A Closer Look at the Law of Rent

Adding a few specific factors can help us to understand how land speculation works. Here is a model with five different grades of land. Workers are more productive on the better land -- they can produce more units of wealth. And, on the better grades of land, more workers can be employed on each plot. The cost of public services (infrastructure) is higher on the better land. (In this simple model, we assume that the infrastructure cost per worker is the same.)

Now let's suppose (as is entirely likely) unemployment is a part of our economy -- and that society uses some of its tax revenues to ease the burden of poverty. Let's assume that out of 500 workers as in the economy, 50 of them can't find jobs. Let's further assume 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.

(Does this raise further questions? Click here for a few of them.)

4 plots of each grade of land	5 units per worker/day; 50 workers per plot	4 units per worker/day; 40 workers per plot	3 units per worker/day; 30 workers per plot	2 units per worker/day; 20 workers per plot	1 unit per worker/day; 10 workers per plot		Unemployed workers: 50
1.	50 x 5	40 x 4	30 x 3	20 x 2	10 x 1
2.	50 x 5	40 x 4	30 x 3	20 x 2	10 x 1
3.	50 x 5	40 x 4	30 x 3	20 x 2	10 x 1
4.	0	0	0	0	0		Totals
workers employed	150	120	90	60	30		450
wealth output	750	480	270	120	30	Welfare cost	1650
infrastructure cost	200	160	120	80	40	50	650

Now let's see what happens if we put those unemployed workers to work -- without land speculation:

	5 units per worker/day; 50 workers per plot	4 units per worker/day; 40 workers per plot	3 units per worker/day; 30 workers per plot	2 units per worker/day; 20 workers per plot	1 unit per worker/day; 10 workers per plot
1.	50 x 5	40 x 4	30 x 3	20 x 2	free
2.	50 x 5	40 x 4	30 x 3	free	free
3.	50 x 5	40 x 4	30 x 3	free	free
4.	50 x 5	40 x 4	30 x 3	free	free	Totals	Change
workers employed	200	160	120	20	-	500	+ 50
wealth output	1000	640	270	40	-	1950	+ 300
infrastructure cost	200	160	120	80	-	560	- 90

So we see that by eliminating wasteful hoarding of land by speculators, we can increase production, reduce infrasctructure costs, and raise wages!

Notice that by using the land efficiently and eliminating unemployment, the community can afford to provide infrastructure and services where the land is free, even while spending less public revenue than before!