Rent: It means reward paid for the use of land;
it is received by the land-lord (landowner) and paid by the user of land
(tenant). Rent may be-
1) Contract Rent 2) Economic Rent
1) Contract Rent: It refers to the total amount
of money paid for the use of land.
2) Economic Rent: It is the part of total
payment which is made for the use of land; it can be estimated as follow.
a) Economic Rent: Contract Rent - Interest on
the capital invested suppose a tenant paying Rs.20,000.00 per year as contract
rent but the interest on capital invested is Rs.3000.00 per year, the remaining
Rs.17000.00 (Rs.20,000-3000) is being for the use of land, economic rent.
b) Economic Rent: Present actual earning -
Transfer earnings. Here transfer earnings represent the amount which a factor
can earn in its next best alternative use. Suppose a piece of land yields in
its present use Rs.5000.00 in a year and suppose further that if it is transfer
to its next best use, it will yield Rs.4000.00 In its present use Rs.1000.00
(Rs.5000-4000) more than in its next best use. This sum of Rs.1000.00 is
surplus is economic rent. Hence Economic rent means surplus or excess over
transfer earnings.
Recardian Theory of Rent: The theory of rent
was put forth by the Economist, Divid Recardo. According to the Recardian
theory of Rent, rent is differential surplus and arises from the fact that land
possesses certain popularities as a factor of production. It is limited area and
its fertility varies, besides, its situation is fixed, thus rent results
because
a) Fertility is more or less fixed in nature
b) The stock of land is fixed and can not be
increased.
Thus, Recardo defines rent as that portion of
the produce of the earth which is paid to the landlord for the original and
indestructible powers of the soil. “This has been illustrated as under”.
1) Rent in Extensive Cultivation: Let us
suppose that there are different qualities of land say ‘A’, ‘B’, ‘C’ and ‘D’
grade depending upon fertility. ‘A’ is most fertile land and yields 35 quintals
of wheat while the ‘B’ is inferior than ‘A’ yielding 30 Qts. of wheat. Further,
‘C’ is still inferior who yields 25 Qts while ‘D’ is least fertile yielding 20
Qts of wheat which Record describes as marginal land.
Ricardo begins with a group of new settlers in
a new country, the group of people will settle down in ‘A’ part of the country
which is most fertile land. They will start to cultivate land. At this stage no
rent is paid because ample land of first quality is available, But as the
population increases and the produce from the “A” grade land is insufficient
for increasing population, Naturally ‘B’ grade land will have also to be taken
for cultivation. Since, this land is inferior it yields less than the land i.e.
30 quintals of wheat per plot as compared with 35 Qts of ‘A’ with the same
expenditure of labour and capital. Naturally ‘A’ grade land acquires a greater
value as compared with ‘B’ now a tenant will be prepared to pay up to 5 quintal
of wheat in order to get a plot in the ‘A’ zone or take ‘B’ grade land free of
charge. Thus, the rent arises for ‘A’ grade land which is equal to the
difference between yields of ‘A’ and ‘B’ grade lands. That is 35 Qtls-30 Qts 5
Qts of wheat. Thus Ricardo considered ‘Rent’ as a surplus accruing to superior
land over inferior land called “marginal land” Thus such shifting of population
is occurred further on ‘C’ and ‘D’ grade lands the economic rent will still
increased as indicated in the following table.
|
Grade of Land |
Production ( Qts)
|
Value of Produce @ Rs 1000/ Qts
|
Cost of production
|
Surplus over 'D' (Qts)
|
Economic Rent (Rs.)
|
|
A
|
35
|
35000
|
20000
|
15
|
15000
|
|
B
|
30
|
30000
|
20000
|
40
|
10000
|
|
C
|
25
|
25000
|
20000
|
5
|
5000
|
|
D
|
20
|
20000
|
20000
|
Nil
|
No Rent
|
2) Rent in intensive cultivation: Suppose, the
settlers resided in ‘A’ grade land realize that there is another way too of
increasing the produce by applying more labour and capital to superior lands
(i.e. intensive cultivation). This is done but it is seen that the law of
diminishing returns sets in now consider that ‘A’ ‘B’, ‘C’ and ‘D’ are the
different doses of labour and capital (not grades) applied to the same grade of
land The first dose ‘A’ yields 35 Qts of wheat, the second dose of labour and
capital — ‘B’ applied on the some plot will almost definitely give us less than
the first, suppose 30 Qts of wheat. So we have the choice of either taking new
plots or cultivating the same lands more intensively. If we adopt the latter
course, the first unit of labour and capital (does A) will be yielding a
surplus over the second unit. (dose- ‘B’) which produces, just enough to cover
the expenses. This Surplus again is rent. Here 5 Qts surplus and it is economic
rent. As more and more units of labour and capital are applied, the return per
unit will go on falling.
The rent arises from extensive cultivation and
intensive cultivation together has been depicted diagrammatically as under. The
shaded area represents rent and the ‘D’ land/dose yields which just cover its
expenses and no more. It is described as “marginal” or ‘No—Rent land”.
3) Rent Due to Differential advantages:
Suppose, further after some years market in ‘A’ zone and Railway in ‘B’ zones
have been started. As a result, when produce is to be disposed off the market
cost in ‘A’ zone and transport charges in ‘B’ zone will be least or negligible
compared to that of in ‘C’ and ‘D’ zone. Thus the plots located in ‘A’ &
‘B’ zone will be advantageous. The better situated plots, which have to bear
less market transport charges, will enjoy a surplus over the distant ones (i.e.
‘C’ & ‘D’ zones. This surplus will be another cause of rent.
Hence, economic rent is a surplus which arises
on account of natural differential advantages, whether of fertility or situation
possessed by the land in question over marginal land.
4) Scarcity Rent: Suppose, all types of lands
cultivated extensively and intensively too. But the price rises still further
under the pressure of demand. Population is increased and no more land is
available. Prices of agril produce go up and therefore, incomes from land go
up. Hence, all land, including no-rent ‘D’ quality land begins to get surplus
above expenses. This surplus above costs in the ‘D’ quality land, (our previous
no rent land) is “scarcity rent”.
Summing up, the fertility, situation and
limited total stock these qualities of land which are original and permanents
give rise to rent.
The Recardian theory of Bent has been
criticized on following points.
1. Fertility
of land is not original. The present productive capacity of land is the result
of human efforts, like use of manures and improved technology.
2. The
idea of indestructibility is objected. Area of land is everlasting but not
fertility. Fertility can be destructed due to continuous cultivation.
3. The
concept of marginal land Said to he imaginary.
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