23: The Relation of Rents, Value, and Distribution
Clark reiterates his thesis: wealth is distributed to the factors of production (labor and capital) according to the contribution of each factors to the value for which customers pay. To be productive of wealth, an operation must fetch more revenue that it incurs in cost. This leads to the conclusion that wealth is constantly increasing in a productive economy. It does not, however, mean that capital is constantly increasing (though this appears to be what generally occurs) because wealth is consumed. In general, people create more value, but they also consume more value - capital amasses when people consume less than they create, regardless of their level of productivity.
He has also considered that the revenue contributed by the customer is apportioned to the factors of production in a manner that is consistent with their contribution to the creation of the product. This must hold true if the revenue is merely sufficient to cover the cost, for if any factor of production is paid less than its value, it will move (or be moved) to another operation where it would be fairly compensated. As in all cases, the price that must be paid to a factor of production is the function of the demand of it in the market, regardless of its contribution to productivity. It is the producer who must be attentive to how much he pays, such that he offers no more than he will be able to make by its employment in his process.
He also reiterates the opportunity cost of productive elements - to take a man, a machine, or a piece of material away from the production of one good and apply it to a second has an effect on the supply of products to the market: the first becomes more scarce and the second more plentiful in supply. Where large amounts of productive elements are moved from one industry to another, the effect on supply and prices can be correspondingly dramatic.
There is the classical argument that rent is not an element of price: the customer who purchases a product takes no concern for the profit or welfare of its makers, and is merely concerned with the value he is willing to give to receive the benefits that derive from having the product. However, it is a consideration of suppliers: if producing the product does not yield sufficient rent, then it will not be produced. The shortage of product will lead to increased competition among buyers to have it, increasing its price. So this argument requires better specificity - it is not an element in the price that buyers are willing to offer, but it is an element in the price that sellers are willing to accept.
In competitive markets, rent (profit) is the reward for efficiency. Where buyers pay a set price for an item, the producer whose costs of production are lowest enjoys the most profit. Hence if the lord of a field were to allow it to be farmed without paying him rent, this would not decrease the price of bread in the market - customers would still pay the same price, but the other factors of production would have larger shares of the profit. If the landlord foregoes his rent, it will be divided among the farmer, the miller, and the baker. Again, this is because the price of a product is determined by the customer, not the suppliers.
He follows up with a few arguments about market prices. Interference in the market can create only short-term effects on the market price of goods. A price is only sustainable if it returns sufficient revenue to cover the costs of production. If the price is lowered, production is not sustainable and eventually will cease, reducing the quantity of goods in the market and bringing the price back to its natural level.
In any case, this is not an argument about the existence of rent, merely about how it is distributed. Rent will exist so long as buyers of a good are willing to pay more to have it than it costs to create it - and this excess is shared among the factors (investor, entrepreneur, labor. etc.) If one of them refuses his share, it will be claimed by one or more of the others. There's some consideration of the refusal of rent, which is largely academic (a worker who wishes to be paid less than he's earned or an investor who wishes to accept less than his capital has earned is an odd notion, possible in theory but unknown in reality).
Supply and demand of goods in the market determine the price that buyers are willing to offer, and the price that buyers are willing to offer determines whether it is profitable to produce for their consumption. The power of the supplier is to refuse to produce for a given price and instead direct his contribution - labor or capital - where it could gain greater advantage. The believe that suppliers control prices is erroneous: buyers offer a price, and suppliers decide whether it is in their interest to supply what is demanded for the price offered.
He turns again to the fairness of distribution among laborers, which is handled accurately when laborers are paid for piece work: the worker who produces thirty units of a product is paid twice as much as the worker who produces merely ten. When wages are equalized and men are paid for their time, there are disparities. The same two men produce forty units, and each are paid for twenty, regardless of what they personally produced. In such a shop, the worker who produces ten feels he is getting an excellent deal whereas the one who produces thirty and received the same wage has the sense his time would be better spent elsewhere.
He then mentions "real" wages and rent, which are reflected by their purchasing power rather than their nominal amount. In the autistic economy, a person works to gain a certain amount of benefit - he works to produce food, and expects to do the same amount of work to produce the same amount of food the following day. In a monetary economy, a person may find that they earn the same wage as before but are able to purchase less for it, whether because of fluctuation of prices in the market or debasement of the currency in which his wage was paid. A worker may not notice a marginal decrease in the purchasing power of his money, or he may observe that "prices have risen" and not consider that this reflects a diminishing value of his income - but in the long run, the worker will recognize that the reward of his labor is not sufficient to meet his needs, he is working just as hard and getting less for it, and he will be prompted to seek work of a different kind, or at a different employer, or in a different industry. And of course the same applies to capital investments that return a fixed sum.
There's some mention of cost structures. A producer may bring different amounts of capital and labor to bear in his work - he may choose to use hand-tools and employ many laborers (having low capital but high labor) or use machines and fewer laborers (high capital low labor). Because the price that buyers will pay is independent of the costs of production, a producer's choices do not directly affect prices in the market. But in a competitive market, the most efficient producers will eventually win by providing the greatest quantities at the lowest costs.
Said another way, rent (or profit) is not earned by production, but by sale of goods at a price that is greater than the cost of manufacture. If goods are not sold, no rent is earned regardless of the efficiency of production. And if goods are not sold for an amount greater than the cost of producing them, no rent is available to be shared out once the cost of production are repaid.