SECTION CLIV.. Theory of Rent. (continued.)

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]

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.]