Growth and Rents in the Real Economy
Settlement and growth are explored in more detail and the processes driving up rents are modeled mathematically. Net aggregate product is increased each period by growth, and at the same time rents are driven up each period. Total land value is the capitalized value of rents capitalized at the long-term rate of interest, usually very close to the rate of growth. The formula derived here allows for growth to drive rents strongly or weakly, and for the growth rate to differ from the interest rate; but it nevertheless shows that George’s insight was well founded.