A Closer Look at the Law of Rent

Adding a few specific factors can help us to understand how land speculation works in real life. Here is a model with five different grades of land. Workers are more productive on better land (each worker can produce more units of wealth) — because the best workers tend to win the competition for the best locations, where more capital is used. And, on the better grades of land, more workers can be employed on each "plot" (unit of area). But the cost of public services (infrastructure) is greater in proportion to the amount of production and the number of workers. In this model there are four plots of each grade of land, and one of each four has been held out of use.

Let's further suppose that unemployment is a part of our economic model — and that society uses some of its tax revenues to ease the burden of poverty. Let's assume that out of 500 willing, able workers, 50 of them can't find jobs. We'll say that the return to labor and capital at the lowest-quality land in the chart (1 per day) equals the payment to "welfare recipients." Thus, 50 units per day will have to be taken in taxation and redistributed to the unemployed. By eliminating wasteful hoarding of land by speculators, we can increase production, reduce infrastructure costs, and raise wages!

Now let's see what happens if we employ the same number of workers, but without land speculation. We can expect some very good results! By using the land efficiently and eliminating unemployment, the community can afford to provide infrastructure where the land is free, while spending less on public services than before!