Why?

As a laborer, you also seek to put to work the resources of another proprietor of resources, in synergy with your resources, and the two of you agree on shares of the product.

As the owner of the labour, I am seeking to earn a return on my my labour. Full stop. I don’t give a crap if it’s in combination with your resources or not. In fact, I’d just as soon the government just pay me to not use that resource at all. Would that make the government my employer. Mabye I’m missing something here, but I don’t see you synergies with your resources are relevant.

Again, we can reverse the “bid” and “ask” roles here.

I’m starting to think you’re just misusing bid/offer. If you pay me the minimum amount necessary to put me to work, there is no rent. Bid/offer has eff-all to do with it.

Your usage is inconsistent. You say above that a wage earner who never asks for a raise and gradually loses income that he might receive by seeking competitive offers pays a “rent”

Yes. That’s inconsistent. I was wrong in my previous example. A negative rent is accrued the worker. Can we call that paying rent? I don’t know. But, he may be earning a below market return on his labour.

In this scenario, we’re discussing a wager earner who might receive $150k but receives only $140k, yet you conclude that she receives the rent in this scenario.

No. That’s not what we were discussing. The minimum amount I must receive is is $130K. If you give me $140K and I take it, I get $10K in rent. If someone else offers me $150K, I won’t take your job, I’ll go work for the other guy and $20K in rent will accrue to me.

Here, I agree with your usage of “rent”, but you want to say you’re the beneficiary of a rent if you receive more than your rock bottom price for your labor…

That’s my fault. I should have been clearer. If someone else is willing to pay me $150K, then presumably, that’s my new minimum since I said that I was forced by some government intervention to take your $130K. I thought that point was more obvious that it was.

Martin, we’re going in circles, repeating ourselves and rehashing. We’re also beginning to try to decipher whether rents exist in hypotheticals. That’s a very interesting discussion for which I’ve run out of time. Please, if you want to continue in this vein, email me sometime after next week. But that’s not the point here.

My point is that not all rents are created at the point of a gun and that seeking to receive rents does not always involve “rent seeking” activity.

No. I’m willing to accept $130K because that’s what I’ve calculated as the minimum amount I would have to be paid to work for you.

If you would have to be paid only $130k, knowing that I would pay $150k, you are not a rational actor.

You’re the employer because you’re seeking to put to work (employ) the factor of production (my labour).

No. This distinction is arbitrary. As a laborer, you also seek to put to work the resources of another proprietor of resources, in synergy with your resources, and the two of you agree on shares of the product. Neither of you knows the value of the product at the time of the agreement, because it doesn’t exist yet.

No. $10K of rent is accrued to me.

Your usage is inconsistent. You say above that a wage earner who never asks for a raise and gradually loses income that he might receive by seeking competitive offers pays a “rent”. In this scenario, we’re discussing a wager earner who might receive $150k but receives only $140k, yet you conclude that she receives the rent in this scenario. Her employer, who is willing to pay $150k but pays only $140k, receives no rent. This arbitrary distinction makes no sense.

I don’t agree because I own the factor (the labour), not you.

And I own other factors of production, not you.

In this scenario, rent accrues to neither of us.

That’s the inconsistency in your view. Again, we can reverse the “bid” and “ask” roles here. We can reverse the “employer” / “employee” relationship. The order of this relation is irrelevant. The relationship is symmetric.

There may be a negative rent accrued to me if someone else is willing to pay me $150K to do the same job under the same conditions and I’m forced to accept your job for $130K because of some government intervention.

Here, I agree with your usage of “rent”, but you want to say you’re the beneficiary of a rent if you receive more than your rock bottom price for your labor, and you don’t want to say that the “employer” receives a rent if he receives more than his rock bottom price for his dollars.

Again, you both pay in the transaction. He pays in dollars. You pay in labor. At $150k, he pays more dollars for your labor than you will accept, and you say you receive rent. At $130k, you pay more labor for his dollars than he will accept, but you say he receives no rent. These claims are inconsistent.

Suppose we aren’t exchanging dollars for labor. Suppose we’re exchanging gold for sliver. I will pay 60 ounces of silver for one ounce of your gold. You will accept accept 50 ounces of silver for an ounce of your gold, or equivalently, you will pay two percent of an ounce of your gold for an ounce of my silver.

If we trade at my ceiling, who receives the rent? If we trade at your ceiling, who receives the rent? If we trade at 55 ounces of silver per ounce of gold, who receives the rent?

No. I’m willing to accept $130K because that’s what I’ve calculated as the minimum amount I would have to be paid to work for you.

I’m the “employer” only by convention, because you receive money from me in the exchange.

You’re the employer because you’re seeking to put to work (employ) the factor of production (my labour).

You also employ me to provide you productive resources, and you pay me a portion of your labor in the bargain.

The employer’s need to employ other resources (factors) to make any single factor productive in his business does not mean the resources are employing the employer. Labour is like equipment in this sense. A factory owner wouldn’t describe his equipment as employing him because the equipment is receiving an operator through him, would he? Labour is no different.

So if you accept the $130k, are you saying that I collect a $20k rent? If you’ll say so, you’re consistent, but you’re still unconventional.

No rent is accrued to anyone in this scenario. The market value was paid and the opportunity cost is zero. Rent relates only to the factor. I’m not putting you to work, you’re putting me to work. Thus, if there are rents (positive or negative), they accrue only to me, the owner of the resource which is being put to use. The land is not putting you to work, you’re putting it to work by renting out to farmers. If the farmer pays more than the going rate to use the resource (land), then you collect an economic rent for your land. I’m renting out my labour to you.

In the salary scenario, if I pay you $130k when I was willing to pay $150k, then you’ve paid me a $20k rent.

I don’t agree because I own the factor (the labour), not you. In this scenario, rent accrues to neither of us. There may be a negative rent accrued to me if someone else is willing to pay me $150K to do the same job under the same conditions and I’m forced to accept your job for $130K because of some government intervention.

Conscription forces workers to accept a lower than market rate for their labour – which was Milton Friedman’s argument against it. Outside of slavery, I don’t know why I would willingly accept a negative rent for my labour.

Suppose I pay you $140k in this scenario. Do we both then receive a rent?

No. $10K of rent is accrued to me.

Again, this usage seems consistent, but it’s not conventional.

I’m using a very conventional definition of “rent”. The term I used unconventionally is “rent seeking” and only to get you to consider that not all rents are obtained at the point of a gun.

There’s a difference between an entrepreneur receiving a rent (excess return) because he is the first to bring a product to market and that effectively makes him a monopolist when he begins selling it. He creates the rent by way of creating value and not by diverting existing value. Rent creation and rent seeking (as commonly defined) are different activities. The fact that the entrepreneur is receiving the rent signals competitors to enter the market (assuming no barriers to entry) and economic rent (excess return) dissipates. The entrepreneur may “seek” another investment that produces excess returns, but that’s not what is commonly meant by “rent seeking”, although he is looking for excess return (rent).

The entrepreneur may seek barriers to entry for new competitors to protect his excess return. That’s obtaining rent through rent seeking.

By the same token, I won’t offer you $150k if you’ve just asked $130k.

Why would you?

I see why you want to call it “rent”, but it’s not the “rent” in “rent seeking”.

Well, “rent” and “rent seeking” are two different things. “Rent” is the excess return and “rent seeking” is the activity one engages in to obtain the rent. So, the rent is the same – excess return is excess return. How one comes by the rent is a different issue. One may create it, or one may seek to divert existing value. Again, I just wanted to point out that rent can be created in more than one way. Economic rent is alpha. Every other hedge fund is called “Alpha this” or “Alpha that” (although, it’s sort of amusing when the market goes kaput and it turns out all their “alpha” was all just levered beta!!)

if the employee hasn’t shopped his labor around, what is its market value?

The market value exists whether or not the employee is aware of it.

but how much of any “excess earnings” is the employee’s marginal product? How much is really some uncompensated price he pays?

That depends.

Maybe he sleeps with his boss. Maybe she’s really good in bed.

Uh-huh, Martin…..is there anything you want to share with the class?? You might ask your boss if she’ll still sleep with you if you take a higher paying job. Is her offer of sex contingent on you working for her? If it is, you should start wondering if you’re any good in bed 

I only know that the balance of forces leaves him financially motionless, so I want to understand these forces.

Join the club!! I haven’t thought much about rent since the world was young, cell phones were scarce and the size of boom boxes and there was no internet. I hope to do some more reading on the subject in the near future.

but I’m not sure how meaningful this classical “rent” is.

It’s very meaningful in the context of resource allocation. You always want

A simple example: If you own land, you want to put it to its most productive use? What will yield the highest return – renting it out to a farmer or building condos on it? If you have a talent, you want to put it to a use where it earns the highest returns.

There are rents that reflect the creation of economic value in the economy and those that divert value that already exists. They are different. You have no complaint about those entrepreneurs who seek the former and I agree that nobody calls them “rent seekers” (except for me, but only to make a point).