Basic Principles of Economics: Rent.

Basic Principles of Economics: Rent.

In following up the issues made by Mr. Tucker in the August number of Liberty, I am not quixotic enough to defend Proudhon either against Mr. T. or against his own possible inconsistencies. Only two of his works (recommended by Mr. T.) have been open to me. What I have to say stands upon its own merits, appealing to reason and the instinct of justice.(100 ¶ 1)

I. The fiction of the productivity of capital.(100 ¶ 2)

In productivity for human needs or desires, human activity is implied. No one pretends that capital or the results of past labor can in this point of view be independent of actual labor. Ripe grain or fruit in field or orchard is a capital; its use implies the labor of gathering and storing, milling, cooking, etc. But these consummating works would be impossible without the capital of the harvest, the result of previous culture, which, whether by the same or by different laborers, is equally an integrant factor in productivity and justly entitled to its proportionate share of the fruits.(100 ¶ 3)

Now, go back a year or more. Before the culture in question, capital existed as the result of clearing, fencing, ditching, manuring, etc. without which the culture would have been fruitless or impossible. Such previous works, then, are, equally with the two later, integrant of productivity, and have just claims to be satisfied in the repartition of the harvest. Previous to these three kinds of works, there has often been expenditure of effort in discovery or exploration, in conquest of territory, to which the State falls heir, and on the strength of which it levies tribute under title of entry fees or purchase-money.(100 ¶ 4)

In the precited series, the second term in order of succession has absorbed the first, so that the entry or purchase-fee is added to the claim for preparatory works, whose aggregate constitutes the basis of rentals. Mr. Tucker says that the liquidation of this value, whether immediate or gradual, is a sale, and brings a right of ownership, which it is not in the nature of rent to do. To call this rent is inaccurate. Now, this is a question of the use of language. Accuracy here, as I maintain, consists of the use of words in their usual sense. I protest against neologies, or arbitrary definitions, in economics that make words squint, as a perfidy of Socialism which engenders vain logomachies and retards the triumph of justice. The liquidation of the value precited, the result of preparatory works, may be effected either by sale or by rentals. Sale is often impossible or unfeasible; it would be so at present for my own farm. Now, comes in the idea that each payment of rent shall constitute an instalment of purchase-money. This is Proudhon’s theory of liquidation with a view to the independent proprietorship of the soil by its farmers. It is viable for rentals during a term of successive years, but is inapplicable to many cases like the following. By expenditure of unpaid labor during several years I have prepared a field for cotton culture. An immigrant, needing to realize the results of labor more promptly than would be possible of he began by performing upon forest land the kind of work I have already done, offers me a fourth of the crop for the use of my field. This is rent. The crop from which it is paid leaves the soil poorer in proportion, and the fences, etc., will need repair at an earlier period. Thus each crop may be estimated as lessening the original value of productivity by about one-tenth, sometimes as much as one-fourth. Now, the tenant profits three times as much as I do at the cost of my preparatory labors. The loss by cropping, of this value, is the just basis of rent, which leaves no proportion of purchase title to the tenant during one or a few seasons who does not manure or repair fences. The tenant who does this, and thus reproduces the original value, justly enters into proprietorship, and his rentals ought to be regarded as instalments of purchase-money. There lies the practical difference.(100 ¶ 5)

It is necessary to face the facts, and to avoid confusion by abstract terminology. There is just rent, and there is unjust rent, or the legal abuse of the rental system. Abate the public nuisance of legislation, and these natters are naturally arranged by free contract between farmers.(100 ¶ 6)

The equitable relations between actual labor and the previous labors that constitute capital in the soil, or immovable upon it, vary with time, place, and circumstance. Rulings concerning them, reduced to the procrustean measures of law, if just for some cases, must be unjust for others. Private contracts only can approximate to justice; and how nearly they do it is the affair of the contracting parties, defying all prescriptive formulas.(100 ¶ 7)


The two works which I recommended to Edgeworth are among Proudhon’s best; but they are very far from all that he has written, and it is very natural for the reader of a very small portion of his writings to draw inferences which he will find unwarranted when he reads more. This is due principally to Proudhon’s habit of using words in different senses at different times, which I regard as unfortunate. Now, in the article which gave rise to this discussion, Edgeworth inferred (or seemed to infer), from the fact that some of Proudhon’s transitional proposals allowed a share to capital for a time, that he contemplated as a permanent arrangement a division of labor’s earnings between labor and capital as two distinct things. Lest this might mislead, I took the liberty to correct it, and to state that Proudhon thought labor the only legitimate title to wealth.(100 ¶ 8)

Now comes Edgeworth, and says that he meant by capital only the result of preparatory labor, which is as much entitled to reward as any other. Very good, say I; no one denies that. But this is not what is ordinarily meant by the productivity of capital; and Edgeworth, by his own rule, is bound to use words in their usual sense. The usual sense of this phrase, and the sense in which the economists use it, is that capital has such an independent share in all production that the owner of it may rightfully farm out the privilege of using it, receive a steady income from it, have it restored to him intact at the expiration of the lease, farm it out again to somebody else, and go on in this way, he and his heirs forever, living in a permanent state of idleness and luxury simply from having performed a certain amount of preparatory labor. That is what Proudhon denounced as the fiction of the productivity of capital; and Edgeworth, in interpreting the phrase otherwise, gives it a very unusual sense, in violation of his own rule.(100 ¶ 9)

Moreover, what Edgeworth goes on to say about the proportional profits of landlord and tenant indicates that he has very loose ideas about the proper reward of labor, whether present or preparatory. The scientific reward (and under absolutely free competition the actual reward is, in the long run, almost identical with it) of labor is the product of an equal amount of equally arduous labor. The product of an hour of Edgeworth’s labor in preparing a field for cotton culture, and the product of an hour of his tenant’s labor in sowing and harvesting the crop, ought each to exchange for the product of an hour’s labor of their neighbor the shoemaker, or their neighbor the tailor, or their neighbor the grocer, or their neighbor the doctor, provided the labor of all these parties is equally exhausting and implies equal amounts of acquired skill and equal outlays for tools and facilities. Now, supposing the cases of Edgeworth and his tenant to be representative and not isolated; and supposing them to produce, not for their own consumption, but for the purpose of sale, which is the purpose of practically all production, it then makes no difference to either of them whether their hour’s labor yields five pounds of cotton or fifteen. In the one case they can get no more shoes or clothes or groceries or medical services for the fifteen pounds than they can in the other for the five. The great body of landlords and tenants, like the great body of producers in any other industry, does not profit by an increased productivity in its special field of work, except to the extent that it consumes or repurchases its own product. The profit of this increase goes to the people at large, the consumers. So it is not true (assuming always a régime of free competition) that Edgeworth’s tenant profits three times as much as Edgeworth because of the latter’s preparatory labors. Neither of them profit thereby, but each gets an hour of some other man’s labor for an hour of his own.(100 ¶ 10)

So much for the reward of labor in general. Now to get back to the question of rent.(100 ¶ 11)

If Edgeworth performs preparatory labor on a cotton field, the result of which would remain intact if the field lay idle, and that result is damaged by a tenant, the tenant ought to pay him for it on the basis of reward above defined. This does not bring a right of ownership to the tenant, to be sure, for the property has been destroyed and cannot be purchased. But the transaction, nevertheless, is in the nature of a sale, and not a payment for a loan. Every sale is an exchange of labor, and the tenant simply pays money representing his own labor for the result of Edgeworth’s labor which he (the tenant) has destroyed in appropriating it to his own use. If the tenant does not damage the result of Edgeworth’s preparatory labor, then, as Edgeworth admits, whatever money the tenant pays justly entitles him to that amount of ownership in the cotton field. Now, this money, paid over and above all damage, if it does not bring equivalent ownership, is payment for use, usury, and, in my terminology, rent. If Edgeworth prefers to use the word rent to signify all money paid to landlords as such by tenants as such for whatever reason, I shall think his use of the word inaccurate; but I shall not quarrel with him, and shall only protest when he interprets other men’s thought by his own definitions, as he seemed to me to have done in Proudhon’s case. If he will be similarly peaceful towards me in my use of the word, there will be no logomachy.(100 ¶ 12)

The difference between us is just this. Edgeworth says that from tenant to landlord there is payment for damage, and this is just rent; and there is payment for use, and that is unjust rent. I say there is payment for damage, and this is indemnification or sale, and is just; and there is payment for use, and that is rent, and is unjust. My use of the word is in accordance with the dictionary, and is more definite and discriminating than the other; moreover, I find it more effective in argument. Many a time has some small proprietor, troubled with qualms of conscience and anxious to justify the source of his income, exclaimed, on learning that I believe in payment for wear and tear: Oh! well, you believe in rent, after all; it’s only a question of how much rent; after which he would settle back, satisfied. I have always found that the only way to give such a man’s conscience a chance to get a hold upon his thought and conduct was to insist on the narrower use of the word rent. It calls the attention much more vividly to the distinction between justice and injustice. If in this I am guilty of neology, I am no more so than in my use of the word Anarchy, which Edgeworth adopts with great enthusiasm and employs with great effect. If the squint is what he objects to, why does it annoy him in one case and please him in the other?(100 ¶ 13)

I must add that, after what I said in my previous answer in opposition to legislative interference for the control of rents, it seems hardly within the limits of fair discussion to hint that I am in favor of procrustean measures of law. Certainly, Edgeworth does not directly say so, but in an article avowedly written in answer to me I cannot see how the remark is otherwise pertinent.(100 ¶ 14)