What Is Economic Rent?
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The Twentieth Century was host to several overlapping debates on the questions of rent and interest, with mutualists, single-taxers, advocates of the Topolobampo community, and others mixing it up. There are plenty of names likely to be familiar to readers of Benjamin Tucker's Liberty: Hugo Bilgram, C. L. James, Victor Yarros, Joshua King Ingalls, Michael Flurscheim, William Henry Van Ornum, and William Bradford DuBois all contributed. Ingalls' part in the debate complements his contributions to Liberty, where he was one of the most interesting critics of the mutual bank, and where he constantly pressed Tucker for clarifications of his views on rent and interest. In those pages, where the notion of "economic interest" was scandalous, and "economic rent" the occasion for some fancy rhetorical footwork on Tucker's part, Ingalls had to emphasize the possibility of these as legitimate forms of profit. In the Twentieth Century, he looks a bit more "orthodox" by individualist anarchist standards—not that Ingalls ever claimed the anarchist label for himself—but note the very interesting stricture on Josiah Warren's "cost principle."
- Joshua King Ingalls, “What Is Economic Rent?,” The Twentieth Century 9, no. 26 (December 29, 1892): 6-8.
WHAT IS ECONOMIC RENT?
BY J. K. INGALLS
Ricardo's theory of rent stood unchallenged for half a century or more. It was based up on the fact that some lands are more productive than others and that as the produce would be sold in the same market and therefore at the same price, there would be left a surplus from the more productive soil not referable to the labor bestowed. Choice of location would also appreciate the value of the more favored places. Previous to that time, difference in rent had been termed "a fair rent, customary rent, and rack rent."
These terms, however, indicated degrees in which the landowner took advantage of the full force of his position toward the tenant. A later school, however, had ceased to regard Ricardo's theory and reduced the matter to a question of exchange, rent being to them merely the pay for a use. It is singular that for so long a time no attention should have been paid to the fact, that while accepting the theory of Smith that "Labor is the original price paid for all things," rent was also defined as "a fund that exists through external causes, over which the owner has no control," and therefore could represent no labor nor be equitably exchanged with any product of labor. Quite recently a distinction has been made between economic rent and monopolistic rent. But by few writers has this distinction been clearly drawn, and the former term has not been analyzed or so fully defined as to be clearly distinct from the latter. By nearly all, the importance and extent of economic rent has been greatly over-rated. That there is a difference in the fertility of soil and in the choice of locations thee can be no doubt, but the advantages of these differences are mostly due to monopolized ownership of the land. There is abundance of good land to supply the wants of the world if left free to the cultivator.
The great variety of requirements reduce the difference to a minimum, which would give trifling advantage to any and serious injury to none. The idea that wealth in its economic meaning arises from anything by labor applied to the land is a fallacy so fully exploded by McCullough in his edition of Smith's "Wealth of Nations" that it is wonderful how anybody could repeat the possibilities about the calf growing to the ox, new wine growing old and the growth of trees and plants. These have value only as they are gathered and affected by labor or an under the control of exclusive monopolies. The pioneer in the forest cuts and uses the timber necessary to his purpose. He often takes the labor of felling the trees, of rolling the logs in piles and firing them.
If there is a market for the timber, it will be found that the labor of cutting and getting it to market pays no better than other kinds of labor or will not for any length of time. The price paid for the timber standing is the price paid to the monopoly of private ownership. The economic rent arises not from this source at all, but from the fact simply that one man finds better timber than the other or more ready access to the market. Even this will disappear as new fields of enterprise open, and demand from other quarters reach them. The same principle applies to the cultivation of the soil as varied demands for different productions increase, and the man who first meets thee demands with his products will get the economic rent and not the cultivator of the more productive land. The same is true of inventions and manufactures. These advantages serve as a healthful stimulus to industrial activities and belong naturally and rightfully to the labor which produces the. To attempt to equalize these inequalities by forceful taxation or in a scheme of governmental renting, is to reduce industry to a dad level of mediocrity and destroy all motives to enterprise; and is as truly confiscation as any form of arbitrary exaction can be.
The temporary nature of land valuation caused by superior fertility may be illustrated by a simple reference. When it was found that domestic grapes could be produced of good quality, an active market was found for them. The thin and shaly soil of our inland lakes was well adapted to their cultivation. The result was that these lands, comparatively useless for general agriculture, were increased in price some six or seven fold and were sold at prices far above the best grass and grain lands in their vicinity. But he sharp competition produced by high prices has brought down the prices of grapes to one-tenth of what they brought at the close of the war. The price of grape land has also decreased, but not in proportion; because the lands are under the control of private ownership and are found useful for other purposes than the culture of grapes.
The value of very poor lands may be raised to equal that of very productive soils by careful attention and wise adaptation. So that it is the culture, not the soil, which gives large production. The best soils can only be maintained in their productive power by returning to them all the fertilizing properties which have been cropped from them. To ascertain the source of economic rent and interest, we must go farther. Where labor produces only enough to meet its own requirements, or that which it consumes, there can be neither economic or monopolistic rent or interest. Only labor, therefore, produces either. And that which economists have strangely termed "unearned increment," proves to be nothing more than the withheld natural wages of labor above what labor has consumed in their production. The phrase itself is a contradiction in terms, since we can conceive of no wealth in its economic sense which is not the earnings of labor.
We are told that all economists have agreed that this term should signify that accumulation of wealth which is not attributable to the labor of the holder; but it does not matter what they have agreed to. By astronomers before Copernicus it was fully agreed that the earth was flat and that the heavenly bodies moved around it. For two thousand years it was held by natural philosophers that the rise of water under the action of a pump was due to "Nature's horror of the vacuum." Authority decides nothing in science. The earnings of labor over its consumption is the only source of increase. From it is derived the fund from which all rent and interest is paid. Labor alone yields a profit, so that Josiah Warren's "Cost the limit of price" must itself be limited by excluding labor, because natural wages are usually greater than the consumption of the laborer, which is his cost. That these wages are variable and sometimes greatly unequal is inevitable. Landlordry cannot be abolished or the inequality of these wages cannot be greatly modified by the Single-tax or any other arbitrary exaction.
The earnings of labor only can be taxed, whether in the hands of the laborer or the exploiter. To have taxed the earnings of the slave in the hands of the slaveholder would not have modified the system of slavery. Neither can taxation modify the system of land monopoly.
Thus we see that rent arises from the surplus earnings of labor, which are variable as the skill, enterprise, and circumstances of the laborer determine. From these differences arise profit in trade or exchange. From this arises interest on money or commodities which money commands, and finally becomes applied to realty in the form of rent of land; to confiscate rent therefore, will not reach the source of their inequalities. It can make no difference to the tenant, or to the public, whether the sum he annually pays for the use of land, is directly to the landlord, or indirectly to the mortgagee, or whether under confiscation of the rent, the land value be added to the improvement, as it would necessarily be, if interest and profit are allowed to continue.
Glenora, N. Y.