Why Is Rent So High?

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all so much, and now on to the show. It's it's a solo meda episode if it could happen here the podcast where things fall apart and sometimes we've put them back together. I'm your host, Mia Wong, and today we're going to be talking about why the rent is

so high? Now, Okay, there's there's a lot of sort of ways that you could in theory approach this question, and I decided that I think one of the most useful approaches to it is you take a sort of a more a more sort of historical and theoretical approach. And I think the start of any kind of sort of theoretical approach to rent is by asking what rent

actually is. And the answer to this, and this is something that is that is relatively consistent across most of sort of classical political economy, and and you see this in some of sort of geoclassical economics, is that the thing that's special about rent is that rent, unlike you know, anything else, is money that you get because you own something, not because you you know, have produced anything. And this means that you know, the landlord does not produce anything

of value at all. All they do is extract value from other sectors of the economy. Now, this has a wide, wide variety of sort of political and social effects. Mark saw the landowning class as an obstacle to the development

of capitalism. And this is an idea. The idea of that again, landowners specifically as a class that is different from the sort of capitalist class or the working class, hinders the growth of capitalism is an idea that a lot of different people across the basically the entirety of the political spectrum have shared at various times and this

causes some very very strange alliances. Particularly in places like Latin America, you still have economies that are you know, not entirely based, but economies that have enormous landowners who drive sort of vast portions of both the economy and

of the sort of political process. And in Latin America, and this is true in a lot of other places, it was not uncommon for you to get what's known as developmentalism, which is an ideology based on using essentially protectionist measures, things like terroriffs, sometimes capital controls, restrictions on kinds of investment that foreign companies can do. Sometimes I mean just straight up the nationalization of natural resources in

order to develop an industrial economy. Now, developmentalism, as our most sort of alliances against the land and elite, are

politically messy. It draws on a range of ideologies from you know, like pretty right wing nationalists, some very very very scary people technically developmentalists, to liberal and also centrisfactions whose sort of productive and social base is in a specific kind of sort of domestic capitalists who's interested in sort of producing stuff locally, and also to people like Bolivia's Evo Morales, who is you know, broadly considered a socialist,

although I think his commitment to anything like socialist politics is tenuous at best. But all of these sort of political groups can and do, and have various times work together. So this is actually one of the bases of Morales as well. I guess it's not really Moralysis Party anymore. But even Morales's MS, which was a very sort of explicit alliance between sort of left wing social movements and then more sort of moderate centrist factions who were effectively developmentalist.

This is a sort of a representation of a very common like kind of developmentalist politics, which is again this alliance between sort of left and capitalist factions who ally gets like large landowners on the basis that feudalism, which is which is usually the way that like the sort of the power of large landowners is conceived, is an enemy to both of them. Now, this isn't how sort

of develop like states that use developmentalist strategies have to work. Germany, for example, uses a lot of developmentalist techniques to industrialize in the late eighteen hundreds. But you know, the old landowning class, the old sort of like like German aristocracy, is allied with the capitalists in Germany and the to you know, the two classes, the sort of German aristocracy

and the capital's class effectively birge. On the other hand, landowning classes are often implacably hostile to industrialization, and countries that essentially annihilated the landowning classes by carrying out land reform tend to perform better economically than their counterparts who left a landowning class intact, which contributed to the enormous success of the economies of countries like China and Japan, Taiwan and Vietnam, who, despite their enormous sort of ideological

and political differences, all carried out land reform in the twentieth century were rewarded with eventually by very very powerful and large scale industrial economies. But you know, you might be saying, ya, you've kind of put the cart in front of the horse here. You've talked about, you know, you've gone into some of the sort of political effects of rent first, but you haven't actually, you know, explained how rent actually works. And so that is what I'm

going to do next. And to explain how rent works, I'm going to turn to an unusual source, the work of the Great Venezuela and anthropologist Fernando Corneal. Corneal' is a fascinating character. He studied anthropology at my alma mater, the University of Chicago under Terrence Turner, a guy who I think ninety nine percent people have never heard of before, but is probably most famous now for being also you know, also teaching David Graeber and being a sort of major

influence on his work now. Unlike David Graber. While Corneal was at the University of Chicago, he tried to get permission from the Cuban government to go do field work in Cuba, and you know, so he gets to Cuba and he's like negotiating with the government and the government tells him to fuck off. So okay, he tries to

go back to the US. But Immigration and Nationalization Services, the i INS, which is basically the predecessor of like Immigration Services ICE in the Border Patrol i INS was sort of dissolved in two thousand and three when the sort of like I don't know exactly what the technical term for it is, but with the consolidation of of the Department of Homeland Security, which is really truly a thing that I think we tend to think it was only present, but is actually about twenty years old, and

I am older than it was. Also, you know, this sort of outside the episode is like an enormously fascist institution that centralized an enormous amount of sort of political power in these like terrifying surveillance and police bureaucracies. But you know, okay, so they're back back back back to

the Fernandic coordineal story. So he guys to go back to the US, but Ans, which is the predecessory for all this stuff, like arrest him immediately and they deport him and ban him from the US on the grounds that he was that they suspected him of being a quote subversive agent. Now, and again I cannot emphasize this enough.

The sequence of events here is that he tries to go to Cuba and the Cuban government tells him to fuck off, and so he goes back to the US and the US government is like, oh, yeah, no, this guy through the Cuban government just refused to let to do field work. This this this guy is definitely a Cuban agent. So his entire sort of like life gets derailed by this. He wants up I think back in

Venezuela for a while. I think it takes like twenty almost like twenty years for him to be able to get back to the US and finish his PhD. But you know, when he does and sort of be in the process of this, he becomes a very very famous,

as well respected anthropologist. Now when now was it you Chicago, like all of the people who sort of trained Corneal that that whole generation and really like the whole sort of school of anthropology that he came from, which is a very very interesting school that if if you want to like read about this kind of stuff, I read David Graeber's Towards an Anthopological Theory of Value. I might do an episode on it at some point later, but

all of that stuff is gone. But but I ran into a professor who knew him back in the day, and he told us that Corneil was. You know, on the one hand, very is back to the academic like very sort of like upstanding, like member of the academic communitee also incredibly popular as like a partier who just get absolutely wasted and start dancing on tables. This guy absolutely rips, you know, and I think a very few

people outside of anthropology you've ever heard of him. But in anthropology, Corneil is important enough to like, if you're right about the state, you at least have to like mention him. And you know, that doesn't necessarily mean that, like most of the people who say the words that the Magical State, which is the name of his sort of famous book, actually have read it. But I did read this book. I've read this book multiple times and

it's really really interesting. Now. The Magical State, Nature, Money, and Majority in Venezuela is probably most famous as a history of the Venezuelan state, but that doesn't mean that it's sort of exclusively about that history, and in fact, you know it, it really can't be. In order to think about the Venezuelan state, you have to think about oil. But you also can't think about oil in the way that most histories of oil think about it, which is

a story about sort of like high geopolitics. Right. If you look at the history of oil, right, it's about like high geopolitics and like prospecting and like trekking oil prices over time, and you know, the sort of most famous book in this genre is Daniel Jurgen's The Prize, which is a fine book, but it shares in this sort of tendency to you know, kind of you know, unless they're writing about like a guy going prospecting, right, there's this tendency to sort of ignore the sort of

material characteristics of oil and the sort of political effects of the extraction process, and a lot of other aspects of oil that are very very important. And what Corineal realizes is that oil is intricately tied to sort of the political conception of nature, to systems of landownership, and also to Venezuelan state craft. Now this may seem a bit far afield, but in order to understand oil, you

have to think about rent and rent extraction. And that's what Corneal does in ways that are both sort of profoundly interesting and I think, in a lot of ways profoundly ahead of his time. So Corneal, like us, asked the question what actually is rent? Now? For you know, Corneal goes through rent and a lot you know, and it like goes through what you could, I guess called economic history of concessions of rent, right, starting with the

classical economists. Uh, we're not that interested in the classical economists because quite frankly, if you're if I don't know, if you're running into a neo Ricardian analysis of what rent is like I don't know, you're you're already a specialist, like stuff is stuff, stuff is happening for you, thus quite interesting, quite odd, but where we're mostly going to ignore them because the original classical economists' work has it's it's largely not the way people think about this now,

and to the extent that people sort of claim to be derivatives of like these people that people claiming the lineage of Adam Smith, like, eh, that's kind of sketchy. Is that we're going to turn to Corneal's analysis of

the way that neoclassical economics thinks about rent. Now. Corneal someone who has spent a lot of time in the sort of literature of like oil pricing and sort of theories the sort of price formation and the state of the market or the effect of political actors on it, et cetera, et cetera, et cetera, and he argues that there's basically two ways of thinking about rent. In terms of a commodity like oil. There is a macroeconomics view in which the rent someone who owns oil extracts when

people have to buy it from them, you know. Okay, so like like if if if you're a landowner, right, you get rent because you own the thing, and then people have to like take it like people need it.

You have it, so you get to extract rent from it just by virtue sort of having it in the in the microeconomics view, when someone like pays the rent, right, what that is is they're paying for what's called natural capital or capital that's you know, provided by nature that someone now owns through like the miracle of private property. And so for these people, rent isn't something that's extracted at all. Right, it's just someone getting paid for their capital.

Because the way that they think about, you know, about something like oil, is that they think oil is just sort of natural capital. Now, okay, it's like this is this is in some sense, you know, I was like, okay, who cares about this? This is kind of like this this seems very obvious. But there's also a macroeconomics perspective which is very different. And the macroeconomics perspective holds that you know,

rent isn't a payment for capital at all. It's something paid to landowners by capitalists, and the rent that these landowners get is basically the difference between you know, what it costs you to get the oil out of the you use sort of the landowner to get the oil out of the ground, and what it costs the person who has the highest price of production to get the

oil out of the ground. Now, okay, for reasons that are very complicated that I can't get into here, basically, the person who is like the worst at getting oil out of the ground is the person who sets what the price of oil is. So you know, the sort of like highest possible extraction price tends to be the price.

And then you know, the micro the sort of macroeconomic analysis of what rent is, right is that it's a thing that capitalists pay to landowners who own natural resources, and the amount of money they get is based on how much cheaper it is for like that you know, that landlord to get their oil out of the ground than it is for like the landlord who's like the worst at this. And this is a real question, right.

The question is is someone who's getting rent paid to them, is that rent payment for capital that they own, or is it money from capitalists that capitalists have to pay to a non capitalist class. And Corneal's answer is like, well, obviously rent is distracted from cirplus value because because landowners don't produce value. But there's two different sort of places that they can get this value from. And this is where we have to get into something that's kind of weird,

and that is the two different kinds of rents. But okay, before we get into the two kinds of different rents, do you know what else? There's two different kinds of Yeah, that's right. It is the products and services that support this show. And we're back. I hope you have enjoyed both of the different kinds of products and services that support the show. And okay, I promise you two kinds of rents, and I'm now going to give you two

kinds of rent. So the two kinds of rent, there is something called differential rent, and differential rent is kind of close to the sort of macrocive we talked about earlier. So differential rent is rent that's set by the price of production on the market right now, as we sort of mentioned, prices tend towards the highest price of production. It's set by the people who are worse of producing it.

And differential rent is the rent that the rest of the market gets by costing it by you know, by it costing less for them to extract oil than it does, you know for someone who's like the worst at extracting oil. Corneil explains this in terms of it. For a long time, the US was sort of the price leader of oil, and it was the price leader of oil because the American like property right system is so absolutely bonkers that

it makes it really really hard. You have to like you have to like individually negotiate with like every person who owns a cow pasture a Nebraska in order to sort of like extract oil from them. And this makes the production process like very expensive. And so everyone else in the world is getting this differential rent because they have like a less completely like just wild system of property.

So the product of this is that everyone else is getting differential rent because it's way cheaper for them to produce oil than it is for the US to produce oil. So differential rent is a product of your efficiency, right.

It's how it's an amount of money that's based on sort of the price of oil, and it's based on how much better, you know, because you're st selling the oil at like the same price, right, But the amount that you get, you know, the amount of rent that you get, is the difference between how much it costs you to get this oil out of the ground and how much it costs like some sort of American dip shit you as to spend all this time negotiating with

like thirty thousand individual landowners in the US to do it. So that that's differential rents. But there's also something called absolute rent. Now, absolute rent is very, very very different from from differential rent because absolute rent is not really determined by sort of production prices or like the market or supply and demand at all. Absolute rent is determined

by the social power of the landowner. And this has really interesting effects, right because again absolute rent isn't based on the production process and is instead based on you know, the social it's it's it's a social product of power and this, you know, this, this means that landlords and rent extractors can do something that capitalists aren't supposed to

be able to do. They can get profits that are larger than the general rate of profit, and they can do it just by virtue of being powerful and owning land. And this has a bunch of very very weird knock on effects. Right. If you've ever seen landlords talk about rent, right,

you've seen the consequences of this. These people genuinely believe that they have a sort of moral right to returns with no risk all of the time, and that all of society should be structured in such a way as to guarantee that they have this free income that they do fucking nothing to do other than own buildings, and it should be guaranteed, you know, it should be structured to guarantee this by forcing tenants to pay rent no literally,

no matter what is happening, you know, like regardless of shit, like I don't know, a pandemic. Now. The other sort of important difference is that is that absolute rent does not obey the laws of supply and demand. It is a product of social power, you know, it's the power of land ownership itself health, and it's also sort of the power you know that the social power is. It's

not just purely the product of light ownership. It's also a product of the organization of the land owning class and the extent to which they're backed by the state and you know, a sort of militaries as polices, and this causes economists who are attempting to use supply and demand to explain rent to get very very important events

very wrong. One of the things that Corneal points out is that Maurice Aidelman, who is a very very famous oil economist, predicts in nineteen seventy two that the price of oil is going to collapse based on oversupply and competition. Instead, the price of oil between nineteen seventy three and nineteen seventy four increases by four hundred percent because oil produces banned together to exercise their power, and this organization, known as OPEK becomes a genuine world power. Here's here's how

Corneil puts it. The sharp inc of nineteen seventy three and nineteen seventy four in oil prices did not result from a world shortage of oil. It was rather the outcome of a long historical process by which OPEC nations, acting as landowners, developed the means to extract a rent on the basis of their ownership of the oil fields, an absolute rent in addition to the differential rents they

had collected in the past. In nineteen seventy three, a seat of converging political and economic conditions helped establish their collective ability to restrict the world's supply of oil. With this power, Opek felt entitled to set my market prices of oil, thus freeing the level of rent from the previous constraint of the market price. Now, rent itself, absolute and differential would come to determine the market price of oil.

Now you may be asking yourself, VIIa, that this is all well and good for describing the price of how for describing how the price of oil changes? But what does this have to do with me? And the answer is that while Corneal is specifically focused on resource rents for obvious reasons, he is doing a study of the state of Venezuela, you can apply his analysis to the

kind of rent that we all pay. If you follow Corneal's conclusions about absolute rent through to the American rental market, it produces startlingly different conclusions about the source and sort of nature of the so called housing crisis that are

traditionally presented. If rent levels are a product of the social power of the landlord class, the behavior that's otherwise inexplicable like landlords sitting on empty properties instead of renting an amount at lower rates, suddenly become clear armed with the backing of the state's secure at social power by carrying out evictions, and with the state's implicit backing to carry out technically illegal evictions, landlords can extract both differential

and absolute rents, allowing them to tell the market to take a hike as setting ever increasing rents that renters have no choice but to pay or be swept decided in brutal anti homeless rays. This has massive consequences on any potential strategy to reduce rent. Opek, remember, was able to use its social power to increase the price of oil by four hundred percent, even in a period where the actual supply of oil was enormous, by pure virtue

of organization and the power of their landownership. While American landlords is certainly weaker and less organized than Opek, their social power is still such that increasing supply is not guaranteed to drive down prices, because in a situation governed by the extraction of absolute rent, rent is not determined by prices. Prices are determined by rent. On the other hand, this means that you can reduce rent by breaking the

social power of the landlord. And indeed, even in very hot housing markets like Toronto and Los Angeles, this strategy canon has worked. Tenets. Unions which deploy the power of collective bargaining and the social solidarity of renters to combat the power of landlords, have succeeded in reducing rents and can and will continue to do so. But these efforts are only the beginning of a process that finally answers

the question why are rents so high? If rents are high because of the social power of landlords, the way to bring rents down is to crush the batters completely and appropriate them, to seize every last building and plot of land from every landlord in the country and drive them as a class from the political mainstream into the

pages of history. And then, and this is crucial, not to replace them with another landowning class, or, as Leninist proposed that it actually did replace them with the state. Only by destroying the category of landlord, not by regulating it or nationalizing it, can we finally escape the long nightmare of rents and enter a world where people's ability to live is determined not by the sort of capricious and arbitrary will of a small class of landowners, but

on their human need for housing. This has been It could happen here. You can find us in the usual places, and yeah, go go into the worlds and make the world without rent to reality. It could happen here as a production of cool Zone Media. For more podcasts from cool Zone Media, visit our website coolzonemedia dot com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts. You can find sources for It could Happen Here, updated monthly at coolzonemedia dot com

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