Ecology and Economic Rent

John T. Tetley

[Reprinted from The Gargoyle, November, 1970]

Air and water pollution and conservation of natural resources are topics of much discussion these days. Who is to pay the bill, of course, inevitably cones to the fore. Those who do the polluting -- those who use up the natural resources should pay contends one group. Government should pay, says another group.

Might we ask where will government or industry obtain the funds? Will not industry increase the price of the product and thus pass the cost on to the consumer? Will the consumer pay increased prices? There can be no question as to the source of government funds -- either taxes or monetary inflation. So in any case, the cost comes from the income of individuals.

Those who favor the collection of the annual rental value of land and the severance value of natural resources for the support of government must keep in mind the distinction between these sources of public revenue.

"Economic Rent," a term used in discussions at the Henry George School of New Jersey, is a part of the product. If there is no production, there can be no economic rent. The term rent is used as defined by Ricardo -- "the excess productivity over the least productive land in use." Economic Rent therefore is fixed by natural law. A product then, is distributed as rent, wages and interest. The portion rent cannot be arbitrarily increased should government require increased funds for its operation, be it for education or air pollution. It is fallacious to say we can increase the economic rent to cover the cost of eliminating pollution, or to conserve natural resources.

It may be argued that severance value of natural resources such as timber, minerals or oil, is a "form of economic rent." However, I prefer to make a clear distinction, reserving use of term economic rent to apply only to a part of the product claimed by the owner of location in production. Accordingly that which is paid for use of land for residential purpose would not be economic rent, but rather payment for use of a natural resource -- land surface.

When the time comes -- whatever agency may be set up to administer the collection of severance value of natural resources, I vision, at this time, such being handled on a nation wide basis. For instance, in the United States, we have areas containing vast amounts of timber, others where no timber is grown. We have mineral and oil deposits in areas (including "off-shore") in some locations but no known deposits in other areas.

So long as it is necessary to have a Federal Government, I vision an administrative body, which may be established independently of government. Such a body would of necessity be hiqhly specialized and could determine the method of arriving at severance value of these natural resources (equivalent it may be assumed to what we presently term royalties).

_ I further believe leases to be granted for exploitation of these resources might provide for curtailment of pollution and conservation of resources, which in effect, would be included in the "royalty" figure -- the payment for severance of such resources -- payment to the administrative body, as representative of all citizens of the United States.

The mechanics of allocating the funds collected might be on a basis of population to each State. The State in turn, after using such portion of the fund as needed for necessary state services, and deducting the cost of administration, could distribute the balance to local community.

This might meet cost of elimination of pollution and conservation of natural resources, be met from the "rent fund" -- "economic rent" -- "location rent for residential land", and "severance value" of natural resources.