In this article we will discuss about the relationship between rent and economic progress.
The amount of rent earned is influenced by various factors. If the population of the country increases the demand for agricultural crops increases. This leads to the cultivation of inferior lands. The market price rises and the superior plot of land earns more rent.
When the discovery of new methods of cultivation more crops can be grown on the superior plots. So, it will not at all be necessary to cultivate the marginal (or no-rent) land. The market price will fall and this will lead to a reduction of the rent of the superior plots. If the cost of transporting crops from a foreign country is reduced imports of such crops will increase. This will reduce prices and lead to a fall of rents. Rent may also fall due to the operation of the Law of Diminishing Returns as the economy progresses.
So economic progress produces its impact on rent. It is found that rent does not continually increase with the economic progress, in some cases it rises and in some other cases it falls, depending on the various components of economic progress.
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Accordingly, the relation between rent and economic progress can be studied under the following heads:
(a) Effects of Improved Methods of Cultivation on Rent:
An improvement in the method of cultivation reduces the cost of production and increases the total production; these would lead to a fall in price and rent. The fall in rent will be greater if the said improvement benefits the inferno lands considerably. Rent, on the other hand, may rise if the improved methods of cultivation increases the productivity of superior lands only.
(b) Effects of Improved Transport on Rent:
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Improvements in the means of transporting the produce to the markets tend to reduce the situational disadvantages of the fertile lands lying at distant places. These would cause the rents of newly opened areas to rise, but rent of land at home would fall because the inferior lands will go out of cultivation.
(c) Effects of Increase in Population on Rent:
As population increases, rent tends to rise’, it happens because the increase in population causes an increase in the prices of the agricultural produce, as a result the rent will rise But, an increase in population may causes an increase in the prices of the agricultural produce.
As a result rent per acre will rise. But, an increase in population may cause a fall in rent if such an increase causes a rise in the efficiency of the labour (due to competition among the workers) in which case, the cost and the prices of the agricultural produce would fall.
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(d) Effects of an Increase in the Income of the People on Rent:
When the income of the people increases, they do not spend more income on food. They try to spend the increased amount on other things. For this reason, the prices of the agricultural produce do not rise in the same proportion as the prices of other goods rise.
It means that with the increase in income and improvement in the standard of living, rent of land fails to increase at the same rate as the other incomes do. But, the increased incomes have a tendency to raise the urban site rent on account of the scarcity of urban lands, mainly used for the instruction of residential buildings.
Negative rent:
Rent cannot be negative in both Ricardian Theory and the Modern Rent Theory. In the Ricardian theory, rent can fall to zero as in the case of marginal land. As the cultivation cannot extend beyond the marginal land, rent cannot fall below zero.
Similarly in the modern theory rent cannot be negative, as that would mean that the actual earning of a factor become less than its transfer earnings or alternative earnings. But, this cannot happen as the factor can easily move to the alternative occupation when the actual earnings are going to be less than transfer earnings. At best it can be zero, when the two earnings become equal.