Rival definitions of economic rent: historical origins and normative implications

Abstract

Across the political spectrum, the concept of economic rent is used to delegitimise certain incomes by marking them out as unearned and/or inefficient. But too often, users offer either no definition of rent, multiple definitions that are logically incompatible, and/or definitions whose normative implications they appear not to comprehend. The first generalised concept of rent, which gained traction in the late 1800s, referred to incomes analogous to land rents in the sense of rewarding control over persistently scarce or monopolised assets, rather than labour or sacrifice. But by the mid-twentieth century, a very different concept of rent had been widely adopted by neoclassical economists: income in excess of opportunity cost or competitive price. According to this revised concept, most land rents would no longer qualify as rents. This article offers an account of how such rival understandings of rent emerged, evaluates the normative positions embedded within each, and considers why so many commentators fail to spot their incompatibility. It describes how the concept of rent, that the earliest adopters hoped would justify the socialisation of scarce and monopolised assets, became bent out of recognition, and deployed for diametrically opposed purposes.