American Economic Association

American Economic Association
Rent in Modern Economic Theory: An Essay in Distribution Author(s): Alvin Saunders Johnson Source: Publications of the American Economic Association, 3rd Series, Vol. 3, No. 4 (Nov., 1902), pp. 1-129 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2485785 . Accessed: 15/02/2014 22:19
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CHAPTER I.
THE ECONOMIC SURPLUS.
it llas been well said, is seienee, SEC. I. Eeonomie of its own. interest of anyinherent beeause notstudied the for reasoll suffieient as a serve tllay euriosity Natural in the andvitallaws; interest of physical investigation and ethieal to gixe may mall of dutiesand destinies value; but divest studies an intrinsie metaphn7sieal orulterior aetion uponpraetieal of itsbearing eeonolllies of attention. and few would findit wortlly thotlght, of politieal it ras thelleed forprineiples Historieally, of forthe ereation responsible thatwas ehiefly aetion the as a speeial seienee; and in politiealeeonotny to his attention devotes usually daythestudetlt present eSeets, tlle to understancR he wishes beeause eeonotnies andof governInental of taxatiotl andretnote, proximate or, UlliOllS andononopolies; oftrade of industry, eontrol tllose tllall ratller scholar oftl-le aretllose if his interests beeallselle wisllesto ullclerstalld tnaol, of thepraetieal laws, of eeotlomie atldpoliticaleffeets thesoeiological uponthe historieal light to throw he desires orbeeause seietlee of society. Itl anyease eeonotnie developtllerlt elldin itself. a suffieient be eonsidered eannot of eeollomie results tllattl-le aeeordingly) It follows, blltulllSt havea bearing be true, merely llOt lntlst study thatarereeogprol)lellls or illtelleetual uponpraetieal and Tlle distinetions se. nizedtobe ofimportanceXber totlle tsroonust submit oftlleeeonomist elassifieations of progress andrelevancy.Alldas tl-le oftruth test fold theforeinto newproblems brings alldofscietlee events sigllifieanee, Inaylose tlleir ground,the old analyses
A^nericanEconowsic AlssociaZion.
[880
although theymay remain quite true. Tlle work of eeonomie theory, therefore, is never done.Eaeheeonoonie period will detnand newanalyses, basedllpOll a point of viewwhieh is seleeted bytheneeds of thetime. It is tllepllrpose oftllisessayto review theposition of therent oflalldin modern theory, to eollsider its nature viewed from thestandpoint ofeeonomie seienee ofto-day, andtodiseuss itsrelations withotller eeollonlie ineollles. It haslongbeeneustomary witll eeonomists totreat rent notas an ineotne ssligetseris, butas ollespeeies undela wicle genus. Renthas beenelassed nowwitholle kind of ineoules, nowwith anotller, as one ellaraeteristie or another llasseelnecl to be of vital illlportanee. Eeonomists havenot, llovever, always recogtlized tllat; it is with referetlee toqualities wllicll tiley 11ave tilemselves selected as relevallt tllattlley elassify l-eolt with profits orinterest ormonopoly returll.Mostfreqllently they iollagine that tileir elassificatiolls arebasedupon tilee.sselltial natllre of
tlle plletlotllena llnder
however, showthat ifsueha classificatiotl i.spossible itis ofno importanee ill eeollomies, sitlce phenolnetla wlliell aresitnilar in most oftlleir relations tnay be widely dissiInilar in tllerelations whielllJlay pl operly be ealled eeonotllie. Butwilile eeollolllie pllenoznella arenaturally grouped aeeording toellaraetel isties wllieh tlleeeonolllist seleets, it is llottrlle thateeonomie analyses lnaybe arbi trary. Tllere are eertaillproblems at the present time whicllwill be reeognized to be fundamelltal in eeonotnies. It is with referetlce to th ese problems, as tlle s^;riter eoneeives them, that the pointof view of tllis essay has been ehoseIl. CritieistIl of other elassifieations willaeeordingly be based 1lotonly UpOIl theirinherent logie, but also upon theirrelevaney to theproblems of to-day. In adopting sueha basisfor
investigation.
Reflection
will,
SllRlDlIIS
flOill
tlle
pOillt
ofienv oftn(zf rnecollolllic
88I]
Szlrlblzgs. TseEconoonic
of doneto thesystelns is necessarily injustice criticism, tnode1-n in sllrvivals bllt llot to tlleir periods, earlier
economics.
as a SEC.2. The rent of lallclis llsllallytreatecl illcome." To show that "sllrpltls of thegenlos species as llas been regarded is a surlDllls of income allyforln rent. But witll itskinsllip alentto denlollstrating eqloir illsllrplus wllile theors, of ecollomic is a category rellt politicsorsociology, of etllics, cometna) be a category frotn illcozne Wllati.ssur)llls as wellas of eco1lotllic.s. a Illay IlOt lJe socioloCy 01of viewof etllics tlleIzoitlt tllepl1rposes for llotle-itilllate tlleo1-).It is, tllerefore, t,etllel all itlcolnes togrol1p clas<;iEcatioll of ec()lolllic regarded ollaslJe or<a!lotller of viesv pOitlt 011e frolll that ill a COllSiSt 1nllst sllrtJlll.s as sllrplus. Tlle ecollv11lic of tllesocialillCO:lle EVlliCll evSe1-tS 11pO11 tilt Celltlal part It classecias lloll-sllrpllls. tilat of tlle illcosIles frolll otltsitle fall to ifit is not potellc) llallSt pOSSE.SS econoluic lNllSt aSect pllellolllella it econoollics; of clolllain of tlle frolnthe econolllic as secollclary, thatare reco2,wlaizecl is a misnomer. " surpllls9' elsetileterm ofview, point socialillcolIle illtO SUrplIlS alld ofttle Tlleclassificatiol1 early altllollgll tlleory, is as olela.seconolllic noll-surplll.s illlitas olleoffllllclalllelltal treat not1lsllally clicl writer.s hasbeen Bllttllere writers. Illoclerll as dotnally portance, concrete tlle ot in the cleterulillation littlevllliforlnity sllrzlll.S.T}lellistory tlle constitllte tllat ofillcolne fornls 1lo fllllcls of sllrpltls a series presellts scielace ofecollomic Tllis elemel-lts. salne tlle idelltically cover twoof A71licll ilRxvre extect,SillCe tll')SE i; fUnCJtS) is wllatotlewo1.licl cendifferent to wiclely Witll beencotlstrtlcted referenoe tralproblems.
pllenolllella oX econolll;c sciellce azz illfll>!lce differitlg
AsnericanEcoszomic Associatio^z.
SEC.
p882
3. The first demaIld upon the resources of a community is thecovering of the barest 1leeds of those wllo procure from nature wealthin its raw forrll.If nothillg is left after tiliS pritnary needhas beenmet, it is evident thathigilly elaborative industry, organized government, art,science,and otllerforms of cultllral activity are practically impossible.If,however, an excessofwealth abovestlchprimary costs remaills, oneof themostessential cotlditions of higher social activities is present. A surplus of this order was the produiZneZof tlle Physiocrats. The needs oftheagricultural laborer could be metby a portion of the produce of the soil, while such wealthas exceededtlle demands of agricultural labor couldbe employed for thesupport oftrades alldarts andgovernment. The extent ofthesurplus nleasured a columllllity's potentialities for cultllral development.
It is these primary riches,contiIluallyrenewed,which supportall theother statesof therealm,whichgive activity to all the otherprofessions, whichcause commerce tv flourish, which favorpopulation, whichaninlate illdustry, whichcreatethe prosperity of a llation.I
WhatthePllysiocrats were seeking to establisll wasa tnaterial basis forthecoonplex of phellomella tllatdistillguish a civilized and refined cotnulunity from a barbarous one. The prodstiS neS had no importance apart from its political and social effects. AgaillaIld again re are reIninded tllatit is IlOtreallywealthuntila population has arisellto deInand it.2 It is ofno SigIlificance untilit has transtnutecl itself, so to speak, into theactivities oftheartisan and tradillg anc1 professional classes. The transformation of surplusrevellue illto
IQllesnay,Grains,prilltedill Physiocrates, ed. B. Daire, vol. I,
272. 2 Quesnay, GraillS, p. p.
299.
883]
The EconoznicS?rplzgs.
higher social forms is explained according to thesomewhatnaivecommon senseofthetime.

The assemblage of a number of rich proprietors who residein a single place is sufficient to form what is called a city,wheremerchants, manufacturers, artisans, workingInen and domestics come togetherin proportion to the revenueswhich the proprietors spend there. In each case, theulagnitude of a cityis naturally proportioned to the number of proprietors of lancls, or rather, the produceof the landswhichbelong to them. The capitalcityis fortned in thesanle wayas a cityof theprovinces, withthisdifference, thatthegreatproprietors ofthe wholestateresiele in the capital.I
Two assumptions aretnanifestly Ilecessary in order to give clefiniteness anciIlleaIling to tllestlrplus thusconceived. It is necessary to assume first, thatthewages of laborare fixed at the z-ninimutn of stlbsistellce; and secondly, that population willautomatically increase until thewhole prodllct of the soil is consumed bylaborers ellgageC1 either ill extractive or elaborative illdustry. Under these assumptions the prod?i^S neSwoulcR be a fair oneasure of tlle laborforce at thecolnmaIld of society, alldthis, ill a society olllyslightly capitalistic, would be allapproxitllate measure ofitsproductive powers. In tllelaterwritings of tlleEconomistes we find both assumptions developing: Turgotstates explicitly that the laborernormally receiveslais bare living; aIld Malthus, whoill 11is doctrine ofrent tna7be classed with thePhysiocrats, expresses witll clearness theasslltnption thattllesurplus tendsto create itsOWI1 collSuIners) an artisan classtllat has to purcllase it with their toil.
Thus the ferti ity of the land givesthe powerof yielding a surplus, a rent, by yielcling a surplus quantity ofnecessaries beyondthe wants of the cultivators; and the peculiarqllalitybelollgingto the necessariesof life, when properly distributed, telldsto strongly and constalltly give a value to this surplus by raisingup a populationto
demand it.2
I (Dantillon, Essai sur la nature du commerce, p. 5, 6. 2Malthus, Pxinciplesof politicaleconomy, Boston, I82I, p. IT3.
H^nericazz Econo?nicAssociation.
[884
We areIlOt llere concerned witll theimperfect tlleory ofdistributioll wllich assigned to tl-le landlord theentire prodvi^/ neS,llorwith the fantastic tlleory of prodtlctioll whicllitnptlted it wllolly to tlle soil,or,sometilnes, to agrictllttlral labor. Wllatis of intelest is tlleextent of the surplusfundand the signiScance ascribed to it. The assulIlptiolls upon whichits defillitions are basecl are sufficielltly unrealas aplied to Inodern econoIl-lic life; btltbefore tlle development ofcapitalistic society theywere, perllaps,approxitnately correct. Wllen habitsof consumption werefixed and metllads of prodllction unchanging, the social cleveloplnellt of eacll community was illdeedclosely connectecl witha clistiolguishable surplus. SEC.4. The Pllysiocrats, then, attelnpted t0estalDlish a physical basis fortlleqrowth of tllatpartof society which distinguislles civilizatioll frozn barl:)arisIn. They sought an explanation forthe greatness of statescon ceivedas units. Assulning at tlle olltset, as tlley did, tllat thesurplus flowed intotllellallds oftllelallclowner, they did not enter intoa discussioll of its distributioIo amollg smaller units witllin tllestate. Yet tllewr reC nized the existence of a capitalist class,all(l adlnitteci tllattlle laborer couldsave "by parsilllolly."Thllsa partof thesurplus above the baresubsistelzce of labor remained in the possession of otller classesbesidestlle landlords.Uncollsciously tlleyhad illtrodllced a lae>7Wr classofproblems, thefurtller developmellt ofwllich was left to theso-called historical materialists. An increase in social illcotne, distl-ilJuted to the (lifferel1t classes ofa society ill proportion to tlleir orit,inal illcollles, wollld increase tlle llappiness of tllesociety as a wllole and advance it in civilization and culture. It would alsoincrease itspower tocopewitll otller societies
885]
The Economsc Surplgs.
in peace and ill war. A surplusthus distributed is therefore a factor of greatimportance in international politics. Illcrease insocialwealth, however, is not likely to result in a universal augmelltation ofthe original incomes ofthemembers ofsociety.Certain individuals and classeswill almostinevitably receivemore than the average proportion of it. The appearallce ofa surplus, therefore, will usually createnewclass distinctions, or empllasize thosethatalready exist. Tlle flow of llew income causesoneclasstogainill power alldallotller to decline. It is a potent factor in statepolitics, just as thesurplus whicll is conceivecR ofas an acquisition ofan entire coonmunity is a potellt factor in the politics of theworld. It is, however, only upon the asstlmption of static methods of utilization that a surplus of thisnature can at all adequately explain therelative riseanddeclil-le of societies orof socialclasses. A challge ill thellabits of consunlption, takingplace sionllltaneously witllall ilzcrease ill wealth, may whollyl-leutralize its socictl and politicalinfluence.A wealthystatewitll luxurious habits is not necessarily morefitted to survivetllana poorer state whose citizens have simpler tastes. If the development of thepersonal wallts ofa classkeepspace with theincrease in itsresources, it willnotneeessarily gailo either in numbers or strength.Now ill tlle ages preceding the distinctly zzlodern epoch,standards of consumption werefor themost partdeEnite. The sllrplus of foodproduced was a roughindication of the probable magnitude of thenon-agricultural population, andthewealth at tilecoulmand of a social class was a notinaccurate indexo-f its probable growth in power. In modern society, on theother hand, wants areso complexandsubject to suchgreat srariations that it would
American Efronomic Association.
[886
be hazardous to predict theresult of any bllt the lnost strikillg changesin income. While, thell,a surplus consisting in mere increasein wealthmay,even in moderll times, occasion cilanges ill therelative political and socialposition of statesand of classes,so many otller factors enterinto the problem thatit is hardly safeto atteollpt to explainconcrete phenomena bythe etnergence of surplus. rhe distinctioll between such surplus andnon-surplus parts of income is of great im portance inthediscussion ofcertain 11istorical probleIns, but it is questiollable whetller it throws any lightupon problems ofthepresent clay. SEC. 5. As a ruletheproductioll of goodsentailsthe lossof a certain amount of vital energy, and the COllsumption of thegoodsproduced restores energy to the human organison. Man has frequently existedin environments which afforded him subsistence onlyill returtl fortlle expenditure of all the energy wllichlle possessed.In sucllcircumstances a cilange inactivities which wollld require greater exertion would be illjurious, andanychange in thedirection of energy, eventhollgh it did not lneanan increase in its absoluteamount, would be attended witll serious risks,and xvould natuallybe avoided. Where, ontheother hand, theenviron ment hasbeenso favorable thattheconsumption of the goodscreated bya day'slaborhas yielded a quantity of energy more thansufficient to produce an equalamount of goods, variations irlthefonns of activity have been possible. Whereuncler such circumstances a conlpetitionfor existence took place aluongindividuals or groupsof individuals, a law of survivaltnay have forced thesurplus of energy tofind a vent in new forms of activity.The presence of surplusenergy thus appearsas a possible basis forrtariation in activity, and
887]
The Economic Surplus.
under thepressure of competition forlife may become a realcallseof economic and social progress.SUCI1 is thepartthat is assigned to sul-plus energy in Professor Patten's theory of progress,l in whiclleacll adaptatioll to theenvironlnent setsfree newsurplu.s energy wllich atltomatically transmlltes itself intoprogress. Whether ornotoneacceptsProfessor Patten's tlleory as a satisfactory accountof progress, one can harcily deny tllat it points outa factor wlaicll deserves consideratioll frotn all who seek for an explanation of tlle developlnent of a dyllatnic society out of apparently changeless barbarisrn.Tllereis accordingly a set of problelzls whiclljllstifies the distinctioll betweelltlle energy which is rlecessary to collserrte humalllifein its existing conditions alld tlle energy whichis freealld availablefor newuses,and whichjustifies tlleparallel distinction between tlle partsof illcollle which ma7be regarded as tlleobjective forms ofSllCh classes ofellergy. The three forms of surplus tllat havebeendescribed mayilldeed be properly denominated surpluses.Those parts of incotne or incometranstnuted intoenergywhichaccoullt forcontillued, tl-lough llnchanging, conditions of liferepresellt the 1lon-surplus. Those parts ofincollle tllat explainchange orprogress form thesurplusfund. If it is indeedtheessential function ofeconotnics to explain progress or change,politicaland social, someolleof tllese is rightly termed theeconomic surplus. SEc. 6. Muchofthepleasure andpainofliferesults
I Theory ofprosperity, pp. I86, I87, eZpAssiltt. It is to be observed thatin Professor Patten'sexpositionthe first stepin progress, from whichsurplus energy origitlally results, is merechanceadjustment to the environment. This requires the unnecessary assumptionthat primitive man actuallylived in an environment that barelyafforded himsubsistence.
10
X m erica n Eco n o m zc A!ssociv tion .
[888
froln thecozasulnption alld productio1l ofeconomic goods. A popular tneastlre of v;elfare is tlle Ilet amount of pleasure tllatresultsfromthe elatireeconotnicprocess. It llas often beetlsaid thattlle truecriterion of economic anlelioration is the growthof tlle surplusof happiness afforcled by economicactivities. Not increasein power or in wealtllorin energy, but itlcrease in the sumofproducers'and consumers' relltsis the illdex of progress. One need not accept the growth of surplussatisfaction as an acleqtlate explallatioll of the tllealling of progress, yetit mayserveas a workingprinciplein defaultof a better. The distinction betweetl tllose satisfactions which are lnerely sufficient to cover economicdiscolnforts alld tllosewhichare a llet ain to man thusserves to satisfvan intellectual1leed,and llence requiresllo
furt]-ler justificatioll.
Psyclaologicalsciellce has fora lollg time protested vellemently agaillsttheviewwllicllmakeseconomiclife a mere balancingof pleastlres agaitlstpains. Tlle protesthas receivedlittleattention from eco1lomists probably less thall it deserxes. EconomiccondlletCOtlSiStS in a seriesof OptiOl1S cleterlllil-led by a complex of final causes,of which pleasllre atld pain ll1asbe selectedas typical, although tl-ley are perhaps 1lot even the olloSt irnportalat otles. It would be errolleous, however,to supposethat tl-le adoptiotl of tlle psycholoCist'.s pOillt of viewurollld revoll1tiolaize econolllictlleory. Ecollolllists are notparticl1larly interesteci ila tlleallalysisof ollotives. Tlley seek to extrlaita actinzities, alld a<.suIne1notives nerelyas a collvenielltstartillt, lsoillt. In everv economicact tllel-e is a balallcislg of motives, a1ldwhat the particular onotives tnat be is to the ecollomist a matter
I For a *letaile(l discussion of progress regardedfromthis point of viewsee Nicholsotl, Pri1lelp]es ofpoliticaleconomy, iii, book iv.
to classall motives momeIlt.It is conxenient sonall of of an act undera perforIz1aIlce tl-le make fo1< which froln dissllacle wllicll alldall tllose head,t1tilities, single more Notili11g ullderthe head of disutilities. action theory. ofeconolllic forthepurposes is needed detailed as collduct econoznic to regard onechooses Wlletller or and pains, of of pleastlres of a balancing 1-eslllt tlle it is evidellt as abosZe, defilled anddislotilities, tltilities of yielda surplus will1sllally process tlleecotoll-lic tllat Utilities abo e paiolor clist1tilitZ. e or utility pleasu1 overwllicllmerely fall into tw) classes,those will ally allclthosewllicllare without clisutilities, balance acwill class Nowit is clear thattlle for1-ner oSset. plleIlomena.Tlae of econo1-llic fortlle totality Collllt Wlletller wllatsoever. potency llas no econotnic surpllls tlle molead to an act jllSt outweigh tllat motives tlle overbalance it,orenormously toprevent thattetld tives fortlle pay tlle Wlletller tlleact is perforllled.l tllem, the or(ler
I The ol)jectioll will
889
Ecoolomic TXle
S>rlbl2z.<;.
I I
be ,lll(l
z-aise(l
that
tile
stlr)lus
deterlllilles
ecollolllii of thecollorzlo(:lily chose] fist? c)rcler of choose choice to do here b stil} T)e selected millitllum
c}loice, . yields
thereftsre of what chosell yields of B.
pos.SesseY tell is atld 1let
eq ollomic B of five,
potetlcr. will 1lot of A
If be thi.s to the has
a surpltls
Bllt both tnvo, are A
Certaillly. if the the}
llle
ecollolllic If of it is
effect
selectioll betsseen
allyway?
llecessary ziizace arises represellted would it
a surpllls
Tlle Of the
+sere
otlly that
five, thell
inv>l-es viith tlle
surrell(1er
questioll pure sutplus
ecollomic
Sax that So llce
l)OteIlCy
tlle lollg to
sulplus
of A, to one, surplus surplus affirmed
fise. chsell? ill
reciucecl tlle pal-t is Inic here con(luct:. least
IlC!t A
will be
as B.
A It choice
affo-(-lfi is tlse that
prefe1-t u-hich in the has
of
ahove to be of
the
no
determiljes
?ortalo ce illl t, A kill(l yiel(l
e xplclll
the
ation
of ecollt tllal if ten just
critic
suggestecl
LIllitS of labor
,t)ay., alld olledetertllitles ullit so ill the
ill ullit
producillg of labor
A ill
a surplus, B labor.
wilile just pays, We of
elevellth the say surplus that
produc;lg ment yields ing. to such the belos plus, of
really the first
the
apportiotl-
nlay lo, the the
l!rio(ltletit to alnlo.st
ll of A
nvth^ reduce(l It is
a surpluIf, however, a mere
seconcl on
9, atld the
surplus
earlier woul(l
(>tl, dowll UIlitS of A were

remain on the the without amount
t-,
the
apportionmellt may of choice, be
salne.
extent the that
to shich minimum determines
preduction ground the
carried and not
descelldillg of the sur-
apporti,)llmellt.
I2
American Ecowsowizic AsvoczDaXiow.
[890
first l1our of a day'slabormerely suffices to insureits performance, oris faronore thansuicient to(10so, the work is accomplished. Whetller theformer relation of motives holdstllrougll the day, or whetller eacll hour up to thelastaffords an appreciable surplus, thequantity of ecol1omic activity remai11s tlle sa1ne. It cannotbe objected thatthe laborer wollldrefl1se to workunder the foruler conditions, or wouldxrork less dilige1ltly, for in tllat case thealleged surpllls wouldnotbesllrplus at all, but woulci forma part of the Slllll of lltilities necessary to deterll]ine tlaechoiceto work. Tlle same analysis nzay be applied to theso-called constlll1ers' surplus. If it is indeed a surplus, it is an econolllic epipllenomenoll. Econotnic tlaeory llas 1looccasion totake cognizance of itsexistel1ce. It maybe said that if tlle first laollr of laboryields no surpllls, tllesecond llollr willprobably yielda negativesurplus, and will tlaerefore be leftllndone. Tllat is qtlite true, but it merely signifies tl-lat tlaepresence of a surpllls servesas a basis forpreclictillg tlle COI1tinual1ce of labor. It is 1lottherefore a cause of COI1tinued labor. The shapeof tlleutilit clorve o-ives IIS itnportant i1lforlllatioll as to the value of a comlllodity under varyi11g conditiools ofsllpply andde1llallcl, blot tlle sllrplus included bytlle lltility curveplays 1lo part ill ecol1oznics until it ceasestobe a sllrpllls.l
1The pricecurveof aIlycommodity is theol-etically a.scez tailled by establishing theirnportance of any Ullit un(lerall .ossiT)le relatiolls of supplyand vant. Say that but otleUllit iS in exiRtellce, and tlleimportanceof it is one hundred. With tlle same volumeof vants, a hundred-fold increasein the numberof units of supplymayreduce the isllportance of any unit to ten. It is usually assumedthat the theoretically first unit will then yield a surplusof llinety. If we analyze the natureof this alleged surplus, we findthat in the first place it containsan elementof actual satisfactioll, or rather utility. A hungrr man does unquestionably receivemore pleasure fromthe
89I]
The Economic S?rplus.
I3
SEc. 7. At any particular titnetllereis a rate of wages thata workmall will consider natural and thereforejust. A skilled laborermay believe that three dollars a dayis a fair wage. Offer him twoand a half and lle will probably refuse it withindignation. Tllis doesnotmeanthatthereduced wagemigllt not cover all thesacrifice thatthe performance of laborinvolves, nordoesit meanthatthetnoney earned in tllelasthour doesnotcover theactualdisutilities, consisting in wearillessanddeprivation of liberty, entailed bytllat hollr of labor. Whenunemployed he maycravetlleexercise of hisaccustomed activity, yet he would feel thatto rork fortlle lowwageswould lllean tlleincurring of a net loss. If,oll theotller llallcl, lle is offered threedollars anda halffor a day'slabor, he feels that he is receisZing a netgain. Manifestly tllere is llo a przori reasoll why three dollarsshouldbe theincome selected as thepreelllinently just one. It is a lllatter of commoll experifirst slice of breadsvhich lle consullles than fromthe last. This surplus however, is insigllificallt wiletl comparedwiththe total surplus mhich figures ill the diagramsso popular ill economicdiscussions. The secolldpartof thesurpltls consists in the " pain obviated " by the presence offood. The first part of thesurplus is a factof COllSCiOUSess, thesecolld partis soslletlling which existsneither in consciousess noroutsideof it. It is aolidea withno foundation in reality. Hobson, EDconomics of distributioll, p. 4ret seq., has pointedout thetruenature of thiscurious" surplus." DeprivatioIl offoodis the destructioll of llumaIl life; therefore when the stlpply of food is threatened the whole worthof life objectifies itselfmomentarily ill the possessioll of food. The colltrolof the bareuleaIlsof existellce represents theutility of all tllat one has or ever hopes to llave. To assigllt;he utility of all of the good.s of lifeto each otleof the necessariesof lifeis so olviouslyfallacious thatit is ast(3nishitlg thatit has everbeen d(ne outsideof the popularrhymetllatascribesthe loss of horse and riderand battle " all to the want of a horseshoe nail." The stlbjective surplus,describedill the only legititllate way as all actualsurplus of satisfaction, does notevell give lIS inforrnatiotl with regardto the pricecurve. That it esists is a grollndfor optimistic reflections as to humandestiny, blltitseenlstohave no fttrther signifi. . cance ln economles.
I4
American EconomicAssociation.
[892
encethatthestandar(l of jtlSt payments varies from acre to age and from place to place. The coolie I10 doubt has hisideasofwllat is fair ill wages, jl1st as theskilled mechanic of America has his. The stanclards, we ca readily see, are based UpOIl e,Yperience. Wllat a Inaz1 has beenaccustotned to have,alldwllat he sees lllose whomlle regarcls as of his killdreceiving, deterlllilles what lle willfeelsllollld }e hisill tl-le preset.lt. Therearelilsewise rates ofillterevst tllat are co1lceied to be jtlSt, andratestllat tlle1lattlral llla1s, at anyrate, wotolci prollounce tlnjtlst.The sallle tlli llb iWs trtle of prices. Tlaese stallclarfls, like t'le stallclarRs of jllst wages, areilldi.<;ptltalDl y tll e l eslal t ofexperiellce ofwllat loasbeenor ofwllat is elsewllet-e thecase. It is poc;sible tc) divicle actl1al incolne.s illtO twop vrts, olleofwllich correspotlds with StlCIl Stalldar4S, EVllile tlle otller meastlres tllevariation, positive or llet,ative, frc)n t}leln. The same classificatioll lvill llolclfo1 prices, si1lceprices arelnerely ulldistribllted ilaco1lle.s. No^X7 it is cleartllatthe first partofincome, ifisolate(1, WOII1Ci tenci to perpettlate tllekinds andvolllllle o- tlleactivities wllichprodllced it. Tlle secollcl part, vvhetller positive or negative, wouldleaclto a cl1atlge in sllcllactivities. Tlle laborer who -feels tilat lle is llOt trented f1il lyas conapared witll others of hiskitld, wllol)eliees tllat llis income i.s clinlillislled bytlleexistetlce o-f *legatize stlrplus, willseekto plltllimself illa pOSitiOIl Wllele he lllRy secllre g1-eater adralltages.He lllaybe per.sotlally U11abletodoso,butllisactive discontent nvill serve tonrC*e otllets Wilo areit1a likeullfavorable .sittlatioll, btlt svllo are notso specialized tllat tlley are ullable to challge their placein tlleecol1omic organistn, to seektlleopportuni ties that tnorefavored workers possess. If the entire class is degraded, alld tnosTelnent is impossible,
893]
The Economic SrtSus.
I5
there arestill likely to lJe inflllenees at worklessening theefficiency of laborers, aIld cutting downtheir nutnbers. A positive surplus llasa siluilar setofefTects, but in tlleopposite direetiolz. A sllrplus of tllis kind is all evidellee of a dynamic change that has takell place. Tlle existellceof standards points to tloe fact that witllin a certaill lilnited field illcomes llavebeezz statie. A perpetually cllangillg rateeollld afford nc) expeetatioll as to theftltlll-e. ViolatiOll of standards showstlaat a change ill theecollotnic sitllatioll oftheclasses who llold stalldards ofineoIne has takenplace. Btlttlle existenee of the sllrpltls llas a Illoreilllportallt significance foreeonolnies thallthis. It indieates tllatfurther dynalnie lllovemellts lllllSt take plaee. Industry mustbe rearranged untiltlle sllrplus allllihilates itself ill thecreation ofllewstandarcls.l S}e. 8. It is a wellreeognized faet tlat tlleproduetivityof anyeeollotnie agent is eoIlclitiollecl botllby its ownillherellt qllalities andbyits qualltitative relatiolls with eolllpleInentar agents. trlle pr()dllctivity of a
lThe writer is awareof the fact that the term" stalldar(l " as employedin thissectioll violates,to a certaill extellt, establis'ledusage. By " stalldard " itlCOnlES we usuallytnealltllosewhicllwotll(-l exist if indu.stry weresuddenlyto obey tlle laws of freecot-npjetition The term is hereuseclto desigllate all incotlle Wllicll has beell establishe(l longenoughto have becoulea fixeddat.tltll ill theszeial COllSCiOllSlleSS. If the incomesof all laborerswere sllddellly to conf()l-tll to procluctivity, largenulllbels of laborers would at fir.<;t be il]flvlenced exactlnr as thoughtlleyfc)lltlcl themselves ill a specialls fanore(l etlvirontIlellt. Instead of renderillg societlr static,tlle challge wolll(l rellderit intensely dytlamic. Whell, 11owerer, ttlelaborershave hee(me accustouled to theirnexv incomes,allel loolz upoll tl1e'tt1 as a nlalterof course, thedyIlatnic influellce of tllellesv orde1hecottl(s ullimportazlt. Incomewhichis socia]lyregarded a.sa stlrpltls, ts e 1 lll.ugil frotn tlle point of viewof pure theory it is not a stlr;)llls! exert.s t11e (1s!1laIllie influence of a sllrplus incotne. In seeking fora CliStitlCti()ll !.)et\\eel1 incomeswhichaccoullt fol challbe al1c1 illcomessT1licil atCCX11t for persistetlce, it appearsto he besttl)I:lefillzB t11elatteras illcm S which are sociallyregarded as norlnal.
givell agellt willillerease ordecline withtheincrease or dilninutioll 1ll the quantity of complementary agency combined witll it irl production. If we assumetlle worst possible ecolaomic position forlabor, itseconoll1ic product willbe zero. It willbe a " free good,"andthe entire return whicllit cooperates in producillg willbe imputable to the otherfactors in production. If the quantitative relatio1ls are varied,the share of labor emerges and i11creases, while ttlatof the other factors di1ninishes. Whensuchcllanges ill therelatiolls ofthe factors of production actllally take place,tlle resulting increase illillcome for tllefavored factor, anddecline for the factors wllich areprejudiced, areatfirst felt tobe surpluses, positive and negative, similarto tlle surpluses disctlssed in thelastsection. They setill lnotion secondary dynatnic forces opposite in direction to tlle fo1-ces which created theln.Iftlle secondary force is lesspowerful tharl thepritnary olle.it sperlds itself before itcarlrestore the forIner qualltitative relations, andllewstandards for tlleillcoznes affected areestablished.When, for exatnple, capitaliIlcreases relatively to labor, theimmediate effect is to createlligher wagesand lonver interest. A positive surpllls appears in wages, a negative sv1rplus ill iz1terest; andtheeffect of tlle existence of sucllsurpluses isa further dynamic cilallge. Laborwillprobably increase ill voluIne) while tlle rate of SaVillg will be sornewhat cRimitaished. Theseeffects need110t, however, be suflicieIlt to l1eutralize the effects of theoriginal increase ofcapital. After thesecotad setofdyna1llic forces have exllallsted tlleir inIStzence, there maybe a l1et gain to laborallda netlossto capital.l
1As will readilybe seen, this is essentially the surplus which appears in Professor Clark's discussionof staticincotnes. For the sake of simplicity Professor Clark has abstracted fromtheeffects of
I6
ARmerican Ecowzomic A!ssociaZion.
[894
895]
The Econownic Suorplzes.
I7
If we wishto explain collsistently theexistencein the present of the standardsthat are so important in economiclife,we can but begin by assuminga time when each concreteincome was felt to be a surplus. That surplus, ullneutralized by dynaulicresults, was first crystalized into a standard; alld thatstandard has received a successiollof accretions, as the dynamic forces which create surplus income have exceecled ill powertlle dynamicforces whichsurplusillcomeitself creates.Standard or staticincomesthusresolvetheInselves intoseries of sllrplu.ses which we tnaytermstatic,1lot fromtheir callsesbut from theirfreedom from dytlal-nic results. SEC.9. It is not claimed thatthe foregoillg classification of surplus fllndsexhausts the list thateconomic writings offer. Ill current theory, llowever, when an incomeis classedas surplus, it is usual]yfromone of the pointsofview whichhave beell enumerated. It is here maintained thatforthe purposesof economicclassificatiOIl all are IlOt equally siglliScant. Ecollomic science exceedsits domaill when it createsclassificatiolls that have no imluediate bearing upon its own celltralproblellls. Wllat those probleInswill be ill tlle future we have no meaIlsof kllowillg, bllt ill tlle preseIlt econolnic interest llnquestionably centers in the problems of value and distlibution in a stateof societyin whichcompetitionrules. Current tlleor!seeks to explain the activities whichresultin the establisllmellt of standards, and thosewhichcause the standardsto change. A present incotne reactsUpOIl future economicactivity. Solne inthe secondary dynamicinfllellces not overlooked thenl,as someof thecritics of" The distributioll ofwealth" havesupposed. In orderto escapea similar misunderstallding, it is hereassumedthatthe standardswhichmayhistorically be analyzedintosurpluses restllt from the net forcenvhich renlainsactive afteropposiug forces have been neutralizecl.
2
I8
AmericanlEconomic Assoczation.
[896
colnes tend to maintain themselves unchanged; others possess a power to induce change, a power whichby its ownnature mustdisappear, leaving behind it a permanetlt income which assimilates itself totheclassofstandard incomes, tending in like manner to perpetuate itself. The phenomena ofstandards, of economic persistence, aremanifestly primary in a theoretical sense; the phenomella of change,thoughaccounting gelletically for theexistence ofstandards, areat anygivenpOillt of time secondary.Accordingly, to classify as surplus the incomes whichat a giventimeproluote change meets the claims ofeconomic logic. The dynamic surplus is the ecollonlic surplus par excellence. Normal wat,es lnaybe taken as a type of stalldard incomes, alld pureprofit or at least certain elelllents in pure profit, as typicalof ecollomic surplus. Where are wetoplacethereIlt oflalld? Doesitdevelop standards nvllich tend to perpetuate thelllselves, ordoesit tend to disappear? A satisfactory answer to thisquestion, it is here luaintained, wouldsufficielltly determille thepositiOol of rent in econololic tlleory.It wollld decidle whetller rent is to be classedwitll wages and interest, orwitll profits and monopoly return.Tlle conception of rentis, however, farfrotll clear, aIlditseconomic relations arethe subject of vigorous coIltroversy. It will,therefore, be necessary to clefine what-ishere meant bytl-le term rent, and to exallline the theoretical validity ofthelongseries of distinctiolls that havebeen drawn between rent on theone handand wagesandinterest on the other, as well as the significance ofthe analogies tllathave led economists to regard rent as a species ofprofit orofmonopoly gain.
CHAPTER II. IN PRODUCTION. FACTOR ASANINDEPENDENT LAND fonnsof incoulethathave SEC. IO. Of theconcrete oflalldwasthe therent as surplus, beenclassed sually has a pOSitiOll andso prominent to be defined; arliest " rellt"and " surplus" givento it thatthe terms Deen of If a form zave come to be used interchangeably. as a it is at oncetreated to be a surplus, appears ncome of someof thepeculiarities {indof rent;if it presents surplus. If rentis rechristelled it is forthwitll rent, that all incomes differential, as characteristically yarded are are differelltial of view or another onepoint rom as resiincomeis defizled sllrpluses.If sllrplus nalled rents. It is I10 are terlned inconaes Sual,all residual partof tlle incorlle every thatpractically then, wonder, as rentby one economist has beenclassified f society of thinkers and that two of the foremost Dratlother, Patten, andProfessor Clark Professor econolnics, modern reasons concluded forridely dilferent have thotlgll from which of an incotne olleaspect is merely rent that nalne. of viewbearsanother points other land tllat economics of historical It is a colnmollplace coin prodllction giventile rank of a factor wasfirst simplereason withlabor and capitalfortl-le ordinate econozny, political ofclassical thehollle in England, that the from a social class distinct formed the landlords laborers.lLand, it is saicl,is therefore ancl capitalists only in a significant category, an historical merely in theearlynineteenth suchas thatof England society all ill which thatin a country century.We mayadmit
1Held, Zwei BucherZU1- socialeIl Englands,I6I. Geschichte
20
Economic SssociaSon. Smerican
[898
of or less degreethe benefits classes sharein greater would nothave been so likely landownership. theorists the differences toperceive, orat anyrateto emphasize, property which likeit produces between land and other that aot ulean, howevel-, a permanent incozue.Tllis cloes is tobe reit is defined, land,bywhatever characteristics lalacllorcls ofincome only where garded as a distinct soul-ce ofscience socialclass. The history area sharply deSned of truth.s whicllremailled furllishes nllmerous examples of a of phellomena unknown tIntilthe exarnination do attention to them. They not transitory nature drew when the necessarily become untrueor unimportallt to owetheir introduction particular 1leed towhichthey of the thought has passedaway. Whentlle reciplellts a special class in society, income from lalldcollstitute the progress or declineof rent thelawswhich govern since andsocialsignificallce, havean additional political affect the 1lecessarily such progress or decline Irlust the But classproblems arebeyond socialconstitution.l lDl-iproper, whichis at presellt bounds of ecollomics the producmarily concerned withthelaws goverllillg of wealth, ratherthalawiththe tionand clistribution alld eflects of stlcll productioll ulore retnote sociological that if lalad call be disIt willbe readilyacionitted pl-oductive goodsbycllaractertinguislled from artificial therent of ecollomic significance, istic.s thatare of true as a distillct formof illcozue. landshouldbe treated which of a groupof pllellomena Anycategory consists ill causes,or are aflectecl, areduetothesatnegeneral
the category of groundrentas irrelevant 1Professor Pattenregards laws whichprevailin a societylike that to a study of the ecotlomic p. 5). But the problenls of modern America(Theoryof prosperity, to solve wouldat presentbe called whichProfessor Pattenelldeavors sociological rather thaneconomic.
distributiolz.
899]
Land as an IndejpendenZ EacSor in Prod2zcSion.
2 I
themain, bythesameforces, or which,if theypossess catlsal efficiency, aresimilar in thoseeffects whichare selected as ofprimary importance. No onequestions the validity of a distinction between laborandcapital, and thereason is simply thatthetwofactors naturally COlltrast themselves. Only extremely metaphysical econoznistsarecoznpel]ed to rely uponclassdistinctions tomark off tlleonefrom theother. Some writers have indeed classified as interest certainpartsof the incomeof laborers; as, for example, the resvard for acquired skill. Origin in abstinence they assume to be the distinguislling characteristic of capital, and acquiredskill the result of a sacrifice of present enjoytnent for thesakeof future gain. There are, however, otherfactsbesides origin that must be taken intoaccoullt in the establishingof economic categories.Does an increase incapital diminisll thereturn to acquired skill,oris it ratllelan increase in populatioll thatcuts downthe incomeof skilled laborers ? Doesan increase inskilled laborlower orraisetherateofinterest ? It appears tobe reasonable toholcl that skilled laboris subject to thesamedyllamic influences as unskilledlabor, not to the inlquences which aSectcapital. It is best, therefore, forthe purposes of economic theory to restrict rather than to extencl thecotlceptioll "personalcapital,"aIld to regard all labor as contrasted with capital. The characteristics whichwereat first chosento distinguish land from capital were unquestionably inadequate for the purpose. Theremay, however, remain good reasonwhyit is theoreticaIly justifiable to treat lalldas an independent factor ill production. SEC. II. Earlypolitical economy found no diffictllty in distinguishing between theseveral factors ill production. AdamSmith andllisimlnediate followers usually
22
4 mericv Ecoozozzic ASssociation .
[9oo
dealt witll typesthat wereso ehosenas to eontrast strongly, notrith elassifieations arllieh weredesianecl to inelude all phellomena that should logieally be iIleluclecl. Laborwasrepresented bytllelnanual xrorker whogave shapetoeoml-llodities at tlleexpellse offatigue andpain. Capital saras a stoek ofprodueers' goodswhieh had lDeen elldowedwith tlleirusefulness by human ageney. ''Lalld'' meallta fieldor lneadow whiehhad sufferecl little trallsformation beyond thesligllt ellanges ineident to the growing alld gathering of its produee. Toil, goodsereatecl bytoil,andgoodsfreelt givenbynatllre, these werethree perfeetly clefinite eategories.Aclam Smith, indeed, marred theelearlless oftlliselassilSeatioll byineluding underlandall agrieultural ilnproveonellts. Butevellwllere muelllaborhad beenspent oll ilnproveulent, lalld appearedto be quite distinet from instrutnents ereated bylabor. As SOOl1 as theworkof establishing thoroughgoillg elassilSeatiolls was undertaken, it beealale evident tllat luany otherkillds of producers' goodsrere as truly the free gifts ofnature as was land. Henee it eame to be thefashion to substitute the term " nattlral agents " for land. We maytake Say alld Senior as representatives ofthistendeney:
Underthe term"the Agents offered to us by nature,"or,to tlsea shorter expressioll, " NaturalAgents", we illclude every prodlletive agentso faras it does not deriveits powersfrom the act of mall.l
At thesametimethat tlle term"land" or " natural agents " wasappliedto a eonstantly inereasillg group of objeets, a tetldeney mallifested itselfto witlldraw from theeategory of landelements in its produetis7ity whici aredue to human ageney.
1Senior,Politicaleconomy, p. 58.
gor]
Land as an IndependenE FacSorin Prod?cc/sow?^. 23
A hot house for the raisingof exoticplants,a meadowfertilized by judiciousirrigation, owe thegreater partof their productive powersto works and erectiolas, theeffect of alltecedentproduction, which form a partof thecapital devotedto the ftlrtherance of actual alld presellt production. The samemaybe said ofland newly clearedand brought illtO cultivation;of farm-buildings; of enclosures; and of all other permanent auleliorations of a landed estate. These values are items ofcapital,though it be no lollgerpossibleto severthenlfrom thesoil theyare attached to.l
A hothouse or an irrigation plantmay, in thought at least,be separated frotn the land to whichit lends productivity. But whell a fieldis clearedof stones, there is no material thing, apartfrom tlle landitself, which can be called the product of labor. Sucll land is a tnaterial objectto wllichutilities have beenadded by humanexertion. Nothing more,however, can be said of any of the so-called products of labor. Why should onesaythatlaborproduces a brick, but merely adds intangible utilities to land? Fromaol econorllic pointof viewas radicala changehas takenplace in thelandwhichhas beenreclaimed from bogorjullale as in theironwhichhas beellwon frotn theore. The wterrace gardensof Europe owe theirusefllllless to toil; they are the product of labor,if anycozntllodity canbe so designated.But ifwe adonit thatlandin its economic aspect may sotnetitnes be theproduct oflabor, logicdetnands that weclassify as theproduct oflabor all soil theutility of whichhas beell enhanced bylabor. As applied nottovaluesbut to physical objects, " lmacle bylabor " is a quality which doesnotadonit of degrees. It does not distinguish between an ordinary brickand themostexquisite products of industry.Withsuclla quality as the distinguishing characteristic of capital, coal in the depths of the earth becotnes capital the moment whenthefirst earth is removed from themouth
1Say, Treatise on politicaleconomy, Biddle,Boston,I824,
p. I6.
24
Association. American Ecoozomic
[9oZ
of the shaft. Ishe soil of the earthbeomes capital for earlier, furrow is run-indeedlnuch whenthe first he has, hisnewhome, setsoutfor as soonas thepioneer to usefullless tllereductioll laborfor in eSect, expended into tllat soil. In to flow ofvirgin soil,andvaluebegins illtO capital ofnatural agents this viewthetransforoning thana rite. is little lllore logicalecothatthemore SEc. 12. It wasinevitable wasas colorwhich discard a distinction nomists should as capital decidedto designate lessas this. Some harre agency, thus at all byhutnan maybe changed whatever butthequalities oflandnothing leaving to thecategory theview and position. This is practically ofextension Commons. ofProfessor
is simplyroom and sitgation. to all industries What land furnishes and distributiony idea of land in production This is the fundamental of the earth. Not land, but. morethatlthe baresurface it is nothing of nature. and ulaterial the forces, energies capital,embodies in clearingthe land, Soil is capitalas soon as laboris employed fertilizing and planting.l plowing, fitting, draining, fencing,
by Professor is maintained Altnost the salne pOSitiOll Marshall:

Whenwe have inquiredwhat it is that marksoffland fromthose as products ofthe land, we shall find whichwe regard material things ofland is its extension.2 attribute thatthefundamental
thatis boughtand soldand What thisis,however, underthenaIneof landis not " generally " economized n ": it is a " or " extensic mere" roomand situation qualitiesof whichfer-physical objectwithnumerous as typical. tnay be taken for support tility and capacity for q1lantitative selected is thequality Surface extension tomeasure other is selected justas weight measurement, Economicallyt importance. ofeconomic physical objects
p. I92" Principles of economics, 2 Marshall, of wealth, p. The distribution Commons,
29.
903]
La^td as a^z Indepe^zdenS EacSow in Produrfion.
25
extension and weigllt arenot " fundatnelltal,'' altl-wough theobjects whichpossesstllem couldnot be collceived without them. The importance oflalad varies from zero t:o a positive qualltity of a higlldegree according to its situation relatively to population. Situatiollis llOt therefore thefulldatnelltal quality that elldows laIldWitl 1ltility. Beefmay be a freegood in partsof South Atnerica; weshouldnotforthatreasollsaythatit is situation alollethatgivesit valuein New York. Land possesses, incleed, "place utility "; it possesses also elemelltary and forln utilities;andit wouldlDehazardous to declaretllatfor all lalldone kindofutilities rather thantheotllers is fundatnelltal, and distinguishes land frolll all otller ecollomic goods. It is notdifficult tosee whatit is thathas led to tlle adoption of suchan ethereal collceptioll of land. It is clesired tofincR a cleardistinctioll between lalld on the ollellalldalldtheproducts of laboroll tlle other. Extensioll anci situation are indeedsoulething thatlabor eannot literally create, whilemany oftheother qualities of lancl tnay be artificially produced. While,however, thevalue of clear distinctions cannotbe denied,this divstinction, it is obviotls, does not reallymarkoff oIle classofeconomic phenomena frolrl another, andis therefore valueless.l SEC. I3. Another view, frequently associated witll the foregoing, distinguishes between landandcapitalonthe ground that they do notbearthesame relation to cost. The early ecollotnists heldthatcapital derived its value from cost, whilethevalueof landwasdependent solely uponlimitation. This view appearsin AdamSmith,
1For a further discussioll of thefutility of thisdistinction between capitaland land see Fetter, Recentdiscussion of the capital concept, QuarZerZy Joxrnalof Economics, Vol. XV.
26
of valtle the cost theory wllerever is stillcotumon and the that recognize nvho those Butevenalnollg survives. productivby lalldalikeisdeterlnined ancl ofcapital value detertninant true the is notcost, limitation. andthat ity, todraw areinclined wll() aresotrle there procluctivity, of tlle two agentson the ground between adistillctioll equal cost,while the value of capital telldsto that The formof of land showsno sllchtendency. that costentreprelleurs' llereis obviollsly figures that cost for necessary oritsequivalellt in money expenditure the thatthe of a good. It is thecontention production the exactlyto covertllis exgoodtends of a capital value soprogressive whiletllevalueoflalld,in a penditure, it thecostof appropriating exceeds always nearly ciety, of expression use. A conservative it for preparing and viewis thatof Siclgwick: tllis
to assume that the rent of the same time I thinkit reasonable At in excessof illterest materially is lalld in England agricultural much nowbe required nvould ttlat the expellditure rate) <)11 thepresent (at ofeEciency degree present its to coll(1itioll its origitlal it from bring to produce.l agricultural mith its markets supplyillg for
^coazosozic mericcrz X
. tion A ssocicr
[9o4
wasinthecostthat exceeds The vallleofland,tllell, of the and ionprovement in the appropriation curred its goodequals cost. whilethevalueofanycapital land, thisviewis uponwllich theassutnptions Ifwe exanline the ill tllecaseof thecapitalgood we findthat based, sale and in productioll competitiool ofperfect assumption comSuch of tllepropositioll. to thetrutll isessential adethatboth}uyerandsellerpossess itnplies petition andofprobproduction of thecurrellt quateknowledge is peralldtllatthere in itsvolume, changes ablefuture favorandfrom ofcolubillation all forllls from freedozn fect orquasi-governtnental on thepartof governlnent itiSlll
3(l ed., p. 287. ofpoliticalecollomy, 1Sidgs ick, Prillciples
905]
L^zd as clnIvdepeâdev! FacSor in Prodzuctiost. 27
fullctionaries. AOoreover, it ionplies tllatall changes whichcan not be foreseell nvillbe 1lletby a perfect system ofinsurance WiliCll eliminates risksfortheindividllalproducer.Underthese collditiolls all willagree thata capitalgood as it leavestheproducer will have a valueexactly equal to itscost. At an laterdateits valllewill be less thancost; but we ulaylook UpOll a worn illlIDlemellt as Inerely a fraglnent ofa forlner whole, as a certaill nulllber of the utilities thatwerefonllerly embodied ill thenewitllplelllellt, andlllay collceive ofit as stillworth what it specifically cost, theother utilities, destroyed in use,havilag beenreplaced outofthesinking fundthat a properly calculatecl capital good would create, or havingbeen paid for itl collsumers' goodsof equalcostandvalue. It is obviousthattileseassumptions areullreal, but theyare usefulforcertaintheoretical purposes. If, llowever, we wisll to distinguisll betweenlancland capital on thebasisofsuchassuIned conditiolls, weTIlllSt be careful to applythesameassuz-nptions in discussing therelatioll of landvalue to the cost of appropriatint alldimprovitlg it thatwe applrto capitalill thediscusSiOIl oftherelatioll ofcapitalvalueto capitalcost. If,ill the traditiollal manoler, re postulate a settled COLnmUllity with unoccupied landUp(-ll its borders, and trace in imagination tlle gradllalgroartll of population andtheprogress of theappropriation of land, assumint, orce alldfralld andfavoritistn outofexistellce, as we do in thecaseof capital, andassuluing full kllowlecige on thepart of numerous persons of thecurrent alld future detnand for tlleproducts of thesoil, it is obvioustllat eacllzoneof newlandwould be appropriated justwhen tllecostof occupation wouldbe covered by the value which tllenewly occupied landwouldpossess. At tllat
28
American EcovomicAssociation.
[906
particular time, tllen, therelation ofthevalueoflandto itscostwouldbe identical withthe relation of capital valueto capital cost. If we use theterm" illcome " ill a sufficiently broad sense, thiswouldmean an identical relation of permallent inconle from property, whether capitalor land, to the costofacquiring thatproperty. If by"income"we meanthe goodsactually prodtlced, there would, indeed, always be a disparity in the earnillgS 05 forms ofproperty ofequal valuealld equal cost. tRhivs wollld result fromthe factthateach formof property would changein valllefor reasons partlyindependent of its current productivity; hence there might be a rise in value whichwouldbe estimated asa 1letaddition to theincome in goodsproduced, or a decline whicll would haveto be deducted from such income.
In the circumstances whichwe have assumed,the valueof the lallclwould rise; accordingly a part of the income froln thelandwouldtaketheconcrete form of an "unearned incretnent" in land value. Artificial goods, on the otherlland,woulddeteriorate, but the gross valuewhich they would produce would beso great that thenetvaluewhich wouldanllually accrueto their owner would be exactly equal to thenetannual adclition tothe wealtllof the landowner.Througll exchange either property ownercould turllhis net incomeinto consumers' goodsadapted to his use,leaving thesources of hisincozue unimpaired. Social habits, illdeed, migilt discourage a manfrom aliellating that partofhis income which consisted in the increased value of land, since sucll alienation would require either the sellingof a part ofthelandorthecreation ofa mortgage debt acts which carry withtllem the stigmaof ionpoverishment. It is conceivable thata social habitmight arise com-
907]
Land as an Indetenden! FacSorin ProducSion.
29
pelling theordinary capitalist to setasicle as permanent capital a fraction of llis annual interest, just as it is cotning to be theapproved custoln fora corporation to accuttlulate a surplusfund. But sucll a habitwould notalter theecollotnic nature of theincrease in svealth. It woulci stillremain a portion of thenetillcozne. Anyolle who purchased the land from its original occupant would,as Sidgwickasserts, paymoreforit thanthecostin laborand capital tllat wouldthenbe required to bringit frozn its original condition to its state ofproductiveness at thetime ofpurchase.Butthe costin laborandcapitalthatthefirst occupant incurred in ituproving the landsrasolllya partofits totalcost tohim. Another part collsisted in tllecollsutners' goods whichhe had to forego ill orcler to holclthe landand securethe itlcrease ila value. If to-day I pllrchase a pieceof landwhichyields no income, butwhichI expecttorisein value,it woulcl be obviously absurd tosay that wllen I sell it tenyearsfrom llOW thetotal cost to mewillbe thepriceI paid for it. The interest on that outlayforten yearswllichI sllall foret,o will be just as llluch a partof thecostas theprincipal. Fromthe point of viesv of theindividual landowner, theincrease in valueof land is tllereward for a form of abstinence which is as true a costas allywhicll tllecapitalist undergoes. Assllming perfect competition, cotupetition enlightelled by foreknowledge of futllre conditions, ----the relation of landvalue to cost doesllotdiffer from the relation ofcapital value to costso faras theilldividual buyer orseller is concerned. Land hasnot, however, beenappropriated under conditiolls of perfect cottlpetition. Favoritism and fraud have tainted muchof the original occupatioll of land evenin ourown relatively just age. Merechancehas
3o
Asnericasz Ecozownic Associafion.
[908
playedan ellormous partin the distribution to individualsof thevalue of land,enriching somealld despoilingothers. It is ilupossible to saywhether ornot the totalvalue of the land in thiscoulltry exceeds its costto individuals, including in costbothof the elements discussed above. Moreover, anyinvestor in land is uncertain wllether he will gaintllrough abnorlual increaseill value,or lose through less thannortnal increase or positive decline;and uncertainty, it mllstbe rememlDered, is itself a form ofcost, andonust be taken intoaccount whenwe estimate total cost. Yet,whenall is said,thegreat ulassofthelandvalue of to-day is the resultof a reasonably calculablerise wllichhas taken placesince theeraofwildspeculatiotl and land robbery.Tllat riseis capitalized in tlle purchase price long before the circulnstances of current production warrant a change in thevalueoftlleland, and tothe present landllolders itrepresents tllereward for saving. Tllerearestill, andprobably always willbe, spasmodic movements ofpopulation which transfer values in an unforeseen manner from oneto another. Cllanceincolnes willalwaysattachthemselves to landownersllip. Butin thisrespect land can llOtbe placeditl a classby itself. All of the elements that vitiatea competitive valuation oflandinfluence thetnarket vallle of capital goods. No oneis unfalniliar with theenorn-lous speculative gains that result frotn dealing instocks that represent nothing but aggregates ofcapital goodsofreproducible kinds. The increase in thevalueofwheat whichtakes placebetween October andMayis tlleresult ofa norzzlal, inevitable, calculable change in therelatioll ofsupply to demand. The normalincreasein lalld value is the same, in essence, difiering only iI1 tlle facttllatit extendstllrough a period which, measured by the lengtll
gog]
Land as an XzdependenS FctcGor in Prod?cSion.
3 I
ofhuman life, is indefinite. Along withtheregular and normal increase in value thereare alwaysspasmodic variations whichresultin greatspeculative gainsand losses. Andwhatis true of land and wlleatis trueof practically every comsnodity on the lnarket. Absence ofchance itlcome is theexception, nottherule. Thusifwe assume ribidly static conditions, wedo not find a diflerence betweell landalldcapital, so faras cost to the individual landowner is concerned.If, on tlle other hand,we take intoaccountall dynatnic factors, we must admit thatthevalueofneither capital nor land corresponds very closely withcost,and thatlmorpover, it is impossible toprove whicll factor shows tllegreatest average variation from cost. SEC. I4. The questioll will naturally arise wllether thisdiscussion doesnotoverlook distinctions thatareof fulldamental ilnportallce. We maygrallt tllattlleholdillg of land involves subjective costssilnilarto tllose which arelDorne bytllecapitalist, yetre maydeny that it is of real social utilit that allyoneshollldassllme suchcosts. If one decicles that insteadof consuming hisentire income he willuse part of it forthe productionofa newmachine, society is clearlytlle ricller by an adclitional sourceof income. But if lle uses tlle samepart of l-lis incollle in tlle purchase of a rightto secure all increase in tllevalueof land,all increase that takesplacequitewitllollt regard to theact of purcllase, wherein is society benefitecl ? Is our stockof land increased, or its prodllctivity ellhanced ? Again, when new capitalis created, productive energy is diverted from themaking of goodsfor consulnption to the creatiOll ofproducers' goods. The abstinence WlliCll figures in thecreatioll of artificial capital goods thustneans a
32
Amew ican EconorticAssocicrGiooz.
[9IO
dimillution in tllesumofimtllediate soeialsatisfaetions. Is tllere an a1lalogous eostin tlleease of land? As Professor Clarkhas elearly shown,l the eapitalizationof the expeeted rise in land value is in onodern tiones oneof the the ehiefimmediate indueements to thedevelopmeIlt of neweountries.The earllillgs of a settler on theWestern prairie, apartfrom theinerease in thevalueof lliS homestead, werefordeeadesridieulously low. No onenotuncler thepressure of extreme wantwouldllaveearedto passyears of hislifein a loghouseordl1g-ollt ifhe had hadnothing toexpeet beyond theseareely lnarlcetable produets wllieh thesoilaflorded. Had there beenno prospeet of inereasec1 landvalue,tlle progress of settleI-lent wo1lld llavebeenfarslowerthan it has aetually been. It wolllcl llavereqllired a lnaterial risein tllepriee of food to extendtlle area of eultivation. Insteadof a eonditioll ill whiellfoodis far in exeessof tllebare tleecls of soeiety, we sllouldllave a eondition in whieh thepressure of population llpon subsistenee wouldbe an indisputable faet. Willinglless to asstlnle theabstillenee involved in land-owllership has inel-easecl tlleeffeetive land at tlle disposalof soeiety, andtherefore has beellof soeiallltility, like anr otller form of ratiollal eeonornie saerifiee. Bllt llOW tllatpraetieally all the freelalld of the eolllltry llas been appropriated, it onayseelaltllattllis form ofabstillenee 1laseeasecR to be ofsoeialimportanee. It tnust, honvever, be borneitl lllindtllattlle workof cieseloping lal1d, of raising it frozn a lor gracle ofsoeial 1ltilitT toa lligller one, 1llayeolltillue indefinitely. In tlliscleeloplllental aetivity tlle exlDeetation of an inerease in valueplaysall illlportant role. Higllways are eoolstrlleted andstreets aregraded and pavedfarbeyolld
1Ill lectures ginellat ColumiJia University, I899.
9 I I]
Land as an Indeliendent Factorin ProdzgcSion.
33
immediate needs. These are to a eonsiderable extent paidfor outoftaxeson wealth whieh eonsists in nothing butexpeetations. Thusthedemands ofa future soeiety render themselves efleetive in present time. Of eourse it is easytopoint outeasesinwhieh what is here termed abstinellee doesno oneanygood. The merespeeulator whoinvests hiswealth in landand waits passively for it toinerease in valueis notthereby inereasing thesum of soeialutility. Buttheeapitalist wllomerely buysa share ill an existing industrial eorporatioll cloes no more. The wealth existed before he "abstained." The seller of theshare) however, seeures free wealth whieh he may employ in produeing new eapitalgoods. Thus the buyer of stoek indireetly ereates eapital. In the same waythespeeulator setswealth free whenhe buys land, andmayindireetly ereate eitller newland or eapital. Muehas in theease of eapital,a truesoeial eostis eonneeted with thisform of illdividual eost. Tlle labor andeapital whieh areindueed to ellgage in thedeveloptnent of a neweountry arediverted froln theproduetion of immediately availablegoocls. Present satisfaetions aresaerifieed for tllesakeof thefuture. SEC. I5. Perllapsthe luosteomlllon distinetion between land and eapitalis basedllpOll theallegedfaet that thestoek ofeapital is eapableofilldefinite inerease, while theallloullt oflandat thedisposal ofa eotntnunity is absolutely fixed.As expressed byProfessor Marshall,l
The stoek of land in an old country at any time is the stock for all time, and when a manufaeturer or eultiv.ator decidesto take in a littlemoreland to his business, he decides in effect to take it away from someone else's business.
This viewhas beenso ablyeritieised byreeent writers that itsdefieieneies needonlyto be outlined here. It is
1Prineiples of eeonomies, p. 603. Cf.also Say, Treatiseon political eeonomy, po 2, ehap. ix. 3
34
vimerican Econownic Assocsation.
[9t2
quite truethat if " in an old country " industry has becomestaticso faras tlaedevelopment of land is concerned, onerllatl can add land to his busitless onlyby takillg itanvay frol-n anotller zuan's business.Ifcapitalizationhas outlived thedynamic period, tllesamethingis trlle ofcapital.Even whilecapital is g-rowing, ollebllSilless ordinarily increases itscapital bytaking capital frolll anotller. T11edistinctioll evidelltly lioldsollly in a societ wllichhasso faradvanced that tilequalltity of eSectiveland can 1lotillerease, wllile the quantity of capitalmaystill becomegreater.lProfessor Marsllall adtnits tllatin a newcotlntry tlle.stock of land maybe xuaterially increased.Tile exterlsiolo ofroacis andcanals llas 11ad this effect, since tlley llavepermitted waste lands to lDeutilized. The receIlt vast developTnent of the lneans oftrallsportatioll l-las virtually allnexecl ellormous areasof land to thenlore settled portiolls oftheworld. All ttliS everyone admits. Butit is heldtilat as soon as all tlle latld in a cotlntry hasbeelloccupied and put to econotnic use,further increase in lal}ci is for that couoltry impossible.If, however, it is to be accounted an increase in economic landwhell a tract ofvirgill territory is tralasforlned illtO a cattle range, why sllould it notbe considered a furtlaer increase wllen illconsequellce ofthe building of a railroad thesalue lalldis converted into fields ? To reply thatthere is I10 tnore latldbecause the nulllber ofacreshas reluainecT tllesamewouldbe much like declaring thatthereis no lnore capital ill a steel rail thanirlan ingot because thenumber of poundsis unchanged.If we are to think ofcapitaland laborin unitsof eiciency,we oughtto treatlandin thesame way. The acreof landwhichsupports a higllly iIltensive form of cultivation can not in allyeconomic sense
I
C:lark, Tlle distribution ofwealth,p. 338 e! seq.
9X 3]
in ProducSion. 35 FacSor Land as an IndependenS
barely equaltoonewhich as quantitatively be considered counts it Economically outlay. scanty themost repays ulorelalld. Fromthispointofviewit is possible for of ecothequantityl to increase ill an old country evexl does actuallyincrease, nomicland; alld the quantity arequite thatincrease govern which the laws although in capital. increase thatgovern those unlike land whotreat of those Inajority The great I6. SEC. reference itwith defille ill production factor as a separate above. discussed of thecharacteristics tooneoranother any great as we have seell,possesses None of these, " land" terms the to drop we tllen validity. Are logical tlle name and the income, and " rent,"or dissociate " oneaspectofanyCOI1" rellt bytlle term designating the pOillt from regarded income or total income,3 crete theinplacing while advantages,4 ofviewof monopoly ?7 It orevellwages orinterest6 profit5 1lnder comeitself imare there If conveniellce. of a question is merely
quality, 1Of coursethisdoes notmeanthatwhen land of the third to uleetthe (lemand becomesnecessary illustration, to use thefamiliar quality,we rises on thatof the first forfood,and rent consequently more units of should consi(lertllat the good land now represents makes in agriculture an improvenlent lalld. If however, ecollomic fieldsof the second qualityas fertileas those that were formerly in transportation quality,or if improvements classed as of the first to a tractclassedwithpoorland on account givefreeaccess to market of be said thatthe quantity it may properly situation, of unfasorable economicland at the disposal of societyhas been increased. And as an increasein laborlowersthe wages of each unitof labor,so julSt lowerthe I an increasein land would obviously what I hase terme rentof each Ullit of land. of this and someotheraspectsof discu.ssion 2 Fora morecomplete The passingof the old rentcollcept, see Fetter, the saIne probletn vol. xv. ofEconomics, Jo?srnal Quargerly of wealth,p. 350. 3 Clark,The distribution p. 8. Theoryofprosperity, 4 Patten, p. II4. Theoryof prosperity, 6 Patten, of wealth,p. 336. 6 Clark,The distribution p. 12I. of prosperity, Theory 7 Patten,
36
AssociczZion. Econoonic Ame?icvos
[9 I
ray a ill a peculiar lawswhichaffect economic portant coincides goodswhichpractically groupof productive seem would there bylancl, meant is ordinarily what with even theold terminology, for retailling to begoodreason with classecl being of risk the if byso doingwe run of goodsinto the products who divideeconoznic those derive who tllose with or nature, of gifts manand the outlivecl ofother orwiththechampions cost, valuefrom of in the theory proposition fundamental The most ill increase an with that is allddistribution production if other agent, of unitsof anyprodlletive the number in decline a be will thingsremainthe same, there of each unit of that agent,measured theproductivity declinein allda stillgreater of goodscreated, ill terms valueas the powerto pur(defining valueproductivity of goods). So faras thedecline complex chasea girren the in goods is concerned, measured in productivity of the competitiotl thegreater causeof thisis evidently to combine foropportunity of UXlitS number increased production, to essential agents thecompletnentary with the inferior of utilizilag llecessity and the consequent cause silnilar A agents. cotnplertzentary such in powers ilavalue prodecline oftheadditional liesat thebottom each excllange, upon based an economy in for ductivity; in thegreatcoman elemelat is merely group producing commodity, social tlle creates which group plementary witheach otllerfor compete groups andtheindividual Ally increase pOSitiOllS. combining farrorable themost in a decline in results naturally in thatcompetitioll
illcome. otions.
as whenit is fortnal, maybe merely proposition lDhis without capital manufacturing in an increase saidthat capital would in tnercantile increase a correspondillg
9 I 5]
. FacGor in ProdncSion Land as an Indey5ezadenS
37
vthe ormer meana relative declinein the earnings is of coursetrue,but kindof capital. The statement an increase normally theassllmption is notreal,because in bothbranches.In would takeplacesimultaneously of order to account foran actual fall in the earnings we should notcaretoinvestigate manufacturing capital, capital, becausewe should itsrLlation withcomlnercial wassuffering in thesameway and kllow thattllelatter from tllesamecauses. If laborandcapitalwereso rea parallelinin theoneiInplied latedthatanyincrease we couldnotexplain anychangein crease in theother, to challges in thevolume therateofwages byreference real,it is necesof capital. To make ollr assumptions all productive goodswllichare so sary totreat as units increase or declinein conserelated that their incomes quence of thesamecauses. is no close demonstrated thatthere It hasbeenatuply in increase in capitaland increase connection between of an inof the effect labor, hence an examination morethan crease in capitalupon wages is something hypothetical an exercise in logic. It is nota Illerely in capital willraisewages. If truth thatan illcrease inferan increaseill wagesrise,one would Ilaturally however, available. Thisapplies, theamount ofcapital labor in unskilled only togeneral wages. An illcrease might resultin higherwages for skilledlabor,profrom oneclassto the otheris vided that themovement of capimayincrease one fortn sluggish. New capital in tal goodswllile leaving other formsunchanged todivide capitherefore, benecessary quantity.It may, groupsif we are to tal aladlaborintoseveraldistinct of such satisfactery explanations have approximately rates of income as prevailin actual society. It does to say of thetruth not, however, seemtobe a straining
!
38
HonericanEconownic Sssociatioos.
[916
thatin a reasonably long periocR the influences thattend to clegrade otleforrll of labor will also illjure all other forlns, alld thata fall in the interest froul one classofillvestments in capital goods sîll eventuallycause a decline in interest from all others. Econotnically availalDle lalld is, as we have seen,quite capable of increase; btltan increasein capital does not ustlally implya correspondillg increasein lalld. An illcreasein land, on the other hand,may take place witl-lout anyincreasein capitalwllichcould be regarded as its cause. Therehave beentnany attempts toaccountfor th factthatill spite of the enormousincrease irl the total capital of the westernnations tl-le rateofinteresthas rather increasedduringthe past centurytllalldeclilaecT.l Certainlythe virtual annexationto civilized societrof continents ofland,due toimprovements in transportatiotl, is largelyresponsible forthisapparently alloznalous conditioll. At times the annexatiollof new land llas 1lnquestionably outrunthe creation of new capital,alld the rateofinterest has risen; at other times it llas lagged behitld. The importallt pOilltis tllatillcreasehas not uniformly aSected bothfactors sionultaneously. AncR tlle reasonis not hard to find. Tlle causes thatllave led to thedevelopmellt ofnewterritory have beenverydifferellt from thosenvhicll llave resulted in tllesteaclvgrowtho;E capital. Transportation agencies llave been createdfor politicalas well as foreconomicreasolls; thtlsland has been annexed sarhetlaer capital was overflowing or not. Another thingthat llas entered into the developlnellt of new countries is the spasmodictnovelnent ofpoplllation, and with this tnovement increase in capital has had littleor nothing to do. 0 We maytllerefore concltlde tllat the laws goverllingan increasein capital are veryclif1Nicholson, Principles of political economy, III, p.
I39.
9I7]
Land as an Indelfendenz fiactor in Prod?ction.
ferent froln those whieh govern an inerease in land. It is aeeordingly justifiable to assume an inerease in eapital without an inerease in land in orderto explain a partieular rateofinterest; alldexeept ina soeiety in whieh laeither landnoreapitalis inereasing, orin whiehthey happetl to inerease at thesamerate, we mustseparate the two faetors, and investigate theirreeiproeal relations, as wellas their jointrelations with labor. If we attempt to elassify the ploduetive goodsthat from thispointof view are to be ealled " land," we shouldin the first plaeeinelllde all agrieultllral land, whether '5madeland" ornot, provided thatbytheereatiOIl ofirrigation works orofdrainage ditehes orsimilar improvements suehlandeouldnotbe very considerably inereased without theexpenditure of a proportionately greater quantity ofenergy andcapital. We should also includebuilding sites, so far as they could not be inereased atpractically "constant cost"incapital ancl labor. Weshould exclude all elements offertility which areIlorlnallydestroyed and renewed;forwhetller natllral or artificial, a fall in interest w ould causea correspondillg declinein theirearllingpower. We should include permanent improvements whicllcan not be extellded indefinitely without ditninutioll inproductiveness; as,for example, ditches thatdrainlimited bogs, embankments thatprevent overflow, and the like. For evenif these improvements couldbe reproduced at a lower cost, there is nooccasion to increase their nutnber, andtherefore to dilolinish their produetivity. Weshould alsoinclude socalled1latural monopoliesmines, roadways possessing exclusive advantagesin short, every productive good exceptlaborwhichnorlually increases in prodllctivity simultaneously with a general fallofinterest.Andjust as ill considerillg therateof interest on anyparticular
39
40
AssociaSion. American Econowsic
[9I8
to analyze capital form of capitalit may be necessary whichare affected intoseveralclassesof investmellts so it maybe necessary bydynaulic influences, unequally classes ofrentsto distinguish ofparticular in thestudy wl-lich categories.The influences severalrent-bearing landsat thedisin theagricultural result in an increase from those which different maybe very posalofsociety of the reach. But in treating within bring newmines and laborwe may relation of landas a wholeto capital suchdistinctions. disregard why itwould seem reason SEC. I7. Thereis a further distinct in ecoto keeplandandcapital tobe expedient ofeconomictheory.A greatpartof thesignificance of establishing depends on thepossibility nomictheory oftlleir actual independently agency units ofproductive ofcapitalandlabor product.We speakofthetelldency of thedeof equalizedproductivity, to seekconditions and abor wages,of normal cline or risein interest ourunit of productive normal earnings. If we define goodswhich actuofproductive agency as thatquantity a unit of value,all of theseand similar ally creates orabsurdities. areeither truisms propositions as a unit of productive to define It is customary conditions will under assumed which agency a quantity value.l This impliesthatsucha Ullit produce a given under and recognizable determinable is physically enuagedin unlike diverse conditions.Two laborers, of equal numbers maybe said to represent occupations, loss could changeplaceswithout units of laborif they a caseofexaggerated This is ofcourse ofproductivity. largenumarein actualindustry simplicity.Yet there in indifferently who maybe ertlployed bersof laborers
of wealth, chap. sxiv The ultimate 1 Cf. Clark, The distribution standard.
9I9]
Land as an IgMependenS FacSoriv Prod?ction.
4I
severaloccupations.When, however, two laborers are so specialized thatit wouldbe impossible forthemto changeplaces, a notion of theircolllparative efiiciellcy tnay stillbe obtained if there areunspecialized laborers normally working witllthelll who mayserveas "comlnondellominators." Without tllepresence ofsucllunspecialized laborers, it would be obviously impossible to reduce tllevarious kindsof laborto units of efficiency which wollldbe determined illdependelltly of their imonecliate valueproduct. Artificial instruments ofproduction areinthehighest degree immobile.' Theyaredesigned for a single use,and rarely collldonebe follnd which would serve as a commonmeasllre for twoothers of unlilze kinds. The 1lnit of capital lllUSt therefore be determined in solne other waythanbydirect comparison of finished instruments. It is gellerallytrue tllat capital gooclswhich are employed in tlle creation of ultimate utilities are the product of other goods that are less specialized. The material and laborthat enterinto the prodllction of gunsdo notdiSerwidely frotn those wllicll are used in themanufacture of sewingmachines. The amount of capital in thetwo fortus of goodscallnot be coznpared directly, butit is possible to compare the quantities of thepractically homogenous productive agencythat has elltered intothem, andthuswe mayobtain an indirect measure, correct onlyunder perfect competitiol;, of the capital in llnlike illstruments. If landis tobe reduced to units of efficiellcy, it will havetobe treated ill thewayin which we have treated labor. Land is highly mobile, 2 it successively ellters into different employments;and, moreover, land in
2 Clark,The distribution ofwealth,p. 298. I
Clark,The distributioll of wealth,p.
II8.
42
American Econowsic ASssociation.
[920
different oeeupations lnay freqllently be eompared by simple physieal tests. Someforolls of land are,indeed, of no valueexeept for a singlellse. Butthere is almost alwayssotneeeollomieally InolDile land whiehis employed ill thesameindustrand wlliehtnayserveas a measure oftheeffieieney oftheimlnobile forms. If theseveral faetors of prodlletion wereeaehdivided intonon-eompetitlg groups, if,for exalnple, ahardand fast lineeouldbe drawll between skilledand ullskilled labor,betweeneitylots and farlning land, between uonopoly andeompetitive eapital, itwould be lneaninglessto speakof 1lnits of labor as a wllole, or of eapital orland. If skilled laborprodueed thesameamountof wealth as unskilled labor, it wolllcl yet be without significance to affirm thatthere werethe salne number of units of eachkind, since 1lo other common measure than their actualvalueprocluct wouldexist. NVe might, indeed, so define ourunitas to tnake theproducts ofunits of both kinds thesatne, but any dynamic challbethat eould oecur weuldill all probability affeet units of clifferent kinds in different deCrees. The onlyway to restore theforuler equality wouldbe to reapportion the units of onekindortheother, a proeedure suspieiously like foreing seientifie results. It wouldprobably be better under sueheireulnstaolees to makesix faetors of produetion insteacl of three. There is 1lothing saered abouttlletraditional threefold divisionof the seienee. Butthefaets of eotnpetitioll throllgll margins are perhaps llumerous el-lough to justify tlle retention of the Thereis,howesZer, reasola wlly landshollld be treated as distinet froln capital Capitaldoes,indeed, eompete withlatad, butonlyas laboreoznpetes with land. The primary relation of eapitalto land is eooperativeX not
simpler classification.
92 I]
Land as aXn Independent FacGor in Production.
competitive. As we have seen,an increase in capital 43 normally increases theproductivity of land. If we are to call landcapital, anddivideit intounits which shall be equalin productivity to otherutits of capital,we should needafter each dynalllic chalage a 1lewapportionlnent ofunits, a species oftheoretical stock-watering theutilitv of which is notapparent. It lllay besaidthatill classifying withlandmilles alld monopoly situation I have comlllitted myself to a positiOla laot differillg innature frolll that ofthose wllo classify landwith capital.To tllis charge I hastell toplead guilty. Tllere is no wayofequating rnines to agricllltural land exceptin tennsof value productivity. There are 1lo margins between tlletwoforlns ofagency. MydefeIlse is thatthe dynamic illIRuellces whichincrease ourCO11trol overtnillerals are more similarto thosewhich govern increase in lalld tTlan to tl-lose whicllare responsible for an illcrease in capital, ancl thatall increase n capital oroflaboraffects bothalike. For tl-le sakeof ecolaomy ill thought, it is bestto makeonly as rnany dis tinctions as arenecessary for thesolutioll oftheprobletrls athand. In a study ofthestatic lawsofincotne, there is noreason for a distinction hetweell landand capital. In a stud of the mostgenerald;laatnic influences, it is useful, I believe, to distinguish tllree factors in productioll. In a more detailed dynamic study, it wouldprobablybe rlecessary to clivide each factor into as many classes as can for anylength of titne stancl in a coznplementary, rather thana competitive relation witheach
otller. SEC. I8. Land, then,we shall treatas a separate factor ill prodllction. We cannotdistinguish landfrom capital on tl-le groundthatit is laot tnadebylabor, for laboradcls utilities to land,anddoesno more in tllecase
of anyother commodity. We shall not abstract from land all qualities that can possibly be due to labor, becausebyso doing we shouldhave toapplythe tertn landtosomething which is noteconomic at all. Noris it possible to distinguish between landandcapitalon a basisof their relations to cost. Land has a costwhich under free competition would equalitsvalue,justas the valueofcapital under free competition equalsthecost of production. Whenindustry is dynalnic, theulaqualified lawofcostgoverns thevalueofneither capitalnorlancl. What appears tobe,on thewhole, theclearest distinctionbetween landandcapital, thatthequantity ofland is fixed for all time, whilethequantity of capitalmay increase, proves on examilaation to involve a confllsion of economic withgeographic land. The surface of the world is indeed permanently fixed, butthepart whicll is accessible tomanchanges in magnitude.It is thelatter alonewhichhas significance in economics.Ecotlomic land is subjectto increase, and so doesIlOt differ from laborandcapital in thisrespect. But the lawswhichgovern the increase of landare notidentical withthose which causecapitalto increase: consequently, when interest is rising, rent mayfall; indeed, it would probably do so. Rentslllayrisein a periodof falling illterest.Accordingly, if it is desired to account for a change in therate ofinterest, itis necessary tocontrast landwithcapital, aladtoexatzline their reciprocal qualatitative relations.We distillguish between capitaland land,then, on the ground that sucha distinction throws light UpOIl changesin incomeand in prices, the fundamental phenomena with which economic theory has to deal. By theterm rent we shalldesignate theincome which theowner oflandactually receives.Thatincotne would,
44
American Ecoszomic Association.
922
923]
Land as an GndependenS JEacGor in ProducSion.
under perfect competitiola, equal thepartoftheproduct of illdustl-y whichthe land specifically produces. It tnay, perhaps, be convenient to designate as the" rent fund " what the land actuallyproduces, whether the present lawsofdistribution giveit to the landowner or not. Thatrent, so defined, is an independent forln of incozne follows frotn thefact that landis anindependent factor in production. It is necessary llOW to consider whether rent as a wholeis to be classedwithinterest andwageson theollehand, or with profits and monopoly gain on the other. It is llardlynecessary to define wages andinterest. The acttlalincomes of the laborer andcapitalist aregenerally herecalledwages and interest.Thereis a wages fundand an interest fund, consisting in thetheoretical product oflabor andofcapital respectively. Profits atldmonopoly rettlrn maybe left for later definitiotl.
45
CHAPTER III.
INCOME. OREXPLOITATIVE ASUNEARNED RENT SEC. I9. Economicsciencedeals withthe ordinary itsconceptions and receives life, of business phenomena it accepted popularthought.At first from originally sense. Where of comlllon the categories uncritically pllellonlena, between mansaw a distinction thebusiness one. Eventually to discover wasinclined theeconomist UpOIl the grounds to supplellaent necessary it became by new beenbased hadoriginally whichthe distinction we nature. Accordingly olles of a purelytheoretical popfrom derived elements conceptions in current find analysis. due to theoretical andelenlents ular thollght of landas therent to characterize Thus it is customary who as did those incotrle, or exploitative an unearned orwho theory, ofeconomic thedevelopment before wrote or byit,and as differential uninfluenced have remained is not would do. tPhis as only an econoznist residual, that bothCOlllIt is possible illegitimate. necessarily eletllents mayhave contributed mon senseand theory conceptioll.It will, however, to a satisfactory essential distokeepthetwosetsof characteristics be convenient eachseparately. alldto study tinct qualityof In the popularview,the distinguishing thatit is par exceSgroundrentis thatit is unearlled, of any is securednotby virtue which lence theincome or legal social,political, but through usefulactivity, lendcolor privileges.Tlle factsof land appropriation recalls ortradition history tosucha view. Everywhere of laborwasthelaa timewhen" the wlloleproduct thanthata borer's." Nothingcould be lllorenatural be accoullted should a rent landyields inwhich condition
925]
Incor?>e. Rent as Uearnedor ExplfozGcutzve
47
to ofthemasses ofthegradual subjection for as a result enough tosecure a part whowere shrewd favored classes anythiIlg.And withollt producillg ofthesocialincorne writillecollomic beenreflected thisviewhasfrequently castuponthe ings, from the slur whichAdam Slllith they never sowed," landlords, who" loveto reapwhere George andllis declatnations of Henry to thevociferous disciples. and bet^Teen earlled a distinction In order to establisk themeanillg ofthe it is esseIltial that tblnearned illcollles, defillite.All in" shouldbe perfectly word " toearn relation exists between when a certaiIl come is earnecl alldhis reward. Butwhatis tllemerit oftllerecipient alld arllatis the ill econotrlic conduct, thetest of lnerit ? To ulldergo it shouldbearto reward proper relation economic fatigue andpaill forthe sake of producing It meritorious. to be econolnically goods is recogllized of tl-lose who svrite that tlle majority is safeto affirm tobe tlleCOIllillOll disutility on economics still consider ancllloldthat it COlloflabor, characteristic of all forms of stitutes an ideallyjust basis forthe clistribution as tlleorigillal price thesocialincotne. Painis regarded nature, anditseems arepurchased frotn for which goods sllould be equal to all. In thisview justthat theprice incollle whicll bears anyexcess over that itisevident that beunearlled. relatioll topaillwould thellormal oraverage as a 'i pain,"a partof interest If abstinence is regarded as capitalis saved accolc3illg is earned, a partullearned, sacriSce. As llas been at normal or less than llorulal conabstineIlce chapter, pointed out in the precedilag atld owilership ofland theappropriatiotl nects itself with ofcapital;actheformation andllolcling as wellas with partly unearned. would be partly earned, cordillgly rent is true of illterest, Just as it is clearthatthesamething
48
Asnerscan Econorsic Associatiooz.
[926
so it is true ofwages. If it is assulned thatjustwages aresuchas exactly cover paincost, tllere isalmost always a surplus which is notearned. If it is heldthatshares ill the surplus of satisfaction created by society should be proportionate to tllepainsincurred in production, the largenumber ofworkers whoproduce at lowsubjective costs andwhosecure highrewards receive an unearned income. On the basisofpain-cost, then, there is no ground for distinguishing rentas a wholefrotn wages anclinterest treated as wholes. The unearned portion of the socialincome includes a partofrent, but it also includes a partof wagesandinterest. SEc. zo. At a time when economic thought wasdominated byutilitarian ideas, it was natural tllatetuphasis should be laiclllpOIl therelation between the pains involved ill production and the reward derived from it. Modern econolllics is subjected to wholly different philosophical influences. The idealdistribution whichmost nearly meets therequiretnents oftnodern thought is that which favors the survival oftheinditidual ancl ofsociety. Society shouldso distribute its wealthas to encourage the growth of tlle classeswhicharemost useful to itself. Andthese do notcolasist in those svhoprodllce at the greatest pain. The onalleTfho can createa great dealof wealthsvithout fillding labor disagreeable is of moreimportance to society than tlle one who creates little andwitll great difficulty. Accordingly) ifincoules areassigned accordint, toprocluctivity, tlle sllrvival power of society is increased;if theyare assiglled accordillg to subjective cost, society is encumbered with tlleunfit. Prodllctitity thuscomes to be collsidered tlaeluoSt expedient, allel therefore tllemost justbasisofdistribution. Incolnes tllat correspond withproductivitv comenaturallyto be regarded as earned.
927]
RenS as Unearned orExploffaSive Xzvowne.
This changein the pOillt ofviewhas been hastened bythefact that a great dealofthe labor of luodern industry is not orlly not disagreeable, but affords sozue of the ulOSt substantial of the pleasuresof life. The claim has recently been advanced thatpleasure is the normal concomitant ofall kinds ofwork.l The position is,no doubt, extreme, butit is probably nearer thetruth thanitsopposite, thatlaborand painare inevitably associated. Nowit wouldnotbe deniedtllat pleasurable work is lllore meritorious than tlleactivities ofplay. Accordingly, even those who w-ould be inclined to defend theclaimtllattllere should be sotne fixed ratio between pain and recolnpense would have to admit thatas betweela purely pleasurable kindsof labor, productivity is themost satisfactory testoflllerit. By thistest greatdisproportion in incozues, orin the relation of reward to subjective cost, doesnotindicate thepresence ofunearned incoule. In theexistillg state ofsociety, laborers are,of course, not rewarded exactly in proportion to their productivity, andtherefore an unearnedelement lllayappearin wages. Yet there is a recognized telldency toelitninate tlliselement. Wages maytherefore be regarcled as essentially an " earned " The questioll remaitls whether interest andrent are earlled ornot. We lnaywaivefor thepresent thequestiOtl whetller capital and land are productive in the salne sensein whiclllabor is productive. Certainly they havea wortll to society analogous to thatoflabor. But thatdoes not make theillcotne wllichthe owner of landorofcapital receives an earnedincotne;nordo thepolitical andsocialconsiderations so often elnployed
Patten, Theory ofprosperity, p. 29 4
eS seq.
49
income.
5o
AssociaSion. Ecowzornic Aynerzcan
[928
ofsuchgoodsindipossessioll of private in thedefellse based on the thelnis ethically illcomefrom catethat frozn labor. as income sameprinciple how exactly to determine thatit is possible Granting his etllical mucha man's lalld or capitalcontributes, doesnot of that contribution clailnto the enjoylnent of doestlleclaitn footing-as on thesatne stand necessarily necessary product. It is first tohis specific thelaborer private boodscameilltO how procluctive to detertnine in thesalne possession.If theyhave beell acquired we may,perhaps, in whichwagesare earlaed, method them"earned." from acquiescein callingtheincome noonewouldcareto ofview, point Fromthisparticular bya toolwhich createci theproduct between distilaguish prohis ownuse and theilnmediate makes for a laborer be naturalto disl-lowever, ductof histoil. It would, acquired ofan impletnent theproduct between tingllish and or llappychance, byinheritallce or fraud, by force labor. of unaidecl theproduct butbuys doesnotmake, incleed, capitalist, The typical thewealth capital illtO goods. That he turlls hiscapital living is nodoubt in riotous lle couldhavewasted which notlling proves butit obviously to society, an advantage is earnedor llot. That dehis income as to whether or wealth in wilichthe money pendson the tnethod was acquired. If that capital for whichhe exchanged theperadvantages, unfair through wassecured wealth is also unfair;if it was due to chance, illcome manent incomes, chance witll be classed itmust frotn theincome are. as they be justified andmust In exactlythe salne way the incomethatthepuraccording is earnedor unearned of landsecures chaser of the the acquisition attelading to the circumstances Land was theland was purcha.sed. which with wealth
929]
RenSas Unearnedor E.rpEoiZaSive Income.
5I
originally acquired largely through favoritism; itsvalue has frequently beenenormously increased byunforeseen movenlents ofpopulation.Thus it has oftell served to turn ullfair orchance incomes intothehands of favored orlucky individuals.Even at present it is a familiar fact thatthereis muchirregularity in thesaluation of land,owingto sentimental considerations which illflUencebothbllyer and seller, and owing to thefact that thenature ofland deprives it of thebellefit of market laws. Nevertheless, in this respect lalld differs from otherproducers' goocismerely in degree, and thedegreeis hardly sufficiently marked tojllstify a distinction betweell rent as a wholeallel interest. It maybe said thatby the same test the dividends from common stock ill a monopolistic corporation might be an earned income. Aold that is quitetrue. Whena manhas purchased in theopenmarket a shareofstock, paying for it outof his svagesor other legitimately acquired wealth, itwouldbe absurd to saythattheincome he securevs from it is unearnecl, even though thestock wasfirst putuponthelnarket bya speculator whomay have perforlned no social service. Theft does notadheletoa COill that has once been stolen. The terlns "earned" and " unearned" express relations between incotnes orsources ofincome andtheparticular illdividualswhopossess thella. Theydo notdesignate qualities that inhere in particular sources ofincome and thatare therefore transferable. SEC. ZI. It laas long been observed tllattheincome which thepossessor of an economic agentreceives may be distillguished into two parts, olle of whichis absolutelynecessary if the services of the agentare to be secured, svhile theother lolay hewithheld without affectingproclllctioll. A laborer lnayreceive thl-ee clollarss a
52
AZooserzcazn EconomicAXssociaSion.
[93o
day, although hewould rather work for onedollar thanremainidle. He would1lot work for less thanooleullder any consideration. The one dollar, then, is the wage which is strictly necessary to makethelabor ofthisparticularworkman forthcoming. Interest may likewise be analyzed intothesetwo elements.This distinction has bysomewriters beenidentified with the distinction between earned and unearned income. One econoznist says,
It is eas to see thatin manycases individuals obtainfortheircapital morethanis necessary to makeit forthcoming or available. Thus we reach the conclusionthat ill illterest, as in economicrent, there is an unearned elemetlt.l
This viewis manifestly derived fromthe notionthat landrent is thetype of unearned incomes. Wages and interest as private incotnes could not wllolly disappear without crippling industry, sarhile thevolllme anddirec tionof industry wouldnotnecessarily be challged if no private individual received an incomefromtlle soil. The wholeof rents, it is said, might theoretically be taken bytaxation without litniting orchangillg theemployment ofland,whileonlya fraction ofwages andinterest couldbe tllusappropriated to the statewithout affecting industry. It is obvious tllat it is un; ustifiable to designate as vlnearned that part of a man'sincotne whichhe would sacrifice if thealterllative wereto lose his employment.Therearea great many laborers whoareso specialized that they can earntheir living ill onlyone occupation.A fallin their wages, so lolzg as it doesllot impair their control overthe neecls of existence, would not llecessarily, or evell probably, cause theln to work lesscliligently. The differellce between theincome that
1Nicholson, Principles of politicaleconomy, III, p. 232.
93 I]
Rent as Unearated or ExploiZaSive Incoone.
53
a specialized laborer actually receives alldtheminimum which he couldbe forced to take is necessarily greater thanthedifference between theactual andtheminimutn wageofthe laborer to whomalterllative enlploymellts areopen. It would, however, be absurd to saythatthe latter workman erns a greater proportion ofhis income thantheforlner. II1like manner thecapitalist whohas invested in fixed forms of property might accept a very low rateof interest, sinceotherwise he wouldreceive no interest at all,whiletlleonewhose capital consists in sholt-period illvestments wollldbe able to clemand a fairly steady return.Clearly tlleooze does notearnhis illcome anymore thantheother does. SEC. ZZ. Butthough we repudiate the identification of necessary with earlled incomes, we maycollsider the question wllether theillcome oflandmayas a wholebe treated as an income whichis not necessary to production, while theincomes oflabor andcapital arenecessary. If labor were perfectly mobile, it is evident thattheactual wagethata laborer receives would be theminimum tllat he wollld take. Absolllte lllobility impliesthe power to migrate from an indtlstry without lossin productive-power; accordingly, if wageswere reduced in onebranch, laborers would migrate until scarcity oflabor restored wagesagaill. If capital werequitemobile, it is obvious that itsentire natural income would atall times be necessary to secure its employment in anyindustry. If, llowever, land were quite mobile,no landowner would conseolt to takea smaller rent than themaximum thatcouldbe paid tllewholeproduct of thesoil.l
1It maybe said thatllo degreeof mobility could make renta llecessary incomeunless private ownershipof lalld exists. But private ornership is alwaysassumedwhenwe speak of the mobility of capital, therefore it may fairly be assumedwhenthemobility of land is underdiscussion.
54
i4}nerZcAn
ECO2lOiViC SssociaSion.
[932
If illstead of considering tlle effectof a reduction of relatirl a single brallchof production, we considelthe eXiect of a redtlctioll of rentsin all industries, we see that rent as a pri vate illcomeis not reallynecessary to productioll. So long as rent was reduced in a sillgleindustry, thela+ldowller could put his lalld to allotlleremployment.Under tl-le present hypothesis, nothing would be gained by so doiIlg. Tlle lossin incozne wouldbe illevitable.If ill likemanller we assulue a reduction of wagesin all itldustries, productioll would notnecessarily be aflected ulllessthemeallsof subsistence wereimpaired. Exactly howgreat a reductioll wageswouldstand it is impossible tosay. Yet we maybe surethat totalwagescould be considerably reduced without aSectitlg production. The sameis true ofinterest.The capitalist whohas alterllative usesfor llis capitalhas the power of fixing a millimum farabovewhathe wouldtakeif he llacR no better alterllative.l To return to realities, we findtllat it is thepower of theowner ofa form of productive agencyto withdraw it from oneenlplollnellt andtomake useofitin anotller thatactually determines tllecRistinctioll between tllenecessary alldunnecessary parts oftheincome clerived from it. Thereare,indeed, forms of lalld so immobile that their rellt could be reduced to practically llothilag with' The immediateeffect of the fall in income assuInedin the text woulddoubtless be a dimillution ill production. Laborers wouldfeel aggrieved and wouldrefuse to work,or would workwithdiminished zeal; capitalistswould be less inclined to keep theirstockilltact; landlords wouldlet sooneoftloeir fields lie fallow. But if thelow re turncolltillued k)tlgenougll to establishlowerstandards, the former volume of ptoduction woul(l very probat)lybe restored. At all events, thechangewouldbe insignificallt as compared wit:h that which takesplace in a single industry when the returnto mobileagentsis abnormally lou-ered.
933]
RenSas Unearnedor ExploiZaSivencoone.
55
perform; they which ofservice theamount outlessenillg oflaborandcapital onlyin lessdegree, andthisis true, is not bethen, kinds. Tlle real distinction, ofcertain in their tweenrentas a wholeandwagesand interest and of theilnlllobile theillcoznes but between entirety, land, whether agency, of productive themobileforms orcapital. labor, an is not necessarily incotne SEc. 23. All unearned which one. There are manyfol-lllS of income unjust recan notin anysensebe said to be earnedbytheir andarerecogexpedient areyetsocially which cipients, just. to be perfectly consciousness bythepopular nized andinheritances, bequests, aregifts, Such,forexample, income to norlnal incretnents chance as wellas ordinary forandgood all whohavesuicient enterprise in which while writers, economic tune may share. Numerous it as they havedefended is unearned, that rent agreeing incorne.Thereis, howofabnormal types these defend rentas a stlbwho regard ever,a largeclassofwriters andthe of the laborer eitller from theincollles traction as an andhence thatoftheconsumer, orfrom capitalist looseincome. Andwithtllecharacteristic exploitative whois it is nowtheconsumer science, nessofa popular wrong, the entire of as the one who elldures thought as the areregarded andcapitalist whilenowthelaborer Adam As one wouldexpect, onlypartiesaggries7ed. bothviewsquiteimpartially. advocates Smith
demandsa the latldlord As soon as land becomesprivateproperty raiseor call either shareof almostall the producewhichthe laborer theprodtlce from deduction it. His rentmakesthe first collectfrom upon land.l ofthelaborwhichis employed
who is exploited. it is herethe laborer Quite clearly ofas thought is indeecl whilethelaborer Butelsewhere,
I, nations, i Wealthc)f chap. viii.
56
American
,conoonic
AssociaSiost.
as a conit is in his capacity ofexploitation, thelrictim sumer.

the grass of the field,and all the natural The wood of the forest, costthelaborer which,whenland was in common, fruits oftheearth, them,come,even to hinl,to have an onlythetroubleof gathering l additional pricefixeduponthem.
[934
concepof the foruler presentation The mostfatniliar is tllatof tion,as an explicitcllargeof exploitation, Henry George:
or Thus rentor lalld value does not arise fromthe productiveness given any help or advalltage utility ofland. It in no wise represents but simply thepowerof securinga partof the results to production, ofproduction.2
the methods of presellting Oneofthemostcommon to showthat designed while not explicitly law ofrent, doesneverare exploited, and thecapitalist thelaborer it thatimplication.If laborandcapital, theless convey " doses, ' the is said,are appliedto land in successive than the earlier. The later dosesare less pl-oductive enlployer neednotpay moreforanydosethanhe pays theearlier Thunen's exalrlple3 for thelastone. In VOJ1 a create potatoes units of laborengagedin gathering andit unitsare employed, as additiollal largeproduct; a to dig and rake the soil morecarefully, is necessary gets product is created. The lastlaborer much smaller onlywithgreatdiEculty;theearlier whathe gathers ofan addilaborers can get no more. The appearance to cut is thusa signal to the employer tional workman thtls secured is alld the profit thewagesof all therest, a partof alld becomes to the landlorcl soon conveyed in imaginarent. If we place ourselves thepermanent purall practical tionat the timewhellland was,for oflanded thedevelopment andobserve poses, unlimited,
I, T Selith,Wealthof nations, p. I49. 2 Progress and poverty, chap.vi.
I75.
3DerisolirteStaat,2teAufl.,II,
935]
Rent as Unearnedor ExploitativeIncowse.
57
rent is made thattheentire it appears anci rent, property first wages andinterest, from transferred up of increments andlaterto thelancllord. to theentrepreneur, is ineviofincome sucha transfer It maybe saidthat society;thatit wouldbe bacl tablein a competitive the to forego forthe landlord philanthropy, business, factors of the other the misfortunes whicEl advantages clescribecl placein hispower. Butif rentcan be truly is such a defellce incolne, a trallsferred asspecllliarly ofbusiness. If,on llponthe ethics a reflection merely uponthe procluctive more landbecomes lland, tlleother it is notneclaborandcapital, ofadditional appearance whichgivesthe lalldlord an act of exploitatioll essarily lessproducbecome rellt. If laborandcapital a greater tlley arenotrobbed increases, theirqllantity tivewllela tllerent allcl though arerecluced; their incomes because to at thesame timethatthe retllrn oflandis increased the we sllouldregard is diminished, factors theother simultasrorking ofcauses theeffects as merely changes to onefactor from ofincome notas thetransfer neously, thatmake considerations theother. Tllereare certain is at present sucha viewreasonable.Is notlandwhich ofgreater socialutility, ofgreater intellsively cultivated byexskimmed thanit was whenmerely productivity, whenscarce, ? And is not capital, cultivation tensive be ifit wereapproaching than itwould productive more can be an? These questions ofsuperfluity a condition in only byan analysisof whatis fundamental swerecl ofproductivity. ourllotions it is safe conditions, industrial Sbc. 24. In primitive of laboralone. was preclicated to aErm: productivity as the sole cause oftlle himself regarded The artisan his hallds. The idea thatthe issuedfrom goodsthat which he emthematerials he worked, with which tools
58
AnsericanEconomicAssociation.
[936
ployed, were jointl procluctive with himself would have seemed utterly absurd to him. He recognized them as conditions essential toproduction, butas nothing more. If lle ownedthe tools alld onaterials, he regarded the commodities which he created by theiraid as the pure prodllct ofhisexertion.If he had to rent his toolsand payinterest on thecapital invested ill materials, he regarded thepaytnent as a deduction from his wages,a necessary deduction, to be sure, andcompensated by the advantages ofuse,jllSt as a modern day-laborer, muleted bythe" padrone," regards his assessment as a deduction from wages, compensated bysufficient advantages. That thiswasoncea common view is amply attested bythe fact thatamong backward socialclasses, as, for example, immigrant handicraftsmen and evenfarmers, a likeview prevails to-day. Butevenin primitive industry tllere must have been laborers whowerenotemployed directly uponthecommodity, butwhose presence was llevertheless necessary for production, as, for example, thoseengagedin directive andprotective labor. Even at a timewhenits importance was recognized, sllchlaborhas been ternled " ullproductive." The " productive " labor of Adam Stnith was obviously that whicll cllanged directly theform of materials.Withtheadventof macllinery, however, tllelaborer ceasesto be even in seeming the sole cause of the changeswhichthe material undergoes. It wollldbe illogicalto affirm productivity of tlle smithwho forges 1lails withollt affirmi ng it of the machine whichperforms the identical operation. Still less natural wouldit be to call productive the labor of a man who merely ratclles a complex machine, while defini ng as unproductive that labor whichis engagedin orgallizing and directing other
937]
Rent as Unearnedor ExploitativeIncos?>e.
59.
labor. All increasingly largeproportion of total labor is heldalooffroln physical contact withthecommoditiesproducecl; it is nevertheless illdispensable to productioll. TIle qualityof indispensability occupies the economic position ollce held by tlle act of imparting utility directly by Tnuscular exertioll.If productivity is tobe a term ofanysignificance in tnodern sscience, it must be usedto conllote ecollomic importallce and nothingelse. The laborof the loom-tender is productive, butso alsois tllat of the foreman and thellight-watchan. The loolllis productive, butso also is theyarn, anci so arethebricksof the factory chimney.Ill this sellse the ground on whichthe factory standsis obviously productive. Notonly call productivity be airmed of capitaland land, butitsprecise degree is ascertainable. Just as the importance of any 1lnit of consumers' goods can be foulld byoneasuring thesatisfactions depellding UpOIl it, so theimportance of anyunit of prod-ucers' goodscan be determined by colnputing the loss ill consumers' goods that would result if it werewithdrawn from productioll.To testthetrueimportance of a UIlit ofproducers' goodsof anykilad, all thatit is necessary to do is to withdraw thatunit, andafter making thebestpossiblerearrangetnent of coluplemelltary agellts, to deterrnine thelossill productivity. It is clear thatproductivity in this,the ollly naturalsetlse, is a onargillal quality. Intercl-langeable units of productive agellcy have a likeeconomic iluportance."Marginalprocluctivity " is a redundant expression, since thereis 1lo intra-marginal productivity whichexceedsthatof tlle ulargin. True,if the capitalin the powerwl-leel of a nill were destroyed atld coulclnotbe replaced tlleloss would be very much greater thallthe losswhicll would
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[938
result from tlledestruction of rawmaterial representing an equalamount of capital. That wouldbe true, however, notbecause a unitof capitalof great " totalproductivity " had been destroyed, but because all tlleremainingcapital of the mill would be sterilized. " Total" or " intra-marginal " productivity results from tlleimputatioIl to onefactor of tlleprodllcts of compleProductivity, in thesenseof the effective irnportance of a producers' good, is olDviotlsly no absolute quality of that good, but varies accordingto its economic relations. And the most essentialfactorill determining productivity is thesufficiellcy orinsufficiency of complementary agents, without wllichproducers' goods areof no importance at all. Tlle productivity of labor chanCes witheverychangeill the quantity of capital andlanduponwhich it is employed, and thisbyvirtlle of no changein the operations performed by labor. 2 I,andlikewise varies in procluctivity witllevery cllange in itsquantitative relations with laborandcapital. Whena producers' good is forpractical purposes unlimited, itsproductivity is n?l. As goodswhicll are to it complementary increase ill qllantity, it becozues relatively limited, and is elldowed with productivity, azad with each increase in the qualltity of complemelltary agents itsproductivity increases. In tllenature of the casesucha change is at the same timethecauseof a declille in theproductivity ofthecomplementary agents llotsimply a declineill marginal productivity, buta decline in productivity ill gelleral. To speakoftheproductivity of earlierunitsas unchanged is to mistake certain movements, applications ofmechanical force and
2
elltary factors.l
Wieser, Naturalvalue, 83 et seq. Butc%. Loria,Analisi,I, 39 eS seq.
939]
RessS as U^tearosed orExploitative Income.
6I
ofchemical orvital processes svhich may orluaynothave economic importance, forrelations thatare purely economical. Ecollomically, the productivity of laborand of land changesimultalleously. Tllereis no transfer frolll onetotheother.l Few havefound difficulty in comprehellding thefact thatwhenthe qualltity of availablelandis extended, labor becomes more productive.Yet suchan extension of the area of economic landllormally means a fall in rellts, ulltilpopulation again reaches a conditioll, relatively tolalld, sitnilar to thatwhichexisted before the increase in land. Obviously, iftheproductivity ofland is defined withreference tnerely to its absolute powers of supportillg vegetable life, immediately after each increase landis exploited in favor ofthelaborer. The factsof economic history give a semblance of reality to the assulnption of unlimited, and therefore unproductive land,whileunlimited capitalor laboris incollceivable. It is accordingly easierto collceive of thewholeofrent as transferred from laborandcapital thanto conceive of wagesand interest as the transferred income of lalld. But thatpartof wageswhich exceedsthe subsistence lllinimurn maybe so conceived, and mustbe so conceived in certaill analysesof the nature ofeconomic productivity.2 The conception that aolyincome can be treated as primarily a transferred income is, however, theoretically inexcusable. It is baseclUpOll a vague notionof physicalproductivity whicll canhavenostanding ill ecollomics.It wouldbe absurd toattempt to distillguish between a partof the total product which is physscally due to laboralolle; it is likewise absurd to affirm thatthe purepllysical prolSzpra,
2
chap. i, Cec.8. Clark,Distribution ofwealth, passiool.
stationary or that it retnains of labor changes, duct relations.Economic changingcomplementary ullder ill the withchanges does change certainly productivity goods. ofproductive relations quantitative whileto touch be worth it 1nay Inthisconnection fromland has a the notionthat tlle illcome upon reupon tlle law of dirlzinishing dependence peculiar the is not due to It has been said that rent turns. land Nields of the land, but arises because fertility UpOIl employed to laborasldcapital returns diminishing labor of atnount fixed It has been shownthata it.l ofcapital llnits tosllecessive returns clilllinishing yields correspondinC it; and thattlle with landcombined and ofcapital.2 Werethisnot amollnt ofa fixed is true fact an econoluic lahornorcapitalwollldbe neitller true, to illereasing or limitedreturns Diminishing agerlt. agents are, of course, of complementary quantities of any agellt. Theyplay to the productivity essential a plays ill the valuationof partthatlimitation the good. consulners' transillcon-le Tlle view that rentis an 25. SEC. wasespecially to thelandlord theconsumer froln ferred and stillsurvives. economists, theolder alnong comtnon and Buchanan, statedby Sismolldi, is lnOSt clearly :[t Ricardo.
the value is productof labor of uzhich of the It is the only part of the result the It is, ill fact, llominal,devoid of reality. obtains by virtueof his privpurely in price whicha seller more.3 augmentation wouldreallybe worth whichthe comnlodity without ileges, whileit rentor llet surplusoriginates, to sell, The high pricein which the agriculture of who has the produce enrichesthe landlord,
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63. 1Ricardo,Politicaleconouly, passim; also, Hobson,The law of wealth, of Distribution 2Clark, V, 270. of Ecozomics, Q{rterlyJo?r^Zal Political thethreerents, Malthus, by (cited commerciale De la richesse 3Sismondi, I38). economy,
94 I ]
IncoYne. orExliloitative RSent as Unearned
63
the wealth of thosewho are its diminishes, in the sanle proportion, the to consider purchasers, and on thisaccount it is quiteinaccurate ' lalldlord's rentas a clearadditiontothe nationalwealth. It mustthen be admittedthat Mr. Sismondiand Mr. Buchanan,for whenthey are substantially thesame,werecorrect boththeir opinions and as forming no addiconsidered rentas a value purelynominal, of value, advanwealth,but merelyas a transfer tionto thenational injuriousto the tageous only to the landlordsand proportionably
consumer.2
in a slightly diSerent sometimes The sameviewappears of value,but not a form:"Rent,then,is a creation ofa to tlleresources creation ofwealth;it addsnothing country." 3 exampleof tllatprejudiced We have here another rent frotn onepOillt of in regarding logicwhich persists As a money from anotller.4 view,wages and interest to the landulldertaker income, paid by tlle bllsiness rent paidbytheconsulller, lord, andin thelastanalysis of a comto the xYealth is,of rourse, no net addition munity.The goods tllatpass into tlle handsof tlle of of thebuyer before in tllepossession landlord existed as money agricultural produce. Butwagesandinterest, of wealththatis merely thetransfer incomes, represent in llo net ilacrease andconstitute already in existellce, by wagesand interest thesocialwealth. If,however, whichare usually illcollles we mean not the molley in product but the specific designated bythoseterms, produce, regarding concrete goodsthatlaborandcapital
244. 3Ricardo,Works,McCulloch'sed., p. 244. Practicallythe same idea appears even in moderneconomics. Thus we have thestateas I understand Carverthat" the amountof rent, mentof Professor overtheproduct of theindustry it, is theexcessof theprofitab]eness iveness of the industry." Publicationsof the AmericanEconomic anIlual meetof the fourteenth Association, Papersand proceedings illg, I 98. Ivalor, ed. p. 32. oRoscher, Politicaleconomy, McCulloch'sed., p. 2 Ricardo, Works, 1Buchanan, citedby Malthus,I39.
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thereceiving of moneywages as a mereexchange of goods for goods, wagesandinterest areilldeednetadditions tothewealth of a collllllunity. I+alld, as hasbeell pointed out,is also productive; and the primary form in which rent appears is as the specific product of the land-clearlya net addition to social wealth. In the sense, then, in which rent is notan additition towealth, wagesandinterest arenot; in thesensein which wages and interest augmenttlle national wealth, rentdoes also.l The flow of goodsfrom which all increase inthe wealthof societyis clerived appearsundereconomic analysis to consist in the products of land and tlle products of labor and capital; ill rent,wages,and interest alike.
1Clark,The distribution ofwealth,chaps. xxii, xxiii.
CHAPTER IV.
RENT AS A DIFFERENTIAL OR RESIDUAL INCOME.
SEc. 26. Mostofthe viewsthatwereconsidered in thepreceding chapter conveyed, explicitly orimplicitly, thenotionthatthereis all ethical distinction betwee renton the one hand and the return to labor and capital on tlleother. Scientific writers, however, have oftentriedto avoid introducillg etllical ideas into economic discussions, andhaveattempted to distinguish rentfrom wages and interest by reference to purely econolnic characteristics. This they have usually done by describing rentas a differential oras a residual income. Unitsoflabor andofcapital, it is claimed, yield equalincomes; UIlitS oflandvaryin their productivity. Moreover, thereis a certaill uniformity in the return wllichlabor and capitalreceiveat different periods, whi]e the return to land shows the widestpossible raIage ofvariation.The rent oflandmay, tllerefore, be described as difFerential, wlletller svecorllpare the productivity of different vlllitS at thesaIneperiocl oftilne, orthe productivity of thesalneunitat cliSerent times. Since thereappearsto be this uniformity in the return to laborand capital, while the return to land varies sogreatly, it is tllought to be Tnost convenient, in thetheory of distribution, to establish directly thelaws thatdetermine the productivitv of labor aIlclcapital, leavingrentto be indirectly determiIled. Whatever is produced abovetllenormal return tolaborandcapital willbe rent orsomethitlg silnilar toit in nature. Rent nay, therefore, be besttreated as a residuum.It is tobe notedthattlle vieur of rent as a difFerential is fullda5
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mental, sinceit attempts to clescribe tlleessential nature of theincoIne; while tl-le description of rentas a residualis merely a nlatter ofconvenience in theory. We maytakeWalker's statement as fairly representativeof thisview:
Rent arises fromthe factof vars-ing degreesof productivness in the lands actually colltributing to the supply of the same ularket, the leastproductive land payillgllo rent,or a rentso smallthatit nlay be treated as nolle.X
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Stated thus, there is a very old alld veryobvious objection which willbearl-epetitioll. II1theclassical illustratiOll, it is whenlands of the secondgradeof fertility are brought undercultivation thatlands of the first grade beginto yielda rent. Witll certain reservatiolls weIllayadInit this, andyet dellythat it is becasgse of the employtIlellt of landsof tliesecolld gradethat rent emerges oll thebetter lands. Whenthedemancl for the proclllcts of tllesoil increases, tlle shareof tlleproduce which thelandowner can exactbecomes greater at once, qzlite without regard to the exteolsic)n of eultivation to the poorer grade. Thisbecomes clearifweassume that there is an appreciable difference between thetwo grades of land. Priceswill have to rise considerably before the poorer landcan be employed, andsinceaccorclillg to the usualassumption thelaborer andthe capitalist can get no greater returns thanbefore, the landowner lnust necessarily receive an increase in rellt. If weprefer the other cotnlllon forIn ofstatement ofthe sanae " law,"namely, thatrent is due to the differences in theproductiveness of theseveralpowers of a given piece of land,we fitld thattlle same objection holds. The first " power" yields a rent, notbecause the second power is calledintouse,butquiteindependently ofthat
1Walker,Land and its rent,p. 2I. distribution, ). 87.
Cf. also Maefarlane, Alalue and
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67
just employed shows of illustration fact. The method thatrentshouldemergeon thatit is notonlypossible but onesare utilized, before theworse thebetter powers powers can never of the poorer that the utilization powers to yielda logically be saidto cause tlle better of rent on the bettergrades or rent. Emergence of powers of lalld,and the elnploylnent on the better effects of tlle the worselalld or powersare different samecause. It tnay be saidthatin thecase assumedthe increase but is 1lot a truerent, in the incomeof thelandowller " gaill, since it is a " margiIlal a specie.s of mollopoly to assulne Tllis is, of course, return, notdifferential. that theincome thatit is sought toprove, tllevery thing in tllefertility of the bydiSel-ences frozn landis callsed soil. the between tllatthegradatiolls Evenif it is assllIned powers in eacll of lancl alldthecliSerellt different kinds of cultivaso thatan extension killdareillfinitesimal, of risein renton the concolllitalat tionis an illevitable obviollsly be incorrect it would better grades or powers, phellolllenon as thecauseoftheother. tospeakofeitller it wouldbe quitecorrect Blltulleler such an assumption to differerltial lneasureas beillg subject tospeakof rent all tllat tl-le classical ment. Alld tllatis practically pOSitiOll siglllfies. sllcll wide aphas receivecl The tertn " differential" ofits economics thatthedefiniteness plication in recellt When svesay meanitlg is ill dangerof disappearing. elelnellt it is by contaills a differential tllatan income in. reallyconsists no meansclear whattilat eleluent sucllas that a qualltity ofsatisfactioll, It maybe lnerely by tlle earlierllnitsof collsulners' whichis afforded such as tlle addigoods; it maybe a partof theprice,
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tionto normal price dueto monopoly control; oragaill, it may consistill concrete goods. The laborer vllo works illa colnmunity wllich is wellprovided with capital alldlalld thus produces anincome contaillillg a differelltial element, measured in goods. If,then, we wish to considerwhether rentznaybe distinguished from wages and interest on the groundthat it is a differelltial return, itis necessary tobe onourguard against shifting our point of view. One can readily see that it is execrable logic tllatwill confuse an incotne whicl-l is difl erential from all objective pointof view with the subjective diflerential thatmaybe attaclled to any income. Yet it is hardly toolnuchto affrm thatthisis whatmodern econotnic terlllillology tellds to do. It is accordingly necessary to consider the various points of view froon whichrentmaybe regarded as a differential income, and to examinewagesandinterest froon thesamepoints ofview. In thisway, andin this nvay only, will it be possibleto determine wllether we haveherea characteristic wllichsharply distillguislles rent from thetwoother forms ofincome. The subjective clifferentials whichcompose the socalledconsumers' and producers' rentsdo llotrequire detailed discussion here. If rent were incleed an incotne which entailed 1lo subjective cost, whilewagesandinterest served clliefly to coversllchcost, we sllould have oneperEectly defillite characteristic whichxvould mark ofl relltfrom interest alld wages. Butit is gellerally adl-nittecl thattllere is a sllrplus ofutility overdisutility in theillcome to laborandcapital, andas we haveseell, onlya part oftherent oflandcallbe considerecR as such a surplus.l Aforeover, sllbjective surpluses, ifcorrectly analyzecl, have no eSect llpOIl either theproduction or
1S@ra, chap. iis sec.
I3.
947]
Ren! crs a DzXere^ticrt or Residucgl Istcome.
69
thedistribution of wealth. It is a lnatter of interest to the soeial pllilosopher that tlle earlierhollrsof the workillg clavafford a eollsiderable surplusof pleasure overpain. Butif that surplus wereredueed to praetieally nothing, the lalDorer would have no reasotlfor working fewer hours, atldlleneethe volume of produetiOll would be unehanged if tllesurplus eeasedto exist. Il1like lnanller the eollstllners' surpllls on the earlier UllitS of goods aequireddoes not affeet thenumber of unitswhiehwill be demanded, nor does it affeet the utility ortllevalueof thelastunit. Objeetive diSerentialsaloneareofimportallee ill eeonotnie deseription.l Tlle most familiar type ofobjeetive differelltial is that whieh is illustrated in theRieardian forlllula. An eeonomie agent is dividedinto UllitS whieh aremeasured, 1lot aeeordillg to tlleir eeollotnie qualities, butaeeorcling toeertain pllysieal eharaeteristies. A Ullit oflallcl is an aere-, a unitof laboris an individual worklllan, a unit of eapital is a partieular maehine. Sueh units lllaybe arralaged in a series, ancl their eeonomie importanee lllay be measllred eitller from theleastproduetive orfrom the mostprocluetive. If the forlner onethod is adoptecl, as lnueh oftheilleome of a better unitas exeeeds theproduetivity of tlle worstunit is a positive difTerelltial. The latter method wouldereate a series of negative differentials. As it is assulned thattheworst 1lnit of lancl yields no rent, theproduet ofanyotl-zer unitis regarclecl as a positiveclifferential. If it is possibleto filldeapitalgoocls thatpayno interest, there is no reason svhy the retllrn to anyunitofeapital slloulcl notbe regarded as a clifferential ofthesalllellature. Professor Clarkhas pointed out the faettllatthereis a pointin thelife of eaell
1Sl@*a, chap. i, sec. 6.
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perishable capitalgood whenit yields its owllerllo sl1rplus above tlle return to tlle colnplementary agellts that are employecl withit.l It lnaybe possibleto Endlaborers so inefficiellt thattheyacldnothint, to tlle product of illdllstry, in whichcase the wages of better labor cotllcR be described as a differeIltial. If, however,it is preferrecl to regard as margitlal labor thatwhich receivesa wage sufficient forbare stlbsistence, the greater part, tllough notall, of the return to efficient labor nlaybe treatecl as a differential.The clainl has been urged, and with much force,that land reqtlires a lllinitnum return for upkeep;2 al1dthereduction to desertofgrazinglands ill theWest and in Australiaprovesthateven " marginal " lallds requirea certain care,and so lllUSt producea rnillilnutnreturllsimilarto the minilnum ofsubsistellce for labor. Tlle differelltial in rentwould theol be measured from a rninimum return, not fromzero. But sarhether the differential is oneasured fronz zero or froln a luillinuollreturn is a ulatter ofpractically no theoretical siglliScance. Few economistswould llOW stlbscribeto Walker'sdictemthat " the whole theory of rentrestson the assumptiontllat thereis a bodyof no-rellt lands."3 Althoughit is possible to collceive of tlnitsof labor and of capital thatare based upon purely physicalcllaracteristics, yetto do so is to violate establishecl usage. A unitof laborin ecollotnic theory alulostalwaysmeans an amountof labor of a givel1efficiency.If two childM ren are able to do tlle work of one man, we shoulcl naturally say thattheyrepresent as tnany unitsoflaboras a Illan. If thereare laborers who ulake no specific aclditionto procluction, we shouldnot call themunitsof no3Politicalecollomy, 3d ed., 222.
2 Hobson,Econoulicsof distribution, I55 .
' Clark,Distribution of wealth,96.
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7I
wagelabor; we should saythatthey represent I10 labor at all. The capital goods wllich areat thepoint ofbeing discardecl andwhichadd nothing to theproduct ofindustry arenotcapital in theecollomic sense oftheword. " All portions ofcapital do, in proper economic tlleory, bear an equal rateof interest," 1 andthesaInethillg is gellerally lleldtobe trueofall units oflabor. Econotnic 1lsage notwithstanding, there appears tobe o reason in logicwhytwo acresof poor laIld should not standforthe same llumber ofunits of landas one acreofgoodland. To reduce landto units ofeHiciellcy is a process exactly analogotls to the reduction of labor and capitalto unitsof eHiciency.No-rellt landis no more all econolllic agent thallis tlle capitalthatyields no interest. It is not,however, difficult to understancl why the unitoflandshouldhave beendescribed ill one set of te-l-ms andtheunits oflaborandcapital in allother.In thefirst place,in spiteofthevariations in theefficiency oflabor, custotn hasalways tendecl to reduce toa certain uniformity the workactuallyperformed by ordinary workrllen. A "day's labor" formerly conveyed a far moredefinite meaningthan ''tlle use of all acre of groulld." It is thetelldency of moderIl improvemezzts ill thetechllique ofagriculture and in transportation to lessenthedifferences in the procquctivity of the soil.2 At the.same tillle, moderll industry permits of a wider rangeofpersonal differences tllandicl a regime of custom. The term " all average acreof land" thuscomes to possess a l-nore defillite significallce thanformerly, ^rhile theterm " an average day'slabor " conveys a less
xoszzics, vol. ii, p. 287.
1Walker, The sourceofbusiness proSts,Quarterly Jof6rval of Eco2Pattell, Premises of politicaleconoiny, p. 27 etseq.
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definite meaning with the progress of industry.T-0le possibility of reducing land to units of eHiciency is at present scarcely less thanthatof reducing laborto similar units. SEc. 27. Blltthechief cause for the difference in the treatment oflandon theoIlehand andlaborandcapital on tlleother was theconviction thatthe differential on the better land borea relation to pricequitedifferent from the relation to priceofthe analogous portions of wagesand interest.One mightcall thewagesof the poorest workers margillal, and the excess over such wagesthat better laborreceives diflerential. But the relation ofthedifferential andthe marginal portions of wagestoprice wasseentobe identical. Whether sugar beets arecultivated by three children, by two Russian women, orbyoneman, thecostto theentrepretleur and the priceto the consumer are the same. To classify portions of the wagesofthe moreeflicient workers as differential and non-differential has, therefore, no economic significance whatever. If,lloutever, workers were paidequally, tllewagesoftheleastelYicient labortnight beara peculiar relation to price,and the distinction would be ofeconolllic importance. The description of rentas a diSerential of thiskind is then oftheoretical importance ifrent is nota cost,if it doesnotenter intoprice. Untilit is independelltly proved thatrentis nota cost,thedifferential analysis which is basedupona cotnparison oftheproductivity of unlikeunitsis incapableof distinguishing rentfrom wages and interest.The discussion of this question must, however, be postponed to thenextchapter. SEc. 28. Bllt eventhough we describe the UllitS of labor, capital, ancl lancl in terms ofproductivity, so tllat there arenonewhich do not yielda return, it is never-
95I]
I^scowose. RewsG as a DigerenSialor Residzgal
as differentials. illcomes theless possibleto treattheir equallyproducAlthough sllchunitsare by definitioll thatareofgreat ill sotlle respects tive, they mustdifler very different Theywillrequire theoretical importallce. agentsto elldow tllem proportions of complementary Thus the capitalvllich is with llormal productivity.l a willreqllire appliances etubodied in old andinefficiellt it thanall equal of laborto work fargreater qllantity of tlle most in machinery amoullt of capitaletubodied improved type. appliby the aid of the fortner The goodsproduced a hit,hlaborcostallda lowcostill allceswilll-epresellt the still more, onachinery deteriorates capital.2As tloe alldlnore illtO resolves itselfluore costof tlle prodllct is wllere theprodllct a pOillt iS reachecR laborcost1lntil economically createdbylaboralone. Tllis peculiarity as in tllecase is Ilowllere so obvious ofindllstrial units t)oor latld willoftell consisting in very on lalld. A llllit for laboralld great expellcliture require a colnparatively poor, theentire capital; and if tllelatldbe sufficiently capital. ancl product lnaybe dueto thelabor competition, thevariofperfect Uncler theassumptioll to frotn pOillt ousUllitS of labor rill llave llligrated point ulltil tlley llave becotneequally productive, a hundred UIlitS ofcapwith whether they arecombilled
to of Professor Clark,Loria objects strenuously 1In his criticism of industrial in the combinatioll thenotionof varyingproportions physical he says,are fixed by imlalutable agents. The proportions, laws, (I1 capitalismoe la scienza, I9). The fallacyof his position of ullitsof capital,labor,and land is due to thefactthathe conceives to as physically alike, when in fact theyare alike olllywithrespect some economicquality that we select as relevantto our immediate to selecta unitof capital needs. It wouldbe absolutelyitnpossible and upon its wnichwouldbe based both upon static productivity agency. But this withotherunitsofproductive habitsocombining is clearly whatLoria triesto do. of wealth,p. 96. 2 Clark, Distribution
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italandlaIldorwithoneUllit, or withpractically nolle at all. If,then, we desire a oneasure of theeEciencyof labor, of itstrueiInportance to tlle ecoolomic organism, we haveit ill theproduct oftllelaborwhicll is working
virttlally IlIlaided.
We may, ifwe clloose, arrallge the supply ofall commodities witll referellce to the relatioll between the valueof each llnitand its costin laboralone. Those portions ofthesllpply tllat areprocluced bylaborwllich is coIllbilled withvery little capitaland econotnic laIld woulci represent the margin of greatest laborcost; all otherunits wouldhavea value greater thantheircost, counting onlythe specific fortn of cost wllichwe are considering. That surplusvalue wouldof coursebe theincome to capital alld lalld clescribed diSerelltially. Ill the same way it is possibleto foron a differential series witllreference to cost ill capital, alldanother in whicl-l thecostin tlle uses of lanclreceives similar etnphasis. Tlle sigllificallce of such seriesof di$erentials consists in the facttllata fieldthusappears ill which sozue units ofeachagent workpractically ullaided. It willbe remembered thatone of thechiefencSs thatthe classical ecotlomists soughtto attainwas tR)e discovery of a fieldill whicllthewholeproduct of illdustry was divicled between laboralld capital, wllere" whatever is not interest is wages." 1 It wouldbe superfluous to pOillt outheretheconnectioll between Ricardo's law of rent andhis propositioll thatcoznmodities exchange in proportioIl to the labor tllat llas beenexpellded llpOll them. Nowit is llo moreimpossible, tl-leoretically, to discover a field wllerelaborsvorks virtually unaided by capital and landthanto Soldone ill wllich labor and capitalworkwithout the use of ecollomic lalld. II1
l
Cf. Von Thunen,Der isoliteStaat, II, 137et seq.
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RenSas
DifferenSial oso Residual Incorzze.
either ca.se it is llecessary to disregard the trifling contribution wllich is due,eveIlat the margin, to the exclllded factor orfactors. The advantage of themethod of diflerential analysis here sllggested is that it doesnotrequire theexistence of1lo-rent landin order to find a field where theproduct oflabolandcapitalarepractically dissociated from the proclllct of latld; nordoes it dependUpOll themargitls of labor and capital to distillgusll pllreillterest aIld wages. W]lere a great deal oflaboratldcapitala re em ployedon a small aluollnt of land,evell if that land pays a considerable relltper acre,tTlevalue of each llnit ofcommodities producecl will morenearly resolve itself iIltOwagesanci interest alolle than where a smaller amount oflaborand capitalareemploled llpon a great dealoflandtllatpays a small rent }er acre. In a developed ecotlomy it is perhaps Illore likely thatthepure prodllct oflabororofcapitalwillappear in connection with the better landthanill connection witll tllepoorer. Sec. 29. Both of the differetltials disctlssecl above are phetlolnella of staticsociety. If industry became quitestatiollary, it wollldstillbe possible to find acres oflatld, capital goods, ancl laborers that proclllce a merel nominal returll, orlabor combined with suchinsigllificant qllalities ofintra-marginal capital atld lalldas tobeworkingvirtually ul1aided. Butthere isanotller classofdiffer entials illllstratec3 ill theso-called intensive law of rellt wl-lich actually appear as cliSerelltials only wlaen dynamic movements ofillelllstry takeplace,andwhich canbe explained only on tlleassunlption of dylzamic phelloInena. In any,rotlp of producers' goodsthatare combined forthe prodllction of a single coznmodity, a cllange ill the proportions of land,labor, and capital willmealla
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Smerican Ecozzoonic AssocicrSio^z.
[954
changein the productivity of everyunit of each factor,l provided that the additiollalUllitS are of the same general characteras the originalones,and thatno cllange in the techniqueof productiollhas alteredthe normal proportions of coorlbination ill that branch of inclustry. If theamount of laborincreases, thelDrocluctivity of eacll unitof labor declilles,wllile each Ullit of capital or of land becornesmore productive. We Illayconceive of the quantity of labor increasillgutltil the productivity of any unit becolnes so small as to be quite llegligible. We shouldthenhave a series of differentials represe..lting the productivity of labor under the widestrant,e of conditions thatare of economicinlportallce. Underthe nvorst conditions,frolntTlepOillt of view of labor, the product of a unit is zero; undertlle best conditiolls it is the entirevalue which labor could create if combinecl withunlimited capital and lalld. If we startwiththe lllostfavorable possible conditio forlabor-when the UlaitS of labor are few alad capital and land are practicallyunlimited ancl gradllallyincreasethe nutnber of unitsof labor, we sllall l-lave a declinein theproductivity of each unit. Tlle earlierIlllitS, it is usuallysaid, are more productivethan the later onesg accordingly, a differential surplus collnectsitself withthem. Accurateallalysisshows, however,tllatagt any given tilne thereare no favored IlllitS, that ill tlle econolllicselase of the word the " earlier " and the "later" units are equally productive. Tlle diffel-eIltial seriesis connected, llotxvith different units at one titne and underolle set of conditiolls, but witllthe satneunit, or identicalunitsat clifferent tilnes and under differetlt conditions. At no time, then, does such a differential
1Sprcz, chap. i, sec. 8.
955]
RenS as a DiaferenSial or Residal Incotsze.
surplus exist,exceptill thougllt.'Sillce, however, a challge in tllequantity oflaborwhichreduces the proclllctivity of labor increases at tllesametilne theprocluctivity ofthe other factors, it is notunnatural, though inaccurate, toidelltify theincreased illcome of tllefactors ofwhich theposition hasbeenimprovecl with thedimillishedproductivity of the factor whichsuffers through
the cllange.2
77
Sucha differential, or pseudo-differential, wemaydesit,nate as thedynamic differelltial, to distinguish it from thekinds ofdifferentials cliscussed above. It is theone which appears in the"intensive law of rent." Orit,inally the rent of landalolleseelned capalDle ofbeillgdescribed as a diSerential of tllisnature. Butill recent yearsseveral economists have successftllly appliedthe samemethocl to theexplallatioll ofwages anciinterest.3 Its applicatioll to capital andlaborare obviously implications ofitsapplication to land. Why,tllen, was this fact practically overlooked for a wholecentury, andwhy do so many economists of the present dayregard it as merely an over-refinement oftheory ? SEc. 30. The conceptioll of a dynamicdifferential series rests uponthe assumption thatoneof thefactors ofproduction relnains stationary ilaquantity whilethe quantities oftheother factors increase. The " earlier " and 'ilater" illerelllents tllatfigure in the illustration areUllitS oftllefactor whichvaries in quantity. Now if there weresomelaw thatluade it inevitable thatall ofthefactors ofprocluction wouldincrease at thesame
lFor a slightqualification of this statement C%. S?GPra, P.I5, footnote. 2SltprA, chap. i, sec. 8. 3Clark, Distributiotl of wealth,p. 319 et seq., Hobson, The law of the three rellts, QZGargerly JOIGrnaS of Econowxics, ol. V, p. 270
78
HonericanEconotnic Sssociafion.
[956
time and in thesamedegree, such a collceptioll would be wholly valueless. It ^rould be a description of an impossible phenomenon. If,oll the otller hand, oneof the factors itlcreases at a morerapid rate than the others, it wouldbe quitelegitimate to assutlle that it alone increases wllile the otherfactorsremain unchanged. Tl-le description would be olll approxilnately true, but it wouldgain in clearness whatit lackecl ill accuracy. If one of tllefactors is capableof increase, but is of such a nature thatit illevitably lags behind theotllers, itwotlld be unnatural toassutne tllatit alone increases in quantity while theotller factors retnain tlncllanged. All of the phenomena of changecould be accolllatecl for byassuming thatthefactor whicll is least subjectto clynamic influences relllaillecR static,wllile assuming tllattlleother factors increased somewhat less thanthey do,absolutely considered. WhenRicardo wrote, tlle quantity of aailable land increasedslowly,and rentswele actually rising; lahor and capitalwererapidly increasillg in quantity, and interest seemedto be declilling to a tniniInulll, whilewages appeared to lnanifest a tendency toapproxiulatethebarestneedsof tlle laboring population. It was, tllerefore, ncltural to assumethatthequantity of landis fixed for all time,and tllat laboralld capital are capableofin(lefinite increase. The assutnption tllat the quantity of laborremains tlnc}langed whilecapitalor landincreases would haveseemecl thenan utterly frtlitlessone. It wouldllave beenhopelessly abstract eve for Ricardo. But as we have seen, theland wllicllrelnains unchangecl in quantity is geographic, not econolnic lalld; yetit is tllelatter whicllalollsc has significallce in ecollomic tlleory.Alldeconomic land lllayincrease qtlite
957]
RevS as a DiXerenfialor Resi.atal Incowne.
independently ofany corresponding increase in capital or labor.l Moreover, recenttheory has been compelled to abandonthe notionthatthe lllinimuInof subsistence fixesthe standard of wages,or tllat any imlnutable law fixesa stationary returnto capital. Accordingly it is not an absurd assumptiontllat tlle quantity of land varieswhilecapital and labor remainstationarr. We mayconceiveof Von Thtinen's isolated stateannexing, by means of improvedtransportatioll, a great al-eaof waste,which tllUS becomeseconollliclalld, laot illferior in fertility and effective situationto the lands nearer tlle tnetropolis. Assumingtlle economicfluidity wllicll we always assume when we cliscussthe effects of ilae reasein capital or labor,we sllouldsee eacll establishment, agriculturalor manufacturing, addilag new acres or front feet,elllployingits stationary qualatities of capitaland labor UpOll greater areas of lalad. As tlle additional unitsof land are successively takenintotllese establishments, we shouldsee theirproductivity gradually decline. No acre collld receive for its onvner a greater returnthan tlle product of tlle last one of tlle salne degree of plôductivelless.The greatel procluctivity of tlle earlieracres would at first appearas a profit in the handsof the entrepreneur; bllt competition woulcl soon makeit overto the stationary factors, capital and labol-. Thus we shouldhave a differential series in whicll tlle " earlier " unitsof land appea.r to be nlore productive than tlle " later." This series is preciselyanalogous to thatwhichis connectedwith the earlier " doses" of capitaland labor,wllenthosefactors increase and land does not. No doubt,underthe conditiolls assumed,the increase ill wagesand illterestwotlldreact upon the supply of 1 S2{pi'a, p. 38.
79
80
AssociaSionz. Ecoutooozic Americ^z
the alldhellcewouldtendto restore andcapital, labor would relations.Butthereaction quantitative original phedyllamic theprimary equalin force necessarily not berememland. It must ineconoInic increase nolllellon, in capital increase due to relatise higllrents, that bered the in increasing labor,haxe a similarinfluence and no is there case land. In eitller of economic quantity wouldnot influence dynamic whythepritnary reason income.l ofpermanellt standards in newandhigher result ratemay so dethatthebirth It is quiteconceivable stationary practically willrenzain thatpopulation cline the next century.At the sanle time capital during of degree to thegreater owing indefillitely, increase may popgeneral inthe ofthrift development andthe securit greatly may intransportation and improvements ulation, Under land. economic ofeflective theamount increase to continue wages woulddoubtless circumstallces such ancl rentwould unrise,whiletlle ratesof interest fall. In thatcase it wouldbe naturalto questionably on early of wagesas a diflerential pal-t a great regard perfectly be of landand capital. It would increments consistto give perfect in order thattheorists, natural labor when a time assume should systems, to their ency and explainthe unlimited, purposes ecollomic wasfor on the earlierunitsof of wagesas a differential whole ofcourse, would, landand capital. Suchan assumption than untrue butnotmuchmore untrlle, be historically land. economic of unlinlited the classicalassulnption unused of have, indeed,been areas age there In every account;but to economic couldbe turned landsvhich uneInployed. ofworkmen beenclasses so also havethere misadjusta ternporary waseither In eitllercase there complementary of andthecontrol orthetechnique nent,
chap. i, sec. X. ' Cf. s?epra,
Lsss
959]
RenZas
Difjnere^tial or Residgal Zncoone.

8r
factors wasnotsuchas wouldpermit of the economic useof theunutilized agelts. SEC. 3I. If,then, oneofthefactors ofproduction is so constituted bynature that itremains relatively stationary in quantityduringan indefinite periodof dyllamic change, it willbe quitecorrect, according tothe principlesofecollomic logic,toregard itsincome as peculiarly subject to thedynamic diSerential analysis. It would be quiteirrelevant thatthesameanalysiscould be appliedto theother factors byassuming tllatthey in turn remainedstationary in quantity while the actually chalzgeless factor increased.Assumptions which arenot in somedegree generalizations from reality maybe employed as a foundation for fictitious logical constructions, butwillnotassistin thediscovery of truth. Whether tllerent oflandshallbe regarded as a differential income depends, then, uponthequestion whether or IlOteconomic land is capableof illereaseindependentlyof a corresponding increasein capital. The claimhasbeelladvallced in the secondchapter of this essay that landis capableof such itlerease; therefore it is maintained thatlogicrequires theapplication to capital aIld laborof the same allalysiswh ich is usually appliedto land alone. Rellt is not cllaracteristically differential from the dynamic anymoretllan from the static point ofview. Butwhile eachofthefactors ofproduction, treated as a whole, is capable of increase, tllere are certain forms of labor, capital, and lalld thatremainpractically unchanged in quantity.Theseare usually forms thatare specialized to a single use- the monopoly goods of Wieser's analysis. Every increase in the demand for the commodities produced by theiraid will tendto 6
82
Aonerica^s SconoonicAssociafion.
[960
change the quantities of mobileproductive goodsemployed ill combination withthem, and consequently to increase their share in thephvsical product. Growth ill thequantity of the mobile factors will likewise challge the proportions of combination withthese immobile factors, andwillconsequently increase theshare imputable to them. Tlle returll to such" monopoly goods " willtherefore be mostnaturally llleasured differentially uponthesuccessive unitsof mobileagencyapplied to them. Moreover, the productivity of the mobileproductive goodsis tested in general industry; thatof the monopoly goodsmust be discovered in theisolatecl combinations in which theyocctlr. And thismaybe done either byreturning theulobilefactors to general illdustryanclthus discoveritlg how muchvalue is lost by leaving themonopoly goodsuneluployed, orbyestimating the product of the mobilegoods marginally and treating thereturn to monopoly goodsas a residuum. lqheresiclual testis, ofcourse, thenatural one. If we consider what concrete forms of productive agency answer to thisdescription, we shall find, indeed, many forms ofland,especially landwhich is peculiarly adaptedorcertaill uses in conlmerce and industrye But we shall also findnumerous forms of capital and laborthatforone reasonor another do notrespond to dynamic influences thataffect thegeneral tnass of these agents. It is true thatsuchforIns of landarelikely to retain theirmonopoly position fora lollger period than likeforms ofcapitalandlabor; btltwe tnust remeInber thatat all times there is a complex of capital-goods and of laborwhichholds a similar position. If,then, we wish to retainthe designations " differential" and "residual,"we shall probably find it most expedient.
96I]
Ren!as a DiXerenSial or ResidtalIncome.
83
to alDply theInto the returll to the strictly monopoly factors, whether forms oflazad, labor, or capital. The CtlStOzzlS ancRlaws of land tellurehave a tendency toconfuse orclinary lancl,wllichis lnobileiI1 the econoIlaic sense oftlle term, Witll the llaonopoly goods oftheforegoing cliscussion. A great proportion o theeIltrepretleurs ofmodern society find it a silnlDle lllattertoincrease thelaboralldcapital ullder tlleircooltlol, whileto rent orpurchase additional landinr7olves a considerable arllount of frictiola. To vary theallloullts of capitalalld labor employecl with a given quantity of land is a tnore frequent procedure than to vary the quantities of laIlciwitha fixecl aluount of capitalaold labor. Thecollception oflandas a fixed qllantuln andof capital andlaboras val-iables thusgainsan establislled position in the business consciouslless. Butit is clear thatman forllls of capital(e. g., a shipora btlilding, and ulanyforllas of labor,such as thatof a busilless uanager) sharettlis characteristic witll land. It is also cleartllatthefrictioll whichgives risetosucha characteristic is notsllfficiently important illmoclern industry to serveas a basisfor a tlleoretical distinction between
sources of lllconle.
CHAPTER V.
THEDRELATION OF RENT TO PRICDE:.
SECC. 32. There is hardlyany subjectin economic theory that has beentnore volumillously discussed than therelation ofrenttoprice. The problem, though involved, can hardly be calledone of the most intricate with which ecollomics deals; andit would, therefore, be presllmptuolls to undertake to acldmuch thatis newto the existingcontroversial material. Yet so long as eminent economists of one school assertthat relat obviously bearsa relatioll to priceqllitedifferent from therelation to price borne bywagesandinterest, while equallyeminent economists of another school assert withequalconficlence tllat ill thisrespect rent does1lot difler from the other two forms of normal income, it cannotbe a whollysuperfluous task to exaluinethe premises and thereasoning whichlead to theassumptionofpositions thusdiametrically opposed. A history of thedoctrille of rent whichwe associate withthenalneofRicardo wouldbe little moretllanall enumeration ofthe names of economists whollavesubscribed to it. In theform ill whicll it left thehandsof Ricardo it appears practically ullchanged in all classical economic writings downto the timeof Walker, whose statement we mayaccept as tpical.
The normal priceof any commodity is fisedby the costof the production of thatpartof the supplywhichis produced underthemost disadvantageous conditions. The cost of that part, whatener that costmaybe, will determine the priceof all otherportions, no matter how much more favorablethe conditions underwhichthesemaybe produced. Applying thisprillciple to a singleagricultural crop,e. g., wheat,we say that the normalprice of wheat will be fixedby the costof raisingit upon the least productive soils whichare actually cultivated forthe supplyof the market. . . . Butif the priceof
963]
TheRelaSion of RenSSoPrice.
85
thewholecropof wheatis to be fixed by the costof raisillg it on the leastproductive soilsactuallycultivated, thenrentis nota partofthe priceof agricultural produce, since the least productive soils pay no rent; and therefore rent cannotbe part of the price of the wheat raisedtherefrom, and if notofthiswheat,thenof no wheat,since,as we havesee:n, thepriceof thewholecropis fisedby the costof that portion whichis raisedon theno-rent land.l
A history of the criticism of tlle Ricardian doctrine of rent wouldbe somewllat less monotonous thana history of the doctrine itself, sincethe range of ideasis greater. Yet thepoints ofviewofthecritics of thedoctrine of rent areeasilyclassified. Apart fronl the attacks of Carey, which spenttheirforce upona rninor detail, theorder of cultivation, we findthree principal linesofcriticism: (I) The poorest land in cultivation mayyield a rent, and therefore a partof rentis a constituent elemel-lt in price. (X) Portions of the supply yieldno wages,and otherportions pay llo interest; therefore thereasoning whichis reliedUpOll to prove thatrentdoes not enterintopricewouldprovethat neither wagesnorinterest enter illtO price. (3) Rentis in thelastanalysis a portion ofthe totalproduct ofindustry, and only secondarily a moneyillcome. The existence ofrentin its pritnary form is of the utmost importance in determining price.2
I Walker, I,and and its rent,27.
2Anumberof objectionsto the Ricardiandoctrinewhich doIlot appearin thisclassification have been presented by Professor Patten in his "Premises ofpoliticaleconomy,"pp. 2I-45. Manyofthemdo notappearto hold whenthe Ricardiandoctrine is broadlyinterpreted. As a case in point we may cite the sixth count brought against RiCal-dO (p. 44), namely, that land may remainin cultivation even whenthereturn is notsufficient to pay all. costs in laborand capital, including undercapitalimprovements fixedin thesoil. This would be a reasonforholdingthatthereturn to certain kindsof capitalmay be regarded as a " quasi-rent," to use Professor Marshall'sexpression, butit doesnot in itself necessitate anyessentialmodiiScatioll of the doctrine ofrent.
86
Aonericaoz Ecoozomic ASssociation.

SEC.
[964
33. Tlle Erstcriticism was not entirely overlooked byWIill, 1 it was advallced as all importallt qualification oftheRicardian theory }y Professor Patten in his " Prelllises ofpolitical econollly,) 2 and has since becollle familiar to all sttlclents ofecollolnics.The poorest latld in ctlltivation is almost certain toyielda rent, since SIICh landhas somevalue for otller pllrposes-pasturage, the chase9the growillt, of timber. Price Inust accordillgly be sufficient to pay sucll" lnarginalrellt," as xTxell as wagesand illterest.Abore ill-lportant is the corollary oftllispropositioll, wllicllshows tllatXthe rellt of lancl foragricultl1ral purposes lntlst be counted a.sa partofthecostoftlle proclucts of a lllarket garclen; or, to putit ill ,elleralterlns, relltill allyuse NlUSt be sllfficient tolceep the lalldfrozn fallillg intotllebestalternative use.3 If we areperulitted to redllce all landto wheat fielcls9 it is necessary totale intoaCCOUIlt thefact ofmargirlal rent only. Btlta studyofpriceis a stucly ofrelative value. In all investiaation of thelaxvs governing theprice ofwheat little callbegained byignorillg the esselltial price relations betweell xvlleat allclother agricllltural products.It wouldbe manifestly alJsurd, ill order to detertiliole tl-le lawstllat goverll svages allcl tlle price oftlleproduct oflabor, toassullle tl-lat all labor produces shoes. If it should be provecl, upoll sllchala assutnption, thatwagesdo notellter into price, theproof wouldbe valueless, as the prel-nises vitiate thecollclusion. It is needlessto repeatthe argumellt wllich shows thattheassimilatioll ofall kindof lalldto wheat landgivesequally worthless results. Butthetnoderll defellder of classicaldoctrines, while admitting thatit is all essential fact oftheproblem that
2p. 22.
Mill, Prillciples ofpoliticaleconojny, book 3, chap. 5, sec. 2. ed., preface.
3 Jevons, Theory ofpoliticaleconomy, 2d
lanclenters intovariouselnploymellts, alld thatill many branchesof industry rent is paid for the poorest land usecl, wouldstill denythatrent enters intothe priceof the most expensive and price-colltrollillg portion of supply;arldhe would pointto the well-known intensive law of relltas a sufficiellt defenseof his position. If capitalis applied in successive doses,olle closewill be fotlnd whichyieldsa return only sufiicieIlt to cover the evst ofthe labor alld capital elllployecl. Conseqllently there is a portion ofsupplywhichpays no rellt.] SEc. 34. T1le lot,icof the intensivelaw of rent has recelltly been called into questiollby several econolllic writers. It is said to overlookthe ort,anicnature of industry, axlcl to imlDly a rnisadjustmellt whichinvolves a denial of the tlleoretically free colllpetitionupon which the arguInent is based. lSor the first objection we mayquote Hobsoll,rho rejects entirelytlle notion tllat the productivity of a fillal llnit of any agent is
determinable.
965]
TEe RelaSionof Re^ZZ SoPrice.
87
It is claimedthattheproductof thelast dose of laboris to be ured measby the reductionin the aggregateprotRuct of the farm which would have attellded therefusal to applythislast dose of labo.. this is not justifiable.;The Now withdrawal or refusalto aply thislast dose oflaborwotlld have meanta diminished llotonlyof the other unitsof labor,but of the ullitsof productivity capitaland of land, and part of the resultof this climinished productivity of otherunitsis wrongly attributed to thelast unitof labor;2
Now thiswoulcR be quite trueif the " last dose" is defined loosely enough. If, for example, the dose of capital whichis withdrawn frotn an acreis a bushelofthe wheat thatwollldnormall be sown, a part of the loss would incleed be due to the sterilization of tlle uses of land, labor, alld othercapital ernployed. But careful econolllists, in assumillg thata " dose" is withdrawn, also Cf.
2 Hobson,
Marshall, Principles of economics, 3d ed., p. Economicsofdistribution, p. I45.
475 6/ seq.
88
AssociaSioos. Asnerica^s Ecoozoonic
[966
of the rerearrangement assumethatthe bestpossible goodsis made,so tllatonlya sligllt naining productive of the agentin quesof all of theforms deterioration of the aclplace.l It maybe thatthe effect tiontakes to increase the capital is siIllply unitof dition of a final product lllay of existing goods. Its physical efficiency in related to thatof the othereletnellts be organieally but thisfactdoes not lllakeits ecollotnic production, lessdistinctive. productivity In the same chapterHobson advancesthe claim of lasar upon which the intellsive that the premises oftlle misacljustment rentis basedinvolvea previous of freecompetithe principle factors, thusdiscarcling is meanin2>less. which thewholedoctrille tionwithout
If a tenant hiresa piece of land and putsfive doses of capitalupon it whenhe oughtto have put sis, he paysa rentbased oalthe assumpuse of theland, i. e., thathe tionthathe will make a fulleconomic he afterwards adds his error, wi'l putsix doses OI1 it. If, discovering thesixthdose,he only appearsto pay I10 rentout of its produce,because he has all the timebeen paying a relltbased upOIl the supposisix doses.2 theland svith tionthathe was working of of factol-s of combination The truth is that a certaitlharmony purposes. In a giveIlcase a production existsforvariousproductive is mostproducof production of the threefactors certain proportion tive. If, however,there is a shortsupply of one of them at the of one or former qualityand price,a morethanproportionateincrease involving,of course,an inbothof the othersmay be substituted, of supply.3 creasedcostper unitoftheincrement
that at any given time Now it will be admitted such a " harmony"exists,and that underthe as no individual of perfectly freecornpetition sumptioll combillatioll svillbe enabled to vary the productive ios iosd?stry cAzange some dy^Z^^sic without loss sgnSiS the bestpossible Sakesplace. But if capitalillcreases, industry change throughout of the factors proportions
p. I4I . of distribution, 2 Hobson,Economics p. I37. of distributioll, 3 Hobson,Economics ofwealth,p. Clark,The distribution
246
etseq.
also. Free capital is in the tnarketseeking bidders, and under the assumption of free coznpetition it will get just whatit adds to industry. It will add less than thefortner product of like units, because the adjusttnent existillgbeforethe increase in capital itnpliedthatin eachindustrialplallt additional UllitSof capital would create a less thanproportionate return,and increasein capitalwollld 1lotchange tllis fact. Tlle new capital will, indeed,affect in a veryslight degree the productivity ofall otller unitsof capital,lowering their retllrll; it will likewiseillcreasethe product of all unitsof labor and lalld. But thesechangescannot take place until it llasbeen ascertainedhow great a total net increaseis due to tl-le llew capital. No deduction frorn tllat procluct is ulaclefor rellt; increase ill rellt arises from an apparent dedtlction fromtlle prodtlct of other UllitS. There is, therefore, a portionof the supply i nto tlle price of which rent does rlot enter,and that portion actually appearswhellever dyllalllic changestake place.l It is true that if the new units are appliedsuccessively, those which are applied first must pay a rent. Moreover, if the final unit is divided illtOtwo smaller units, it will appear that a rent is collnectedwith the one whichis theoretically first. From thisit has bee argued thatthe rentless unitmustbe infinitesimal, s: e., no unitat all.
No Enite unit of productcan be shownto be a no-rellt unitin the theory oftheintensive applicatioll of laboralld capitalwith regularly diminishing returns. The concreteunits are produced at varyillg 1This does notmeanthatthe no-rent portion of supplyexists only when a dynamic changeis takilzg place. An individual producer can economically make an experiment whichwill demonstrate the productivity of unaided capital or labor onlywhen newsocial unitsof these agentsare distributed foremployment.
967]
The RelaZionof Re^zZ SoPrice.
89
9o
Honericcr^z Eco?zosozzc Sssociatio?z.

iIIterest <)II ca-)ital, alld
968
costsforlahor alld me2lt ofrellt.I
everyOI1Ecotltaixls all ele
T1le arglllllellt cloes llot, honvever, seem to be valid frolll a strictly mathenlatical pointof view. M;hile we cannotconceiveof zuart,inal llnitsof lalJoralld capital vvhicll are so sllaall that they calznotbe divided,and cannottherefore directlyconceive no-rellt UllitS, a consideration of therelationbetweellthe partof the appar elltprocluct of a Inargillall1nit of labor aald capital due to tlle labor allelcapital anclthe partreallyclue to land will show thatas tlle Ullitditninishes ill nlagnitUde, the ratioofthe relltto the labor-capital proclllct constantly growsless. Sillce thisis tlle case, it is quite legisillaate to collceiveof the forlller qllantity as becomiliginfinitesmal wllile tlle latter retnaills fillite. To clisptlte this woukl be to delly tlle valiclity of practically the svhole bocly of theoretical ecollo:llics, as well as of tllat partof zIlathelnatics into n7}licl1the theoretll of Limits ellters. Tllere appearsS tllen,to be no reasoll forclenying tl-le validity of theintensive law of relat. Tllereare portions of tllesupplyilltO =#llicll l-ellt cloes llOt ente1-, a1tllOllgh stlcllportions appearolllywllella dyllamlc changetakes place. Even thougll all lluit.sof capital are give eqel2t11y favorablepO5itiOl4S ill Colllbillation witll lalld, tllereis yet a ullit of iDrocluct, createclby all tlle LIllltS
conjoilltly, whicl-l pals 110 rent.
SEc. 35. To acllllitthis,lloWever? cRoes llot COlllpel llS to subseribe to tl-le doctrille tllatrentdoeslloteIlter illtO price. For it has beellproved collcltlsively thatportiotls
Fetter, The passitlg of theold rentconcept, QlzarZerly JO?fs oIaI of Ecotlo^Rsscs, vol. xv, p. 439. II1 a fcjottlote Pr Jfessor Fetter clislaims any intention of d;Sputilag the validityt ofthe method ofincrements in ecollomictheory, claitnit<g thatthis is a Illisapplicatioll of it. The groullels forthe differellce lDets7eell thisalld otherapplicatiolls is not apparent.
I
969]
TZze Relationof Rent toPrice
9I
of thesupplyofeorntnodities are produeed withoutthe eeonotnieaicl of labor or of eapital; yet it rould be absurdto dellytllatwages anclintere.st forlll element.s in priee.l There are UllitS of eollllllodities whiehare virtuall produeedby labor allcl eapital alone. Sollle of these UllitS are pl-odueedby mllell labor and little eapital; other portiolls eost a great deal of eapital ancl but little labor. Sotne unitsare ereateci at ala expellse, say,of lEveUlaitS of labor alld trelltyof eapital; others luay eost fireunitsof eapital and twellty of labor. No eeonolnist, llowever, woulcT affirlll tllat tllese UllitSare prodtleeci at llneqllal eosts, beeatlse lle rotllcinotstart with the asslllllptionthat the IISe of either eapital or labor is 1lota eost. If tllere i.s a portionof sllppl whiehis prodlleecl b twellty-fiR7e tIllitS of labor,unaided by eapital,it wolllclnot followthat tllis portion is tlle llloSt expel-lsive, sillee illereasecl eost in lalDor is offset 1)y clorllillished eost in eapital.9 Frotn this it is elear that those UllitS ofsuppl into wlliellrentcloesnotentereall be eonsiclerecl the tnostexpellsive olles olllyin ease it ean be shownindepelldelltly thatrellt, or luore properly the use of land, is nota eost. Aeeordingly, it is not an injustiee to the elassieal eeonomiststo afiirmthat the argtlsnetlt by whieh theysought to prove that rentis not all elelllentin eost assutnecl the eonelusionill the
prellllses.
E;ColloliliC (I)
tlleory cReals sviththreetnainforms of eosta subjeetiveeost, eonsistitlg itl the pain and diseolla-
Clark, Distribution of wealth, p. 360 et seq.; Hobson, Ecotlomics of distribution, p. I33 eX seq.; Fetter, The passing of the old rent C011cept, Qleaderly JornaZ of Economics, vol. s:v, p. 437 eZseq. 2Those economists who hold that the differentagents combine, economically, in fixed proportionsin each branch of production will see a gross misadjustment premised in this illustration. For my defense, cf. sxpra, sec. 30.
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fort attendant uponproduction; (X)etltrepreneurs' cost, consisting in payments whichthe business manmust makein order to placea commodity UpOll the market; and (3) socialcost, consisting in thedestruction of the coznmodities, or limited usesofcommodities, whichare at thedisposal ofsociety. Subjectivecosts evidently exerciseinfluence upon price through affecting thesupply ofproductive agency. In a dynamic societycapitalis increasing, and thereforethe influence of subjective costeverywhere nlanifests itself inchecking thegrowth ofcapital. Economic landis alsoincreasillg, andthefact that increase entails subjective costmakes it clear thatsuchcostslimit supplyandinfluence values.l Ill a study oftherelations of productive agency to price,limitation is, however, the fundamental factor;anclwllether or not litnitatioll is due to subjective costis a matter of secolldary importallce. It is quitecollceivable thattllrough a process of adjustmellt, stlbjective cost to thelaborer might become quitenegligible,2 alld thatcapitaltnightllormally be saved ulldercondition that no disutility woulel be involved. But so long as the quantities of labor a-nd capitalremailllimited, theseagentscan still detnand andreceive, ullder competitive law,a part oftheproduct of illdustry; and the relative payments forlabor and capital willappear in relative prices. In thesameway,
I It maybe said thatvvhen once new land has been brought under cultivation, the fact that a subjectivecost was originally connected with its utilization does not act to limitthe use of its services. If society shouldbecomestatic or retrogressive,land wouldnotbelimited by reasonofsuch costonceincurred. We are considering, however, therelation of subjective costto supplyof land, and henceto price, underexisting conditions, and underexistingconditions it is obvious thatthecostofannexillg and utilizing new areasis a limiting factor, exerting an influence upon absolutevalues. 2 Patten, Theory ofprosperity, 8.
evenif subjective costsllo longer exerted an activeinfluence onthesllpply ofland, landwould stillbelimited, and its income wouldappearin price, as will be seen later. The relation ofrent toentreprelleurs' costneednotbe discussed at length, since(it is not disputed byanyimportant modern economist thatto theindividual entrepreneur rentis an outlay similar to wagesand interest. 'rhe farmer whois unableto paytheprevailing rateof rent for theland he usesis as surely clriven Ollt of business as onewho cannotpaythe ordinary rateof wages orofinterest.Social customs tnay, indeed, treat wages andinterest as preferred shares in diztribution; butthis isnotnecessarily true, nor is it normally thecasein our present society. The rent is fixed before theproductive process begins;ifallylossoccurs, it fallsuponinterest, or evenuponcapital. It remains to consider therelation of renttosocial cost-whether theuse of land for which rent is paidis acostfrotn thepoint ofviear ofsociety, in thesensein which laborand theuse ofcapital arecosts. We must consider whether, to etnploy Wieser'sexpression, the adzlinistrators of a communistic state wouldbe heldas strictly to account fortheuse they makeof landas for the useofcapital orlaborforce. Socialcost, so faras it is conceived as notmerely collective subjective costs,is relative in its nature. A workrnan represents a possible amount ofsocialservice; and when we consider the cost of a commodity to society, it is necessary to take intoaccount as partof cost thispossible service of laborers engaged in itsproduction. A commodity whichrequires the services of an efficient worknlan obviously is more costly, frotn the point of viewof society, than one whichrequires an
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equal number of days'workof a worklnan who is inefficient, eventhouo-h thelatter lnay suffer farrtlore slzbjectivecost than the former. Cost in this sense is reckoned llltirllately in terms of utility, sinceevery illcrease in thepower oflalDor to produce utility rllakes the services oflaborcount as higher cost. In a static statecosts ofthiskilod xvoulel haveso close a clepellclence UpOll values thatthe terIns " high" or "low" social cost wollldconvey no lleallillg. Every unitof labor, capital, or landwouldbe placedat the pointwhereits productivity is highest;and the loss occasioned by its witlldrawal would llave no other nleasurethall the imorlediate loss in lltility. Cotlzlnodities having all equalutility woulcl haveeqllalsocial costs. In a dynamic society lllore unitsof productive agency maybe usedill tlleproduction ofollecommodit thanin tlle productioll of anotller colnmodity of equal value. The former maythenbe said to have a high relative social cost. Nowit is obvioustllatthe high costmaybe theresult ofa disproportionate employlllent of capital,just as well as of a disproportionate llse of labor. Exactlythe same thillgis true of land. Any unitof landrepresents a quantity of possible socialservice; and in reckoning the relative cost to society of different commodities, the quantity of lalld-use withdrawnfrom ,-eneral industry mustbe coullted in the sal-ne wayas the qtlantity of labor and capital. The commodity produced with a disproportionate use ofland has a high social cost, justas thecommodity produced with a clisproportionate use of laboror capital. One nisadjustlllent is as costly as theother.l It appears, then, thatfrom whatever point ofviewwe choose to consider costs, rentor tlleuse oflanddoesnot
I
Cf. NVieser, Natural value, p. 207et seq.
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differ froln wat,esand interest, or the use of eapital or labor foree. Underthe assulnption of freeeompetitioll and privateownership of lanclallcleapital,it is illogieal to affirtn any clifferenee betweenthe relationof rellt to prieeallclthe relationto prieeof svagesor illterest. See. 36. Yet it would be unreasonable to elailn thata doetrille so deeplyrootecl as is the Riearcliantheory of rentean be thuseasily clisposecl of. Thereremaitl other faetors in tl-le problemwhiehmay be best eonsidered in treatillgthe third line of eritieislll, nalnely,tllat the pritnary formin whiell rent appears is as a eollerete shareill tlle produet of industry, as a portion ofsuplDly, just as wages and interestare prilnarily shares in the
product.
As moneyor " real" ineoznes, wages alld interest ancl renteonsistin the wealth Igiven in exehallgeforsueh primaryshares in inclustrial produet. Thlls regardecl theyhave an effeet upon priee verydifferent from that whiehis ordinarily eonsidered. As portionsof the entiresupply,theirabsenee would eause a rise in priee. In thissense thereis no differellee betweenrenton the one hand and wages and interest on the other.
The real rentof land, as of ever^Jthil]g else, COllSiStS ill gOOdS that theland sirtuallycreates,allcl these ellterilltO the supplyof such goodsand help to determine theirvaltle. . . . The rentof land, then, as the concreteproductimputableto land, is emphatically an element in determinillg value.l
The modernRieardian would probablyadmit that from olle point of view eollereteineolllesare produets. Yet it is onlyin a statiestatethatit is possibleto identifyproduetwith aetual shares in the distribution of wealth. Now it is not wages as produet, but wages as an aetual ineome, thatare supposedto have a eontrolling
1Clark,Distribution of wealth, p. 356.
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influence overprice. The entrepreneur maywithhold a part of theproduct oflabor, in whichcasewe luay still call it wages, or better, partof thewagesfund, and it willform a partofthesupply in tllesamewayill wllich rent forms a partof thesupply, andso will affect price in thewayill which it is hereclaimedthatrellt affects price. Buttherages thatare not witllheld bytheentrepreneur perform a doublefunction.Theydistribute the wealththathas already been producecl, and they serve toshowthe laborer what he can expectfrom flltureproduction. The disposition of the wagesfund of thisrearluaynothavemuch influence upontl-le supply ofwheat ofthisyearX butit will certaillly influellce the supply ofnext year. Iftheworklnan hasbeen exploited, there willin thefuture be fewer workmen in thewheat indllstry. Prices andincomes thusdistribute thefruits ofpresent alldpastproduction, anddistribute productive forces for future productioll. It is tllrougll tlledistributionoflaborthatwagesinfluellce prices. If the laboringclasses were paid barely ellough for subsistence, a lowering of wageswouldhave a further effect on prices, sillce it woulddiminish the total supply oflabor. Butin a society suchas ourown,it is obvious thata considerable redtletion of general wages woulcl notnecessarily affect thesupplyof labor.l It is accordingly tllrough therelation between wages andthe distribution oflaborthat^rages can properly be said to influence price. It is only bypostulatillg a state inwhich labor is absolutely free tomove fl-om industry toindustry
1A gelleraldeclinein moneywageswouldno doubt reducethe effective supplyoflaboreven underpresent conditions. But a decline ill real wages, due to a generalrisein thepriceof commodities consumedby thelaborer,wouldhardlydiminishthe number of workers of thepresent, or materially checkthe growth of population.
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price.
thatwecansaythatwages in their entirety " enter into "
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Butifinstead of postulatillg a state in whichlaboris freeand l-nobilean exceptional and possibly transitionalstate,if the history of mankind is takeninto account we postulate a condition of society in which a rigid castesystemdistributes laborindepelldently of incollle, wages lllight fall in any inclustry without reclucillg the supplyof labor. While at first laborers would perhaps refuse to work at all,orwoulcl work withoutmuch zeal,tlleneedfor subsistence woulddrivethe existing body oflaborers to workas before ill spite of lower wages. So lollg as theminimul-n ofsubsistence were notimpaired, a fallin prices couldnot beprevented by anyexistillg rateofwages. As soonas the priceof any product fellso low as to reducewagesbelowthat minilllulll, thevolumeof laborin the industry would automatically diminish ulltil prices wolild rise suflicielltly to afford theminimum wage. Under theassul-nption of wholly immobile labor, then, theminimum wagewould alolle havethepower offixing prices. Instead ofmaking the comparatively mildassumption ofa caste system, we might assumethatall laboris of thesalllequality and produces nothing butshoes. A fallin thepriceofshoes could notbe hilldered bylabor costuntilthesubsistellce tninilnum hadbeenimpaired for at leastan appreciable argin of labor. In either caseit is obvious thatthe lllinimum ofsubsistellce wouldnot llecessarily be the normal wage,if mobility ofcapital is assutned, andifcapitalists are free to compete with eachother for theetllployment oflabor within anyparticular etnployment. Neglecting for the present theshare assigned to land,we maysay that in 7
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each brallchof industrycapitalwotlldearn normal interest, and theresidue, whetTler great orsmall, would go to labor. Except in thoseemplolments in which thatresidue actually aSordeda mere millimunl of subsistence, prices wouldriseand fallquitewithout regard to thewagesusuall paid. Wageswouldappearto be price-determined, llotprice-determining. SEc. 37. We see, then,that tlle extentto which wagesmaybe said to enter intoprice depends uponthe degreeof mobility thatwe assulne. Wherelaboris absolutely fluid, it is true, ill a rllodified sense,thatthe whole ofwagesenters intoprice. Wherelaboris quite immobile, onlythesubsistence minimum can be said to have any permanent influence in determining price. The salnereasoning wouldobviously applyto capital. If classesof individuals were compelled to investany capitalwhich theytnight possessin some particular industry, a fall in pricewould not necessarily aflect supply ulltilit had causeda slackenillg in therateof accumulation, orhad brought aboutthecollsumption of existing capital. When thecapitalist is freeto invest his capitalin anyoneout of a number of industries, a fallin interest causes an immecliate migration ofcapital. Under tlleformer assumptioll, tlleunits ofcapital wllich bring inIRuence to bearuponpticeare those which are saved with the greatest difEculty. IJncler the latter assunlption, theunits whicllhold thestrategic position arethose which filld the leastdifficulty in migrating to otheremployments. In a competitive economy it is mobility thatexercises actualcontrol overprices. The onlyreason whyit has seetned worth whileto consider theeffect UpOll wages and interest of cornplete immobility of laborand capitalis thatin expounding the Ricardian law of rentwe areaccustomed to make
assumptions of muchthe same llature. If we assume thatlandis absolutely immobile, we must incleed admit that itsactualincome llas no powerto deteroniole price. Its strategic pOSitiOll iS worsethanthatof labor and capital, inasmuch as there is no luininlurll belowwhich rent cannot fall. If all thelandthatis capable ofgrowingwheatis capableof growing nothing else,a fallin thepriceof wheatsvillact UpOll supply onlythrough the reductioll of incometo laborand capital, althougSh a reduction ill rentwill take place contemporaneollsly. Ifwe assumethateach kind of landis specialized to a sil1gle use,rents willriseorfallwith prices. Lancl xvill have no powerto prevent such changes ill itsincolne. Assllming as RicardocRicl thatall land yields notllirlg but corn,the landlord would clearly llave no escape from a fallin rents. He wouldbe reduced to theposition ofa passive recipient ofwhatever tnight be leftby the mobile elements in production. It appears, then,thatthe distinction betweenrent oll the one hand and wagesandinterest on the other rests ultimately upon the assumption of immobility of land and mobility of laboranclcapital. Laborallcl capital are assumed to be subjectto competitive law; land is assumed to be avithclrawn from the Seld ofsuch law.It wouldbe a sllallowargllmellt whichwould treat sucha discrepancy in assllulptions as bad logic. If the facts of industrial lifesllonv that land is far less mobile thancapitaland labor, it is quite legitimate to assutlle immobility of land whileassuming perfect mobility of laborand capital. Such assumptions will not serve as a basis forabsolutely correct conclusions, but they will make possible generalizations which are approxitnate descriptions ofreality. It has alreadybeen argued at some lengththat
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land is ill reality mobilein the same sensein which laborandcapital are mobile;and the burden of proof lies with those whowould lloldthatit is mobilein less degree. Ill the case of laboralld capital,powerover price is exerciseci tl-lrough marginal naobility.It is not theworst labornorthepoorest capital whichholdsthe position of greatest influence UpOll price; it is undifferentiated laborandcapital intheform ofpure purchasing power. If prices fallin a given illdustry, it is possible tllata fewof thepoorest workmen willstarve atld that increase ill population will be slightly checkecl.It is also possible thata fewlllarginal saversof capital,accustomed to invest in tllisparticular industry, will consutnetheircapital. But it is obviousthat an imloleasurably greater influence on priceis exercised by tllelaborels whoarefree to migrate to otherindustries and bythecapitalwhich is in a position to changeits employment.l The mobile portions of laborand capital form in reality only a stllallfraction of the total supply. Nowit is heremaintained thatthere is a part of thetotalsupply of landwhich is so situated thatit admitsof alterrlative llses; and that portion is sufScientlyconsiderable t(J endowland as a procluctive agellt withmobility andto giveit the rankof a pricedetertnining factor. Thereis doubtless lalld specially adapted to singleusesandutlrelated through margins to lancl possessing alterllatiere uses; there is also laborand capital in thelikeposition. These imtnobile forms of productive agerlcy-the " monopoly" goodsof the last chapter can alonebe said to receive price-determined inconles. Under conceivable historical conditions, rent wouldnot" enter intoprice ;" butunder the conditions
1C7. Patten,Theoryofprosperity, 46.
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IOI
reasonfor of modern industry thereis no satisfactory as a price-determined in treating rentin its entirety from employment to emcome. Ordinary land shifts possible reward;andin ployment, seekingthe highest of different commodities so doingit affects thesupply uponprice. andexercises a controlling itlfluence
CHAPTER VI.
RENT, PROFIT, AND MONOPOLY RETURN.
has been attention chapters Sec. 38. In theforegoing on the rent between relatioll the to exclusively devoted on the other. In the ollehandandwagesandinterest the relatiors consider to necessary it is chapter present returll. The task is and monopoly of rentto profit are very economists that fact by the diHictllt rendered and as of profit as to thenature all agreement from far from gains the and profit between to the distinction represent however, of return, monopoly.Both forms entrepreabove productiotl an excess of incomefrom distinmay be provisionally nellrs'cost; and profits thatthe oll the ground return monopoly from guished which a degreeof permanence possesses income latter lacks. theformer to theconcrete attention paidlittle economists Harly nowagreein writers modern most which ofincome form recogreturn.AdamSmith,indeed, monopoly callillg income of sources someof those nizedas monopolistic whichwe should now class as legal and customary altnadecertain followers alld llisearlier monopolies, phenomena. formonopoly in theirtheories lowances however, monopoly, of analysis The Srstthoroughgoing whichdraws " Politicaleconomy," in Senior's appears rein whichmonopoly forms to thenumerous attention turnmay exist. Senioragreeswithhis predecessors relatecl as closely return andmonopoly rent in regarding of viewwhichhas neverlacked deincomes-a point fenders. by the advancecl Therearein generalthreereasons
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classical economists for classifying rentwith monopoly illcotne: (I) landis a monopoly becauseits value does llot correspond to the cost of improvelnent; (2) land is a monopoly because it is limited in quantity;(3) the return from landis a monopoly incomebecauseit impliesllosubjective cost. AdamSmith luaybe selected as a representative of the first view, Malthusof the second, andSellior of thetllird.
The rentof land, considered as the price paid for the use of the land,is a monopoly price. It is not at all proportioned to whatthe landlord may have laid out upon the improvement of the land, or whathe can afford to take,butto whatthe farmer can afford to give. Thatthere are somecircumstances connectedwithrentwhichhave a strong aflinity to a natural monopoly, will be readily allowed The extent ofthe earthitself is limitedand cannotbe enlarged by human demand. The illequality of thesoiloccasions, evenat an earlyperiod ofsociety, a comparative scarcity of the best lands,and thisscarcity is undoubtedly one of the causes of rentproperly so called. On this account, perhaps, theterm parXial zvonopoly maybe fairly applicable to it.2 The fourth and last class of monopolyexists where production mustbe assistedby naturalagents,limited in nutnber and varyillg in power, and repayingwith less and less relativeassistallce every illcreasein the amountof labourand abstinencebestowed on them.3
The reasoll whichSeniorgivesforclassifying with lnonopoly production thus aidedis thata greater valueis produced thallbyan equalamount of Zabor andabsSineszce in generalindustry.4These " naturalagents," Seniorexplains later, consist chiefly in land. Butthat partofwageswhichexceeds the averageremuneratioll oflabor is also to be classedwiththereturn to natural agents.5
1Smith, Wealthof nations, I, chap. xi. For an identicalmodernview see Maefarlane, Value and distribution, I23. 3Senior, PoZitical economy, I05. 4 Senior, Politicaleconomy, I03. 5 Senior, Politicaleconomy, I30.
2 Malthus, Political economy, I40.
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withmonopoly classifying rent grounds for The above be valid, since appear to income do not, however, incomeof wages similar oneswouldmakea lnonopoly inand no one would deny that these or of interest, fromthat fundamentally comes when normaldiffer monopoly. through which is secured thevalueofland that placewe mayadulit In thefirst theland; to the costof improving doesnotcorrespond so power oflabor theearning tocapitalize butifwewere we shotlld find to land, labor strictly analogous as tomake thevalueof thelaborer is no law thatmakes tllat there hilnup. The in bringing withthe outlay correspond valueofa capitalgoodmaytendto equal theentreprebut the value of the pure neurs'cost of production, relation bearsno direct capitalthat the goodsembody of pure cost; and it is the relation to entrepreneurs' to the relathatmustbe cornparecl capital tointerest is due of theposition tionof landto rent. Tlle fallacy valuation to applythelawsofthenortnal to theattempt agents commodities to oneof thepermanent of finished truethat placeit is qtlite In thesecond ofproduction. to relatively rent is due to the factthatlandis limited is just as but limitation the demandforits services, earlling power. essential iflabororcapitalareto possess classesof laboris the of the better Partiallimitatlon of suchlabor,yetwe causeof the higherproductivity in a newandstrained should feelthatit is to use words lowestkind senseto saythatall laborexceptthevery the return. Finally,disregarding receives a monopoly subjective costs enclures thelandowner question whether ofa classification question theusefulness ornot, we may costs,a classification based uponsubjective of income ofa laborer thatwouldmakea largepartoftheincome a monopoly gain, to his calling adapted whois properly
whileelassing with wages the ineozne of another who performs theidentieal eeonomie operations, butwhois so ill adaptedto his eallillgas to endllre extraordillary fatigue andpain. Withslleha elassifieation onewotlld be foreed to adopt Professor Patten's view tllatwhell soeiety shallbe properly adapted to itsenvironment, all ineome willbe monopol; ineollle. SEC.39. In modern eeonolnies no clefinition of lllonopoly llasbeenagreed upon gt eonsequelltly itwouldbe idleto searellforan aeeepted definitiool of monopoly retllrn.The eolleeption of mollopoly profit or 1let revenue is, llowever, suffieiently falniliar.3'Ianifestly not all of theilaeolne of a monopol,but that portion alone wllicll eould1lot be seeured without a eontrol over priees is to be eoullted as lnonopoly rettlrn. Afonopoly control over pricesdepencl.s, in allllost all cases, llpOIl thepower to determine tlleamount of productive agency wlliehsllall assistin supplying a given want in a market of greater orless extent. Wl-len al-ly entrepreneur finds llimself in a position totreat the priee either offinislled procluets or of produetive agene; as a variable quantit;, appreeiably influeneed byhisaetions, he has thepower to manipulate prieesso as toseeure a net returll.If wages, interest, anclrent -are praetieally fixecl data,hisineome reslllts from the raisingof priees alld the eollsequent exploitatioll of the eollsumer;if priees arepraetieally fixed, lllonopoly gainmust be subtraeted frotn theearnillgs ofilldustrial agellts. Although thereare nulnerous eireulnstanees uncler whieh thegaillsofmollopolat arevirtually extorted from
t Professol Ely,
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Rent, Profit, a^sdMonopoly Retrn.
Io5
Monopoliesand trusts, p. 14,defines monopoly as "sulDssantial and controlling unity of action." The definition is, perhaps, the most satisfactory we have,but it hardlycoversall the phenomena thatmostwouldconsider mo:lopolistic.
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theconsumer only, monopoly return is ill a strict sense theproduct of labor, capital.and laIld,and is diverted from tlleowllers of these agents to the profit ofthelnonopolist. The person who holds mollopolwT colltrol over a collltnodity maynotelldeavor to lower theprices paid for productive agellcy. He tnay evenpayfor theuse of productive agentsa higllerratethallthat which prevails in the generalmarket. It is, llowever, obvious thatthemethod by which themonopolist operates is to limit theamount ofproductive agellcy illa given branch of incillstry; and ill this way he increases theproductivity ofeachunit. Fromtheellhallced productivity of the severalunitsthe monopolist secureshis revenue. To illustrate thiswe tnay assutne thata unitof laboris withdrawn frotn a motlopolistic industrial establishment, andllotreplaced by laborfroul outside of it. The net loss,after deducting whatever tnay be dueto theattendatltdislocation of industry, will mallifestly exceedthe lletlosswhichsrouldresultfroul the witl-ldrawal ofa similar unitfrolll a colllpetitive branch ofilldustry.l Thusit appears thatthisparticular form ofmonopoly gainis exploitative,2 in a sense,since it is a product
lTllere are circunlstallces atl(lerwhich this is apparelltly untrue. The StandardOil Cotllpatly nlay hav4^ men ellgaged in the ulanufacture of dyes who are elaking merelycompetitive xvages. ' Every ulonopoly has s-ume men employedin p)sitions thatyieldthesaule netreturn as do the exposedinflustries with no monopoly " (Pattell, Theoryof prosperity, 72.) This merelysignifies that an establishmentwhichis monopolistic in sc)me of its enterprises is notmolaopolisticin others. The manufacture of dyes may be carried OI1 competitively by theStandardOil Cotnpany because it does notinterfere withthemarket forits monopoli7ed prodllce. 'lNo withdraw a workman fromsuch stlbsidiary ellterprises xvouldnot resultin loss of monopoly gain,but;it would I]Ot, ill reality, be the withdrawal of a workman from the monopolv. 2 Exploitati')nas the tertn is used in this chapter, collveys no ethical significance.\Mhelaever a productive agent does notreceivethe productwhich it creates, it is exploitedin this senseof the term.
whichis 1lotsecured by the agelltwhichcreates it. Labor, capital,alld land produce tlle monopolists' llet revetlue.Ill anyparticular establishmellt theyare not necessarily injured byit,sillcetlley maystill receivea normal or moretllan llormal returll.lWhen,oll the other hand, prices of finished comtnoclities are not subjecttocontrol, blltprices of productive agency are, exploitation of thesamecharacter takesplace,but to the immediate andlnanifest injury of productive agellcy. Butthere is another form oftnonopoly incollle which hasbeentouched upon in the above section, the producers' as colltrasted with the entrepreneurs' gain. If laborers, by combination or by controlover public opinion orgovernment, areable to excludemellpotentially ofequalefficiency from their etnployment, they lnay maintaill a higher degree ofproductivity thanworkers ingelleral indllstry, andmay retain theabnortnal itlcome for theluselves.Under thesecircumstances it tnaybe that llodirect exploitation of an7 producer takes place. Workers throughout society lnay gain wllattheyspecifically produce. The effect oftheproducers' monopoly
Ethically, the ownerof a productive agent has a clear rightto its product onlyif his claim to the agentis uncontested, and if its productivity is notaffected by wrong or favoritism in thedistribution of units ofagency. The laborers who combine to excludeothers from a profitable industry gain an increasein wealth which is counterbalanced by a greater loss on thepartof excluded laborers, and it would not be straining the usual meaningof the term to say thatthe escluded laborersare exploited. But it is necessaryto have terms which will distinguish betweenthe income based upOllthe productivity of unitsof agencyin one's legal possessiotl and incomeappropriated by partiesin distribution otherthan the owners of the productive agelltsthat createit. The former income is hereclassedas productive, thelatter as exploitative. ' Of coursetheultimate effect UpOll productive agencyis unfavorable sincetheunitsarbitrarily excluded from the monopolized bl!anch must seek employment. elsewhere, thusabnormallyloweringincome to labor,capital alld land.
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Smerican Economic SssocicrSion .
[986
uponthecollsumer and uponproductive agency which is exclllded from the favored position does not cliSer from theeffect of theentrepreneurs' monopoly UpOll the consutner and the outsideproducer.The distinctio between thetsvo forlus of tnonopoly return lies wllolly in thedistribution of it within tlle group. 1fit is securedby the entrepreneur, we tnayproperly termit monopoly profits; if it is sharecl by labor,capital, and land, these agentsmay be said to securemonopoly wages, interest, orrent, as thecasemaybe. Now with what one of these forms of monopoly gain are we to compare rent? It is obviousthat an entrepreneur who possesses a monopoly will findit necessary, if he wishesto manipulate prices of finished commodities, to limit theamount oflandwhich he uses, as wellas theamount of laborand capital. The withdrawal from his employment ofa unitoflandwilloften result in a greater net lossin goods, measured ill terms ofvalue,thanthewithdrawal ofa unitofsimilar land from competitive industry.The landis abnormally productive, and thesurplus productivity is appropriated by the monopolist. If, however, the monopolist onanipulates the priceof productive agency insteadof thatof finished coznmodity, thelandmaybe paidat abnormally lowrates alongwiththelaborandcapital. Agaill, ifa united group oflandlords control a givencrop aladlimit theareaon which it is grown, thelandmaybe madeto yield anexceptionally great value-product for itsowllers, inwhich casetllelandis in a tnonopoly position, similar to that ofthetrade-ullion laborer. tllere may, tllen, be landwhichyields a return qllitediSerent in its nature from rent, andexactly analogous to themoolopoly return secured through laboror capital. That the withdrawal of a unit of labor from an
industry whicll yields a tnollopoly return willresult in a greater loss in value-productivity tlaanthewitlldrawal ofa likeunitfrom competitive industry is so self-evident thatan apology is due for repeating it here. Does the withdrawal of a unit of labor fronl an establishnlent whichyieldsa high competitive groundrentmeana greater loss than the withdrawal of a unit froIll an estalAlishment yielding a lowrent ? Does the final unit ill extensive culture produce lllore tllallthefinal unitill the forms of intensive cultuzeemployed in thesatne country ? This is manifestly nottrue. Unlessthere is for sozuereasona greater clislocatiotl of industry alad impairment of the productivity of coznplemelltary agency, there is no reasonforbelieving thatthe final unit s; e., any unit employedupon good land is more productive thana similar unitactually etllployed upon poorland. The final Ullitof laborin a lnolaopolizedindustry is more productive thansitnilar UllitS placed elsewhere, and thissurplus procluctivity is the monopoly " rent." We may therefore concludethat thel-e is a fundamental difTerence between theso-called rent oflnollopolies andtherent of land. SEC.40. Assuming thatl-ellt is sufficiently defined as adifferelltial surplus above cost, and that profit is a "narginal " or generalsurplus, Professor Pattenllas unclertaken to prove thatmonopoly return is sitnply the sarne fund as rent, viewecl in a different way.l On the basis of the"law of substitution," or competition between different kindsof goods in supplying a givell genus of wants, he has cleveloped the conceptioll of a series of monopolies, each one producing at a uniform cost forall its units,while the several mollopolies differ frolll each otl-ler in the expenseof production,
I Pattell, Theory ofprosperity, p. 80 et seq.
9872
Ret, Proft, cread! AMo^zopoly Retzgrn.
IO9
I IO
SmericavEconomic 24ssociation.
[988
the one possessing fewestadvantages receivingno surplus gain. The incomeof thesemonopolies is ill thisviewa profit, although, whenthe whole class of monopolies is viewed as a group, it is represented bya differential series. Tlleincome ofanyznonopoly, viewed byitself, is marginal or general;viewedas a partof theincome ofall Illonopolies, itis differential. Forthis rea.zonProfessor Patten concludesthat " rent and [monopoly] profit are one fundviewedin different ways." If we grant forthesakeof theargument tlle existence of a number of tnonopolies forming a regl11ar series, westill donot losethedistinction between ordinary ground rent and thesurplus secured bythetnore favored monopolies.In those which aremost nearly freefrom competition, land as well as capital ancA labor will usuallybe limited artificially. Now thereshot11d be no difficulty ill distinguislling betweell thatpartof the product of the land which dependsill no way on monopoly position andwhich could notbe takenaway bythefreest competition, andthatpartof the product wllich exists as a resultof artificial limitation, which is secured byonewhomayllotllavelegal possession of theprocluctive agentto which it is due,andwhich must disappear witll increased freedom of competition. Buttllere is a more fundamental criticism which ma be brought agaitlstProfessor Patten'sposition. No profound analysis is reqllirecl to showthatthe diflerentials whicll figure ill thisseriesare quite unliketlle differentials which Egure in thelaw ofrent. The units of labor,capital,and land in the stronger tnonopolies arellotunlike those in theweaker;they yielda higher return becauseof theirbettercontrol of competition. The cliSerelat " units" of land postulated in thelaw of
989]
Rent,Profit, andf SMonopoly ReSrn.
I I I
rent arealikeonlyin sllperficial area a singleone out ofllumerous economic characteristics. No satisfactory reasoIlappearsto existfortreating monopoly return and rent as like forms of illcome. Monopoly illcome is due to artificial limitation which enhances productivity; rentis due to productivity, ultimately dependent upon natural liInitatioll. We shall nowccilsider whether rentbearsany close relatioll to theother dyllamic form ofincome, profit. SEC.4I. The concrete forms of incomewhichareat present tertned profit received llo adequatetreatment from theclassical Englishecollotnists. II1 early theory thefact that returns vary telllporarily in thevarious industries was of collrseperfectly uIlderstood, but the specialincoule depending uponSUCh variatioIls was not coIlsidered ilnportallt enough for specialtreatment. In hisanalysis ofprofit, SalnuelRead approaclles tlleproblem in a way distinctly in advance of therest of the early Ellglisheconomists. He describes the excessof gainin anyilldustry overaladabovetheordinary rateof interest as either wages " reward forlabollrorillclustry, oringenuity, orskill,ill the use and application of capital,-orotherwise . . . the resultof AorS?Xoze or acczdenS, that is, of ' secretand unknown catlses,' which sometimes occasion greater or less gainin tracle, or no gain at all, and sometillles a loss, alld falls properly to be colasiderecl as cowagiensczZion for rssk." This latterform of gain, sil-lce it is regulated byno certain causes, Read declares to be " without thepale of science." 1 We haveherethegerIn oftwoofthemoclern viewsof profit.That part whichRead treatsas " wages " is manifestly analogous to thereward for superior capacity l Political Economy, London, I829, p. 263.
I I2
AXmericanEconowozic AXssociation.
in organization whiellhas beell regarded by President [99o Walker 1andLeroy-Beaulieu 2 as thetrue sollleeofbusinessprofits. Thatpartwhiellhe regards as eompellsatiOll for therisksattendant UpOll business operations is evidently tlleform of bain wllicllis heXci to be typical profits bytlle modemexponellts ofthe" risktlleory of profits."Tllis theory was morefull worked out by VonTilunell, whoclistillguislles lgetween risks whiell are sufficielltlv calclllable in tlleirllatllre to be ulldertaken b, insurance agencies, allcl risks whicll arewllolly iIlcaleulable, such as cllal,es in dellland, tlleappearance of new competillg products, aIld sinlilar colltingencies, whichno insllrance collldcoverand wllichtheelltrepreneur lnustmeethiIllself.It is the latter form of risksforWhiCll profit is a eolllpensation. The sallle econorllist points outtllat sincetlle los.swhichone suffers whelldeprived of one's fortllne far outweighs the gainsecllred bya doubling ofone'slnealls, noonewould bean entreprelaeur ulaless thecllances ofgainoutweighed thechances ofloss. Busilless must, tllerefore, afford to theunclertakers as a classa net profit, after cleduction llasbeen z-nade for al] losses. Thisnetprofit VonThtinen calls " Unterlaehmergewinn.'' 3 This theory has beellworked out ill moredetailby otherwriters,4 but in its essential features it remains praetieally 1lncllanbecl. Atpresellt we llaveillecollomie literature twotheories ofprofits besides theabove. Olle of these etnpllasizes thefaettllattheentrepreneurs as a elassenjoy a monopoly pOSitiOll in soeiety. Theretnay
1NValker, Tlle sourceof business profits, QasOterly Jornal of Ecogowssics, vol. i, p. 275 et seq. 2 Academiedes sciences rnorales et politiques, I, 7I7 et seq. 3 Der isolirte Staat,II, 8I. 4 fELspecially Mangoldtalld Mr. H:awley. Cf.NVillett, The economic theory ofriskand insurance, p. 50 etseq.
99I]
Rent,Pro;/it, and AMonopoly Retzsn.
I I3
be numbers ofmenin hulublepositions wlloarepotentiallyable to carryoll great enterprises, but who, through lack of business colallections, neverreceive an capportunity to exercise theirpowers formanagerIlent. Thosewhohavethegoodfortune tobe placedin charge ofbusiness afFairs arefor thisreason enabled to demand forthemselves an unduly largeshareof the product of industry.l Tllis point ofviewis further developed by those ecollotnists whoinvestigate tllerelative monopoly position ofindividual groups ofentrepreneurs instead of that ofelltlepreneurs as a class.2 Capable entrepreneurs ma be relatively few ill any groupor sub-group, to enlployProfessor Clark's ternlinology; accordillgly they havean advantage in purchase ofmaterials, in enzployment of capital and labor, andin sale ofproducts, and thisadvantage givesthem an opportunity tosecure largeprofits. Finallywe have a tlleory of profits whichtakesits point ofviewfrom thefacts ofall intellsely cotnpetitive, but d71lamic society.3A newuse is discovered for a commodit, ancR untilcapitalalld laborcan be diverted toitsproduction, thosewho are already on theground reap a rich harvest. A labor-saving lnachine isinvented, andthose whoareable to applyit at once makegreat profits before itsuse becomes generaland pricesfallin proportion to thefallin costofprodtlction. FNrequently the entrepreneur who tnakesthesegainsruns llo risk whatsoever. The productiveness ofa newmachine may be accurately calculated. No particularly high degree
Ecomtomics, vol. i, p. I etseq.
2 Gross, Die
1Macvane,The source of businessprofits, Quazrterly Joryzazl of

3 Clark, Distribution as determined bya
nal ofEcoltoznics, v. 8
LehrevomUnternehmergewilln, p. I32 etseq. law of rent, QMarterly
JoXr-
I I4
Awnerican Econownic Sssociation.
[992
ofmanaging ability is required in its application.Monopoly position, in thesenseof a control overcoznpetition, neednotbe assumed. The fortunate entrepreneur mayreapa profit whileofTering no checkto increase of output on tlle partof others, and whilebellding every effort to increasehis own output. Such gains areof course trarlsient at anyonepoint ill the industrial field, butthey disappear from one industry to reappear in another.Entrepreneurs as a bodyalways receive a flow of illcome ofthisnature. S:EC. 42. It doesnot fallwithin the province of this paperto consider whatview of profits is on the whole the mostsatisfactory. All that is necessary for present purposes is topresent a sufficiently broadview of the fund which is usually treated as profits, ill order to consider therelations ofthat flllld to rellt. The income of a fortunate and capableelltrepreneur will contain (I) a gaindueto chance, ofiset bya smaller lossl(borne, however, bysomeother entrepreneur); (2<) a gaindue to his ownpower ofcotubining laborarld capital in waysmore effective than those usually employed in thecolnmullity; (3) a certain sharein the first fruits of ecollomic improvements; (4) a partofthegainswhich entreprelleurs as a classsecure through thefact thattheir services are limited in proportion to the denlancl forthem. It is obvious thatthesecond andtl-lird element aredependent in large degreeupon the fourth.A system of social selection vvhich woulddiscover tlle busilless capacities
lThe merechanceof rewardis of course the actual compensation forrisk. No compensation is afforded by society forloss. It will be questioned by some whetherthis form of riskis notreallyborneby the capitalist. Cf. Willett,The economictheoryof riskand insurance. If the entrepreneur had no othersource of returll, it would obviously have to fallon someotherfactor. As the entrepreneur has othergains,there is no reason why he should not be thought ofas bearingpart,at least,oftheserisks.
993]
Rent,ProS, andf Mo^?>opoly Refr^?>.
I I5
ofmenlbers oftheworking elasses would perhaps reduee many forlns ofentrepreneurs' aetivity totherankoffree goocls;it woulddissemin2ete muehmore quiekly theresultsofeeonomie progress.There wouldstill remain difTerent gradesof entrepreneurs, and the better ones would reeeive a netgain; there wouldstillbe temporary gains, though smaller andmore widely diEused. The analogies that are alleged to exist between profit and rent are three in number: (I) thatrent and profit are diSerential ineomes;(X) that they representa net surplus aboveeost; and (3) thatthey area priee-deternlined ineozne. We have already eonsidered at length whether theseare the tr11e eharaeteristies of rent;we lllaynoweonsider howfarthey areap?lieable to profits, studying separately, for eonvellienee, eaellof theelements ofthepreeeding seetion. It willbe neeessary, tnoreover, toexarnine in cletail theeeonotnie llature of eaehof these elemetats of profit, in order to obtain a definite idea of therelatiolls ofprofit as a wholetorent. It is obviotls tlaattheaulount of dynamic riskvaries greatly from inc111stry to industry.If thisis eorrectly unclerstood bythose who undertake therisks ofdirecting iIldustry, the returla above normal wagesanc1 interest will varyin like tnanner, ancl thtlsit is possibeto arrange industries ill a differential series, tlleindustries withpraetiealllno risk represellting the llo-sllrplus nits while tl-wose inwhieh risksarehighest represent tlle UllitS of tnasimum surplus. But sineea fall in priee whiell woulddimillisll any of thesealleged surpluses would at onee redueesupply, it appearsthatthe paZment for riskforms a partof thelleeessary eosts of produetion, and therefore has a powerto eontrol priee. Theanalogy between this form of ineome and relltis
Aowseric^z Ecoozosaici4ssociatiooz.
therefore very super-ficial, evenfrozn theRicardian point

0t vlew.
[994
Butthere is a more important reason why itis inadmissibletoregard thisforln ofiIlcolne as analogous to rent. If a Ullit ofcapital orlaboris withdrawn from colllbiIlatiOll with landwhere theso-callecl surplus whicla constitutes rent is greatest, the loss in product will notnormally be greater than s^rllen a unit wllich shows theleast rent-surplus is withdrawn. Whena unitof labor or of capital lnigrates froln a combination which yields a higll risk-surplus, tlle loss ill prodllct is normally greater thanwhell it is takellfrozn a combination in which the risk-surplus is nil. The rent surplus is producecl bythe land,andcontinues without appreciable losswhenally oneunitof complelrlentary agency disappears frorn the establishtnellt. The risksurplus is produced by the UIlitS oflabor and capital, and is naturally reduced in proportion whentllese arewithclrawn.l We see,then, thatthesurplus return ill aolindustry in which risks arehigh isillilllportant respects similar totlle income from a monopoly.Economlcally itis imputable totheunits ofproductive agency, svhile illthe distribution ofproduct it is secured bytheentreprelleur, vr,in some cases, by the capitalist who assumes responsibility for risk. It differs, however, from monopoly retllrn in other important respects, sinceit is necessary ifproduction is to contillue, andsillceit presupposes llo price manipulatiOll. The colltrast withrentmay, perhaps, be brought outmore clearly bypointing outthe fact thatwhenthe returll to a brallch ofproduction is ullcertaill, theamoullt oflandetnployed in it willbe limited, just as thequantities oflaborand capitalin thatbrancllare limited;
lCf.
seq.
Willett, The economictheoryof risks and insurance, p. 60 et
and whenproductioll is sllccessful, the lalld yields a risksurpluswhichmay be distinguished fromrent proper. SBc. 43. We may next consicler thatelemellt ill the profits oftheentreprenetlr whichresults froln dyllatllic changes which theentreprelleur is able to foresee and profit by. Whena newtnethod of production reduces thecostof a commodity, eventhough anyoneis free to adopt themethod, somemallllfacturers willbe in a position toincrease theirOUtptlt lnorerapidly thallothers, thus receiving a profit during the tiluewhen prices are falling.It is evident tllat in sucla a case theextension ofthellewluethod willusllally be retarclecl by theimperfect molDility oflaborand capital. Entrepreneurs may be anxiollsto illcrease theirprodllct; but so long as therequisite kind of labor is scarce, and so longas a sufficient supplyof capitalill thenecessary fortn does not find itswayilltO the new branch ofproduction, the productivity of each unitof laborand capital willremain abovethenortnal.The imperfections ofthemarket forproductive agellcyprevellt wages ancT illterest inthe illdustry affected by the challgefrom rising iol proportion to productivity, and therefore a netgaioa is left in thehands of theentrepreneur.l The analogy of this fortn of profit witll monopoly rettlrn is manifest.It is nota necessary form ofillcozue; it is an " exploitative ))2 income, s: e.,it is notreceived
l It is obvious thatthiselement in profit is notwholly independellt of the one described in thepreceding section. The chance thathe will find opportunities for certaingainsis one of the lures that induce men to assume the uncertainr81eof the entrepreneur.Reflection, however, show that the two fundsare not coextensive;it is therefore permissible to treatthemas separateelements. 2It maybe superfluous to disavowally intentioll of conveyillg an ethical implication by the termexploitative. A new product has apwill
995]
RessS, Pszot, and Monoyboly ReSzgrn.
I I7
AZr,zerican EcononzicAssociaZion.
[996
by the ownersof the agencyto whichit is econoznically in its llature,wllile imputable. But it is teinporary mollopolyreturnhas a degree of perlllanence. Morewllicllpreover,while it is the acts of the monopolist eolteragencyfrom quantity ofprodtlctive venta greater illg the illdustrywhich yields Inonopolyreturn,the in seeking to securea activitiesof the entreprelleurs ofincome. the latterform annihilates sllarein profits and rent are wages,interest, Analogollsto monopoly and rent tllat lnaysoulewages, illterest, the abnortnal for of entrepreneurs timesbe paid when the competition limited supply of productiveagencT is a temporarily this abnormal profit, active. I+ike the entreprenetlrs' incomeis temporary. A given unitof labor procluctive may be in a position to produce(I) wages equal to the normalrate; (2) a surplusabove thissuIn) analogousto in its nature;and (3) a wages, but transient monopoly by the appropriated further surplus,likewise transient, entrepreneur.A given unit of land may yield a product whicll-maybe analyzed into threesinlilar parts. betweenthe sum of to see the contrast It is notdifficult of labor,capital,and those partsof the sllrplusproduct representillg by the entrepreneur, land, appropriated in profitsnow under discussion,and the the elemerlt
ortllal rellt of land.
the differellces llas been made to tninimize An effort and rent by proving that of profit between this form of incGme. Eenphasisis laici rent is a transientfortn may reduce upon the fact thatchangesin consumption As of another.l of land, llOW the rentnow of one kincl inwell might we maintainthatwages are a transient
will sooner or later give to the agellts peared which competition it amongthe has distributed whichcreateit; but until competition it remains in the handsofthe entrepreneur. prodtletive factors, p. 79 et seq. 1Patten, Theoryofprosperity,
SEc. 44. In our analysis of profits two eletnents retnaitl:the extraproduct created by the skill of the sllperior entrepreneurs; and thegainwhich is duetothe fact that thesocialmechanism is defective indeveloping potential directive capacity, andtherefore inelldowing entrepreileurs as a classwithabnormal advantages. These elements arenotdistinct, butaremutually interdepelldellt. The entrepreneur lllaybe paidin proportion tohis productivity, but productivity is intimately dependent upon limitatioll.Skilledlaborers Inaybe paid in proportion to theirproductivity, btlt theirproductivity might be indefinitely reduced were all the potential capacities oftheullskilled laborers to be developed. The normal productivity of labor,capital, andland must be understood as the productivity of theseagents when combined in the most advantageous proportions that are commonly known. Bettercotnbinatiolls are always possible, and an individual employer callbyhis own energy createthem. Frotnsuch improvements arises the incolnethatWalkerunderstands byprofits. It is,itlhisview, thenetproduct of the employer.l If Walker's atlalysis is correct: thisform ofincome differs widely in nature frotn thosemelltioned above. If an entrepreneur has tnade an improvement thatcan be applied byno one but hitnself, therewoulcl appearto be good reasoll forsayingthathe creates the partofthe product that exceeds thenormal return to labor, capital, alld land.
l Walker, The sourceofbusinessprofits,
income.
come, analogousto profit, because at olle time the hand-loozzl weavers, at another time the hand compositorsfind their acquired powers losing their control over
997]
Ren/,ProJiZ, azzdllffionopoly Re/Zgrn.
I I 9
nomics, vol. i, p. 275
Qz6arterly Jouryzal of Eco-
120
j4ssociation. Econowozic Asosericas?>
[998
tlecessary whollavethe capacity If theentrepreneurs relativel to the arefew, thesamelnethod applying for by orgallized thatareca?ableofbeitlg laborandcapital tosaytllat to be quite legitiinate appear it would them, tllanbefore, labor and capitalare llo moreproductive beillgclueto entrepreneurs' productivity theincreased are so manyentrepreneurs howevel, activity.Whela, that all of tlle labor and able to usethe llewmetllod arewithof organization capitalcapable of this form thisparticular etuployinellt, lessproductive from drawn a becoilles mallifestly activity formof entrepreneurs' for itsservices, to the demallel relatively goodunlimited to entrepreattributable formerly and the procluctivity and land. The to labor,capital, sllifts neurs'activity of tllatprocluct, a pal-t may still receive entreprelleur ofthekinddisbutin thatcasehisgainswillbe a profit section. in thepreceding cussed to drawtheline it wouldbe impossible Matlifestly of forill limited the gain dlle to a relatively between gain intowhichit the exploitative ability, managing wllichapprofit and monopoly itself, maytransmute areable to ofthenewuletllod whenthepossessol-s pears of gaillis disform itsextension.Butthefirst prevellt to be it is properly whetller ill theory, tillguishable to rent or1lot.lAnditis therelatioll profit with classed we havelloW to which form of income of thisconcrete consider. is in lnanyrespects to applya method The capacity agency labor, ofproductive forms tothe three atlalogous imputable directly an income andland. It yields capital, for returns; to a law ofdiminislling toit. It is subject
lPersonally I would be inclined to treatit as a special formof created,not by themethod, methodsare wages. It is lmanifestly not economic and are therefore reduplication, capableof indefinite whichapplyit. personalactivities goods,-but by thelimited
999]
Reezt, Proff,^zd llMoozopoly RetzGwz.
12 I
is
howexer greatthe eapaeityof an entrepreneur, it wollld notbe hutnanly possibleforhim to organize labor and eapital indefinitely. To do so he must depute llis sllethodto others, i. e., develop like eapaeities ill his subordlnates;alicl wllenlle does thishis speeial form of activity startsoll tlle roadtoward beeominga freegoocl. The analogy witll those formsof proclloetive ageney terllledluollopolygoods in a fornzer el-laptelis still eloser. Tlle iIleotne is priee-C1eterlllinecl, sinee the lrlethodcan not orclinaril7 be shifteclfrom inclllstry to illdllstry in eonseqllenee of ehanges in priee. It
estisllated residllallr, iS sillce experitnelltal variatio
unthillkable. Bllt it is extremely volatile, sillce1lotlling more easily beeomes relatively unlimited tilantlleeapaeityto apply a eolnbination onee invellted. Blltreprenellrs' aetivity, in WAlalker's sellseof theterm,
ill Qllantity is tlle inventillg
eessioll tlle permanentpossessionof one or allotller capaeity foreoulbillation ill itssrelatisZely limitedstage. This origillating capaeity is Illallifestly valued as the elementsthat colllpose it; the seriesof eapaeities for applyil-lg new tnethods is valued froultlle procluctivity of eaeh olaewhile lilrlited. The gelaeral eapacity, however. mayhave an illfluenee itl determining price,since anentreprelleur possessingit may operate in different elnploymellts, inereasingsupplywllere prices are relatively high,redueillg supplywhereprieeis lonv. If thiselemellt ill profits llas been correetly analyzed, itis theantithesis of rellt, llOt a "speeies *f the sallle genus." We llave seen thatit is inadmissible to eonfuse rent witheither of the otl-ler elements in profits. Relst iswholly distilletfrolnInonopoly gain; it is no less distinet frolll each partand therefore from the whole of the eomposite illeomewhiehis terlned profits.
of llew
colllbillations
in continllal
suc-
CHAPTER VII.
CONCLUSION. would be wholly collclusion SEC.45. An elaborate as this proportions ofsucllmodest inan essay superfluous upon beentaken hasalready a position one. Moreover, was not point;and if tlleargument each controverted it wouldbe late takell, theposition tosustaill sufiicient a restatelnent here. However, the deficiency tosupply of a fewof and a reiteration view-point oftllewriter's mayllotbe out of pointsdiscussed importallt themore place. is based 11pO11WiliC1l the argulllent The assurllptiolls thatthedistriplaceit is assllnled aretwo. In thefirst in importance ofcentral is theproblem ofincome bution phenolllena economic and that therefore economics, a viewto clearing with alldclassified be grouped should In thesecondplaceit ofdistribution. up theproblems factor as a powerful exists thatcompetition is assumed in its life, and althoughit is affected in economic it holdstheposition socialforces, bynutnerous working priIlciple. ecollolllic essential of tllellloSt in will1lotpassutlchallenged assulllptioll Tllis latter by ecoare ilnpressed an age wllenso manythinkers to be the forerunners llOIXliC deVe1OplneIltS which seetn of society. It is, however, order of a llewmonopolistic is notlessactivethan competition that at leastplausible system, the earlyprimeof the factory it was durillg islesskeen haschallged.Colllpetitiol-l itsform althougll whichcreateolle alod establishmerlts amongilldustrial thatl butit is farkeener thesame kindof comlllodity; not groupswhicllcreate, industriai between formerly
IOOIJ
Concl>sion.
I 23
like commodities, but commodities yielding like amounts ofsatisfaction, from wllichtlleconsumer selects accordingto his estimates of utility alld cost. It is a noteworthy fact that ProfessorPatten, Wl10 has done more than any other living theoretical writerto convillceeconomists of the wide plevaletlce of monopoly, standsalso as the foretnost exponent of the " law of substitution" competitivelaw under a new forln. The persistence of competition, there-fore, is-at least a defensible assumptioll.
Undercol-npetitive law thereis a tendency for incolne to identify itselfwithproduct. Grantingtllatcompetitionexistsalllongentrepreneurs, it is easy to ullderstand whya Ullit of productive agellcy,offel-ing in tlle market a distitlt,uishable product, shoulclreceive that product as its reward. On the further assumptionthatthereis competition alnong units of industrialagency for the NlOSt favoredpOSitiOllS in production, it is obvious that tlleproductivity of like unitswill telldtowardeqllality. Tlle laws of productivity vlltilnately goverll income; and the fulldanlental classificatiotl of incomes, in a COIllpetitive society, is the one whicllis based UpOll productivity relatiotls. It is from thispointof view that we have classified incomesas productiveand exploitative. Tlle forlner incomesrepresentwealth which is obtained by the owners of the agents which produceit; the latter incomesrepresellt an element securedby other parties in distribution.The returnto a unit of agency is productiveif the loss occasioned by its withdrawal is llot less than that return; if the loss occasioned by witllt drawal is greater,an exploitativeincome, secured by some otherparty, is implied. Exploitative incomesdepend upon friction, and fre
I 24
Arsaerican Econoonic Associcltion.
[I002
quently existbyvirtue ofdifTerent degrees of resistance to economic lawsin different social media. If, forexample, competition among workers is activewhile entrepreneurs do notcompete, thelatter arein a position to take advantage ofanyabnormal productivity oflabor. If competition of entrepreneurs is checked, andlaboris immobile, it is possible thata portion ofnormal product maybe secured by the entrepreneur. Incomesof this kindvary so greatly in permanence andin the laws of their development thatthey hardly permit of scientific classification. The samethingis trueof the element ill income due to abnornlal productivity which favored indtlstrial units maysecure. According as exploitative andabllormal illcotnes aremore orlesspermallent, they areusually classed as luonopoly return or profit.It is dollbtful whether a wholly satisfactory analysis of these forms of incomeis possiblein tlle present state of economic knowledt e. The caseis very different with normal productixe incomes. A general law of ditninishillg returns renders possible a scientific explanation of theirnatureand a description of thelaws of theirdeveloplnent. Certain dynamic influelaces aSect a wide rallgeof sollrces of income;andin order toattain to a viewofdistribution, static and dynamic, it is necessary to grouptogether thoseincomes which are affected alike by familiar challges, alad to contrast thosewhichundergoeflects unlike irl nature or degree. The dynamic movement which is tnost fully understood is increase in the procluctive factors thetnselves, and it is with thisfactin viewthatwe llavegrouped incomes as they are affected byincrease in thefactors. SEc. 46. Ivand, it is heremaintailled, is productive in the samesensethatlabor and capitalare productive.
1oo3]
Cossclusiosz.
I25
The onlytest by whichthe productivity of thelatter agelltscan be determinecl, thewithdrawal oraddition of illcrements, tnay equallywell be applied to lalld. The productivity oflalld,itltheeconomic sense, is dependent upon the factthatlalldyieldsdimillishing returns to successive units ofcapitaland laborappliedto it; alld in thesame way capitalis procluctive, economically, because it yields diminishillg returns tosuccessive units oflabor andlalldcotnbined withit in production. The twocasesareexactly parallel. What1S true of capital is also true of labor, andfor thisreason a sharp distinctionhasbeendran7n betweell rent, wages,and interest on theonehand, and profit andmonopoly return on the other. Land and capital are therefore alike in thisrespect; arethey-, however, identical in nature ? It has beenadlllitted thatland is capableof increase, alld the claim has been advanced tllatthe llolding of lalld involves "abstinence " precisely analogous to the"abstinence" involved in 'holding permanent capital. It has further been claimed that theannexation of'new land bywhich is meallt notonlythereclamation of desert andswamp andforest, but also changes in tl-le effective position of lalld,due to iluproved transportatioll, and changes in theprodllctivitv oflandn7hich aredue,llOt to aclditional applicatioll oflaborand capital, but to new methoclsinvolves abstillence akinto tllatwhich is undergone by the man who createsnew capital. But the motives whichlead to the creationof new capital are not necessarily activein the annexation of new land; the steady frugality whichcreates a funcl of capitalis unliketheresolutioll to join in the search forllew llollles which is oneofthemostprominellt motives leadillg to the creation of new econoulic land. The two setsof
I26
American Ecoozomic Associatzon.
[ I 004
motives arenotso closelyconnected as normally to act simultaneously; andtherefore, whilecapital maybe increased in quantity and diminished in productivity, it is notunlikely that economic landwillremain relatively stationary in alnount and increase in productiity. If landandcapital alikeremain stationary whilelaborincreases, the eSect of the challgewould no doubtbe shared bybothalike; and in a society, real orassunaed, in which thisis thecase we should onake llo distinction between capital and land. It is quitepossible thata timemaycomewhenthe landat thedisposal ofsociety will notbe capableofincrease, usingtheterm " increase " in thebroad senseindicatedabove. The ultimate limit to increasewill, however, be psychical, jllStas the ultimate limit to illcreasein capitalis psychical, not physical. If that state werealready attained, however, it wollldllotalter theproblem.The fact of different ratesof increase is sufficient in itself to justify difference in classification, since thereare important dynamic pllenotnena rhich cannotbe explained without such difference in treatment. Sec. 47. Whetller rentin itself bearsanwr character istics thatwilldistingtlish it from wagesand interest is a qtlestion whichreqllires littlefurther disctlssiollIt is a differential income, butill thesamesense wagesand interest areclifferentials. It may becomputed residually; but thisis merely a matter of convenience in theory, except in thecase oflandwhicllis notcapableof alterativeuses,andwhich is notrelated througll margins to other land capableof such uses. There is, however, labor andcapital in likepOSitiOll. Residualwagesalld interest are no Inoreanomalousthan residualrellt. There may be good reasonformaking a distinction
I 005]
Coosclzgsioos.
I 2
between the productive incomes of mobileand itnmobile agents, but that distinction would IlOt nlark O wages and interest from rellt. Here again tllere are conceivable historicalconditionswllich would make rent the typeofresidual incotne, butit wollldbe difficult to point out a timewhentheywereacttlally realized. Relationto pricehas been.selected by a greatllutnber of econotnists as the test accorcling to whicll incomes are to be classified." Price-detertnining " and " price-cletermined " appear to be characteristics of incomewhicll are sharplydistinct,alld they are characteristics thai: are certainlyof cardinal importancein distribution. Illcomesin one aspectare sharesin price,alld are pricedetermined; in another aspect they are portions of supply, and are therefore price-detertnining. In a state of itnperfect cotnpetition, llowever,there may be incomeswhichare price-deterlnining in the sense that if they are not paid the agent wllich claims them will withdraw fromfurther production. Price tllUSt therefore be sufficient to coverthetn. Otherincomestnayor mayllotbe paid, the agent haslingllo motiveto withdraw. It is obviousthatthe prevailing Inotiveleadingto the witlldrawal of a laborerfrom one indllstrwl is the desire to use his powersill anotherancllDetter paid industry. If prices fall so that norlual wages can not be paid, silpplysoon decreasesthrollghthe rnigration of labor. Similarlyif capital does notreceivea norlllal reward, it withdraws frotn the llnsatisfactory elllploytnent. Mobilityis the essentialfeature in pricerelations. Nonvit has been pointedout that lalld is no less tnobilethata capitalatldlabor,atld therefore rentis atl incomewhich detertnines price. It is adrtlitted tllat mally concrete portions of land have llo alternative use, and that in a
I 28
AZ oozericozEcoosooozic AZssociatiooz .
[I006
qualifiedsellse the returnto such laIld is price-cletermined. But llothing could be lllore false than thatall llnit.s of labor or of capital are mobile. A certaillnllmberof llnits ofeacll agentllold a strategic position, being able to shift from inclustry to illdustry;and it is through the action of tllese that tlle incomes to the respective factors control price. Historical col-<ditiolls cleterolline whetheror not rent "enters into price." Wllen tlle land of a collntryis alllaostentil-ely engaged in producinga single Cl-Op, a fall in pricecan throw land out of cllltivation onlyby cutting downthe retllrn to labor and capital and forci-lg tlloseagelltsfrom the lancl. This, it may be said, is to vielcl the essentialpOillt at issue,forit appearsto be an acllnission thatrentdoes not enter into the priceof agricultural produceill its elltirety. Tlle slllall atnountof agricllltural land whicll will be turnedinto bllildillg sitescould notluaterially cllecka fall in price. It luay be wort}l wllile to pointOllt thatill like mantler wages and interest nvould not be elements controlling the price of l-nanufactllrecl prodllctsin their entirety. A fall in general pricesof luanllfactures coulclforceilltOagrieultureonl a small nlarginof unclifferentiated manufacturing labor and capital. Tlle fallacyof the pOSitiOll lies irl the grollpingtogetller of pllenolnena whenit is tlleirillterrelations that are to be explained. The real priceofnvheat sigllifie.s its relationto beefand wool alad corlland vegetablesas well as to boots and iron; and all of thesevariotls relations Illllst be takeninto account if we wollldexplain the laws wllichgovern the rentof wheat land. Taking into account tl-lese relations,we can but conclude thatin its relationto price rentdoes not differ from otherproductir7e ilacomes. The laws of dynatnic change,then,alone furnish a basis for giving to ent the positionof an il-ldependent form ofincolne
INDEX OF AUTHORS MEN1'IONED.

Marshall,24,33, 34, 87. Mill, 86. 38, 52. Nicholson,
PatteIl, 6I, 95, 92, I23. 9, I9,20, IOO, I05, 35,49, I06, 7I, 85, 86 IO9, 1 IO, I I8,
63. Buchanan, 5. Cantillotz, 85. Carey, 63. Carver, Clark,I6, I9, 32,34, 35,40, 4I, 62, 64, 69, 70, 73, 77, 88, 9I,
II3. CoMlmOllS, 24.
Ely, Ios 25, 35, go,9I. Fetter, 47, 56. George, Gross,I I3. Hawley,I I 2. Held, l9. Hobson,13, 62, 70, 77,87, 88, 9I. 86. Ses-ons,
terOy-BeaUliell, II2.
4. Ouesllay, Read, I I I. Ricardo,62, 63, 74, 63. Roscher, Say, 22, 23, 33 Senior,22, I02, I03. Sidgwick,26, 29.
SiSmOIldi, S2lith, I02, 2I, I03. 62. 22, 25,
78, 84.
47, 55,
56,
58,
Loria,60, 73. 66, Io3 Maefarlane,

MaCYaIle,
5, I03 Malthlls,
MallgOldt, I I 2.
I 13.
VOI1 Thunen,56, 74, 79, II2. 5. Turgot, Walker,66, 70, 7I, 84, II2, Wieser,60. I I 2, I I 4, I I6. Willett,
II9.

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American Economic Association

ofienv oftn(zf rnecollolllic

higher social forms is explained according to thesomewhatnaivecommon senseofthetime.

The Economsc Surplgs.

American Efronomic Association.

The Economic Surplus.

X m erica n Eco n o m zc A!ssociv tion .

thereftsre of what chosell yields of B.

pos.SesseY tell is atld 1let

potetlcr. will 1lot of A

If be thi.s to the has

Certaillly. if the the}

llecessary ziizace arises represellted would it

inv>l-es viith tlle

questioll pure sutplus

of A, to one, surplus surplus affirmed

fise. chsell? ill

reciucecl tlle pal-t is Inic here con(luct:. least

affo-(-lfi is tlse that

prefe1-t u-hich in the has

?ortalo ce illl t, A kill(l yiel(l

of ecollt tllal if ten just

wilile just pays, We of

elevellth the say surplus that

produc;lg ment yields ing. to such the belos plus, of

really the first

nlay lo, the the

a surpluIf, however, a mere

(>tl, dowll UIlitS of A were

apportionmellt may of choice, be

extent the that

to shich minimum determines

preduction ground the

carried and not

descelldillg of the sur-

American Ecowsowizic AsvoczDaXiow.

The Economic S?rplus.

The Economic SrtSus.

ARmerican Ecowzomic A!ssociaZion.

The Econownic Suorplzes.

Economic SssociaSon. Smerican

Land as an IndejpendenZ EacSor in Prod2zcSion.

4 mericv Ecoozozzic ASssociation .

Land as an IndependenE FacSorin Prod?cc/sow?^. 23

Association. American Ecoozomic

by Professor is maintained Altnost the salne pOSitiOll Marshall:

La^td as a^z Indepe^zdenS EacSow in Produrfion.

L^zd as clnIvdepe^adev! FacSor in Prodzuctiost. 27

Land as an Indetenden! FacSorin ProducSion.

Asnericasz Ecozownic Associafion.

Land as an XzdependenS FctcGor in Prod?cSion.

Amew ican EconorticAssocicrGiooz.

Land as an Indeliendent Factorin ProdzgcSion.

vimerican Econownic Assocsation.

C:lark, Tlle distribution ofwealth,p. 338 e! seq.

in ProducSion. 35 FacSor Land as an IndependenS

AssociczZion. Econoonic Ame?icvos

. FacGor in ProdncSion Land as an Indey5ezadenS

Land as an Indelfendenz fiactor in Prod?ction.

AssociaSion. American Econowsic

Land as an IgMependenS FacSoriv Prod?ction.

Clark,The distributioll of wealth,p.