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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