The Basic Insight: The Law of Rent
Here we have a very simple, ten-screen model in which we explore the Law of Rent. The law of what? You mean you have never heard of it? It's odd, but although the Law of Rent is every bit as important and as fundamental as the laws of, say, supply and demand, or motion, or thermodynamics, a great many people have never heard of it. Why do you suppose that is? Is it because land is not so terribly important anymore, in today's "information age"?
No. We contend that land is still very important indeed, much more so than some people would like us to think. But to understand why, we must come to grips with this principle. So let's go!
1. Different Grades of Land
Here are four sections of a piece of land, with
natural resources (fruit trees). Let us assume you can get one bushel of fruit from
each tree. On the best section, you can get four bushels in one
day. On the next section, with the same day's labor, you can get
only three bushels.
 I'll take the 4-tree land! |