Rent, in common speech, is money paid for the use of land or houses. In political economy it usually means money paid for the use of land; and it is in this reference that the theories and discussions of economists regarding rent have arisen. Economists have generally held it to be the great merit of Ricardo that he elucidated the true theory of rent. Anderson, Malthus, and West had indeed enunciated it before, but the classical statement of it (fully developed in his Principles of Political Economy, 1817) came from Ricardo. According to that theory the amount of rent paid represents the excess of the price of the produce of the land over the cost of production on that land. The cost of production includes the usual wages paid to the labourer, and the usual interest on the capital applied to the land, as well as remuneration of management. In other words, after the labourer has been paid the usual wages and the farmer has received the usual return for his capital and trouble from the produce of the land, the remainder is rent.
It will be seen therefore that the amount of the rent depends on the price obtained for the produce. Rising prices for agricultural produce mean rising rents. And in this, as in other departments, prices depend on the relation of demand to the supply. A rapidly increasing demand, or in other words, a rapidly growing population, and a supply that cannot nearly keep pace with it will lead to a great rise in prices. Such was the condition of England at the end of the 18th century and the beginning of the 19th, when a rapidly growing population had to depend almost solely on the home market. At such a time there was a great rise in rents. During the last generation the population has increased with a similar rapidity, yet, owing to free trade, the enormous development of the means of transport, and the opening up of vast agricultural lands in America and the colonies for the supply of the home market, prices have fallen and also rents. The demand has increased, but the supply has increased vastly more, and in spite of the growing population rents have fallen. The general truth however remains that rent depends on prices, and not prices on rent. Or, to use the Ricardian formula, which, however, is not a satisfactory expression of the fact, rent is not an element in the price of corn.
After having been much overrated as a discovery in political economy, the Ricardian theory of rent is now in many quarters unduly depreciated. It still remains generally valid under the conditions contemplated by its expounder. Those conditions are a system of land-holding by private owners who do not cultivate their land, capitalist farmers, and free labourers; the relation of the three classes to each other being determined by competition. In other words, the economists who have worked out the theory have had in view England, and other countries in so far as they are similarly circumstanced as England. But even in England there are many things which greatly modify the operation of the principle—the influence of custom, the natural conservatism of all classes, local attachment on the part of the farmer and labourer, &c. Very important also is the fact that many of the landlords have regard to social and political considerations, as well as to reasons of fairness and equity in fixing their rents. It must, moreover, be remembered that a disturbance in agricultural prices, such as that caused by the introduction into European markets of the enormous supplies from America, may have rendered the Ricardian theory ludicrously inapplicable to the rents actually paid, particularly under long leases. Under these circumstances rent was often paid not out of the surplus of the farmer's profits, but out of his capital. The Ricardian theory of rent therefore formulates a tendency which, even under the conditions contemplated, accords with facts only in a rough and general way.
When we consider economic history and the existing economic conditions of the world we may perceive how limited in scope the Ricardian theory of rent has been. In many countries custom has decided, and still decides, the rent paid for land. In very many countries it has not been either competition or custom that has regulated rent, but the owner has wrung from the cultivator all that he could. The only limit to the exactions of the owner has been his own pleasure or caprice or the endurance of the cultivator. In countries, however, where the state is the owner of the land rent may more correctly be regarded as a tax.
The rent paid for land occupied by towns and that paid for mines are in some important respects different from the rent of agricultural land. The rent paid for land in towns is much more directly influenced by the increase of population and the growth of prosperity. Inasmuch as the owner receives great advantages from such causes while contributing little or nothing, economists of standing maintain that such land should be under municipal ownership and control. The rent paid for mines is materially affected by the fact that mines become exhausted, while the agricultural properties of the soil are permanent in the main. As regards rent generally, it should be repeated that economic formulas are of comparatively little value. The main thing is a thorough knowledge of the facts and conditions, which vary continually according to the time and country with which we are concerned. For other aspects of rent, see also LAND LAWS, LANDLORD AND TENANT.