The Principles of Economics, with Applications to Practical Problems. Frank A. Fetter
on the spot instead of being sold as now. Land was rarely, if ever, sold outright, so that there was no occasion to estimate its total selling value. It was thought of as a place on which to live and as a source of livelihood. Its yearly use was all that was subject to contract, sale, and exchange. Not the land itself but a rent charge on the land was sold, the term rent charge meaning an annual sum payable out of the yield of an estate. Many medieval estates were so tied up by legal conditions that they could not be sold outright; all that the owner could do was to sell or mortgage the annual rental. Thus, in the Middle Ages, it was all but universal to look upon most indirect agents as exchangeable only under the renting contract, as subject to renting but not to complete transfer and sale.
The renting contract not convenient in commerce
4. As industry developed, the renting contract remained almost wholly confined to cases of renting lands and houses. The materials and appliances needed for manufacture and commerce are so manifold and varying in quality that the rent-form of contract is very cumbersome and difficult for exchangers to enforce. If a merchant about to embark on a trading journey wished to rent a ship and a stock of goods, the renting contract became most difficult to interpret. He must agree to repay the loan in goods of the same kind and quality as those received, a contract most difficult to execute, and giving occasion to costly tests and countless disagreements. It was much easier for the merchant to get his loan under the interest contract, i.e., a money loan, with which to buy the goods. With the growth of industry and commerce, wealth increased in towns, taking many forms, as those of ships, wagons, tools, and stocks of goods, that could not conveniently be rented.
The thought of it remains associated with a rural economy
In England, the country which developed its industrial system earliest, the idea of rent, therefore, gradually became disassociated almost entirely from the use or hire of any wealth but land and real property. Because in the Middle Ages rent was associated almost entirely with natural resources, they being the only important forms of wealth which men rented from others, there was fostered the idea that the essential mark of rent is the connection with natural resources. It is a simple example of the association of ideas. In the transfer or loan of movable goods, the rent contract was quite overshadowed by the other form of contract, that of a money loan. According to this explanation the essential and primary difference between renting wealth and borrowing money at interest is not in the kind of wealth whose use is thus temporarily transferred, but in the nature of the contract. But as forms of wealth differ in their fitness for transfer under the two forms of contract, there goes on a competition between them, as a result of which each becomes associated with certain groups of goods. In the Middle Ages the renting contract was the dominant form, but it has been progressively displaced by loans in the money form, and its importance is still declining.
Renting contracts most used with land
5. The main forms of wealth whose usufruct is still sold under long renting contracts are land and its more durable improvements. In England farms are let under long leases, a very common form being the thirty-year lease. Under the old, almost fixed, conditions in agriculture such a lease was equitable, but when prices are rapidly changing and when new methods are being introduced, it gives rise to great hardships. About twenty-five years ago, the great fall in the price of agricultural products brought ruin to many of the tenant farmers. The land troubles in Ireland have been largely about tenants' improvements. When the lease expired, the landlord could appropriate all the improvements that the tenant had made. In America farms are let usually on shares, and from year to year, but the plan of a money rent is increasingly followed. The difficulty of getting an equitable arrangement between landlord and tenant is recognized by all. The landlord must make the proper repairs or see that they are made; he must specify in the contract whether the products can be taken away or are to be fed on the place so that the soil may not be impoverished, and he must provide for the purchase of other fertilizers. On the other hand, the tenant under the renting contract has little motive for improvement, and many occasions for discontent. So in America, far more than in the older countries, land changes hands by sale, the purchaser going into debt for it, giving his note and paying interest on the loan rather than rent for the farm.
But many other goods are rented
Many less durable goods are rented for brief periods. Carriages are rented for the day, bicycles by the week or month. Sewing-machines, boats, guns, tents, and even diamond engagement rings, yield their joys under the renting contract. People frequently hesitate between the renting and the purchase of a piano, and in some cases renting is the more convenient and desirable way of securing its use. The purchase of a dress-coat or of a masquerade-suit to be worn but once, involves for some an excessive and needless sacrifice. For a moderate sum its temporary use may be had, and it is then returned, little the worse for wear, to the accommodating clothier.
Economic rent much wider than the renting contract
A final word of caution may be given. Economic rent is not confined to the cases of contract rent. It exists in every case where a more or less durable agent yields a use that is scarce and desirable. The owner who uses a thing himself gets the advantage in the product as clearly as if he collected rent from a borrower. Houses lived in by the owners, house furnishings, clothing, books, all scarce and durable agents, are yielding rents in this logical sense. To the economist, therefore, the problem of economic rent, as one of the grand divisions of the problem of value, remains of undiminished importance, for in these unceasing streams of uses emanating from our environment, is found the basis for the value of all durable wealth.
CHAPTER 9
THE LAW OF DIMINISHING RETURNS
§ I. DEFINITION OF THE CONCEPT OF (ECONOMIC) DIMINISHING RETURNS
Economic agents contain uses to be obtained only with progressive difficulty
1. The phrase "diminishing returns of industrial agents" is the expression of the fact that there is an elastic limit to the utility any indirect good can afford within a given time. Successive attempts to get additional services from a thing are usually in part successful, but each additional service is gained with more difficulty, or a smaller added service is gained for an equal expenditure of materials or effort. A book stands many hours untouched on the shelves of the library; but if, as often happens, two or more persons wish to use it at the same hour, time and energy are wasted. The book has a potential use during the twenty-four hours, but all this can be secured only at the cost of the greatest inconvenience. The greatest net uses, therefore, are seen to be to the first user and in the first hour, for these uses cost the least time and trouble. If the members of a family will take turns, one chair will serve for all of them; but if all are to be able to sit down together, a chair must be provided for each. Often it will happen that only one chair is in use, the other nine chairs being valued only for their potential uses. I knew two young men who owned a dress-coat in partnership, and as they had different evenings free from business all went well until both were invited to a reception which both were very eager to attend.
This is true of all classes of agents
Illustrations of this principle may be drawn from every class of durable goods. The example generally given is that of a field used for agriculture. It was long ago seen that a larger crop could usually be obtained on the same area, only with greater effort or expenditure; but this fact has been thought to be peculiar to the use of land. The examples given above have been purposely chosen from very different fields, to show that the truth is a general one: a good that affords a given service can be made to increase that service, ordinarily, only on condition that men put forth greater effort, or sacrifice more goods.
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