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A farmer may increase his gross product by cultivating more land or by utilizing his present area more intensively. Likewise, a manufacturer may build another building or he may add another story to his existing building. The considerations which lead him to make his decision are similar to those which appeal to the farmer. The law of diminishing returns for a given area must apply equally to both agriculture and manufacture. Increase in population and wealth have made possible the sky-scraper, the well-ballasted and well-equipped railroad, and the large steel plant; but these two factors have also produced the fertile, intensively cultivated market garden. There is no greater difference between the modern office building and its predecessor of threequarters of a century ago than there is between the wellcultivated market garden of to-day and the frontier farm of that earlier period. Excessive and unusual importation of agricultural products causes disaster to overtake the farmer just as large importation of manufactured articles affects adversely the home manufacturer. In brief, manufacture is a highly intensive form of utilizing the products and forces of nature; agriculture is a less intensive form. “Agriculture and manufacture are simply two different ways of utilizing the forces of external nature.'

Altho agriculture and manufacture may be reduced to a common denominator, in that both merely utilize natural forces and materials through the co-operation of land, labor, and capital, practical obstacles make extremely difficult the separation of capital from land in agriculture. At the time when the economists of the opening and the

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Commons, Distribution of Wealth, p. 137. In the Report of a Committee of the House of Commons (1813) is found this statement: “For if the agricultural capital is considerably increased, its effects on the quantity produced and the expense of production, and also in lowering prices, will be just the same as when employed in manufacture." Quoted in Economic Journal, vol. ii. pp. 58-59.

middle portion of the last century wrote, urban land and city land rents were of relatively and absolutely less importance than to-day; and at that time manufacture was only on the threshold of the factory era. On this account their attention was naturally directed almost exclusively to agricultural rents. To-day, however, there is no valid excuse; imitation and lack of initiative alone have kept us in the beaten paths. When studying the phenomenon of land rent, urban land and land used in manufacture and commerce rather than that utilized for agricultural purposes should be considered. Writers who persist in studying agricultural rents are investigating the more obscure manifestations of rent phenomena. In the case of land used in manufacturing or commercial enterprises, the separation of land from capital is, except in unusual cases, not difficult of achievement; it is not easy to conceal the marked differentiation between the two. The true function of all land is, in fact, reduced to that of land in a city; namely, to that of furnishing a site upon which to do business. The value of the site depends upon the "market opportunity” which it offers.' It has been objected that this is an application of the "term land to something which is not economic at all.”? Surely, this critic overlooked the existence of city land; or, is city land non-economic?

Altho much of our economic analysis is vitiated by the sharp distinction drawn between agriculture and manufacture, between the soil and its processes, on the one hand, and the factory and its technic, on the other, some economists have gone to the opposite extreme, and have tried to merge the concepts of rent and interest. Land is considered to be a form of capital. “Pure capital

1 See Commons, Distribution of Wealth. 2 Johnson, Publications of American Economic Association, November, 1902,

P. 43.

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stays longer in some forms than in others. It remains for an instant in steam and for an hour in the fuel that generates it. It stays for weeks in unfinished products, for years in the machines that made them, and for decades in the buildings that house them. How long may it remain in the land under the building? Here, indeed, is an exception to the rule of endless wandering. Pure capital that vests itself in land is at liberty to stay there indefinitely."i Does not this statement indicate that a line of demarcation must be drawn between land and capital? Here is something which does not need to be renewed, which does not suffer depreciation, which does not wear and waste away.

According to Clark there are four kinds of utility which give value to land as defined by him, namely: (a) fertility due to drains, irrigating canals, etc.; (b) fertility due to enrichment of the surface loam; (c) accessibility through better transportation, and (d) absolute local proximity to markets. The first three are called manufactured utilities; the fourth, a monopoly factor. Several points must be noted in regard to this

? analysis. The first two factors, or "manufactured” utilities, are in old communities due in a large measure to the efforts of the present or former cultivators of the land. The last two factors are produced by growth of markets. Pure capital does not inhere permanently in the first two factors; both are subject to depreciation and need renewal as does a machine. The last two factors, on the other hand, are not in themselves subject to wear and tear. They do not deteriorate as a result of constant or irregular use. The properties of the two pairs of utilities are essentially different. Again, in the case of city building sites, the importance of the first two factors, except in peculiar cases, falls to practically zero. On the contrary, the relative and the absolute position of land which depends

а

1J. B. Clark, Capital and its Earnings, p. 15.

2 Ibid., pp. 46 and 47. 1 Commons, Distribution of Wealth.

upon the development of methods of transportation and communication, and upon the growth of population and capital, rises to a position of great importance in the determination of the value and utility of land in cities. The important elements in purely agricultural land which tend to merge and confuse the practical distinction between capital and land are removed in the case of city land. Of course, land used near the margin for manufacture or for residences may offer, if fertile, an alternate use for gardening. This can have, however, no very appreciable effect on landed property not situated on the outskirts of a city.

On the one hand, then, a large portion of the value of agricultural land, in long-settled regions, is given it by the men who have tilled the soil; but in the cities, on the other hand, the value of the land is due to social action and conditions. Land when used for agricultural purposes consists of two distinct elements, one which does and one which does not obey the laws of capital, as stated by Clark. Land used for non-agricultural purposes derives its utility from economic factors which do not obey the laws of capital. Logically, as a result of this fact, it is necessary to restrict the meaning of the term "land," when used in connection with agriculture. Soil and all improvements of all kinds in or upon the land area must be called capital, as they obey the laws of capital. Land in its proper sense furnishes standing room and situation with regard to markets. According to this definition,

. land performs the same function in agriculture as for all non-agricultural purposes. Rent for land is made a nearly homogeneous concept. It depends upon absolute and relative position as to a market. Interest now corresponds to the product of pure capital, independent of the industry in which its concrete components are employed.

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Up to this point the discussion has tended to narrow the concept of rent and to differentiate it from interest. Now it is necessary to broaden the concept in other directions. “Rent is always present in any complex society, disguised, however, as a funded income and sold on the investment market as though it were interest on capital goods."

“It is, then, land and other opportunities, not fixed capital, to which the law of rent is properly applied. Those opportunities as well as land are social and legal relations."

The two forms of income, rent and interest, are, according to this analysis, subject to entirely different economic laws. One is a return from concrete capital actually sunk in the business, manufacture, commerce, or agriculture; and this return is subject to the action of competition which fixes it at the current or market rate of interest. The other kind of income, on the contrary, comes into existence because the product is produced in connection with a market. Situation or some business advantage, legal or personal, has given the manager of this business a strategic position. Men who control land in proximity to markets, or who control the most available means of transportation of goods into markets, are able to capitalize those opportunities or privileges and to levy toll upon the people who buy and sell in the markets thus controlled. In short, they are able to obtain a return in excess of the interest rate on the capital invested.

“When we have inquired what it is that marks off land from those material things which we regard as products of land, we shall find that the fundamental attribute of land is extension.” But Professor Commons has pointed

'3 out that mere extension is of value only when considered in connection with the sale or consumption of the products

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Patten, Theory of Prosperity, p. 134. a Commons, Ibid., p. 168.
3 Marshall, Principles of Economics, chap. ii. sect. viii.

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