Rent Cost Price
Edwin I.S. Harding
[An article -- moderately condensed -- "inspired
by the clear and very necessary criticism Mr. Oscar H. Geiger gives to
Mr. Emil C. Jorgensen's attitude regarding rent and prices which
appeared in Land and Freedom of September-October 1931.
Reprinted from Land and Freedom, March-April, 1932. Mr.
Harding lived in Toowong, Queensland, Australia]
It is certainly disappointing to find Mr. Jorgensen, who has
frequently distinguished himself by the boldness and clarity with
which he has corrected the so-called political economy of the schools
when it was clearly in error now himself having to be corrected for
condemning it when it was right.
But Mr. Jorgensen need not be overmuch chagrined for if he were not
above the average, no notice would have been attracted to his
utterance of a fallacy that, in the experience of the present writer,
has been held and defended by quite notable Single Taxers. The
statement that the evils of land monopoly are reflected in the prices
of goods that is that the payer of rent can recoup himself by adding
the rent he pays his landlord to the goods he produces even if true,
would tend to show that Henry George did not discover a tax that will
"stay put," and in that case our reform is worthless.
Business men will declare that they add rent to the other expenses
when they are fixing their prices. Very likely they do; but if they
do, they will have to reduce the price arrived at in this way, or be
When they perceive this contretemps they subtract sufficient from
their total to bring their prices down to the market level. They are
probably quite unconscious when doing so, that they are deducting the
item rent, which is probably the only item they could reduce and live.
That business men do recover rent they pay is true, but they recover
it from the advantages that give their site its rent not from price.
When confronted with this view, opponents have been known to advance
the supposition that though each rent payer may fail to add his rent
to the price of the goods he grows, manufactures or sells, yet, all
the rent paid in to community somehow gets into the price of the goods
sold in that community. This seems to leave the question whether Mr.
Jorgensen's supposition that it is because economists have forgotten
that there is a zero rent on the margin that leads them to think that
rent does not enter price.
If it was always remembered that wealth is the reward for producing,
and that the expenditure of labor and capital is the cost of
production, thinkers would be saved from falling into the error of
supposing that any part of the reward could add to the cost. All the
goods produced, with all the services rendered, in America in any one
year cost the people of that country exactly one year's work, or at
least those of them who did anything. The manner in which the goods
were divided among the producers would have no effect on cost.
Price must never be confounded with cost. Fundamentally the cost of
everything is so much labor. This post can never be lessened after the
goods are produced. The cost of future goods can be lessened by
progress. The cost of goods is vastly less now than when Henry George
penned Progress and Poverty, and every year sees it lessened.
But price is different and much less important. Price merely
distinguishes the different value of various commodities or services,
expressed in money. Money is either representative of a certain amount
of labor or of certain commodities that have cost a certain amount of
labor, or it has no backing at all, and can be increased at the will
of the issuing body. If more currency is issued than the volume and
velocity of trade can use, prices must rise, exceedingly little
currency can effect a huge amount of trade. If money-wages rise in
proportion to the rise in prices, little harm would be done. But that
is a big "if." There is no doubt that much of the high
prices that are supposed to be due to high thrift are really due to
either an overissue of currency or (what is much more probable) to a
falling off in the volume of business, while the amount of currency
remains as before. Price also distinguishes the value of labor
compared with other labor, and land compared with other land.
If gold can be got for half the labor that it costs at the margin, it
will not purchase any more goods on that account, but all the gold
over what labor and capital can produce at the margin will go as rent
to the owners of gold-land. Prices will not be affected. If gold
(being the standard of value) should become very scarce and hard to
get, prices would fall, but the income of the whole community would be
the same as before, in all goods except gold, and the cost of the
income would be very little more than when gold was cheap, i. e., when
it cost two weeks work per ounce.
It is possible for the cost of everything to become greater without
affecting prices if the cost of everything becomes equally greater. In
that case the community would be poorer to the extent of the greater
cost. If the cost of everything, owing to progress, was to fall in an
equal degree, price would not be affected, but to the extent that
progress lowered cost would the wealth or (voluntary) leisure of the
community be increased. The opposite happens when cost is increased,
as it sometimes is by adverse natural conditions, but much more
frequently and permanently by tariffs. Strictly speaking, tariffs do
not add to the cost of the articles on which they are imposed. A pair
of boots costs no more labor because a tariff increases the price. If
they cost a day's labor before the tariff raised the price, they can
be had for that amount of labor after, although it may cost as much
labor to earn the tax as to earn the boots; but in the one case the
worker is working for boots for himself, and in the other he is
working for the government, or perhaps for a "protected"
boot manufacturer, or in the end for the owners of land from which
boot materials are drawn, in which case it increases rent, hinders
trade, and lessens the amount of currency that can find employers.
When we are presented with tables that show that prices are higher at
one period than at another, we should inquire what relation the prices
bear to money-wages at each period; how much the prices are inflated
by tariffs, and, most of all, what proportion of the goods do those
who produce them have to give to land owners as rent.
Now, although rent does not add to price, land monopoly can, and
does, add greatly to cost. The unrestricted ownership of land enables
the owner, if he so chooses, to refrain from selling or letting it at
any price. If the price offering does not suit him he can go on "strike,"
a strike which is sure to be successful, and which costs him nothing,
while the land is either becoming more productive or the competition
of would-be land users compels them to come to his terms.
Land held out of use is, for practical purposes, non-existent, and
labor and capital can only select from what is left, which is often
inferior to what is locked up. Thus, the active factor in production
is not working where the natural advantages are greatest, but where
the cost of production is higher and the reward is correspondingly
lower. If all rent were collected by the state, and wisely used for
the common good, it would be unprofitable to hold land out of use, and
the whole area of the most productive land would become available to
labor and capital. From this cause alone there would be an enormous
increase of wealth, without anybody working any harder or longer or
more skillfully than at present.