RENT. — In common parlance, this term is equivalent to income (v.), with the added nuance of a pronounced character of gratuity, certainty, or constancy in amount, which income generally does not possess. However, among scholars, the meaning that the term had in classical economics of the early period (physiocratic and Smithian) still persists, reflecting the English origin of the word: *rent*, land lease. In this sense, rent is specific to land (land rent) and is not to be confused with, but rather added to, any income derived from labor or capital invested in improving or cultivating the land. Rent was made dependent on the natural fertility of the soil, and A. SMITH wrote that “in agriculture, nature works together with man”; its contribution often represents a third of the total product, and never less than a fourth.
This view could not be accepted by Ricardo, author of the theory that makes value (v.) essentially dependent on labor and production costs; observing that in England even uncultivated land found tenants at his time (Carey’s experience in America was entirely different and led to opposite conclusions), he formulated his famous theory of land rent, which was debated among economists for more than half a century. According to this theory, rent is a differential gain enjoyed by more fortunate landowners (due to soil fertility, natural irrigation, proximity to markets, agricultural population density, or other factors) compared to less fortunate ones, because the latter face higher production costs, while market prices of products are set according to the higher costs.
The concept was later extended from agriculture to all primary productions, and some sought to apply it to every kind of production; but this extension came at the expense of accuracy and effectiveness. Indeed, it is inevitable that the most favorable situations are generally the first to be exploited, and then progressively the less favorable ones; and this, by raising production costs for new ventures (e.g., hydroelectric) and consequently sales prices for all, constitutes a special gain for those favored by nature or personal qualities (e.g., inventors). This condition solidifies into a kind of static state because it is not easy to disinvest capital and transfer labor from less profitable industries to compete with those yielding higher profits at the same time: hence the concepts of positive or privileged rent, and negative or unfavorable rent.
In manufacturing, however, rent is a rarer and more temporary phenomenon, since prices generally align with lower rather than higher production costs. It should also be noted that land rent increases with population (H. GEORGE) and with protectionist measures, while it is curbed both by the colonization of new lands and by improvements in transportation, as well as by scientific and technical progress in agriculture.
The school of general economic equilibrium of Walras and Pareto (where every economic phenomenon influences and is influenced by all others) considers the Ricardian concept outdated: rent arises from any employment of labor or capital, especially in extractive industries, and land rent was merely the first to be observed and with more evident characteristics. Moreover, it does not constitute an element of price but is a consequence of II.
To the above-mentioned phenomena of objective rent, whose cause lies in real situations, there corresponds a subjective rent arising from individuals: thus we have consumer and saver rent, a differential gain obtainable by purchasing products, services, or income at prices lower than those one was willing to pay; and monopoly rent (v.), which derives not so much from selling at higher prices as from producing, due to special circumstances, at lower costs than the general level.
The establishment of rent or life annuities concerns contracts in which the irrevocable transfer of goods obliges the transferee to pay the transferor, for a fixed term or for life, or in perpetuity to heirs, an annual payment in money, produce, sustenance, or services.
Much has been debated and continues to be debated about the legitimacy of rent, since it does not depend on labor and is a source of surplus value. This underpins schools opposed to the right of property in denying that land can belong to private owners, as it preexists labor: hence the necessity of recognizing the right of the first occupant or usurper and admitting a monopoly, difficult to justify in law. Hence the tendency toward the socialization of land, with ancient and extensive experiments aimed at: a) removing the perpetual character of land ownership (WALRAS) and adopting temporary concession contracts (v. ENFITEUSI); b) a progressive tax over time to absorb surplus value (STUART-MILL, H. GEORGE); c) democratizing land ownership by breaking up large estates to facilitate access to small property for the greatest number of proletarians.