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 undersold.

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.