Science & Society, Vol. 78, No.

1, January 2014, 88109

Land Rent Theory Revisited

JOON PARK*
ABSTRACT: In explaining the causes of the global economic crisis
that was ignited by the bubble bust in the housing market in 2008,
mainstream economics hardly provides any fundamental explanation for the fluctuation of house prices, other than criticizing the
operation of the financial markets. Although land rent lies at the
center of the fundamental mechanisms underlying the movement
of house prices, little attention has been paid to it. Land rent
theory was in the limelight as an alternative to mainstream urban
economics in the 1970s80s. However, it has completely lost its
status as an alternative in housing market analysis. The reasons
for this decline may be found by reviewing the contributions of
land rent theory. The revival of the theory is urgently required as
a convincing alternative in the understanding of housing markets.

1. The Crisis in House Prices and Land Rent

NE OF THE CAUSES of the global economic crisis that

started in 2008 was investment and bad loans for mortgages
in the housing market based on soaring house prices in major
economies, which were predicted to continue unabated. The combination of overheated demand for houses and widened accessibility
to financial products by way of mortgages, which was also based on
the expectation of increasing house prices, eventually resulted in
an increase in household debt. Household bankruptcy, ignited by
external factors such as the oil price surge, was doomed to burst the
bubble in house prices, with insolvencies in the financial sector. The
* The author would like to thank Michael Edwards and anonymous reviewers for precious
comments and helpful suggestions. Any errors are the responsibility of the author. This
work was conducted when the author was at University College London.

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fall in purchasing power and the stricter criteria on accessibility to

mortgage products due to these insolvencies led to the fall in house
prices and, in turn, resulted in further insolvency in the sector. This
vicious spiral has been claimed as one of the reasons for the current
form of the economic crisis.
Determining the reason behind the changes in house prices
across countries is an important part of figuring all this out. However,
mainstream neoclassical economics hardly provides any fundamental
explanation for the changes in house prices, other than criticizing
the operation of the financial markets. Although land rent lies at the
center of the fundamental mechanisms underlying the movement
of house prices, little attention has been paid to an understanding
of land rent as an alternative to the current mainstream theories of
the housing market.
Marxian theory focusing on land rent was in the limelight as an
alternative to mainstream urban economics in the 1970s80s. However,
it has completely lost its status as an alternative in housing market analysis, having experienced a period of rupture in the 1980s, as described
by Haila (1990). Aside from this division between the major camps, there
are other major causes behind the waning of the theory. This review paper
tries to determine the reasons behind the decline, and suggests that its
reversal is urgently required. Further improvements of both the theory
and empirical support are needed, and would contribute to the revival
of the theory as an alternative to the neoclassical mainstream in the
understanding of housing markets.1
Examining existing work on Marxian land rent theory is an essential prerequisite for any further development in the theory. This article
will review the contributions to Marxian land rent theory, with explicit
attention to the mechanism of land rent. First, the formation of Marxian land rent theory is reviewed in the context of classical political
economy. A survey of the Marxian literature on the land rent mechanism in the renaissance2 period follows. Based on this, the reasons
1 This is the first in a series of papers on the development of land rent theory, based on
the authors Ph.D. thesis. The series consists of 1) an identification of the causes of the
decline of the theory in the literature; 2) a reformulation of the structure of land rent
theory; and 3) an empirical analysis using house price data in three cities, London, Seoul,
and Los Angeles.
2 Marxian land rent theory was almost unknown before the 1960s. Interest was revived after
that, due to the rise of post-Marxism and soaring land and house prices around the world.
This period may be called the renaissance period of Marxian land rent theory.

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for the decline in the theory are examined. Neoclassical approaches

to land rent theory, which replaced the Marxian discussion in the
1990s, are also examined. After reviewing recent advances in Marxian
land rent theory, the pressing needs for further development in the
theory are extracted.

2. The Formation of Land Rent Theory

Marxian land rent theory is inseparable from classical political economy, and contains all of the elements of that approach, in
extended form. The origin of the theory lies in classical political economy, and it is also indebted to the advances by pre-classical political
economists and the Physiocrats.
How rent is determined was not among the main concerns of
economists until the role of capital became a focus and the existence
of other elements of surplus was accepted. Adam Smith (17231790)
was the first economist to deal with land rent within the framework of
a capitalist agriculture (Ghosh, 1985). However, Smiths rent theory is
often regarded as inconsistent and self-contradictory, as he failed to
classify and identify various types of rent. He used the general term
rent for all types of rent, disregarding the differences in their origins,
which led to confusion among readers. Nevertheless, Smith rightly suggested that the premise of rent arising is due to the existence of landed
property demanding rent. More specifically, he explained that rent
arises because of the existence of a monopoly, differential advantages
in production and the bounty of nature, i.e., scarcity (Gee, 1981). In
addition, he tried to explain the rent gap between unimproved land
and land that had been improved by capital investment (Brewer, 1995).3
The first economist to systematically develop the differential rent
theory, perceiving the effect of fertility differences on production, was
James Anderson (17391808) (Berg, 2000). Postulating that the price
of an agricultural product is determined by the costs of production
on the worst quality land, he pointed out that rent can be demanded
by landowners from farmers who use more fertile land, as the farmers can gain the excess of the market price over the actual cost of
production from superior fertility.
3 Later, this feature of rent was developed into four categories of Marxian land rent: monopoly
rent; differential rent; absolute rent; and differential rent II.

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This rent theory, which has its basis in the different levels of fertility
of different pieces of land, became a main concern among classical political economists, such as Robert Malthus (17661834) and David Ricardo
(17721823). Although Malthus accepted the logic of differential rent,
he argued that there is no land that yields no rent, because every land
has absolute fertility bestowed by God. He focused on the productive
powers of the land and concluded that rent becomes a part of the production cost. This argument led to a famous debate with Ricardo on the
Corn Laws; Ricardo believed that rent is determined by the market price
of an agricultural product. Although Malthus explanation of the common rent is hardly persuasive, this argument is in line with the concept
of absolute rent later suggested by Karl Marx (18181883).
Ricardo had systematically developed Andersons rent theory.
While the Physiocrats and Malthus thought that rent came from the
unique productive powers of the land, Ricardo attributed it instead
to the scarcity of land (Ghosh, 1985). This led him to argue that
each piece of land has relative fertility and that non-rent-paying land
could theoretically exist, which directly opposes Malthus idea. Free
movement of capital across industries delivers a rate of profit even to
capitalists in the agricultural industry, so rent is determined as a differential surplus due to the variance in fertility across different pieces
of land. Therefore, in his theory, it is the worst land that regulates the
market price of agricultural produce, because its production cost is
the most expensive and thus bears no rent. In addition, he highlighted
the existence of intensive differential rent with diminishing returns
from land. With successive investment in the same land, a capitalist
can increase its productiveness, for example through improving its
fertility, and the surplus from the investment can form the other type
of differential rent, intensive differential rent.
The rent theory of Johann Heinrich von Thnen (17801850)
originated from his work that first appeared in 18264 and became
the root of neoclassical urban economics. In his rent theory, which
is known as location theory in an agricultural context, von Thnen
focused on location and transport in a state comprising a city and its
surrounding area. While the Physiocrats and other classical political economists perceived the differences in fertility among different
4 The same origin for the two theories of differential rent in classical political economy and
agricultural rent in von Thnens work has been pointed out by many researchers (Walker,
1974; Jones, 1978; Persky and White, 1988).

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pieces of land, von Thnen was the first to emphasise the importance
of the difference in location, which is especially important in an urban
context.
Marx tried to synthesize the theory of political economy so that he
could criticize it more fundamentally. In the relationship between land
and capital he consistently amalgamated all the issues and debates that
had hitherto remained unsolved among classical political economists.
First, he adopted differential rent theory. Although there are methodological differences with Ricardos analysis of intensive differential
rent (Ball, 1977; Evans, 1992; Ball, 1992), it is undeniable that Marx
adopted Ricardos theory. He also integrated the rent theory of John
Stuart Mill (18061873) with his explanation of differential rent II. In
this explanation, the excess return from improved land by additional
investment, which was often misunderstood as the interest from the
investment, is instead defined as differential rent II. Marx pointed
out that differential rent II is eventually transformed into differential
rent because the improvement of the land by investment becomes a
permanent part of the productivity of the land with successive changes
in contracts over the use of the land. Marxs unique contribution,
however, is the theory of absolute rent which is demanded even from
tenants of the worst land and which thus becomes a part of the price
of production.5 He argued that if landed property prevents the surplus
value created in a sector from participating in the general equalization of the profit rate, it may demand a certain level of common rent
in that sector for use of the land. The amount of absolute rent is
explained as the difference in value over the price of production6 of
the product in a sector; this proposition has remained controversial
even until now. By suggesting that the existence of this common rent
is due to the power of landed property, he contributed to sorting out
the debate between Malthus and Ricardo over whether rent is a part
of the price of production or just a residual surplus.
According to Marx, the two main elements of rent are thus differential rent and absolute rent. Besides these, he suggested a temporary
5 Price of production is the sum of cost of production (variable capital + constant capital)
and average profit.
6 Value is the sum of constant capital, variable capital and surplus value. Since price of production is the sum of cost of production and average profit, and value is the sum of cost of
production and surplus value, excess value means the excess of surplus value over average
profit. As value is based on individual production, value here means market value, which is
the average value of the product in a sector. For details on market value, see footnote 8.

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category of rent of a genuine monopoly price determined neither

by the price of production of the commodities nor by their value,
but rather by the demand of the purchasers and their ability to pay
(Marx, 1991, 898), which has later come to be called monopoly rent.
Marx synthesized the various aspects of rent conceived by many
classical political economists into a consistent land rent theory: differential rent from differential advantage in production; differential rent
II from the rent gap between unimproved land and land improved by
capital investment; absolute rent from scarcity of land; and monopoly
rent from the existence of a pure monopoly on exceptionally rare
products. In this way, he combined various theories on rent, developed
after Adam Smith, into a consistent theory.

3. The Renaissance
Marxian land rent theory was almost neglected in housing market
analysis as neoclassical urban economics had led the field. It was not
until the 1960s that interest in Marxian land rent theory was revived,
due to the rise of post-Marxism and soaring land and house prices,
and associated problems around the world. This renaissance lasted
around two decades, from the 1970s to the 1980s. Haila (1990) summarizes the period into three phases: consensus, transition and
rupture.7
There is little disagreement on the concept of differential rent
in the period, as Haila (1990) points out. Furthermore, there is little
research into this rent, partly because interest in differential rent was
overshadowed by concern for monopoly rent and absolute rent. There
are two distinct contributions to the theory of differential rent.
Ball (1977) explains two major points about differential rent.
The first is that the differential rent theories of Ricardo and Marx,
which are generally assumed to be the same, are in fact different. Ball
distinguishes them on the basis that Marx used an average approach
while Ricardo used a marginal approach in explaining the expansion
of cultivation with additional capital investment, which refers to Marxs
differential rent II. Balls second point is the influence of differential
7 According to Haila, there was a common criticism against neoclassicism in the consensus
phase, the emergence of different groups of thought in the transition, and the separation
into a group supporting the general theory of rent and one emphasising historical context,
in the rupture.

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rent on the value of commodities. In classical political economy differential rent was assumed to be price-determined, established after
the price of a product is worked out. Ball argues, however, that not
only absolute rent but also differential rent, especially differential rent
II, can affect the value of commodities and the rate of surplus value
through successive investment in the same land. His point focuses on
the fact that the existence of differential rent reduces the effectiveness of additional investment of capital in the land, resulting in the
acceleration of earlier entry of new peripheral land into cultivation. As
the price of production on new peripheral land would be higher than
the existing average this would increase market value.8 In this sense,
differential rent can influence the value of a commodity indirectly.
Harvey (1982) makes a unique contribution to applying the
concept of land rent to the urban context. In particular, he offers a
significant insight into urban differential rent. According to his argument, the saving in commuting costs through different accessibility to
employment centers leads to an excess wage under the assumption
of a flat wage. This excess can be converted to rent by those who
hold space (Harvey, 1982, 340). In spite of the rigid assumption of
a flat wage and the determination of the wage level by those who
live in the areas of worst accessibility, the different benefit from using
better located space does exist and can be converted into differential
rent in an urban context.
The main interest in the early renaissance was absolute rent and
monopoly rent (Haila, 1990). Harvey and Chatterjee (1974) try to
show how absolute rent can be realized in the housing market of
large metropolitan areas, based on empirical research into the city
of Baltimore. They show that there are multiple housing submarkets
of absolute urban spaces in Baltimore, which were formed by social,
institutional (governmental and financial) and geographical features.
In each housing submarket, they argue, levels of absolute rent are
structured by different levels of tension between social classes, such
as tenants, building owners, and developers, which create groups of
different interests around housing. They find that there are two dimensions operating in the formation of absolute rent. One dimension is
structured by opposing forces within a housing submarket and the
8 Market value is the center of fluctuating market price. It is assumed to be determined as the
value in the worst condition when there is excess demand in the market, the value in the
best condition when there is excess supply, and the average value when there is no excess.

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other by interactions among housing submarkets. The first dimension

assumes that the expansion of a housing submarket can help to reduce
rents as supply of similar spaces increases. At the same time, they also
point to the possibility of a shift of landowners, who will change their
types of space when they face a low rate of return from their existing spaces, to the other housing submarkets. This theoretical and
empirical research on the existence of multiple levels of absolute rent
organized by groups of space in an urban area is unusual within the
related field of research. This represents an exceptionally significant
achievement for the subsequent analyses of spatial aggregation of
residences and the dynamic mechanism of capital movement around
the built environment, especially in residential areas.
Harvey (1974) develops the concept of class monopoly rent to
explain the power of landowners over rent that results from scarcity in
limited resources. He quotes a remark by Ricardo that absolute rent
could not exist, except for the extreme case where there is absolute
scarcity, such as on an island. He then suggests that the existence of
absolute rent is more plausible in an urban context, where there are
a series of man-made islands on which class monopolies produce
absolute scarcities (Harvey, 1974, 249). His class monopoly rent
is similar to Marxs absolute rent. With this concept, he especially
focuses on conflict between a class of owners of resource units and
a class of lessees, who have to use land. He succeeds in explaining
the increasing possibility of absolute rent in an urban context with
the concept of class monopoly rent, focusing on the class struggle
between the lessor and the lessee of urban space.
Walker (1976) suggests that the Marxian categories of absolute rent,
monopoly rent and redistributive rent are important in explaining
the contemporary urban process; he criticizes the neoclassical method
of explaining rent as a universal rent. He stresses the importance of the
production phase in explaining rent and tries to develop the Marxian
categories of rent in an urban context. His unique contribution to the
concept of redistributive rent focuses on the governments role in creating rent by public spending on infrastructure or legislative activities.
This emphasis on the governments role in changing rent in an urban
context is one of the core facts that should be considered in land rent
theory. Nevertheless it is difficult to accept redistributive rent as an
independent category of rent. It is more appropriate to regard it as a
factor that influences the levels of existing types of rent.

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The main concern of Edel (1976) is monopoly rent, which is

regarded as prevalent in an urban context. Introducing arguments
over the conditions for the existence of absolute rent, such as low
organic composition of capital9 and the collective barriers of landed
property in urban context, he concludes that these conditions can be
met in an urban context. In drawing a distinction between absolute
rent and monopoly rent he argues that, while both stem from the
existence of barriers to equalization of the rate of profit, the scales
of the applicable sector of the two rents are different. He argues that
absolute rent is applied for a level affecting all of a large sector (agriculture, urban areas in general), while monopoly rent is applied for
specific, detailed land uses by racial minorities, immigrants and
other subgroups (Edel, 1976, 19). Emphasising a detailed analysis by
each group, rather than a generalized analysis of urban rent as a whole,
he agrees with the way in which Harvey and Chatterjee (1974) try to
explain their findings. However, he suggests that the different levels
of rents of the multiple levels of groups of residence by social, institutional, and geographical features should be regarded as monopoly
rent, not class monopoly rent. A similar criticism of Harveys position
can be found in the works of Basset and Short (1980, 201) and King
(1987, 210). However, Harveys class monopoly rent is a possible
form of absolute rent in an urban context, as Harvey (1974) in fact
admits. It is because the universal rent of class monopoly rent in a
group of spaces is, rather, a structural factor in the cost of the use of
space, differentiating itself from a temporary monopoly rent created
by users preferences and ability to pay.
A vast review of the French literature on land and land rent was
carried out by Scott (1976). On the controversial issue of absolute rent,
Scott raises two questions. The first question concerns why landlords
restrict the level of absolute rent to value minus price of production.
He argues that if they could appropriate the amount of value over
price of production, there is no reason why they could not charge
more. The second question is concerned with the basis on which
landowners can be a barrier to the equalization of the rate of profit.
He negates the possibility of a cartel of landowners: the real economic and political power of landlords in modern capitalist society
9 The organic composition of capital is the ratio of constant capital to variable capital, c/v, in
a sector. The low organic composition of capital in a sector means that the sector employs
more labor power than other sectors.

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is probably fairly negligible, landlords in modern capitalist society

do indeed impose a general levy of some kind on land, but this levy
is really a rent on the global scarcity of land, rather than an absolute
rent in the strict and technical sense of that term (Scott, 1976, 131).
Scott concludes that scarcity rent, rather than absolute rent, is likely
to exist in an urban context.
Taking a different stance from the position of Harvey and Scott
on absolute rent, Fine (1979) and Murray (1977; 1978) stand up for
Marxs original explanation of absolute rent, paying attention to the
economic situation of the early stage of capitalism. Focusing on the
relationship between differential rent II and absolute rent, Fine (1979)
tries to show the consistency of Marxs rent theory in terms of value
theory. For absolute rent he accurately interprets Marxs explanation,
noting that the source of absolute rent is the difference between
market value and price of production, after the equalization of the
profit rate, across all sectors. He explains why the amount of absolute
rent cannot exceed the difference between the value and the price of
production of the product in the agricultural sector in the early stage
of capitalism, where capitalists investment was likely to be limited
within the sector. In this condition of limited movement of capital,
the level of absolute rent from investments in the new (worst) lands
depends on the level of differential rent II from successive investments
on existing lands.10 This explanation by Fine might be a good answer
to the question raised by Marx himself: if landed property gives the
power to sell the product above its cost-price at its value, why does it
not equally well give the power to sell the product above its value, at
an arbitrary monopoly price? (Marx, 1968, 332).
Murray (1977; 1978) also seeks to defend Marxs theory against
criticism. Firstly, he summarizes the existing criticism of Marxs theory
of absolute rent. The main and most common criticisms, according to
Murray, are: 1) excess profit, the source of absolute rent, can be higher
or lower than the difference between value and price of production.
Why then did Marx assume that the products from the land are sold
at value, not price? Since, according to Marx, the level of absolute rent
is determined by supply and demand, why should the upper limit of
absolute rent be the difference between value and price of production? 2) If there is a barrier in the agricultural sector that restricts the
10 For more details and mathematical explanation see Fines work in 1979.

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inflow of capital, why are products sold at a level of value that assumes a
mixture of all surplus values in the process of the equalization of rate of
profit? 3) Is a low organic composition of capital an essential condition
for absolute rent? Considering the first criticism, commenting on the
transformation from value to price, Murray insists that price oscillates
around the gravitational center of value, so that monopoly price is a
rather accidental and temporary economic situation, which will soon
disappear to be replaced by an increase in supply. Considering the
second criticism, he defends Marx, noting that a historic feature of
landed property and the immobility of capital in the early stage of
the capitalist mode of production enables the systematic blocking
of capital and the exchange of products at their values. Considering
the third criticism, he argues that increasing capital investment in
land would reduce the landowners share of what was produced in
the space, leading to a reduction of the power of land ownership and
the disappearance of absolute rent, as he described it, as capitals
subordination of the soil.
The contributions of Fine and Murray to interpreting Marxian
land rent theory are detailed and, overall, relevant. Nevertheless, their
discussions are confined to the agricultural sector in an early stage of
capitalism, where mobility of capital was limited. In the contemporary
capitalist mode of production, blocking the movement of capital is
hardly conceivable, as capitalists would regard absolute rent as just a
single factor of cost and would move around searching for a sector
of higher profit, with ever greater mobility.
Starting from a point of criticizing the marginalist approach of
mainstream urban economics in analysing urban phenomena, Lipietz
(1985) argues that Marxian rent theories can be a useful analytical tool.
His main criticism of mainstream urban economics is the lack of essential theory to explain the fundamental causes of urban phenomena.
Sticking to the principle that rent comes from production in a space,
he suggests that the product of land is the built environment itself,
which creates the economic and social division of space. This reveals
his concern with the social relationships around land rent, as well as
with the economic conditions. In applying Marxian rent theory to an
urban context, Lipietz argues that 1) any distinction between absolute
rent and monopoly rent is irrelevant; 2) absolute rent is the rent on
the medium land in terms of productivity in his formulae (total rent
= absolute rent differential rent); 3) thus, total rent consists of land

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tribute and differential tribute; and 4) land tribute can be seen from
two aspects: tribute la Marx and tribute la Engels, which means
rent on value created in the construction industry and rent on value
created in any branch of industry, respectively. He correctly points out
that the concept of absolute rent would not be appropriate if a value
created in one sector were mixed with values from other sectors without restriction. In addition, he argues that the existence of tribute la
Marx in the construction industry obstructs investment in the industry
and, therefore, keeps the organic composition of capital in the industry
low. Ball (1985) criticized this point, saying that as the proportion of
constant capital, including circulating capital, is relatively high and the
wage level is comparatively low in the construction industry, the organic
composition of capital in the industry would not be that low. Ball also
criticizes Lipietzs argument about the source of rent as surplus value
created in the housing sector, arguing that surplus value created in
this way cannot be enough to pay the enormous profits of the building
industry. In addition to these points, Lipietzs argument on the level of
absolute rent is problematic, in that he sets the level of absolute rent
to the medium of total rent. This contradicts not only the most basic
starting point of the concept of absolute rent, as being a rent which
exists even on the worst land, but also the concept of differential rent,
which is rent as a surplus.

4. Premature Stagnation
The heated debates of the 1960s70s have faded since the 1980s.
Leaving debates unfinished, interest in the theory has prematurely
vanished. With different versions of interpretation and undeveloped
application of the theory to an urban context, the premature stagnation has put the theory on the back burner again. There are many
reasons behind the stagnation. Aside from external factors, like the
surge in neoliberalism and the fall of the Soviet Union, there were
internal problems in the fading of Marxian land rent theory.
First, the overwhelming degree of interest in the issue of social
relations around land and the economic role of rent has left analysis of
the mechanism of land rent relatively neglected.11 Although the role of
11 Haila (1990) classified land rent theories into three main categories: 1) the mechanism of land
rent emergence; 2) the social relations around land; and 3) the economic role of land rent.

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the built environment as a temporary shelter for the accumulation of

capital, using the concept of the secondary circulation (Harvey, 1982),
and the importance of the historical and institutional contexts in land
rent theories (Ball, 1985) are undeniable achievements stemming
from the arguments about the issues, there has been little progress in
the analysis of the mechanism of land rent itself. This is partly because
that mechanism has been the focus of neoclassical urban economics.
In criticizing neoclassicism, Marxian land rent researchers focused
on the social relations in the theory. However, the deficiency in the
analytical approaches to the mechanism of land rent impeded further
development of the theories and turned them in the direction of
abstract discussion, without concrete empirical research.
Second, the discussion of the technical conditions of absolute
rent and its relationship with monopoly rent has found itself at an
impasse, with little agreement. Emmanuel (1972) points out the innate
problem of the condition of low organic composition of capital for the
existence of absolute rent, as originally posed by Marx. He thinks that
absolute rent can exist if the condition is discarded. Harvey (1973)
acknowledges that the condition of absolute rent can be appropriate
in certain economic situations, such as the early stage of capitalism in
agriculture. Fine (1979) and Murray (1977; 1978) try to support Marxs
original explanation for absolute rent, focusing on the economic situation of the early stage of capitalism. Some researchers suggest that
absolute rent is the same as monopoly rent or scarcity rent in an
urban context, discarding the technical condition (Pribram, 1940;
Harvey and Chatterjee, 1974; Scott, 1976; Lipietz, 1985; Persky and
White, 1988). Some suggest new labels for rent, as in Harveys class
monopoly rent (1974) and Economakis political rent (2003). Some
go even further, arguing that absolute rent is not land rent, focusing
on the sales of properties. Jger (2003) regards it as a reservation price
and Evans (1999b) as a mixture of transaction cost, monitoring costs
and risk-taking compensation. These unfinished discussions into the
reality and the possible form of absolute rent in an urban context
made it difficult to enhance the theory further.
Third, there has been inappropriate application of the theory
to the urban context, especially in identifying the urban equivalent
of the product from the land. Ball (1977) suggests buildings as the
product, saying that the main effect is that the relationship between
the market price of the commodity produced and the rent extracted

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differs: the commodity produced in agriculture being corn and on

urban land, buildings (Ball, 1977, 400). Focusing on commercial
building provision, Ball (1985) asks that rent on buildings should not
be confused with rent on land. His concept of rent from buildings
might cause confusion because of his inappropriate juxtaposition
of building and land. It is true that rent from buildings is different
from that from land. Nevertheless, the space in buildings and the
rent from the space are still based on the use of land, as a building is
a type of fixed capital for improving the productivity of land use. It
is more appropriate to regard buildings as fixed capital to improve
productivity in land. The inappropriateness of the concept of building as the product of land and building rent in an urban context
is also criticized by other authors in a series of papers (Clark, 1987a;
Clark, 1987b; Haila, 1989).
Fourth, as Haila (1990) points out, there was a division in the two
lines of thought that, respectively, emphasised general laws and concrete situations. In her historical paper on rent theory, Haila (1990)
arranges and classifies past arguments on land rent into two categories.
The first category is the ideographic group, which emphasizes the
importance of analyzing concrete situations in their historical and
institutional context and denies the possibility of a general theory of
rent. The second category is the nomothetic group, which assumes
a tendential uniformity of economic agents in the capitalist mode of
production in space and searches for general laws in rent theory. Ball
(1977; 1985; 1986) and Harvey (1973; 1974; 1982) are respectively
said to be the representative authors in each group. The division of
the two lines coincided with the timing of the plummeting interest
in Marxian land rent theory.

5. Neoclassical Approaches
Ironically, what filled the empty place of Marxian land rent theory
in the 1980s90s were neoclassical approaches. There has been a
considerable body of neoclassical work on rent theory that tried to
interpret or solve the problems in the theory in terms of their own
economic concepts. Throughout this review, implications for the
future development of Marxian land rent theory can be examined.
Persky and White (1988) review the possibility of the existence
of absolute rent, referring to it as a rent raised by a land monopoly

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or extensive collusion among landowners (Persky and White, 1988,

165). They suggest that collusion of landowners is likely to arise in
bad times, when a perfectly inelastic supply curve of land lies further to the right than the zero marginal revenue point. In order to
avoid loss in this situation, they suppose, landowners would collude
to control supply in the market. Although it is a unique attempt to
explain absolute rent using a supply and demand diagram, there are
a couple of challenging assumptions. First, the fixity and durability
of land makes it difficult to increase or reduce its supply in the short
run. Furthermore, the situation of extensive collusion among landowners is hardly conceivable where numerous landowners, having
lands under different conditions, try to pursue their own interests.
Bryans main interest is how to differentiate between the natural and man-made attributes of land, focusing on differential rent
II (Bryan, 1990). Admittedly, differentiating the land rent from a
natural contribution and the interest from a man-made contribution is not an easy task. Bryan holds a firm belief that land must
be understood in the same way as capital generally, and concludes
accordingly: Neoclassical economic theory has divorced the concept
of rent from land and attached it to a general conception of monopoly.
Marxist theory could well do the same (Bryan, 1990, 180). However,
the difficulty in differentiating among types of land rent cannot be
a sufficient reason for abolishing the differences among concepts of
land rent altogether. The need for the distinctions is well pointed out
by Murray (1978).
Evans (1991) tries to suggest a consistent concept of monopoly
rent after reviewing various ways of understanding the concept and its
usage. He classifies the different thought processes into three areas:
class monopoly, site monopoly, and Marxian monopoly rent. First, he
points out that Alfred Marshall (18421924) transformed the concept
of monopolistic land rent, which was prevalent in classical political economy, into the concept of economic rent on the basis that it
refers to the common surplus profit over and above normal profit
due to control over limited resources, not merely in land. Second, he
clarifies the misunderstanding of the site monopoly as the source of
monopoly rent. Although site monopoly rent is based on the unique
features of each piece of land and monopolistic ownership of the
piece of land, monopolistic control over each site is not a sufficient
condition for appropriating the rent. The difference among lands

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in terms of location and fertility in production is the fundamental

basis of the rent. The site monopoly rent, as Evans also argues, is
rather close to the concept of differential rent. Finally, he suggests
that Marxian monopoly rent may exist in some contexts, especially
in an urban context, where planning regulations limit land use, such
as a unique, purpose-built shopping center.
Tracing back through Balls work in 1977, Evans (1992) agrees
with Balls argument about the difference in the theories of differential rent (including differential rent II) between Marx and Ricardo.
The main divergence between them lies in the way in which capitalist tenants regard cost and return from additional investment, using
either an average or a marginal approach. Subsequently, he argues
that Marxs theory of differential rent is wrong in practice, as capitalist
tenants would act along the lines suggested by the Ricardian marginalist approach, and not in the way which Marxs use of the averaging
procedure supposes (Evans, 1992, 85). However, the averaging procedure is more likely to prevail in calculating the price of production
and profit. In an urban context, capital investment is rarely made in
an incremental way but generally, instead, on a large scale, normally
in the form of constructing buildings or infrastructure.
Houghton (1993) classifies the meaning of monopoly into two
sections. The first section is complete ownership and control and the
second is a state of organization (structure) of a market (Houghton,
1993, 260). Within the second definition as one of market structure,
he reviews the use of the term monopoly in related works on land
rent. He focuses on the intentionally behavioral feature of agents in
the real estate market to create monopolies, rather than stipulating
that certain types of space or land can yield monopoly rent. In the
process, he suggests two criteria for creating a monopoly in urban
space. The first is non-substitutability and the second is consumer
sovereignty. Essentially, the space should be unique, within a reasonable distance from the center of the city, and should be backed
by sufficient demand. This approach can provide a useful framework
for understanding the dynamic movement of capital investment to
appropriate higher rents in an urban space.
Evans (1999a) argues that the generally accepted interpretation
of Marxs concept of absolute rent is not correct. The controversial
issue surrounding the conditions for the existence of absolute rent
is the low organic composition of capital. Although there have been

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many debates about this condition, it has generally been thought that
Marx argued that a sector with low organic composition of capital is
a potential source of absolute rent. By contrast, Evans argues that the
existence of absolute rent makes the organic composition of capital
in a sector low, because it reduces further investment of capital. For
him, the low organic composition of capital is not a precondition
but, instead, a result of absolute rent. In a later paper in the same
year (1999b), he examines the possible basis for landowners claims
to absolute rent. The first is transaction cost, including: 1) the cost
of setting up a contractual agreement between landowner and tenant; and 2) the cost of monitoring the activities of the tenant, who
might harm the landowners property. The second is uncertainty, as
the landowner can be unwilling to lease sites for a low rent if there
is a possibility that a higher rent might be obtainable in the future.

6. Recent Developments
Since the rupture period of Marxian land rent theory in the
1980s, there has been little contribution to rent mechanism research.
The majority of the contributions to Marxian land rent theory in this
period focused on Harveys concept of the secondary circuit, which
emphasized the function of the built environment as a temporary
shelter for capital accumulation.
King (1987) investigates a long term change of trend in the housing construction industry in Melbourne, using data on housing transactions from the 1930s to the 1980s. He distinguishes between absolute
rent and monopoly rent, based on scale difference. He understands
absolute rent as all rent in a particular region or submarket by collective power of the landowners and monopoly rent as excess profit
from a monopolistic position by a few landlords of a particular piece
of land (King, 1987, 209). He argues that investment in the housing
sector before 1973 was a secondary circuit of capital accumulation
in Harveys sense, seeking absolute rent in the housing sector as a
whole, while investment after 1973 was another secondary circuit for
monopoly rent, depending on the uneven development of spatially
differentiated housing submarkets (King, 1987, 202). For an explanation of differential house price changes, he suggests, first, that shifts
in consumer preference for various conditions, such as accessibility
to employment, accessibility to private and selective schools, and the

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proportion of employed males in professional occupations can be

major causes, which can be linked to differential rent from different
levels of fertility of labor reproduction. Second, he claims that differential house price changes may come from 1) excess demand, as a
consequence of class structuration and the changing distribution of
income; 2) restricted supply in a particular submarket; 3) augmented
or restricted demand from general financial conditions; and 4) creation of a new submarket or the radical transformation of an existing
one, which can create monopoly rent from excess profit on limited
housing resources. Although the theoretical basis of his distinction
between absolute rent and monopoly rent is not fully discussed in
his work, his application of Marxian land rents to an urban context
is a noteworthy one, especially where he links different conditions of
labor reproduction to differential rent and analyzes the differentiation process in the housing sector; his application of a theoretical
frame to empirical data is the first prominent attempt since the work
of Harvey and Chatterjee (1974).
Using empirical data collected from cities in West Germany,
Krtke (1991) argues that the traditional view of the impact of land
rent on capital accumulation needs to be reformulated. Traditionally, the appropriation of land rent has been regarded as having a
negative influence on capital accumulation, as it takes values created in production spheres. Noticing the trend that capital is actively
involved in property development in urban spaces, and focusing on
the phenomenon of the fusion of capital and landed property, he
suggests that land rent needs to be regarded not as a barrier to capital
accumulation, but as an alternative source of capitalist accumulation. Scott (1980) also considers that rent has a positive function in
capital accumulation, because land rent enters immediately into the
stream of new investments generally, where it contributes directly to
the accumulation process (Scott, 1980, 30).
Economakis (2003) reignites the discussion on the nature of
absolute rent. In one of the rare attempts to examine rent from the
standpoint of value theory, he interprets the condition of absolute
rent suggested by Marx and highlights the real problem. Considering
the fact that sectors with high organic composition have a higher rate
of surplus value, he demonstrates the possibility that the value of a
product in a higher organic composition sector can be greater than
that in a low organic composition sector. He argues that the concept

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of absolute rent should be accepted only when it has a monopoly

price, which means that absolute rent can exist when the market price
exceeds the price of production. Comparing this with differential rent,
he refers to political rent. His emphasis on the class relationship
between landowners and capitalist tenants over the appropriation of
land rent is very similar to the concept of class monopoly rent in
Harvey (1974).
The Institutionalist approach by Jger (2003) is a unique contribution to the theory. He revaluates existing urban land rent theories
and suggests that it could be useful to analyze urban rent from the
perspective of the French Regulation School. Jger properly emphasizes the influence of institutional regulations on differential rent
II. He points out that institutional regulations limiting the type of
use of urban land, like zoning or building restrictions, are of decisive importance in preventing or enabling the formation of intensive
rent (Jger, 2003, 245). He also suggests that gentrification may be
interpreted as resulting from the real estate developers search for a
cheap urban space in order to capture DR2 (Jger, 2003, 245).

7. A Way Forward
The development of Marxian land rent theory has stagnated since
the 1990s. There are several reasons for this. A few fundamental problems in the theory were revealed during the period of heated debates,
and the lack of empirical analysis also contributed to the decline. I suggest four main requirements for the further development of the theory.
First, research to establish a consistent theory of the mechanism
of land rents is needed. The issue of how land rents emerge was overshadowed by the massive interest in class relations around space. However, a detailed analytical approach to the categories of land rents can
provide a useful tool for empirical research to explain various urban
phenomena. The discussion of class relationships around space can
be strengthened by advances in the theory of land rent mechanisms.
Second, the debates about the condition of absolute rent and the
relationship between it and monopoly rent need to be re-examined.
Urban spaces, with their fragmented uses and specific features, make
absolute rent and monopoly rent important. Without addressing the
issues properly, related research will remain at the level of abstract
discussion.

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Third, the product of the land needs to be identified for an urban

context. The proposition of buildings as the product in an urban
context has brought confusion to later studies. Land rent is based
on the relationship between landowners and users of the production
process of the land. In this context, the identification of the product
from the land in different types of spaces is a crucial question in the
development of the theory.
Finally, a consistent theory of the structure of land rent in an
urban context needs to be established. The original theory, based on
agricultural production conditions, needs to be reorganized to be suitable for an urban context. Of course, this requires proper handling
of the previous two needs.
It is undeniable that Marxian land rent theory, at this stage, is not
perfect for analyzing the structure of house prices. However, it has the
potential to be a convincing alternative to mainstream economics as
it focuses on the fundamental basis of the changes in house prices.
For further advancement of the theory, the four needs should be
properly addressed.
Korea Research Institute for Human Settlements
254 Simin-daero, Dongan-gu, Anyang-si
Gyeonggi-do, 431712
Republic of Korea
jpark@krihs.re.kr
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