Marginal costs in relation to urban values

Book 5, Chapter 11

§1. If demand for the land’s produce is growing, then it will still be worth applying additional labor and capital to the land, despite diminishing returns. Urban areas that can — due to density, specialization, etc. — produce more, of greater value, can bring this demand whereas agricultural or “low density” agglomerations cannot.

§2. The development of agricultural land into urban use is expensive, but it will can raise land values by enough to repay investment. It’s for these reasons that some land owners tax themselves to build improvements, railways, drainage, etc. Success and profits are not guaranteed.

§3. The discounted value of land and its discounted ground rent differ due to time, since rental terms are agreed at the beginning of a period (e.g., 20 years) but values are calculated from the end of a period.

§4. Up or out? Build up if land is dear and out if it’s cheap. That’s why we see skyscrapers in urban areas and sprawling ranch homes in rural areas.

§5. Land use will change as value per unit area increases, going from farming to garden crops to factories to (cheap then expensive) shops and housing.

§6. Shops and traders competing for scarce urban space will either need to sell high volumes at low prices profits or low volumes at high profits.

§7. The value of a location to a renter will rise or fall with its natural and artificial amenities and their price. A factory running on water power will get value from its location as well as its water power, but an increase in the price of either can make the site unattractive, which can lead to problems if different landlords set different prices for land and water power.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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