Disequilibrium in Factor Markets due to Power, with Special Reference to Agricultural Land Rent

Abstract

There has long been one dominant view relating to the formation of ground rent, namely that ground rent is wholly determined by the varying gradations of the profit margin due to differentials in the quality of land.² The theory that ground rent should be regarded as the price of a final producer good, which, like the prices of the other final producer good (wages), is totally determined by the price of the product, i.e. what might be called the utility or productivity theory of rent, is based on the belief that rent is formed only, as it were, passively. Of course, it cannot be denied that the determination of rent is to a conspicuous extent carried out by profit margins, and hence assively. Nevertheless, any assertion that rent is determined by differences in returns from land, and hence subject to the control of the principle of differentiated returns, is bound ultimately to be subject to the principle of substitution. Now the statement that it is controlled secondarily by this rule, as we shall see below, is not merely restricted to the price of land use, but something which is true of ultimate producer goods in general. The fundamental question in the case of wages concerns how that part which is not subject to the principle of substitution, what might be called the primary part of wages, is going to be determined. In the same way the basic question in the case of rent is how that part of it which is not subject to the principle of differentiation of returns, what might be called the essential part of rent, is determined. In addition the product price itself is controlled by the nature of this essential part, thus the size of the differential returns is strongly influenced by it. Of course, if we carry through the considerations of general equilibrium, both the product price, and the whole ground rent, including the part due to differential returns as well as the essential part, will be determined simultaneously. However, when we consider which factor, in this complex organisation of mutual interaction, is the fundamental determinant, it is important to distinguish the essential part of the rent from the rest of it.

This chapter is a translation of Part 2 of Chapter 3 of The Theory of Distribution, which is Volume 4 of Takata Yasuma’s New Lectures on Economics [Keizaigaku Shinko]. Takata discusses differential rent in Part 3, absolute rent in Part 4, monopoly and polypoly rent in Part 5 and the relations between these various types of rent in Part 6.