Saturday, February 23, 2013

Production with Land

In addition to labor and capital there is allegedly a third factor of production—land. The production factor labor is always used in conjunction with or on the production factor land. Only the combination of labor and land—plus capital which draws production into detours—leads to the production of goods.
Land is needed in agriculture because we can sow and reap harvests only on land. Land is also necessary for every other production. The workers have to work somewhere. They cannot work in the clouds.
Economics is usually concerned only with agricultural land or urban landed property. But coal or oil fields are also land. There is no difference of principle between land yielding wheat and land yielding coal, or a river used for navigation or water power. We shall treat as land every part of the surface of our earth that yields space and natural resources, such as coal, minerals and so on. The sea, too, can be considered land in this sense.
Land was formerly defined as the eternal and indestructible basis of all production. This is too narrow and even a wrong definition. If the soil is not conserved, it gets exhausted as do oil wells and coal mines.
As a site for production and consumption land indeed renders eternal services. Its utility to man can, however, vary within wide limits. It can increase, for instance, by the introduction of new means of communication.
The utility of land is identical with the utility of all services rendered by it. If these services are limited, in time the value of land is generally considered as the sum of all these services. In so far as the services are eternal, land is valued as the carrier of recurring annual yields. As we shall presently see, the price of land is equal to the money value of these annuities, capitalized at the prevailing interest rate

Common Sense Economics

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