CONTINUED FROM LAST WEEK
Since its supply is limited, and cannot be increased, it follows that the greater the demand for land, the higher its price. It also follows that, since population always increases independ~ntly of all economic considerations, an ever-increasing demand for land with an ever-increasing rise in its price is inevitable. Land is absolutely immobile. You cannot move it, like other goods or factors, from places of plenty to places of scarcity. Hence, other things being equal, the denser the population in a country or locality, the greater the demand for and consequently the higher the price of land in the country or locality, vis-a-vis other countries and localities with lighter populations.
It will be seen, therefore, that the land-owner makes no contribution whatsoever to the production and supply of land, or to the stimulation of demand for it. It is for these reasons that rent on land is regarded by economists as unearned increment or income. Before we pass on to the next topic, we must draw a distinction between land as such, and the products of land or the things erected on land. Land is strictly the gift of nature; the products of land are also the gift of nature but their cultivation, improvement, and regular supply, year in year out, are the results of man’s labour. But if a piece of land in a country or locality is eminently suitable for growing yam, it cannot be moved from that country or locality to another country or locality where the land is not suitable for the same purpose. Land hasto be used in situ. It is its products that can be tr~nsported from place to place as the need for them arises. Buildings and other fixtures are the results of man’s efforts and labour.
As we have seen, capital is formed when we consume less than we produce for the purpose of setting something aside for further production. This process of consuming less than we produce may take place in one of two ways: by deliberate or by inevitable abstention from consumption.
If a man does not produce enough to provide his necessaries and comforts, he will have to consume less by a deliberate act of abstention. Otherwise, he will be faced with the danger of starvation and death. On the other hand, a person may consume less than he produces, for reasons other than those connected with further production. He may do so in order to lay something by for his old age, to prepare for the rainy day, when it may not be possible for him to earn at all or as much as he used to earn owing to unemployment, sickness, etc., to have enough money to get married, to build a house of his own, to educate his children, to enable him to pay his fees in university to further his personal education’ and thereby enhance his earning capacity, etc. He may do so for prestige and so that he may enable his heirs after ‘urn to live in idle leisure and comfort. He may by nature be a stingy and miserly person who grudges himself every little bit he consumes out of what he produces.
Abstention may be inevitable in a number of circumstances, such as:
(i) when an employer exploits labour to his advantage, in the circumstances of excess supply of labour;
(ii) when a businessman takes advantage of the state of supply and demand of goods, or of inertia, ignorance, and immobility on the part of the consumer, to enrich himself; and
(iii) when a man produces or inherits much more wealth than he requires to satisfy his necessaries, comforts, and luxuries.
Some individuals consume all they earn or produce. Others consume less either, as we have pointed out, by deliberate abstention or by inevitable abstention. But some people, because of indolence, inertia, lack of ambition, ill-health, etc., only work to earn enough for a meagre subsistence. Others are industrious, active, ambitious, and healthy, and are determined to work hard to earn much more than they require for a decent living. On the other hand, some people in one employment may work just as hard as other people in another employment, but they may be paid much less than the latter, simply because the supply of their particular type of labour is too plentiful relative to demand, so much so that they only earn enough to keep body and soul together. Furthermore, A may grow maize on a piece of land, and B may also grow maize on another piece ofland with the same acreage as that of A. A and B may have worked equally hard on their respective pieces of land.
But because B’s piece of land is naturally more fertile than A’s, B may harvest so much maize that his output is more than he requires to satisfy his immediate needs, and so be able to put some by for future use, whilst the contrary may be the case with A who, because of the natural infertility of his own piece of land, is just able to reap enough to keep body and soul together.
It would seem from what we have said that the two causes of capital formation – deliberate abstention and inevitable abstention – are independent of any inducement. Whether interest is paid or not, these causes will continue to operate to compel savings or the formation of capital. We hasten to point out that this is not to say that there are no instances when a person is induced to consume less than he produces. But it must be emphasised in this connection that just as there are people who will be induced to form capital or save by an attractive rate of interest, so there are those who may save less under conditions of higher rate of interest than under those of lower rate. In spite of all this, capital, like the other factors of any commodity, is subject to the law of supply and demand. And it is important to point out that, through the instrumentality of the banks and other financial institutions, capital is an extremely mobile commodity.
From our earlier description of him, the entrepreneur is a worker of exceptional skill and ability. Usually, he takes many years to educate and prepare himself for the specialized vocation or career of his choice. More often than not, he is gifted with an inborn flair and talent for such a vocation or career. For these reasons, he is always in short supply, and hence he invariably attracts large rewards which are sometimes wholly disproportionate to his contribution to the common pool. Comparatively speaking, his mobility is less inhibited than that of the ordinary skilled or unskilled worker.
CONTINUES NEXT WEEK
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