F.H.Giddings' ms reply of Jan.29,1889 to J.B.Clark,Bryn Mawr [with corrections as well as a copy typescript of same.]

     F. H. Giddings' ms reply of Jan. 29, 1889 to J. B. Clark,
     Bryn Mawr [with corrections as well as a copy typescript of
     same.]

 Your letter comes just at a moment
when I am in the right train of thought to
answer your question so far as I am
capable of answering it at all, for I am
fresh from a quiz in which we threshed
over the theory of price. I should say that
it is true that the reasoning which proves
that rent cannot be an element in
price will prove that neither wages nor
interest can be an element in price
beyond a certain point, and then I
should add that the statement, instead
of being absurd, is true. Let us begin
with wages and interest instead of with
rent. Then we have these propositions. (1)
Wages and interest are elements in price
and are equal to price when price equals
cost of production.
(2) When price exceeds cost of production
neither wages nor interest are elements
in that part of price which is a surplus over
cost of production. (3) When production is
carried on by means of productive agents of
different degrees of efficiency the price
of the produce equals its cost of production
by the least efficient agent in actual use.
(4) The price of the produce created by the
more efficient agent is therefore greater
than its cost of production. (5) The
difference between cost of production by
the more efficient instrument and cost
of production by the less efficient instrument
may take the form of rent, or of interest on
capital, or of the wages of exceptional ability
but whatever the form it takes it is not a
factor of price. This way of looking at
the matter is what has led me all along
to dissent from your identification of interest
as a whole with rent. It seems to me that rent
is not coextensive with interest, but that it
is coextensive with that part of interest
which is paid on the capital invested
in the better and the best productive instru-
ments in excess of the capital invested
in the least productive instruments in
actual use. Or, to put it another way,
interest on the capital that is invested
in the least productive instruments in
actual use is a sum in addition to the
interest which can be identified
with rent. Interest on the capital
invested in the least productive
instruments is a factor in price;
interest on all other capital is not a
factor in price. For this reason I am
unable to accept Patten's proposition
that all land bears some rent.
The poorest land bears interest merely.
Better land bears an additional interest
which is rent properly so called, and
properly so called just because the interest
on the poorest land enters into price, while
the additional interest, on the better land
does not.