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Comment on economic rent

Comment on economic rent – Richard Giles

The editorial comment to my article in Vol. 6 No.3 of ERA Review that there are economic rents other than the rent of land invites some discussion.

Certainly that is said to be the case. An economic rent is often defined as an income in excess of what is needed to induce one to enter an industry. That is, it is an income in excess of a ‘normal return’ to labour or capital, otherwise known as a ‘surplus profit’.

But is a surplus profit an economic rent or is it just something that looks like an economic rent, a quasi-rent as Alfred Marshall called it? It is but common sense to suggest that, if the concept of rent above is not the concept of rent in its original sense, then what we are talking about are two different things that ought to have two different names.

In its original Ricardian sense rent is not a profit. It is a surplus production over what the same application of labour and capital yields on marginal land. Rent exists before the market that distributes that production. It is a natural law.

This natural phenomenon should not be confused with either what western civilisation has done to the law of rent by creating private property in land or with the corrupt-ions of government that lead to ‘surplus profits’ from artificial scarcities based on mono-poly.

In the latter case there is no surplus production – rather the reverse.

The only ‘industry’ involved in what is nowadays called economic rent is the industry of reaping where you have not sown. Location, from which rent arises, is not an industry.

It is said that Frank Sinatra’s voice has a rent or the Collingwood football team has a rent but this is only to confuse rent with wages.

Richard Giles is a NSW member of ERA

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