ancient cities

660 Rent Theory
its understanding of capital into question. In the
debate, Pierro Sraffa from Cambridge in the United
Kingdom and other critics argued that neoclassical
marginal theory was unable to explain the distribution
of income and, hence, the distribution of
profits between rents and wages, without already
assuming a given distribution of wealth. This
means that profits are not determined by marginal
productivity but rather that the social conditions
of production determine the rate of profit. Hence,
a rent theory based on a neoclassical understanding
of capital is problematic.
Despite these theoretical problems, in 1964,
William Alonso combined land rent theory with a
neoclassical framework and applied it to the urban
case. He was inspired by von Thünen’s work in
which the costs of transportation determined rents.
Alonso linked this idea to the neoclassical assumption
of individuals engaged in maximizing their
utilities. Based on this, he posed the bid-rent function
as that amount of money a household pays for
rent at different locations. In general, land rent is
supposed to lead to an optimal allocation of different
types of usage to urban spaces. Therefore,
political interventions in the form of zoning or rent
control are opposed.
The Alonso model has been refined by relaxing
some assumptions and including transaction costs
and externalities. This leads to different policy
conclusions and opens a space for active intervention
in the control of rental contracts.
Notwithstanding, the societal fundamentals of the
land rent mechanism are not in question; the theory
is based on a neoclassical understanding of
capital, and the income distribution is based on
marginal productivity. Therefore, the explanation
of the absolute level of land rent—that is, the
income of landlords—and the role of institutions
that shape land rent are problematic. In addition,
the rigidity of formal models, deriving all spatial
phenomena from the marginal utility of maximizing
individuals, is frequently critiqued.
Political Economy Perspective Today
Land rent theory in the political economy tradition
differs substantially from neoclassical approaches.
Since the 1970s, an upswing in critical political
economy has taken place and, within this context,
land rent theory has been developed further. Based
on Pierro Sraffa’s systematization of David Ricardo’s
classical economics, land rent is understood as
intensive and extensive differential rent. Intensive
differential rent is caused by a more intensive use of
a plot of land. That means that a higher amount of
capital per unit of land is used. For the urban case,
the introduction of multistory buildings represents
a typical example of a more intensive use that leads
to an increase in intensive differential rent. Allen J.
Scott applies extensive and intensive rent to the
urban context and shows, in contrast to Alonso,
that it is not marginal utility but land rent and
transport costs that determine the use of land.
In addition to this neo-Ricardian line of theoretical
development, work in a more general
political economy perspective based on Marx and
Engels has developed. This broadened the field of
study. Land rent and its urban function were considered
not only within a given social and economic
structure but also as contributing to the
formation of social structures. Attention was given
to the role of agricultural rent; that is, rent for
resources. Based on the concept of absolute rent—
a category related to the value theory of labor—
considerable attention was given to the organic
composition of capital, and hence, the concrete conditions
of production as well as the struggle over
surplus value between landowners and capitalists.
The challenge was to apply concepts such as differential
rent, monopoly rent, and absolute rent,
which were originally developed for the analysis of
agricultural questions, to the urban context.
Whereas absolute rent and differential rent are
directly linked to the process of production,
monopoly rent is usually assumed to be dependent
on the purchasing power of households. The
higher capacity to pay for socially more privileged
space results in higher monopoly rents at those
places favored by higher-income groups.
The main emphasis of the work in a political
economy tradition has been on the causes of rent
and its relationship with the capitalist production.
Besides the work of David Harvey, innovative contributions
were made among others by Alain
Lipietz and Christian Topalov in France. One key
argument put forward by Harvey was that land
was increasingly becoming a financial asset. Hence,
a merger between landlords and capitalists was
supposed to abolish the specific behavior of the
landed class. Land rent was not considered an