Economics Dictionary of ArgumentsHome
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| Land: In economics, land refers to all natural resources used in production, including soil, minerals, water, and air. It is a factor of production alongside labor and capital. Land generates economic rent and its value is influenced by its fertility, location, and accessibility._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Land (Economics) - Dictionary of Arguments
Rothbard III 479 Land/income/Rothbard: The price of the unit service of every factor (…) is equal to its discounted marginal value product (DMVP). >Marginal product/Rothbard. This is true of all factors, whether they be “original” (land and labor) or “produced” (capital goods). >Capital goods/Rothbard. However (…) there is no net income to the owners of capital goods, since their prices contain the prices of the various factors that co-operate in their production. Essentially, then, net income accrues only to owners of land and labor factors and to capitalists for their “time” services. >Returns to Scale/Rothbard. It is still true, however, that the pricing principle - equality to discounted MVP (marginal value product) applies whatever the factor, whether capital good or any other. Rothbard III 480 Each capital-goods factor must be produced and must continue to be produced in the ERE (Evenly Rotating Economy). >Evenly Rotating Economy/Rothbard. Since this is so, we see that the capital-goods factor, though obtaining its DMVP, does not earn it net, for its owner, in turn, must pay money to the factors that produce it. Ultimately, only land, labor, and time factors earn net incomes. Rothbard III 484 Land/Rothbard: The concept of “land” as used [here] (…), is entirely different from the popular concept of land. Let us (…) distinguish between the two by calling the former economic land and the latter geographic land. The economic concept includes all nature-given sources of value: what is usually known as natural resources, land, water, and air in so far as they are not free goods. On the other hand, a large part of the value of what is generally considered “land” - i.e., that part that has to be maintained with the use of labor - is really a capital good. >Capital goods/Rothbard, >Land/Mises, >Factor income/Rothbard. Rothbard III 485 Marginal physical product (MPP): the marginal physical productivity of (geographic) land varies greatly in accordance with the amount of labor that is devoted to maintaining or improving the soil, as against such use or nonuse of the soil as leads to erosion and a lower MPP. Urban land: The indestructibility of land is much more clearly exemplified in what is commonly called “urban land.” For land in urban areas (and this includes suburban land, land for factories, etc.) clearly evinces one of its most fundamentally indestructible features: its physical space - its part of the surface of the earth. This eternally fixed, permanent, positional aspect of geographic land is called the site aspect of the land, or as Mises aptly puts it, “the land as standing room.” >Land/Mises. Since it is permanent and nonreproducible, it very clearly comes under the category of economic land. Rothbard III 487 Marginal value product: Suppose that a piece of currently unused land can be used for various agricultural purposes or for urban purposes. In that case, a choice will be made according to its alternative values as nonreplaceable economic land: between its discounted MVP as a result of the fertility of its basic soil and its discounted MVP as an urban site. And if a decision must be made whether land now used in agriculture and being maintained for that purpose should remain in agriculture or be used as a site for building, the principles of choice are the same. The marginal value return to the agricultural or urban land is broken down by the owner of the land—the “landlord”—into the interest return on the capital maintenance and improvement and the discounted marginal value return to the basic economic land. >Marginal product/Rothbard. Land as a capital good: Working on this basic land, labor and investment create a finished capital good. This capital good, like all capital goods, also earns unit rents equal to its DMVP (discounted marginal value product). However, this earning is broken down (and relevantly so in the current market, not as an historical exercise) into basic land rent and interest return on the capital invested (as well, of course, as returns to labor that works on the basic land, i.e., labor’s wage or “rent-price,” equaling its DMVP). This capital-good land we have variously termed “geographic land,” “land in the popular sense,” “final land,” “finished land.” When we speak simply of “land,” on the other hand, we shall always be referring to the true economic land - the currently nature-given factor. Rothbard III 492 RothbardVsFetter: If land can be capitalized, does this not mean that land and capital goods are “really the same thing” after all? The answer to the latter question is No.(1,2) Rothbard: It is still emphatically true that the earnings of basic land factors are ultimate and irreducible, as are labor earnings, while capital goods have to be constantly produced and reproduced, and therefore their earnings are always reducible to the earnings of ground land, labor, and time. Rothbard III 493 Basic land can be capitalized for one simple reason: it can be bought and sold “as a whole” on the market. (This cannot be done for labor, except under a system of slavery, which, of course, cannot occur on the purely free market.) Since this can be and is being done, the problem arises how the prices in these exchanges are determined. These prices are the capital values of ground land. >Rent/Rothbard. As in the case of any other good, the capital value of land is equal to the sum of its discounted future rents. For example, it can be demonstrated mathematically that if we have a constant rent expected to be earned in perpetuity, the capital value of the asset will equal the annual rent divided by the rate of interest.(3) >Capitalization/Rothbard. Rothbard III 494 [Found] land (…) is really as much capitalized as land that has been bought on the market. We must therefore conclude that no one receives pure rent except laborers in the form of wages, that the only incomes in the productive ERE economy are wages (the term for the prices and incomes of labor factors) and interest. Rothbard III 495 But there is still a crucial distinction between land and capital goods. For we see that a fundamental, irreducible element is the capital value of land. The capital value of capital goods still reduces to wages and the capital value of land. In a changing economy, there is another source of income: increases in the capital value of ground land. Typical was the man who found unused land and then sold its services. Originally, the capital value of the land was zero; it was worthless. Now the land has become valuable because it earns rents. Rothbard III 526 Land/Rothbard: (…) a progressing economy will lead to an increase in the real rents of ground land and a fall in the rate of interest. >Rent/Rothbard, >Interest rate/Rothbard. Rothbard III 527 These two factors, in conjunction, both impel a rise in the real capital value of ground land. Future rises in the real values of rents can be either anticipated or not anticipated. To the extent that they are anticipated, the rise in future rents is already accounted for, and discounted, in the capital value of the whole land. A rise in the far future may be anticipated, but will have no appreciable effect on the present price of land, simply because time preference places a very distant date beyond the effective “time horizon” of the present. To the extent that rises in the real rate are not foreseen, then, of course, entrepreneurial errors have been made, and the market has undercapitalized in the present price.(4) Throughout the whole history of landholding, therefore, income from basic land can be earned in only three ways (we are omitting improving the land): (1) through entrepreneurial profit in correcting the forecasting errors of others; (2) as interest return; or (3) by a rise in the capital value to the first finder and user of the land. Rothbard III 528 The only unique aspect to ground land (…) is that it is found and first put on the market at some particular time, so that the first user earns pure rent as a result of his initial discovery and use of the land. All later increases in the capital value of the land are accounted for in the value, either as entrepreneurial profits resulting from better forecasting or as interest return. 1. On capitalization, see Fetter, Economic Principles, pp. 262–84, 308–13; and Böhm-Bawerk, Positive Theory of Capital, pp. 339–57. 2. Fetter’s main error in capital theory was his belief that capitalization meant the scrapping of any distinction between capital goods and land. 3. Cf. Boulding, Economic Analysis, pp. 711-12. 4. For a view of capitalized gains similar to the one presented here, see Roy F. Harrod, Economic Essays (New York: Harcourt, Brace & Co., 1952), pp. 198–205._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments in relation to Land (Economics)
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