RENT: IN ECONOMICS. In economics, rent is the name given to the income which the owner of a productive instrument gets by using it himself or by exacting a payment from another user. Much of the importance of the general theory of rent in economics comes from its application to the special case of income derived from land ownership. In the case of the incomes yielded by the ownership of reproducible instrument% of produc tion the principle of rent is subordinate, in the long run, to the principles which govern the rate of interest on capital, for the supply of such instruments will be maintained and increased if, but only if, the prospective return is sufficient to induce the investment of capital. At any given time, however, the income yielding power of reproducible instruments of production is de termined, not by what they cost, but by the value of their pro ductive uses. That is, it is governed by the laws of rent. The specific hypothesis upon which the significance of the principle of rent depends is that the supply of the productive instruments which yield rent may be assumed to be given or fixed, so that the question remains only of how they may best be used.
Rent is generally held to have two distinguishing character istics: first, it is a differential or graded return; second it is a surplus above costs. That it is a differential return depends upon the circumstance that productive instruments are described or measured in units (e.g., acres) which are not themselves units of productive efficiency. It is obvious that if one acre of agricul tural land is better (more fertile or nearer to the market) than another it will command a larger rent. It is also obvious that the rent which any given piece of land commands may be taken to be a measure of its differential superiority over land which just falls short of being good enough to be worth using. That rent may be regarded as a surplus over costs is a consequence of the circumstance that the supply of rent-yielding instruments is taken as given. Even if they were produced or improved (as land is improved) at a cost in the past, their past costs have no relevance to the practical question of how and for what purposes the instru ments shall be used. The only costs which need to be taken into account are the costs of using them.
land or of a given farm tends to be approximately equal to the value of the amount of product which is dependent upon using it. This amount can be determined by comparing the product which the given piece of land or farm will yield under proper cultivation with the product which could be got by employing the same amount of capital and labour on the best land which is not good enough to yield a rent (i.e., at the "extensive margin of cultiva tion") or by employing it in cultivating rent-yielding lands more intensively (i.e., at the "intensive margin of cultivation"). When the supply of a particular class of rent-yielding productive agents cannot be increased as rapidly as the demand for the products which they yield increases, they will command higher rents. Fur thermore, unless there are compensating improvements in pro ductive technique, production can be increased under such cir cumstances only by using instruments which had previously been below the level of profitable use or by making more intensive use of the latter instruments, i.e., by increasing the labour and other types of instruments used in conjunction with them. Whichever method is followed, increasing costs are encountered. This cir cumstance is the basis of the doctrine that with a fixed supply of land an increased agricultural product can be had only at the expense of a more than proportionate outlay of labour and capi tal—a doctrine to which the name, "law of diminishing returns," has been given.
When economists refer to some other form of income or gain, not derived from the ownership of land or of other productive in struments, as rent, they generally mean either that it may be looked upon as a differential return or that it may be conceived to be a surplus above costs. Thus, "rent of ability" is a name sometimes given to the differential element in personal earnings. "Entrepreneur's rent" denotes the profits of an ably-managed and successful enterprise, conceived of as a differential above the return secured by a marginal undertaking which is barely able to meet its costs. "Consumer's rent" is the difference between the amount which the consumer pays and the value which he attaches to what he buys, as measured by the maximum amount which he would have been willing to pay if required. Similarly, "producer's rent" is the difference between what the state of the market enables the producer to get for his goods and the amount which would have sufficed to induce him to produce them. (See also ECONOMICS and LAND.) (A. Yo.)