Implicit Land Rent as Potential Real Wage Gain

Why would land rent value be important, in terms of defined equilibrium settings which could contribute to the spending power of real wages? Today, productive agglomeration is in short supply, because much of it is limited to high income locales. What, then, could help implicit rent become a more affordable fixed component of the production function for knowledge based endeavour? Both questions matter for communities which seek to generate productive agglomeration for a wide range of ability and income. How would one define "affordable" specific land value which doesn't run counter to the wealth of local income realities, for instance?

Since the two most important factors for those with small wages are generally housing and services needs, it helps to consider how these two could also be interconnected, via implicit land rents. In a defined equilibrium for example, time based services would provide much of the initial aggregate economic value of a start up community. Nevertheless, in general equilibrium, the services to land rental value link is merely a starting point - given the many aspects of production which also contribute to local aggregate income. The more productive complexity that exists in any given setting, the more it is represented in local income and real estate values. However, not only has this process raised the costs of economic access for local landowners (and renters), by necessity it excludes many more who wish to participate on similar terms. Again, the Baumol effect has its natural equilibrium limits.

Defined equilibrium would approach land values in ways that allow applied knowledge to function as an accessible starting point for economic community. To this end, local land value would particularly reflect the maturity, or lack thereof, of local services generation. Management of implicit land rents as a local consumption standard, could provide an institutional response to the present day lack of productive agglomeration. Presently, productive agglomeration mostly exists where both salaries and implicit land rent are already high.

The core of such an equilibrium would consist of flexible infrastructure and building components, and an applied knowledge continuum for a full range of services generation. In order for a defined equilibrium to maintain access to lower income levels, much of what otherwise would be represented by monetary value, becomes correlated with aggregate time value as measured by gains in local skill and and economic diversity in services. Not only would this value in use process help preserve services complexity in the event of severe economic downturn, it makes possible a free market approach for time value in general.

However, in conceptualizing these possibilities, it helps to reflect on what is normally the starting point for monetary economic value in local settings. How does rent factor into the costs of production? What does implicit rent mean for one's opportunity costs as a landlord, especially given what has been necessary for home ownership in a knowledge based economy? How does local aggregate income level correspond with local production (what local property generates), or the real estate which also reflects local aggregate income value? Indeed, which comes first? Paul Samuelson offers ways to think about this in Economics (page 527 and 528):

Since rent is the return to an inelastically supplied factor that would still be supplied to the community even at much lower prices, the direction of causation is as follows: The prices of goods really determine land rent - rather than having land rent determine the prices of goods.

Okay, for us this would mean the aggregate value of services helps to determine land rent, right?

But at this point we must avoid our old enemy "the fallacy of composition". What appears as a cost of production to each and every small firm using a particular kind of land may, as we have seen, be to the whole community merely a derived, price-determined rent expense rather than a price-determining one. More than that, suppose the land is specialized and can be used only for the production of one industry. If a grade of land is inelastically supplied to one industry and has no place else to go, it will always work for whatever it can earn there; then its return will appear to every small firm as a cost like any other.

It turns out that relativity of viewpoint matters as well, because even though land is inelastic, to any one firm or industry the supply is elastic:

To conclude: Whether rent is or is not a price-determining cost depends on the viewpoint: that of a small firm, small industry, large and even exclusive-user industry, or whole economy. What is a price-determined rent return to a factor which is inelastic in supply to the whole community or dominant industry may, to each firm and to any small industry that is only one of many potential users, appear as a price-determining cost.

In normal circumstance land values accrue gradually, especially as communities build up permanent forms of infrastructure. Much of their success depends on the degree to which infrastructure of all kinds can be maintained. The better they become at the process, the more limited their access may in fact become, especially if the land contains special natural attributes.

Cost "containment" or management in defined equilibrium, would depend on many things. Even though land can be kept "affordable" by generating similarly accessible services, each part of the process depends on the other. And while such communities would generate economic activity which goes well beyond time based services, flexible infrastructure makes it reasonable to pursue short term economic strategies which need not require extensive monetary investment.

Since - in a defined equilibrium - much of the local economic value would reside in the time continuum, the best way to reflect this is to ensure that local ownership remains flexible and incremental. This way, local system infrastructure would not bear such high access costs that lower income levels become barred from participating in a knowledge based economy. Recently it has been difficult for those who struggle to invest in human capital or access highly productive regions, to contribute to productive agglomeration. Fortunately, this could be changed with a defined equilibrium which aligns implicit land rents with real wage potential.