13: Rent and the Products of Labor and Capital
Traditionally, "rent" was considered to be something separate from labor and capital. Whereas the current practice is to consider land to be a capital asset, it is still sometimes useful to distinguish that part of income that is attributable to land itself. In the agricultural economy, the contribution of land was considered to be significant and crops grew from and livestock grazed upon the land. And the value of a particular piece of land could be assessed according to its suitability to a specific purpose (due to climate and soil, some fields produce more wheat than others). (EN: I recall special discussion of mining and timber as uses of land that deplete it of resources, so these should likely also be considered similar in regard to the direct relationship between land and production.)
But for non-agricultural industries, land is less significant. The carpenter has need of a workshop, but whether the shop is located on fertile ground, rocky soil, or on a river barge is of little consequence to his productivity and income. The same can be said of most manufactory industries. Certain qualities may make a plot of land more desirable (proximity to customers and suppliers, which decrease transportation costs), but the contribution of land to production is much less direct than it is for agricultural uses.
It's further suggested that the employment of machinery and other forms of automation further decrease the amount of production that is attributable to labor because more of the work of men is done by capital (at least in the final stage of production, ignoring the past labor to build the machines that replace present labor). It is common for analysts to attempt to alter the amount of one variable (land, labor, or capital) while holding the others fixed, in an attempt to draw some conclusion about the contribution of factors. However, this is highly irregular and unrealistic.
It is often claimed that land merits special treatment because it is fixed in its amount by nature, and it is believed that at the present time all the land in the world has been discovered. Political economists also give special attention to land because governments preside over specific geographic territories and consider land to be their resource, temporarily in the custody of individuals, and that government is better suited than individuals to deciding what use of their land, in aggregate, is in the best interests of all of society. The incentive to make a twisted argument for personal profit is obvious.
To simplify the consideration of rent, consider what land contributes to labor: it provides a physical space in which activities may be performed and a secure location in which things can be stored. The special qualities of land (fertile land for growing crops, etc.) give it special value to certain productive endeavors, just as the special skills of men give them special value to certain productive endeavors. And ultimately, the land will be rented/purchased by the producer whose profits provide him the ability to outbid all others that might wish to use that same land - which means the producer who is furnishing that which society values most.
To the owner of land, it functions much as any other capital: as an investment. The land-owner will rent (or sell) his land in the interest of gaining the greatest return while minimizing the risk to his investment. The business-owner who owns the land he uses will consider the land to be useful to production so long as his use of it is the most productive - if he can make better profit by renting the land to another person than using it himself, his interest is in doing so.
He then considers the attempt to separate the contribution of land to production, which is as futile as attempting to separate capital and labor: land alone yields nothing of value without the addition of labor, and labor alone yields nothing without the use of land. So the attempt to divide the value of a crop between the land and labor is futile as it would no exist without either of them. Land can only be valued according to its use, and the value of the land depends on the use to which a producer intends to put it. Hence a given plot of land may have a certain value for one crop, a different value for another, a third value for raising livestock, and a fourth value as a location for manufacturing.
There can also be said to be a marginal value of land given a fixed amount of labor and capital: a given number of laborers can produce so much from one acre of land, a little more from a second or third, and perhaps no more from a fourth because there simply is not enough labor to make it productive. But this is again academic and artificial, as no producer would seek to increase his product merely by acquiring more land without additional labor or capital to make good use of it.
Another estimation of the value of land is the "surplus of the fruit of the aid that the land affords." That is, land has no value when working it yields only sufficient profit to sustain the laborers that work it (as in subsistence farming); it has value when it is fertile enough to yield more than is necessary to sustain the laborers; and it has negative value when it yields less than the laborers require.
There is some consideration of the permanence of land, which is a fallacious belief. A mine will not yield the same amount of ore each year indefinitely, as the ore will be depleted. In the same manner, the fertility of the soil is depleted by use such that the land diminishes in its productive capacity from one season to the next - unless additional capital is expended to re-fertilize it. Where the expense of re-fertilization exceeds the amount of productivity that will be restored, the land may be worked out instead of maintained (at which point it may have value for some other purpose).
There is a rather long diversion about residual income. That is, after the materials have been replaced and the equipment maintained, the laborers paid their wages and investors paid their interest, there are often funds remaining out of the proceed of the sale of the goods. The author suggests that these profits should be paid to the entrepreneur as reward for risk. This is subject to quite a bit of squabbling when there is a surplus of funds, but no such squabbling exists when there is a shortage - where the proceeds of sale are insufficient to cover the costs, it is the entrepreneur who must bear the loss. The other stakeholders are not eager to bear the burden, and consider the failure of the business to turn a profit to be that of the entrepreneur. And if this is held true, then he is to credit for excessive success.