Online Library of Liberty: Economics, vol. 1: Economic Principles

called les rentes (probably because they are a form of investment yielding a permanent income), and one who has a fixed income from rents is called a rentier. In German the term Rente is used more broadly than in English, as an income of any sort, Grundrente meaning the rent of land, and Capitalrente (like Capitalzins) the income usually in English called (according to conditions) either dividends or interest.

With this usage and the problem in view, we may define rent as the price paid for the temporary possession and use of a more or less durative agent which is to be returned to the owner at the end of the specified period. Thus broadly understood, rent as a contractual payment includes not only the price of the true usance, but usually also something more to cover repairs, wear and tear, services of the owner in preparing and taking care of the use-bearer, collecting the rent, etc. It is useful to distinguish between the whole payment, the gross rent and the true, or net, rent which is that part of the payment that is left, after making due allowance for all the other items of cost. Net rent is the estimated price of the net usance.

In the next chapter we have to examine how the general principles of price are exemplified in the problem of rent.

Note

Various meanings of rent. Various other meanings have been given to rent as used in economics which may be called to the student’s attention that he may be on his guard against misunderstanding. The English economists from Adam Smith on restricted the meaning to the most striking of the cases of rent, as seen in their day, and defined it in the words of Ricardo as: “The price paid to the landlord for the use of the original and indestructible qualities of the soil.” Most of the landlords of England did not themselves cultivate the soil, and their incomes were paid to them by tenant farmers. Where lands were cultivated by the owners, there was a value in the use of the land considered logically apart from the value in the cultivator’s own labor and from other costs; in other words, there was a usance-value in the land, and economists, having no name for this, widened the application of the word rent to include this as well as the price paid to a landlord. But they did not widen it to include the usufructuary value of other agents, and thus they contrasted rent with interest from money loaned, with the income (called by them profits) from agents employed in commerce and manufacture, and with wages of labor. The authority of this definition of rent has rapidly waned since criticism has shown its accidental origin and its illogical limitations. When it was recognized that there was a difference between the usance of an agent to the owner and the price paid to him by another for its uses, the attempt was made to call the former economic rent and the latter contract rent. But this has proved to be confusing and has never gained a place in popular usage. In business practice the term rent is rarely if ever applied to the usance, but only to a contractual payment for the use. In the attempt to remedy the lack of logic in the definition some economists have widened the term to indicate any advantage secured in exchange (the margin of advantage), using such expressions as consumers’ rent, producers’ rent, buyers’ rent, sellers’ rent, and thus have lost all touch both with the original economic definition and with popular usage. Our analysis puts an end to this variation and inconsistency,

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Online Library of Liberty: Economics, vol. 1: Economic Principles

by its identification of the separable use as the object of valuation. Thus usance and rent are seen to be the value and the price aspects of the same problem.

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