2.9 The Revenue of Land
Land is considered to be the origin of all tangible things: the substance of the earth may be used directly (minerals become metals), indirectly (the plants that grow in the earth produce food and wood), and even twice-removed (labor is performed by men whose energy is furnished by food that is produced by plants that grow in the earth). It can rightly be said that land is the origin of all the necessities and conveniences of life, hence of all production and profit.
The natural agents that produce productive properties may be considered to be apart from the land, but land provides access to these agents: a wind-mill harnesses the wind and a water-wheel harnesses the power of water, but something must be affixed to land in a location where these agents can be accessed. No one can own the sun or the wind, but one may own land where these powers can be turned to production.
Say again returns to the difficulty of distinguishing the value of any factor of production in isolation. A plot of land has the potential to be productive, but is not itself productive until labor is performed upon it to productive ends. "Many writers" assert that there is no value in land without human action, and this dismiss land as a source of action - but action without land yields no more bounty than land without action.
It can also be observed that land has productive power without any human labor at all: while it lies fallow, all manner of scrub and weeds will grow upon it. But the productive power of the soul has no value unless its products happen to be objects of demand. The allure of America is in vast tracts of highly fertile land, but this land is "wholly destitute of any useful or valuable produce" until man acts upon it to make it so.
Land and the agents of nature are "gratuitously furnished to mankind at large," but it is soon appropriated to specific individuals who have exclusive dominion over it. It is necessarily so in order for land to be productive, as production requires control over long periods of time: to sow a crop in a field is productive only if the field is forbidden to other uses while the crop grows.
The rent of land is much like the interest of money-loans: it reflects some portion of the productive power of the land when it is used by its tenant to produce something of value. And like the interest of money, the value of rent depends on the productivity of the user.
Where land is purchased outright rather than rented, the purchase price still considers the benefit of the use of land. In purchasing a farm, its value is considered to be that of the annuity it has the potential to produce. It is the estimation of this annuity that leads buyers to offer, and sellers to expect, a given price for the land. The greatest price is offered by the individual who can make the most productive use of it.
As with any good, the sale of land is an exchange of commodities: where one man buys land of another, the buyer receives the land and the seller receives its equivalent value in money. The money may be soon spent while the land remains, but this should come as no surprise to the former owner, who knew this when he agreed to sell his land.
Some of the ancillary benefits of land are mentioned: there is a certain satisfaction merely to owning something of such permanence, as well as having dominion over its disposal, and titles and privileges are customarily awarded to those who hold land.
The drawback to holding land is that it is extremely attractive to governments as a source of tax revenue. The man possessed of a ship can weigh anchor and evade tyranny; the proprietor of land is locked in place, unable to escape with his capital.
The value of a given tract of land may be determined by its fecundity (fertile land being able to produce more value than barren soil) as well as its location (land close to markets, or connected by roads and waterways, is of greater value), which are likewise in respect to the productive capabilities.
The actions taken upon land also impact its value. A given plot of land has a specific value when it remains in its natural state. It increases in value when it is cleared and prepared for farming or when a windmill or house is built upon it. Such improvements make the land capable of delivering greater productive value with less effort.
Supply and demand affect the value of land, though in this regard land is not an undifferentiated commodity. Demand is in reference to a particular kind of land, based on properties that make it suited to a particular purpose - there is ample land that can be had cheaply, but the farmer desires arable land, the woodsman desires wooded land, the miner desires land rich in minerals, and the manufacturer desires land close to a waterway. There more suitable land for a desired purpose, the higher the price will be offered by an buyer with that purpose in mind.
A quick diversion: land is immobile, but people and capital can move about. And it is the immobility of land that leads to the necessity of transportation of goods (where there is hunger, grain is transported) as well as labor (where there is no work in one place, laborers migrate). As such, humanity tends to cluster in areas where the land is most productive, and the vast expanses of unproductive land are unpopulated.
Areas that are sparsely populated, such as the Scottish highlands and the back settlements of the United States, generally produce little more than is required to sustain the few people living upon them. The land cannot be made productive by the addition of labor, and the area is too remote to make it profitable to carry goods to populated areas.
Of Rent
Rent of land has been likened to the loan of capital: the landlord has land that he cannot put to productive use by his own effort, the tenant has productive capacity but no land, and each contribute their factor to production and share in the profits.
Where rent is paid in a fixed amount, rather than as a ratio of the proceeds from the sale of crops, the tenant assumes the risk of not being able to achieve sufficient revenue to honor his agreement. This is the cause of some friction between tenant and landlord. But neither are landlords inclined to assume the risk of factors under the control of his tenants: their choice of crop, the amount of labor they daily invest, and their bargaining skills to sell their product.
Seen another way, the tenant of land is a master agent and adventurer in agricultural industry. He makes all decisions regarding his use of the land and directs the efforts of laborers in performing necessary tasks to effect production. He reaps the benefit of his own judgment and industry - or suffers the penalty of his own lack of the same.
The landlord, like the holder of capital, may make productive use of his own land or may assess that others are better qualified to do so - the alternative to which is allowing land, like horded coin, to lie idle and produce no value.
Aside of the productive capability of a particular plot of land, the amount of rent also depends on supply and demand: where there is much land and few tenants, rent is cheap; where there is not enough land to accommodate every tenant's desired use of it, they bid up the price based on their expectation of profit, and the result is that leases are won by the most productive tenants.
Naturally, the poor estimation skills of the tenant, the ignorance and poor negotiation skills of either party, and factors beyond the control of either (such as the annual rainfall) may cause the actual production of the land to be out of proportion to the rent offered.
A landlord who seeks to increase his income cannot arbitrarily raise his rent: no tenant will pay more for it than production will allow. A landlord can, however, make his land more valuable and capable of commanding greater rent by making improvements: to clear fields for farming, to build a road for the transportation of crops, to raise a house or a barn, etc. and in that way make a capital investment that will generate additional return.
The tenant may undertake the improvement of land, though he derives no benefit from making any improvement that will pay a return beyond the duration of his lease. By virtue of the self-interest of tenants, landlords with unimproved lands are compelled to enter into long-term leases for unimproved land, bearing the risk of loss of tenants who would pay more rent for the land.
Say looks to England, as "leases are nowhere more sacredly regarded," and he credits the extensive agricultural development of that land with the legal support of tenants in long-term leases, as by that security they are so confident of "undisturbed possession" that they make dramatic improvements to the land as if it were their own, and make punctual payments to their landlords.