The Importance of the Conception of Rent
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The Importance of the Conception of Rent

The importance of the conception of rent The essence of the conception of rent is that it is a surplus earned by a particular factor of production over and above the minimum necessary payment to induce its retention in a particular service. This concept is closely connected with the free gifts of nature which in Economics have been simply referred to as 'land'. The term 'rent', which in ordinary speech means the hire of land, was used by economists as a term for the surplus earning which only gifts of nature yield.

The importance of the conception of rent

The essence of the conception of rent is that it is a surplus earned by a particular factor of production over and above the minimum necessary payment to induce its retention in a particular service. This concept is closely connected with the free gifts of nature which in Economics have been simply referred to as 'land'. The term 'rent', which in ordinary speech means the hire of land, was used by economists as a term for the surplus earning which only gifts of nature yield. The whole of the earnings of land in the economic sense is rent (i.e., surplus) since land is there in any case and does not require to be paid for m order to exist.

Nature of rent

But this conception of rent (i.e., of surplus) is applicable to all factor incomes. The minimum payment which is necessary to induce a man to work with any given intensity is the real income which will maintain his physical efficiency at an adequate level. The necessary minimum for an entrepreneur is the level of earnings which is sufficient to prevent him from relapsing into the ranks of unemployed labor. But many men receive more than this necessary minimum. Similarly, capital receives sometimes a surplus over the necessary minimum required to maintain its flow. Many individuals will be prepared to save and lend a given amount of money if the payment were less than it actually is and some might save and lend even at a negative rate of interest Thus, in each broad category of factors, particular units may be found which earn rent. In the case of land this element is all-pervading. Further, rent is earned because a factor is not perfectly elastic in supply for all amounts. Now no factor has a perfectly elastic supply. Hence, they all earn rent.

Importance of rent under a socialistic state

In a socialist State, there will be no private property in land. Private landlords will disappear. All property will vest in the State. Whether the actual cultivators have to pay rent to this new landlord, the State, depends on the terms on which the State gives land to cultivators for cultivation. At any rate, rent as a payment by a tenant to a private landlord will go. But rent is a measure of the natural differential advantage of a particular piece of land. Even a socialist State will be interested in making the best use of the available cultivable areas. For that purpose it will have to compare the yields per acre of land put to various uses. Higher yield will represent the rent element. More land will be devoted to that particular use where the yield is high. Thus, rent, which depends on the yield of land, will indicate to what uses should the land be put by the State.

 

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