The Different Sources of Rents

Harry Pollard

[Reprinted from an online discusison, 6 July 2009]

There are different "Rents".

"Ricardian rents" are intrinsic in nature. They inhere to the soil. Once the soil is worked, the inherent value begins to disappear. A similar argument applies to goldmines and oilfields. At the end of each day, there is less 'Rent' than there was at the beginning.

"Commercial urban rents" are extrinsic and depend on the presence and access of the surrounding population -- along with its wealthiness. The rent of a commercial urban location is directly linked to the surrounding population.

Insomuch as infrastructure improves the access of the surrounding population so will Rent be increased and diverted to particular locations. Thus, infrastructure doesn't so much cause rent as allows community created rent to be more effectively used.

Nature is involved in commercial urban area Rents because that's probably why the city was built there in the first place. However, this value has probably "merged with the soil" and it's not much of an issue. This is true also of, for example, rocky soil or marshland. New York City rock allows skyscrapers to be built but perhaps this advantage is now a given. More important is why they are built.

I would say they are built because the Rent is high, and the rent is high because of the high population. In other words, I disagree with Marshall. Improvements follow rent rather than the reverse, and rent is a consequence of the local community.

There are other "Rents".

In a residential area, Rents don't depend on commercial advantage. However, they do increase as more people come to the area. When enough people arrive, it might become possible to build a cinema, or a restaurant, or a bowling alley -- but only when the rent is sufficient to make them economically viable. If a restaurant is particularly good, it may attract many people to it. These many people may raise local Rents – which will be taken advantage of by other businesses, and so on.

And it all began with the unbounded Savannah!