rent must, however, be noted. The quality of a piece of land affects the amount of its physical product; it determines how many bushels of wheat or how many pounds of cotton it will yield with a given amount of cultivation. The location of land does not, it is true, affect the amount of its physical product, but it does affect the price of the product, since that varies with the expense of transporting the product to market. The money value of a piece of land to the user depends upon the money value of its yield, which is, of course, the number of units of products multiplied by the price per unit. Suppose a man owns two wheat farms of equal size, one in Dakota and one in Illinois. If the farm in Dakota produces thirty bushels of wheat to the acre, and it costs twenty cents a bushel to get it to the Chicago market, where wheat is selling at a dollar per bushel, while the farm in Illinois produces twenty-five bushels to the acre, and it costs four cents a bushel to get this to the Chicago market, the farms are equally productive so far as the owner is concerned, for in each case he will get $24 for an acre's yield of wheat. If the other conditions of production are the same, the farms are equally valuable to the owner. From the social point of view, too, one of the farms is as good as the other. For the costs of transportation, of moving things to where they are wanted, have to be counted among the legitimate and necessary costs of production. In short, we may say that the two pieces of land are equally good land. When we speak of good land, therefore, in connection with the subject of rent, we mean land which for all purposes taken together is desirable.

Rent under Assumed Conditions of Uniform Intensivity of Cultivation. The first settlers in a new country have no need to pay rent. They find plenty of land, and even the best of it will be a free good, like air or water. So long as any man can get land of the best quality free, there is no reason why he should pay rent to any one else. But this fortunate state of affairs will last only so long as some of the best lands remain unoccupied. When increase in the population makes the utilization of inferior lands necessary, the owners of the better lands will be able to demand

and receive a rent for the use of their lands. This will be made clear by reference to Figure 1, which is constructed on the assumption that there are six grades of land, A, B, C, D, E, and F, and that for all these lands the same amount of cultivation per acre is necessary. The successive rectangles represent the selling value of the product that can be raised on one

acre of each of these different grades of land, by the use of a fixed amount of labor and capital. The product of an acre of the best land, A, will sell for Oamy dollars. Until all of this best land is occupied, no rent will be paid, and the entire value of the product will be available for the expense of the capital and the wages of labor employed in its cultivation.1

As soon, however, as it becomes necessary to cultivate some of the B lands, the situation will be altered. The owners of the A lands can now exact a rent for their use, and the tenant farmer has no alternative, except to utilize land of the second grade, on which the fixed amount of labor and capital will only produce a product per acre selling for abnk dollars. The rent which will be paid per acre for A lands will amount to the difference between the value of the products of the two grades of land (hkmy in the diagram). For if the landowners attempt to charge more than this difference, tenant farmers will find it more

1 The profits which the farmer may receive as entrepreneur do not affect the analysis, and may accordingly be neglected.

advantageous to use the B lands; if they charge less, the A lands will be the more remunerative to the farmer, and competition among the farmers for the leases of A lands will force the rent up. In short, rent will normally be fixed at the point which will just equalize the advantages of cultivating the two kinds of land.

As soon as increased population and the consequent need of a larger food supply and more raw materials have forced men to begin to cultivate lands of the C grade, the B lands will command a rent, while the rent of the A lands will be increased by an amount equal to the rent of the B lands. And as cultivation is pushed down to still poorer and poorer lands, the rents which these better lands command will be still further increased. Thus, when some lands of grade E are in use, the value of the product which can be got from this free land, by the use of the fixed amount of labor and capital, will be dert dollars per acre. This sum will just about pay the cost of labor and capital, for if it amounts to less than these expenses of production, the E lands will not be worth cultivating; if it amounts to very much more, it will pay to cultivate still poorer land. But if dert dollars will just pay wages and interest on the E lands, the same sum will pay wages and interest on the better lands, for we have assumed that the same amount of labor and capital is used on each grade of land. The expense for labor and capital will, therefore, be represented on each rectangle by the area below the line gt, while the area above this line will represent in each case the rent per acre which the landowner will receive.

Rent, under these conditions, is a differential which measures accurately the superiority of the rent-bearing land over the marginal land the land which just repays the expenses of cultivation. It is not necessary to the significance of the theory that all, or even any, of the farmers should be tenant farmers. If the farmer owns the land that he operates, the part of his income to which may be attributed the superiority of his land over an equal area of marginal land must, in any accurate analysis, be counted as rent.

The conditions assumed in

Rent under Actual Conditions. the foregoing analysis depart from actual conditions in one important particular, the assumption that equal amounts of labor and capital, that is, a uniform intensivity of cultivation, would be used on lands of different grades. As a matter of fact, even after the A lands are all occupied, the supply of agricultural products can be increased without resort to poorer lands. All that is really necessary is the more intensive cultivation of the A lands. This cannot be done, however, without encountering the law of diminishing productivity. Successive equal amounts of labor and capital used on the same lands cannot be expected to yield uniformly large increments of product. It will pay, however, to make use of more intensive cultivation up to the point where the last unit of labor and capital adds barely enough to the prod- Y

uct to

m

C

Ꭺ

Ai

A2

FIG. 2.

pay for the increased expense, a point which is called the intensive margin. The result of this more intensive cultivation is represented in Figure 2. Now the first rectangle in this diagram (Oamy) represents precisely the same thing as is represented by the first rectangle in Figure 1, the return (in value of product) from the cultivation of an acre of land of A grade by the use of a fixed amount of labor and capital. The second rectangle in Figure 2, however, represents the additional product resulting from the use of a similar unit of labor and capital on the same acre, while the third represents the increment of product due to the employment of yet a third unit of labor and capital on the same land. Assume that this third unit, A2, adds just enough to the selling value of the product to pay for itself. Then, as already explained in the discussion of diminishing productivity, the area Ocph will represent that part of the farmer's income which will be used up by the expense incurred for the three units of labor

and capital used on this one acre of land, and the area above the line hq will represent the real rent of that acre.1 If land E (Figure 1) just repays the expenses of cultivation when one unit of labor and capital is used per acre, the value of the product per acre of this land will equal the value of the increment of product attributable to the third unit of labor and capital used on land A. (That is, the area dert, Figure 1, equals the area bcpq, Figure 2.) So far, then, as the margin of cultivation is concerned, Figure 1 represents the conditions accurately. The productivity of capital and labor at the intensive and extensive margins is the same.

But Figure 1 does not represent the complete theory of rent in that (1) it does not indicate the fact that larger quantities of capital and labor are used on the better lands than on the

poorer lands, and (2) it does not represent the larger products due to this more intensive cultivation of the better lands. These considerations are taken account of in Figure 3, which also, by the substitution of curves for successive rectangles, represents the infinite variety of degrees of goodness of the different acres making up the land sup

ply of a country. In Figure 3 the line am represents the money value of a product of a unit of labor and capital on the poorest land in use, and the area hmi represents what rent would be under conditions of uniform intensivity of cultivation. The area Oamg represents the diminishing amounts of labor and capital used per acre as we pass from the better to the poorer lands, while the area ymg represents the rent per acre of the different grades of lands. The foregoing analysis leads to the following 1 Neglecting, for the present, the possible existence of profits.