Rent and its Calculation

Harry Pollard

[Reprinted from a LandCafe discussion group posting, 31 January, 2008]

First I am dealing only with urban location Rents which are high and more likely to produce high revenues than -- for example -- fertility. Excuse my repetition of the next few paragraphs which lead me into the 'all taxes are paid at the expense of Rent' discussion. "At the expense of" is George Collin's description -- rather better than the way I introduced it as "all taxes come out of Rent".

As you know, I restrict my meaning of the term 'Rent' only to the actual advantage provided to a location by the presence and access of the community.

Yet, how do we measure that 'advantage'?

Conveniently, we use 'market' values to measure Rent.

However, the free market is controlled by the price mechanism, which process requires easy production and movement to market to produce a 'market price'.

When there is no restriction on production and movement, the market price mechanism is unchallenged as the best method to find a price and react promptly to changes in circumstance.

Yet, there is a complete restriction on the production of land and it cannot be moved to a location where demand is raising the Rent.

Labor and Capital can increase and move in response to rising prices, and does. They are under price mechanism control. (A caveat - the source of Capital is likely to be Rent. This leads to many borrowers seeking loans from too few sources - a situation that perhaps raises interest above what should be normal.)

I call the uncontrolled rising cost of land 'rack-rent'. Buried within rack-rent is, of course, the "value provided to a location by the presence and access" of the surrounding community. The rest of rack-rent comes from monopoly characteristic of land.

Georgists have simply defined Rent as the market value of a location. One may define concepts any way one wishes, but there seems to be an error in thinking when one compares directly a value uncontrolled by the price mechanism with values controlled by the market price mechanism.

Be that as it may, Georgists since P&P have talked of Rent swallowing up production. "All consuming Rent" was the catchphrase that summed up the Georgist attitude. All increases in productivity caused by new technology, or by invention and innovation, were swallowed up in rising Rents. The Wages of Labor were continually being forced down to subsistence levels by rising Rents.

Let me call the price mechanism controlled market a "free market" and a monopoly market simply the market.

If land was a free market, the location value caused by the presence and access of the community would be (say) - $100 a week. Let's say that's the amount charged by the landholder.

Labor earns his full wage -- he pays $100 a week, but he gets $100 a week in location value (provided by the community).