Land as a Factor of Production:
Rent as a Return to Land
Scott Nearing, Ph.D.
[Excerpted from the book, Income: An Examination
of the Returns for Services Rendered and From Property Owned in the
United States, published in 1915 by the Macmillan Company, New
During the time when men lived a true hand-to-mouth existence,
depending wholly upon the natural supply of food and shelter, there
was an immediate relation between the effort that a man expended and
the income that he secured in return for that effort.
A society which depended primarily upon agriculture for its food
supply experienced a like relation between effort and income. So long
as there was plenty of uncultivated land, the man of energy and thrift
could secure a piece of it for himself, and by dint of hard work and
care, he could obtain a living for his family in fairly direct
proportion to the amount of work which he was willing to do. When all
of the desirable pieces of Mother Earth are taken into individual
possession, the direct relation between effort and income gives place
to an indirect relation in which land ownership becomes a source of
income, irrespective of any effort expended upon it. Land scarcity
enables the man who owns a piece of it to exact a rent from the man
who wishes to use it. Rent can exist only where the amount of
desirable land is limited. If land were as abundant as air and
sunshine, the landlord might wait to eternity before his land would
yield him a penny.
The entrance of landlordism does two things. On the one hand, it
enables the landlord or owner of land, to secure income without the
expenditure of effort.1 On the other hand, it compels the tenant to
forego that part of the product of his effort which he turns over to
the landlord in the form of rent.
Wherever a close connection exists between effort and income, a
strong incentive is furnished for the expenditure of effort. If a man
can see plainly that his work will bring an immediate return, and a
return in proportion to the amount of work which he does, he will be
stimulated to work hard for long hours and to employ his best
II. Money as Income
Money cannot be eaten, or worn, or enjoyed in any conceivable way
except by the miser who loves the clink of coins; yet modern income is
universally measured in money terms. Before a man can secure his meat,
vegetables, or clothing, he must sell something which he possesses
(that something is usually his labor), in exchange for which he
receives a money wage that may in turn be given for the things which
While income was received in the form of potatoes, apples, and fatted
calves, it was very easy to see the sources from which income came.
There were few complexities in such a system of economics. The man
labored; he received a return in proportion to his labor. Whatever the
character of his income, the source from which it was derived could
not be questioned.
The complex, highly specialized system of industry which modern
society has evolved makes the analysis of the sources of income a
Irrespective of the source of the funds, the capitalist demands
and receives interest on his investment. The superintendent and the
laborers for their services demand salaries and wages. They have
invested in the enterprise the nerve, energy, and muscular tissue
necessary to carry it to completion. Their return is a return for days
This illustration, though simple, typifies the means by which income
is secured and paid in modern industrial society. As a matter of
practice, the land owner usually buys the natural resource with a
knowledge of its economic value. He secures his capital from a
financial institution -- a bank, trust company, or insurance company
-- which lends out money deposited with it by numerous small
investors. Operations are begun by well-established concerns which
have perfected the mechanism of production. ...
IV. The Productive Processes and Economic Wealth
All production is carried forward upon the resources of nature, by
labor, with the aid of capital.
Every product of industry owes its origin to natural resources. The
fields, the mountains, the water -- some natural agent, was the
starting point for each material good, on its way through the
intricacies of the industrial system. Food, clothing, wealth in all
its forms is derived originally from nature.
These natural resources are converted by labor with the aid of tools
and machines into forms that satisfy the wants of the community. A
brick is no farther economically from the clay bank, a chair is no
farther economically from the forest, a steel rail is no farther
economically from the ore bed than a ton of coal is from the vein in
which it originally lay. The forces of nature working through the ages
have created things which mankind needs. Human effort expended on
these products of nature converts them into forms that are usable. The
processes involved in this conversion are the processes of production.
Out of those processes of the production of wealth, value arises.
There are many popular fallacies which must be overcome before men
fully understand this relation. There is still a suspicion lurking in
the minds of the community that money breeds money; that wealth can be
created by some alchemy through the putting of pen to paper. People
feel, in a hazy, indistinct manner, that there are ways, and known
ways, in which values can be generated as acetylene gas is generated,
by the combustion of some potent element.
...All usable wealth, no matter what its form, owes its value in the
beginning to nature's gifts, and after that to the processes of
V. The Monopoly Power of Ownership
The value of coal properties and of coal lies in this fact, -- that
the owner of the coal properties demands and receives a rent for
ownership alone. That is, he can say to all mankind -- "Pay me
what I demand or let the coal stay in the ground." If he fixes
his demand at a point where the coal can be used profitably, he
receives the rent demanded, the coal is marketed, and the rent, be it
large or small, becomes a fixed charge on the production of the coal.
This rent charge exists because the monopoly power which the title to
coal lands gives the land owner enables him to fix a price and to
receive a return for his ownership.
The monopoly power which land ownership gives is apparent. The acre
of wheat land in Dakota is valuable. Why? Because the number of acres
of equally fertile land is less than enough to go around. Timber land
is increasing in value with great rapidity. Why? Because the timber
supply of the United States is being used up faster than it is
growing. Warm breezes, rain, and sunshine are free to all without the
payment of any return. Why? Because there is a sufficient supply of
them to go around. Spring rain and sunshine participate in the
production of wheat equally with soil fertility. The fertile soil
possesses rent value because it is so limited in amount that there is
not enough for all. Air and sunshine possess no rent value because
they are so limitless in amount that after each one has secured his
share an abundant surplus remains.
Should productivity or monopoly power be regarded as the chief reason
for the payment of a return to land for its participation in
production? If productivity is the answer, then unless the actual
producing power of the land increases in bushels per acre, or tons per
square mile, it should receive no increased return. If, on the other
hand, monopoly power is the source of the values which the land owner
receives from the productive process, then an increase in population
and an increase in the wants of people, irrespective of the
productivity of the land, should increase the share which the landlord
receives out of the products of industry. This latter hypothesis fits
the facts exactly. The more people there are on a given area, the
higher the civilization, and the more wants the people have, the
higher will be the value of natural resources, and the greater will be
the share which the owner of them receives, provided always that they
are limited in extent and may be monopolized under the laws of private
property. Rivers and harbors receive no share in distribution. Air and
sunlight receive no share in distribution. Neither is subject to
private property. Coal lands, timber lands, city land, agricultural
land, -- all of these forms of resources, which are the subject of
private-property law, show increased values, and pay increased rent
charges with the development of society and the increase of
The matter may be looked at from a somewhat different angle. Here is
a ton of iron ore, and there a gram of radium. The iron ore is worth a
few dollars; the radium is worth thousands. What is the cause of the
difference in value? Nothing more than the scarcity of one as compared
with the scarcity of the other. The gram of radium has not assisted in
production any more than the ton of iron ore has assisted in
production. Iron ore is more plentiful than radium, however; therefore
the owner of the radium, because he possesses a thing which is very
scarce and in great demand, may exact a high monopoly price for his
product. Natural resources share in the values created in productive
processes only when they are subject to the monopoly of private
property ownership, and only in proportion to the power of that
VI. The Monopoly Principle Applied to Capital
Capital, like land, is necessary to production. In the form of tools,
it participates in the productive processes. In the form of money and
credit, it likewise participates in the activities of industry.
The capitalist, by transferring credit at the bank, provided for the
erection of the coal breaker. He did not erect the breaker himself; he
merely gave into the hands of another a sufficient amount of
purchasing power to enable him to hire the labor and buy the materials
out of which the breaker was to be made. Nevertheless, the capitalist
expected to receive, in return for the use of his credit a share in
the products of industry.
The coal breaker standing alone could never produce anything. The
production of coal presupposes the activity of labor. In one sense,
therefore, the breaker is not productive. On the other hand, the
presence of the breaker greatly facilitates the mining and marketing
of the coal; that is, the breaker is an aid in production. The
capitalist did not erect the breaker, however. He merely owned the
power to erect a breaker, and by giving directions that bank credit be
transferred and a breaker be erected, he secured that result. On what
grounds does the capitalist take a share of the values created in the
coal? Merely because the amount of capital in the community is
limited, and because the ownership of capital gives the owner the
right to exact a return for his ownership. The capitalist, like the
landlord, receives a share in the products of industry. He receives a
share because he owns capital. His share, moreover, is in direct
proportion to the scarcity of capital in the relation to the demand
for it. The monopoly power of ownership, and not productivity,
determines that the capitalist shall receive a share of the values
created in industry.
VII. Labor Monopoly as a Determiner of Wages
Labor is necessary to production. Labor supplies the motive force
which animates industrial activity. Labor is the energizing and
directing influence in the productive processes. Used as a term
covering all forms, of productive effort, labor is the life force of
the productive system. The landlord and the capitalist shared in the
products of industry because of their ownership of land and capital;
labor shares in the products of industry because it is expending
energy on the industrial processes. Thus rent and interest appear to
be a return for the ownership of wealth, while salaries and wages are
a return for the expenditure of energy.
The amount received by labor for its share in production, like the
amount of rent and of interest, is determined by the extent of its
monopoly power, or by its scarcity. The unskilled laborer in a section
of the country where labor is very scarce receives a given wage.
There was no price on the land save a nominal one, and the
tools which a man used were very frequently the product of his own
handiwork. Land values and capital values were alike inconsequential.
The basis for the increase in property incomes lies first, in the
increasing demand for land; second, in the increased amount of
income-yielding property. Both factors are constantly operating in a
growing, progressive society.
The increase of land values is inevitable in the United States. The
total amount of land is limited. Each increase in the population of
the country makes a greater demand for land. Each progressive advance
in civilization which leads to new uses for the products of land,
makes a greater demand for land. Step by step, the people of the
United States are moving forward and upward along the path of
The inexorable character of this increase in land, values becomes
more evident if selected areas of land are considered.
choice portions of the land of the United States are rising in value.
Each year adds to the power which their owners have over community
The second basis for increasing property incomes lies in the growing
value of income-yielding property. The value of property in the United
States is growing much more rapidly than the population.
... [Y]ear in and year out, through adversity and prosperity alike,
interest is paid to bond holders. Exactly the same thing is true of
the rent of land. In good years and bad years the tenants must pay the
same amount. Certain forms of property income thus continue inviolate,
while service income and the opportunity to earn income are dependent
on the caprice of industry.
The bonds of an industrial enterprise are looked upon as the stable
form of security. The development of law and of public opinion has
rendered them iron clad.
... The same security which now surrounds bonds, is being gradually
thrown around stock issues. In days gone by, stock issues were not
taken seriously. To-day, the right to pay a six per cent, return in
stock -- even if the issue did not originally represent value invested
-- is being recognized in court decisions, in the decisions of
railroad commissions, and in the attitude of industry toward income.
Thus there has been effected a reversal in the relation between
property claims and the claims of labor. Time was when property
shouldered the give and take -- the profits of industry. If there was
a lean year, profits were small. They were larger in fat years. The
man invested his money, took the risk involved, and was paid for it.
At present, labor shoulders the give and take of prosperous and
adverse years. When times are bad, men are laid off. Orders decrease,
and part-time work automatically ensues. Meanwhile the snipping of
coupons sounds at regular, unvaried intervals, and the book in which
dividend checks are drawn is busy four tunes each year.
The man who decides to retire from active life, and live on his
income, has chosen the safest course that any man in the modern world
may pursue. The system of property income payment has been refined
until it is almost automatic in its insistent regularity.
V. The Permanence of Property Income
The priority of the property income claims in the business world, and
the many safeguards which have been thrown about property rights in
order to insure their stability have given to property income a
relatively great permanence. The attainment of this end has been
hastened by the widespread respect for property rights.
The permanence of property income is based, in the first instance, on
the intimate connection which exists between property values and land
values. As industry develops, less and less of the property in the
world exists in terms of natural resources. At the same time, there is
no escape from the fact that all property is derived originally from
the land, and that the great stable property values are still land
The land values, in a growing community like the United States, tend
constantly to increase. Each step in progress, by raising land values,
gives greater permanence to property values generally.
- The landlord may have expended
effort to secure the land. That is not necessarily true, however,
since he may have obtained it by gift or inheritance. His power to
demand rent for land does not depend upon the manner of obtaining
it but upon the possession alone.