THE RENT OF MINES 157 Summing up this explanation, we may say that rent is paid out of the prices which the “products of the soil” command. The supply of land of each grade, except the lowest, being limited, users of land bid against one another for different plots. This competition causes land to be graded in accordance with its economic importance. The rents paid for lots above the lowest grade include a differential element measuring the superiority of the land in its grade and a marginal element common to all land of the grade. Only grazing land, or land at the bottom of the economic scale, commands a rent consisting only of the differential element. It comes into direct comparison with free or no-rent land and the small rent it affords measures the narrow margin that separates the value of its products from the free goods which may be obtained gratuitously through the use of free land. 84. The Rent of Mines and Sources of Water Power. -In the above explanation of rent attention has been confined almost exclusively to land in the narrow sense. The rent earned by sources of water power and by mines is determined in a similar way, but deserves separate consideration. The utilization of water power involves usually a considerable outlay of capital, and hence the marginal powers used must afford a large return for interest on the capital invested even though they yield no rent. In connection with the use of water power situation is also an important factor. It is profitable to use the power of Niagara because it is surrounded by a rich agricultural and manufacturing country. Much cheaper sources of power are not yet utilized west of the Mississippi because other conditions are not favorable to the development of industries to which the power might be applied. From the marginal source of power in use, which affords no rent, the rents of superior or more favorably located sources of power are calculated by the familiar comparative method. Ordina rily water power is utilized by the entrepreneur who owns it, and hence its rent appears only as an item in his private bookkeeping. Competing with water power are steam power, horse power, etc. The price at which any substitute power can be obtained for the performance of a given industrial task constitutes a maximum above which the rent of water power cannot for any length of time be maintained. The rent of mines is determined in the same way as the rent of land, except that the marginal mine is not necessarily one which affords no rent. Since a mine will not renew itself, but by each year's operations is depleted of so much of its ore, the rational owner hesitates to work his mine when it barely pays expenses. The ore is a valuable asset, and the owner is short-sighted who takes it out to sell at cost. In practice this consideration is not very important. Mining is so uncertain that in nearly every branch of the industry mines are operated at cost or even at a loss by men who hope that the ore will get richer with depth or that the price of the mineral will advance. As a matter of fact, therefore, it is usually possible to find no-rent mines producing each variety of mineral that comes out of the earth. The rent of better mines is measured up from them as a no-rent margin. When mines are operated under lease the rent is usually calculated as a royalty proportioned to the amount of ore actually removed from the ground. Under this system when mines are operated literally at cost in wages and interest, the royalty represents an actual loss to the operator. This is usually an effectual bar to the operation of no-rent mines by other entrepreneurs than those who own them, but since the lease system is exceptional rather than the rule, this does not prevent the presence of no-rent mines in nearly every branch of the mining industry. 85. Complications in Connection with the Determination of Rent. Thus far in the explanation of rent, we COMPLICATIONS TOUCHING RENT 159 have spoken of land as though it were perfectly graded from best to poorest, and have implied that the location of a given piece of land in the particular grade to which it belongs is a simple matter. There are several wellknown facts in regard to land, sources of water power and mines which are inconsistent with these assumptions, and we must now consider whether these facts invalidate the explanation of rent which has been given. (1) There is not merely one use to which land is applied down to a no-rent margin, but several uses. In the United States some wheat is probably raised regularly on no-rent land and a good deal of corn is so produced. In these cases the rents of better wheat and corn lands are measured from the no-rent margin just as are those of the better grazing lands. Instead of having one no-rent margin we have several, but their collective influence on rent is no different from that traced to a single one. (2) In farming in the United States the tendency is more and more towards the diversification of crops. No one crop is raised continuously, but different crops are raised in rotation, and the productiveness of the land depends not upon its yield of wheat or corn or cotton alone, but upon its yield of all of the different crops grown over a series of years. Although this greatly complicates the rent problem it does not change the principles upon which rent depends. The tendency is still to devote each piece of land to the use for which it is economically best adapted. If this is diversified farming, then the average return in the different crops in the rotation for a series of years must be calculated and made the basis for comparing it with other pieces of land. Through the indirect process described it will be compared finally with no-rent land on the margin, and the surplus return it affords in comparison with no-rent land will be its rent. (3) No piece of land yields exactly the same return, even though cultivated in just the same way, two years together. The weather is a capricious partner upon which every farmer depends, and as a result of weather changes large crops are sometimes followed by small crops in spite of everything the farmer can do. These variations affect rent only by making it less a matter of exact calculation and more a matter of approximate estimate. Uncertain as is the outcome of each year's farming, the average return for a series of years may be foretold with a good deal of accuracy. It is these averages that should be and are considered in calculating the rent properly ascribable to a piece of land. (4) Some pieces of land, such as the barren rock of particular lots in New York City, are well adapted to one purpose, but unsuited to any other. Yet the absence of possible substitute uses does not prevent such pieces from commanding often very high rents. This is no real exception to the theory as explained. The primary cause of rent is the demand for land for industrial uses. If the possible uses are arranged in a scale in the order of their importance, then the best land for the purpose will be assigned to use A down to the point where a given piece is even better adapted economically—will yield a larger return-in use B. The existence of some pieces admirably suited for use A which will not serve use B or any other use simply lessens the requirements for land for use A that will serve use B. The result is a somewhat lower rent margin between A and B which communicates itself all along the line. Land adapted for one purpose only, if used at all, is of necessity devoted to that purpose and affords a rent depending upon the way in which it compares with marginal land used for the same purpose. Space will not permit a discussion of other apparent exceptions to the theory and their explanation must be left to the reader's ingenuity. In actual industrial society the rent problem is complex because new pieces of land are constantly being brought into use and old pieces are con RENT AND INTEREST 161 stantly being assigned to new uses. This makes the calculation of economic rent at any one time difficult and necessitates repeated revisions of the figures. The student who has mastered the underlying principles determining rent, however, will have no difficulty in ascribing their proper weight to these complicating circumstances. 86. Rent and Interest on Capital Permanently Embodied in Land. The difficulty of distinguishing between land and capital in the form of permanent improvements has already been alluded to. Once made, investments of capital in permanent improvements are merged in the land, and the incomes they afford obey the principles just laid down in reference to rent rather than those about to be explained as applying to interest. For example, consider the return on the investment of capital necessary to clear land and prepare it for the first time for cultivation. Unless the return promises to be large enough to pay the current rate of interest on the investment it will not ordinarily be made, but after it has been made the cleared land affords an income in no wise controlled by the amount of the investment. All the labor of New England farmers during the seventeenth and eighteenth centuries in clearing their farms of stones and improving them in other ways did not avail to check a rapid fall in the incomes they afforded to their descendants so soon as they came into competition with the better lands of the Mississippi Valley. The abandoned farms of New England bear eloquent testimony to the fact that interest can be continuously secured only for capital that may be withdrawn and reinvested as often as changes in industrial conditions make this desirable. So soon as capital becomes embodied in fixed and unalterable capital goods, the income it affords ceases to obey the principles determining interest and becomes subject to the law of rent. Most improvements, however, are not fixed and unalterable, but wear out and have to be renewed. They |