Every plate so far has treated rent as something that simply exists: a surplus thrown off by a scarcity already in the world — the difference between good land and bad, the rareness of a gift, the fixity of a location. The most important idea in the modern economics of rent is that this often reverses the true order of things. Scarcity is frequently not a fact to be discovered but a prize to be manufactured; and the manufacturing of it, together with the scramble to capture what it yields, can consume the entire value of the rent — and sometimes more.
The idea was set out by Gordon Tullock in 1967 and given its enduring name by Anne Krueger in 1974: rent-seeking. To seek a rent is to expend resources in order to capture, or to create, an economic rent through the political and legal process rather than through production — to lobby for a protective tariff, to petition for an exclusive license, to secure a monopoly franchise or a subsidy or a zoning restriction that fences out competitors. The seeker who succeeds gains the rent. But the resources poured into the seeking — the lobbyists and lawyers, the campaign contributions, the executives' time, the answering effort of those who resist — produce nothing. They do not bake a larger pie; they only decide who takes a slice already cut.1
The theory's sharpest result concerns the cost of all this. Suppose a monopoly, or a license, worth a million is available to whoever can win it, and many parties compete. Each rational seeker will spend, in pursuit of the prize, up to what the prize is worth to him; and as competition for the rent intensifies, the total spent by all seekers together rises toward the whole value of the rent itself. The rent is, in the limit, entirely dissipated — burned up in the contest to win it. This was a startling correction to the older accounting. Economists had long measured the cost of monopoly by a small welfare triangle, the trades lost because the monopolist holds output back. But that triangle, it turned out, was the lesser harm. The greater one is the rectangle of the monopoly rent itself — which, far from being a mere transfer from consumers to the monopolist, is fought over and consumed in the seeking, and so represents real resources destroyed.2
This is one of the most disquieting results in all of economics, because it inverts the moral of competition itself. Competition to produce — to make a better good more cheaply — drives prices down and enriches everyone; it is the glory of markets. But competition to capture a rent points the very same energy at a target that creates nothing, and the result is pure social loss: resources, effort, and talent devoted to a contest whose only outcome is to decide who collects a surplus that was never a reward for production in the first place. Where rents are available to be seized, the rational and the able may quite reasonably devote themselves to seizing them; and a society can come to organize a great share of its ablest effort around the division of wealth rather than its creation — lawyers and lobbyists where there might have been engineers, one kind of financial engineering where there might have been the other.3
The catalogue of manufactured rents is long, and familiar once the eye is trained to it. Tariffs and import quotas, the context of Krueger's original study, fence out foreign competitors and hand the protected domestic producer a rent. Occupational licenses, taxi medallions, and broadcast permits limit the number who may practice or operate, and the lucky holders collect the surplus of the restriction. Patents and copyrights, necessary in some measure to reward creation, are lobbied longer and broader than any creation requires, and the excess is rent. Zoning and land-use rules restrict what may be built, enriching those who already hold the scarce permission. And behind many of these stands the phenomenon of regulatory capture, in which the industry a regulator was meant to discipline instead takes hold of the regulator and turns the rules to its own protection. In every case an artificial scarcity is conjured by rule, and a rent flows to whoever sits behind the barrier.4
It should be said that the full dissipation of a rent is a limiting result, not an iron law, and honesty notes its conditions. If only a few can compete for a rent, or if they are cautious of risk, or if one contestant holds a decisive advantage and the others know it and stay away, the spending on seeking falls short of the rent's whole value, and part of the rent survives as a transfer rather than a loss. The waste is real, but its size is an empirical matter, ranging from a fraction of the rent to, in the bitterest contests, the whole of it. What is not in doubt is the direction: resources spent capturing a rent are resources not spent making anything, and the more a society offers rents to be captured, the more of its effort it diverts from creation to seizure.5
Rent-seeking completes a darkening of the concept that has run through the whole volume. Ricardo's rent was natural and morally neutral — the gift of the soil, captured by whoever owned the soil. George's rent was unearned, but at least real: value the community genuinely created, captured by an idle owner. The rent of rent-seeking is something worse: a scarcity manufactured by those who will profit from it, imposed on everyone else, at a social cost that can equal or exceed the rent itself. The question the volume was set to pursue — whether the return to position is earned or merely extracted — finds here its sharpest answer. Not only is much rent extracted rather than earned; a great deal of it is engineered, deliberately, by the extraction's beneficiaries, and the engineering is a dead weight on everyone outside the barrier. If rents can be made, and made at a profit, then a modern economy should be expected to grow them wherever someone can fence off a scarce position and charge for passage. The flagship plate asks how dense the economy has in fact become with such tolls, and finds the collecting of them to have moved from the margins of economic life toward its center.