Principles of Economics with Applications to Practical Problems

<h2>CHAPTER 12</h2> <h3>INCREASE OF RENT-BEARERS AND OF RENTS</h3> <h4>§ I. EFFORTS OF MEN TO INCREASE PRODUCTS AND RENT-BEARERS</h4> <div class="sidenote">Desire for better agents impels men to improvements</div> <p>1. <i>While man destroys some agents of production he multiplies many others.</i> We have noted many kinds of depreciation, destruction, and wearing out of wealth; but the normal thing in a healthy society is an increase, on the whole, of rent-bearers. The increase of rents is due to two causes: changes in the agents by which they become more efficient technically, or more numerous; and changes taking place outside of the agents, affecting the utility of the products. The first of these will be considered in this section.</p> <p>The increase of the efficiency of agents is usually the aim of the individual producer, and thus is brought about an increase of the stock of wealth. In some cases, however, improvements such as the dredging of harbors or as the protecting of forests, are made by men collectively through the agency of governments. Somewhere, however, the desire for these changes must arise in the minds of individuals. Increase of most things involves "cost" or sacrifice, in the psychological sense; that is, man must strive, perhaps suffer, to get a certain result. This end, therefore, must be in itself desirable, and social organization must be such as to present a motive to the men to make the needed effort.</p> <div class="sidenote">Improvements by adaptation of natural resources</div> <p>2. <i>Rent-bearers may be increased in quantity and improved in quality by the adaptation of natural resources to man's purposes.</i> To get food, men use the tracts of land that under the conditions give the largest product. Other tracts<span class="pagenum"><SPAN name="Page_91" id="Page_91">[Pg 91]</SPAN></span> less fertile, or for some reason less available, are ditched, tiled, and diked, and fertilizers are carried up steep hillsides to make a soil upon the very crags. In commerce and transportation, new ways are opened by canals, railroads, and tunnels. An isthmian canal will raise the efficiency of ships plying between New York and San Francisco, enabling them to carry a greater amount of freight within a year. The tolls will represent to the users an expenditure only partially offsetting the increased efficiency of the agents of transportation. By the building of wharves, the dredging of harbors, and by many other methods, indirect agents are constantly growing in number and efficiency.</p> <div class="sidenote">Machinery is an adaptation of natural resources</div> <p>3. <i>Rent-bearers may be increased by inventions and improvements that make machines stronger, quicker, and better.</i> This proposition is not logically different from the preceding. A machine is an arrangement of material things through which force may be indirectly applied to move matter. No fast line divides machinery as regards form, purpose, or cause of value, from the artificially improved natural agents that we have been discussing. Just as a field is drained, plowed, and cultivated to fit it better to yield a crop, so is the iron ore shaped into a form called a machine, better fitted to cut, carve, and weave as man wills. Machines are merely adaptations of natural resources.</p> <div class="sidenote">Bettering quality of agents</div> <p>Increase in machinery may be either in quality or quantity. The two causes have in most cases the same result. If the quality or efficiency of looms is doubled, it is as if their number had grown in like proportion. In its economic function the beast of burden may not illogically be classed with inanimate machines. The horses in America have been remarkably improved of recent years by the importation of thoroughbred stock from Europe. Ten or fifteen years ago the number of horses in the United States was found to have decreased, and there was much comment on this evidence of a declining industry. It was not at once recognized that there was embodied in horse-flesh more horse-power than ever before,<span class="pagenum"><SPAN name="Page_92" id="Page_92">[Pg 92]</SPAN></span> as a single Norman horse has the strength of several Mexican mustangs. Numbers alone are not the measure of efficiency.</p> <div class="sidenote">Increasing number and better grouping of agents</div> <p>4. <i>The increase of wealth and the betterment of environment go on as well through the increase in the number of appliances and through their improved arrangement, as through changes in their kind.</i> A machine is an adjustment of various natural agents to each other so as to make a more efficient agent, and machines in turn may be adjusted as parts of a larger system of production. The ideal of the modern factory system is so to arrange the machinery that no bit of material will make an unnecessary motion. The log, once started through the mill, is carried automatically from one machine to another until it emerges as a roll of paper or as a box of tooth-picks, ready for use. In an American watch-factory one man tends twelve or fifteen automatic machines. A small brass rod is fed automatically to the machine; a piece is cut off, is picked up by a human-like metal hand; is put into a lathe, and shifted or held firmly while it goes through fifteen or twenty processes; and then is dropped into a box where it is ready for the "assembling" of the watch. As the machinery improves, factories making allied products are grouped to make a system still more efficient.</p> <p>As the number of agents increases they are distributed so as to be where most useful to the owner. A man having two umbrellas keeps one at his office and the other at home; a student having two books of the same kind keeps one at his room and the other at the university; a farmer having two hoes keeps one at the barn and the other in a distant field, and by this distribution the agents are increased in efficiency.</p> <div class="sidenote">A larger and better environment</div> <p>The aim of a progressive society is to enlarge the environment, and constantly to adapt it better to the service of wants. This is done largely by mechanical agents, which capture the natural forces of the world, put them into the right place at the right time, and make them do the right thing, or which group and relate the materials of the<span class="pagenum"><SPAN name="Page_93" id="Page_93">[Pg 93]</SPAN></span> world in the right ways. Some of the groupings in the chemical and physical world that do not fit man's purposes may be made to do so. The world in this way becomes more and more a great workshop, better and better adjusted to man's wants.</p> <div class="sidenote">Increasing some rent-bearers reduces the rents of others</div> <p>5. <i>The betterment of the environment of society in some directions reduces the rent of other parts.</i> The wish of the individual is to raise his own rent-bearers in efficiency, but in doing that he affects the agents owned and controlled by others. The ideal from a social standpoint is to increase not rent but the welfare of society, and this is not always the ideal of individuals seeking their own interest. However, as the efficiency of some agents rises, it becomes unnecessary and unprofitable to use the less fertile fields; they cease to be rent-bearers, and the rent of the richer fields falls under the influence of the new supply of products. Some inventions suddenly increase the efficiency of free goods to such a degree that the less efficient rented agents are thrown out of use, and the margin of utilization is moved to a higher plane than it was on before. Improved types of machinery more or less rapidly displace the older, less efficient types, which, therefore, more or less completely lose their rent-bearing power long before they are physically worn out. When improvements in agriculture that are applicable to a considerable area of land take place, and the product thus is increased and cheapened, the poorer land is abandoned. Inventions and improvements thus gradually becoming common property, increase the free goods and free uses not bearing rent and open to every one. One who improves the quality of a machine or the economy of a process may thus unintentionally injure some of the owners of low-rent agents, while unintentionally increasing the welfare of the mass of men for whom the margin of utilization is thus lifted.</p> <p><span class="pagenum"><SPAN name="Page_94" id="Page_94">[Pg 94]</SPAN></span></p> <h4>§ II. EFFECTS OF SOCIAL CHANGES IN RAISING THE RENTS OF INDIRECT AGENTS</h4> <div class="sidenote">Effect of decrease of the competing agents</div> <p>1. <i>Changes in the number and kind of competing resources may raise the rents of particular agents.</i> Rents may increase without increase in the quantity or number of a particular group of agents or without change in their technical efficiency. As changes in the conditions of society may reduce rents, so other changes may increase them. Agents of the same kind may diminish in number, either absolutely or relatively. If some of the competing machines are destroyed, the rents of the machines that remain rise, while if new supplies are found, either in nature or by improved industrial processes, the rents of the older agents fall.</p> <div class="sidenote">Effect of new uses for agents</div> <p>2. <i>The discovery of new uses for agents or for their products raises their rents.</i> Farm land of the poorest kind often is found to contain valuable mineral deposits. Such a lucky find has lifted the mortgage from a farm in eastern Pennsylvania, from which, in two or three years, has been taken feldspar exceeding in value the agricultural products of the same land in the last fifty years. The discovery of building stone, coal, natural gas, or oil land may make the annual rent (or royalty) of land tenfold its former total value. Fitness to produce nettles is not ordinarily a virtue in land, but the discovery that certain fields produce a superior quality of the nettle used for heckling cloth, causes them to take on a new value. A mineral spring, because of the supposed or proved healing properties of its waters, may be as good as a mine to the owner. Peculiar fitness for the cultivation of celery may convert marsh land into a substantial source of income.</p> <p>Social changes are constantly causing agents to shift from lower to higher uses. As population grows and groups about new industries, farm land is used for residence lots, and in turn for business purposes. Rents therefore rise, and this<span class="pagenum"><SPAN name="Page_95" id="Page_95">[Pg 95]</SPAN></span> rise is reflected in the higher selling value of the land. If a new demand arises for the product of any machine, its rent rises, although it may continue to turn out the same product as measured by number or quantity. For, if consumers increase, a given supply of agents becomes relatively smaller than before.</p> <div class="sidenote">Sudden variations in demand</div> <p>3. <i>A rise in rents due to social changes may be relatively permanent or temporary.</i> Business conditions sometimes change quickly. An urgent demand for special machinery raises quickly its rent and value. It is said that lace machinery is sometimes thrown out of use for several years, until a sudden renewal of the demand for lace causes the rental to equal, in two years, more than the original cost. At such times the value of factories increases greatly, but after a few years of prosperity business again collapses. Such prosperous periods are the opportunity of the business man and of the promoter to sell the factory at its highest price. Machinery adapted only for a special product will not sell as readily when less needed for its special use, as that which, like a turning-lathe, can be used for many purposes; but the more special the appliances needed for a certain product, the higher, more abnormal will be their temporary value when they are suddenly needed. Land near the site of an exposition takes on a very great value and again falls after the exposition is over. During the Boer War horses and mules rose in price in the United States on account of British purchases.</p> <div class="sidenote">Cause efforts to increase the supply of agents</div> <p>A rise in the value of any agent at once causes an attempt to duplicate it or to find a substitute for it; this attempt, if successful, puts a check or sets a limit to the rise. In this search for new devices the man who can see most quickly and clearly has a key to wealth. Some kinds of agents, as rare minerals or tools that can be produced only by highly skilled labor, cannot be increased rapidly in number and remain high in price for a long period; and favorably located building sites illustrate the same principle. In some cases,<span class="pagenum"><SPAN name="Page_96" id="Page_96">[Pg 96]</SPAN></span> it is true, the demand may be due to some temporary cause, as in a period of unsound land speculation, but usually the growing value of location is due to a steady and abiding change in population or business.</p> <div class="sidenote">Franchises guard the growing rents from the influence of substitution</div> <p>4. <i>Such public utilities as are guarded from competition by franchises, often rise in rental with increase in population.</i> The leading classes of public utilities referred to are waterworks, gas-works, street-railways, ferries, and wharves. This evidently is only a special illustration of the principle just stated, where it is not easy to find a substitute for certain agents. Public franchises entitle the owners to special, sometimes exclusive, privileges, and protect them legally from competition. Not all franchises are valuable; many street-railways are unfortunate ventures, the earnings being insufficient to pay expenses, to say nothing of interest on the investment. But when they pay greatly, their high value is due to the impossibility of competition. The cars, mules, dynamos, steam-engines, and other agents combined to furnish transportation, have a special earning power because other similar agents are forbidden to be used in that market.</p> <div class="sidenote">Various kinds of "unearned increments"</div> <p>5. <i>Industry abounds with cases of unearned increments of value due to accidental and social causes raising the rents of wealth.</i> The term unearned increment may be defined as an increase in rents (or value) of agents, due to something other than the efforts or merits of the owner; in fact, it is that of which we have been speaking. In some cases powerful or wealthy men can bring about social changes in entirely legitimate ways. The owner of a large factory, moving it into the country, may buy up surrounding land and found a city, converting pasture lands and corn-fields into valuable building lots. Again, social changes are produced immorally, if not illegitimately, when wealthy men or influential politicians cause laws to be passed which inure to their advantage but which may ruin many other citizens.</p> <div class="sidenote">Also many chances of loss</div> <p>In most cases, however, social changes are impersonally caused. The individual owner who profits by them is powerless<span class="pagenum"><SPAN name="Page_97" id="Page_97">[Pg 97]</SPAN></span> to affect the result. He can only adapt his conduct in some measure so as to reap an advantage. He can strive to increase the number and quality and to get control of such agents as he foresees will yield higher rents. In making such a forecast there is chance of loss as well as of gain. The term "unearned increment" has been frequently used in recent years. It is often assumed to be a peculiar thing, sharply in contrast to other changes in value. The foregoing hasty review may serve to suggest how manifold and complex are the instances of it, and what an important part it plays in modern industry.</p> <hr class="chap" /> <p><span class="pagenum"><SPAN name="Page_98" id="Page_98">[Pg 98]</SPAN></span></p> <h2>DIVISION C&mdash;CAPITALIZATION AND TIME-VALUE</h2> <hr class="chap" /> <div style="break-after:column;"></div><br />