Chapter IX

CHAPTER IX RENT IN THE SOCIALIST SOCIETY FROM A business point of view, rent on land and interest on capital in the private capitalist society tend to merge. This is partly because both are expressed in money (in purchasing power) and partly because rent on land does not figure as such either in the recipient's or in the payer's accounts. It is entered under different names such as farm rent and interest-on-capital, and partly because income from rent can be exchanged for income from capital and vice versa (assuming that in the society in question the regulations regarding concessions and alodial possession are not too strict). Legally, technically, emotionally and in respect of liquidity it may make considerable difference to an individual whether he receives rent from land or draws interest from capital. This difference will to a certain extent depend on the con ditions of his ownership, but in practice and from the economic point of view the difference need not be great.

When a company, for example, takes over the rights to a waterfall from two landowners, there is no difference economically between the one who accepts payment in the form of some of the company's bonds and the other who,wishing to retain his rights of ownership, merely grants the company a perpetual lease for a rent corresponding to the interest on the bonds. In this connection it is worth remembering that the German word for "interest", Zins, comes from the Latin census, which in Roman and Germanic countries was the word used to describe public valuation of a citizen's fortune (consisting in earlier days mostly of land) to determine his right to vote and eligibility. According to Gustav Cassell it was dealing in fixed rents from land (which thus became fixed interest on capital) which made canon law alter its attitude to the question of interest and so contributed to the church's removal of its ban on usury.

While for the individual rent on land has all the appearances of income derived from capital, in theory and for the economist it falls within various categories. Rent on land and interest on capital in reality belong to different categories. 2 What the theoretical economist understands by rent on land or, rather, what economic theory under stands by the payment of rent on land (what Keilhau calls groundITeoretiskSocialiikonomi,p. 193. . 2See Wilhelm Keilhau: Grundrentelaeren,Christiania, 1916, and L. M. Fraser: EconomicThoughtandLanguage. 12.0 RENT IN THE SOCIALIST SOCIETY 121 tribute) comprises in the capitalist society several distinct factors. To discuss these! in a book on the socialist 'society would take ustoo far from our subject, nor is it necessary. It will be sufficient to point out that in certain respects the problem appears more simple in the socialist society, where the dividing-line between interest on capital and rent on land will be much sharper owing to the absence of trade in fixed property and capital goods. As the state owns all capital goods, there will be no rents in the sense of payment (ground-tribute) for the use of land (soil, forests, mines, waterfalls and building-plots). Never theless, there is no denying that, whether in the socialist or in the private-capitalist society, different areas of land have a more or a less fortunate situation, a higher or a lower quality, and are more or less suitable for various purposes; that forests differ in their rate of growth, are more or less suitable for development, and are better or worse situated; that mines are more or less rich, more or less well situated; that waterfalls can be more or less conveniently situated and have a greater or a lesser volume and height of fall; that building sites are better or worse situated and so of greater or lesser importance. For .

arable land and pasture, mines, waterfalls and factories, a good situa tion means being in the proximity of means of transport and markets. Except in the case of pasture and waterfalls it also means proximity to sources of power. What is considered a good situation for a dwelling house will vary according to more subjective conceptions. Whatever the type of land there will always be the risk of the central authority putting it to a less desirable use (according to the ends stated), if it does not take differences in situation and suitability into account. Thus economic calculation will require a rent, or, if you like, a differential rent, which will express the difference in output in relation to the input (or the difference in costs per unit of output) arising out of the greater or lesser suitability of the land and its better or worse location. A differential rent of this kind is also necessary to give the central authority a basis for estimating the importance of other factors of production which have to be employed (see Chapter V). If rent is left out of its calculations, the central authority will have· no means· of knowing whether a difference in results is due to human factors, to the use of a greater or smaller amount of capital, or to the nature and position of the land.

How can this difference in suitability and situation be determined? Here one comes up against the usual difficulty that in the socialist society there are no markets for the means of production and, hence, no prices for land, or for the yield from land. Certain natural data can be procured.: the rate of growth of the timber in a wood, the horselSeealso Keilhau and Fraser, L. V. Birch: Denokonomiske Virksomhed, 11, Copen hagen, 1928.

1.2..2. ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY power of a waterfall that has been developed, and modern geophysical instruments can determine the presence of various metals. An area's greater or lesser suitability. for various purposes'~ftn also be deter mined in terms of the product concerned. Such data, however, cannot be used for calculation, for which a common denominator is required. It is of little use to know that a certain area can yield so and so many tons per acre of a certain variety of grain after the use of so and so many pounds of fertilizer and so and so many working hours. Nor does it bring us any further to know that a waterfall will supply so and so many horsepower after the expenditure of so and so many hours' work and such and such quantities of such and such materials, if there are no prices attached to these materials whic'l would enable us to ascertain whether or not they might,' 1:iet~used to better advantage elsewhere. 't ,: It is in respect of building land,·Jthat.,it is particularly obvious that calculations in natura lead nowhere. The,.... :nature of the land can be determined by geological investigation which will show how large a structure' can be erected, but it will not· help to determine whether the land should be used for dwelling houses, public' buildings or factories and what kind of factories. The socialist society cannot make an-economic calculation without a price or a differential tent to express both the scarcity value of the land and its most desirable use in relation to the end.

In a capitalist society land and the "power of the soil" are objects of exchange or at any rate of supply and demand. A better ,position and/or possible higher quality is expressed in its changing hands at a higher price or in a higher rent being set upon it. (If the land is bought with borrowed funds, the interest will be higher, and if it is purchased outright for cash the rent is in reality paid for in the income the purchaser might have had from his money had he invested it elsewhere where the risk was equivalent.) We shall not concern ourselves here with the many types of "external" and "internal" conditions capable of altering the value of land and hence the rent. ,We shall merely point out that in the capitalist society fresh values are constantly being put on land as it changes hands and as offers for it are made by those who consider -that it could be put to more profitable uses.

There can be no such automatic change in land valuations and rents in the socialist society, where the state owns both the land and the different concerns. One can imagine periodical valuations being under taken,which would take both the present use of the land and possible alternative uses into consideration, the purpose of which would be to obtain the calculation factors which we have tried to show to be necessary and which rents represent. This is not the place to discuss whether such periodical, official valuations could, in a dynamic RENT IN THE SOCIALIST SOCIETY I 2 3 society, take the place of a market with many contracting parties. To this most important' point in our argument we ~p.all return later (see Chapter XIV and the appendices). Here we may '.recallthat in arguing against Professor Cassel's opinion that there would be price-fixing for rents in the socialist society, Dr. Heimann originally maintained that price-fixing for rents presupposed the existence of individual com petitors in the market, which would not be the case in the socialist society (see p. 116). As Dr. Heimann writes in this connection of the necessity for scarcity rents, it may be mentioned that in reality it is, of course, not only the scarcity of the land and natural sources of power that must be included as calculation factors, but the scarcity of all factors of production; ..

To calculate these scarcitI factors Dr. Heimann proposed im putation as well as computation. Of imputation he writes that there exists "an elastic band" between consumer goods and production factors and that the valuation bf consumer goods "radiates back to the valuation of the factors of production" . "As soon as real competition prevails in the market for con sumer goods, the resulting price-level is reproducedflutomatically in all stages of production, in so far as only the pric:ttlaw is duly employed, independently of the disposition of the parties in the market for producer's goods."I . There is no contesting the existence of a ·connection and inter dependence between the value of the final product and the factors of production. This, however, does not mean that the values put on the factors of production can be "imputed", or determined exclusively from the values put on"the final products. This could only be done if the factors of production were al~ays used in fixed proportions and they were only used to produce a single product. This, of course, is not the case in the world of realit·y and especially not in a dynamic society. In the first place the question of alternative uses of production factors for the production of various goods, and"in the second place the question of different combinations of production factors, depend, inter alia, on their own changing prices (see also p. 108).

We mentioned above public settlement of the value of land and it is of interest to note that Dr. Heimann originally spoke of "prices" in connection with demand for consumer goods, but of "Bedeutungs grossen" in connection' with factors of production. 2 Later, 3 in answering a criticism made by Professor Halm, he said that his "BedeulSeeMehrwert und Gemeinwirtschaft,p. 188-89. 2See "Zur Kritik des Kapitalismus und NationalOkonomie" in Blatterfur religiosen Sozialismus,1926. 3SoziaJe Theorie des Kapitalismus. Theorie der SozialpoJitik.,Tiibingen, 1929.

124 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY tungsgr6ssen" were synonymous with prices. This introduces the very important question of what is to be understood by price: is it to be merely a numerical denomination, fixed more or less arbitrarily, or is it to be a synthesizing index which simultaneously expresses a number of different factors, among them the assumed scarcity of resources? To this question, as we have said, we shall return and in Chapter XIII we shall also discuss the question of whether it is possible with the help of competition to create prices that can be used as calculation factors in the socialist society. The most important thing to lay down in concluding this chapter is that without calculating a rent that expresses the relative scarcity of the land and of its derivative. products and of their importance for various purposes, the central authority. will have no opportunity of following the economic principle of comparing cost with result, or, in this case, of achieving the goal it has set itself: maximum production for needs.