tion and wealth, and where land rents are consequently increasing, the selling value of land is apt to be somewhat greater than a capitalization of the amount of income it is yielding at the time of the sale would justify. This is because the ownership of land carries with it the right to receive future as well as present incomes, and the prospectively larger future incomes are taken into account in the process of capitalization.

Rent and social progress. -The fact just mentioned the tendency of rents to increase as society progresses-is of very great significance. It springs from the impossibility of satisfying the increasing wants of a society which is growing in population and wealth without increasing the supply of food products and raw materials by means of more extensive and more intensive cultivation. As this means pushing downward the extensive and intensive margins of cultivation, the necessary result is a rise in rents.

During the early years of the nineteenth century the Napoleonic wars on the continent, together with a high protective tariff in England, kept England from importing any grain from Europe. This, coupled with a considerable increase in the population of England, resulted in very high prices for wheat, a rapid extension of cultivation, and a remarkable rise in rents. It was the effort on the part of economic writers to explain these facts that led to the formulation of the theory of rent in substantially its present form. Bound up with this theory of rent was the law of diminishing returns-the name usually given to the statement that the supply of agricultural products can not be increased except by the utilization of poorer and poorer lands, and consequently at an increasing expense per unit of product. (This law should not be confused with the law of diminishing productivity. One is a statement of a historical tendency in one form of production-agriculture; the other relates to the proportions in which the factors of production are combined, and holds true for all forms of production.)

This law of diminishing returns has been made the basis of many gloomy prophecies regarding the possibilities of a general and continued economie progress. Especially when this theory was combined with the Malthusian theory of population, which was based on the belief that population would tend to increase as fast as the food supply would permit, did it seem to point to insuperable barriers in the way of any considerable progress in human welfare.

The history of the past century has belied these gloomy prophecies. The increase in population has been greater than in any previous period of the world's history, and yet, so far as agricultural lands are concerned, the general level of rents has not increased. In fact, the change has been in the other direction. That rents have not increased as population has grown, does not disprove the law of diminishing returns. That law, like other economic laws, is true only as a statement of a tendency. If this tendency has not resulted in increased rents, it is not because it has not been operative, but because other powerful factors have counteracted its effects. Two things, at least, have prevented a rise in rents. In the first place, improvements in agricultural methods have greatly increased the product which can be got from a given acre of land. We must include here not only improvements in methods of tillage and cultivation, in fertilizers, in the varieties of plants, in breeds of live stock, etc., but also organized social methods looking toward a better utilization of the nation's land supply, such as the irrigation of dry lands, and scientific forestry, which latter has an important influence upon the conservation of the rainfall.

Of much greater importance, however, than all these things taken together, has been the revolution in ocean and land transportation, which has so largely increased the available amount of land. Lands in England have gone out of cultivation because the railways and the steamship have brought the great wheat fields of America to her very doors. Even in the United States the new lands brought near to market by the railways have often been of better quality than the lands previously cultivated, so that the margin of cultivation has gone up rather than down. There were 2,250,000 acres of improved farming lands in the state of New Hampshire in 1850; by 1900 this acreage had shrunk to 1,075,000. In Massachusetts the improved farm lands decreased in this period of fifty years from 2,135,000 acres to 1,300,000 acres. Similar figures could be given for others of the older states. Thes diminution in the use of old lands may be partly accounted for by their deterioation in fertility under continual cultivation without proper rotation of crops. But this is only a partial explanation, for any one who is familiar with the conditions knows that even the most careful tillage could not have kept millions of acres of farm land which were once rent-yielding from going below the margin of cultivation, for the simple reason that the margin of cultivation rose. The railway practice of making very much lower rates. per mile on long hauls than on short hauls has hastened this progress, by minimizing the disadvantages of lands of good quality situated at a distance from market.

The fact that since the introduction of the railway the margin of cultivation has risen does not mean that it has risen continuously, or that it will continue to rise. There are many who believe that we have only gained a brief and already passing respite from the day when every increase in the demand for food products and raw materials will be met only with increasing difficulty. It is as dangerous to prophesy, however, as it was a hundred years ago. The fact that there still remain some unutilized lands of good quality in what are now out-of-the-way parts of the world may prove to be of less importance than other things. It is a striking fact that in the United States to-day only about half of the land actually in farms is cultivated. Some of these uncultivated portions of farms are very poor lands, and others are given over to meadows and pastures. But we venture to say that this. idle acreage is due in part to a lack of correspondence between the historical conditions that have fixed the size of farms and the economic conditions that fix the number of acres that can be profitably utilized by one farmer. This unexploited area is, to that extent at least, a reserve which can be drawn upon as the demand for agricultural products increases. Then, too, we are just beginning to have some idea of the improvements which scientific selection may bring about in the qualities and productiveness of different kinds of plants; methods of fertilization and tillage are still the subjects of fruitful scientific inquiry; forestry and irrigation are yet in their infancy. Changes in demand, of such nature as to make possible the utilization of some lands for the production of crops for which they are better fitted than for their present uses, are also among the things that may resist the tendency toward a general rise in rents. In fact, although it is absurd to suppose that the rent of land will not increase as society continues to increase in wealth and numbers,. it is just as absurd to make this fundamental tendency toward diminishing returns in agriculture a basis for pessimistic views regarding the possibility of economic progress.

The unearned increment. When we say that the margin of cultivation has gone up, rather than down, since 1850, we do not imply that rents have not, in many cases, increased. The new lands opened up to use by new railways, for example, are at first very cheap lands, often free lands. As they are taken up they command higher and higher rents. Practically all of the agricultural lands now utilized in America have had such a history-even though, in some cases, the present rents are not as high as their rents at some previous time. The fact that through the change in transportation methods, the marginal farming lands of to-day are better lands than the marginal farming lands of 60 years ago does not affect the fact that the sum total of land rents, and consequently of land values, is immensely greater to-day than at any previous time. The increase in the value of land, which accompanies the increase in its income-yielding power, is often called the unearned increment. This phrase suggests that the increase in land values can not be attributed to any special effort on the part of the owners of land, but is due to general social causes.

This does not mean that the land-owning farmer can not increase the selling value of his farm by wise investments of capital; but remembering that rent is the payment for the irremovable conditions affecting the productiveness of land, it is clear that it can be affected only to a comparatively small degree by the efforts of individual landowners. Most of the present values of lands have grown out of that complex of things which we call general social progress, the most important of which in this connection are growth in population and growth in average wealth-the things that lead to an increased demand for the products of the soil. Nor is the truth of this statement affected by the fact that the opening of new lands has been among the most powerful factors that have made possible this growth in population and wealth. A very large part of the increase in land values would have come about, even if the use of land and the ownership of land were entirely distinct, if all lands were leased. rather than owned, by the users of land. We should, however, be careful to distinguish the rise in the sum total of rents which springs from the occuираtion of new and often better lands, and the increase in rent per acre, which comes from forcing downward the margin of cultivation.

Some writers have suggested that landowners do not secure an unearned increment, because future, as well as present, earning power is taken account of in fixing the price at which land is bought. But whether the selling value of land is based on its present or future earning capacity, this selling value will increase so long as the earning capacity of the land increases, and so long as the increase in earning capacity promises to continue into the future. An unearned increment is attached to valuable land, whether it is still in the hands of the original owner, who may have got it for nothing, or whether its ownership has been transferred a hundred times. Most economists have seen in the unearned increment a fact of very great social significance, and some have even supported various plans by which some of the unearned value might be returned to society through special taxation.

An American reformer, Henry George, converted a large following to his view that all taxes should be levied upon land values. This scheme, known as the "single tax," proposes that economic rent shall go to the Government in lieu of taxes-a proceeding which would amount to the Government ownership of land, and is so understood by its adherents. The merits and defects of the single tax as a scheme for raising public revenue will be considered in another place. Here we are concerned with it simply as a scheme of economic reform. Henry George's main argument was based on the alleged tendency of land to absorb all the value due to "improvements in the productive power of labor." Among these improvements in the productive power of labor he included such diverse things as "the growth of population, the increase and extension of exchanges, the discoveries of science, the march of invention, the spread of education, the improvement of government." etc. "Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent-the price that labor must pay for the opportunity to utilize its powers, and thus all the advantages gained by the march of progress go to the owner of land, and wages do not increase."

In the first place, we may object strongly to the assumption that improvements in methods of production necessarily mean improvements in the "productive power of labor "-an assumption which, like the socialists' labor theory of value, really begs the whole question. It would be just as reasonable to call these things improvements in the productive power of capital or improvements in the productive power of land. In the second place, we must enter an emphatic denial to the statement that "all the advantages gained by the march of progress go to the owner of land." If the supply of labor is increasing more rapidly than the supply of land, it is probable that rent per acre will increase faster than wages per laborer; but this does not preclude an advance in wages.

It must be remembered, too, that Henry George did not propose to abolish rent-an obvious impossibility-but simply to do away with the private receipt of rent. This would prevent the withholding of land from use for purely speculative purposes; thus increase the available supply of land and consequently lower rents. That such would be the immediate result of throwing all land open to use can not be denied. But in the long run it would probably have little effect on rent, as it would simply lead to a more rapid exploitation of the land. Land ownership, like any other institution, has to be judged from the broad viewpoint of sociad interests. The "pride of ownership," as an incentive to accumulation and as a basis for good citizenship, can not be lightly put aside.

are apt to be quite as narrowly restricted. Improvements in rapid transit facilities enlarge the residence areas that are utilized by people with moderate incomes, but only serve to increase the congestion in the business centers. There is much to be said in favor of the special taxation of city land values. Movements in this direction have already gained great strength in England and Germany. Taxes so heavy as to amount to confiscation would, in the opinion of the present writers, be unjustifiable, and, in the United States. unconstitutional.

QUESTIONS AND EXERCISES

1. Malthus and Ricardo differed as to whether rent is an addition to the total income of society. What is the correct view?

2. An accepted doctrine of taxation is that landowners can not shift a tax on land values to any one else (as the tax on tobacco is shifted from the manufacturer to the consumer). Explain this on the basis of the theory of rent.

3. "Rent does not enter into the determination of price." Explain the meaning of this statement, understanding price to mean "normal value."

REFERENCES

Carver, T. N. The distribution of wealth, Chapter V.

George, Henry. Progress and poverty.

Hurd, R. M. The principles of city land values.

Marshall, Alfred. Principles of economics, Volume I, 4th edition, Book VL

Chapters IX and X.

Pierson, N. G. Principles of economics, Volume I, Part I, Chapter II. Ricardo, David. Principles of political economy and taxation, Chapter II Taylor, H. C. Agricultural economics, Chapter IX.

Walker, F. A. Land and its rent.

[From "Introduction to Economics," by John Roscoe Turner, Ph. D., Professor of Economics and Dean of Washington Square College, New York University]

THE RENTING CONTRACT

1. Introduction. Chief among the politico-economic problems of the nineteenth century were these: the tariff, the pressure of population upon the means of subsistence, the advantage of landowners in the distribution of wealth, and the single tax. The arguments, pro and con, upon these problems were based directly upon the theory of differential land rent. It has been said that a tariff would force a population to feed from its own soil. This would bring inferior lands under cultivation and increase rents, thereby enriching landlords and impoverishing tenants. It has been said that whereas the supply of land is fixed by nature, there is a natural tendency for the population to multiply rapidly. Thus the increasing numbers of people must cause pressure upon the earth for food, must increase the landlord's rent and impoverish the tenant. It has been said that the land is the source of all supplies and the field of all labor, that the puniest infant who comes wailing into the world in the squalidest room of the most miserable tenement-house becomes at that moment seized of an equal right with the milionaires. And it is robbed if it is denied equal access to the land. Place a tax, a single tax, upon the land so large as to absorb all land rents. This would have the effect of making public property of what is now the private ownership of land.

Until recent years the literature upon the subject taught that rent forms no part of the cost of production. The business man who paid rent knew full well that this was a part of his outgo or cost of doing business. Yet he read in the books that rents were not costs. The economists now, though not without exceptions, teach that rent is a cost.

Within recent years another change has been made in the thought on the rent problem. Rent was formerly defined as a payment for the use of land and for the use of land only. To-day rent is defined as a payment for the temporary use of a house, horse, automobile, plough, land, or any other durable

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productive agent other than man. Rent is now studied as one of the primary shares in distribution, as a leading cost in the production of wealth, as the greatest obstacle to clear thinking on taxation, and as the source of numerous social problems.

2. Definition of rent. If a farmer tills his own soil, he gets an income but can not be said to receive a rent. When one occupies his own dwelling, or drives his own team, or uses his own tools, he gets services (usances), but receives no rent. Rent is the price paid by one person to another for the temporary use of productive agents. Rent is but a special application of the general problem of price it is the price of the temporary services of agents.

Rent implies private property. Where there is no private property there can be no rent. There could be no buying or selling, consequently no rent, apart from ownership; the only reason why you can not rent or lease to another a public park is because you do not own it. Rent also implies legal contracts. You can not discharge the tenant at will, because you are bound in contract to fulfill your agreement with him throughout the renting period. To rent is to contract with an owner for the use of an agent.

3. Durable goods rented. -One does not rent a pound of beef, a loaf of bread, or a ton of coal, because these objects are destroyed by the uses made of them. Rented agents are returned intact to their owners after the renting period. If one pays $1,000 a year for the lease of a house, he is said, in popular usage, to pay that sum as rent. But in strict usage, the cost of such repairs as will leave the house in as good condition as when leased, must be deducted from the $1,000 in order to find the net or true rent. Rent is a net sum over and above all repairs; only those things may be rented which remain practically intact through the renting period.

Goods which serve their purpose only by entering into permanent combination with other goods are not rented. One would not rent steel beams, or nails. or bricks to be used in the construction of his house. One does not rent the thread with which to sew a garment, because it could not be returned intact to the owner. Such goods lose their identity by becoming a part of other goods. Only durable goods which maintain their identity are well suited to the renting contract.

The tenant who rents a farm does not rent separately the land, hedges. fences, ditches, and durable improvements on the land. These combined make the farm, and the farm thus composed of land and durable improvements is well suited to the renting contract. The different factors can not be separated for rent or for purposes of taxation.

4. Buying or renting. It has been pointed out that the only reason why one desires a good or is willing to pay a price for it is because of the services which it is capable of rendering. You will pay no price for a house which you are forbidden to enter, rent, sell, or otherwise use. The price you will pay depends upon the price of the services you expect to get from the house. You buy the house when you pay for its services in toto; you rent the house when you buy the services for a limited period of time.

It is not always wise to buy a dwelling or building for one's business, even though it is offered at a reasonable figure. One may have difficulty in disposing of his dwelling to advantage if he is called elsewhere to a more remunerative position: or one may use his capital funds to better advantage by investing them in something else. If one does not know the neighbors and surroundings in a community, it is better to rent for a time in order to determine whether permanent residence is desirable.

The entrepreneur of a new enterprise can not be sure that his business will succeed. The beginner, by renting for a time, can test his possibilities for success in the building of another, so that in case of failure his burden is less, because less fixed capital is involved. On the other hand, if he is successful his business will grow. With the expansion of business, larger quar ters will be needed, and possibly a move to a better neighborhood or trade center would be advisable. Such changes can be more easily made by the renter. When business has become firmly established, especially if it requires a large amount of room, it may be desirable to own the building in which it is housed.

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If one's business requires only an office, it may not be wise to buy or build. It is more economical to rent office space in a building constructed for the purpose. Such buildings furnish every convenience, are easily accessible, and are well known. An office in the Woolworth Building may be had for a reasonable rent, but to buy land in an equally advantageous location and build an office as fully equipped would call for a large investment.