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rent
in law, periodic payment by a tenant for the use of another's property. In economics, its meaning is more complex, but since the word rent means any income or yield from an object capable of producing wealth, its limitation to a more special sense is somewhat arbitrary and justified only by a general consensus of opinion and usage. The term rent is now ordinarily used in the broad sense and, besides the return from land, includes the return from such things as tools, machinery, and houses. Objects are rented for a limited period of time and are generally expected to be returned in their original condition. The early English writers on economics (16th-18th cent.) used the word to mean interest on a loan, but its economic meaning gradually narrowed to the sense of the return on land. Modern rent doctrine began in the 18th cent. The physiocrats centered their economic system on land. They believed that rent was measured by the net product, i.e., the surplus over the cost of production. Because they identified wealth with fixed material objects, the physiocrats considered rent not as the variable yield from the land but as a fixed value, which they called
“current price of leases”
and
“disposable revenue.”
Adam Smith attempted to formulate a
“natural rate”
of rent based on the laws of supply and demand. This rate would be an amount high enough to induce the landowner to keep his land in cultivation and low enough to allow the tenant to subsist. David Ricardo held that demand determined the amount of marginal land under cultivation, and that rent was determined by this margin, which had the highest costs of production. Ricardo attacked Smith for putting rent on the same footing with wages and profits as one of the costs of production. Ricardo thought that high or low wages and profits were the cause of high or low prices, while high or low rents were the effect of these prices. Critics of Ricardian theory, such as Henry George , argued that monopolistic control of rent was the cause of poverty, which could only be cured by converting private rights into public by the medium of a single tax on land. Economic rent is the difference between the compensation for a factor of production and the amount necessary to keep it in its current occupation. In economic theory, under perfect competition, there would be no economic rent. Ground rent is paid to a landowner for the lease of property, often under long-term leases (such as a 99-year lease).
Bibliography: See C. Rowley and R. D. Tollison, ed., The Political Economy of Rent Seeking (1988).
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