Evidence that Rent Rises and Wages Fall

Dan Sullivan

[Reprinted from a land-theory online discussion, 19 June 2008]

Reduce the question to simple supply and demand. Anything that reduces the supply of land or the productivity of land will raise the share going to rents, while anything that increases the supply or productivity will lower that share. Similarly, whatever increases the supply or productivity of labor will lower the share going to wages, and whatever decreases the supply or productivity will raise wages.

Here are some often overlooked examples:

Although the internal combustion engine and massive road building increased the rental value of oil rich lands, it also increased the productivity of formally inaccessible lands. The vast increase in lands available for housing, commerce industry and even farming lowered land rents until the speculators could shift their focus from urban to rural land. Prior to that speculative shift, land was incredibly expensive in cities, and "dirt cheap" just beyond the suburban fringe. Much perfectly arable farmland was simply beyond the market because they were beyond the range of horse-drawn produce wagons.

Education takes people out of the labor market. The original reason why the left favored compulsory education and subsidies to higher education has been lost in the superstition that education raises wages. However, the original left-endorsed purpose of compulsory education was to put an end to child labor.

Feminism's attack on limiting women's role to that of the stay-at-home mom, while admirable from a standpoint of personal freedom, also had the effect of substantially increasing the labor supply and thereby lowering wages. As wages fell, more wives had to work, causing the spiral to accelerate.

The elevator increases wages and raises rents. Zoning restrictions raise rents and decrease wages.

Welfare payments increase wages by providing a non-productive outlet for labor, and therefore decreases rents. However, the taxes on productivity that are used to fund welfare payments lower wages and raise rents. That is, if a person works harder to overcome the tax burden, he lowers wages. If he puts his money into land speculation or some other privilege acquistion, he bids up the price of that privilege, which also raises rents and lowers wages. I have a sense that the net effect is positive on wages, but I do not have the confidence to say so categorically.

Similarly, the left argues that that the minimum wage can raise general wages by fiat, denying that it creates unemployment, while the right argues that it causes unemployment, reduces the productivity of labor, and therefore lowers general wages. When one factors in the dynamics of rent vs. wages, one sees that the minimum wage drives up general wages (and drives down rents) *by* causing unemployment and reducing the productiveness of wages.

There is also a perceptual problem in thinking that workers now own more earned wealth. Once debt is considered, wage gains are exposed as illusory. People think they are well off until it is realized that as individuals they cannot possibly pay their personal debts and as citizens they cannot possibly pay their government's debts. If rent is expanded to describe a return to privilege (which is necessary if we are to say that all returns to to either wages or rent, interest being a delayed return either to capitalized labor or capitalized privilege), then we see that wealth that is nominally owned by labor is ultimately owned by money lenders.

Finally, the "subsistence wage" is not a static thing. There was a time when a person only needed to swing a hammer until he dropped. If his pay would provide enough food and shelter to enable him come back and swing a hammer tomorrow, that was subsistence. Today, such a person would be unemployable, because we have machines to swing hammers. The subsistence laborer of today has to perform more complex mental tasks, and the subsistence wage is therefore one that enables him to do that day after day.