It will be observed that the landowner's share of the product, or economic rent, is not identical with commercial rent. The latter is a payment for land and capital, or land and improvements, combined. When a man pays nine hundred dollars for the use of a house and lot for a year, this sum contains two elements, economic rent for the lot, and interest on the money invested in the house. Assuming that the house is worth ten thousand dollars, and that the usual return on such investments is eight per cent., we see that eight hundred dollars goes to the owner as interest on his capital, and only one hundred dollars as rent for his land. Similarly the price paid by a tenant for the use of an improved farm is partly interest on the value of the improvements, and partly economic rent. In both cases the owner may reckon the land as so much capital value, and the economic rent as interest thereon, just as the commercial rent for the buildings and other improvements is interest on their capital value; but the economist distinguishes between them because he knows that they are determined by different forces, and that the distinction is of importance. He knows, for example, that the supply of land is fixed, while the supply of capital is capable of indefinite increase. In many situations, therefore, rent increases, but interest remains stationary or declines. Sometimes, though more rarely, the reverse occurs. As we shall see later, this and some other specific characteristics of land and rent have important moral aspects; consequently the moralist cannot afford to confuse rent with interest.
The cause of economic rent is the fact that land is limited relatively to the demand for it. If land were as plentiful as air mere ownership of some portion of it would not enable the owner to collect rent. As landowner he would receive no income. If he cultivated his land himself the return therefrom would not exceed normal compensation for his labour, and normal interest on his capital. Since no one would be compelled to pay for the use of land, competition among the different cultivators would keep the price of their product so low that it would merely reimburse them for their expenditures of capital and labour. In similar conditions no rent would arise on building sites. The cause of the _amount_ of rent may also be stated in terms of scarcity. At any given time and place, the rent of a piece of land will be determined by the supply of that kind of land relatively to the demand for it. However, the demand itself will be regulated by the fertility or by the location of the land in question. Two pieces of agricultural land equally distant from a city, but of varying fertility, will yield different rents because of this difference in natural productiveness. Two pieces of ground of equal natural adaptability for building sites, but at unequal distances from the centre of a city, will produce different rents on account of their difference of location. The absolute scarcity of land is, of course, fixed by nature; its relative scarcity is the result of human activities and desires.