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The marginalists who confronted land
American Journal of Economics and Sociology, The, Jan, 2008 by Fred E. Foldvary
1. Does rent exist for all territorial capitals or only for some of them?
2. Is rent something special referring only to territorial capitals?
3. What is the origin of rent?
4. Is rent useful for mankind or for a particular society?
5. Are there means to remedy the evils caused by rent without producing even greater evils?
Pareto's answer to the first question is that rent exists for almost all land. The more accurate answer is that rent exists for land whose productivity is greater or equal to that at the margin of production, beyond which submarginal land has no market rent.
With respect to the second, Pareto's answer is negative. For Pareto, rent is not exclusive of territorial capitals, as other capitals in specific circumstances may produce rents, although land rent is the most important.
With reference to the origin of rent, Pareto (1896: 124) says that:
it is due to the cause of all values, that is to say to the marginal utility of the services of the capital. In particular, it is due to the differences in productivity among such capitals, related to the fluency with which we may obtain them by saving.
This is an incomplete answer, as the supply of land of a particular quality, relative to marginal land, sets the rent, utility being equivalent to the productivity.
With respect to the fourth question, Pareto's answer is negative:
rent diminishes the marginal utility enjoyed by society, because it creates obstacles to the equality of the net rates of interest, which is a condition for the maximum of marginal utility.
We can note here that if almost all the rent is collected for public revenue, then land is not purchased for its return, and the rent no longer negatively affects the rate of interest.
For the last question, we have an extraordinary and precise observation, totally coinciding with the viewpoints of Walras and George: Rent is the price of a monopoly affecting the whole society and creating, when private appropriation is allowed, a sector of privileged people, and causing economic distortions! However, he thinks that the methods proposed to abolish this appropriation of rent could be even more harmful for society.
Pareto (1896: 128) accepted the validity of Henry George's criticism of "territorial property in the United States," thus limiting the geographic application of George's critique, which does not actually match with George's ideas, since his ideas do not refer to one country, but to land in general.
Thus, regarding the remedies, Pareto (1896: 128) is rather obscure. He seems to believe in a right to property that should always scrupulously be respected: "the advantages for society would surpass the inconveniences that it may produce." Nationalization of land seems to Pareto a remedy worse than the disease, although he points out that the main problem in connection with nationalized rent resides in the fact that it is not uniform in space and time and hence reaching a satisfactory general solution is difficult. Nevertheless, his position is clear in the sense of fighting against speculation and against government policies that tend to increase rent artificially. Although he is far from being emphatic about it, Pareto seems inclined to solutions based on taxation, at least for appreciation.
