are considered in the remainder of this chapter; profits and wages in later chapters.

Definition.

II. RENT

Rent has a more exact meaning in economics than in the popular sense. In the popular sense, rent means the amount paid by the lessee of a house, a flat, a room, or a business building. In economics, rent bears relation to land, and means the revenue derived from the use of land and of the forces inherent in land. It is "the payment which an owner receives for the use of natural agents." (Laughlin, Political Economy, p. 264.) Walker defines it as “the remuneration received by the landowning class for the use of the native and indestructible powers of the soil, or for the use of natural agents." (Political Economy, p. 193.)

"Natural agents include land, whether arable or timber land, mineral deposits, water power, or land peculiarly situated for building purposes." (Laughlin, Political Economy, p. 264.)

"The rent of land is that portion of the revenue of the land that is paid the owner for the right to exploit the natural forces of the soil.

If

"Rent can again be defined as that part of the returns from the land which corresponds to the productive power of the land. you subtract from the product of the land the interest of the capital and the wages, the remainder will represent the rent. Product equals Interest, plus Wages, plus Rent; hence, Rent equals Product minus Interest, minus Wages. Whence it follows that there will be rent as often as the value of the product surpasses the cost of production. A piece of land will bring in no rent, whenever the value of the product is absorbed by the cost of running the land.

"Rent, as it has been explained, may be called absolute rent. It exists independently of all comparison with lands possessing superior or inferior qualities. Relative rent is the special profit from the fertility of good lands, an advantage resulting from the superior quality of the lands and surpassing the medium or

the lowest rate of revenue from land." (Antoine, Cours d'économie sociale, p. 517.)

For illustration, take a farm of fifty acres. It produces something when labor and capital are put into it. The factors of production are land, labor, and capital. Here we have land, meaning the soil itself and the productivity of the soil. Several laborers are employed in working the land - this is the labor. A certain amount of money is invested in buying plows, harrows, spades, seed, fertilizer, etc.—this is the capital.

The three factors produce so many bushels of grain, of vegetables, of fruit, etc. This product may be estimated in money. It is worth $1000, $2000, $3000.

This money may be apportioned among the several factors. The labor is paid- this is wages. The capital must be paid for its use this is interest. Five hundred dollars may be the amount of the wages which goes to the labor factor. Two hundred dollars may be the amount of the interest which goes to the capital. What remains of the product is the result of the inherent and indestructible forces of the soil, the productivity of the soil. This is the rent. These inherent forces have been at work in producing the grain, the vegetables, the fruit, etc. They could not act without labor and capital. But with labor and capital they do produce, and the more skilled the labor and the more wisely directed the capital, the more effective will be these inherent forces of the soil, and the greater and more valuable will be the final product.

It may happen that the farmer who works a farm is also the landlord, the owner of the land. In that case the farmer may be conceived from two aspects, he is the farmer who invests his labor and his capital, and as such he receives his interest on his investment and his wages; and he is also the owner, and as such he receives the surplus over the expenses and interest, the rent. The principle is not affected, whether the farmer pays the rent to himself or to another.

The owner of the land has a right to the portion of the product called rent. He owns the land, and he owns it with all the in

herent forces contained in it. He owns the cause and he owns the effect. Res fructificat domino.

This principle applies to business lots, to mines, and to all natural agencies.

It is to be noticed that rent does not affect the price of agricultural products. The price of wheat, corn, oats, etc., is determined by the demand for these products. This price affects cultivation, and when it rises, it causes lands less fertile and less favorably situated to be brought under cultivation. The raised price permits these inferior lands to become rent-paying lands, and proportionately increases the returns, thus increasing the rent, of lands possessed of greater fertility. Rent is thus the result of increased demand for produce, which demand causes a rise in the price of the produce. Rent, therefore, is not the cause of the high prices of foodstuffs. Hence the accusation that the large rents received by landlords are the cause of the rise in prices of farm products is unjustifiable. cause of such a rise must be sought elsewhere.

Ricardo's Theory of Rent.

Ricardo's theory is founded on the law of diminishing returns. Land is limited in amount and in fertility. Every increase of labor and capital applied to land will increase the returns from the land, but after a certain period is reached, the returns will become gradually less proportionately to the outlay, until all profit will cease.

The various forces which lead up to rent are (1) an increase of population; (2) demand for more food; (3) more extensive cultivation of land, or more intensive cultivation of the same land, setting up a classification of land into different grades, according to the productivity of the different grades. When such a situation exists, rent comes into existence.

Lands are classified in different grades according to the net profit received from the product of the lands. Two strips of land although having the same area will vary in the returns.

This may arise, first, from the fact that differently paying articles are produced by the two lands, a tobacco crop, for example, paying more than a wheat crop.

It may arise, secondly, from the varying fertility of the two lands. States, counties, farms, differ in fertility. The factors which aid fertility, slope, exposure to sun, watershed, drainage, rainfall, constituents of soil, are not possessed equally by all lands. Hence, some lands will be classed as superior, others as inferior.

Thirdly, lands which are equally fertile will sum up different net returns according to the situation of the lands with regard to the markets. The expense of transportation must be taken into account, and the land farthest removed from the market and requiring a greater transportation cost for bringing its produce to market will be ranked inferior to another land which is more favorably situated and requires smaller transportation cost. That lands may be classed in different grades, as superior and inferior, must now be evident.

We saw before, in studying the price of commodities, that the price will be determined by the lowest or the highest cost of production, according to whether the commodity can or cannot be produced at the will of the producer. We saw that hammers, for example, would have their price determined by the lowest cost of production, because no limit need be fixed to the amount of hammers turned out. They may be manufactured at the will of the producer.

We saw also that the natural products, the cereals, wheat, corn, oats, rye, will have their price determined by the highest cost of production, because these products are fixed in amount at the end of the growing season and cannot be increased at the will of the producer.

The market price of the cereals, therefore, will be such a price as to cover the greatest cost of production, will be such a price as to enable the most inferior lands, which demand for food brings into cultivation, to reap a paying return. If such a price did not prevail, the inferior lands would not be cultivated, and the supply of foodstuffs would be diminished. The demand would raise the price of the diminished supply, and the inferior lands would be again cultivated and reap a profit.

The price of land products is, therefore, fixed by the highest cost of production. It is fixed by the poorest lands which the demand for such products brings under cultivation. It is the same for the whole country.

Now, let us suppose that we have four different parcels of land all under cultivation at the same time and producing for the same market. Equal amounts of capital and labor are expended on the several pieces of land. These farms bring in different net returns, owing to different degrees of fertility or different locations with respect to the market. The net returns for the several farms will be definite sums, differing one from another and rising from a minimum to a maximum.

The net returns must pay first of all the expenses of labor and capital, i.e. wages for the laborers and a reasonable interest on the invested capital. Whatever is over and above these expenses for labor and capital is called rent, and is the portion of the landlord or owner.

It may be possible that the most inferior farm, the poorest land, will bring in as net returns only just enough to pay the expenses of labor and capital. This land will be called rightly norent land. It is also called the margin of cultivation. It may be cultivated by the owner for the reason that it pays expenses to cultivate it. It furnishes interest on the capital invested perhaps equal to the interest to be derived from any other business investment. It may be leased by the owner for a nominal rent, in order that the farm may not be idle and the houses may be kept in repair.

All the farms above this poorest, no-rent land will bring in a certain amount of rent differing according to the degree of superiority of the lands. The rent in each case will be the excess of the net returns over what is required to pay wages and a reasonable interest.

From all the above may be derived the Law of Rent:

I. Rent arises out of the differences existing in the productiveness of different soils under cultivation at the same time for the purpose of supplying the same market.