From Libertarian Wiki

Rent, in the economic sense, differs from its common usage. In classical economics, it refers to the income received by a landowner as a result of the market value of their land and other natural resources. Georgists and geolibertarians advocate communal collection of rent via a Land Value Tax, while other libertarians consider it to be the rightful property of the landowner.

How rent is determined

Some land can be put to more productive use than other land, and thus can produce more wealth. Some factors, such as fertility, are inherent in the land itself, while others, such as access to services, utilities, and commerce, are the result of others in the community. As the best land is taken up, others have to move to less desirable land. This is what gives land rental value. The rental value is the difference between the productive potential of a lot and that of the least productive land owned in the area. Thus, it is by restricting others from access to good land and resources that landowners make a profit.

How rent affects wages

Classical economics recognizes three factors of production: land, labor, and capital. Rent is the revenue from land, wages are the revenue from labor, and interest is the revenue from capital. Often, the profits that can be made from improving land with high rental value are little more than the profits from the rent itself, giving landowners incentive to hold land out of use, a practice known as land speculation. Sometimes they will hold off development until it becomes more profitable than under the current market.

This means that other businesses are forced onto less valuable land, where they are not able to produce as much, and therefore not able to pay their workers as much. Since other businesses with better land want to stay competitive, they lower their wages to what workers get at the least valuable land, known as the margin of production. The lowest wages for a particular type of work become the standard. As population increases, less valuable land is occupied, and the margin of production is lowered, depressing wages.

External links

The Law of Rent

The Boom/Bust Cycle

Rent and Selling Price