The Theory of Distribution
Francis Y. Edgeworth
[Reprinted from the Quarterly Journal of
Economics, Vol. 18, 1904, pp. 159-219]
At the height of abstraction from which it is here attempted to
survey the economic world, what appears the most salient feature in
the transactions respecting land is the circumstance that the quantity
of ground, or at least space,(55*) is limited, not capable of being
increased by human effort. From this property flow most of the general
theories relating to the landlord's share in distribution, -- that a
tax on rent (proper) falls wholly on the land, that the remission of
agricultural rent by landlords would not benefit the consumer,(56*)
and other propositions often connected with the formula that "rent
does not enter into the cost of production." Some remarks on that
time-honored formula seem called for here.
It would not be consistent to have complained of the expression that "the
entrepreneur makes no gain" as perplexing and apt to mislead,
however innocently used by high authorities, and to pass over in
silence this dictum about rent, against which and in favor of which
much the same is to be said. Certainly, it is supported by very high
authority, -- the authority not only of Ricardo and Professor
Marshall, but also of Hume, who in the letter which he wrote to Adam
Smith on the publication of The Wealth of Nations (the letter
which, written a few month before Hume's death, may be considered his
economic testament) says, "I cannot think that the rent of farms
makes any part of the price of the produce, but that the price is
determined altogether by the quantity and the demand." (57*) On
the other hand, it can hardly be denied that the dictum in question is
calculated to obscure the truth that "land is but a particular
form of capital from the point of view of the individual manufacturer
or cultivator;"(58*) that, as he doses land with capital and
labor, so he doses capital and labor with land,(59*) up to a margin of
profitableness. And, in fact, the similarity of the factors of
production from the entrepreneur's point of view does not seem to have
been apprehended in all its generality by the classical writers. Thus
Fawcett, who may be taken as a type, when explaining rent seems to
posit the size of the farm as something fixed and constant.(60*)
J.S. Mill argues that "there is always some agricultural capital
which pays no rent," (61*) not noticing the counter-argument that
there is a portion of land which pays no interest.(62*)
These imperfections belong now, it may be hoped, to past history. And
yet that the description of rent as not entering into price is apt to
prove misleading may be inferred from the many protests which eminent
critics have raised against Professor Marshall's use of the
time-honored phrase.(63*) Their criticisms attest the correctness of
their own views rather than their capacity of appreciating the views
of others. What should we say of critics who should think fit to read
Mill a lecture on the errors of the Mercantile system, because Mill
had employed the terms "favourable and unfavourable"
exchanges! To have attributed to Professor Marshall the very error
which he by his doctrine of the "Margin-of-building" has
done more than any other economist to obviate would be unpardonable if
it were not excused by the misleading associations of an unfortunate
phrase.
To return to the real, from the seeming, import of the phrase, we see
that, as the offer of land is in general attended with no real cost, a
tax upon the payment for land does not disturb production.(64*) On
grounds of distribution, too, a sort of income which increases without
any effort on the part of the recipient is prima facie a suitable
object for a specially heavy impost. On these grounds Mill's proposal
to tax away the future unearned increment of rent is defensible, if
accompanied with Mill's proviso, that existing interests should not be
disturbed. For, as argued elsewhere,(65*) a special tax on existing
incomes from land would violate the two principal conditions of a good
tax: it would both tend to diminish the amount of production, and also
to impair the equality in the distribution of burdens between the
owners of incomes derived from land and from other kinds of property.
The practical importance of Mill's proposal is greatly reduced by the
proviso with which it is accompanied. For, in order that the State may
make a good bargain by giving the market price for a certain class of
future goods, the State must be able to look further ahead -- must
exercise the telescopic faculty of prospectiveness in a higher degree
-- than the ordinary capitalist. And it may well be doubted whether
this condition is fulfilled by the politicians who act on behalf of
the State. We hear much of instances, like that of Chicago, where the
value of sites is said to have multiplied some eighty-fold in half a
century; but we hear little of proposals to buy up at their present
market value the site of some future Chicago, unless, indeed, as part
of a scheme for Land Nationalisation, which does not include
compensation to vested interests. Unlike the husbandman, who plants
trees the fruit of which he will not himself see, the advocates of a
single tax and other socialist agitators grasp at the standing crop
which has been sown by others, heedless whether cultivation in the
future is thereby discouraged.
But, even if their outlook were as distant as it is bounded, there
would remain the possibility that, though looking far ahead, they
might not discern distant objects clearly. Mill cannot be accused of
the shortsightedness which sacrifices the future to the present. He
looked very far ahead. But he did not see what was coming, the fall of
English rents. Actuated by the highest motives, he proposed an
arrangement which was perfectly just to the landlords, and would have
proved perfectly disastrous to the State.
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