Rent: Its Essence and its Place
in the Distribution of Wealth

Thomas L. Brown

[Reprinted from The Arena, Vol.9, 1893, pp. 81-117]

The single tax men propose to solve the industrial problem by taxing ground rent or land values. It is my purpose in preparing this paper, first, to make plain the two meanings of the word value; and second, to show graphically what ground rent is, and how it operates in the distribution of the products of industry. After that it might be of interest to point out the relation of the rent collector to his rivals in the struggle for wealth, and to pursue some other considerations suggested at the close of the paper. If the discussion may seem intricate and even dull, I must paraphrase the dictum of the great Stagirite by declaring at the outset that, as there is no royal road to geometry, so there is no royal road to political economy. To bring order out of the chaos in which economic data and " standard " and newspaper economic doctrines now welter, one must lay bare the fundamental principles of the science; but when these are once grasped, the student of economics may console himself that he has found the thread that will lead him out of the labyrinth and the darkness into a broad place illumined by open day. Rhetoric may brighten the page of economic and socio- logical discussion when once the principles have been made plain ; but until this goal is reached, we must be content with sober prose.

The meaning of the phrase "land values" must first be fixed. The word value has been a prolific source of confusion in political economy. Economists gravely declare, for example, that the fire-water that destroys Poor Lo possesses value, while the sparkling waters of his native brook possess none; that the cigarette that enfeebles the body and brain of the schoolboy, or the opium that saps the manhood of the civilized adult, is also a thing of value; while pure air and sunshine, which are absolutely essential to human life, are destitute of this quality. What does this apparent nonsense mean?

Popular confusion here results from the failure to distinguish between intrinsic and extrinsic value. The intrinsic value of a thing is its power to contribute to individual or social well-being, material or spiritual, physical, intellectual, or moral. Thus air, water, sunshine, friends, peace of mind, hope of immortality, and the like, all have high value. They are absolutely priceless; yet ordinarily they will sell for nothing in the open market. On the other hand, a great work of art or literature, placed before men of gross tastes and indifferent powers of perception, will sell for a pittance entirely incommensurate with its power to ennoble man and "avail for life."

Other commodities, again, will sell in the market for a price corresponding more closely with their powers to satisfy normal wants and to advance human welfare; such are food, clothing, tools, etc., whose utilities are generally recognized.

Still other articles, possessing little utility or none what- ever, may sell at a high rate ; as narcotics, alcoholic stimulants, vile literature, obscene representations, and the like. In short, true wealth may possess no value, while "illth" may yield its owner a rich return in cash.

Intrinsic and extrinsic value, then, may be thus distinguished: the intrinsic value of a thing, or its worth, is its power, appreciated or unappreciated, to "avail for life," to upbuild, to enlarge, to satisfy rational wants, and to enable man to fulfill his destiny. The extrinsic value of a thing, on the other hand, is nothing more nor less than its power to exchange for other things - commodities or money. This "value of a thing is just as much as it will bring." While the worth of Paradise Lost may surpass that of the mines of Golconda or Colorado, the original value of this work of genius was, as I remember, some ten pounds or less; and while His worth to the race is beyond all computation, the value of the Man of Nazareth was thirty pieces of silver. Intrinsic value or worth is the good, actual or potential, in the thing; extrinsic value, or, in economic parlance, "value" simply - base prostitution of a noble word! - is what one can get out of it in cash or truck.

An important distinction exists between actual and assumed worth. A soil assumed to possess but slight worth may cover a gold mine; and a human mind, apparently of mediocre or inferior order, may unfold until the world is dazzled by its brilliancy or stirred by its profundity. In each of these cases, the actual worth of the thing infinitely surpasses its assumed, recognized, or estimated worth. The following grouping of terms may prevent confusion of thought : -

Value : -

1. Real (i. e., worth).

a. Actual or potential. b. Assumed or estimated.

2. Market or exchange.

Where the terms are used without modification, value will mean market or exchange value, and worth will mean assumed or estimated worth.

Wealth is a product of labor, or of labor and capital, applied to natural agents, i. e., to land. True wealth, as distinguished from "illth," always possesses actual or potential worth. Whether or not it possesses value depends, first, upon whether or not men recognize this worth; and second, upon whether or not .they are able freely to steal it. Wealth, recognized as such and placed beyond the reach of thieves, will always possess more or less value. The test must always be, Can it be exchanged? A mother's picture, for example, while a product of labor applied to natural agents, and possessing high worth to an appreciative son, may be exchangeable for nothing and hence will possess no value. By observing these distinctions we may be able to get on.

Does land possess either worth or value? By land we mean, in political economy, the planet upon which we live, minus all human embellishments. It includes mountains, valleys, and plains; the minerals, gases, and oils that lie within earth's bosom, and the oceans, seas, rivers and other waters that surround its bulk or dot its surface or irrigate its forests and fields. Surely if land lacks worth, then nothing else can possess it; land, thus viewed, is absolutely essential to human existence. Without it man were a ghost.

Has land value as well as worth? This question one may answer for himself by trying to get some or the use of some, or by seeking to live at all in society. The fact that he is charged for it or for its use proves that land has value. This is true not only of the dry land surface of the earth, but, to a considerable extent, of the water also. The navigation of the ocean and of most rivers is nominally free; yet that often it is not actually so is shown by the fact that one is charged for the privilege of sailing from or to a wharf. Wharfage is practically a charge for the use of the water, and so resembles ground rent which, as we shall see, is a charge for the use of dry land.

Whence comes the value of land, considered independently of the worth of land? For the sake of simplicity, consider the origin and growth of a new community. A band of immigrant families migrate to the west, select an eligible site for a home, and prepare to settle down upon the basis of common property in land. They must first pay say $1.25 per acre to the United States government for a title. Land in the wilderness, before the approach of man, is thus seen to have a small value. As the charge is levied independently of the relative worth of wild lands, it may be regarded as in part the payment for a title securing to its holders undisturbed possession, but chiefly as a solvent of government monopoly. Uncle Sam claims the land as his private property, and the immigrants must pay him a considerable part of their $1.25 per acre to induce him to relax his grasp.

Let the several families invest equal amounts for the purchase of a tract of several thousand acres of land. The land will now be the joint property of the community, and the families will enjoy equal rights to its use. Part of the land is rich prairie soil, part heavily wooded, but both prairie and forest are well watered and fruitful. Part of the land, again, is sandy, rocky, alkaline, hilly, studded with cactus or sage-brush, and cut by gullies and canons. Manifestly this land, independently of any outlay of labor and capital by man, varies greatly in worth; and common fairness will demand that he who enjoys special privileges in the use of the land shall pay according to his privilege.

Instead of scattering themselves over their estate, each family separated from its nearest neighbor by a mile or more, let them decide to build their houses together, after the primitive German fashion, in a little hamlet. They will now lay out a town of liberal proportions. Each householder will possess his farm in the country and his lot in town, upon which he will soon erect his dwelling.

Now, though this town may be laid out upon a table land of exactly uniform natural quality, the fact that a closely- settled community is to occupy it will cause the different sites, even from the first, to vary somewhat in worth; the corner lots being more desirable than other lots on the same square, and lots near the centres of activity being more desirable than those at the outskirts. This is obvious in a city, and is due to the fact that more business can be done on streets and corners where many people pass than where but few pass. While, again, the outskirts possess some advantages for residential purposes, these advantages are partly offset by the labor entailed and the time consumed in travelling between one's home and place of business.

Let us now indicate by a diagram * the different worths of the soils or rural lands and of the sites or urban lands in this community, as these degrees of worth are recognized or assumed by the settlers. It cannot be said that these degrees of worth are due to the outlay of labor or capital or both upon the land; for the mere fact that this area will be entered upon and disposed in the manner indicated will cause these grades of worth to exist.

Let the squares at the base of the diagram indicate either rural soils of equal area or urban sites of equal area; bearing in mind the fact that a bare lot in town may easily be worth an unimproved farm in the country. For convenience of illustration, let these soils and sites be arranged in the order of their worths; an ideal arrangement roughly corresponding to the actual, since the land possessing most worth is in the heart of the city, while that of least practical worth is at the outskirts, and so the farthest removed from markets, and thus affording to its occupant the minimum of advantage from association and cooperation.

Grade I. will now represent the choice corner lots in the centre of the village, or the extra-rich soils that lie on the border between the town and country lands. Grade II. will represent soils or sites capable of yielding a less annual return in wealth, whether in crop or the products of trade; and so on down to Grade XII., which may represent the most rocky, sandy, gully-cut and cactus-overgrown area of rural land at the farthest confines of the settlement. Aside from its slight utility as pasture land, such land may be regarded as, at present, almost destitute of worth. Whether or not it possesses value remains to be seen. Grade XII., were it utilized, is capable of yielding an annual return indicated by the vertical line XII. 1. Let this line now represent the unit of wealth or worth. Grade XI., subjected to an equal outlay of labor and capital, will yield XI. 2, or two unite of wealth. And similarly, with an exactly equal outlay of labor and capital upon any one of the twelve grades of land, Grade X. will yield three units, Grade IX. four units, and so on to Grade I., which will yield twelve units.

But as our community is small, let the first four grades of land satisfy, for the present, all its requirements. Grade IV., which under the assumed conditions of equal outlay of labor and capital yields nine units, is the worst land in use. The poorest lands, which for the present are discarded, will remain in the possession of the community, to be drawn upon at pleasure.

The user of land of Grade IV. will now be able to derive from it nine units of wealth; but as he occupies the poorest used land in the community, he will enjoy no landed privilege of which he can dispose to another. His land, therefore, will possess no value. But Grade III., under the assumed conditions, will yield ten units of wealth; its occupant, therefore, will enjoy an advantage over the occupant of Grade IV. equal to one unit - an advantage that can be sold. Land of Grade III. will therefore possess an annual value of one unit. Since Grade IV. is the poorest land to which the needs of society compel men to resort, and since Grade III. is one unit better, this annual advantage of III. over IV. is termed economic rent.

Grade II. is two units better than Grade IV. It therefore yields an annual value and an economic rent of two units; and, similarly, Grade I. yields three units of annual value and economic rent. The annual values and economic rent of these four grades of land are, therefore, for Grade IV., zero; for Grade III., one unit, an amount represented by the vertical line b, 10 ; for Grade II., two units, an amount represented by the line c, 11; and for Grade I., three units, indicated by the line d, 12. These annual values or economic rents being collected by the community, the occupants of the four grades of land stand exactly upon a level so far as landed privilege is concerned; each pays to the community the full value of any privilege he might otherwise enjoy, and each soil or site is tvorth to its occupant nine units of wealth. We are now ready for a definition of economic rent : -

Economic rent is that value or excess of wealth which a, given outlay of labor and capital can produce from a soil or site above the wealth which an equal outlay of labor and capital can produce from the worst soil or site to which the needs of society compel men to resort.

Whether this economic rent is paid to a present or an absent landlord, or to the community, or is retained by the individual owner of the more desirable land, makes no difference so far as the fact and the purposes of definition are concerned. The economic rent is the excess produced under the conditions given, and represents an unearned advantage. Since, waiving governmental or other monopoly, laud, however well situated, has no value until men appear to contend for it, this economic rent represents a value that before had no existence, and is, therefore, sometimes called "unearned increment in land value."

Now let a railroad approach within some miles of this community, thus affording better market facilities and better communication with the outside world. The result will be to increase the worth of all the soils and sites in the community, since more can now be realized from the land with the same outlay of labor and capital.

Next let the community build a church, a schoolhouse, or a public library, and engage in other civic improvements. The result will be another increase in land worth, this time by social activity. Again, let an individual engage in considerable improvements in his business facilities, enlarging his store, increasing and improving his stock, and beautifying and adorning his grounds. Aside from the increased wealth which he adds to his own estate by his increased outlay of labor and capital, and the enhanced improvement value that thereby accrues to him, he increases, also, the land worth of the community generally, since he renders it a more desirable place in which to live.

Thus in three ways are land worths in the community enhanced, aside from the increment in worth which a soil or site receives from the activity of its owner or occupier; first, by productive activity exercised outside the community; second, by social, and third, by individual productive activity exercised within the community.

Now such an increase in land worth will not be uniform throughout the community; for lands lying near the improvements will enjoy more of such increase than will lands lying more remote. Assume the increase to be at least one unit on each grade, and two units on the favored grade, for example, Grade II. Now the worst grade, IV., may be abandoned; and if - assuming Grade II. to be relatively abundant - the excess on this grade be sufficient to make good all loss sustained by abandoning grade IV. - which we may assume to be relatively scarce - the community may rise to Grade III., which will now be the worst land in use. The rent line now rises from 9, d to 10 / A, and the" reward of each average producer has increased from nine units to ten. Economic rent is represented by the vertical lines 10, 11; B, 13, and A, 13.

Plainly, then, the land of the community has received an unearned increment in worth represented by the lines 9, 10; 10, 11; 11, 13, and 12, 13 - unearned, i. e., by the individuals using the different giades, and, in at least one case, unearned by the community itself or by any of its members. Land values, however, have risen only by the amount indicated by the vertical line 12, 13' on Grade II., and ther rent roll has been correspondingly swelled.

But if other communities have not been similarly improved in the meantime, it is possible for land values in our community to rise and swallow up the increase in land worth, thrusting back the rent line to its former position.

For example, let a company of new immigrants, having free access elsewhere to land that will yield annually, under the originally assumed conditions, nine units of wealth - as much, i. e., as Grade IV. would yield before the improvements had been made - apply now to this community for the privilege of using land of Grade IV., which now yields ten units. On this "no-rent land" they will be charged a rent of one unit. Why? Because nine units is the most they can obtain elsewhere ; and hence, if they choose to remain, nine units must satisfy them here. They may receive it, if they like, on any of the grades in use - for which they will be charged all over nine units as rent; or they may move upon Grade V., which now becomes no-rent land. This some of them will do, while some of them may prefer to occupy the better grades of land, and pay rent. The immigrant's reward in each case is the same ; it is determined by his necessity; while the land owners' return is determined by their opportunity. But since the' worst land in the community which some must use fixes the rent line for the whole community, this line now drops back from 10 A to 9 d. The increase in land worth has been wholly swallowed up by the increase in land values.

Observing now that the tide of immigration has set their way and that, by pulling down the rent line for newcomers, this immigration is lowering it for the original settlers themselves, let the "first families" agree to abandon the "barbarous system" of equal rights to land and common ownership of rent; and adopt, instead, upon some basis acceptable to themselves, the "civilized system" of private property in land. The "first families" now become the exclusive proprietors of the land - a landed aristocracy. All new comers must now either rent or buy, in each case paying according to the advantage secured, and thus leaving to the propertied class their exclusive privileges, since the money received in payment for land can be made to return in interest the full equivalent of all that is sacrificed in rent; otherwise the land owner will not sell. From this point on, society differentiates itself more and more sharply into the classes who live by laboring and the classes who live by collecting tolls from those who labor. As the rent line falls, land owners fatten while producers grow lean.

Now let other immigrants arrive, and landless children - younger sons - be born into the society. The first five grades will no longer satisfy the requirements of the society, hence poorer lands must be resorted to. Grade VI. will next be occupied. If equally desirable land can be had outside the society, Grade VI. will pay no rent, and the rent line will stand at 8' e. Let another wave of immigration pour in, and some must resort to Grade VII., whose annual worth - represented by the line VII. 7 - is seven units. The fact that the immigrants wish to stay under such conditions is evidence that better facilities outside no longer remain. The owners of Grade VI. can now demand a rent of one unit, represented by the line 7, 8; and the rents on Grades V., IV., III., II., and I. are increased by one unit in each case; i. e., the rent line has dropped from 8 e to 7 i. Whereas producers retained eight units after paying rent, they now retain seven. Producers are worse off and rent collectors are better off. Improvements in production may increase the annual return from the lands already in use, and so check temporarily the descent to worse and worse lands ; but the law of diminishing or non-proportionate returns from land forbids that this check shall serve otherwise than temporarily. Doubling the dose of labor and capital may double the annual return from land once or twice, but not continuously. If population increases and better lands outside be not available, producers must resort to worse soils and sites, and so lower the economic rent line.

From causes similar to those already given, the unearned increment in land worth may continue to accumulate, and will if the community be progressive. Suppose, for example, the railroad that has approached the town now sends a branch into the town. The worth of all land in the community now increases, since a society in direct communication with the outside world is for every reason more eligible as a home and place of business than is a community comparatively isolated. Yet if free land outside be not correspondingly enhanced in worth at the same time, the rent line in our community will not rise and so leave more beneath for renters. Why? Because there is no force operating to crowd it up. The renter's opportunity is determined by the character of the free land outside, so long as any remains. Increased land worth will be transmuted into increased land value and go to the land owners as rent.

Thus every public or private improvement that tends to make the community more habitable and attractive - provided, as rarely occurs, that free opportunities outside are not correspondingly improved - is charged up to rent. For example, let an electric railway be run into a rural suburb, too remote, hitherto, for residential purposes, and too rocky and barren for agricultural purposes, and represented, say, by Grade X. The worth of this land may suddenly leap almost to the level of the best residential land in the city, and its annual yield in wealth may rise from four units to perhaps ten units. Whereas, hitherto, it lay far below the rent line, it now, as if by magic, is made to yield three units in rent. Any advantage that either the community or occupant might have received, the land owner pockets. Cases of which this will serve as a type may be cited from almost any city in the United States. Great are u enterprise" an "public spirit " - for the land speculator!

Another force, not sufficiently conspicuous, hitherto, to demand attention, now manifests itself; and, despite the actual or prospective increased worth of the land, causes the rent line actually to fall. This force is speculation. The very fact that a railroad, an electric line, or other considerable improvement is coming, fires the land owners bosoms with hope of unearned increment. They see in advance that their power to collect rent will enable them to gather in the bulk of the harvest resulting from the improvement. Imagination, moreover, pictures therefrom not only greater gains than may rationally be expected, but also other gains from still other improvements that exist only in imagination. Lest any portion of these rewards shall be forfeited by selling or letting lands at too low a rate, land owners will now demand so much for their lands as to enable them not only to garner in all the new unearned increment, but considerably more. In other words, they will crowd the rent line still lower, and so not only deprive the landless of all the benefits of the improvements, but leave them actually worse off than they would have been had the improvements not been made.

A new rent line now appears upon the chart to indicate the new and wholly needless exaction. This line, which may leave the economic rent line far behind - so far, in fact, as to induce a commercial panic - is the speculative rent line, indicated by 5 n. Renters who have been permitted to retain seven units after paying their rent (i. e., economic rent and unearned increment in land wealth winch has been transmuted into land values) will now be required to pay, in addition to their former rents, two units more in speculative rent. They will therefore retain five units of their product, regardless of whether they work on Grade IX. or on any one of the better grades. The depth to which the speculative rent line can be pushed depends largely upon the degree of excitement attending the boom" and the extent to which non-land owners may be deluded in their hope of gaining by the coming improvements.

Speculative rent, then, may be defined as that excess of wealth, less economic rent and less other unearned increment in land value, which a given outlay of labor and capital can produce from the worst land to which the greed of the land speculator compels men to resort.

Speculative rent differs* from economic rent in that the economic rent line is fixed by social need, while the speculative rent line is fixed by the landlords' greed.

The speculative rent line is necessarily a fluctuating line. When the land owners find that their boom has burst and that they have precipitated a panic, paralyzed industry, and thus diminished the amount of labor products, they will be compelled to take less in rent; both because of the diminished productiveness of industry in general, and because of the necessity of permitting the rent line to rise until industry can recover. This done, business will begin at length to "look up"; but so will the landlords. As a result the rent line will begin again to glide gently downward until, perhaps, another panic has been precipitated.

In a growing community the speculative rent line will always lie well below the economic rent line, and so increase the tribute which producers must pay to land owners for the privilege of living and producing.

Note next the influence of industrial competition upon rents.

With the speculative rent line standing, say, at 5 n, freely-competing business men, stung by the consciousness of undeserved losses, will be goaded on to regain their lost position. That he may gain an advantage over his com- petitors and catch more trade, one will undersell; but soon his rivals will follow suit, and no one of them will have gained an advantage. Now the process will be repeated, to the brief, temporary gain of those who led, but soon to the cost of all; for when all have cut in equal ratio, all will stand once more upon a level, but upon a level that has sunk. All are worse off than before the first cut; yet, since no one of them dares to lead in raising prices, the lost ground cannot well be regained.

To enable himself to endure the loss he has incurred by cutting prices, one of the employers of labor will cut wages; but his example will shortly be followed by his competitors, with the result that no one now enjoys an advantage over another from reduced wage payments; while any absolute gain that all may enjoy from this cause is soon swallowed up by another cut in prices. But note that this reduction in wages reacts upon employers; for as employees constitute a vast majority of the population, their trade is an important factor in the general market for goods, and cutting wages simply means for employers a narrowing of market and, in consequence, an increased competition for trade - a competition that leads to still further cuts in prices and wages, and consequent narrowing of market.

Since from these causes business is becoming less profitable, employers are led to discharge some of their workmen. These, in order to regain a footing in the industrial order, will offer to work for less wages than are paid to those still employed. This leads to still further reduction in wages, the initiative coming this time not from employers, but from the workmen themselves; and the all-round cut in wages means an all-round reduction in the market for goods, with intensified competition for trade and for work. Thus, as in all cases of morbid action, effect becomes cause and tends to perpetuate itself indefinitely.

While these successive reductions in prices and wages are compassing the ruin of both freely-competing employers and workmen, who are gaining thereby? Manifestly, those who possess the means with which to buy the cheapened goods and labor; and among these "effectual demanders" the landlord is conspicuous. The proceeds of his rent roll enable him to buy more labor and more labor products; while, conversely, employers and employed, though rendering exactly the same kind, quality, and quantity of services, receive less reward. What is the meaning of this but the payment of more rent to the landlord (albeit a part of the producers loss is the gain of other [unreadable] … Poorer lands, it is true, may not now be resorted to. Hard times discourage enterprise and curtail investments; but the rent line will have fallen, nevertheless. Say it has fallen one unit; then it will stand at 4, u, and, while Grade X. may still lie unused, the effects upon industry will be the same as though it stood at 4 u. The rent line this time has not been dragged down by the necessary resort to poorer lands; neither has it been thrust down from above by land speculators. By competition producers have pulled it down upon their own heads, and thus established the competitive rent line - a line that tends constantly to coincide with the speculative rent line.

Competitive rent, then, is the gratuity which freely-competing, non-privileged producers donate to landlords - as well as to other privileged classes - in the futile attempt to undersell and underbid each other.

This rent will probably continue to be paid until producers learn experimentally that the industrial circle cannot be squared. Labor organizations and business combinations prove that producers are coming slowly to see the point. Obviously what they save comes chiefly out of the tribute levied upon the workers by the "non-producing, much-consuming aristocracy" in general; and thus we may see how the higher wages extorted from employers by organized labor may cost employers nothing after all, despite the deductions of the Manchester school. So long as employers and workmen perform necessary social functions, they must be subsisted, though at the cost of toll collectors.

Whether or not there may be still other rents than those here discussed; how it is possible that men not land owners should grow rich - as some do; why rent, and if so what rents, should be socialized; what effect the socialization of economic rent simply, or of ground rent entire, would exert upon the solution of the industrial problem; and whether, with landed opportunities leveled by scooping off ground rent and commuting therewith all taxes, direct and indirect, the motto, "Liberty and Laissez faire" is a true one, further space than I can now command would be required to show.