Chapter XI: Section CLIV: Theory of Rent. (continued.)

As the purchase of a piece of land[154-1] is no more and no less than its exchange against a portion of capital in the shape of money,[154-2] its purchase price depends generally on the amount it will rent for as compared with the interest on the capital to be given in exchange for it. The rate of interest remaining the same, it rises and falls with its rent. And _vice versa_, the rent remaining the same it rises and falls inversely as the rate of interest.[154-3] A rise in the price of land is not always a proof of the growing wealth of a people. It may proceed from a depreciation of the value of money, or from a decrease of the rate of interest caused by a decline in the number of loans which can be advantageously placed.

It is frequently said, that the price paid for land is greater than the money-capital which yields an equal revenue.[154-4] This, abstraction made of proletarian distress prices for small parcels of land and of the political and social privileges of landowners, is accounted for by the assumed greater security of the latter,[154-5] which, however, fares ill enough in war times, and times of political disturbance. The fact itself is found to exist, I think, only in economically progressive times, when confidence prevails, and it is based on the pretty certain prospect that the rate of interest will decline, while rents will rise.[154-6]

It has been observed in Belgium, that the medium farm rent of land, in quarters remarkable for any economic peculiarity whatever, pays an interest lower, as compared with the purchase money, in proportion as the country about is more thickly populated, and as its husbandry is carried on by farmers instead of by owners.[154-7] This phenomenon is doubtless correlated with these others, that the conditions just named are pretty regularly attendant on a high state of civilization, and that advanced civilization is attended uniformly by a decline in the rate of interest. (175).[154-8]

[Footnote 154-1: In every day language, people say of a man
who has purchased a piece of land, that he "put" as much
capital as is equal to the purchase price "into his land;"
or "laid out on it" as much. But this mode of expression is
as inaccurate as is this other: "the sun is rising," or "the
sun has gone down."]

[Footnote 154-2: _Macleod_, who is not fond of the natural
mode of expression, maintains that the purchase price of a
piece of land is equal to the discounted value of the sum of
the values of all the future products to be obtained from
the land. (Elements, 75.)]

[Footnote 154-3: C:i::L:r in which C = the capital, i = its
interest, L = the piece of land, and r = its rent.]

[Footnote 154-4: There are traces to be found of the fact
among the ancient Greeks, that the farm-rent of landed
estates paid a smaller interest on the purchase money than
was otherwise usual in the country. _Isaeus de Hagn._, 42;
_Salmasius_, De Modo Usur., 848.]

[Footnote 154-5: Thus even _North_ and _Locke_, loc. cit.;
_Cantillon_, Nature du Commerce, 294.]

[Footnote 154-6: Compare _List_, Werke II, 173. In Belgium,
farm-rent per _hectare_ was, in 1830 = 57.25 francs, in 1835
= 62.78, in 1840 = 70.44, in 1846 = 74.50, on an average.
This was at the rate of from 2.62 to 2.80, or an average of
2.67 per cent. on the purchase money. If to this we add the
increase in the rise of land between 1830 and 1846, divided
by 16, the yearly revenue rises from 2.67 to 3.91 per cent.,
that is pretty nearly the rate of interest on hypothecation,
and is higher or lower in the different provinces, as the
former is higher or lower. (_Heuschling_, Résumé du
Récensement général de 1846, 89.) In France, land paid but
from 2 to 3 per cent. on the purchase money; but both rents
and the price of land have doubled between 1794 and 1844.
(Journal des Econ., IX, 208.)]

[Footnote 154-7: Moreover, whole countries may, because of
their great natural advantages, possess, so far as the
commerce of the entire world is concerned, something
analogous to rent. Thus, for instance, North America,
although here, this world-rent finds expression in the
national height of the wages of labor and of the rate of
interest, (_v. Bernhardi_, Versuch einer Kritik der Gründe
welche für grosses und kleines Grundeigenthum angeführt
werden, 1848, 294.)]

[Footnote 154-8: Writers as old as _Culpeper_, A Tract
against the high Rate of Usurie, 1623, and _Sir J. Child_,
Discourse of Trade, p. 22 of the French translation,
observed the connection existing between a low rate of
interest, national wealth and a flourishing state of
commerce on the one hand, and a high price of the
necessaries of life and of land in the other. _Sir W. Petty_
would estimate the rent of land as follows: If a calf
pasturing in an open meadow gains as much flesh in a given
time as is equal to the cost of the food of 50 men for a
day, and a workman, on the same land, in the same time,
produces food for 60 men, the rent of the land must be 50,
and the rate of wages 10. (Political Anatomy of Ireland, 62
seq.; compare 54.) Besides, he accounts for the height of
rents by the density of the population exclusively, and he
would prefer to see both increase _ad infinitum_. (Several
Essays on Political Arithmetic, 147 ff.)

The germs of the _Ricardo_ law of rent, in _Boisguillebert_:
the price of corn determines how far the cultivation may be
extended; by manuring the land, as much corn as desired may
be obtained, provided the cost of production is covered.
(Traité des Grains, II, ch. 2 ff.) There is a foreshowing of
the same law in the Physiocratic view that only in the
production of raw material is there a real excess over and
above the cost--_produit net_. Compare _Quesnay_, Probl.,
économique, 177 ff. Sur les travaux des artisans. (Daire.)
_Auxiron_, Principes de tout Gouvernement, 1776, I, 126.
_Adam Smith_ came very near to the true principle in the
case of coal mines, but was hindered reaching it in other
cases by the false assumption that certain kinds of
agricultural production always yield a rent, while others do
so only under certain circumstances. Besides he always
considered the interest of capital fixed in the soil;
buildings, for instance, as part of the rent. (Wealth of
Nat., I, ch. 11.) Compare _Hume's_ Letter to Adam Smith;
_Burton's_ Life and Correspondence of Hume, II, 486; _von
Thünen_, Isolirter Staat., I, 15 ff.

The most immediate predecessors of _Ricardo_, Principles, 2,
3, 24, 31, are _Anderson_ (§ 152); _West_, Essay on the
Application of Capital to Land, 1815, and _Malthus_, Inquiry
into the Nature and Progress of Rent, 1815. See § 152. It is
wonderful how a theory which, in 1777, remained almost
untouched, was in 1815 etc., attacked and defended with the
greatest zeal, because it then affected the differences
between the moneyed and landed interest. Yet _Ricardo_ did
not take into account at all the rent-creating influence of
the situation of land in relation to the market, as well as
to the "farm-office" (_dem Wirthschaftshofe_). The influence
of the system of husbandry on rent, first thoroughly treated
by _von Thünen_, loc. cit. What has recently been urged
against _Ricardo_ by, for instance, _J. B. Say_, Traité, II,
ch. 9; _Sismondi_, N. P., III, ch. 12; _Jones_, Essay on the
Distribution of Wealth, 1831 (see Edinburg Review, LIV),
bears evidence either of a misunderstanding of the great
thinker, or else contains only modifications of some
individual abstract propositions of his, stated perhaps too
strictly. In judging _Ricardo_, it must not be forgotten,
that it was not his intention to write a text-book on the
science of Political Economy, but only to communicate to
those versed in it the result of his researches, in as brief
a manner as possible. Hence he writes so frequently making
certain assumptions; and his words are to be extended to
other cases only after due consideration, or rather
re-written to suit the changed case.

_Baumstark_ very correctly says: "Rent rises, not because
new capital has been invested, but when the circumstances of
trade make a new addition to capital possible."
(Volkswirthschaftliche Erläuterungen über Ricardo's System,
1838, 567.) _Fuoco's_ Nuova Teoria della Rendita, Saggi
economici, No. 1, is nothing but an Italian version of the
doctrines of Malthus and Ricardo. The greater number of
anti-Ricardo theories of rent have originated from the rapid
and apparently unlimited growth of national husbandry in
recent times. Thus it is a fundamental thought in
_Rodbertus_, Sociale Briefe, 1851, No. 3, that an increase
of the price of corn need not attend an increase of
population, either uniformly or necessarily. According to
_Carey_, The Past, the Present and the Future, ch. 1, 1848,
the most fertile land is last brought under cultivation,
because it is covered with swamps, forests, etc.; and
because it offers greater resistance to the work of the
agriculturist, by reason of its luxurious vegetation. The
more elevated lands are first cultivated which present fewer
obstacles to cultivation on account of their dryness, their
thinner crust, etc. Carey generalizes this and thinks he has
reversed the _Ricardo_ law of rent! He overlooks entirely
that _Ricardo_ speaks only of the original powers of the
soil. Now a swampy land which must be dried at the expense
of a great deal of labor, possesses less of these original
powers than a sandy soil which may be sown immediately. See
_Carey_, Essay on the Rate of Wages, 232 ff., and the
lengthy exposition of the same doctrine rank with inexact
natural science and unhistorical history in the same
author's Principles of Social Science, 1858, vol. I.

There is this much truth, however, in Carey's error that,
with increasing economic progress, the superiority not only
of situation, relatively to the market, but also of natural
fertility, may of itself go over to other lands. Thus, for
instance, the ancient Slaves used clay soil everywhere as
pasturage, and cultivated the sandy soil, because their
pick-axes could overcome the resistance only of the latter.
_Langethal_, Geschicte der deutschen Landw., II, 66;
_Waitz_, Schlesw. Holstein, Gesch., I, 17. Similarly in
Australia: _Hearne_, Plutology, 1864. Compare, _Roscher_,
Nationalökonomik des Ackerbaues, § 34. The word fertility
should not be taken too exclusively in its present
agricultural sense. In a lower stage of civilization, the
facility of military defense or the _ut fons, ut nemus
placuit_--_Tacit._, Germ., 16--may have more weight.

The chief difference in the theories of rent consists in
this: whether rent is considered a result of production or
only of distribution, and an equalization of gain. Compare
_Behrens_, Krit. Dogmengeschichte der Grundrente, 1868, 48.]