Monday, April 23, 2012

Rent - Frédéric Bastiat


If, when there is an increase in the value of land, there were a corresponding increase in the prices of agricultural products, I could understand the objections raised against the theory presented in chapter 9 of this book. It could then be said: As civilization advances, the worker's situation becomes less favorable in relation to the landowner's; this is perhaps a necessary development, but it is certainly not a law of harmony.

Fortunately, this is not the case. In general, the circumstances that increase the value of land decrease at the same time the prices of what is raised on it. Let me explain this by an illustration.

Let us suppose that there is a farm located twenty miles from the city and worth one hundred francs. A highway is constructed that runs close to this farm. It opens up a market for the crops, and at once the value of the farm rises to one hundred and fifty francs. The landowner, now having the means to make improvements or to raise a greater variety of crops, improves his property, and its value increases to two hundred francs.

Thus, the farm's value has been doubled. Let us examine this additional value, first from the standpoint of justice, then from the standpoint of the utility enjoyed, not by the proprietor, but by the consumers in the city.

As for the increase in value coming from the improvements made by the landowner at his own expense, there is no question. This is a capital investment and follows the law of all capital investments.

The same is true, I venture to say, for the highway. The operation follows a more circuitous course, but the result is the same.

In fact, the owner, by reason of his farm, pays his share of the public expense. For many years he contributed to the general utility by doing work on outlying areas. Finally, a road has been constructed that runs in a direction that is helpful to him. All the taxes he has paid can be compared to stocks he might have bought in government enterprises; and the yearly rent, which now comes to him because of the new highway, may be regarded as their dividend.

Will it be said that a landowner may pay taxes forever and never receive anything in return for them? This case, then, is analogous to the other; and the improvements, although effected through the complicated and more or less questionable medium of the tax, may be considered as having been carried out by the landowner and at his expense in proportion to the partial advantage that he realizes.

I spoke of a highway, but I could have cited any other example of government intervention. Police protection, for example, gives value to land as well as to capital and labor. But who pays for police protection? The landowner, the capitalist, the worker.

If the state spends its revenue wisely, equivalent value must in some form or other find its way back to the landowner, the capitalist, and the worker. For the landowner it can only be in the form of an increased price for his land. If the state spends its revenue unwisely, it is unfortunate. The tax money is lost; the taxpayers should have been more alert. In that case the land does not rise in value, but certainly that is not the fault of the landowner.

But, now that the land has thus increased in value through government action and private initiative, do the crops raised on it bring a higher price from the city dwellers? In other words, is the interest on these hundred francs added as a surcharge on every hundredweight of grain that comes from this land? If the grain previously cost fifteen francs, does it now cost fifteen and a fraction? This is a most interesting question, since justice and the universal harmony of men's interests depend on its answer.

I reply confidently: No.

No doubt the landowner will now get a return of five francs more (I am assuming a profit rate of five per cent), but he will not get them at a cost to anyone. Quite the contrary; the buyer, in his turn, will profit even more.

The fact is that the farm we have chosen as an illustration was originally remote from any markets, and little was produced on it. Because of transportation difficulties the products that reached the market were expensive. Today production has been stepped up; transportation is economical; a greater amount of grain reaches the market, costs less to get there, and is sold at a better price. So even though he yields the landowner a total profit of five francs, the buyer profits even more.

In a word, an economy of effort has been effected. To whose profit? To the profit of the two contracting parties. According to what law is a gain of this kind shared? The law that we have often cited in reference to capital, since this increase in value represents a capital gain.

When there is a capital gain, the landowner's (or capitalist's) share increases in absolute value and diminishes in relative value; the worker's (or consumer's) share rises in both absolute and relative value.

Observe how this occurs. As civilization develops, the lands nearest the centers of population increase in value. Inferior crops give way to superior ones. First, pasture lands give way to cereal crops; then, cereals are replaced by truck gardens. Foodstuffs come from greater distances at less cost, so that—and this is an unquestionable fact—meat, bread, vegetables, even flowers, cost less than in more backward countries, although labor is better paid than elsewhere.

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