1.11 The Rent of Land
(EN: In Smith's time, the majority of the population was engaged in agriculture, and agriculture was little changed since the feudal era. The chief difference between the farmer of his time and the medieval serf was that the farmer was free to leave his lard and choose to serve another. Aside of that, all the land of Europe remained property of a small number of nobility, from whom farmers rented land to produce crops. Given that society has become industrialized, the farming profession is small, and farming is generally operated by corporations rather than individuals, much of this chapter is likely moot.)
Rent is the price paid for the use of the land, which is one of the costs of farming. In operating such an endeavor, the farmer must consider the cost of rent, along with materials and labor of production, in pricing his product to the market and determining a level of production that will generate sufficient profit to sustain his family and provide for the following season's costs.
Whereas the price that a farmer can fetch for his product is subject to negotiation with the large number of buyers in the market, and whereas the cost of materials for farming are negotiated with a number of different suppliers, the price of rent is negotiated with one person - a landlord - and it is thus seen as the expense in which the farmer has the clearest method of negotiation, and often voices the greatest complaint against a single, identifiable opponent to his desire to rent as cheaply as possible.
Smith also identifies non-agricultural bases for the rent of productive land. A herdsman also needs land to raise his flock, a woodsman needs forested land from which to obtain timber, and the miner needs access to earth to harvest ore. There are even highly unusual instances where land is used to produce goods, such as the shores of Scotland where Kelp accumulates (to be harvested for alkaline salt for making glass, scope and other goods). In these instances, land is also rented, and the use of farming in this chapter is by no means an exclusion of these other purposes.
The rent of land is often considered to be in the nature of a monopoly, which is not entirely precise. While a given landlord has sole dominion over a given plot of land, the farmer can likely seek opportunity to obtain land in a different location that is as suitable to his purpose. However, once a farmer has made improvements to the land, built a barn and prepared a field for crops, he has made significant investment in the land and changing to a different location requires him to re-invest significant labor, which gives the landlord significant advantage to negotiating higher rent for a developed property.
(EN: it is not mentioned, but I suspect that this concern could be alleviated by the negotiation of a long-term lease, such that the landlord could not offer land at a cheap price then evict or significantly increase the rent of a tenant who has invested in its improvement.)
The negotiation of rent for land is similar in many ways to any negotiation for credit: the tenant must consider his potential profit, and consent to pay a rent only if he can still turn a profit in consideration of the cost of land. The dilemma of the farmer is that he may not be able to predict with accuracy the price his crop will fetch at harvest-time - but negotiating for a percentage of profit rather than a fixed sum should mitigate this risk.
Land that Always Affords Rent
Men "naturally" multiply in proportion to their means of subsistence, and as a result food is always in demand. In an agrarian society, there are more or less always just as many producers of food as there are consumers, as each additional citizen is both a producer and consumer. As labor moves away from the farm to furnish other goods, it becomes necessary for farmers to produce more than they consume, and the advancement of a society largely depends on its efficiency in agriculture.
(EN: This fact was perhaps more obvious in Smith's time than the present one. In the present age, fewer than 3% of the population is employed in agriculture, the efficiency of farming operations having greatly advanced. However, I expect both figures to include both food and nonfood crops.)
Even in relatively barren lands in primitive times, people have been capable of sustaining themselves by producing food, and producing more than they could consume. The Romans were capable of sustaining a considerable population of confirming workers, and in Smith's time, even such simple advancements as irrigation and the plow, and the settlement of fertile lands, the proportion has improved, and roads and waterways enable produce to travel to where it is needed.
The choice of crop also has a significant impact. It requires far less labor to produce wheat than to produce meat, such that the latter may be regarded as a luxury rather than a necessity of life, but a luxury that could well be afforded even back to primitive times - though depending on the location, some societies find themselves with more meat than bread - for example, it is easier to raise sheep than wheat on a rocky scrub in a cold climate, hence meat is cheaper than bread in the Highlands of Scotland.
The author strolls through myriad examples, and the only additional point made seems to be that people generally make intelligent choices in the way in which land is employed to generate food, choosing to plant or raise livestock as the land best supports, and opting to choose less productive alternatives for the luxury of a varied diet when it is feasible to do so.
It is also along the same logic that the choice is made to use land for other purposes. Where sufficient food is produced, some portion of land can be allotted to grow cotton or tobacco, or put to non-agricultural use such as the construction of a carpenter's workshop.
The advantage to a landlord of owning land derives from the advantage to a farmer for working the land: the amount of rent that can be reasonably expected of a plot of land relates directly to the amount of profit that can be made by its use.
There is also the suitability of a particular piece of land for a particular pursuit: an open field near a river is more productive for raising wheat, a valley or canyon is better suited to the raising of cattle, etc. To put such lands to the use to which they are best suited is a matter of choice, but a choice to which men gravitate by virtue of common sense.
(EN: Smith goes into quite some detail about the reasons that specific crops are favored in specific areas - wheat in England, potatoes in Ireland, wine-grapes in France, olives in Italy, sugar in the Caribbean, tobacco in Virginia, rice in China, etc.)
A given plot of land can be made more suitable to a given purpose by certain man-made improvements. A field may be cleared of trees and rocks to make it more suitable to growing crops, or enclosed in a fence to make it more suitable to use as a pasture. A landlord may make such improvements to increase his rent, and is inclined to do so to the degree that his present expense will increase his future revenue.
There is also some mention of extensive improvements that fall into a gray area: the establishment of a vineyard, or the planting of olive trees, is a significant endeavor that requires much present effort for the sake of future income. In such instances, it is unclear whether the labor of planting and preparation is expected of the landlord or the tenant, though in practice such efforts are generally undertaken by a land-owner in pursuit of his own profit, and laborers are hired at a wage to provide the work of tending and harvesting as needed.
Land that Sometimes Affords Rent
While the demand for food is regular, consistent, and predictable, demand of other goods fluctuates.
While clothing and lodging are also considered necessities, people tend to have some flexibility in the frequency with which they are purchased: a person generally replaces clothing sooner than they become entirely unusable, and a family can remain in a smaller dwelling rather than immediately move to a larger home as their number increases. As such, demand for cotton ,wool, leather, lumber, and other goods is not constant. All other goods, being conveniences, can be done without entirely for an indefinite period of time.
In terms of effort, there is even greater disproportion between the amount of labor to produce a good, in relation to the lifespan of an object. The amount of time required to raise cattle remains the same, but their meat will be consumed more quickly than will clothing of their tanned hides. A house can be built in a single day that will provide shelter for a period of years.
Additionally, some o the materials necessary to produce durable goods are by-products of agricultural production that might otherwise be wasted. Leather is merely a by-product of the production of meat, which would otherwise be wasted. Wood may in some instances be mere waste that occurs when clearing a field for planting.
However, it is in terms of necessities that there is the greatest disparity of consumption among social classes. The rich man consumes no more food than the poor - though in quality some difference may be observed - but he will have a grander house, more furnishings, a greater selection of clothing, and a greater abundance of items that do not serve his basic needs.
The mineral industry, in particular, is considered for the ability to create an income for a limited amount of time: there is a finite amount of coal in a seam that, once exhausted, yields no more. This is unlike crops, livestock, and timber, each of which may be replenished with relative ease. It is noted that, for mineral production, it is uncommon for a tenant to rent the land, and more often the land-owner who hires labor for the mining operation, from which he takes direct profit.
The same may be said of other mineral resources: iron, lead, copper, silver, etc., though these tend to be valued according to their scarcity mroeso than the labor necessary to obtain them.
(EN: There follows consideration, at some length, it the choice of fuel - coal or wood - and of the mining industry in general. Historically interesting, but not germane to economics.)
The Variations in the Comparative Value of Goods
Given that the basic commodity of value of a society is food, and given that the production of any other good requires diverting resources away from the production of food, and given that production is diverted to from less valuable pursuits to more, it follows that any good produced by a society is deemed to be more valuable than food - and correspondingly, that food is the commodity of least value.
There is also the notion of distance: some goods are valued only in a limited geographical era, such as stone from a quarry. Other goods are valued in a broader area, such as silver - the market for which is the entire civilized world. It follows, then, that production of a good in a specific location may be pursued for its value in the larger market than in the local one.
Goods are also valued comparative to their availability. This is evident in the previous example of meat production in Scotland where, due to an abundance of meat and a dearth of wheat, wheat commands a greater exchange value than meat, whereas the opposite is true in most locations.
The same might also be true of any good under the same circumstances. The exchange value of wheat might exceed the value of gold, in a situation where gold was in abundance and wheat was scarce. (EN: This is evident in the opportunism that occurs when a natural disaster has struck an area. Simple items that are normally cheap, such as potable water, command significantly higher prices than they do under normal circumstances.)
The author means to further illustrate these principles by means of examples drawn from events in the European market. (EN: As such, what follows is quite a lot of material that substantiates the theoretical claims above, which I've skipped over - it's very tedious, and some of it is quite interesting, but it merely expounds upon rather than adds to the ideas already discussed above.)
Conclusion
Every improvement in the welfare of a society tends to either directly or indirectly increase the rental value of land, not merely to the profit of the landlord at the expense of his tenant, but to the betterment of all by virtue of a greater production of goods in general, and a transition toward goods of higher value, given a fixed amount of land.
This arises first from the cultivation and development of the land to make it of greater use, the general satisfaction of the need for basic goods (food), and the increased demand for goods that constitute the "conveniences, ornaments, and luxuries" of life that constitute the real wealth of society.
Historically, attempts to lower the rent of land, done for the betterment of society, have resulted instead in its detriment: doing so discourages the efficient use of land, labor, and resources toward their most productive purposes.
Smith also notes that the advancement of a society divides its productive members into three distinct parts: those who gain by the wages of their labor, those who gain by organizing and facilitating production and trade, and those who gain by the rent of their land or the loan of their capital.
It is a common misconception to see these three divisions at factions at odds with one another, as it has historically been demonstrated that the consequence of any regulation that has been undertaken to improve the income of one at the expense of another has been damaging to all, and to the greater society who have need of the goods they produce.