of different commodities, except in so far as the rent is a true monopoly rent. [Special reference may be made to Ricardo's Works; to F. A. Walker's Land and its Rent; and to Marshall's Principles of Economics, bk. v. ch. x., as well as to the article on COST OF PRODUCTION, where some important points, not repeated above, are dealt with. Most leading authorities on economic theory have contributed some chapters to the discussion of the theory of rent.] A. W. F. RENT OF ABILITY. In analysing the rewards of efforts and abstinences made for the satisfaction of wants under modern social 285 conditions, economists have to reckon with that residual element of returns which is due to peculiar advantages of nature or the juncture of events, and not to any additional effort or abstinence. In agriculture this surplus revenue is called RENT, it being really accidental in economic theory whether it is handed over by farmer to landlord or appropriated by a freeholder. The term "rent," however, as defined in economics, cannot justly be confined to agriculture only, but, as N. W. SENIOR proposed should be, and is indeed more or less, used to cover all cases of this residual element of reward which "nature or fortune bestows" in the shape of an exceptional or "differential" profit beyond the given average rate of remuneration. Rent of land thus appears as only a species, if the most distinct and impressive" species (see von MANGOLDT), of a genus of reward, the conditions of which are those of a natural monopoly with a demand temporarily or permanently in excess of the supply. In land-rent those conditions are superior natural fertility and advantages in connection with the disposability of produce; in other species of rent they are "extraordinary qualities of body and mind" (SENIOR, see below) to which may be added those accidents in demand or fortunate contingencies in time and space now classed as Conjunctur. Usually both sets of conditions are requisite. The inventive faculty that brings out a patent just when the public taste is amenable, the organising ability that can push an enterprise in advance of competition on the short-lived tide of public credit, the singer who, with a peculiar charm in organ or appearance, draws crowds while a possibly greater artist transcends the popular discernment, the author of a book abreast with, but not ahead of the age, the strategic genius launched on a military career just when a war breaks out all that is conveyed by the expression "time and the man"—are cases where the surplus revenue, analogous to rent if not so-called, appears. And, as in agriculture, the difference is merely accidental, if in one case the owner exploits his own sources of rent, in another farms them out. For the most part economists have preferred to class this residual reward under profits, only pointing out its analogy to rent derived from land. Mill refers to it as "cases of extra profit analogous to rent"; von Mangoldt, as entrepreneur's rent or as Seltenheitsprämie; Walker, as "profits partaking of the nature of rent" Marshall, as a species of "quasi-rent" specially prominent in profits of business men; Nicholson, as Conjunctur - profit" (see CONJUnctur). Yet it does not strictly fall under earnings of management, since it is not a monopoly of managers, and is, strictly speaking, an unearned increment of reward. Nor can it be claimed as interest unless what has been called 286 RENT-CHARGE-RENT-CHARGE, MEDIEVAL personal wealth be ranked as capital, for it is not the reward of capital invested in developing rare ability. To get extraordinary advantages in training may indeed be viewed as a lucky conjuncture for the talented youth. But for purposes of analysis, a distinction should be drawn between such good fortune and the sacrifice incurred by both parent and child in availing themselves of the best possible opportunities of education. However classified, rent of ability and of fortunate contingency is a factor which under a system of competition militates ever more and more against any tendency to equality in returns, whether these are called wages or profits. The greater the investment of capital in the training of natural abilities, the more general the opportunities to cultivate the same, the more "differential" becomes the profit of those who in themselves and in the turn of events possess that species of monopoly analogous to that arising from the possession of the most remunerative portions of the earth's surface. For a pianist to be offered in England a thousand guineas in remuneration for one evening's display as happened recently would some years ago have been an impossibility. On the first appearance in economic literature of this metaphor, see BAILEY, S., ON VALUE. [Senior, Political Economy, 1850, p. 91.Mill, Political Economy, bk. iii. c. v. § 4.-Von Mangoldt, Die Lehre vom Unternehmergewinn, 1855, p. 109.-Walker, Political Economy, § 307. -Sidgwick, Principles of Political Economy, 3rd ed. bk. ii. c. ix.-Marshall, Principles of EconIomics, 5th ed. bk. vi. chs. v. viii.-Nicholson, Political Economy, 1893, i. p. 411.] C. A. F. an RENT CHARGE. The payment of annual sum is frequently secured by a charge on land belonging to the promisor. Such a charge is called a "rent-charge," and may, since the coming into operation of the Stat. 4 of Geo. II. c. 28, § 5, be enforced by DISTRESS (q.v.) in the same way as a rent reserved in a lease, whether the power of distress be expressly given by the deed creating the charge or not. A rent-charge granted otherwise than by will or marriage settlement is not binding on subsequent purchasers unless registered in accordance with the provisions of 18 Vict. c. 55, §§ 12 and 14. E. S. The pur RENT CHARGE, MEDIEVAL. chase of a rent-charge (rent, census, Zins) was one of the methods of investing money most frequently resorted to during the later middle ages. From the transfer from one person to another of the right to receive a rent already due the step was but a short one to the creation of an altogether new rent-charge, for the express purpose of raising money by the sale of it. first, possibly, such charges were laid only on At agricultural land; but the plan commended itself to townsmen; and the creation of rentcharges on town lands and even on town houses and shops became very general. It early came to be the practice to specify in the deed of sale the sum at which the seller could redeem the charge and it was frequently enacted by civic or territorial authorities that all charges should be redeemable at so many years' purchase; so that there grew up in every district a current rate of return upon investments of the kind. The practice would seem to have arisen spontaneously, and to have been by no means a mere evasion of the prohibition of usury. When brought before the attention of theologians and canonists, as in the cases submitted to Pope Martin V. in 1425 and Pope Calixtus III. in 1455, no doubt was felt as to its legitimacy, on the following conditions: that the charge was a census realis, i.e. was attached to some definite and permanent property of such a nature as to be a source of permanent income (res frugifera); that the person subject to the charge retained the right of redemption, but the recipient had no right to compel a return of the purchase money; and that the rent did not exceed a fair percentage upon the purchase money, as to which last point the ecclesiastical authorities were ready to accept current usage. The existence of a "real" security, which, if transferred, carried the obligation with it, and the interminable character of the investment, so far as the investor was concerned, were the two features which were held to distinguish the contract from a mere loan. Nicholas V. in 1452 permitted the people of Aragon and Castile, in order to escape the greater evils of usury, to make rent contracts based on their movable property, or indeed simply on their general credit, the so-called census personales; and such contracts were defended, outside Spain, by several eminent theologians of the sixteenth century. The return of Pius V. in 1568 to the earlier and severer view was too late to restore old conditions. But the theoretic discussion of the subject lost all interest, as the practice itself was gradually abandoned in favour of the freer form of investment rendered possible by the development of the theories of INTEREST and PARTNERSHIP (q.v.). But [The best history of medieval practice is probably to be found in Max Neumann's Geschichte des Wuchers in Deutschland (1865), though it suffers under the twofold defect of maintaining that the practice was peculiar to Germany, and that it was opposed to canonist doctrine. W. Endemann, Studien in der romanisch-kanonistischen Wirthlength into the canonist discussion of the Rentenschafts- und Rechtslehre, vol. ii. (1883), enters at vertrag. On these works is based the account in Ashley, Economic History, vol. i. pt. ii. (in Amer. ed., vol. ii.), $$ 66, 74, 75. The German and French mediæval law are given in Schröder, RENT, LABOUR-RENT OF LAND Lehrbuch der deutschen Rechtsgeschichte, 2nd ed. | (1894), 696; and Viollet, Histoire du droit civil Français, 2nd ed. (1893), 679-683, respectively.] W. J. A. RENT, LABOUR (Mediæval). Under the manorial system of agriculture, the lord's portion of the estate was cultivated by the compulsory labour of the tenants, under the supervision of the bailiff. Such services were perhaps, even when valued in the accounts in terms of money, rather payments incidental to tenure than economic rents in the modern sense. Compulsory services, paid for with food or money, or both, are frequently met with, but unpaid labour was more usual. It was of two main classes, fixed "WEEK-WORK,' and unfixed "boon-work" or "PRECARIE"; the former was, on the whole, but not always, or in all places, required of unfree tenants only, while free and unfree, socager and VILLEIN alike, had to perform special services, boon - work, when called upon, and particularly at harvest-time. In cases where an unlimited amount of weekwork might be demanded, it seems probable that the tenant was exempt from boon-work, but even the latter tended to become fixed, though remaining occasional. Every service which the lord of the MANOR needed might be required of the tenants, but the commonest were ploughing and carriage. The process of commutation of services for money rents no doubt began very early, it is impossible to say how early; but the labour rent system was not seriously broken down until the 13th or 14th century. See SERVICES. [(1) Original documents: Thorpe's Ancient Laws and Institutes (Rectitudines Singularum Personarum).-Domesday. -Domesday of St. Paul's, ed. Hale.-Cartularies of religious houses, (full list of these and other documents in Ashley, Econ. Hist., vol. i. pt. i., authorities prefixed to ch. i.). (2) Early legal writers: Bracton, Glanville, Fleta, Littleton. (3) Modern writers: none of importance before Seebohm; subject scarcely touched by Kemble. Seebohm, English Village Community; for details of services, ch. ii., for early labour rents, ch. v., for Roman instances, ch. viii. sect. vii. x., and ch. x. sect. vii., viii.-Vinogradoff, Villainage in England, esp. Essay ii. ch. iii.; many particulars added to the manorial picture first clearly drawn by Seebohm.-Ashley, Econ. Hist., vol. i. pt. i. ch. i. for clear sketch of results of modern research.] E. G. P. RENT OF LAND. A. Smith summed up the best views of his time with regard to "the rent of land," when he described it as a compound of two elements-interest on improvements and payment for what RICARDO afterwards called "the indestructible resources of the soil"; or A. SMITH'S "original," and MILL'S "economic" rent. This last rent is, according to A. Smith, "a monopoly price," the effect and not the cause of the price of a commodity 287 (i. xi. init.). His language is not always consistent, and he does not analyse the nature of this monopoly, but three of his illustrations imply a correct though incomplete analysis. The first is taken from his own experience, and is the lease of a foreshore. The next is a historical generalisation "every improvement," he says, "in the circumstances of society, tends either directly or indirectly to raise the real rent of land" (i. xi. fin.); and takes us back to LOCKE's belief that high rents mean prosperity, and should therefore be an object of legislation (Works, ed. 1824, vol. iv. p. 69), (Tooke, i. 24), and it takes us onward through M'CULLOCH's famous table (edition of A. Smith, p. 452), to H. GEORGE's Progress and Poverty; and it also reflects the physiocratic view that rent is a "produit net," a view which is still expressed when economists write of rent as "a residue' or as "an excess of value above the cost of production." This half-truth will not save its advocates from error; nor will its opponents attain truth without it. A. Smith's third illustration is practical, and is contained in his suggestion that a special rent-tax would, if variable and moderate, fall exclusively on landlords, and would not discourage industry, so that “the real revenue of the great body of the people might be the same after such a tax as before (v. 2 fin.). Attempts to realise this idea by tentative fiscal measures on a small scale, and, best of all, subject to local control, have proved successful; thus GIFFEN (Essays in Finance, i. 252) points out that "rates just such a land-tax, and have as a matter of fact kept pace with the increase of the unearned "Mehr-Werth" of land during the past fifty years, while the French "contributions foncières," which were apparently Smith's model, advanced at a far slower rate under like conditions. On the other hand, if A. Smith's idea is interpreted by an heroic "impôt unique," designed to secure all economic rent to the state, on the ground that individuals ought not to reap what they did not sow— such a scheme is foredoomed to failure; because any attempt to draw a hard and fast line between "economic rent" and "interest on improvements," is hopeless. Here are three attempts; Giffen said that at the then rate of increase (1871) land then worth £150,000,000 would in thirty years be worth £100,000,000 more, half of which would perhaps be unearned (Statistical Essays, i. 258). CAIRD in describing the increase of landlord's property from £55,000,000 annually in 1857 to £66,000,000 annually in 1875, estimated the unearned at " are ths of the whole increment during that period (Landed Interest, p. 97). LEROY-BEAULIEU (Répartition des Richesses, 1888, p. 119), following more or less CAREY's Past, Present, and Future (1848), and Hippolyte PASSY'S Des Causes de l'Inégalité des Richesses (1848), thinks ¦ rent vary, with the cost of freight, between 32s. that economic rent is already at vanishing point; but as he bases his thesis on the supposition that capital invested on improvements should bear interest (compound ?), for 2000 or 3000 years, his arguments do not claim much weight. Similarly German princes (Roscher, Geschichte der Nat.-Oek. in D., pp. 485, 631) and Indian administrators (BadenPowell, Land Revenue, p. 179) have been baffled by the insuperable difficulties of valuing the "produit net" for the purposes of an "impôt unique." In any case, doctors disagree on the matter, and the wisdom of A. Smith's "variable," "moderate," and "might," is conspicuous in comparison with proposals, such as that of Mill's Land Tenure Reform Association" (1870), to take the whole future "unearned increment" in taxation. In what then has A. Smith's view been advanced by his successors? First, deductively by the so-called Ricardian theory of rent, discovered by Dr. Anderson in 1777 and 1801, re-stated by Malthus and West in 1815, and finally by Ricardo in 1817. This theory, so far as it states that the amount of rent of a situation depends upon its "differential advantages as compared with that situation where a given pursuit just pays," euggested the idea of "marginal utility" which is the foundation of the law of value, as stated by JEVONS and MARSHALL ; and added even more to the elucidation of "value" than of "rent." Secondly, there is the truth, partly deductive, partly inductive, emphasised by Ricardo and Mill, that improvements in mechanism and locomotion increase supply, and so send rates down until an increased demand sends them up again; to which Carey added that as civilisation goes on suitable soils are specialised to suitable growths, and new fertile lands, like LAVELEYE'S "polders," are discovered; a process which produces the same effect as any other improvement (Carey, Principles of Pol. Econ., 1837). Thirdly, there are several inductive additions to A. Smith, which are equally additions to Ricardo. (1) Ricardo's hypothesis that land always remains in cultivation which only pays wages and not rent, is as incorrect a statement of fact as A. Smith's guess that the opposite was necessarily the case with regard to agricultural land (see Roscher's P. E., § CL., n. 2). (2) Ricardo overrated advantages arising from fertility, and forgot J. B. SAY'S maxim "L'éloignement équivaut à la stérilité," a maxim which at present determines English rents. Thus in 1881, Caird estimated landlords' improvements at £15 an acre (Landed Interest, p. 56), i.e. 10s. per annum (if his usual estimate of thirty years' purchase-value applies), and their "protection from cost of freight of wheat" at 42s. per annum per acre (British Land Question, p. 16). This would make economic per acre and zero, so far as wheat lands were concerned. (3) CAIRNES's proof that Australian rents have raised prices contradicts Ricardo's view that rents never affect prices. Walker points out (p. 41) that Cairnes's exception only applies where the state is landlord, and rent is therefore a tax. But could not landlords combine to tax a community, or portion of a community? And is the distinction between taxes which may, and rents which may not raise prices, quite clear? Seebohm, whose figures must be received with caution, at all events proves that the same sort of medieval English impost branched out into landlords' land-tax and farmers' rents (Fortnightly, January 1870); and according to Thorold ROGERS farmers' rents were in no sense competitive before the 17th century. Again, the Devon Commission, 1845, proved that the effect of competition in Ireland was that impossible, and not merely as economists supposed the highest payable rents were habitually offered. Again, in British India the land revenue is universal, and yet the best administrators are unable to tell whether it is to be classed as a rent or as a tax; and those who collect it are sometimes treated like landlords subject to land-tax, sometimes like lessees who have under-tenants, and sometimes like excisemen who deduct their own pay (Baden-Powell, l.c. p. 49). Considerations such as these narrow the applicability of the doctrine of "economic rent," and suggest that rent may after all turn out to be more often than not a tax in disguise. (4) Ricardo's implied doctrine that in the distribution of wealth the rent-receiver is the residuary legatee of the capitalist and wage-earner, is ably combated by Mr. Hobson in his essay on the three rents (Econ. Quarterly, April 1891). His point is that interest and wages rise in the same sort of way as so-called rent. We may answer: "Yes, but not at the same rate." Thus beginning with the settling down of prices after the discoveries of precious metals in the new world: Or to take a shorter period:-Wages rose 34 per cent, rent 100 per cent, between 1770 and 1850-51 (Caird's English Agriculture, 185051, p. 475). What is the reason of the extra pace at which rent runs, when once wages and rent move? Some will point out that during the last three centuries rent began to include 1 Th. Rogers, Hist. of Agr. and Prices, vol. v. ch. xxiii. 2 Ibid., v. 804, as to 1625; Davenant on Trade, p. 219, followed by Prothero in Pioneers, etc., of English Farming, app. xi. as to 1688. Caird's Landed Interest, app. p. 177. |