What is the law of rent?

Henry George, answered from the texts and cited to the page.

Henry George answers

The law of rent is the one proposition in political economy on which authority and common sense agree, and I begin with it because everything else I have to prove rests upon it. It runs: the rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use.¹ Mill called it the pons asinorum of the science, and it is sometimes styled Ricardo's law, because Ricardo, though not the first to announce it, first brought it prominently into notice.²

Its force is that of a self-evident proposition. Competition drives the reward of labor and capital down to the lowest figure for which they will engage in production, and that lowest figure becomes the most they can claim anywhere. The owner of the better land therefore appropriates all the return above what labor and capital could have had at the margin, where no rent is paid.¹

Put it the other way if you like: ownership of a natural agent gives the power to take whatever part of the wealth produced upon it exceeds what the same labor and capital could secure in the least productive occupation they freely enter.³ Take a community where the poorest land cultivated yields 20, and so 20 is the return to labor and capital in manufactures as well as in farming.

Let the return in manufactures fall to 15, and men turn to the soil until the yield is levelled again, whether at 18 or 17 or 16. To say that rent is the excess over the margin of cultivation is the same as to say it is the excess over what labor and capital obtain in the least remunerative occupation.⁴ The law is a deduction from the law of competition, and it rests, in the last analysis, on the principle that is to political economy what gravitation is to physics: men seek to gratify their desires with the least exertion.⁵

Rent, in short, is the price of monopoly, arising from the reduction to individual ownership of natural elements which human exertion can neither produce nor increase.⁶ The law is not confined to the farm, either. Ricardo spoke as though manufactures yield no rent, when in truth manufactures and exchange yield the highest rents, as the value of land in great cities shows.⁷

Its great consequence is for wages. Produce equals rent plus wages plus interest, therefore produce less rent equals wages plus interest.⁸ Wages and interest depend not upon what labor and capital produce but upon what is left after rent is taken out, upon what they could obtain from the poorest land in use. No matter what the increase in productive power, if rent keeps pace with it, neither wages nor interest can rise.⁸

So the law of wages is the corollary of the law of rent, and the line of rent is the necessary measure of the line of wages.⁹ That is the key to the enigma of progress and poverty.

Sources

1. The rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use.

   Progress and Poverty, Memorial ed

2. This accepted law of rent, which John Stuart Mill denominates the pons asinorum of political economy, is sometimes styled 'Ricardo's law of rent,' from the fact that, although not the first to announce it, he first brought it prominently into notice.

   Progress and Poverty, Memorial ed

3. The ownership of a natural agent of production will give the power of appropriating so much of the wealth produced by the exertion of labor and capital upon it as exceeds the return which the same application of labor and capital could secure in the least productive occupation in which they freely engage.

   Progress and Poverty, Memorial ed

4. to say that rent will be the excess in productiveness over the yield at the margin, or lowest point, of cultivation, is the same thing as to say that it will be the excess of produce over what the same amount of labor and capital obtains in the least remunerative occupation.

   Progress and Poverty, Memorial ed

5. It rests, in the last analysis, upon the fundamental principle, which is to political economy what the attraction of gravitation is to physics—that men will seek to gratify their desires with the least exertion.

   Progress and Poverty, Memorial ed

6. Rent, in short, is the price of monopoly, arising from the reduction to individual ownership of natural elements which human exertion can neither produce nor increase.

   Progress and Poverty, Memorial ed

7. when, in truth, manufactures and exchange yield the highest rents, as is evinced by the greater value of land in manufacturing and commercial cities, thus hiding the full importance of the law

   Progress and Poverty, Memorial ed

8. Thus wages and interest do not depend upon the produce of labor and capital, but upon what is left after rent is taken out; or, upon the produce which they could obtain without paying rent—that is, from the poorest land in use.

   Progress and Poverty, Memorial ed

9. That is to say, the line of rent is the necessary measure of the line of wages.

   Progress and Poverty, Memorial ed