RENT AND VALUATION

Timaru Herald, Volume CXXXVII, Issue 19300, 29 September 1932, Page 13

RENT AND VALUATION

RICARDO THEORY EXPLAINED. BASIC WAGE FOR FARMERS. At a meeting of the Waihao Downs branch of the Crown Tenants' Association, the hon. secretary (Mr J. A. Bell) read a paper on the Ricardo theory of rent and its bearing on revaluation of land. Mr Bell said that now that the Crown Tenants’ Association had obtained a hearing from the Minister of Lands and Departmental officers, and had the satisfaction of having its problems examined on the spot, and the further satisfaction of something definite regarding remissions, etc., the next hurdle for the Association was that of valuations, as these must come when the readjustment period arrived. It was necessary for the Association to thoroughly examine the problem and put forward a basis for revolutions that would be acceptable to Crown tenants. He intended to put before them the Ricardo theory of rent as briefly as possible, and then endeavour to apply its principles to land valuation and the assessment of rental value. Rent was based on the natural variations in productivity of land. Some land would just repay the expenses of cultivation, and was said to be on the margin of cultivation—hence the term “marginal lands.” Other land was so fertile that the value of its produce was more than enough to pay the usual rate of interest on capital, the usual rate of wages to labourers employed on it, and the average profits to the farmer cultivating it. This surplus of product over expenses was, according to Ricardo, rent. Another important feature of production from the soil,, other than the fertility factor, was that increase of product might be brought about by additional expenditure of capital and labour; but this increased production would not be proportionate to the increased expenditure. This was the “law of diminishing returns,” or “increasing cost,” so that there was an “intensive” as well as an “extensive” margin of cultivation. Another factor determining rental value was situation in relation to population. As population grew, the . margin of cultivation receded, and rents rose, small holdings becoming more economical. It was very necessary, in order to get a grip of the true significance of what rent was, to understand that, strictly speaking, it did not enter into cost of production, although it was commonly regarded in that light, and under the present method of assessment it was more of a levy on the land than a rent. Wages had to be paid to maintain a supply of labour; interest had to be paid to maintain a supply of capital, but the supply of unimproved land was not affected by the payment of rent. It had been made clear that from the gross income of any farming enterprise, before land could be said to have any rental value, certain charges must first be debited against that gross income. The charges were:—(l) Interest on capital expended in the improvements and also an allowance to provide for maintenance and depreciation, and hence ultimate replacement of samethe same applying to stock, plant, etc • also local taxes. (2) All working expenses—the costs of production, e.g., wages, seed, etc. (3) A reward or salary to the farmer, on an equal basis with other sections of the community. After meeting these charges, the remainder was,: according to the theory, rent. Of course, this remainder would vary from year to year, according to the season, and fluctuation in prices. It showed the need to work on an average, and it was suggested that it would be better if, instead of assessing rental value to-day for any particular section, which rent must be met continuously for say 2i years, they should pay only a nominal rent or license for the time being, and work on periodic averages, e.g., three years. Then, at the end of this time, the rent could be assessed for the past three years and paid. They would then be dealing with the past, and not with the future. How did they know Beforehand the rental value of any farm 10, 20 or 30 years hence? If might be possible to elaborate further on the question of what reward a farmer or tenant should justly claim as a producer. Naturally a farmer expected to be on an equal footing with other sections of the community -in this respect. He was entitled to the same standard of living, and should be in a position to enjoy the same social amenities, etc. In respect to this, they had a definite standard in the basic wage, from which base ail wages, salaries, etc., seemed to be graduated according to responsibility and ability of the individual. This basic wage had been determined by a Court of Justice presided over by a judge. Could not the Crown Tenants’ Association advocate a similar tribunal to assess rental values, etp.? It seemed that it was necessary to advocate for the small holder, or the farmer, where the margin for living expenses, etc., was very small, that in no case should the reward fall below the basic wage which was sacred to the ordinary labourer; in fact it should be more. Then the reward could be graduated from this base according to capital invested, responsibility, risk, etc. The whole position called for expert examination. It pointed to the necessity of an economic survey, and a scientific classification of all lands according to their productive capacity. The Crown Tenants’ Association should use their influence to get Mr Fawcett. Agricultural Economist, to investigate these important questions, and the marginal lands of Canterbury required particular attention.

Discussion on the subject -was deferred till next meeting.