a. Explanation of Wages and
Rent
Differences in the desirableness of land divide Wealth
into the two funds, Wages and Rent. Labor naturally
applies its forces to that land from which, considering
all the existing and known circumstances, most Wealth can
be produced with least expenditure of labor force. Such
land is the best. So long as the best land exceeds demand
for it, laborers are upon an equality of opportunity, and
the entire product goes to them as Wages in proportion to
the labor force they respectively expend. But when the
supply of the best land falls below demand for it, some
laborers must resort to land where with an equal
expenditure of labor force they produce less wealth than
those who use the best land. The laborers thus excluded
from the best land naturally offer a premium for it, or
what is the same thing, offer to work for its owners for
what they might obtain by working for themselves upon the
poorer land. This condition differentiates Rent from
Wages. Rent goes to land-owners as such, irrespective of
whether they labor or not; Wages go to laborers as such,
irrespective of whether they own land or not.85
85. Land of every kind may vary in
desirableness from other land of the same kind. Certain
farming land, for example, is so fertile that it will
yield to a given application of labor two bushels of
wheat to every bushel that certain other farming land
will yield; and it is obvious that, other things being
equal, farmers would prefer the more fertile land. But
some fertile land lies so far away from market that
less fertile land lying nearer is more productive,
because it costs less to exchange its products for what
their producer demands; in such cases farmers would
prefer the less fertile land. The same principle
applies to all kinds of land. Building lots at or near
a center of residence or business are preferable for
most purposes of residence or business to lots equally
good in other respects which are far away.
Now, the land that is preferable is of
course most in demand; and if it be all in use, with
demand for it unsatisfied, competition for the
preference sets in, and gives value to it.
All land cannot be equally desirable.
Some excels in fertility. Some is rich with mineral
deposits, a species of fertility. On some, towns and
cities settle, thereby adding to the productiveness of
the labor that uses it, because these sites are thus
made centers of co-operation or trade. And yet
production in the civilized state requires that the
producer shall have exclusive possession of the land
lie needs. This necessity inevitably gives to some
people more desirable land than others have, even
though all should have an abundance. Consequently the
returns to equal labor are unequal. The man who has
land that is more fertile or better located than that
of another gets more wealth than the other in return
for a given expenditure of labor. If, for example, one
with given labor produces 10 bushels of corn from
fertile land, equal, say, to $5 worth of any kind of
wealth in the market, and the other with the same labor
produces 8 bushels of corn, or $4 worth of any kind of
wealth in the market, the first receives 2 bushels (or
$1) more for his labor than the other receives for his,
though each labors with equal effort, skill, and
intelligence. Or, if the fertility of the land be the
same, but its situation in reference to the market be
such that the cost of transportation still preserves
the relation of $5 to $4, the same inequality of wages
results. It is this phenomenon that gives rise to Rent.
Rent is the market value of just such differences in
opportunity as are here illustrated. It is a premium
for choice land, for preferential locations, for site,
for space.
This premium is a very different thing
from compensation for labor. Nor is the difference
modified when premium owners first obtain Wages for
work and with them buy the premium-commanding land.
Rent can no more be turned into compensation for labor
by exchanging labor products for the power to exact it,
than a man can be turned into Wealth by exchanging
Wealth for him. Whether the fruits of purchase or of
conquest, or of fraud, Rent always constitutes that
part of Wealth which is deducted from current
production as premiums for superior opportunities for
production.
Wages and Rent are both drawn from
Wealth, and both go often to the same individual and in
the same form of payment, as when a freehold farmer
enjoys the use of the grain he raises from more fertile
land than his neighbors have, or a city freeholder
occupies or receives hire from his house and lot: but
Wages flow from Wealth to labor as compensation for
production, while Rent flows from Wealth to land-owners
in premiums for allowing labor to produce Wealth from
superior locations. Wages are appurtenant to Labor;
Rent is appurtenant to Land. It is as laborer that the
individual takes Wages, but as land-owner that he takes
Rent.
To illustrate: On the following page are four closed
spaces representing land which varies in productiveness
to a given expenditure of labor force, 86 from 4 down to
1. There is also an open space at the right, representing
land that is yet so poor as to yield nothing to the given
expenditure of labor force. Thus:
86. A unit of labor cannot be definitely
measured save by the value of some labor product. The
day's labor of one man may produce less than an hour's
labor of another. But for purposes of illustration it
is competent to refer to a unit of labor force as an
abstraction, intending thereby to denote all the labor
of muscle and brain requisite to acquire the necessary
knowledge and skill and to produce wealth to a given
value from given natural sources.
For simplicity let the market be equally convenient to
each space. Let it be assumed also that one space is as
accessible to labor as another, and that the differences
in their productiveness are known. Now, to which space
would labor first resort? Obviously to that which would
yield most Wealth to the given expenditure of labor force
— the space to the extreme left.
Suppose, then, that labor appropriates only as much of
the best space as is required for use — say half of
it. We may note the fact with red color upon the chart:
[chart]
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