The Wealth of Nations
Book 1, Chapter 11
the Rent of Land
Rent is the price paid for the use of land. Landowners endeavor to leave tenants with the smallest amount of money for their subsistence.
A landlord will charge rent for the land based on the potential productivity of that land, so any improvements made to the land by the tenant in fact increase the rent, as if they had been made by the landlord.
The rent paid by the tenant for using the land is based on what the tenant can afford to pay, making it a monopoly.
Wages and profit are the causes of high or low price; high or low rent is the effect of it.
The Produce of Land which always affords Rent
Food is always in demand. Land produces more than enough food to pay the tenant for his upkeep, with any remaining money being claimed by the landowner as rent. This rent goes up based on the land’s productivity.
A land’s rental cost varies according to its fertility and location. Rent will be higher for land located near town. A good transport infrastructure means that land in remote parts of the country is as accessible as that near major towns.
A moderately fertile cornfield produces a greater quantity of food than the best pasture. Corn is an annual crop, whereas livestock requires four or five years before it is ready to market. As an acre of land will produce a much smaller quantity of the one than of the other, this lower quantity must be compensated for by a higher price. In major towns, the demand for milk and hay for horses, together with the high price of butcher's meat, increase the value of grass.
The use of turnips, carrots, cabbages and other legumes to feed a greater number of cattle than when in grass will tend to reduce the price of butcher's meat over that of bread. The landowner’s rent in the case of a hop garden, fruit garden or vegetable garden will generally be higher, and the farmer’s profit generally greater than for a corn or grass field. But to obtain the richness of soil needed for these crops costs more, so the landowner will charge a higher rent. On the other hand, the land requires more skillful management—hence the farmer will be paid a higher wage. In the past, productive vegetable gardens were the most productive in a farm.
The sugar colonies owned by European nations in the West Indies may be compared to vineyards. Their entire produce falls short of market demand from Europe, and can therefore be sold at high prices, covering the rent, profit and wages involved in preparing and bringing the produce to market. A sugar planter can expect rum and molasses to cover the costs for his cultivation, with his sugar being all clear profit.
Tobacco is the prime crop in Virginia and Maryland, and is more profitable than corn. Tobacco cultivation being prohibited throughout most of Europe means that Virginia and Maryland have a monopoly. Each worker on these tobacco plantations manages six thousand plants, which yield a thousand weight of tobacco, as well as four acres of Indian corn. In Europe, corn (wheat) is the major crop, and a staple part of our diets. Except in particular situations, therefore, the rent of cornfields in Europe regulates the rent of all other cultivated land.
A rice field produces a much greater quantity of food than the most fertile cornfield, with an acre generally producing two crops a year. Though rice cultivation requires more labor, the resulting profit easily covers the cost. In Carolina, the cultivation of rice is found to be more profitable than that of corn, though their fields produce only one crop a year.
An acre of potatoes will produce three times the quantity of nourishment produced by the acre of wheat, and potatoes are cheaper to cultivate. As such, the same volume of land producing potatoes will provide for a much greater number of people than if it produced wheat.
The Produce of Land, which sometimes does, and sometimes does not, afford Rent
The only produce which guarantees a profit to the farmer is food for human consumption. Other produce may or may not make a profit, depending on various circumstances.
After food, clothing and housing are the two basic human needs. Land provides more materials for clothing and construction than it does food. Productive land, however, may produce more food than clothing and construction materials, resulting in prices soaring for these materials. A surplus of produce results in price drops, whereas a scarcity results in price rises.
Many years ago, wool produced in Britain, which could neither be eaten nor used in construction, was sold to the wealthy, industrious country of Flanders, its price covering the rent of the land which produced it.
Rental fees for a good stone quarry in the London area would be high, contrary to the low fees in many parts of Scotland and Wales. Timber for construction is of great value in developed countries, with the result that rental for the forests producing it is expensive. But in many parts of North America, landowners are happy to have someone fell and remove their trees. Britain provides a market for the forests of Norway and the coasts of the Baltic—a market they could not find at home—thereby providing an income to their owners.
A country's population numbers are often aligned with the quantity of foodstuffs that country produces. When food is available, it is easy to find clothing and housing. When the labor of half of a society is sufficient to provide food for the entire society, the other half can be employed in providing products such as clothing and housing.
Food is not only the original source of rent, but other land-related produce, which goes towards paying rent, derives from improvements made in food production labor processes. A mine is classed as fertile or barren, depending on the quantity of minerals it produces. The lowest price at which coal can be sold is the price which just covers replenishment of stock used to bring the coal to market, inclusive of its average profit.
The rental fee for land above ground is commonly a third of the gross produce, and is independent of the occasional variations in the crop. A rental contract of thirty years is considered a moderate period for land above ground, with ten years considered a good period for a coal mine. The tin mines of Cornwall, the most fertile in the world, bring in a rent of a sixth of their gross produce.
The demand for precious stones is high due to their scarcity, with demand driven by their beauty as ornaments rather than their utility. Consequently, wages and profit make up almost the whole of their high price.
Food not only constitutes the major share of the riches of the world, but it is the abundance of food which gives the principal part of their value to many other sorts of riches.
The variations in the Proportion between the respective Values of that sort of Produce which always affords Rent, and of that which sometimes does, and sometimes does not, afford Rent
The increasing abundance of food, as a result of advances in agriculture and production processes, goes hand in hand with an increased demand for non-foodstuff agricultural produce, which is put to other uses, including decoration.
The demand for materials used in clothing and construction, useful materials of the land and precious metals is gradually increasing, with these items being exchanged for a greater quantity of food and hence for a higher price.
The value of a free-stone quarry will increase as the area immediately surrounding it develops, especially if it is the only one in the area. The market for the produce of a free-stone quarry is generally limited to the immediate surrounding region, with demand tending to be proportionate to the development and population of that small region.
The silver market is a worldwide commerce; unless global world finance improves, the demand for silver will not necessarily increase due to the improvement of even a large country in the neighborhood of the mine.
We should always bear in mind that labor is the real measure of the value of silver and all other commodities. In society, corn is produced through human industry, but the average produce of every type of industry is generally always in line with average consumption—the average supply to the average demand. At each stage of improvement, the production of equal quantities of corn requires equal quantities of labor, and as such, price. Steady improvement in production capacity and cultivation methods will be more or less counterbalanced by the steady price rise of cattle, the mainstay of farming.
This means that equal quantities of corn will, in every state of society, at every stage of improvement, be more representative of, or equivalent to, equal quantities of labor, than equal quantities of any other land-related produce. As such, corn is a more accurate measure of value than any other commodity or set of commodities. In all of these stages, therefore, corn is a better estimate of the real value of silver than any other commodity or set of commodities.
The quantity of precious metals in any country can increase due to abundance in its mines or increased produce of annual labor. The first of these causes is no doubt necessarily connected with a decrease in value of the precious metals, whereas the second is not. In major towns, corn is always more expensive than in remote parts of the country. This, however, is the effect not of the real low price of silver, but of the real high price of corn. It does not require less labor to transport silver to a major town than to a remote part of the country; but it costs a great deal more to transport corn.
The civil war (in Britain) led to decreased tillage and commerce, resulting in a rise in corn prices. Another event was the bounty upon the export of corn, granted in 1688. The bounty, which encouraged tillage, led to greater abundance and consequently a drop in corn prices in the home market.
The value of silver has risen in proportion to that of corn during the course of the present century. In years of great scarcity, the bounty was suspended, though it definitely had an effect on prices throughout that period. Although resulting in extraordinary export during years of plenty, it would frequently have hindered the abundance of one year from compensating the scarcity of another.
The monetary price of labor in Britain has risen during the course of the present century. This seems to be due to increased demand for labor in Britain due to the country's prosperity, rather than to the drop in value of silver on the European market.
Since the discovery of America, the market for the produce of its silver mines has been growing increasingly extensive. America is itself a new market for the produce of its silver mines; its development in terms of agriculture, industry and population is much more rapid than that of the most thriving countries in Europe, so its demand is growing much more rapidly. The British colonies are a new market for silver, with an ever increasing demand for this precious metal, for both coinage and other purposes.
The sharp price rise for pigs and poultry in Britain was due mainly to the decrease in the numbers of people living in cottages and other small homes, since these more disadvantaged people often keep a few poultry or a sow and a few pigs. With fewer small-home dwellers, this type of commodity has become scarcer and hence the price has risen.
A farmer's cows produce more milk than will be used by their calves and the farmer's family, with most being produced during one season. But of all land produce, milk is perhaps the most perishable. In the summer months, when milk is most abundant, it will scarcely keep twenty-four hours. The farmer, by making it into fresh butter, is able to store a small part of it for nearly a week; by making it into salt butter, for a year; and by making it into cheese, he can store a large part of it for several years. Some of these stocks will be reserved for his family; the rest goes to market, to be sold at the best price he can get.
The rise in the nominal or monetary price of all these products is due not to a drop in the value of silver, but to a rise in their real price. Today they are worth a greater quantity of silver as well as a greater quantity of labor and subsistence than they were in the past; since it costs more in terms of labor and subsistence to bring them to market, they are worth more.
The market for butcher's meat is generally confined to the country in which it is produced. The market for wool and raw hides is improving. The quantity of fish brought to market is both limited and uncertain.
Precious metals abound in countries with no mines, their quantity depending on the country's purchasing power. As with all luxury goods, this quantity is likely to rise during times of wealth and development in a country, and to fall during times of poverty and depression. Countries with an abundance of labor and provisions can afford to purchase more precious metals than their less-developed counterparts.
Effects of the Progress of Improvement upon the real Price of Manufactured Goods
As a business develops, with better machinery, higher levels of skill and specialization, the prices of its produce will drop considerably. Division of labor (specialization) and improvements in machinery can be carried out more extensively in base metals businesses than in any other.
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