to which the quality of extension furnishes standing room. Situation with regard to markets, not mere extension, causes value to be attributed to land. Land is in a sense produced, but it differs from a tool in that it occupies of necessity a certain fixed space, in that it stands in certain peculiar relations to markets, which relations cannot be duplicated. This peculiarity, which is in a sense a monopoly privilege, is a factor entering into the price of that piece of land. Johnson asserts that ground rent is, or may be, competitive, and hence he concludes "that there is a fundamental difference between the so-called rent of monopolies and the rent of land." This implies a contradiction of terms. If we abstract from the popular term "land" the elements which truly belong to capital, what causes value to adhere to land proper? It is the very fact of a lack of competition. In so far as one land area, as land, is more valuable than another (that is, produces a higher rent than another), to that extent is its situation as regards a market more desirable. If all land areas were equally desirable in location as regards markets, pure land rent would, up to the present time, probably be an unknown phenomenon. All franchises, rights of way, patents, monopoly privileges, and business advantages, as well as land, stand in peculiar relations to markets. Their value is due to the exclusive and peculiar position which they occupy. The conditions and relations which they bear to particular or to all markets cannot be duplicated or reproduced. This monopoly power has come into being because of the existence of a complexly organized society. Aggregations of people lay the foundations for exchange of products, and a market results. This market is chiefly the result of the existence and efforts of aggregates of people of a certain degree of culture and civilization. While a market for a 1 Publications American Economic Association, November, 1902, p. 109. certain class of goods may apparently be built up solely through the efforts of certain individuals, the demand for these goods, if analyzed carefully, will be found to be due to the fact that a population of a certain degree of culture and civilization lives in proximity to the plant producing the goods. In every case there is a sort of co-operation between producers and society. A considerable portion of any surplus return over interest is due to society, not to the individual or the corporation operating the business. Good will, for example, is not solely and purely the result of individual sagacity, honesty, or affability: it depends in no small measure upon the fact that there is a market for the vendor's goods. It is as much dependent upon the characteristics of the general public as upon the personal equation of the individual business man. Both business man and general public are essential and co-ordinate factors in the formation and continuation of "good will." The capitalization of all market opportunities or intangible rights and privileges is simply the capitalization of a semisocial product, altho the portion attributable to society is greater in some cases than in others, and, when viewed from the practical standpoint of taxation, the returns from such capitalization should be subjected to different considerations from those bearing upon the return from capital. "It thus appears that in the case of a purely industrial monopoly there does accrue an 'unearned increment,' which varies in amount as between corporations with their age, their location, and their past financial history, and it is certainly just that the rate of taxation should vary with the more or less advantageous situation of the corporation in question." "In the case of quasi-public industries the State should share with the companies in the constantly increasing value of the franchises it grants." "While it is true that the influence of social development upon the increase and decrease of land values may be more clearly traced than in other property, it is a mistake to assert that this influence is confined to landed property." No distinction, in kind, should be drawn between the surplus or "unearned increment," whether arising from landed property, public service corporations, or ordinary business corporations. In fact, a tax on land values, minus all values due to buildings, or improvements of any nature whatsoever, is in the nature of a franchise tax. The right to occupy and possess land to the exclusion or displacement of others is "a right conferred by government of conducting an occupation either in particular way or accompanied with particular privileges." This is Professor Seligman's definition of a franchise. Unless legal quibbling is resorted to, this may be applied to residence property as well as to that used for business purposes. This conception may be extended so as to cover practically every form of market opportunity. In 1814 David Buchanan observed: "The profit of a monopoly stands on precisely the same foundation as rent. A monopoly does artificially what in the case of rent is done by natural causes. It stints the supply of the market until the price rises above the level of wages and profit."" Professor Patten urges that the state is undoubtedly a partner in all industry, and as such is justified in taking a share of the surplus produced. A tax may be considered to be a share in a surplus produced. If this theory of taxation is valid in the case of industries subjected to competition and unprotected by any artificial or monopoly privilege, its validity surely cannot be questioned in the case of those industries in which monopoly does exist. 1 Adams, Finance, p. 427. Quoted by Cannan, Distribution and Production, p. 222. To argue that all industrial enterprises contain elements of monopoly does not affect the contention. In so far as ownership of land, possession of franchises, patents, good will, or any other kind of special privilege or opportunity exists, to that extent is a favored individual or corporation raised above the attacks of competition. A surplus is received which may be called "market opportunity rent," or simply rent. If the value of all improvements of any kind whatsoever is excluded, land rent is a market opportunity rent. All returns from special market opportunities, monopoly gains, or "forced" gains of any sort, may be reduced to a common denominator and held to be subject to similar considerations. Accordingly, the theoretical economist and the student of taxation must divide what the practical man ordinarily terms "capital" into two classes,-capital and the capitalized value of market opportunity rent. The rate of capitalization of market opportunity rents will vary chiefly with the probability of the permanency of such income. In a business where good will or extraordinary ability is required and exercised, thereby bringing in large returns, the capitalization will of course be less for a given market opportunity rent than in the case of perpetual or long-time franchises or of ownership of land. The income received by individuals who are engaged in industrial or professional work may be subjected to a similar classification. Every man receiving an income greater than that received by the marginal man in that particular group, really receives wages and a rent due to personal ability, but which may justly be called a market opportunity rent. A skilled worker, for example, expends a certain amount of capital, time, and energy in acquiring his trade. The value of his services to the community is, in some measurable degree, proportional to the difficulty in attaining entrance to his trade. There is a minimum wage payment for all men in a given trade in a given locality; this is ordinarily pure wages. The amount of any wage payment over and above this minimum may be considered to be a rent. This minimum wage may also contain an element of rent, as in the case of a strong union which is able to raise the wages for a certain trade or group of workers. As a rule, this personal ability rent never reaches a high figure except in case of certain professional men or salaried officials. Extraordinary skill or ability is not solely an individual product. The school, the library, the press, the influence of others, the inheritance of culture, civilization, material wealth, and a thousand other social forces, have all aided in making the individual what he is. His services are also of value only in view of a market. This so-called personal ability rent is closely associated with rent of land or with the rent received from a patent right; all are semi-social products, all are market opportunity rents. These are returns in the production of which society plays a prominent part. The owners of such legal monopolies as patents and copyrights are protected in their rights for only a limited term of years. At the end of this definite period the value of the business built upon this monopoly falls to the capital, or reproductive, value of the plant, unless some other advantage is enjoyed by the company. In the case, however, of the possession of some so-called natural monopolies, such as land or rights of way, this advantage becomes permanent, and is capitalized at a low rate of interest; that is, at a high value. Other trade advantages, such as good will, personal ability of the entrepreneur, or trade secrets, are much less stable and less certain of permanence, and are capitalized at a higher rate of interest, that is, at a lower value relative to income. It has been pointed out that, if copyrights were granted in perpetuity, there would be a very |