In ordinary language rent refers to the periodic payment that we make for the use of material goods like a building, a machine, a car etc. to its owner. This is called contract rent. It consists of the total amount of payment that may actually be made to the landlord for the use of any natural agent.
Since this payment is the result of an agreement between landlords and tenant it is called as contract rent. It is also called as gross rent. It includes payment for all factors of production including land.
Economic rent is a part of contract rent. It is also called as pure rent. When we deduct the rewards of factors of production other than land from the contract rent, we can get ‘Economic’ or ‘Pure’ rent.
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So ‘Economic rent’ is the payment made exclusively for the use of land only. Thus contract rent is a broad concept which includes economic rent as well as some other elements such as wages, interest, profit and charges for other service rendered by the landlord. Again, economic rent is a surplus. It is not the result of any effort of landowner who gets rent simply because he is the owner of the land.
Classical economist David Ricardo gave a comprehensive definition of rent in his famous book “Principles of Political Economy and Taxation” published as early as 1817. According to Ricardo rent is paid to the landlord for the fertility of soil.
Rent only arises in case of land. More fertile a land more is its rent. He writes “rent is that part of produce of earth which is paid to the landlord for the original and indestructible power of the soil.”
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According to Marshall, rent refers to “the income derived from the ownership of land and other free gifts of nature.” Thus, classical economists associated the term ‘rent’ with income from the free gifts of nature such as land.
Modern economists have generalised the concept of rent. According to them rent is payment made to any factor of production whose supply is fixed in the short-run. Prof. Stonier and Hauge say that rent is a “Payment made for factors of production which are imperfectly elastic in supply with land as the main example.”
Rent is paid to landlord because its supply is less elastic. From the above definitions we come to the conclusion that Rent is paid for the use of any factor of production whose supply is less elastic or fixed. Secondly, rent is essentially a surplus income. Land owner gets it because of his ownership not because of his activity.