Henry George, answered from the texts and cited to the page.
The laws of distribution are the laws by which the wealth produced in any community is divided among the three claimants upon it: rent to land, wages to labor, and interest to capital. They are necessarily laws of proportion, and so must be related that any two being given, the third may be inferred. If Tom, Dick, and Harry are partners, to fix Tom's share at forty per cent. is to leave sixty to be divided between the other two.1
Now when I gathered the laws as the standard works teach them, I found no such relation among them. Wages were said to be fixed by the ratio of capital to the number of laborers; rent by the margin of cultivation; interest by the demands of borrowers against the supply of lenders. They do not correlate and co-ordinate, and from that it follows that at least two of the three are wrongly apprehended or wrongly stated.2
The proof that the true laws are found must be that they meet, and relate, and mutually bound each other. The key is the law of rent, which every economist of standing since Ricardo has accepted. Competition prevents the return to labor and capital from being anywhere greater than upon the poorest land in use, and so the owner of land can claim as rent all that exceeds what an equal application of labor and capital would yield there.3
The other two laws are corollaries of it. As Produce = Rent + Wages + Interest, therefore Produce − Rent = Wages + Interest.4 Wages and interest depend, then, not upon the produce of labor and capital, but upon what is left when rent is taken out. This is what explains the great enigma. The wealth of a community is divided by a rent line, fixed by the margin of cultivation.
Where land is cheap, as in new countries, production may be small and wages high; where land is dear, as in old countries, production may be vast and wages low. If the value of land rises with productive power, all the increase is swallowed up by rent, and wages and interest remain as before; if it rises faster, wages and interest fall though the produce be larger.5
None of this rests on any disputable ground. It rests on the principle that is to political economy what gravitation is to physics: that men seek to gratify their desires with the least exertion.6 Seen in relation to land, that principle is the law of rent; to capital, the law of interest; to labor, the law of wages.
The laws of the distribution of wealth are obviously laws of proportion, and must be so related to each other that any two being given the third may be inferred.Progress and Poverty, Memorial ed
They do not correlate and co-ordinate. Hence, at least two of these three laws are either wrongly apprehended or wrongly stated.Progress and Poverty, Memorial ed
the owner of land will be able to claim as rent all of its produce which exceeds what would be yielded to an equal application of labor and capital on the poorest land in use.Progress and Poverty, Memorial ed
As Produce = Rent + Wages + Interest, Therefore, Produce-Rent = Wages + Interest.Progress and Poverty, Memorial ed
If the value of land increases proportionately, all the increased production will be swallowed up by rent, and wages and interest will remain as before.Progress and Poverty, Memorial ed
This fundamental law, that men seek to gratify their desires with the least exertion, becomes, when viewed in its relation to one of the factors of production, the law of rent; in relation to another, the law of interest; and in relation to a third, the law of wages.Progress and Poverty, Memorial ed