The Doctrine of Rent.
The doctrine of Rent spoken of in the last Lecture, must now be more fully explained, as I have said; it may be briefly stated thus: The Rent of land is the payment for the excess of the value of the produce of the better land over the poorest cultivated land: the poorest being that kind of land which just pays for being cultivated.
Let A be the best land (best as being most fertile, nearest the market, or for the like reasons). And let the produce of it under the usual cultivation be £12 per acre per annum on the average.
Let B be next best land, and let its produce be £10 per acre; and suppose this produce just pays the expense of cultivation.
Let C be still inferior land, which under the like cultivation yields only £8 per acre.
Therefore the land C does not pay the expense of cultivation, and no one will with a view to profit, bestow upon it the expense of cultivation.
The land B may be cultivated with a view to profit, by a person who can have it rent-free: by the proprietor for instance.
The land A may l)e cultivated with a view to profit by any one, paying for it a rent of £2 an acre. When he has paid that rent, his profits will still be the usual profits of stock.
This is necessarily the origin and measure of Rent: for the proprietor of A will not allow any one to cultivate it on lower terms, since he can obtain those terms.
A person who thus rents land and cultivates it with a view to obtaining the profits of his stock, is a Farmer. The Rents now spoken of are Farmer's Rents.
A: Produce = 12
Rent = 2
B: Produce = 10
Rent = 0
C: Produce = 8
This diagram may represent the kinds of land: A, B, C the different kinds yielding different values of produce, in consequence, as has been said, of being more fertile, nearer to the market, or other causes.
Recent Rise of Rents in England, how produced?
The main importance of the Doctrine of Rent, is in the views to which it leads respecting the causes and the effects of a rise or fall of rents.
Suppose that the price of corn (or other produce of the land,) increases, and that the expense of cultivating the land remains the same. Suppose this increase of price to be one fourth of the original price.
Then the value of the produce of A will be increased by ¼: instead of 12, it will be 12 + 3 or 15.
The value of the produce of B will be increased also by ¼: instead of 10 it will be io + 2½ or 12½.
And as the expense of cultivation is still only 10 as before, there will be in this case, besides the ordinary profit of stock, an extra profit of 2½ which the farmer of B can afford to pay to the proprietor; and which the proprietor will demand as the rent of B.
In this case the value of the produce of C will also be increased by one-fourth instead of 8 it will be 10. And as the expense of cultivating C with the usual profits is 10, a person can afford to cultivate C, paying no rent.
In this case C, which was not cultivated before, is cultivated now in consequence of the increased price of corn. This increased price may be supposed to arise from the increased demand occasioned by an increased population. The increased produce arising from the cultivation of C will provide for the increased population.
This new state of things may be represented by this diagram,
A: Produce =15
Rent = 5
B: Produce = 12½
Rent = 2½
C: Produce = 10
Rent = 0.
In this case, Rents increase in consequence of corn having become dearer.
Mr Ricardo assumed that this was the general case :that a rise of rents is always accompanied by an increased price of corn, in consequence of the necessity of obtaining corn from inferior soils: as in. the above case, in consequence of the increase of population it was necessary to obtain corn from the land C, as well as from the land A and B.
Mr Ricardo asserted that the interest of the landlord (which is the rise of rents), is opposed to the interest of the consumers of produce (which is cheap prices).
It will be my business to show that this proposition is altogether erroneous.
That cause which Mr Ricardo assumes as the general cause of the rise of rents is not the general cause, if it ever operate: and is not the cause of the rise which has taken place in England in modern times.
I will first prove that this is not the cause which has operated, and then I will endeavour to show what is the cause which has produced the effect.
This, then, is the proposition to which I first invite your attention.
The rise of rents in England in recent times has not resulted from the Ricardian cause, the rise of prices of produce in consequence of the increased difficulty of production.
To prove this, I shall prove that when rents rise from the Ricardian cause, (the increased difficulty of production), the whole rent must necessarily become a larger fraction of the produce.
Thus, in the case which we have taken, the produce of an acre of the lands A, B, C, is respectively 12, 10, and 8. And, if we suppose the quantity of each quality of land to be equal, (a supposition made merely at first to simplify the reasoning,) when C is not cultivated, the produce is as 12 + 10 = 22, and the rent as 2. The rent is 1/11 the produce.
When C is cultivated, the produce is as 1 + 12½ + 10 = 37½, and the rent is as 5 + 2½; = 7½. The rent is ½ the produce.
Thus in this case the rent increases from 2 to 7½, and it is at the latter stage 1/5 of the produce, having at the former been It is a larger portion of the whole at the last than at the first.
The numbers in this case result from the supposition that the quantities of each of the kinds of land, A, B, C, are equal.
But the general result, that the rent is a greater portion of the produce at the latter stage than at the former, does not depend on any supposition as to quantities. It will be the same, whatever be the quantities of different kinds of land.
For each kind of land will have the rent a greater fraction at the latter stage than at the former ; and therefore all the fractions at the latter stage, multiplied by their quantities, and added together, must be greater than at the former stage.
But in the progress of agriculture in England during the present century, it is allowed, by all who have attended to the subject, that though the amount of rent has increased, the rent is now a smaller fraction of the gross produce than it was formerly. The rent was in former times one third of the gross produce. It is now one fourth, or one fifth.
How is this to be explained?
The same result follows if we compare England and France; for France, in matters of agriculture, may be regarded as representing England at an earlier stage.
Thus M. Lavergne, who has studied the causes of the superiority of England to France, and published his results (L'Economie Rurale de l'Angleterre, 3rd Ed. 1858, p. 98), states the gross produce of a hectare in France to be 100, and the rent 30; in England the gross produce for the same quantity of land is 250, and the rent is 75. The rent in the former case is 3/10, in the latter it is still 3/10, though the actual amount of the rent is more than doubled.
Again I ask, how is this to be explained? It appears to mc to be one of the most important problems in Political Economy; both as to its bearing upon the Doctrine of Rent, and as to its bearing upon the nature of agricultural progress. How is it to be solved?
The only solution must be this: that the nature of agricultural progress in these cases is not that which is supposed in the theory as stated by Ricardo; namely, the increased difficulty and expense of raising produce from land; or, as it is also expressed, the extension of cultivation to inferior soils.
But if it is not that, what is it? 1 reply, it is the use of Auxiliary Capital; that is, capital employed in machines, (ploughs, carts, &c.) manure, draining, working cattle, and all other contrivances by which the agricultural labour of man is assisted.
Such capital is employed to a very large extent in England. It appears (Jones, On Rent, p. 223), from various returns made at different times to the Board of Agriculture, that the whole capital agriculturally employed is to that applied to the support of labourers, as 5 to 1: that is, there is four times as much auxiliary capital used as there is of capital applied to the maintenance of labour and directly in tillage. In France, the auxiliary capital used does not amount (as appears from Count Chaptal's statement) t.o more than twice that applied to maintain rustic labour. In other European countries the quantity of auxiliary capital is probably much less.
Now, how will this auxiliary capital affect the question of rent?
In this way. The capital thus employed is to a curtain extent, fixed capital that is, it lasts a certain number of years, and requires to be replaced only after that time. Thus a capital of £6o which wears out in 10 years may be replaced by a return of £6 a year. Or rather, a capital of £50 which wears out in 10 years may be replaced with profits by a return of £6 a year. Now, what will be the effect of such a capital on Rents?
This capital (£50 an acre) will not be employed, unless it will produce a return of £6 an acre. It must therefore increase the produce to at least that amount.
Suppose, as before, three qualities of land
A B C
of which the produce is
20 15 10,
The gross produce is here 20+15+10 45, and the rent is
and as 15 is one third of 45, the rent is of the gross produce.
Let now the capital (say £50 an acre) be applied, and let the produce now become greater than it was for
A B C
8 7 6,
A and B thus still retaining their superiority over C: the produce now is
A B C
28 22 16.
The gross produce is now 28 + 22 + 16=66, and the rent is 12+6=18, the rent is 18/66 of the produce, which is a smaller fraction than before, though the rent itself has increased from 15 to 18.
Let us make a supposition of a. still larger increase of produce by the application of capital. The produce without the capital being as before, for
A B C
20 15 10.
Let the addition resulting from the application of capital be
16 15 14:
the produce will now be
36 30 24.
The gross produce is 90, the rent is
12+6=18, and 18 is 1/5 of 90; so that in this case, though the rent is increased from 1 to 18, it is, as a fraction of the produce, diminished from one third to one fifth.
We here suppose that the produce of the land C, which was xo before the application of the capital, is 24 with the capital. The amount 10 corresponds to the wages of labour, and 14 is required to replace the capital with profits.
M. Lavergne gives the following estimate of the distribution of the produce for an English and for a French hectare, (Ec. Rur. p. 98):
Farmer's profits 10
Accessory expenses ... 50
Farmer's profits 10
Accessory expenses 8
Here the Accessory Expenses are the return which is requisite to replace the Auxiliary Capital. As we see, he makes them io times as great in England as in France.
We see that while the farmer in England pays 75 in wages, he requires 90 for his profits, and for keeping up his stock.
Since his profits are estimated at 40, we may estimate his capital at 400, which is more than 4. times what he pays in wages; as I have said that those who judge from facts have estimated it.
But all these numbers are hypothetical, and introduced merely for the sake of illustrating by example my proposition. The proposition is this: that rents may increase not only by the extension of cultivation to poorer soils; but also by the improvement of methods of culture; and that the increase of produce and of rents in England has arisen from such improvement, much more than from the extension of culture to worse soils.
Further, this improvement of the methods of culture has involved the application of a great amount of capital, as auxiliary to the labour of man in cultivation.
We know such an application of capital to have taken place; and the proof that this is the real case is found in the fact, that the rent has become a smaller portion of the gross produce.
I hope I have now given a solution of the Problem: How it has come to pass, that while rents have increased in England, the rent has become a smaller fraction of the produce. It is demonstrable, as you have seen, that this cannot arise from the cause asserted by Mr Ricardo and Mr McCulloch to be the sole and universal source of an increase of rents.
But it may be asked, how did the proposition which I am combatingthat the increase of rent arises universally from the extension of cultivation to inferior soils, or to the same soil with inferior returnsobtain such a hold on the minds of eminent Political Economists?
To this I reply, that this happens because this proposition was an ingenious deduction from the doctrine of rent. on a certain hypothesis; namely on the hypothesis of a constantly decreasing return to agricultural labour; and in consequence of the ingenuity of the deduction, the doctrine and the hypothesis were accepted as proving each other.
The doctrine of rent, that rent is the excess of the produce of good soils over the worst soils, or over the worst remunerated capital, was received, as we have seen, with great admiration. The hypothesis, that successive equal doses of labour or of capital produce diminishing results, was accepted as most simple. Perhaps it was suggested by a vague notion of the effect of labour employed in digging the soil. If the produce of a given field be increased by one man's digging over the soil, it may perhaps be further increased by two men who may pulverize the soil still further: but it is not likely that the second man's labour will produce an addition equal to the first.
But there seems to be no reason whatever to suppose that this is the rule of the general ease. Additional labour, and additional capital, may be employed upon land, and the result may be no additional produce. But also additional labour and additional capital, in other ways, may be employed so as to give additional produce to an extent of which we cannot prescribe the limits beforehand. The great point in such cases is to discover how this may be done. The result depends upon agricultural skill and inventiveness, and may be great or may be small. Though the law of decreasing productiveness to additional labour and capital had been laid down with great confidence, there seems to be no ground for asserting it as a law of the progress of agriculture. The great improvements in agriculture, improved machines, manures, drainage, do not appear to have followed this law. The improvements in agriculture have not consisted in trying more and more to squeeze from a given plot of ground the utmost crop that it can produce of one kind, but in introducing new kinds of food for animals, as turnips into the sandy soils of Norfolk, and artificial grasses of all kinds, and in making one part of the farm play into the hands of another, so as to feed an increased number of cattle, and yet to have an increased breadth of cereal crops. There have been improvements too in all agricultural machinery: new manures: new and improved modes of draining: and many other improvements. In these ways the produce of the land has been increased, and additional capital has been employed upon it: but there is no ground whatever for saying that each additional equal dose of capital so applied has produced smaller results.
To make improvements in agriculture must depend, as I have said, upon inventive skill and it is the skill which has been brought out in this pursuit in England which has been the cause of the agricultural progress of England; and this has been the reward of the care, study, and enterprize bestowed upon the subject. That this, and not the decreasing fertility of soils, is the cause of the increase of rents in England, is shown, as I have said, by the fact that the rent though greater absolutely, is a less fraction of the whole produce.
Proportion of agricultural and non-agricultural Population.
Besides the proportion which rent bears to produce, there is another large fact in the condition of England, which proves, in the most conclusive manner, that the course of events by which England has come into its present condition, has been an increase in the productive powers of its agriculture, such as has placed it in advance of other countries: in advance of France, and of other countries probably still more.
This fact is, the proportion of the non-agricultural to the agricultural population. In England the non-agriculturists are double the number of the agriculturists. In England, cultivators of the soil produce sustenance for 8 besides themselves; that is, for 12 persons altogether.
But in France before the Revolution, the cultivators were to the non-cultivators as 4 to 1: that is, 4 cultivators produced sustenance for 5 persons.
Perhaps now in France the cultivators arc to the whole population as 2 to 3. Hence 4 cultivators produce sustenance for 6 persons. Thus the productive powers of the agricultural population are in England double of what they are in France.
What is the manner of the increase of the nonagricultural classes? Plainly the employment of Auxiliary Capital brings many of them into being. The Auxiliary Capital is employed in supporting those who are not directly engaged in agriculture, but in other ways auxiliary to agriculture: for instance, the machine-maker, who makes ploughs and carts, and now, thrashing and winnowing machines worked by steam-engines:the brick-maker who makes draining tiles: the sailor who brings guano from afar :and many others. It is reckoned, as I have said, that (Jones, p. 232) the agriculturists, in using the results of such auxiliaries, employ 4 times as much capital as they expend in wages.
Hence, if wages be as 10, the whole capital employed must be as 50; and if the farmer's profit on his capital be io per cent., which is a reasonable rate, the farmer's income will be 5; that is, half the whole amount of the wages which he pays to his labourers,
Mr Jones, from whom I mainly take these details, has traced into other results the effects of the employment of auxiliary capital. On this point of the great income of the capitalists employed in agriculture, he observes, (p. 233):
"While the revenue of the capitalists equals only one tenth that of the labourers, they form no prominent part of the community, and indeed must usually be peasants or labourers themselves. But a mass of profits equal to or exceeding one-half the wages of [agricultural] labour (which mass exists in England) naturally converts the class receiving it into a numerous and varied body. Their influence in a community in which they are the direct employers of almost all the labourers, becomes very considerable; and what is in some respects of more importance, such a rich and numerous body of capitalists,as, descending from the higher ranks they approach the body of labourers by various gradations till they almost mingle with them form a species of moral conductors by which the habits and feelings of the upper and middling classes are communicated downwards, and act more or less powerfully upon those of the very lowest ranks of the community."
The above views of the effect of Auxiliary Capital on Rent are borrowed from a very able and original work on Rent, published in 1831, by Mr Richard Jones, who was subsequently Professor of Political Economy .at Haileybury College. So far as I know, he was the first person who solved the problem which we have been considering; how Rents become absolutely larger and yet a smaller part of the produce.
Different kinds of Rent.
All that has been said applies only to Farmers' rents; that is, rents paid to a landlord by a capitalist who employs labourers. The capitalist employs his capital for Profit; and the rate of profit is determined by competition with other capitalists. If he could not get this profit by farming, he would remove his capital to some other employment.
But this fact thus assumedthat capitalists can remove their capital from farming, and will do so, if farming does not payis not generally true;is, in fact, true only in England and a few districts elsewhere. Nor is it true that the land is cultivated by capitalists employing others to labour, selling their produce and living upon the proceeds. Over the greater part of the earth's surface, cultivation is carried on by persons who raise their subsistence from the soil, and pay a portion to the owner of the soil, in this case the payments to the owner of the soilrents, that isare determined not by competition, but by custom.
And thus, in fact, land has been held, and rent has been paid, on very different principles from that which we have described. According to the mode of holding the cultivators have been classed as Métayers, Serfs, Ryots, Cottiers.
These are thus characterized by Mr Jones, who introduced this classification into Political Economy.
The Métayer is a peasant tenant, extracting his own wages and subsistence from the soil. He pays a produce rent to the owner of the land. The landlord supplies him with stock.
`This mode of tenure prevails largely in France and Italy, and was the common tenure among the Greeks and Romans: (Métayers = Medietarii).
Serf rents are labour rents: that is, the owner of the land sets aside a portion of the land for cultivation by the peasant and leaves him to extract his own subsistence from it; and lie exacts as a rent for the land, thus given to the cultivator, a certain quantity of labour to be employed on the remainder of the estate, for the benefit of the lord.
These rents have prevailed on a larger scale in Eastern Europein Russia, Hungary, Poland, Livonia and Esthonia, and in Germany. There are, or were lately, remnants of them in the Scottish highlands, (Jones, p. 45).
Ryot rents are produce rents paid by a labourer raising his own wages from the soil, to the sovereign, as the proprietor of the soil, (Jones, p. 109).
They are peculiar to Asia, India, Persia, Turkey; probably exist in China.
Cottier rents are rents contracted to be paid in money by peasant tenants, extracting their own subsistence from the soil. They exist in Ireland.
Mr Mill, who has borrowed Mr Jones's classification in the main, puts Ryot rents and Cottier rents in the same chapter: but the differences between the two are important, as we shall see.
Mr Mill has an excellent chapter in which he shows how the difference between Farmers' rents and other rents depends on the difference between Competition and Custom, as the general rule of economical proceedings (Polit. Econ. p. 282).
"Under the rule of individual property, the division of the produce is the result of two determining agencies: Competition, and Custom. It is important to ascertain the amount of influence which belongs to each of these causes, and in what manner the operation of one is modified by the other.
"Political economists generally, and English political economists above others, are accustomed to lay almost exclusive stress upon the first of these agencies; to exaggerate the effect of competition, and take into little account the other, and conflicting principle. They are apt to express themselves as if they thought that competition actually does, in all cases, whatever it can be shewn to be the tendency of competition to do. This is partly intelligible, if we consider that only through the principle of competition has political economy any pretension to the character of a science. So far as rents, profits, wages, prices, are determined by competition, laws may be assigned for them."
And this applies especially to the tenure of land, (p. 285):
"The relations, more especially, between the landowner and the cultivator, and the payments made by the latter to the former, are, in all states of society but the most modern, determined by the usage of the country. Never until late times have the conditions of the occupancy of land been (as a general rule) an affair of competition. The occupier for the time has very commonly been considered to have a right to retain his holding, while he fulfils the customary requirements; and has thus become, in a certain sense, a co-proprietor of the soil. Even where the holder has not acquired this fixity of tenure, the terms of occupation have often been fixed and invariable.
"In India, for example, and other Asiatic communities similarly constituted, the ryots, or peasant-farmers, are not regarded as tenants at will, or even as tenants by virtue of a lease. In most villages there are indeed some ryots on this precarious footing, consisting of those, or the descendants of those, who have settled in the place at a known and comparatively recent period: but all who are looked upon as descendants or representatives of the original inhabitants, are thought entitled to retain their land, as long as they pay the customary rents. What these customary rents are, or ought to be, has indeed, in most cases, become a matter of obscurity; usurpation, tyranny, and foreign conquest having to a great degree obliterated the evidences of them. But when an old and purely Hindoo principality falls under the dominion of the British Government, or the management of its officers, and when the details of the revenue system come to be in quired into, it is often found that although the demands of the great landholder, the State, have been swelled by fiscal rapacity until all limit is practically lost sight of, it has yet been thought necessary to have a distinct name and a separate pretext for each increase of exaction; so that the demand has sometimes come to consist of thirty or forty different items, in addition to the nominal rent. This circuitous mode of increasing the payments assuredly would not have been resorted to, if there had been an acknowledged right in the landlord to increase the rent. Its adoption is a proof that there was once an effective limitation, a real customary rent; and that the understood right of the ryot to the land, so long as he paid rent according to custom, was at some time or other more than nominal. The British Government of India always simplifies the tenure by consolidating the various assessments into one, thus making the rent nominally as well as really an arbitrary thing, or at least a matter of specific agreement: but it scrupulously respects the right of the ryot to the land, though it seldom leaves him much more than a bare subsistence.
"In modern Europe the cultivators have gradually emerged from a state of personal slavery. The barbarian conquerors of the Western empire found that the easiest mode of managing their conquests would be to leave the land in the hands in which they found it, and to save themselves a labour so uncongenial as the superintendence of troops of slaves, by allowing the slaves to retain in a certain degree the control of their own actions, under an obligation to furnish the lord with provisions and labour. A common expedient was to assign to the serf, for his exclusive use, as much land as was thought sufficient for his support, and to make him work on the other lands of his lord whenever required. By degrees these indefinite obligations were transformed into a definite one, of supplying a fixed quantity of provisions or a fixed quantity of labour: and as the lords, in time, became inclined to employ their income in the purchase of luxuries rather than in the maintenance of retainers, the payments in kind were commuted for payments in money. Each concession, at first voluntary, and revocable at pleasure, gradually acquired the force of custom, and was at last recognised and enforced by the tribunals. In. this manner the serfs progressively rose into a free tenantry, who held their land in perpetuity on fixed conditions. The conditions were sometimes very onerous, and the people very miserable. But their obligations were determined by the usage or law of the country, and not by competition.
"Where the cultivators had never been, strictly speaking, in personal bondage, or after they had ceased to be so, the exigencies of a poor and little advanced society gave rise to another arrangement, which in some parts of Europe, even highly improved parts, has been found sufficiently advantageous to be continued to the present day. I speak of the métayer system. Under this, the land is divided, in small farms, among single families, the landlord generally supplying the stock which the agricultural system of the country is considered to require, and receiving, in lieu of rent and profit, a fixed proportion of the produce. This proportion, which is generally paid in kind, is usually, (as is implied in the words métayer, mezzaiuolo, and medietarius,) one-half. There are places, however, such as the rich volcanic soil of the Province of Naples. where the landlord takes two-thirds, and yet the cultivator by means of an excellent agriculture contrives to live. But whether the proportion is two-thirds or one-half, it is a fixed proportion; not variable from farm to farm, or from tenant to tenant. The custom of the country is the universal rule; nobody thinks of raising or lowering rents, or of letting land on other than the customary conditions. Competition, as a regulator of rent, has no existence."