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.

m

Rent under Actual Conditions. - The conditions assumed in 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 product to 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

a

FIG. 2.

A2

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 I 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

urger products due to

m

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 Neglecting, for the present, the possible existence of profits.

statement of the theory of rent, which the reader may verify for himself by referring to Figures 1 and 2:

The rent of any piece of land is measured by the difference between the money value of the products obtained from it by the use of the most advantageous amounts of labor and capital and the money value of the products which could be obtained by the use of the same amounts of labor and capital on marginal land, or at the intensive margin of cultivation.

This statement should not be understood as comparing the total product raised on a given piece of land with the total product which could be got from the same amount of marginal land. This would be to reintroduce the assumption of uniform intensivity of cultivation — an assumption which impaired the adequacy of the theory of rent illustrated in Figure 1 above. On the contrary, it is assumed in the present statement that the farmer would use whatever amount of the marginal land he found most profitable. If it were profitable to use twenty times as much labor and capital on a certain piece of land as on a similar amount of marginal land, to employ the same amount of labor and capital profitably on marginal land would take twenty times as much land.

Rent and the Marginal Product of Land. In an earlier chapter it was suggested that rent could be measured by the marginal product of land; in other words, that the amount which a farmer would pay per acre for the use of land would depend upon the money value of so much of his product as was dependent upon the possession of any one acre of land. In that discussion it was assumed, however, that land was of a uniform degree of goodness. Obviously, if all land really were of a uniform degree of goodness, in all ways equally desirable, no rent would be paid until all lands were utilized, when rent would arise on account of the necessity of increased intensivity of cultivation.

But even under the actual conditions of the existence of different grades of land and of a large body of land which is below the margin of cultivation, the rent of any acre of the better lands can be stated in terms of the value of its product. For the rent of any acre of land is determined by the money value of the amount of the product imputed to it (as distinct from the product imputed to the labor and the capital employed upon it). Now the product that must be imputed to any acre of land is, of course, the amount which it adds to the total product, or, what amounts to the same thing, the amount by