[OPE-L] Rising primary commodity prices = rising land prices and rising ground rent

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Jan 25 2008 - 19:25:57 EST

In Paul Cockshott's theory, ground rents have nothing to do with surplus value and profits. This contrasts with Marx's theory, where the ground rents paid out of gross income of producing enterprises are an appropriation of surplus value. This means that producer's ground rents are part of the new product-values created, a component of the value product. 

Of course, enterprises both pay rents and receive rents, but the net rent receipt is a component of the value of gross product. However, the official concept of "value added" excludes land rents, and therefore land rents are excluded from GDP. Why is this significant? Because rising primary commodity prices mean rising land values, and if you can earn more per acre of land, land rents also increase. All this fuels a real estate boom in land, particularly productive land. It happens across the whole world. If land prices rise, this moreover feeds back into rising prices of primary products, it becomes part of the cost structure of production.

GDP is less and less an adequate measure of national income in a rentier economy, because it abstracts from property income, regarded as a transfer. The more property income increases, however, the more national income grows, without this being reflected in GDP. Real GDP growth may seem rather low, but in reality much more income is being earnt, that is not included in the measure. Unfortunately data on total rent income is sketchy (see e.g. Michael Hudson, "How Rent Gets Buried in the National Income Accounts" http://archives.econ.utah.edu/archives/a-list/2005w52/docw0ZMWYgp3A.doc ).

To illustrate I use the example of the USA, simply because it is relatively easy to get some data for it. The USA has 2.3 billion acres of land, of which 60% are privately owned, i.e. 1.4 billion acres. Out of that 1.4 billion acres of private land, about 936.6 million acres (67%) are farmland, because almost all farmland is privately owned (less than 1% is not). 

(By the way, US private land ownership is highly concentrated. On Wunderlich's 1978 estimate, the two or three million owners of forest land, combined with the owners of land in farms, number about seven million. These seven million owners hold more than 95 percent of all privately-owned land in the United States. Two to three million owners hold more than 96 percent of private forest land. The top three percent of farm operator owners hold 41 percent of the land. The top one percent of landlords own 35 percent of the land.  Also, in 1978, some 1.7 million non-farm landlords owned 35 percent of farmland. The proportions remain fairly stable across historical time.)

Using USDA 2002 data drawn from the Census of Agriculture, we find that 37.7% of farmland is rented out, i.e. nowadays about 352.2 million acres. Cropland cash rents paid in 2007 averaged $85.00 per acre, compared with $79.50 per acre for 2006. Pasture cash rents averaged $12.00 per acre in 2007, $1.20 higher than 2006. I cannot establish from online data what proportions of the 352.2 million acres of rented land are cropland and pasture etc. But let's say for the sake of argument the proportions are similar to the landuse data available, then you would conclude that rent income from farmland must be over $14 billion per year. The total 2004 value of farmland & buildings was estimated by USDA at $1.2 trillion. The average nominal value of farmland & buildings per acre as at the beginning of 2004 was $1,360, and $2,160 in 2007, a 63% nominal increase. Cropland values are typically about three times higher than pasture values. In the ten years since 1998, US farm real estate nominally increased by a whopping 122% in value (even if you adjust for price inflation, it is still a huge increase). 

Farmland rents are not the only production rents there are obviously. In 2002, according to IRS data, US corporations with a positive net income paid out a net rent of $158 billion. In 2004, S corporations paid $117.6 billion in rents. In 2005, IRS data show non-farm proprietorships paid $39.5 billion in rents, and partnerships paid $55.9 billion in rents (the total net capital gains of partnerships for 2005 are an astonishing $320 billion). So it would not be unreasonable to estimate that total income from producer's rents in the US would be equal to three or four percent of GDP. Of course, such a magnitude is dwarfed by income from capital gains, but it is nevertheless significant. 


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