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Economic rent | ||
Classical economics recognizes three factors of production: labor, capital and land. Within this school of thought, wages are defined as the portion of production that goes to workers for contributing labor toward production; interest is the portion that goes to owners of tools, buildings, etc. for owners' contributions of capital to production; and rent is the portion that goes to landowners for not blocking production on the land they control. David Ricardo is credited with the first clear and comprehensive analysis of land rent and the associated economic relationships (Law of Rent). His conclusions have long been accepted by economists. Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs. The term "economic profit" does not seek to clarify income from Wages, interest and rent. Real business enterprises typically own some of the factors of production, which they use to produce goods and services for sale, meaning that the business enterprise receives the income due to those factors of production.
While payments for and income from owned or controlled factors could be imputed in calculating profit, the common-sense idea of a highly profitable firm is typically a firm which realizes a high rent in the use of those factors it owns or controls: a farm that owns highly productive farmland or a merchant who owns a highly productive retail location might be thought "profitable" in the common sense of the term "profit," because the firm is receiving a large rent on the factor of production it owns. However, the efficiency of factor markets implies that the profitable firm is using the factors it controls more productively than others would, and/or has acquired those factors at prices lower than their current rents would justify. Neoclassical economicsIn the latter part of the 19th century, as neoclassical economics was being formulated, it was realized that the classical definition of rent made the non-contributory nature of the landowner's participation in economic activities rather too apparent, leading to calls for recovery of publicly created land rents for the purposes and benefit of the public that created them (most famously by the American Henry George), and even for nationalization of land and other natural resources as demonstrably more economically efficient than their private ownership (most notably by Karl Marx). A new basis for consideration of economic rent had therefore to be devised, which would permit a logical and moral defense of long-standing institutional arrangements that many in positions of authority found highly congenial, and that (then as now) few people considered it conceivable (or at any rate convenient) to do without. In addition, certain kinds of rent-like income flows have long been obtained through other means than ownership of land, such as the royal patent monopolies on trade in salt, spices, silk, etc., or the privileges of exacting tolls from travellers on public roads. More modern parallels to these sorts of government-issued privileges had also begun to be established by the late 19th and early 20th century in the form of utility monopolies; production, import and export quotas; drug regulation and alcohol prohibition; intellectual property monopolies; labor union certification; and legal barriers to entry in law, medicine and other professions. The common characteristic of the additional income derived from such privileges with land rent income, and what distinguishes possession of such privileges and ownership of land from contribution of labor or capital to production, is that the economic rent incomes obtained thereby are obtained not by contributing anything to the production process, but by controlling others' access to otherwise accessible production opportunities.[citation needed] Since publication of the seminal paper, "The Welfare Costs of Tariffs, Monopolies, and Theft," by Gordon Tullock in Consequently, in modern neoclassical economic theory economic rent income is defined not by how it is obtained, but by whether it is greater than some other (typically unknown, or even unknowable) sum: i.e., it is defined as either the difference between the income realized by the owner of a factor of production in some particular use of that factor and the cost of bringing that factor into that use (Classical Factor Rent), or the difference between the income realized in the current use of the factor and the income that would be realized in its next most profitable use (Paretian Factor Rent). Unfortunately, while these definitions of economic rent usefully encompass the kinds of privilege-based incomes enumerated above in addition to ordinary land rent, they also have the effect of encompassing large amounts of wage and interest income, and introducing substantial uncertainty as to what portions of production can accurately be accounted wages, interest and rent Copyright 2008 - France BtoB from Wikipédia
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