Most Popular White Papers
Content provided in partnership with
Business Services Industry
Land as a factor of production - Chapter 2
American Journal of Economics and Sociology, The, Dec, 2002
The notion that it is a simple matter to distinguish between the yield of natural agents and that of improvements is fanciful and confusing.... The objective classification of land and capital as natural and artificial agents is a task that always must transcend the human power of discrimination. (35)
From another standpoint, Fetter was concerned (as were other economists of the time) with the terminological differences between academic and business usage of terms. He pointed out that the distinction between land and capital was of little importance for practical businessmen. (Many years later Fetter would be criticized by an otherwise sympathetic commentator, Murray Rothbard, for having "completely misunderstood" the distinction between land and capital goods. In Rothbard's interpretation of Austrian economics the "permanence" or "non-reproducibility" of a resource distinguishes it from other goods. (36))
Irving Fisher's definition of capital consistently included land. In Elementary Principles of Economics, he pointed out that other authors limit the concept but that "such a limitation, however, is not only difficult to make, but cripples the usefulness of the concept in economic analysis." (37) However, he conceded the importance of land as a special category of capital as well as the significance of land's relative fixity for purposes of taxation. (38) In reviewing Fisher's 1906 The Nature of Capital and Income, John Commons grouped Fisher with Clark and Fetter as developing the theory of what he termed "business economy" as opposed to political economy. Commons said:
The issue is now clear. The older political economists were working on a serious social problem--that of earned and unearned incomes. They carried everything back into terms of cost, effort, enterprise, sacrifice, abstinence, and distinguished the income that corresponded to cost from that which came as a surplus above cost. They were political economists. (39)
Herbert J. Davenport, Brown's colleague at Missouri, investigated the separation of land from capital in more detail than Fisher, although Davenport agreed in large part with Fisher's view of capital. In the preface to Value and Distribution in 1908, he listed the doctrines he would eliminate from economic theory. Last on the list was the tripartite classification of the productive factors. Denying that a clear distinction could be made on technological grounds, he suggested that as many factors could be distinguished as were pertinent although they may be myriad. (40) As to the relative fixity or perceived inelasticity of the supply of land, Davenport pointed out that this view involved conjecture or prophecy and as such should not be admissible in rigorous theory. (41) Although he was convinced on technical grounds that no distinction was tenable, he examined the influences behind the tradition and remarked, "With these spatial qualities of land are more or less closely associated certain legal, jurisdicti onal and territorial aspects possessing great social significance." (42) He indicated that the English common-law distinction between realty and personalty is parallel to and interrelated with the traditional division of the factors. For Davenport, separating land from capital was valid in "a larger social, historical and philosophical view," (43) and invalid for competitive analysis. What he may have been referring to in the first case was his Veblen-like views of "capitalized privilege and predation" in which he included land ownership. (44)
