||Formally defined, rent is any payment to a factor of production over and above that necessary to keep it in its present use. Under this definition, pieces of industrial machinery, professors of geography, and plots of land are all potentially capable of accruing rent. However, economic geography, the sub-discipline most concerned with rent, has exclusively studied it as a payment for a plot of land. Rent to economic geographers, then, means exclusively land rent (and typically not even housing rent). There is one other definitional wrinkle: because land exists irrespective of remuneration â€” it cost nothing to produce and freely exists â€” then from the initial definition, all of a payment going to land is rent. So, unlike other factors of production, e.g. industrial machinery or geography professors, where part of their remuneration is non-rental, in the case of land its recompense is defined as wholly rental.
But what determines the precise level of rent on any specific tract of land? Two broad factors are recognized: differences in land characteristics, and differences in social power around the ownership of land. Note that these two factors are associated with two quite different theoretical traditions investigating land rent (and found in economic geography): neo-classical and Marxian economics. Neoclassical economics begins with land as part of a pristine nature that is inherently differentiated and scarce, which through the forces of supply and demand translates into specific rental levels. Because landowners are conceived as passive, ownership itself is irrelevant to the precise rental level set; the only important factor is the differential characteristics of the plots of land themselves. In contrast, Marxians begin with nature socially transformed from the outset, with scarcity, and thereby rental levels established by a set of broader social relations, of which the most important is the active power invested in land owners (Barnes, 1988). While land characteristics play a role, they are always subordinate to social relations.
Differences in land characteristics, the first of the factors, and most associated with the neo-classical scheme, produce what is called differential rent, which arises because of two separate causes. The first is locational, and is garnered because of unequal distances between different plots of land and some common fixed point such as a market place (Chisholm, 1962). Seen in von ThÃ¼nen\'s model, which assumes that agricultural crops are cultivated at varying distances around a town, which is also their sole market, crops grown closer to town will make savings in terms of transport costs compared with crops cultivated farther out. Those savings, in turn, through a competitive process among farmers, are eventually bid away in the form of differential rents: closer plots of land command higher rents than more distant ones because of greater transportation savings. Here, rent acts as a rationing device in ensuring that each plot of land is used in the best possible way. For only those farmers growing crops that make the best use of a given location (that is, maximize transportation savings) are able to outbid all the others and capture the desired plot of land (Chisholm, 1962).
The second cause of differential rent is differential land productivity, which, following the English classical economist David Ricardo (1772-1823), arises because of both natural and human-made differences in the land. Ricardo distinguishes two forms of differential rent: extensive differential rent, where all plots of land have equal amounts of capital investment, and intensive differential rent, where investments are unequal (Barnes, 1988). In both cases, differential rent is determined by the difference in cost between any productive (technically the \'intramarginal\') plot of land, and the so-called marginal plot. The marginal plot is land so unproductive that the cost of producing a crop there is equal to its market price, thereby leaving no room for rent. Note too, that an equivalent to the marginal land exists in von ThÃ¼nen\'s model: land located so far from the market that transportation savings are zero, and hence rent too.
Marxists recognize counterparts to Ricardo\'s extensive and intensive differential rents, which they call respectively differential rents (DR) I and II. They are calculated in a similar manner to their Ricardian equivalents (although see Ball\'s, 1977, unorthodox analysis of DR II). Quite different, though, is the rationale for differential rent. In the neoclassical interpretation of Ricardo and von ThÃ¼nen, differential rent is portrayed as an index of natural scarcity whether of locations or differentially fertile lands, while in the Marxist account, such as Katz\'s (1986, p. 67), it is an expression of the \'monopoly power of capital as a whole\': capitalism is the culprit, not a niggardly nature.
In the case of land, one group, the landowners, has an overwhelming monopoly power, which, according to Marx, they use to demand two additional forms of rent beyond DR I and II: absolute and monopoly rents. Absolute rent is the difference between the labour value (see labour theory of value) of a crop and its price of production (see Marxian economics), and occurs because of the power of landowners as a class to prevent new capital investment in agriculture. By keeping the capital/labour ratio artificially low, labour values and prices necessarily diverge to the advantage of the landowner (Sheppard and Barnes, 1990, pp. 129-32). Monopoly rent represents the most naked form of landowner power occurring when owners hold back land, not leasing it until they receive a positive return above some minimum threshold level beyond DR I and II (Harvey, 1974).
These classic theorizations of rent are all set within an agricultural context, but there have been extensions to the urban realm. The neoclassical Alonso model of urban land rent is based upon the von ThÃ¼nen model, and subsequently refined in countless ways by the new urban economics, an extension of regional science. Harvey (1973, 1974) has also refashioned Marx\'s rental categories for the city, especially the idea of monopoly rent. In addition, Harvey\'s student, Neil Smith (1979), developed his own Marxist-inspired analysis of rent, the rent gap, although some claim it is based upon the neo-classical concept of opportunity cost. Finally, there have been attempts to analyse rents that stem from fixed capital within the city, i.e. buildings and structures that have a \'life\' of more than a year. Formal modelling of this type of rent is very complex, however, involving the intricacies of joint products, and generally has not been pursued (Sheppard and Barnes, 1990, ch. 7).Â (TJB)
References Ball, M. 1977: Differential rent and the role of landed property. International Journal of Urban and Regional Research 1: 380-403.Â Barnes, T.J. 1988: Scarcity and agricultural land rent in light of the capital controversy: three views. Antipode 20: 207-38.Â Chisholm, M. 1962: Rural settlement and land use: an essay in location. London: Hutchinson.Â Harvey, D. 1973: Social justice and the city. London: Edward Arnold.Â Harvey, D. 1974: Class monopoly rent, finance capital, and the urban revolution. Regional Studies 8: 239-55.Â Katz, S. 1986: Towards a sociological definition of rent: notes on David Harvey\'s Limits to capital. Antipode 18: 64-76.Â Sheppard, E. and Barnes, T.J. 1990: The capitalist space economy: geographical analysis after Ricardo, Marx and Sraffa. London: Unwin Hyman.Â Smith, N. 1979: Toward a theory of gentrification: a back to the city movement by capital not people. Journal of the American Planners Association 45: 538-48.
Suggested Reading Ball (1977).Â Scott, A.J. 1976: Land and land rent: an interpretive review of the French literature. Progress in Geography, vol. 9: 101-46. London: Edward Arnold.Â Sheppard, E. and Barnes, T.J. (1990), ch. 6.