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).

Do you understand that the only reason you’re offering my $150K is that you don’t know what my floor is.

Yes. I also understand that you’re “willing” to accept $130k only because you don’t know what my ceiling is.Our roles are symmetrical. I’m the “employer” only by convention, because you receive money from me in the exchange. You also employ me to provide you productive resources, and you pay me a portion of your labor in the bargain.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.

If there’s a point, I’m missing it.

Then I’ll change the numbers. We can always reverse the “bid” and the “ask”. I bid two dollars for your widget. You ask one dollar. Reversing the roles, you bid one widget for my dollar, and I ask a half a widget.In your way of thinking, if I pay your asking price, you’ve paid me a rent of one dollar. By the same reasoning, if I pay my bid price, I’ve paid you a rent of one dollar.In the salary scenario, if I pay you $130k when I was willing to pay $150k, then you’ve paid me a $20k rent. If you agree, I agree that you use “rent” consistently, but I can’t agree that your usage is conventional.

No, the issue is MY willingness (the employee).

The issue in your scenario is my willingness (the employer), because I’m the one allegedly paying the rent. Suppose I pay you $140k in this scenario. Do we both then receive a rent? Or do our rents cancel out? If we split the difference between your floor and my ceiling, have we avoided a rent? Again, this usage seems consistent, but it’s not conventional.

I won’t ask you to pay me $130K if you just offered me $150 (not that stupid or confused yet).

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

… you may very well end up working for less than you’re really worth to all other employers in the market. In this case, your employer is getting the rent.

I see why you want to call it “rent”, but it’s not the “rent” in “rent seeking”. It’s the difference between some hypothetical “true value” or “market value” of the employee’s labor and his actual wage, but if the employee hasn’t shopped his labor around, what is its market value?

I’m using the term “rent” in the sense of classical factor rent. Do you disagree with this?

I’m not sure. Here’s one usage of “classical factor rent” at Wikipedia.”The excess earnings over the amount necessary to keep the factor in its current occupation”In your scenario, this worker remains in his current occupation without a raise, but how much of any “excess earnings” is the employee’s marginal product? How much is really some uncompensated price he pays? Maybe he really likes his job. Maybe he sleeps with his boss. Maybe she’s really good in bed. I only know that the balance of forces leaves him financially motionless, so I want to understand these forces.

But, I think that sometimes it’s not that easy to distinguish between normal profit seeking behaviour and rent seeking – especially when excess returns are obtained through voluntary transactions, as in our example.

I certainly agree with you here, but the distinction is muddy because so many transactions are “voluntary” only insofar as we ignore the plethora of forcible constraints imposed by central authorities.I do understand your point. The difference is semantic. Yes, I think you’re using “rent” correctly in this classical sense, but I’m not sure how meaningful this classical “rent” is.

Because:

A.) That wasn’t the example
B.) I would not take a job that I value at $150K and you only offer me $130K to do.
3.) Nobody forcibly “extracted” rent from anyone. I received a rent that you willingly paid.

Do you understand that the only reason you’re offering my $150K is that you don’t know what my floor is. That’s why in negotiations, you always want the other person to give you their number first – it’s just that this is not how salary negotiations are usually done when there’s a job offer.

Here’s the critical point. We can always reverse the “bid” and the “ask”. I bid a dollar for your widget. You ask two dollars. Reversing the roles, you bid half a widget for my dollar, and I ask one widget.

If there’s a point, I’m missing it. Unless I’m willing to hit your bid or you’re willing to lift my offer, there’s just no transaction. I fail to see how this has anything to do with the example.

“Rent seeking” is one of my favorite phrases, you know.

I know. Mine too. If you only knew.

You can be willing to accept $130k and also willing to accept $150k. The issue is not your willingness but mine.

No, the issue is MY willingness (the employee). You (the employer) are looking to pay me the least amount you can to put me to work. You don’t know my minimum number and I’m not going to tell you on the off chance you’re willing to pay me more. You are. You are willing to pay me $20K/year more than my minimum number to put me to work for you. I don’t see it as a tax because taxes are forced from the pockets of the unwilling. It’s a market transaction.

But if you accept $130k, you’re accepting $20k less than I was willing to pay.

Okay. But, that’s not what happened. I won’t ask you to pay me $130K if you just offered me $150 (not that stupid or confused yet). I also won’t take the job if you offer me less than what another company offers me.

Martin, it’s possible that an existing employee fails to shop himself around every so often and wage compression occurs over time. If you stay in one job for a while without ever interviewing to see how the market value of your labour has changed, you may very well end up working for less than you’re really worth to all other employers in the market. In this case, your employer is getting the rent. But, the employer is not forcibly extracting that rent from you and you are free to bring your compensation to market value at any time.

We agree that no force was used, and that’s why I say there is no “rent”.

I’m using the term “rent” in the sense of classical factor rent. Do you disagree with this?

I’m not arguing with the concept of extracting rents through fraud, and theft (I include taxes in “theft”). That is a type of rent and that is what most people mean when they apply the term “rent seeking”. But, I think that sometimes it’s not that easy to distinguish between normal profit seeking behaviour and rent seeking – especially when excess returns are obtained through voluntary transactions, as in our example.

I’ll happily allow you to pay me $150K, but if you offered me $130K, I would have still taken the job.

But if I would have paid you $150k and you accept only $130k, why is my $20k advantage not a rent? Why are you always extracting a rent from my factory or whatever while I’m never extracting a rent on your labor?Here’s the critical point. We can always reverse the “bid” and the “ask”. I bid a dollar for your widget. You ask two dollars. Reversing the roles, you bid half a widget for my dollar, and I ask one widget.

In my formulation, I would work for as little as $130K and you (not knowing what my number is) made me a job offer with a comp of $150K, which I happily accepted.

You can be willing to accept $130k and also willing to accept $150k. The issue is not your willingness but mine. If I’m willing to pay you $150k, then you haven’t extracted any rent in this sense. A “rent” in this sense is like a tax. That’s why I often add “like a tax” when I refer to these “rents”. “Rent seeking” is one of my favorite phrases, you know.

You are paying me $20K more than it was necessary for you to lure me into your employ. The $20K is rent – but not forcibly extracted.

But if you accept $130k, you’re accepting $20k less than I was willing to pay. Equivalently, you pay me more labor than I was willing to accept for my dollars. If the $20k worth of labor is rent, whose rent is it?

My point is – not all rents. Some rents are and some aren’t.

The “rents” we’re discussing here are always extracted politically, by central authorities, because that’s what “rent” in this sense means. Henderson is explicit on this point.In a broader sense, all rents are forcibly extracted, because all property is forcible. When we discuss “rent seeking” in Henderson’s sense, we accept classical property as a given. Then only the value of a forcible exception to classical property is a “rent”.

You seem to agree with me on this point. If not, then what force was used to make you offer me $150K in our example?

We agree that no force was used, and that’s why I say there is no “rent”. I’m willing to pay $150k. You’re willing to accept $130k. Any price in the middle is agreeable, so none of these prices involves any “rent” in this sense. If a “rent” exists, it is $20k worth of your labor as much as it is $20k worth of my money.

I will take this as a complement. Thank you, Viking.

Of course, I don’t really know you, so I’m probably just projecting. But it gives me hope to believe there are more people like that.

I like to be unique and quirky

Yes.

“If I’m seeking rent, aren’t I rent seeking?”

No. Because you are the only person who uses “rent-seeking” in that way.

I never said English was logical. Much of it is just a popularity contest.

I see seeking rent by asking for a raise or putting my labour up for bid in the labour market as a very different kind of rent seeking than seeking a taxpayer subsidy from government. In both cases I’m seeking rent.

I’ll happily allow you to pay me $150K, but if you offered me $130K, I would have still taken the job.

If your labor is worth $150k in the market and you receive $130k for it, because of some forcible interference with the market, your employer earns the $20k rent.

Yes. Although, I can’t imagine such a forcible interference that would actually produce such a result. Usually, the market has ways of paying people what they’re worth – not necessarily on an individual basis.

In your formulation, the employee and only the employee can receive a rent, but this asymmetry is arbitrary. You own your labor. Your employer owns other resources. You exchange. Either of you can earn a rent on his resources beyond the unfettered market value; otherwise, “a rent” in this sense is meaningless

No. That’s not my formulation. That’s your imagination restating my formulation. In my formulation, I would work for as little as $130K and you (not knowing what my number is) made me a job offer with a comp of $150K, which I happily accepted. You are paying me $20K more than it was necessary for you to lure me into your employ. The $20K is rent – but not forcibly extracted.

All rents are extracted at the point of a gun, because property is forcible by central authorities.

My point is – not all rents. Some rents are and some aren’t.

“Rent seeking” in the sense we’re discussing here does not involve classical property and classical rents, in the sense of Ricardo.

I realize you’re discussing forcible rents and rent seeking in the sense of using the coercive power of government to extract them. “Rent Seeking” is so associated with coercive force that many have forgotten that not all rent is forcibly extracted. You seem to agree with me on this point. If not, then what force was used to make you offer me $150K in our example?

In my example, the company paying $150K is getting $150K of value when they hire me. No problem. But, I will work for them for as little as $130K. So, I receive 20K of Rent.

“A payment for the services of an economic resource which is not necessary as an incentive for its production”

http://en.wikipedia.org/wiki/Economic_rent

If I remember my econ classes correctly (and it’s been a while), there are different definitions of rent.

If I’m willing to work for $130K, but the company offers to pay me $150K, then $20K is rent. I’ve not held a gun to anyone’s head, but I receive $20K in rent.

If I’m willing to pay you $150k, why are you willing to work for $130k? Are you unwilling to receive the extra $20k? I find that hard to believe.If your labor is worth $150k in the market and you receive $130k for it, because of some forcible interference with the market, your employer earns the $20k rent.In your formulation, the employee and only the employee can receive a rent, but this asymmetry is arbitrary. You own your labor. Your employer owns other resources. You exchange. Either of you can earn a rent on his resources beyond the unfettered market value; otherwise, “a rent” in this sense is meaningless

We are all rent seekers. I think you don’t object to rent seeking in general but to a specific kind of rent seeking – the extraction of excess returns at the point of a gun.

All rents are extracted at the point of a gun, because property is forcible by central authorities. Even my right to my own labor is forcible, because the state criminalizes kidnapping for example.”Rent seeking” in the sense we’re discussing here does not involve classical property and classical rents, in the sense of Ricardo. Henderson makes this point himself. We’re specifically discussing rents extracted with the aid of central authorities, other than the force of classical property.

The confusion this usage creates is the point of Henderson’s article, but his formulation assumes the same arbitrary asymmetry between employer and employee.

Well, I disagree. That’s just the nature of transactions. I engage in a transaction when I value the thing I’m receiving more than I value what I’m giving up for it. You’re calling the difference rent but that’s not right. The difference is your profit.

With profit, wealth increases. Economic rent, on the other hand, is zero sum.

I think Wikipedia has a good description of rent seeking: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”