2. The amount of rent is determined by the degree of those differences.

The principle governing rent, as just explained, was stated clearly by Ricardo, and it is called Ricardo's law.

Ricardo's law of rent can be illustrated as follows:

Let A, B, C, D represent four farms of different fertility and productiveness signified by the figures 240, 180, 120, 60, indicating the number of bushels supplied respectively by the farms. A certain amount of capital and labor, the same for each farm, is expended on the farms. A definite return must be made by the produce to pay expenses and interest on the capital invested. The actual returns that would be made by the above farms with the produce at one dollar a bushel would be A = $240; B=$180; C=$120; and D=$60.

Now, let us suppose that $240 is the sum required to pay expenses and interest. Then, A would be no-rent land, and B, C, D would not be cultivated at all, because they would not pay expenses and interest.

This state of things will last, while the A lands are able to supply the demand for the product. But let there be an increase of population to such an extent that the A lands cannot supply the demand. Then, the demand increasing and the supply remaining the same, the price will rise. The demand must be supplied. Other lands will be brought under cultivation. The B land will be cultivated. But the B land must return at least $240, since that is necessary to pay expenses and interest. Hence the 180 bushels, the produce of the B land, must bring in $240, i.e. the product must sell for $1.34 a bushel in the market. The increased demand will cause the price to rise from S1 to $1.34. Now the B land will pay for its cultivation, but it will be no-rent land, and C and D will not be cultivated.

In the meantime, the A land, because of the rise in price of the product, will bring in a return of $320. Of this, $240 will go to pay expenses and interest as before, and the surplus, $80, will be rent, and will be paid as rent to the owner of the land, to the landlord.

If the population should again increase and the demand become greater, the price of the product may rise to $2 a bushel. Then the C land would become the margin of cultivation and would be the no-rent land, while A would return $480, and B would return $360. Now, subtracting the original $240, A would pay a rent of $240, and B would pay a rent of $120.

Should the same factors work further and bring the price of the product per bushel to $4, the D land would be cultivated and the rents paid by A, B, C would be respectively $720, $480, and $240.

If there were another land, E, giving 30 bushels and therefore more fertile than A, B, C, D, but situated at a distance from the market where the produce of A, B, C, D is sold, the cost of transportation must be taken into account and deducted from the value of the produce of the E land, thus bringing it down to a level with the A land or possibly with the B land or the C land.

If, instead of extensive cultivation, as in the illustration, intensive cultivation be employed, the same principles will hold, but the A, B, C, D will represent, instead of different farms or lands, the additions of labor and capital put into the first land.

The statement of Ricardo's law of rent will now be understood if expressed as follows: The rent of any piece of land is the excess of its produce over the produce of that land which just repays the current rewards for the sacrifices of production.

The forces which work against the actual carrying out of the law as stated are:

(1) Any improvements in cultivation, in machinery, in intelligence, in chemical knowledge of the soil, in methods of transportation, all of which check the law of diminishing returns.

(2) Competition of new lands.

Ricardo's explanation of rent is theoretic. It is in great measure fanciful and contrary to facts, as the best lands are not the lands first cultivated. It supposes perfect competition, and that no personal or social considerations have influence on the working out of the theory. Such conditions are very hard to find in the actual world. They are, however, found approximately in the United States.

In England, public sentiment favors the tenant class. The same man is often the tenant for years. The landlord shows much consideration for the tenant. In countries on the continent, custom determines the rent in great measure. In Ireland, owing to past tyranny on the part of England, the tenants are often found to be ignorant, degraded, and improvident, and there is little friendly sentiment in favor of the tenant.

Ricardo's law is made to apply also to the rent of building lots. It applies to mines, but only in part, as increased compensation must be made because the mines will be exhausted in time.

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III. INTEREST

Definition. Interest is that portion of the product which is given to the capitalist. The capitalist is one who invests capital in business or loans it out to others who are engaged in business.

The capitalist may be at once the person who invests his money in some business concern and the person who manages the business. In that case, we must distinguish two different kinds of returns which the business brings in, the profits which that person receives as manager of the concern, and the interest which the same person receives as a capitalist. If the manager borrowed his capital, the distinction would be clear.

We are considering here only that part of the returns which goes as interest to the capitalist.

Capital, as we saw before, is defined as that part of wealth which is devoted to the production of more wealth.

Interest is the compensation paid for the use of capital.

Historical Sketch. Until comparatively recent times, no clear distinction was made between interest and usury. The terms were identical in meaning.

Interest, as signifying in general the compensation due to the lender for the use of money loaned, was known in the most ancient times, and it was generally condemned. The ancient philosophers, Plato, Aristotle, Cato, Seneca, Plutarch, condemned it. (Cathrein, Moral philosophie, 1899, II, p. 350.)

It was condemned by the Scriptures. (Deut. xxiii, 19, 20; Ps. xiv, 5; Luke vi, 35.) The Fathers of the Church inveighed against it, and they appealed to the authority of the Scriptures.

The Church has pronounced against interest taking from the most ancient times down to the beginning of the nineteenth century.

Some of the earlier Synods and Councils forbade the taking of interest by all clerics, and pronounced severe penalties against such as were guilty. (See Hefele, Conciles de l'Eglise. - Elvira, 300 [can. 20]; Arles, 314 [can. 12]; Nicea, 325 [can. 17]; Orleans, 538 [can. 27]; "In Trullo," 692.)

Later Councils (two English Councils, 787; Aix-la-Chapelle, 789) condemned interest taking among lay persons, and throughout the following years different Councils and Popes denounced and prohibited the practice among all classes of the faithful. (Vienna, 1311; Lateran V, 1515; Alexander VII, 1665; Innocent XI, 1679. — Denzinger, Enchiridion, Nos. 407, 623, 1013, 1058, 1059.)

The canonists and theologians, as a rule, decried the taking of interest. The general opinion may be found contained in St. Thomas (Summa, 2−2, q. 78. a.1), who argued that, when money is loaned, it is consumed in the use made of it, and if more were exacted for a sum of money loaned than the sum itself, gain would be made out of, both the thing itself and the use of the thing, and injustice would be done. He declared that money is a thing in which no distinction is to be made between the thing itself and the use that is made of it. It is like wine

or corn or any other consumable thing. To require compensation for the use of money would be similar to requiring one payment for a gallon of wine or a bushel of corn and another added payment for the use or consumption of the wine or corn. Justice in contracts required that values given in exchange should be equal. It would be unjust to demand a return of more than the loan.

It was, however, admitted by all writers of this time and by the Church herself, that there existed certain extrinsic circumstances which justified the taking of interest. Such extrinsic circumstances were:

1. The deprivation on the part of the lender of the use of the money while it was out on loan.

2. The positive loss to which the lender might at times be subjected by the loan he had made.

3. The danger to which the lender was exposed of not recovering his money.

4. Delay in returning the loan.

These circumstances, all extrinsic to the loan, were titles that justified the acceptance of interest.

But interest in itself and by reason of the loan itself and independent of all external circumstances was condemned as unjust by the moralists and almost universally decried.

Some have thought that the Church opposed interest because money loans were made to the poor and needy for purposes of consumption only, and declared that when money was loaned for production, interest was not unlawful. But opposed to this view is the fact that Benedict XIV, in his famous Encyclical Vix pervenit (1745), explicitly declared that interest taking (vi mutui) was forbidden, even when the money was loaned to the rich and was to be employed for the sake of gain in commercial transactions. (Denzinger, Enchiridion, Nos. 1318, 1319. Cf. Walter, "Wucher und Zins," in Staats Lexicon, pp. 1376, 1396. Cf. also Cathrein, Moral philosophie, II, p. 358, No. 5.)

There can scarcely be any doubt that in a certain limited