Is Rent A Part of Price?

John Salmon

[Reprinted from the Single Tax Review, 1916]

EDITOR SINGLE TAX REVIEW:

This has to be considered as a question of distribution; this presupposes a normal rate of distribution. In other words, out of all production, Rent is entitled to a share. Wages is entitled to a share and Interest is entitled to a share.

Each share under free conditions will be what we call normal; that is, each will get a square rake-off. In order to get this square rake-off, it is absolutely necessary that conditions must be such that a free, fair contract can be made. That's all the Single Tax will bring about. Though some Single Taxers seem to doubt it, as they couple up governmental financial loan schemes in connection with their proposed tax reform laws.

We haven't normal conditions to-day, and therefore, a bigger rake-off goes to rent and taxes, for rent and taxes mean identically the same thing; namely, the price paid for the use of a given location. Now, if there is a production of 100, only 100 can be distributed. What is labor's fair portion? In other words, what fixes wages? I answer, in the words of Turgot,

"We must consider two prices of wages, the current price which is settled by the relation of supply to demand, and the fundamental price which in the case of a commodity is what the thing costs a workman. In the case of the workman's wages, the fundamental price is that which the workman's subsistance costs."

Imagine workmen receiving their normal wages. Now imagine an increase in the price of goods due to an addition of tax or rent (they are both the same). There is immediately set up a current which raises the fundamental price of labor and this raise comes out of rent.

There is action and re-action going on constantly in the economic field. We hear it in the report of investigating committees who point out the increased cost of living relative to stand-still wages. We see it in the multitude of strikes where labor is demanding a fairer rake-off.

We see it in the migration of labor always striving for freer fields to employ itself.

Turgot happily uses the figure of an equilibrium in physics to explain the principle. He says, "A kind of equilibrium is established between the value of all products: -- The consumption of the different kinds of commodities; The different kinds of work; The number of men engaged in them, and the amount of their wages.

Wages can be fixed and remain constantly at a given point only by virtue of this equilibrium. If we add to one of the weights (like adding to the price of goods through the addition of rent and taxes), a movement must be set up throughout the whole machine which tends to restore the old equilibrium. The proportion of the current value of wages to their fundamental or subsistence value was established by the laws of this equilibrium. Increase the fundamental wages, and they must be increased because they were at the subsistence point before, the circumstances which have previously fixed the proportion which the current wages bears to the fundamental wages must cause the current wages to rise until the proportion is reestablished. The result will not be sudden, but it will be certain in the course of time, as water seeks its level. It is the same with the equilibrium of the values we are considering. So rent is not a part of price.